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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-2516
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MONSANTO COMPANY
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-0420020
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
800 NORTH LINDBERGH BLVD., ST. LOUIS, MO. 63167
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (314) 694-1000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK $2 PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES
OF THE REGISTRANT: APPROXIMATELY $29.9 BILLION AS OF THE CLOSE OF BUSINESS ON
FEBRUARY 27, 1998.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 595,560,990 SHARES
OF COMMON STOCK, $2 PAR VALUE, OUTSTANDING AT FEBRUARY 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
1. PORTIONS OF MONSANTO COMPANY ANNUAL REPORT TO SECURITY HOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1997. (PARTS I AND II OF FORM 10-K.)
2. PORTIONS OF MONSANTO COMPANY NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
DATED MARCH 13, 1998. (PART III OF FORM 10-K.)
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PART I
ITEM 1. BUSINESS.
Monsanto Company and its subsidiaries are engaged in the worldwide
manufacture and sale of a diversified line of agricultural products, nutrition
and consumer products, pharmaceuticals, and other products. Monsanto Company was
incorporated in 1933 under Delaware law and is the successor to a Missouri
corporation, Monsanto Chemical Works, organized in 1901. Unless otherwise
indicated by the context, "Monsanto" means Monsanto Company and consolidated
subsidiaries, and the "Company" means Monsanto Company only.
RECENT DEVELOPMENTS
On February 18, 1998, the Company and G.D. Searle & Co. ("Searle"), a
wholly-owned subsidiary of the Company, entered into agreements with Pfizer Inc.
("Pfizer") covering the promotion of Searle's celecoxib and its second
generation compound in the United States. Both agents are novel Cox-2
(cyclooxygenase-2) inhibitors under development for the treatment of arthritis
and pain. Pursuant to the agreements, Searle will receive $85 million as an
upfront payment. In addition, the agreements provide for milestone payments upon
the achievement of specified objectives, and for sharing of certain expenses and
revenues. Additionally, Monsanto, Searle and Pfizer are negotiating an agreement
to expand the collaboration to certain other world areas.
INDUSTRY SEGMENTS; PRINCIPAL PRODUCTS
For 1997, Monsanto reported its business under four industry segments:
Agricultural Products, Nutrition and Consumer Products, Pharmaceuticals, and
Corporate and Other. The tabular and narrative information appearing under
"Segment Data" and "Geographic Data" on pages 35 and 42 of the Company's
Annual Report to shareowners for the year ended December 31, 1997 (the "1997
Annual Report") is incorporated herein by reference.
The following is a list of principal products categorized by major end-use
markets, within the industry segments in which they were reported for 1997.
<TABLE>
AGRICULTURAL PRODUCTS
<CAPTION>
Major End-Use Manufacturing Major Raw Materials
Major End-Use Markets Major Products Products & Applications Locations & Components
--------------------- -------------- ----------------------- ------------- -------------------
<S> <C> <C> <C> <C>
Agricultural, industrial, Roundup herbicide and Nonselective agricultural Alvin, Texas; Antwerp, Chlorine; Diethanolamine;
turf and ornamental other glyphosate-based and industrial Belgium; Fayetteville, Disodiumiminodiacetic acid;
herbicides herbicides applications N.C.; Luling, La.; Hydrogen cyanide;
Muscatine, Iowa; Sao Jose Phosphorus; Sodium
dos Campos, Brazil; West hydroxide
Footscray, Australia;
Zarate, Argentina
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Lasso and Harness<F*> Corn, soybean, peanut and Antwerp, Belgium; Chloroacetyl chloride;
herbicides and other milo (sorghum) crops Muscatine, Iowa; Sao Jose Diethylaniline;
acetanilide-based dos Campos, Brazil Methylethylaniline
herbicides
<F*>Corn only
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Avadex BW herbicide, Wheat crops Antwerp, Belgium; Ammonium thiocyanate;
Far-Go herbicide Melbourne, Australia; Diisopropylamine;
Muscatine, Iowa Methylethylaniline;
Trichloropropane
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Machete herbicide Rice crops Antwerp, Belgium; Butanol; Chloroacetyl
Canlubang, Philippines; chloride; Diethylaniline;
Muscatine, Iowa; Sao Jose Formalin
dos Campos, Brazil;
Silvassa, India;
Tangerang, Indonesia
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<CAPTION>
AGRICULTURAL PRODUCTS (CONT'D)
Major End-Use Manufacturing Major Raw Materials
Major End-Use Markets Major Products Products & Applications Locations & Components
--------------------- -------------- ----------------------- ------------- -------------------
<S> <C> <C> <C> <C>
Permit, Manage and Postemergence control of Manufactured by third party Halosulfuron
Sempra herbicides sedges and broadleaf weeds
in corn and grain sorghum,
turf and sugarcane crops
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Agricultural seeds Roundup Ready canola, Crops tolerant of Roundup Seeds propagated by No major raw materials
Roundup Ready cotton, herbicide contract farmers
Roundup Ready soybeans
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Bollgard Crops protected against Seeds propagated by No major raw materials
insect-protected certain insect pests contract farmers
cotton, NewLeaf
insect-protected
potatoes, YieldGard
insect-protected corn
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AgriPro, Agroceres, Corn hybrids, soybean Seeds propagated by No major raw materials
Asgrow, Hartz, varieties, alfalfa, grain contract farmers
Holden's, Hybritech, sorghum and forage
Monsoy and Stoneville varieties, sunflowers,
branded seeds cotton varieties and wheat
hybrids
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Animal agricultural Posilac bovine Increase efficiency of Manufactured by third party Glucose; Idoleacrylic
applications somatotropin milk production in dairy acid; Methonine
cows
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PHARMACEUTICALS
Pharmaceuticals Daypro (oxaprozin), Anti-inflammatory Augusta, Ga.; Caguas, Benzoin; Diclofenac;
Arthrotec Puerto Rico; Morpeth, Misoprostol; Tramadol
(misoprostol/ United Kingdom; Stolberg, hydrochloride
diclofenac), Tramadol Germany; Sao Paolo, Brazil
(tramadol
hydrochloride)
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Aldactone Cardiovascular Augusta, Ga.; Caguas, Androstenedione;
(spironolactone), Puerto Rico; Evreux, Betazolol; Disopyramide
Aldactazide France; Morpeth, United phosphate;
(spironolactone/ Kingdom Hydrochlorothiazide;
hydrochlorothiazide), Verapamil HCI
Calan formulations and
Covera-HS (verapamil
hydrochloride),
Norpace formulations
(disopyramide
phosphate)
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Ambien (zolpidem Central nervous system Caguas, Puerto Rico Zolpidem
tartrate) (sleep)
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Cytotec (misoprostol), Gastrointestinal Caguas, Puerto Rico; Coapa, Norprostol; Diphenoxylate
Lomotil (diphenoxylate Mexico; Fairfield, hydrochloride
hydrochloride) Australia; Guarenas,
Venezuela; Morpeth, United
Kingdom; Oakville, Canada;
Sao Paolo, Brazil
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<CAPTION>
PHARMACEUTICALS (CONT'D)
Major End-Use Manufacturing Major Raw Materials
Major End-Use Markets Major Products Products & Applications Locations & Components
--------------------- -------------- ----------------------- ------------- -------------------
<S> <C> <C> <C> <C>
Demulen (ethynodiol Women's health Caguas, Puerto Rico; Ethinyl estradiol;
diacetate), Flagyl Morpeth, United Kingdom Ethynodiol diacetate;
formulations Metronidazole; Nafarelin
(metronidazole), acetate; Norethindrone
Synarel (nafarelin
acetate), Tri-Norinyl
(norethindrone and
ethinyl estradiol)
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<CAPTION>
NUTRITION AND CONSUMER PRODUCTS
<S> <C> <C> <C> <C>
Food/Beverage ingredients NutraSweet brand High-intensity sweetener Augusta, Ga. Aspartic acid;
sweetener used primarily in Phenylalanine
beverages and food
products
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Keltone and Manugel Soups, sauces, gravies, Girvan, United Kingdom; Corn syrup; Seaweed
sodium alginates, dressings, beverages, Knowsley, United Kingdom;
Kelcoloid propylene snack foods, breadings, Okmulgee, Okla.; San Diego,
glycol alginate, batters, bakery products, Calif.
Keltrol xanthan gum, dairy products, pet foods
Kelcogel gellan gum
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Consumer foods Equal, Canderel, Tabletop sweeteners Coapa, Mexico; Evreux, Aspartame; Cyclamate;
NutraSweet, SweetMate, France; Fairfield, Saccharin; Sugar
Chuker, Misura and Australia; Manteno, Ill.;
other tabletop Morpeth, United Kingdom;
sweeteners Zarate, Argentina
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Residential lawn and Roundup herbicide, and Herbicides, insecticides, Antwerp, Belgium; Fort Acephate; Chlorpyrifos;
garden applications<F*> Ortho, Green Cross, fungicides, fertilizers, Madison, Iowa; Corwen, Diazinon; Glyphosate;
Phostrogen, Defender, applicators, flower seeds, United Kingdom; Melbourne, Malathion
<F*>Alternatives for this and White Swan brand garden decorative items Australia
business are currently lawn-and-garden
being considered. products; Ortho books
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Industrial Manutex and Kelgin Cleaners, textile Girvan, United Kingdom; Corn syrup; Seaweed
sodium alginates, printing, paper sizings Knowsley, United Kingdom;
Kelzan AR xanthan gum and coatings, firefighting Okmulgee, Okla.; San Diego,
foams Calif.
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Kelzan XC, Kelzan XCD Oil and gas well drilling Knowsley, United Kingdom; Corn syrup
and Xanvis xanthan applications Okmulgee, Okla.; San Diego,
gums, Biozan welan gum Calif.
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CORPORATE AND OTHER
Capital equipment EnviroChem engineering Processing plants for Martinez, Calif.; On-site Various construction
and construction fertilizer producers, construction components
management services basic metals production,
for processing plants oil refining
using sulfuric acid;
proprietary equipment
and air pollution
control systems
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</TABLE>
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PRINCIPAL EQUITY AFFILIATES
Monsanto participates in a number of joint ventures in which it shares
management control with other companies. For example, aspartame is manufactured
and sold in Europe by fifty percent-owned joint ventures; and Monsanto has a 60%
ownership interest in a joint venture with Solutia Inc., from which it purchases
elemental phosphorus. In addition, the Company has a significant equity position
in DeKalb Genetics Corporation ("DeKalb").
SALE OF PRODUCTS
Monsanto's products are sold directly to customers in various industries, to
wholesalers and other distributors and jobbers, to retailers and to the ultimate
consumer, principally by its own sales force, or, in some cases, through third
parties. With respect to pharmaceuticals, such sales force concentrates on
detailing to physicians and managed health care providers. As indicated on page
43 of the 1997 Annual Report, Monsanto's net income is historically higher
during the first half of the year, primarily because of the concentration of
generally more profitable sales of the Agricultural Products segment during that
part of the year. Monsanto's marketing and distribution practices do not result
in unusual working capital requirements on a consolidated basis, although the
seasonality of sales of the Agricultural Products segment results in short-term
borrowings to finance customer accounts receivable and inventories. Inventories
of finished goods, goods in process and raw materials are maintained to meet
customer requirements and Monsanto's scheduled production. In general, Monsanto
does not manufacture its products against a backlog of firm orders; production
is geared primarily to the level of incoming orders and to projections of
future demand. Monsanto generally is not dependent upon one or a group of
customers. The Nutrition and Consumer Products segment, however, makes
significant sales to a few companies for use in carbonated soft drinks. Monsanto
has no material contracts with the government of the United States or any state,
local or foreign government. However, pursuant to contracts executed under U.S.
federal and state laws, the Pharmaceuticals segment pays rebates to state
governments for pharmaceuticals sold under state Medicaid programs and under
state-funded programs for the indigent. The Pharmaceuticals segment also grants
discounts to certain managed health care providers. Sales through managed health
care providers constitute an increasing percentage of that segment's sales.
Introduction of new products by the Agricultural Products and
Pharmaceuticals segments typically is, and introduction of new products by other
segments may be, subject to prior review and approval by the U.S. Food & Drug
Administration ("FDA"), the U.S. Environmental Protection Agency and/or the
U.S. Department of Agriculture (or comparable agencies of ex-U.S. governments)
before they can be sold. Such reviews are often time-consuming and costly. These
agencies also have continuing jurisdiction over many existing products of these
segments. Governmental actions may also affect the pricing of certain products,
particularly in the Pharmaceuticals segment.
RAW MATERIALS AND ENERGY RESOURCES
Monsanto is both a producer and significant purchaser of a wide spectrum of
its basic and intermediate raw material requirements. Major requirements for key
raw materials and fuels are typically purchased pursuant to long-term contracts.
Monsanto is not dependent on any one supplier for a material amount of its raw
materials or fuel requirements, but certain important raw materials are obtained
from a few major suppliers. Monsanto purchases its North American supply, and
has the option to purchase its ex-North American supplies, of elemental
phosphorus, a key raw material for the production of Roundup(R) brand
herbicides, from P4 Production, L.L.C., a joint venture between the Company and
Solutia Inc. In general, where Monsanto has limited sources of raw materials, it
has developed contingency plans to minimize the effect of any interruption or
reduction in supply. Information with respect to specific raw materials is set
forth in the table above under "Industry Segments; Principal Products."
While temporary shortages of raw materials and fuels may occasionally occur,
these items are generally sufficiently available to cover current and projected
requirements. However, their continuing availability and price are subject to
unscheduled plant interruptions occurring during periods of high demand, or due
to domestic and world market and political conditions, as well as to the direct
or indirect effect of U.S. and other countries' government regulations. The
impact of any future raw material and energy shortages on Monsanto's
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business as a whole or in specific world areas cannot be accurately predicted.
Operations and products may, at times, be adversely affected by legislation,
shortages or international or domestic events.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
Monsanto owns a large number of patents which relate to a wide variety of
products and processes and has pending a substantial number of patent
applications. In addition, Monsanto holds a number of licenses granted by other
parties, some of which may be significant particularly to the Agricultural
Products segment. Also, Monsanto owns a considerable number of established
trademarks in many countries under which it markets its products. Monsanto's
patents and trademarks in the aggregate are of material importance in the
operation of its business, particularly in the Agricultural Products and
Pharmaceuticals segments and with respect to NutraSweet(R) brand sweetener.
Certain proprietary products such as Roundup(R) herbicide are covered by
patents. Although patents protecting Roundup(R) herbicide have now expired in
most countries, compound per se patent protection for the active ingredient in
Roundup(R) herbicide continues in the United States into the year 2000. All
patents covering the use of aspartame as a sweetener have expired. NutraSweet(R)
brand sweetener is currently manufactured under several patents owned or
licensed by The NutraSweet Company, a subsidiary of the Company. Calan(R) SR, an
antihypertensive pharmaceutical, is licensed through the year 2004 to Searle by
a third party, which has retained co-marketing rights. The product no longer has
patent protection nor non-patent regulatory exclusivity conferred by the
Waxman-Hatch amendments to the U.S. Food, Drug and Cosmetics Act. Cytotec(R)
ulcer preventive drug is protected by a U.S. composition patent until July 29,
2000. Ambien(R) short-term treatment for insomnia is licensed to a joint
venture, of which Searle is a general partner and holds a controlling interest,
for the duration of the venture. Pursuant to the joint venture agreement, the
other partner has the right to purchase Searle's interest and thereby terminate
the venture beginning in December, 1999. Ambien(R) is protected by a U.S. patent
to October 21, 2006. Daypro(R) once-a-day arthritis treatment is licensed to
Searle until January 5, 2003 in the U.S. and varying dates in other countries.
This product is protected by a U.S. process patent that expires on February 26,
2002, and by non-patent regulatory exclusivity extending to October 29, 1999.
Monsanto's insect-resistant plant products (including NewLeaf(R) potato,
YieldGard(R) corn and Bollgard(R) cotton) are protected by patents which extend
until at least 2013. Monsanto's herbicide-resistant plant products, Roundup
Ready(R) cotton, corn, canola and soybeans, are protected by patents which
extend until at least 2014. (Certain of Monsanto's patents and licenses are
currently the subject of litigation. See "Legal Proceedings" below.)
Monsanto leases or subleases a number of kelp beds off the coast of
California from the State of California and several private parties. Monsanto
also has leases to harvest seaweed off the coasts of Scotland and (through a
joint venture) Ireland. None of these leases taken individually is deemed by
Monsanto to be material, although the leases to harvest seaweed in the aggregate
are significant to the Nutrition and Consumer Products segment. The leases have
varying terms.
COMPETITION
Monsanto encounters substantial competition in each of its industry
segments. This competition, from other manufacturers of the same products and
from manufacturers of different products designed for the same uses, is expected
to continue in both U.S. and ex-U.S. markets. Depending on the product involved,
various types of competition are encountered, including price, delivery,
service, performance, product innovation, product recognition and quality.
The number of Monsanto's principal competitors varies from product to
product. It is not practical to discuss Monsanto's numerous competitors because
of the large variety of Monsanto's products, the markets served and the
worldwide business interests of Monsanto. Overall, however, Monsanto regards its
principal product groups to be competitive with many other products of other
producers and believes that it is an important producer of many of such product
groups.
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RESEARCH AND DEVELOPMENT
Research and development constitute an important part of Monsanto's
activities. See "Review of Consolidated Results of Operations," "Nutrition
and Consumer Products," "Pharmaceuticals" and "Supplemental Data" on pages
33, 39, 40-41 and 61, respectively, of the 1997 Annual Report, incorporated
herein by reference.
ENVIRONMENTAL MATTERS
Monsanto remains strongly committed to complying with various laws and
government regulations concerning environmental matters and employee safety and
health in the United States and other countries. Monsanto is dedicated to
long-term environmental protection and compliance programs that reduce and
monitor emissions of hazardous materials into the environment, as well as to the
remediation of identified existing environmental concerns. While the costs of
compliance with environmental laws and regulations cannot be predicted with
certainty, Monsanto does not expect such costs to have a material adverse effect
upon its capital expenditures, earnings, or competitive position. See
information regarding remediation of waste disposal sites appearing under
"Commitments and Contingencies" on page 61 of the 1997 Annual Report,
incorporated herein by reference.
EMPLOYEE RELATIONS
As of December 31, 1997, Monsanto had approximately 21,900 employees
worldwide. Satisfactory relations have prevailed between Monsanto and its
employees.
INTERNATIONAL OPERATIONS
Monsanto and affiliated companies are engaged in manufacturing, sales and/or
research and development in the United States, Europe, Canada, Latin America,
Australia, Asia and Africa. A number of products are manufactured abroad.
Ex-U.S. operations are potentially subject to a number of unique risks and
limitations, including: fluctuations in currency values; exchange control
regulations; import and trade restrictions, including embargoes; governmental
instability; economic conditions in other countries; and other potentially
detrimental domestic and foreign governmental practices or policies affecting
U.S. companies doing business abroad. See "Geographic Data" on page 42 of the
1997 Annual Report, incorporated herein by reference.
LEGAL PROCEEDINGS
Because of the size and nature of its business, Monsanto is a party to
numerous legal proceedings. Most of these proceedings have arisen in the
ordinary course of business and involve claims for money damages, or seek
to restrict the Company's business activities. While the results of litigation
cannot be predicted with certainty, Monsanto does not believe these matters or
their ultimate disposition will have a material adverse effect on Monsanto's
financial position, profitability or liquidity in any one year, as applicable.
In 1974, G. D. Searle & Co., a subsidiary of the Company ("Searle"),
introduced in the United States an intrauterine contraceptive product, commonly
referred to as an intrauterine device ("IUD"), under the name Cu-7(R).
Following extensive testing by Searle and review by the FDA, the Cu-7(R) was
approved for sale as a prescription drug. Searle has been named a defendant in a
number of product liability lawsuits alleging that the Cu-7(R) caused personal
injury resulting from pelvic inflammatory disease, perforation, pregnancy or
ectopic pregnancy. As of March 9, 1998, there were approximately 5 cases pending
in various U.S. state and federal courts and approximately 270 cases filed
outside the United States (the vast majority in Australia). The lawsuits seek
damages in varying amounts, including compensatory and punitive damages, with
most suits seeking at least $50,000 in damages. Searle believes it has
meritorious defenses and is vigorously defending each of these lawsuits. On
January 31, 1986, Searle voluntarily discontinued the sale of the Cu-7(R) in the
United States, citing the cost of defending such litigation.
Searle has been named, together with numerous other prescription
pharmaceutical manufacturers and in some cases wholesalers or distributors, as a
defendant in a large number of related actions brought in federal and/or state
court, based on the practice of providing discounts or rebates to managed care
organizations and certain other large purchasers. The federal cases have been
consolidated for pre-trial proceedings in the
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Northern District of Illinois. The federal suits include a certified class
action on behalf of retail pharmacies representing the majority of retail
pharmacy sales in the United States. The class plaintiffs allege an industry-
wide agreement in violation of the Sherman Act to deny favorable pricing on
sales of brand-name prescription pharmaceuticals to certain retail pharmacies in
the United States. The other federal suits, brought as individual claims by
several thousand pharmacies, allege price discrimination in violation of the
Robinson-Patman Act as well as Sherman Act claims. Several defendants, not
including Searle, have settled the federal class action case. Searle has entered
into an agreement that would significantly limit its liability (based generally
on its share of the relevant market) should the federal class action result in
an adverse judgment. Trial of the federal class action case is set for September
14, 1998. In addition, consumers and a number of retail pharmacies have filed
suit in various state courts throughout the country alleging violations of state
antitrust and pricing laws. Searle believes it has meritorious defenses and is
vigorously defending each of these lawsuits.
In 1996 the Company was the first to commercially introduce cotton
containing a gene encoding for Bacillus thuringiensis ("Bt") endotoxin.
Monsanto is a leader in this scientific field and has engaged in Bt research and
biotechnology development over many years and owns a number of present and
pending patents which relate to this technology. On October 22, 1996, Mycogen
Corporation filed suit in U.S. District Court in Delaware seeking damages and
injunctive relief against the Company, DeKalb and Delta & Pine Land alleging
infringement of Bt related U.S. Patent Nos. 5,567,600 and 5,567,862 issued to
Mycogen on that date. The Company has several meritorious defenses including
non-infringement, lack of validity of Mycogen's patent and prior invention by
the Company. Jury trial in this matter concluded on February 3, 1998 with a
verdict in favor of all defendants. The patents of Mycogen were found invalid on
the basis that Monsanto was a prior inventor. On February 20, 1998 Mycogen filed
motions requesting that the Court set aside the jury's verdict. The Company will
continue to vigorously defend against Mycogen's lawsuit.
Several other lawsuits are pending between the Company and other parties
involving Bt. On March 19, 1996, the Company was issued U.S. Patent No.
5,500,365 and filed suit in U.S. District Court in Delaware seeking damages and
injunctive relief against Mycogen Plant Science, Inc., Agrigenetics, Inc. and
Ciba-Geigy Corporation (Seed Division) (now Novartis Seeds, Inc.) for
infringement of that patent. Trial of this matter is currently scheduled for
June 15, 1998. On May 19, 1995, Mycogen initiated suit in U.S. District Court
in California against the Company alleging infringement of U.S. Patent No.
5,380,831 involving synthetic Bt genes and seeking damages and injunctive
relief. The District Court has granted motions dismissing virtually all of
Mycogen's patent claims on the basis that products containing Bt genes made
prior to January 1995 do not infringe the patent. The Company has various
meritorious defenses to the claims of Mycogen including non-infringement, lack
of validity, prior invention and collateral estoppel as a result of the outcome
in the jury trial in which Mycogen's related patents were found invalid. The
Company is also a party in interference proceedings against Mycogen in the U.S.
Patent and Trademark Office to determine the first party to invent certain
inventions related to Bt technology. In all of the foregoing actions the Company
is vigorously litigating its position.
In 1997 the Company commercially introduced corn containing a gene providing
glyphosate resistance. Monsanto is a leader in this scientific field and has
engaged in such research and biotechnology development over many years and owns
a number of present and pending patents which relate to this technology. On
November 20, 1997, Rhone Poulenc Agrochimie S. A. ("Rhone Poulenc") filed suit
in U. S. District Court in North Carolina (Charlotte) against the Company and
DeKalb contending they did not have a right to license, make or sell products
using Rhone Poulenc technology for glyphosate resistance. DeKalb has sublicensed
to Monsanto certain technology previously licensed from Rhone Poulenc. The terms
of Rhone Poulenc's license to DeKalb are now in dispute and have resulted in
Rhone Poulenc's claim that the Company's sale of Roundup Ready(R) corn infringes
on the Rhone Poulenc patent. Rhone Poulenc also contends that Monsanto is in
violation of certain antitrust laws. The Company has meritorious defenses to the
allegations and is vigorously defending the litigation.
In 1997 the Company commercially introduced corn containing a gene encoding
for Bt endotoxin. Monsanto is a leader in this scientific field and has engaged
in Bt research and biotechnology development over many years and owns a number
of present and pending patents which relate to this technology. On January 21,
1997, Novartis Seeds, Inc. ("Novartis") filed suit in U.S. District Court in
Delaware seeking damages and injunctive relief against the Company, alleging
infringement of Bt related U.S. Patent No. 5,595,733 issued to
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Ciba-Geigy Corporation (Seed Division) and now held by Novartis. Trial in this
matter is currently scheduled for October 1998. The Company has several
meritorious defenses including non-infringement and lack of validity of
Novartis' patent. The Company is vigorously defending against Novartis' lawsuit.
On March 20, 1997, the Georgia Environmental Protection Division ("EPD")
issued a Notice of Violation alleging violations by the Company of certain
sections of the Resource Conservation and Recovery Act. The alleged violations
related to the waste heat recovery units at the Company's NutraSweet(R)
sweetener plant in Augusta, Georgia. On December 31, 1997, the Company and EPD
executed a Consent Order whereby the Company agreed to pay $99,000 to settle the
alleged violations, and agreed to complete a Supplemental Environmental Project
to secure environmental improvements at the facility estimated at $120,000.
RISK MANAGEMENT
Monsanto continually evaluates risk retention and insurance levels for
product liability, property damage and other potential areas of risk. Monsanto
devotes significant effort to maintaining and improving safety and internal
control programs, which reduce its exposure to certain risks. Management decides
the amount of insurance coverage to purchase from unaffiliated companies and the
appropriate amount of risk to retain, based on the cost and availability of
insurance and the likelihood of a loss. Since 1986, Monsanto's liability
insurance has been on the "claims made" policy form. Management believes that
the current levels of risk retention are consistent with those of other
companies in the various industries in which Monsanto operates. There can be no
assurance that Monsanto will not incur losses beyond the limits of, or outside
the coverage of, its insurance. Monsanto's liquidity, financial position and
profitability are not expected to be affected materially by the levels of risk
retention that the Company accepts.
DISCLOSURE OF FORWARD-LOOKING STATEMENTS
Under the Private Securities Litigation Reform Act of 1995, companies are
provided a "safe harbor" for making forward-looking statements about the
potential risks and rewards of their strategies. Monsanto believes it's in the
best interests of our shareowners to use these provisions in discussing future
events, as we do in this Form 10-K (including portions incorporated by reference
from the 1997 Annual Report) and other communications. These forward-looking
statements include our plans for growth; the potential for the development,
regulatory approval and public acceptance of new products from our pipeline; and
other factors that could affect Monsanto's future operations or financial
position.
Monsanto's ability to achieve its goals depends on many, known and unknown
risks and uncertainties, as well as on changes in general economic and business
conditions. These factors could cause the anticipated performance and results of
the company to differ materially from those described or implied in
forward-looking statements.
Factors that could cause or contribute to such differences include, but
aren't limited to Monsanto's ability to: generate cash flows or obtain financing
to fund its growth, including research and development; identify new
technologies and commercialize from that research innovative and competitive new
products worldwide; obtain regulatory approvals and gain consumer acceptance of
new products worldwide; secure and defend its intellectual property rights and,
when appropriate, license required technology; manufacture its products
competitively and cost effectively; manage its businesses in the face of adverse
weather or other environmental conditions; respond to challenges in
international markets, including changes in currency exchange rates, political
or economic conditions, and trade and regulatory matters; complete and integrate
appropriate acquisitions, strategic alliances and joint ventures; and manage
other factors as may be discussed in Monsanto's reports filed with the U.S.
Securities and Exchange Commission.
ITEM 2. PROPERTIES.
The General Offices of the Company are located on a 285-acre tract of land
in St. Louis County, Missouri. The Company also owns a 210-acre tract in St.
Louis County on which additional research facilities are located. Monsanto also
has research laboratories and technical centers throughout the world.
Information with respect to Monsanto's manufacturing locations worldwide and the
industry segments which use such plants as of January 1, 1998, is set forth
under "Business--Industry Segments; Principal Products" in Item 1 of this
Report, which is incorporated herein by reference.
8
<PAGE> 10
Monsanto's principal plants are suitable and adequate for their use.
Utilization of these facilities may vary with seasonal, economic and other
business conditions, but none of the principal plants is substantially idle. The
facilities generally have sufficient capacity for existing needs and expected
near-term growth. Most of these plants are owned in fee. However, the land at
the Antwerp, Belgium plant, and major portions of the San Diego, California
plant, are leased. In addition, a portion of a plant at Augusta, Georgia is
currently leased with an option to purchase, pursuant to an industrial revenue
bond financing. The Company also leases the land underlying facilities that it
owns at Alvin, Texas. In certain instances, Monsanto has granted leases on
portions of other plant sites not required for current operations.
ITEM 3. LEGAL PROCEEDINGS.
For information concerning certain legal proceedings involving Monsanto, see
"Business--Environmental Matters," "Business--Legal Proceedings" and "Business--
Disclosure of Forward-Looking Statements" contained in Item 1 of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the security holders during the fourth quarter
of 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding executive officers is contained in Item 10 of Part III
of this Report (General Instruction G) and is incorporated herein by reference.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The narrative or tabular information regarding the market for the Company's
common equity and related stockholder matters appearing under "Review of Cash
Flow" on page 48 and "Quarterly Data" (for the years 1996 and 1997) on page
43 of the 1997 Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The tabular information under "Financial Summary--Operating Results,
Earnings per Share and Year-End Financial Position" and the amounts of
Dividends per Share, all for the years 1993 through 1997, appearing on page 62
of the 1997 Annual Report, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The tabular and narrative information appearing under "Review of
Consolidated Results of Operations" on pages 31 through 34, "Segment Data"
and information regarding segments on pages 35 through 41, "Review of Changes
in Financial Position" on page 45, and "Review of Cash Flow" on pages 47 and
48, and the narrative information appearing under "Geographic Data" on page 42
of the 1997 Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The tabular and narrative information appearing under "Financial
Instruments" on pages 48 and 49 of the 1997 Annual Report is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of Monsanto appearing on pages 30, 44,
46, 50 and 51 through 61; the Independent Auditors' Report appearing on page 29;
and the tabular and narrative information appearing under "Quarterly Data" on
page 43 of the 1997 Annual Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
9
<PAGE> 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors and executive officers appearing under
"Election of Directors" on pages 2 through 4 of the Monsanto Company Notice of
Annual Meeting and Proxy Statement (the "1998 Proxy Statement") dated March
13, 1998, is incorporated herein by reference. The following information with
respect to the Executive Officers of the Company on March 1, 1998, is included
pursuant to Instruction 3 of Item 401(b) of Regulation S-K:
<TABLE>
<CAPTION>
Year
First
Became an
Present Position with Executive
Name--Age Registrant Officer Other Business Experience since January 1, 1993
- -------------------------- ------------------------ --------- -------------------------------------------------------
<S> <C> <C> <C>
Richard U. De Schutter, 57 Vice Chairman--Monsanto 1995 President, G.D. Searle & Co., 1991; President and Chief
Company; Chairman, Chief Operating Officer, G.D. Searle & Co., 1993; Chairman,
Executive Officer and Chief Executive Officer and President, G.D. Searle &
President--G.D. Searle & Co.; Advisory Director--Monsanto Company, 1995; and
Co. present position, 1997.
Arnold W. Donald, 43 Senior Vice President-- 1998 Vice President and General Manager of the Crop
Monsanto Company Protection Products Division--Monsanto Company, 1992;
Group Vice President North America Division--Monsanto
Company, 1993; Group Vice President and General
Manager--Monsanto Company, 1994; President, Crop
Protection--Monsanto Company, 1995; Co-President,
Agricultural Sector--Monsanto Company, 1997; and
present position, 1998.
Steven L. Engelberg, 55 Senior Vice President-- 1995 Partner, Keck, Mahin & Cate, 1986; Partner-in-Charge,
Monsanto Company Keck, Mahin & Cate, Washington, D.C. office, 1986;
Chief of Staff of Office of the United States Trade
Representative (on leave from Keck, Mahin & Cate until
May 1993), 1993; Vice President, Worldwide Government
Affairs--Monsanto Company, 1994; and present position,
1996.
Patrick J. Fortune, 50 Vice President and Chief 1997 Corporate Vice President, Information Management--
Information Officer-- Bristol-Myers Squibb, 1991; President and Chief
Monsanto Company Operation Officer--Coram Healthcare Corporation,
1994; Vice President, Information Technology--Monsanto
Company, 1995; and present position, 1997.
Pierre Hochuli, 50 Executive Vice President-- 1995 Vice President and General Manager, New Products
Monsanto Company Division--The Agricultural Group, 1992; Group Vice
President and General Manager, New Products
Division--The Agricultural Group, 1993; Vice President,
Corporate Planning--Monsanto Company, 1993; Vice
President--Monsanto Company; President--Growth
Enterprises, 1995; Vice President--Monsanto Company;
President--Growth Enterprises Business Unit; Chairman,
Monsanto Europe-Africa, 1996; and present position,
1997.
Robert B. Hoffman, 61 Vice Chairman and Chief 1994 Vice President, FMC Corporation, 1990; Chief Financial
Financial Officer and Advisory Director--Monsanto Company, 1994;
Officer--Monsanto Company and present position, 1997.
10
<PAGE> 12
<CAPTION>
Year
First
Became an
Present Position with Executive
Name--Age Registrant Officer Other Business Experience since January 1, 1993
- -------------------------- ------------------------ --------- -------------------------------------------------------
<S> <C> <C> <C>
R. William Ide III, 57 Senior Vice President, 1996 Partner, Kutak Rock, 1989; President, American Bar
General Counsel and Association, 1993-1994; Partner, Long, Aldridge &
Secretary--Monsanto Norman, 1993; and present position, 1996.
Company
Donna A. Kindl, 40 Vice President, Human 1996 Director of Human Resources Planning and Development,
Resources--Monsanto Clorox Corporation, 1990; Director of Human Resources,
Company Staff of the Vice Chairman--Monsanto Company, 1993;
Director, Human Resources, Crop Protection Business
Unit--Monsanto Company, 1995; and present position,
1996.
David L. Morley, 41 Senior Vice President-- 1998 Vice President, Finance and Planning--The Agricultural
Monsanto Company Group, 1992; Group Vice President and General Manager,
Global Strategies and Operations--The Agricultural
Group, 1993; Group Vice President and General Manager,
Americas Division, Crop Protection Business
Unit--Monsanto Company, 1995; President, Nutrition and
Consumer Products--Monsanto Company, 1997; and present
position, 1998.
Philip Needleman, 59 Senior Vice President, 1991 Vice President, Research and Development; Advisory
Research and Development Director--Monsanto Company, 1991; Vice President,
and Chief Scientist; Research and Development; Advisory Director-- Monsanto
President, Research and Company; President, Research and Development, G.D.
Development, G.D. Searle & Searle & Co., 1992; and present position, 1993.
Co.
Nicholas L. Reding, 63 Director; Vice Chairman of 1976 Executive Vice President, Environment, Safety, Health
the Board--Monsanto and Manufacturing and Advisory Director--Monsanto
Company Company, 1990; and present position, 1993.
Robert W. Reynolds, 54 Vice Chairman--Monsanto 1994 Vice President and Managing Director, Latin America
Company World Area--Monsanto Company, 1992; Vice President,
International Operations and Development--Monsanto
Company, 1994; and present position, 1997.
Robert B. Shapiro, 59 Director; Chairman and 1987 Executive Vice President and Advisory Director--
Chief Executive Monsanto Company; President--The Agricultural Group,
Officer--Monsanto Company 1990; Director; President and Chief Operating
Officer--Monsanto Company, 1993; Director; Chairman,
Chief Executive Officer and President--Monsanto
Company, 1995; and present position, 1997.
Hendrik A. Verfaillie, 52 President--Monsanto 1993 Vice President and General Manager, Roundup
Company Division--The Agricultural Group, 1990; Vice President
and Advisory Director--Monsanto Company; President--The
Agricultural Group, 1993; Vice President and Advisory
Director--Monsanto Company, 1995; Executive Vice
President and Advisory Director--Monsanto Company,
1995; and present position, 1997.
</TABLE>
Mr. Reding will retire May 1, 1998. Otherwise, the above-listed individuals are
elected to the offices set opposite their names to hold office until their
successors are duly elected and have qualified, or until their earlier death,
resignation or removal.
11
<PAGE> 13
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under "Directors' Fees and Other Arrangements" on
pages 8 through 10 and under "Executive Compensation" on page 16 through
"Certain Agreements" on page 22 of the 1998 Proxy Statement is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information appearing under "Stock Ownership of Management and Certain
Beneficial Owners" on pages 5 and 6 of the 1998 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under "Other Information Regarding Management" on
page 22 of the 1998 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report:
1. The financial statements set forth at pages 30, 44, 46, 50 and 51
through 61 of the 1997 Annual Report (See Exhibit 13 under Paragraph
(a)3 of this Item 14)
2. Financial Statement Schedules
None required
3. Exhibits--See the Exhibit Index beginning at page 15 of this Report.
For a listing of all management contracts and compensatory plans or
arrangements required to be filed as exhibits to this Form 10-K, see
the Exhibits listed under Exhibit Nos. 10.4 through 10.32 on pages 15
through 17 of the Exhibit Index. The following Exhibits listed in the
Exhibit Index are filed with this Report:
13 The Company's 1997 Annual Report to shareowners
21 Subsidiaries of the registrant (See page 19)
23 1. Consent of Independent Auditors (See page 20)
2. Consent of Company Counsel (See page 20)
24 1. Powers of attorney submitted by Robert M. Heyssel,
Michael Kantor, Gwendolyn S. King, Philip Leder, Jacobus
F.M. Peters, Nicholas L. Reding, John S. Reed, John E.
Robson, William D. Ruckelshaus, Robert B. Shapiro,
Robert B. Hoffman, and Michael R. Hogan
2. Certified copy of Board resolution authorizing Form 10-K
filing utilizing powers of attorney
27 Financial Data Schedule (part of electronic submission only)
99 Computation of the Ratio of Earnings to Fixed Charges for
Monsanto Company and Subsidiaries (See page 21)
(b) Reports on Form 8-K during the quarter ended December 31, 1997:
A Form 8-K as of December 5, 1997, was filed by the Company, including
financial information restated to present the results of operations, cash
flows and financial position of Monsanto's former chemical businesses as
discontinued operations.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MONSANTO COMPANY
--------------------------------------
(Registrant)
By /s/ Michael R. Hogan
-----------------------------------
Michael R. Hogan
Vice President and Controller
(Principal Accounting Officer)
Date: March 17, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
<F*>
- --------------------------------------------- Chairman and Director (Principal March 17, 1998
(Robert B. Shapiro) Executive Officer)
<F*>
- --------------------------------------------- Vice Chairman of the Board March 17, 1998
(Nicholas L. Reding) and Director
<F*>
- --------------------------------------------- Vice Chairman (Principal March 17, 1998
(Robert B. Hoffman) Financial Officer)
/s/ Michael R. Hogan
- --------------------------------------------- Vice President and Controller March 17, 1998
(Michael R. Hogan) (Principal Accounting Officer)
<F*>
- --------------------------------------------- Director March 17, 1998
(Robert M. Heyssel)
<F*>
- --------------------------------------------- Director March 17, 1998
(Michael Kantor)
<F*>
- --------------------------------------------- Director March 17, 1998
(Gwendolyn S. King)
<F*>
- --------------------------------------------- Director March 17, 1998
(Philip Leder)
<F*>
- --------------------------------------------- Director March 17, 1998
(Jacobus F.M. Peters)
13
<PAGE> 15
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
<F*>
- --------------------------------------------- Director March 17, 1998
(John S. Reed)
<F*>
- --------------------------------------------- Director March 17, 1998
(John E. Robson)
<F*>
- --------------------------------------------- Director March 17, 1998
(William D. Ruckelshaus)
<FN>
<F*>R. William Ide III, by signing his name hereto, does sign this document on
behalf of the above noted individuals, pursuant to powers of attorney duly
executed by such individuals which have been filed as an Exhibit to this Report.
/s/ R. William Ide III
--------------------------------------
R. William Ide III
Attorney-in-Fact
</TABLE>
14
<PAGE> 16
EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2 Omitted--Inapplicable
3 1. Restated Certificate of Incorporation of the Company as of
October 28, 1997 (incorporated herein by reference to Exhibit
3(i) of the Company's Form 10-Q for the quarter ended
September 30, 1997)
2. By-Laws of the Company, as amended effective September 26,
1997 (incorporated herein by reference to Exhibit 3(ii) of the
Company's Form 10-Q for the quarter ended September 30, 1997)
4 1. Form of Rights Agreement, dated as of January 26, 1990
between the Company and First Chicago Trust Company as successor
to The First National Bank of Boston (incorporated herein by
reference to Form 8-A filed on January 31, 1990)
2. Registrant agrees to furnish to the Securities and Exchange
Commission upon request copies of instruments defining the
rights of holders of certain long-term debt not being
registered of the registrant and all subsidiaries for which
consolidated or unconsolidated financial statements are
required to be filed.
9 Omitted--Inapplicable
10 1. Distribution Agreement by and between Monsanto Company and
Solutia Inc., as of September 1, 1997, plus identification of
contents of omitted schedules and exhibits and agreement to
furnish supplementally a copy of any omitted schedule or
exhibit to the Securities and Exchange Commission upon
request (incorporated herein by reference to Exhibit 2.1 of
the Company's Form 8-K filed September 16, 1997)
2. Employee Benefits and Compensation Allocation Agreement
between Monsanto Company and Solutia Inc., dated as of September
1, 1997 (incorporated herein by reference to Exhibit 99.1 of
the Company's Form 8-K filed September 16, 1997)
3. Tax Sharing and Indemnification Agreement dated as of
September 1, 1997, by and between Monsanto Company and Solutia
Inc. (incorporated herein by reference to Exhibit 99.2 of the
Company's Form 8-K filed September 16, 1997)
4. Monsanto Company Non-Employee Director Deferred Compensation
Plan (incorporated herein by reference to Exhibit 10.3 of the
Company's Form 10-Q for the quarter ended September 30, 1997)
5. Monsanto Company Non-Employee Director Equity Incentive
Compensation Plan (incorporated herein by reference to
Exhibit 10.4 of the Company's Form 10-Q for the quarter ended
September 30, 1997)
6. Non-Employee Directors Stock Plan, as amended in 1991
(incorporated herein by reference to Exhibit 19(ii)1 of the
Company's Form 10-Q for the quarter ended June 30, 1991)
7. Amendment to Non-Employee Directors Stock Plan (incorporated
herein by reference to Exhibit 10.8 of the Company's Form
10-Q for the quarter ended June 30, 1997)
15
<PAGE> 17
<CAPTION>
EXHIBIT INDEX (CONT'D)
Exhibit No. Description
- ----------- -----------
<S> <C>
8. Charitable Contribution Program effective April 1, 1992
(incorporated herein by reference to Exhibit 19(i)1 of the
Company's Form 10-K for the year ended December 31, 1991)
9. Deferred Compensation Plan for Non-Employee Directors, as
amended in 1983 and 1991 (incorporated herein by reference to
Exhibit 19(ii)1 of the Company's Form 10-K for the year ended
December 31, 1991)
10. Excerpt of Resolutions of Monsanto Company Board of
Directors Regarding Directors' Compensation, adopted by
Unanimous Consent effective August 4, 1997 (incorporated
herein by reference to Exhibit 10.5 of the Company's Form
10-Q for the quarter ended September 30, 1997)
11. Consulting Agreement between the Company and Philip Leder
dated January 17, 1990 (incorporated herein by reference to
Exhibit 19(i)3 of the Company's Form 10-K for the year ended
December 31, 1989)
12. Monsanto Management Incentive Plan of 1984, as amended in
1987, 1988, 1989, April 1997 and July 1997 (incorporated herein
by reference to Exhibit 10.1 of the Company's Form 10-Q for
the quarter ended June 30, 1997)
13. Monsanto Management Incentive Plan of 1988/I, as amended in
1988, 1989, 1991, 1992, April 1997 and July 1997 (incorporated
herein by reference to Exhibit 10.3 of the Company's Form
10-Q for the quarter ended June 30, 1997)
14. Monsanto Management Incentive Plan of 1988/II, as amended in
1989, 1991, 1992, April 1997 and July 1997 (incorporated herein
by reference to Exhibit 10.4 of the Company's Form 10-Q for
the quarter ended June 30, 1997)
15. Monsanto Management Incentive Plan of 1994, as amended in
April 1997 and July 1997 (incorporated herein by reference to
Exhibit 10.5 of the Company's Form 10-Q for the quarter
ended June 30, 1997)
16. Monsanto Management Incentive Plan of 1996 as amended April
1997, July 1997 and August 1997 (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-Q for the
quarter ended September 30, 1997)
17. Monsanto Executive Stock Purchase Incentive Plan
(incorporated herein by reference to Appendix B of the Monsanto
Company Notice of Annual Meeting and Proxy Statement dated
March 14, 1996)
18. Annual Incentive Program for Executive Officers
(incorporated herein by reference to the description on pages
12-13 of the Monsanto Company Notice of Annual Meeting and
Proxy Statement dated March 13, 1998)
19. Long-Term Incentive Program and Premium Option Purchase
Program for Executive Officers (incorporated herein by reference
to the description on pages 13-15 of the Monsanto Company
Notice of Annual Meeting and Proxy Statement dated March 13,
1998)
20. Split-dollar Life Insurance Plan (incorporated herein by
reference to Exhibit 10(iii)19 of the Company's Form 10-K for
the year ended December 31, 1987)
16
<PAGE> 18
<CAPTION>
EXHIBIT INDEX (CONT'D)
Exhibit No. Description
- ----------- -----------
<S> <C>
21. Form of Employment Agreement for Executive Officers
(incorporated herein by reference to Exhibit 10.7 of the
Company's Form 10-Q for the quarter ended September 30, 1997)
22. Letter Agreement between the Company and Robert B. Shapiro
entered into as of July 23, 1990 (incorporated herein by
reference to Exhibit 19(i)3 of the Company's Form 10-Q for
the quarter ended September 30, 1990)
23. Amendment to Letter Agreement between the Company and Robert
B. Shapiro entered into as of July 23, 1990 (incorporated herein
by reference to Exhibit 10.23 of the Company's Form 10-K for
the year ended December 31, 1995)
24. Letter Agreement between the Company and Hendrik A.
Verfaillie entered into as of June 27, 1988 (incorporated herein
by reference to Exhibit 10.20 of the Company's Form 10-K for
the year ended December 31, 1995)
25. Supplemental Retirement Plan regarding Richard U. De
Schutter (incorporated herein by reference to Exhibit 10.26 of
the Company's Form 10-K for the year ended December 31,
1996)
26. Searle Phantom Stock Option Plan of 1986, as amended in
1990, 1991, 1992 and 1995 (incorporated herein by reference in
Exhibit 10.1 of the Company's Form 10-Q for the quarter
ended March 31, 1995)
27. Minutes of Meeting of Executive Compensation and Development
Committee regarding termination of Searle Phantom Stock
Option Plan of 1986 (incorporated herein by reference to
Exhibit 10.8 of the Company's Form 10-Q for the quarter
ended March 31, 1997)
28. Searle Monsanto Stock Option Plan of 1986, as amended in
1988, 1989, 1990, 1991, 1995, April 1997 and July 1997
(incorporated herein by reference to Exhibit 10.2 of the
Company's Form 10-Q for the quarter ended June 30, 1997)
29. Searle/Monsanto Stock Plan of 1994, as amended in 1995,
April 1997 and July 1997 (incorporated herein by reference to
Exhibit 10.6 of the Company's Form 10-Q for the quarter
ended June 30, 1997)
30. G. D. Searle & Co. Split Dollar Life Insurance Plan, as
amended in 1989 (incorporated herein by reference to Exhibit
19(ii)3 of the Company's Form 10-Q for the quarter ended
June 30, 1989)
31. G. D. Searle & Co. Legal/Tax/Financial Counseling Plan
(incorporated herein by reference to Exhibit 19(i)8 of the
Company's Form 10-Q for the quarter ended June 30, 1988)
32. G. D. Searle & Co. Deferred Compensation Plan, as amended in
1994 (incorporated herein by reference to Exhibit 10.6 of the
Company's Form 10-Q for the quarter ended June 30, 1994)
11 Omitted--Inapplicable; see "Earnings per Share" on page 60 of
the 1997 Annual Report
12 Statement re Computation of the Ratio of Earnings to Fixed
Charges--See Exhibit 99 below
17
<PAGE> 19
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
13 The Company's 1997 Annual Report to shareowners. (The electronic
submission includes only the financial report section of the
Annual Report, consisting of pages 28 through 62 of that
Report.) Only those portions expressly incorporated by reference
into this Form 10-K are deemed "filed"; other portions are
furnished only for the information of the Commission.
18 Omitted--Inapplicable
21 Subsidiaries of the registrant (See page 19)
22 Omitted--Inapplicable
23 1. Consent of Independent Auditors (See page 20)
2. Consent of Company Counsel (See page 20)
24 1. Powers of attorney submitted by Robert M. Heyssel, Michael
Kantor, Gwendolyn S. King, Philip Leder, Jacobus F.M. Peters,
Nicholas L. Reding, John S. Reed, John E. Robson, William D.
Ruckelshaus, Robert B. Shapiro, Robert B. Hoffman and Michael
R. Hogan
2. Certified copy of Board resolution authorizing Form 10-K
filing utilizing powers of attorney
27 Financial Data Schedule (part of electronic submission only)
99 Computation of the Ratio of Earnings to Fixed Charges for
Monsanto Company and Subsidiaries (See page 21)
<FN>
- -------
Only Exhibits Nos. 13, 21, 23.1, 23.2 and 99 have been included in the printed
copy of this Report.
</TABLE>
18
<PAGE> 1
Financial Section Contents
Management Report
Page 28
Finance Committee Report, Independent Auditors' Report
Page 29
Statement of Consolidated Income
Page 30
Statement of Consolidated Financial Position
Page 44
Statement of Consolidated Cash Flow
Page 46
Statement of Consolidated Shareowners' Equity
Page 50
Notes to Financial Statements
Page 51
Financial Summary
Page 62
Unless otherwise indicated by the context, "Monsanto" means Monsanto Company
and consolidated subsidiaries, and "the company" means Monsanto Company only.
Unless otherwise indicated, "earnings per share" means diluted earnings per
share. In tables, all dollars are in millions, except per share data.
===============================================================================
MANAGEMENT REPORT
===============================================================================
Monsanto Company's management is responsible for the fair presentation and
consistency, in accordance with generally accepted accounting principles, of
all the financial information included in this annual report. Where
necessary, the information reflects management's best estimates and
judgments.
Management is also responsible for maintaining a system of internal
accounting controls with the objectives of providing reasonable assurance
that Monsanto's assets are safeguarded against material loss from
unauthorized use or disposition and that authorized transactions are properly
recorded to permit the preparation of accurate financial information.
Cost/benefit judgments are an important consideration in this regard. The
effectiveness of internal controls is maintained by personnel selection and
training, division of responsibilities, establishment and communication of
policies, and ongoing internal review programs and audits.
Management believes that Monsanto's system of internal accounting
controls as of Dec. 31, 1997, was effective and adequate to accomplish the
objectives described above.
/s/ Robert B. Shapiro
Robert B. Shapiro
Chairman and
Chief Executive Officer
/s/ Robert B. Hoffman
Robert B. Hoffman
Vice Chairman and
Chief Financial Officer
Feb. 27, 1998
28 1997 Monsanto Annual Report
<PAGE> 2
===============================================================================
FINANCE COMMITTEE REPORT
===============================================================================
The finance committee assumed the responsibilities of the audit committee as
the board of directors was reorganized following the spinoff of the company's
chemical businesses in 1997. After its formation in September, the committee
met three times in 1997. The committee is composed of four nonemployee
members of the board. As part of its duties, the committee reviews and
monitors Monsanto's internal accounting controls, financial reports,
accounting practices, and the scope and effectiveness of the audits performed
by the independent auditors and internal auditors. The committee also
recommends to the full board of directors the appointment of Monsanto's
principal independent auditors, and it approves in advance all significant
audit and nonaudit services provided by such auditors. As ratified by
shareowner vote at the 1997 annual meeting, Deloitte & Touche LLP was
appointed independent auditor to examine, and to express an opinion as to the
fair presentation of, the consolidated financial statements. This report
follows.
The finance committee discusses audit and financial reporting matters
with representatives of the company's financial management, its internal
auditors, and Deloitte & Touche. The internal auditors and Deloitte & Touche
meet with the committee, with and without management representatives present,
to discuss the results of their examinations, the adequacy of Monsanto's
internal accounting controls, and the quality of its financial reporting. The
committee encourages the internal auditors and Deloitte & Touche to
communicate directly with the committee.
The finance committee has reviewed the financial section of this annual
report. Pursuant to the recommendation of the committee, the board of
directors has approved the financial section.
/s/ John S. Reed
John S. Reed
Chair, Finance Committee
Feb. 27, 1998
===============================================================================
INDEPENDENT AUDITORS' REPORT
===============================================================================
To the shareowners of Monsanto Company:
We have audited the accompanying statement of consolidated financial position
of Monsanto Company and subsidiaries as of Dec. 31, 1997 and 1996, and the
related statements of consolidated income, shareowners' equity and cash flow
for each of the three years in the period ended Dec. 31, 1997. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Monsanto Company and
subsidiaries as of Dec. 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended Dec. 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
St. Louis, Missouri
Feb. 27, 1998
29 1997 Monsanto Annual Report
<PAGE> 3
<TABLE>
=================================================================================================
STATEMENT OF CONSOLIDATED INCOME
=================================================================================================
<CAPTION>
(Dollars in millions, except per share) 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $7,514 $6,348 $5,410
Costs and expenses:
Cost of goods sold 3,091 2,684 2,357
Selling, general and administrative expenses 2,023 1,860 1,521
Technological expenses 1,044 702 601
Acquired in-process research and development 684
Amortization of intangible assets 173 151 119
Restructuring expenses 356 114
- -------------------------------------------------------------------------------------------------
OPERATING INCOME 499 595 698
Interest expense (170) (119) (132)
Interest income 45 51 57
Other income (expense) -- net (8) 26 22
- -------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 366 553 645
Income taxes 72 140 184
- -------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 294 413 461
- -------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS:
Income (Loss) from discontinued operations 176 (28) 162
Gain on sale of styrenics plastics business 116
- -------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS 176 (28) 278
- -------------------------------------------------------------------------------------------------
NET INCOME $ 470 $ 385 $ 739
=================================================================================================
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations $ 0.50 $ 0.71 $ 0.81
Discontinued operations 0.30 (0.05) 0.49
- -------------------------------------------------------------------------------------------------
NET INCOME $ 0.80 $ 0.66 $ 1.30
=================================================================================================
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations $ 0.48 $ 0.69 $ 0.79
Discontinued operations 0.29 (0.05) 0.48
- -------------------------------------------------------------------------------------------------
NET INCOME $ 0.77 $ 0.64 $ 1.27
=================================================================================================
The above statement should be read in conjunction with pages 51-61 of this
report.
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------
KEY FINANCIAL STATISTICS (Unaudited) 1997 1996 1995
- -------------------------------------------------------------------------------------------------
AS A PERCENT OF NET SALES:
<S> <C> <C> <C>
Selling, General and Administrative Expenses 27% 29% 28%
Technological Expenses 14 11 11
Research and Development Expenses<F1> 12 10 10
Operating Income 7 9 13
Income from Continuing Operations 4 7 9
EFFECTIVE INCOME TAX RATE -- CONTINUING OPERATIONS 20 25 29
=================================================================================================
<FN>
<F1> Research and development expenses are included in total technological
expenses.
</TABLE>
30 1997 Monsanto Annual Report
<PAGE> 4
===============================================================================
REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS
===============================================================================
Monsanto Achieves Record Results,
Excluding Unusual Charges
In 1997, Monsanto Company achieved record results, if unusual items were
excluded, and sharpened its focus on life sciences following the spinoff of its
chemical businesses on Sept. 1, 1997. As a life sciences company, Monsanto has
focused its efforts in three areas -- agriculture, nutrition and health. Income
from continuing operations totaled $294 million, or $0.48 per share, in 1997.
Results included aftertax charges of $455 million, or $0.75 per share, for
write-offs of in-process research and development (R&D) related to strategic
acquisitions. If these unusual write-offs were excluded, income from
continuing operations would have totaled a record $749 million, or a record
$1.23 per share. The company's core businesses delivered strong results in
1997, as sales of key products continued to grow. Monsanto also made several
strategic acquisitions, investments and alliances in 1997 to strengthen the
core capabilities necessary to be the first to invent important new life
sciences products and bring them to customers worldwide.
Net Sales Set Record
Net sales were a record $7.5 billion in 1997, topping last year's net sales
of $6.3 billion by 18 percent. The increase came primarily from continued
strong performances by the Agricultural Products and Pharmaceuticals
segments. Net sales for Agricultural Products set another record in 1997, led
by significant sales volume increases for the family of Roundup(R) herbicides.
Increases in the use of conservation tillage; increases in over-the-top
applications of Roundup(R) on Roundup Ready(R) soybeans, cotton and canola; and
an increase in the acres of major row crops planted worldwide drove sales of
Roundup(R) herbicide to a new high. The increase in 1997 net sales for the
Agricultural Products segment also reflected the inclusion of sales from
Asgrow Agronomics, a seed company Monsanto acquired in 1997. Higher sales
volumes of Posilac(R) bovine somatotropin and Harness(R) herbicide also
contributed to the sales growth. In addition, net sales benefited from
increased demand for crops developed through biotechnology, including Roundup
Ready(R) soybeans, cotton and canola, Bollgard(R) insect-protected cotton and
YieldGard(R) insect-protected corn.
Net sales for the Pharmaceuticals segment also reached record levels,
increasing $412 million, or 21 percent, from 1996 net sales. The increase is
attributable primarily to higher sales volumes of Ambien(R) short-term treatment
for insomnia and Daypro(R) and Arthrotec(R) arthritis treatments. Sales of these
key growth products grew 26 percent from sales in the prior year. Sales also
benefited from licensing revenues of $75 million related to a collaborative
partnership, and from sales of product rights, which totaled $117 million.
Lower sales of verapamil calcium channel blockers partially offset these
increases. Sales for the family of Calan(R) calcium channel blockers continued
to decline, but that decrease was partially offset by growing sales of
Covera-HS(R), Searle's newest verapamil product.
Sales for the Corporate and Other segment in 1997 increased
significantly compared with year-ago sales, primarily because of the
inclusion in 1997 of sales from the produce business of Calgene Inc. Monsanto
acquired a controlling interest in Calgene in November 1996. Prior to that
time, Calgene was accounted for as an equity affiliate, and its results were
not consolidated.
Lower net sales for the Nutrition and Consumer Products segment
partially offset the sales increases in the other segments. Nutrition and
Consumer Products' sales declined 3 percent in 1997 vs. sales in 1996
primarily because of lower sales volumes of Equal(R) and Canderel(R) tabletop
sweeteners. These decreases were partially offset by higher sales volumes of
biogums and Roundup(R) herbicide for lawn-and-garden use. Sales of
NutraSweet(R), the company's trademark aspartame product, were essentially
flat compared with sales in the prior year.
Monsanto's net sales in markets outside the United States represented
44 percent of 1997 net sales, compared with 45 percent in 1996.
An analysis of the company's sales change, along with comparative data,
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
SALES ANALYSIS 1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Selling prices (3)% (2)%
Sales volumes and mix 9 17
Acquisitions and pharmaceutical
product rights sales and
licensing revenues 12 2
- ------------------------------------------------------------------
TOTAL CHANGE 18% 17%
==================================================================
</TABLE>
Events Affecting Operating Comparability
During 1997, Monsanto acquired several seed companies specializing in various
stages of seed production. These acquisitions included Asgrow, a global
leader in soybean research and seeds; Holden's Foundation Seeds Inc., a
global leader in the development and growth of corn germplasm and a supplier
of parent seed to retail seed companies; Corn States Hybrid Service Inc., the
exclusive marketer and distributor for Holden's products; and Sementes
Agroceres S.A., the leading seed corn company in Brazil. Monsanto also
acquired the remaining interest in Calgene, which has done significant
biotechnology research in oils, cotton and produce.
The company recorded pretax charges of $684 million ($455 million
aftertax, or $0.75 per share) for the write-off of acquired in-process R&D
related to these acquisitions. This is an accounting treatment that values
and
31 1997 Monsanto Annual Report
<PAGE> 5
===============================================================================
REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS (continued)
===============================================================================
immediately writes off research that is under way at the time of an
acquisition but that has not resulted in commercial products and has no
alternative future use.
In December 1996, the board of directors approved pretax restructuring
charges and other unusual items of $376 million ($257 million aftertax, or
$0.43 per share) for the closure or rationalization of certain facilities,
asset write-offs, and work force reductions. Approximately 940 of the 1,520
positions expected to be eliminated by the restructuring had been eliminated
by the end of 1997.
Without the unusual events in 1997 and 1996, income from continuing
operations would have been $749 million for 1997, an increase of 12 percent
from $670 million for the prior year. Earnings per share from continuing
operations in 1997 would have been $1.23 vs. $1.12 for 1996, an increase of
10 percent.
Operating Results Increase,
If Unusual Items Are Excluded
Operating income totaled $499 million in 1997, $96 million, or 16 percent,
lower than operating income of $595 million in 1996. If the net pretax
unusual charges of $684 million in 1997 and $407 million in 1996 were
excluded, operating income would have increased $181 million, or 18 percent,
in 1997. The increase primarily resulted from higher sales volumes, licensing
revenues and sales of product rights. These increases were partially offset
by increased selling, general and administrative (SG&A) expenses and higher
technological spending.
If unusual charges in 1997 and 1996 were excluded from segment results,
operating income would have increased in 1997 for both the Agricultural
Products and Pharmaceuticals segments. The increase in operating income for
Agricultural Products was driven by record sales, partially offset by
increased SG&A expenses and technological spending. Selling expenses for
Agricultural Products rose primarily because of higher selling expenses from
seed companies Monsanto acquired in 1997. The segment's technological
expenses rose principally because of higher spending on crop biotechnology
initiatives and the inclusion of expenses from the acquired seed companies.
The increase in operating income for the Pharmaceuticals segment resulted
from higher sales volumes of key products, licensing revenues, and sales of
product rights, partially offset by increased selling and technological
expenses. SG&A expenses for Pharmaceuticals were higher because of an
expansion in the sales force and because of preparations for new product
launches in 1998. The segment's technological expenses increased markedly as
new product candidates advanced to later, more expensive phases of
development. If unusual items were excluded, operating income for the
Nutrition and Consumer Products segment would have declined in 1997,
primarily because of lower sales volumes of tabletop sweeteners and increased
technological spending. Technological expenses for Nutrition and Consumer
Products rose principally because of the continuing development of a new
no-calorie sweetener called neotame.
Total SG&A expenses increased $163 million, or 9 percent, in 1997
compared with expenses in 1996, principally because of the spending increases
in the Agricultural Products and Pharmaceuticals segments. Total
technological expenses increased $342 million, or 49 percent, compared with
those in 1996. Technological expenses rose for all segments, as Monsanto's
focus on developing new products continued.
Amortization of intangible assets increased in 1997 compared with
amortization in the prior year, principally because of the increase in
intangible assets related to current-year seed company acquisitions. The
increase in interest expense in year-to-year comparisons was caused by a
greater amount of debt outstanding during 1997. If $31 million of unusual
income in 1996 were excluded, "Other income (expense) -- net" would have
shown a small decline in 1997. This decrease was caused by significantly
higher exchange losses partially offset by increased income from equity
affiliates, primarily from European aspartame joint ventures and DEKALB
Genetics Corp. The currency exchange losses stemmed primarily from southeast
Asia, particularly Indonesia and Malaysia. The 1997 effective tax rate of 20
percent was lower than the 1996 effective tax rate of 25 percent, primarily
because of the decrease in pretax income, which gave tax benefits a greater
relative effect in 1997. If the unusual items in 1997 and 1996 were excluded,
the effective tax rate would have been 29 percent in 1997 vs. 28 percent in
1996.
Cost Savings Continue
In prior years, Monsanto took steps to make worldwide operations more
focused, productive and cost-effective. The effect of these actions benefited
operating income by more than $400 million in 1997. The company invests the
savings in its core businesses, new product development, and strategic
acquisitions and investments to enhance its long-term profitability. These
savings are in line with original expectations, and they are expected to
continue. Business redesign and other productivity efforts have yielded
significant benefits as well. These initiatives will continue as the company
responds to increased global competition and higher customer expectations.
32 1997 Monsanto Annual Report
<PAGE> 6
===============================================================================
REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS (continued)
===============================================================================
Development and Commercialization
of New Products Are Priorities
New product development and commercialization continue to be strategic
priorities for Monsanto. Recent efforts include insect-protected and
herbicide-tolerant crops, a novel arthritis treatment, and a new sweetener.
Monsanto's R&D expenditures were $939 million in 1997, or 12 percent of net
sales, a level that reflects management's strong, long-term commitment to
R&D. The discovery and development of pharmaceutical, agricultural and
science-based nutritional products continue to be the focus of most of these
expenditures. Significant R&D efforts in existing product technologies and
new product applications also continue across all business sectors.
Additionally, Monsanto's research program includes new technologies and
proprietary information obtained through licensing and strategic
acquisitions. As a result, Monsanto has numerous products in the R&D
pipeline. Many of them are expected to be commercialized in
the next few years.
Prior Year Review
Income from continuing operations in 1996 totaled $413 million, or $0.69 per
share, vs. $461 million, or $0.79 per share, in 1995. Both years' results,
however, were affected by unusual events. In December 1996, the company
recorded pretax restructuring charges associated with the closure or
rationalization of certain facilities, asset write-offs, and work force
reductions totaling $376 million ($257 million aftertax, or $0.43 per share).
In December 1995, the company recorded a pretax restructuring charge of $114
million ($78 million aftertax, or $0.13 per share) to cover the costs of work
force reductions, business consolidations, facility closures, and the exit
from nonstrategic businesses and facilities. The company also recorded
approximately $20 million in favorable pretax adjustments ($13 million
aftertax, or $0.02 per share) under certain sales rebate programs
for product sales made in prior years, and approximately $4 million ($2
million aftertax, or less than $0.01 per share) in insurance settlements.
Without the unusual events in 1996 and 1995, income from continuing
operations would have been $670 million for 1996, compared with $524 million
for the prior year, an increase of 28 percent. Earnings per share from
continuing operations would have been $1.12 in 1996, a 24 percent increase
from comparable 1995 results of $0.90 per share.
Net sales for 1996 were $6.3 billion, up $938 million, or 17 percent,
from sales in 1995 of $5.4 billion. The Agricultural Products, Nutrition and
Consumer Products, and Pharmaceuticals segments all contributed to the
increase, primarily because of higher sales volumes. The effects of lower
average selling prices, particularly for the Agricultural Products segment,
partially offset the increase in net sales.
Net sales for Agricultural Products in 1996 increased 20 percent from
those in 1995 to $2.6 billion. This increase was primarily the result of
higher worldwide sales volumes for the family of Roundup(R) herbicides. Most
world areas posted solid sales volume gains in 1996. Continued increases in
conservation tillage practices, favorable weather conditions in certain key
markets, and an increase in planted acreage drove the increased demand.
Higher sales of Posilac(R) bovine somatotropin also contributed to the sales
increase.
Net sales for the Nutrition and Consumer Products segment increased in
1996, principally on the strength of higher sales volumes of NutraSweet(R)
brand sweetener, tabletop sweeteners, biogum products, and lawn-and-garden
products.
The increase in net sales for Pharmaceuticals can be attributed to
sales of key products, principally Ambien(R) short-term insomnia treatment and
Daypro(R) and Arthrotec(R) arthritis treatments. In addition, sales from the
women's health care product lines acquired from Syntex in the third quarter
of 1995 contributed to the growth. Lower sales for the family of Calan(R)
calcium channel blockers partially offset the sales increase.
Operating income in 1996 was $595 million, $103 million lower than
operating income in 1995. If the net pretax restructuring charges and unusual
items of $407 million in 1996 and $90 million in 1995 were excluded,
operating income would have increased approximately $214 million, or 27
percent, in 1996. This significant increase in operating income was related
principally to higher sales volumes and an improved gross profit. The
increase in gross profit was primarily because of an improved sales mix from
an increased percentage of higher margin Agricultural Products and
Pharmaceuticals sales. SG&A expenses in 1996 increased, primarily because of
higher sales and new product launches for Agricultural Products and
Pharmaceuticals, higher costs associated with employee incentive programs,
and increased spending on growth initiatives. Technological expenses rose
because of higher R&D expenses in the Agricultural Products and
Pharmaceuticals segments. Cost sharing payments from pharmaceutical alliances
partially offset this increase.
If the effect of unusual charges were excluded, 1996 amortization of
intangible assets would have increased from amortization in 1995, primarily
because of the increase in intangible assets associated with current-year
investments and acquisitions in biotechnology businesses. If one-time charges
were excluded, "Other income (expense) -- net" would have decreased,
principally because of lower income from equity affiliates.
33 1997 Monsanto Annual Report
<PAGE> 7
===============================================================================
REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS (continued)
===============================================================================
<TABLE>
Analysis of Change in Earnings per Share
from Continuing Operations
<CAPTION>
BETTER (WORSE)
---------------------------
1997 VS. 1996 VS.
1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
SALES-RELATED FACTORS:
Selling prices $(0.23) $(0.16)
Sales volumes and mix 0.66 0.74
Pharmaceutical product rights sales
and licensing revenues 0.14
- ------------------------------------------------------------------------
TOTAL SALES-RELATED FACTORS 0.57 0.58
========================================================================
COST-RELATED FACTORS:
Raw material and
manufacturing costs (0.07) 0.18
Selling, general and
administrative expenses (0.03) (0.38)
Technological expenses (0.33) (0.18)
Amortization of intangible assets -- (0.01)
- ------------------------------------------------------------------------
TOTAL COST-RELATED FACTORS (0.43) (0.39)
========================================================================
OTHER FACTORS:
Change in shares outstanding (0.03) (0.02)
Acquisitions and divestitures -- 0.09
Other expenses -- net -- (0.04)
- ------------------------------------------------------------------------
TOTAL OTHER FACTORS (0.03) 0.03
========================================================================
Change in earnings per share
before unusual factors 0.11 0.22
Unusual factors (0.32) (0.32)
- ------------------------------------------------------------------------
CHANGE IN EARNINGS PER SHARE
FROM CONTINUING OPERATIONS $(0.21) $(0.10)
========================================================================
</TABLE>
34 1997 Monsanto Annual Report
<PAGE> 8
<TABLE>
======================================================================================================================
SEGMENT DATA
======================================================================================================================
<CAPTION>
OPERATING OPERATING
NET SALES CONTRIBUTION<F1> INCOME (LOSS)<F2>
-------------------------- ---------------------------- -------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------ ---------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Agricultural Products $3,126 $2,555 $2,134 $ 762 $ 639 $508 $ 112 $ 520 $478
Nutrition and Consumer
Products 1,535 1,581 1,371 304 338 294 211 193 186
Pharmaceuticals 2,407 1,995 1,711 340 223 144 318 79 132
Corporate and Other 446 217 194 (142) (124) (84) (142) (197) (98)
- ------------------------------------------------------------ ---------------------------- -------------------------
TOTAL $7,514 $6,348 $5,410 $1,264 $1,076 $862 $ 499 $ 595 $698
============================================================ ============================ =========================
<CAPTION>
DEPRECIATION
TOTAL ASSETS CAPITAL EXPENDITURES AND AMORTIZATION
-------------------------- --------------------------- -------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------ --------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Agricultural Products $ 4,520 $ 3,007 $ 2,329 $341 $280 $135 $208 $153 $142
Nutrition and Consumer
Products 2,646 2,635 2,653 82 98 72 118 125 119
Pharmaceuticals 2,856 2,391 2,619 190 89 78 136 130 127
Corporate and Other 752 581 375 31 33 16 25 15 17
Discontinued Operations 2,623 2,755
- ------------------------------------------------------------ ---------------------------- -------------------------
TOTAL $10,774 $11,237 $10,731 $644 $500 $301 $487 $423 $405
============================================================ ============================ =========================
<FN>
<F1> Operating contribution is operating income excluding goodwill amortization
and the effect of restructuring and other unusual items.
<F2> Operating income was affected by research and development write-offs in
1997 and by restructuring and other unusual items in 1996 and 1995 as
follows:
<CAPTION>
INCOME (EXPENSE)
---------------------------------------------
SEGMENT 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Agricultural Products $(633) $(106) $(17)
Nutrition and Consumer
Products (51) (103) (66)
Pharmaceuticals (125) 7
Corporate and Other (73) (14)
- ------------------------------------------------------------------------------------
TOTAL $(684) $(407) $(90)
====================================================================================
</TABLE>
In 1997, Monsanto redefined its segments. Segment information for 1996 and
1995 has been restated to conform to the current presentation.
Although inflation is relatively low in most of Monsanto's major
markets, it continues to affect operating results. To mitigate the effect of
inflation, Monsanto has implemented measures to control costs, to improve
productivity, to manage new fixed and working capital, and to raise selling
prices when government regulations and competitive conditions permit. In
addition, the current costs of replacing certain assets are estimated to be
greater than the historical costs presented in the financial statements.
Accordingly, the depreciation expense reported in the Statement of
Consolidated Income would be greater if it were stated on a current-cost
basis.
1997 Net Sales
[GRAPH]
Sales among segments were not significant. Certain corporate expenses,
primarily those related to the overall management of Monsanto, were not
allocated to the segments or geographic areas. Corporate assets are primarily
investments in affiliates and a portion of the cash balance.
The principal factors that accounted for the segments' performances in
1997 and 1996, along with the factors that are expected to affect operating
results in the near term, are described on the following pages.
35 1997 Monsanto Annual Report
<PAGE> 9
<TABLE>
=================================================================================
AGRICULTURAL PRODUCTS
=================================================================================
<CAPTION>
----------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $3,126 $2,555 $2,134
Operating Contribution<F1> 762 639 508
Operating Income 112 520 478
Total Assets 4,520 3,007 2,329
Capital Expenditures 341 280 135
Depreciation and Amortization 208 153 142
- ---------------------------------------------------------------------------------
<FN>
<F1> Operating contribution is operating income excluding goodwill
amortization and the effect of restructuring and other unusual items.
</TABLE>
THE AGRICULTURAL PRODUCTS SEGMENT IS A LEADING WORLDWIDE DEVELOPER, PRODUCER
AND MARKETER OF CROP PROTECTION PRODUCTS. THIS GROUP ALSO DEVELOPS AND
MARKETS PRODUCTS ENHANCED BY BIOTECHNOLOGY. THESE PRODUCTS IMPROVE THE
EFFICIENCY OF FOOD PRODUCTION AND PRESERVE ENVIRONMENTAL QUALITY FOR
AGRICULTURAL AND INDUSTRIAL USES. MORE THAN HALF OF THE UNIT'S HERBICIDE NET
SALES ARE MADE OUTSIDE THE UNITED STATES. WEATHER CONDITIONS IN AGRICULTURAL
MARKETS WORLDWIDE AFFECT SALES VOLUMES.
Net sales for Agricultural Products totaled a record $3.1 billion in
1997, surpassing the 1996 record by $571 million, or 22 percent. The increase
in net sales was fueled by higher worldwide sales volumes for the family of
Roundup(R) herbicides, led by strong sales in Brazil, Argentina and the United
States. Sales volumes of Roundup(R) herbicide were driven to a new high by
increases in the use of conservation tillage, an increase in the acres of
major row crops planted worldwide, and applications of Roundup(R) on Roundup
Ready(R) soybeans, cotton and canola. Selling price reductions, principally in
markets outside the United States, made Roundup(R) more cost effective for weed
control in a broader range of crop and industrial uses. The effect of generic
competition, especially in certain foreign markets, dampened selling prices
modestly. However, the effect of increased sales volumes more than offset the
effect of lower selling prices.
Agricultural
Products
Net Sales
[GRAPH]
Sales from seed companies Monsanto acquired in 1997, particularly
Asgrow Agronomics, also added to sales. Net sales for the Agricultural
Products segment also benefited from record sales of Posilac(R) bovine
somatotropin, which increased 25 percent from sales in the prior year;
increased demand for crops developed through biotechnology, including Roundup
Ready(R) soybeans, cotton and canola, Bollgard(R) insect-protected cotton and
YieldGard(R) insect-protected corn; and higher sales volumes of
acetanilide-based herbicides, particularly Harness(R) herbicide.
Operating income for Agricultural Products in 1997 decreased $408
million from operating income in 1996, while operating contribution increased
$123 million, or 19 percent. Operating income was affected by unusual items
in both years. In 1997, operating income included $633 million of pretax
charges for the write-off of in-process research and development (R&D),
primarily associated with the acquisitions of Asgrow, Calgene Inc.'s cotton
business, Holden's Foundation Seeds Inc. and Sementes Agroceres S.A. In 1996,
the unusual items included $106 million in charges for restructuring and
other actions, principally related to the cost of work force reductions. If
these unusual items in 1997 and 1996 were excluded, operating income for
Agricultural Products would have increased $119 million, or 19 percent, in
year-to-year comparisons. Higher sales volumes and increased licensing fees
from biotechnology products contributed to the increase. These positive
effects were partially offset by increased operating expenses. Selling,
general and administrative (SG&A) expenses increased primarily because
of higher selling expenses from the seed companies Monsanto acquired in 1997.
Technological expenses grew primarily because of higher spending on crop
biotechnology initiatives and the inclusion of seed company expenses.
Amortization of intangible assets rose principally because of the acquisition
of Holden's.
Agricultural
Products
Operating
Measures
[GRAPH]
Prior Year Review
Net sales for Agricultural Products in 1996 were 20 percent higher than 1995
net sales. Operating income increased 9 percent from that in 1995. The
increase in operating income was affected by unusual items in both 1996 and
1995. In 1996, the unusual items included $106 million in charges for
restructuring and other actions, principally related to the cost of work
force reductions. In 1995, unusual items included $17 million in
restructuring charges and other actions for facility closures and the cost of
work force reductions. If unusual items in 1996 and 1995 were excluded, 1996
Agricultural Products' operating income would have increased
$131 million, or 26 percent.
36 1997 Monsanto Annual Report
<PAGE> 10
===============================================================================
AGRICULTURAL PRODUCTS (continued)
===============================================================================
The increase in net sales was primarily because of higher worldwide
sales volumes for the family of Roundup(R) herbicides. Most world areas posted
solid sales volume gains in 1996. The increased demand was attributed to
continued increases in conservation tillage practices, favorable weather
conditions in key markets, and an increase in planted acreage. Selling price
reductions, principally in markets outside the United States, made Roundup(R)
cost effective for weed control in a broader range of crop and industrial
uses. The effect of generic competition, especially in certain foreign
markets, dampened selling prices modestly. However, the effect of increased
sales volumes on operating income exceeded the effect of lower selling
prices. Higher sales volumes of Harness(R) herbicide also contributed to the
1996 sales increase. Net sales in 1996 benefited from higher sales of Posilac(R)
bovine somatotropin. In addition, successful introductions of new products,
such as Roundup Ultra(R) herbicide, Roundup Ready(R) soybeans and Bollgard(R)
insect-protected cotton, helped fuel sales growth.
In addition to the effect of sales volume increases, 1996 operating
contribution and operating income benefited from lower manufacturing costs.
The effects of higher sales volumes and lower manufacturing costs were
partially offset by higher selling expenses for new product introductions and
by higher R&D spending for biotechnology projects.
OUTLOOK
Agricultural Products
Monsanto's family of Roundup(R) herbicides continues to face competition from
generic producers in certain markets outside the United States. Patents
protecting Roundup(R) in various countries expired in 1991. Compound per se
patent protection for the active ingredient in Roundup(R) herbicide continues
in the United States through the year 2000. Management expects technological
breakthroughs in manufacturing processes and formulation advancements, as
well as rapidly expanding production capacity, to continue to improve
Monsanto's cost position and to help maintain its leadership position.
Significant growth potential remains for Roundup(R) in conservation tillage
applications worldwide, and in the introduction of crops that tolerate
Roundup(R).
Seven biotechnology-related plant sciences products were marketed
during 1997: Roundup Ready(R) canola, cotton and soybeans; corn, cotton and
potatoes protected from certain insects; and cotton that is both
insect-protected and Roundup Ready(R). These products were developed by Monsanto
either alone or in partnership with biotechnology and seed production companies.
Market acceptance has been strong; volumes for each of these products are
expected to increase in 1998. Management also expects that a significant
number of new herbicides and biotechnology-related products currently in the
R&D pipeline will be commercialized worldwide in the next few years. As a
result, increased technological and product-launch expenses are expected in
the next few years. Monsanto continues its efforts to address concerns of
government regulators, public interest groups and consumers, particularly in
Europe. Such concerns are not uncommon as new technologies are
commercialized. The company also is involved in intellectual property
disputes with several parties. Management expects that such disputes will
continue to occur as the agricultural biotechnology industry evolves.
As discussed in the Notes to Financial Statements beginning on page 51,
Monsanto made several strategic acquisitions of agricultural seed companies
in 1997. The company completed the acquisition of Asgrow in February. In
September, Monsanto completed the acquisitions of Holden's and Corn States
Hybrid Service Inc. In December, the company acquired a controlling interest
in Agroceres. It's anticipated that Monsanto will make additional alliances
and collaborations with, and acquisitions of, other seed companies to enhance
its ability to bring new products to market and to gain worldwide
distribution of its numerous agricultural products currently being marketed
or in the product pipeline.
37 1997 Monsanto Annual Report
<PAGE> 11
===============================================================================
NUTRITION AND CONSUMER PRODUCTS
===============================================================================
<TABLE>
<CAPTION>
-----------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,535 $1,581 $1,371
Operating Contribution<F1> 304 338 294
Operating Income 211 193 186
Total Assets 2,646 2,635 2,653
Capital Expenditures 82 98 72
Depreciation and Amortization 118 125 119
- ---------------------------------------------------------------------------------
<FN>
<F1> Operating contribution is operating income excluding goodwill
amortization and the effect of restructuring and other unusual items.
</TABLE>
THE NUTRITION AND CONSUMER PRODUCTS SEGMENT MANUFACTURES AND MARKETS
SWEETENERS (INCLUDING NUTRASWEET(R) BRAND SWEETENER AND EQUAL(R) AND CANDEREL(R)
TABLETOP SWEETENERS), ALGINATES, BIOGUMS AND OTHER FOOD INGREDIENTS. IT ALSO
DEVELOPS, PRODUCES AND MARKETS ORTHO(R) BRAND LAWN-AND-GARDEN PRODUCTS, AND
ROUNDUP(R) HERBICIDE FOR RESIDENTIAL USE.
Net sales for the Nutrition and Consumer Products segment declined 3
percent in 1997 from sales in 1996 primarily because of lower sales volumes
of tabletop sweeteners. The sales decrease was caused by a continued decline
in market share in the United States and Europe because of lower-priced
generic competition, as well as a decline in the overall U.S. grocery market
for tabletop sweeteners. Sales of NutraSweet(R), the company's trademark
aspartame product, were essentially flat compared with sales in the prior
year. Higher sales volumes of biogums and lawn-and-garden products partially
offset the tabletop sweetener sales decreases. Biogum sales grew 14 percent
because of record customer demand. The increase in lawn-and-garden sales
resulted from higher sales of Roundup(R) for residential use, partially offset
by lower sales of the Ortho(R) line of products. A global initiative implemented
at the end of 1996 boosted sales of Roundup(R) for residential use in 1997,
despite poor weather in several key markets.
Nutrition and
Consumer Products
Operating
Measures
[GRAPH]
Operating income for the Nutrition and Consumer Products segment in
1997 increased 9 percent from 1996 operating income, while operating
contribution declined 10 percent. Unusual items affected operating income
in both years. Operating income in 1997 included $51 million in pretax
charges for in-process research and development related to the acquisition of
Calgene Inc.'s oils business. In 1996, operating income included
restructuring charges of $103 million, principally for the cost of work force
reductions and facility rationalizations. If these unusual items were
excluded, 1997 operating income for the Nutrition and Consumer Products
segment would have totaled $262 million, an 11 percent decline from 1996
operating income of $296 million. The decrease was caused primarily by lower
sales volumes of tabletop sweeteners and increased technological spending
related to the development of a new no-calorie sweetener, called neotame, and
other nutrition products. These effects were partially offset by lower
selling expenses.
Prior Year Review
In 1996, net sales for the Nutrition and Consumer Products segment increased
15 percent from 1995 net sales. Results in 1996 included a full year of sales
from the Kelco business acquired in February 1995. In addition, the sales
increase resulted from higher sales of NutraSweet(R) brand sweetener, the
company's trademark aspartame product, and higher sales volumes of tabletop
sweeteners. Higher sales of tabletop sweeteners were driven by increased
spending on advertising and promotion. Most of the volume increment for
tabletop sweeteners came from international markets. Higher sales volumes of
biogum products and increased sales of lawn-and-garden products also
contributed to the sales increase.
Operating income for 1996 increased 4 percent from the previous year's
level primarily because of higher sales and lower manufacturing costs. The
effect of higher sales and lower manufacturing costs was partially offset
by higher advertising and promotion costs for tabletop sweeteners, higher
administrative expenses associated with growth initiatives, and other costs.
In addition, certain unusual items affected earnings in both years. In 1996,
operating income included restructuring charges of $103 million, principally
for the cost of work force reductions and facility rationalizations.
Operating income in 1995 included $66 million in restructuring charges,
primarily to exit a production facility and to effect work force reductions.
If these unusual items were excluded, 1996 operating results for the
Nutrition and Consumer Products segment would have increased 17 percent
compared with 1995 results.
38 1997 Monsanto Annual Report
<PAGE> 12
===============================================================================
NUTRITION AND CONSUMER PRODUCTS (continued)
===============================================================================
OUTLOOK
Nutrition and Consumer Products
In January 1998, Monsanto announced that it was considering alternatives --
including partnerships, restructurings, divestitures or joint ventures -- for
several of its businesses, as part of its effort to focus on growth
opportunities in life sciences. Alternatives for the lawn-and-garden business
currently are being considered.
Worldwide demand for aspartame continues to increase. Monsanto is
maintaining its leading market share of aspartame sales while pursuing growth
opportunities. Monsanto's NutraSweet(R) brand aspartame has several competitive
advantages, including a low-cost position and superior quality. Monsanto
successfully implemented a price increase for its aspartame in the fourth
quarter of 1997. Other sweeteners also compete with Monsanto's NutraSweet(R)
brand sweetener in markets outside the United States. These sweeteners are
currently being reviewed by the U.S. Food and Drug Administration (FDA). FDA
approval of these competitive products could affect Monsanto's future sales
of NutraSweet(R).
Increased competition from lower-priced generic producers of tabletop
sweeteners, a declining U.S. grocery market for tabletop sweeteners, and
increased competition in Europe may adversely affect future sales and profits
from tabletop sweeteners. However, Monsanto introduced two lower priced
sweetener products in 1997 in the United States that could enhance its market
share.
In December 1997, Monsanto filed a limited-use food additive petition
with the FDA for approval of a new no-calorie sweetener called neotame. By
the end of 1998, the company plans to file a petition with the FDA to approve
neotame as a general-purpose sweetener for use in any food or beverage
product. Neotame is approximately 8,000 times sweeter than sugar, and
Monsanto has exclusive rights to patents covering the product, its
manufacturing processes and its uses in food and beverages.
The company's alginates and biogums hold strong positions in their food
ingredients markets. Although biogums face increased competition in certain
industrial applications, the effect has not been significant.
===============================================================================
PHARMACEUTICALS
===============================================================================
<TABLE>
<CAPTION>
--------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $2,407 $1,995 $1,711
Operating Contribution<F1> 340 223 144
Operating Income 318 79 132
Total Assets 2,856 2,391 2,619
Capital Expenditures 190 89 78
Depreciation and Amortization 136 130 127
- ------------------------------------------------------------------------------------
<FN>
<F1> Operating contribution is operating income excluding goodwill
amortization and the effect of restructuring and other unusual items.
</TABLE>
THE PHARMACEUTICALS SEGMENT REFLECTS THE OPERATIONS OF SEARLE. SEARLE
DEVELOPS, PRODUCES AND MARKETS PRESCRIPTION PHARMACEUTICALS. ITS MAJOR
PRODUCTS INCLUDE MEDICATIONS TO RELIEVE THE SYMPTOMS OF ARTHRITIS, TO CONTROL
HIGH BLOOD PRESSURE, TO RELIEVE INSOMNIA, TO PREVENT THE FORMATION OF ULCERS,
AND TO PROVIDE BETTER HEALTH CARE FOR WOMEN.
In 1997, net sales for Pharmaceuticals grew to a record $2.4 billion,
$412 million, or 21 percent, higher than 1996 net sales. Higher sales volumes
of Ambien(R) short-term treatment for insomnia, and Daypro(R) and Arthrotec(R)
arthritis treatments contributed nearly $170 million to the sales increase.
Ambien(R) continued to be the leader in the U.S. sleep-aid market. Its sales
rose 31 percent in 1997, and its market share increased to 50 percent. Daypro(R)
and Arthrotec(R) also gained market share, with increased sales of 20 percent
and 25 percent, respectively. Segment net sales also benefited from licensing
revenues of $75 million related to a collaborative partnership and from
sales of product rights totaling $117 million. Lower sales of verapamil
calcium channel blockers partially offset these increases. Sales for the
family of Calan(R) calcium channel blockers continued to decline, but the
decrease was partially offset by growing sales of Covera-HS(R), introduced in
1996 as the first calcium channel blocker with a unique delivery system that
provides 24 hours of blood pressure control.
Pharmaceuticals
Net Sales
[GRAPH]
39 1997 Monsanto Annual Report
<PAGE> 13
================================================================================
PHARMACEUTICALS (continued)
================================================================================
Operating income for the Pharmaceuticals segment totaled $318 million
in 1997, compared with $79 million in 1996. However, 1996 operating results
included $125 million in restructuring and other unusual charges. Operating
income would have increased $114 million, or 56 percent, in 1997, if the
unusual items were excluded from 1996 operating income. The improvements in
operating income and operating contribution primarily resulted from higher
sales volumes of key products, licensing revenues and sales of product
rights. Increased technological and selling expenses partially offset the
strong sales growth. Technological spending rose in 1997, as new product
candidates advanced to later, more expensive phases of development. At the
end of 1997, the following five new product candidates were in Phase III
clinical trials, the final stage before submission for regulatory approval:
Celebra(TM), Searle's proposed trademark for celecoxib, an arthritis treatment
that is designed to treat arthritis and pain selectively without
gastrointestinal side effects; xemilofiban and orbofiban, drugs for the
treatment of cardiovascular conditions; daniplestim, a compound that
stimulates the replenishment of white blood cells and platelets in
chemotherapy patients; and HRT patches, hormone replacement therapy for
menopausal symptoms. Technological expenses increased in year-to-year
comparisons also because of an absence of cost-sharing payments from
alliances and licensing agreements in 1997 compared with the level
of such payments in 1996. Selling expenses rose in 1997 because of an
expansion in Searle's sales force and new product launch preparations. The
product launch preparations primarily were related to oxaprozin potassium and
Arthrotec(R) arthritis treatments, both of which will be introduced in the
United States in 1998.
Pharmaceuticals
Operating
Measures
[GRAPH]
Searle's investment in research and development (R&D) continues to be
significant. R&D expenditures were 24 percent of the segment's net sales in
1997 and 22 percent in 1996, if cost-sharing payments from alliances in 1996
were excluded. Future R&D spending also is expected to be significant. This
investment reflects the segment's commitment to the continuing discovery and
development of innovative new products.
Prior Year Review
Net sales for the Pharmaceuticals segment in 1996 were $2 billion, or 17
percent, higher than net sales in 1995. The sales growth was fueled by higher
sales volumes, led by strong performances from Daypro(R) and Arthrotec(R)
arthritis treatments and from Ambien(R), a short-term treatment for insomnia. In
1996, sales of these products increased 39 percent from sales in the prior year.
In total, these key products contributed approximately $660 million to 1996 net
sales. Sales and earnings growth also benefited from the women's health care
product lines acquired from Syntex in September 1995. The 1996 net sales
increase for Pharmaceuticals was partially offset by lower sales for the
family of Calan(R) calcium channel blockers. Sales in 1995 included the effect
of approximately $20 million in favorable adjustments under certain sales
rebate programs in the United States for products sold in prior years.
Operating income for Pharmaceuticals decreased from the 1995 results by
40 percent. However, operating results in 1996 and 1995 were affected by
unusual items. Operating income in 1996 included $125 million in
restructuring and other actions, principally related to the cost of work
force reductions and facility rationalizations. Operating income in 1995
included a $13 million charge for restructuring, principally related to work
force reductions and other actions. Operating results in 1995 also reflected
the aforementioned $20 million in favorable sales adjustments. If the effect
of these unusual items were excluded, operating income would have been $204
million in 1996 and $125 million in 1995. The significant improvement in
operating income in 1996 was primarily the result of higher sales volumes.
Increased expenditures for marketing and product development costs were
offset, in part, by higher cost-sharing payments from alliances and licensing
agreements.
40 1997 Monsanto Annual Report
<PAGE> 14
===============================================================================
PHARMACEUTICALS
===============================================================================
OUTLOOK
Pharmaceuticals
Ambien(R), a short-term treatment for insomnia, continues as the leader in the
hypnotic market with a 50 percent share of total prescriptions. Ambien(R) is
licensed to a joint venture in which Searle is a general partner. Under the
joint venture agreement, Searle's share of profits will be reduced from 90
percent to 51 percent in November 1999. In addition, the other joint venture
partner has the right to purchase all or part of Searle's interest beginning
in December 1999.
In December 1997, Searle received clearance from the U.S. Food and Drug
Administration (FDA) to market Arthrotec(R), the first arthritis therapy that
combines a non-steroidal anti-inflammatory drug (NSAID) and an ulcer
preventive drug to protect the stomach lining against gastrointestinal
ulcers. The company's presence in the arthritis market will be strengthened
by the continued growth of Daypro(R), Searle's leading treatment for arthritis,
and the anticipated 1998 U.S. introductions of Arthrotec(R) and oxaprozin
potassium -- a formulation that acts to relieve pain and inflammation.
Condrotec(R), a combination NSAID and ulcer preventive drug to treat arthritis,
will be introduced in 1998 in the United Kingdom. In addition, Celebra(TM), a
product that is designed to treat arthritis and pain selectively without
gastrointestinal side effects, is scheduled to complete Phase III clinical
trials in 1998. Searle also expects to file a registration application for
Celebra(TM) with the FDA in 1998.
Covera-HS(R), Searle's newest verapamil product, was introduced in Brazil
and Mexico during 1997 and in Canada in January 1998. Registration
applications are being submitted in various European and Asia-Pacific markets
as well. In the United States, generic competition and continuing controversy
following the results of a study about the use of calcium channel blockers
may continue to negatively affect the sale of all calcium channel blockers,
including Searle's Calan(R) and Covera-HS(R). Drugs being developed for the
treatment of cardiovascular conditions include xemilofiban and orbofiban, two
anti-platelet aggregation product candidates in Phase III clinical trials
that act as agents to inhibit blood clotting; tifacogin (formerly tissue
factor pathway inhibitor, or TFPI), for sepsis; and eplerenone for congestive
heart failure, high blood pressure and the complications of kidney disease.
Also in development are four adjunctive therapies for the oncology
market: daniplestim, leridistim (previously called myelopoietin),
promegapoietin and progenipoietin. These compounds are being developed to
stimulate the replenishment of white blood cells and platelets in
chemotherapy patients. Daniplestim is currently in Phase III clinical trials.
The other three therapies are in earlier stages of development.
Management expects technological expenses and selling expenses to
increase in the next few years as Searle continues its commitment to
discovering and developing new products and as it commercializes products now
in the R&D pipeline. In December 1997, Searle formed an alliance with
Yamanouchi Pharmaceutical Co. Ltd. to develop and commercialize key pipeline
products in Japan. Searle also forged a collaboration with Pfizer Inc. in
early 1998 to co-promote celecoxib. Management expects that other
pharmaceutical alliances will be formed to offset some of the costs
associated with developing and marketing pharmaceuticals, to accelerate
product development, and to broaden the geographic reach of many Searle
products as they are commercialized during the next several years. These
alliances could result in increased licensing revenues.
Corporate and Other
The Corporate and Other segment comprises various smaller businesses, as well
as certain corporate items that are not allocated to the segments. Segment
sales increased significantly in 1997 compared with sales in 1996, primarily
because of the inclusion in 1997 of sales from Calgene Inc.'s produce
business. Monsanto acquired a controlling interest in Calgene in November
1996. Before that time, Calgene was accounted for as an equity affiliate, and
its results were not consolidated. If unusual items of $73 million in 1996
were excluded, the 1997 operating loss for the Corporate and Other segment
would have increased $18 million, primarily because of increased
technological spending related to genomics. Genomics, which is the study of
all the genes in an organism and their organization into chromosomes, is an
important enabling technology. This technology will allow Monsanto to
develop, at a faster pace, more and better life sciences products in the
areas of agriculture, health and nutrition. The segment's operating loss
increased from 1995 to 1996 because of greater spending on growth initiatives
and higher restructuring charges. As part of Monsanto's efforts to focus on
life sciences businesses, alternatives for the Orcolite(R) and Diamonex(R)
optical products and Diamonex(R) performance products divisions -- including a
partnership, restructuring, divestiture or joint venture -- are currently
being considered.
41 1997 Monsanto Annual Report
<PAGE> 15
==============================================================================
GEOGRAPHIC DATA
==============================================================================
<TABLE>
<CAPTION>
NET SALES TO OPERATING
UNAFFILIATED CUSTOMERS INCOME (LOSS)<F1> TOTAL ASSETS
---------------------------- -------------------------- ----------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------ -------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $4,384 $3,648 $3,127 $ 60 $420 $485 $ 7,808 $ 6,537 $ 5,810
Europe-Africa 1,425 1,345 1,210 353 156 173 1,826 1,562 1,523
Asia-Pacific 655 569 507 115 59 63 455 606 662
Canada 285 271 219 47 20 15 153 121 115
Latin America 765 515 347 12 60 57 1,054 598 294
Interarea Eliminations (15) (27) (32) (956) (1,127) (648)
Corporate (73) (93) (63) 434 317 219
Discontinued Operations 2,623 2,756
- ------------------------------------------------------------ -------------------------- ----------------------------
TOTAL $7,514 $6,348 $5,410 $499 $595 $698 $10,774 $11,237 $10,731
============================================================ ========================== ============================
<FN>
<F1> Geographic area operating income was affected by the 1997 research and
development write-offs and the 1996 and 1995 restructurings and other
unusual items as follows:
<CAPTION>
INCOME (EXPENSE)
-------------------------------
1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
United States $(604) $(251) $(54)
Europe-Africa (94) (4)
Asia-Pacific (19) (16)
Canada (10) (13)
Latin America (80) (9) --
Corporate (24) (3)
- ------------------------------------------------------------
TOTAL $(684) $(407) $(90)
============================================================
</TABLE>
The data above are prepared on an "entity basis," which means that net sales,
operating income and assets of each legal entity are assigned to the
geographic area where that legal entity is located. For example, a sale from
the United States to Latin America is reported as a U.S. export sale.
Interarea sales, which are sales between Monsanto locations in different
world areas, were made on a market price basis.
Interarea sales have been excluded from the above table. They were:
<TABLE>
<CAPTION>
---------------------------------
1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
World area shipped from:
United States $ 960 $ 764 $ 660
Europe-Africa 224 225 236
Asia-Pacific 69 23 15
Canada 20 13 10
Latin America -- -- --
Interarea Eliminations (1,273) (1,025) (921)
- ------------------------------------------------------------------
TOTAL $ -- $ -- $ --
==================================================================
</TABLE>
The operating income reported for the individual geographic areas does
not include the full profitability generated by sales of Monsanto products
imported from other locations, principally the United States. Direct export
sales from the United States to third-party customers outside the United
States were $200 million for 1997, $177 million for 1996, and $185 million
for 1995.
During 1997, the Brazilian economy was designated by Monsanto as
hyperinflationary for accounting purposes. However, because the Brazilian
economy continued to experience lower inflation rates during the year, as of
Jan. 1, 1998, Monsanto designated the Brazilian economy as
nonhyperinflationary. The functional currency for Monsanto's Brazilian
operations was determined to be the U.S. dollar. These changes are not
expected to have a material effect on Monsanto's financial position or
operating results.
A continuing decline in value of the southeast Asia currencies may
adversely affect future income. Monsanto could experience additional foreign
currency transactional losses from the area. Also, future sales may decrease
because the decline in the southeast Asia economies could cause customers to
purchase fewer goods in general, and also because Monsanto products may
become more expensive for customers in that region to purchase in
their local currency.
42 1997 Monsanto Annual Report
<PAGE> 16
==============================================================================
QUARTERLY DATA (unaudited)
==============================================================================
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
- -------------------------------------------------------------------------------------------------------------
NET SALES
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 $1,875 $2,095 $1,724 $1,820 $7,514
1996 1,612 1,847 1,442 1,447 6,348
1995 1,339 1,541 1,186 1,344 5,410
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
OPERATING INCOME (LOSS)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 298 363 (216) 54 499
1996 341 434 176 (356) 595
1995 265 351 149 (67) 698
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
INCOME (LOSS) FROM CONTINUING OPERATIONS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 206 250 (167) 5 294
1996 222 316 107 (232) 413
1995 164 229 94 (26) 461
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
NET INCOME (LOSS)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 274 324 (133) 5 470
1996 260 365 170 (410) 385
1995 229 290 140 80 739
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
DILUTED EARNINGS (LOSS) PER SHARE - CONTINUING OPERATIONS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 0.34 0.41 (0.28) 0.01 0.48
1996 0.37 0.53 0.18 (0.39) 0.69
1995 0.28 0.39 0.16 (0.04) 0.79
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
DILUTED EARNINGS (LOSS) PER SHARE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 0.45 0.54 (0.23) 0.01 0.77
1996 0.43 0.62 0.28 (0.69) 0.64
1995 0.40 0.51 0.23 0.13 1.27
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
DIVIDENDS PER SHARE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 0.150 0.160 0.160 0.030 0.500
1996 0.138 0.150 0.150 0.150 0.588
1995 0.126 0.138 0.138 0.138 0.540
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
COMMON STOCK PRICE<F1>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
- -------------------------------------------------------------------------------------------------------------
HIGH 42 1/4 46 1/2 52 5/16 45 3/4 52 5/16
LOW 34 3/4 37 36 3/8 38 34 3/4
- -------------------------------------------------------------------------------------------------------------
1996
- -------------------------------------------------------------------------------------------------------------
HIGH 31 3/4 34 1/2 37 7/8 43 1/4 43 1/4
LOW 23 28 1/8 26 1/8 36 1/2 23
- -------------------------------------------------------------------------------------------------------------
1995
- -------------------------------------------------------------------------------------------------------------
HIGH 16 1/8 18 1/4 20 7/8 25 25
LOW 13 5/8 15 7/8 18 19 1/2 13 5/8
- -------------------------------------------------------------------------------------------------------------
<FN>
<F1> Stock prices were restated to reflect the May 1996 five-for-one stock
split, but were not restated to reflect the spinoff of the chemical
businesses on Sept. 1, 1997.
</TABLE>
Historically, Monsanto's income from continuing operations has been higher
during the first half of the year, primarily because of the concentration of
generally more profitable sales of the Agricultural Products segment during
that part of the year.
Income from continuing operations for each quarter in 1997 was affected
by the write-off of in-process research and development from acquisitions.
First-quarter 1997 included an aftertax charge of $63 million, or $0.11 per
share, principally for the Asgrow Agronomics acquisition. Second-quarter 1997
included an aftertax charge of $72 million, or $0.11 per share, for the
Calgene Inc. acquisition. Third-quarter 1997 included an aftertax charge of
$270 million, or $0.45 per share, for the Holden's Foundation Seeds Inc.
acquisition. Fourth-quarter 1997 included $50 million, or $0.08 per share,
for the Sementes Agroceres S.A. acquisition.
Net income for the fourth quarter of 1996 included an aftertax charge
of $500 million, or $0.84 per share, associated with the company's exit from
the chemical businesses, the proposed spinoff, and other unusual items. The
aftertax expense related to continuing operations for these actions was $257
million, or $0.43 per share.
Net income in the first quarter of 1995 included an aftertax gain of
$25 million, or $0.04 per share, for insurance-related settlement payments
primarily associated with discontinued operations, and an aftertax charge of
$25 million, or $0.04 per share, which is reflected in discontinued
operations, for integration costs related to the formation of a joint
venture.
In the third quarter of 1995, net income included an aftertax gain of
$32 million, or $0.06 per share, for environmental insurance litigation
settlement payments related primarily to discontinued operations, and an
aftertax charge of $25 million, or $0.04 per share, which is reflected in
discontinued operations, for the settlement of a lawsuit related to a
Superfund site. Third-quarter net income and income from continuing
operations included favorable adjustments of approximately $13 million
aftertax, or $0.02 per share, related to certain sales rebate programs in the
United States for product sales made in prior years.
Net income for the fourth quarter of 1995 included an aftertax charge
of $125 million, or $0.22 per share, for restructuring actions. The aftertax
expense related to continuing operations for these actions was $78 million,
or $0.13 per share. Fourth-quarter 1995 net income also included an aftertax
gain of $116 million, or $0.20 per share, which is reflected in discontinued
operations, resulting from the sale of the styrenics plastics business.
43 1997 Monsanto Annual Report
<PAGE> 17
==============================================================================
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
==============================================================================
<TABLE>
<CAPTION>
(Dollars in millions, except per share) AS OF DEC. 31,
- -------------------------------------------------------------------------------------------------------------------------
ASSETS 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 134 $ 166
Trade receivables, net of allowances of $63 in 1997 and $47 in 1996 1,823 1,515
Miscellaneous receivables and prepaid expenses 692 286
Deferred income tax benefit 243 282
Inventories 1,374 1,183
Discontinued operations 908
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,266 4,340
- -------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 99 118
Buildings 914 848
Machinery and equipment 3,359 3,162
Construction in progress 329 300
- -------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment 4,701 4,428
Less accumulated depreciation 2,301 2,333
- -------------------------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 2,400 2,095
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN AFFILIATES 329 257
INTANGIBLE ASSETS, net of accumulated amortization of $853 in 1997 and $769 in 1996 2,837 2,166
OTHER ASSETS 942 664
NONCURRENT ASSETS -- DISCONTINUED OPERATIONS 1,715
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $10,774 $11,237
=========================================================================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 480 $ 479
Wages and benefits 251 456
Restructuring reserves 176 247
Miscellaneous accruals 906 728
Short-term debt 1,726 654
Discontinued operations 837
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,539 3,401
- -------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 1,979 1,608
DEFERRED INCOME TAXES 97 102
POSTRETIREMENT LIABILITIES 735 594
OTHER LIABILITIES 320 509
NONCURRENT LIABILITIES -- DISCONTINUED OPERATIONS 1,333
SHAREOWNERS' EQUITY:
Common stock (authorized: 1,000,000,000 shares, par value $2)
Issued: 821,970,970 shares in 1997 and 1996 1,644 1,644
Additional contributed capital 321 65
Treasury stock, at cost (226,686,302 shares in 1997 and 237,594,831 shares in 1996) (2,570) (2,661)
Reinvested earnings 4,973 4,795
Reserve for ESOP debt retirement<F1> (123) (174)
Accumulated currency adjustment (128) 10
Other (13) 11
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREOWNERS' EQUITY 4,104 3,690
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $10,774 $11,237
=========================================================================================================================
<FN>
The above statement should be read in conjunction with pages 51-61 of this
report.
<F1> ESOP stands for Employee Stock Ownership Plan.
</TABLE>
44 1997 Monsanto Annual Report
<PAGE> 18
==============================================================================
REVIEW OF CHANGES IN FINANCIAL POSITION
==============================================================================
Financial Position Remains Strong
Monsanto's financial position remained strong in 1997, as evidenced by the
company's "A" debt rating. Financial resources were adequate to support
existing businesses and to fund new business opportunities.
At the end of 1997, working capital was $212 million lower than at the
end of 1996, primarily because of higher short-term debt levels at year-end
1997. The effect of higher short-term debt was partially offset by increases
in receivables and inventories and a decrease in accrued wages and benefits.
Miscellaneous receivables increased because of 1997 fourth-quarter
Pharmaceuticals segment sales of product rights and licensing arrangements.
Trade receivables at year-end 1997 increased compared with those at the prior
year-end, primarily because of higher sales levels for the Agricultural
Products and the Pharmaceuticals segments. Inventories at year-end 1997
increased, primarily because of higher inventories in the Agricultural
Products segment. Accrued wages and benefits declined in 1997 because of a
large incentive payout, related to the third year of a three-year plan, made
in 1997. Working capital at year-end 1996 included $71 million of working
capital related to discontinued operations.
New business opportunities and other needs in 1997 were financed with
increased short- and long-term debt, which resulted in a ratio of total debt
to total capitalization of 47 percent at year-end 1997, compared with 38
percent at year-end 1996. The company is considering various alternatives for
several of its nonstrategic businesses that may result in cash proceeds to
reduce the company's debt or finance future opportunities.
The amount of net property, plant and equipment at year-end 1997 was
higher than the comparable 1996 amount, as $644 million in capital additions
and the effects of acquisitions exceeded 1997 depreciation expense and
divestitures. The increase in intangible assets was attributable primarily to
the acquisition of Holden's Foundation Seeds Inc.
Total deferred tax benefits, both current and noncurrent, of $495
million at year-end 1997 were related primarily to U.S. operations, which
generally have a strong earnings history.
Monsanto uses financial markets worldwide for its financing needs. It
has available various short- and medium-term bank credit facilities, which
are discussed in the Notes to Financial Statements on pages 51-61. These
credit facilities give Monsanto the financing flexibility it needs to take
advantage of investment opportunities that may arise and to satisfy future
funding requirements. To maintain adequate financial flexibility and access
to debt markets worldwide, Monsanto management intends to maintain an "A"
debt rating.
Monsanto's commitments and contingencies are described in the Notes to
Financial Statements on page 61.
<TABLE>
<CAPTION>
-----------------------------------------
KEY FINANCIAL STATISTICS 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT RATIO (Current assets divided by current liabilities) 1.2 1.3 1.5
TRADE RECEIVABLES -- DAYS SALES OUTSTANDING 95 99 80
(Fourth-quarter trade receivables divided by fourth-quarter
net sales times 30 days)
INVENTORY TURNOVER RATIO (Cost of goods sold divided by inventory) 2.2 2.3 2.2
INTEREST COVERAGE<F1> 2.9 5.3 5.7
(Income from continuing operations before interest expense
and income taxes divided by total interest cost)
CASH PROVIDED BY CONTINUING OPERATIONS/TOTAL DEBT 10% 42% 26%
TOTAL DEBT/TOTAL CAPITALIZATION<F2> 47% 38% 35%
- --------------------------------------------------------------------------------------------------------------
<FN>
<F1> If the effects of the in-process research and development write-offs were
excluded in 1997, the interest coverage ratio would have been 6.6. If the
effects of the restructuring and other unusual charges were excluded in
1996, the interest coverage ratio would have been 8.2.
<F2> Total capitalization is the sum of short-term debt, long-term debt and
shareowners' equity.
</TABLE>
45 1997 Monsanto Annual Report
<PAGE> 19
==============================================================================
STATEMENT OF CONSOLIDATED CASH FLOW
==============================================================================
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
- -----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Income from continuing operations $ 294 $ 413 $ 461
Add income taxes -- continuing operations 72 140 184
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 366 553 645
Adjustments to reconcile to Cash Provided by Continuing Operations:
Income tax payments (134) (308) (335)
Items that did not use cash:
Depreciation and amortization 487 423 405
Acquired in-process research and development expense 684
Restructuring expenses 356 114
Other (16) 70 10
Working capital changes that provided (used) cash:
Accounts receivable (268) (330) (94)
Inventories (113) (86) (107)
Accounts payable and accrued liabilities (288) 198 13
Other (81) 12 (51)
Pretax gains from asset sales and licensing arrangements (232) (9) (9)
Other items (51) 61 (60)
- -----------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY CONTINUING OPERATIONS 354 940 531
CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS (138) 263 292
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CASH PROVIDED BY OPERATIONS 216 1,203 823
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Property, plant and equipment purchases (644) (500) (301)
Seed company acquisitions and investments (1,325) (470)
Acquisition of Kelco and pharmaceutical product lines (1,296)
Other acquisitions and investments (618) (250) (139)
Investment and property disposal proceeds 88 165 77
Discontinued operations -- proceeds from sale of styrenics plastics business 580
Discontinued operations -- other (44) (200) (206)
- -----------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (2,543) (1,255) (1,285)
- -----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net change in short-term financing 2,372 297 53
Long-term debt proceeds 208 122 658
Long-term debt reductions (142) (177) (403)
Treasury stock purchases (253)
Dividend payments (294) (343) (306)
Common stock issued under employee stock plans 91 142 194
Cash transferred to Solutia Inc. (75)
Other financing activities 135 133 56
- -----------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,295 (79) 252
- -----------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (32) (131) (210)
CASH AND CASH EQUIVALENTS:
Beginning of year 166 297 507
- -----------------------------------------------------------------------------------------------------------------------
END OF YEAR $ 134 $ 166 $ 297
=======================================================================================================================
<FN>
The above statement should be read in conjunction with pages 51-61 of this
report.
The effect of exchange rate changes on cash and cash equivalents was not
material.
Cash payments for interest (net of amounts capitalized) were $210 million in
1997, $195 million in 1996, and $195 million in 1995.
</TABLE>
46 1997 Monsanto Annual Report
<PAGE> 20
==============================================================================
REVIEW OF CASH FLOW
==============================================================================
Cash Flow Declines
Cash provided by continuing operations totaled $354 million in 1997, down
significantly from the previous year's level of $940 million. The decrease
was caused primarily by significantly higher employee incentive payouts in
1997 for the final payment of certain deferred amounts related to a
three-year incentive plan; severance and other payments during 1997 related
to restructuring reserves and spinoff transaction costs; and $150 million
of like-kind exchange proceeds from a 1995 business sale, which were
earmarked to prefund 1996 capital expenditures. Working capital as a percent
of net sales was 10 percent in 1997 compared with 15 percent in 1996.
Monsanto's operations have historically generated sufficient cash to
fund both its existing businesses and its research and development expenses.
In 1997, investment and property disposal proceeds related primarily to
sales of nonstrategic properties and maturing investments. In 1996 and 1995,
investment and property disposal proceeds related primarily to nonstrategic
investments.
Major uses of cash in 1997, 1996 and 1995 included investments, capital
expenditures, dividends and treasury stock purchases. Major investments in
1997 were the acquisitions of Asgrow Agronomics, Holden's Foundation Seeds
Inc., Corn States Hybrid Service Inc., and Sementes Agroceres S.A. seed
companies, and the remaining interest in Calgene Inc. Major investments in
1996 were the equity investment in DEKALB Genetics Corp., an investment in
Calgene, and the acquisition of the plant biotechnology assets of Agracetus.
Major investments in 1995 included the acquisition of the Kelco business and
the Syntex pharmaceutical product lines. Monsanto's capital expenditures,
which focused on improved technology and capacity expansions, totaled $644
million in 1997. Business redesign efforts and productivity enhancements were
successful in increasing effective capacity at many facilities, thereby
reducing the need for additional capital expenditures.
To the extent the company's cash provided by operations was not
sufficient to fund its cash needs during the period, short- and long-term
debt was issued to finance these requirements. In December 1997, the company
issued $200 million of 30-year debentures at an interest rate of 6.75
percent. The majority of the debt needs in 1996 and 1997 were financed with
short-term commercial paper because of its relatively low interest rates and
the generally favorable debt market environment.
[GRAPH]
CASH PROVIDED
BY CONTINUING
OPERATIONS
Risk Management
Monsanto continually evaluates risk retention and insurance levels for
product liability, property damage and other potential areas of risk.
Monsanto devotes significant effort to maintaining and improving safety and
internal control programs, which reduce its exposure to certain risks.
Management decides the amount of insurance coverage to purchase from
unaffiliated companies and the appropriate amount of risk to retain based on
the cost and availability of insurance and the likelihood of a loss. Since
1986, Monsanto's liability insurance has been a "claims made" policy form.
Management believes that the current levels of risk retention are consistent
with those of comparable companies in the various industries in which
Monsanto operates. There can be no assurance that Monsanto will not incur
losses beyond the limits of, or outside the coverage of, its insurance.
Monsanto's liquidity, financial position and profitability are not expected
to be affected materially by the levels of risk retention that the company
accepts.
Company Prepares for Year 2000
Beginning in late 1996, Monsanto initiated the Global Year 2000 program to
ensure that its infrastructure and information systems comply with the
systems requirements for the year 2000. The program includes the following
phases: identifying systems that need to be replaced or fixed, assessing the
extent of the work required, prioritizing the work and developing an action
plan, and implementing the action plan. In higher risk areas, the company
also has developed contingency action plans. Monsanto had essentially
completed the first three phases of the program as of Dec. 31, 1997, and is
now primarily in the implementation phase. The majority of systems, including
all business critical systems, are expected to comply with year 2000
requirements by the first quarter of 1999. Monsanto also has contacted its
major suppliers to assess their preparations for the year 2000. Similar
contacts also are planned for major customers. The company continues to
evaluate the estimated costs associated with year 2000 compliance based on
actual experience. While the year 2000 efforts involve additional costs,
Monsanto believes, based on available information, that it will be able to
manage its year 2000 transition without any material adverse effect on its
business operations, financial position, profitability or liquidity.
47 1997 Monsanto Annual Report
<PAGE> 21
==============================================================================
REVIEW OF CASH FLOW (continued)
==============================================================================
Dividend Policy Re-Evaluated
Monsanto has paid quarterly dividends on its common shares without
interruption since 1928. In 1997, following the spinoff of its chemical
businesses, the company's board of directors re-evaluated the dividend policy
and reduced the quarterly dividend on its common stock. The lower dividend
payout was chosen to reflect the desire to fund the company's growth
opportunities appropriately to create long-term economic value for
shareowners. Monsanto's dividend policy reflects the company's expectations
of future growth, profitability, financial position, acquisitions, working
and fixed capital needs, scheduled debt repayments, and economic conditions,
including inflation. The quarterly dividend paid in December 1997 was $0.03
per share vs. $0.16 per share paid in September 1997.
Monsanto's common stock is traded principally on the New York Stock
Exchange. The number of share-owners of record as of Feb. 27, 1998, was
61,008. The high and low common stock prices on that date were $51 9/16 and
$50 3/8, respectively.
==============================================================================
FINANCIAL INSTRUMENTS
==============================================================================
Market Risk Management
Monsanto is exposed to market risk, including changes in interest rates,
currency exchange rates and commodity prices. To manage the volatility
relating to these exposures, the company enters into various derivative
transactions. Monsanto does not hold or issue derivative financial
instruments for trading purposes. For more information about how Monsanto
manages specific risk exposures, see the currency translation note on page
51, the inventory valuation note beginning on page 54, and the long-term debt
note on page 56, in Notes to Financial Statements.
The tables below and on the next page provide information about the
company's derivative instruments and other financial instruments that are
sensitive to changes in interest rates, currency exchange rates and commodity
prices. The financial instruments are grouped by market risk exposure
category. Instrument denominations are indicated in parentheses. For
instruments denominated in currencies other than the U.S. dollar, the
information is presented in U.S. dollar equivalents, which is the company's
reporting currency.
Significant interest rate risk sensitive instruments as of Dec. 31,
1997, were:
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except average
interest rate) 1998 1999 2000 2001 2002 THEREAFTER TOTAL FAIR VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT:
Fixed rate ($US)
Principal amount $50 $179 $ 33 $19 $818 $1,099 $1,171
Average interest rate 8.4% 6.1% 8.6% 8.3% 7.6% 7.4%
Variable rate ($US)
Principal amount<F1> $ 1 $ 8 $634 $16 $190 $ 849 $ 849
Average interest rate<F2> 2.9% 3.2% 5.6% 3.1% 5.2% 5.4%
SHORT-TERM DEBT:
Fixed rate (Brazilian real)
Principal amount $ 244 $ 244 $ 244
Average interest rate 8.0% 8.0%
Variable rate ($US)
Principal amount $1,208 $1,208 $1,208
Average interest rate<F2> 5.8% 5.8%
- -----------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Includes $625 million of commercial paper that is assumed to be renewed
through 2001, when the company's credit facility expires.
<F2> Average variable rates are based on 1997 year-end variable rates. Actual
rates may be higher or lower.
</TABLE>
48 1997 Monsanto Annual Report
<PAGE> 22
==============================================================================
FINANCIAL INSTRUMENTS (continued)
==============================================================================
Significant currency exchange rate risk sensitive instruments as of
Dec. 31, 1997 (dollars in millions, except average exchange rate):
<TABLE>
<CAPTION>
AVERAGE
NOTIONAL EXCHANGE FAIR
EXPECTED MATURITY 1998 AMOUNT RATE<F1> VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FORWARD CONTRACTS:
Purchase of Belgian franc $103 36.09 $101
Purchase of British pound 87 0.589 85
Sale of Brazilian real 50 1.152 50
Sale of Canadian dollar 27 1.402 26
Sale of Australian dollar 19 1.460 18
Sale of South African rand 15 4.966 15
Sale of Indonesian rupiah 9 4377 7
Sale of Philippine peso 7 39.07 7
Sale of Malaysian ringgit 5 3.43 4
- -------------------------------------------------------------------------------
<FN>
<F1> Average contract exchange rates are stated in currency units per
U.S. dollar.
</TABLE>
Significant commodity price risk sensitive instruments as of Dec. 31,
1997:
<TABLE>
<CAPTION>
-----------------------------------------
EXPECTED
MATURITY FAIR
1998 VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
CORN FUTURES CONTRACTS:
Contract volumes (million bushels) 2.1
Weighted average price (per bushel) $2.90
Contract amount ($US in millions) $6 $6
SOYBEAN FUTURES CONTRACTS:
Contract volumes (million bushels) 8.9
Weighted average price (per bushel) $6.96
Contract amount ($US in millions) $62 $61
- -------------------------------------------------------------------------------
<FN>
Contract amounts are used to calculate the contractual payments and quantity
of the commodity to be exchanged.
</TABLE>
==============================================================================
DISCLOSURE OF FORWARD-LOOKING STATEMENTS
==============================================================================
Under the Private Securities Litigation Reform Act of 1995, companies are
provided a "safe harbor" for making forward-looking statements about the
potential risks and rewards of their strategies. Monsanto believes it's in
the best interests of our shareowners to use these provisions in discussing
future events, as we do in this annual report and other communications. These
forward-looking statements include our plans for growth; the potential for
the development, regulatory approval and public acceptance of new products
from our pipeline; and other factors that could affect Monsanto's future
operations or financial position.
Monsanto's ability to achieve its goals depends on many known and
unknown risks and uncertainties, as well as on changes in general economic
and business conditions. These factors could cause the anticipated
performance and results of the company to differ materially from those
described or implied in forward-looking statements.
Factors that could cause or contribute to such differences include, but
aren't limited to Monsanto's ability to: generate cash flows or obtain
financing to fund its growth, including research and development; identify
new technologies and commercialize from that research innovative and
competitive new products worldwide; obtain regulatory approvals and gain
consumer acceptance of new products worldwide; secure and defend its
intellectual property rights and, when appropriate, license required
technology; manufacture its products competitively and cost effectively;
manage its businesses in the face of adverse weather or other environmental
conditions; respond to challenges in international markets, including changes
in currency exchange rates, political or economic conditions, and trade and
regulatory matters; complete and integrate appropriate acquisitions,
strategic alliances and joint ventures; and manage other factors as may
be discussed in Monsanto's reports filed with the U.S. Securities and
Exchange Commission.
49 1997 Monsanto Annual Report
<PAGE> 23
==============================================================================
STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY
==============================================================================
<TABLE>
<CAPTION>
(Dollars in millions, except per share) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Balance, Jan. 1 $ 1,644 $ 329 $ 329
Par value of stock issued in five-for-one stock split 1,315
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 $ 1,644 $ 1,644 $ 329
- -------------------------------------------------------------------------------------------------------------------------
ADDITIONAL CONTRIBUTED CAPITAL:
Balance, Jan. 1 $ 65 $ 902 $ 849
Employee stock plans and ESOP<F1> 135 133 53
Par value of stock issued in five-for-one stock split (970)
Spinoff of chemical businesses 121
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 $ 321 $ 65 $ 902
- -------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK:
Balance, Jan. 1 $(2,661) $(2,550) $(2,744)
Shares purchased<F2> (8,244,500 shares in 1996) (253)
Net shares issued under employee stock plans<F2> (10,900,529 shares in 1997;
15,269,164 shares in 1996; and 19,675,660 shares in 1995) 91 142 194
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 $(2,570) $(2,661) $(2,550)
- -------------------------------------------------------------------------------------------------------------------------
REINVESTED EARNINGS:
Balance, Jan. 1 $ 4,795 $ 5,097 $ 4,661
Net income 470 385 739
Dividends (net of ESOP tax benefits) (292) (342) (303)
Par value of stock issued in five-for-one stock split (345)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 $ 4,973 $ 4,795 $ 5,097
- -------------------------------------------------------------------------------------------------------------------------
RESERVE FOR ESOP DEBT RETIREMENT:
Balance, Jan. 1 $ (174) $ (181) $ (199)
Allocation of ESOP shares 20 7 18
Spinoff of chemical businesses 31
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 $ (123) $ (174) $ (181)
- -------------------------------------------------------------------------------------------------------------------------
ACCUMULATED CURRENCY ADJUSTMENT:
Balance, Jan. 1 $ 10 $ 101 $ 33
Translation adjustments (127) (91) 68
Spinoff of chemical businesses (11)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 $ (128) $ 10 $ 101
- -------------------------------------------------------------------------------------------------------------------------
OTHER:
Balance, Jan. 1 $ 11 $ 34 $ 19
Net change in market value of investments (8) (23) 15
Minimum pension liability (16)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 $ (13) $ 11 $ 34
=========================================================================================================================
<FN>
The above statement should be read in conjunction with pages 51-61 of this
report.
<F1> ESOP stands for Employee Stock Ownership Plan.
<F2> Adjusted for the 1996 five-for-one common stock split.
50 1997 Monsanto Annual Report
<PAGE> 24
==============================================================================
NOTES TO FINANCIAL STATEMENTS
==============================================================================
Significant Accounting Policies
Monsanto's significant accounting policies are italicized in the following
Notes to Financial Statements.
Basis of Presentation
Where applicable, per share amounts and the number of shares have been
restated to reflect the May 1996 five-for-one common stock split effected in
the form of a stock dividend. The financial statements have been restated to
present the results of the company's former chemical businesses as
discontinued operations. Earnings per share have been restated to reflect the
company's adoption of Statement of Financial Accounting Standard No. 128,
"Earnings per Share." Previously reported amounts have been reclassified to
make them consistent with the current presentation. The following notes
relate to the continuing operations of Monsanto, unless otherwise indicated.
Basis of Consolidation
The consolidated financial statements include the company and its
majority-owned subsidiaries. Intercompany transactions have been eliminated
in consolidation. Other companies in which Monsanto has a significant
ownership interest (generally greater than 20 percent) are included in
"Investments in Affiliates" in the Statement of Consolidated Financial
Position. Monsanto's share of these companies' net earnings or losses is
included in "Other income (expense) -- net" in the Statement of Consolidated
Income.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and that affect revenues and expenses during the period reported. Estimates
are adjusted to reflect actual experience when necessary. Significant
estimates are used to account for restructuring reserves, self-insurance
reserves, employee benefit plans, asset impairments and contingencies.
Currency Translation
The financial statements for most of Monsanto's ex-U.S. entities are
translated into U.S. dollars at current exchange rates. Unrealized currency
translation adjustments in the Statement of Consolidated Financial Position
are accumulated in shareowners' equity. The financial statements of ex-U.S.
entities that operate in hyperinflationary economies are translated at either
current or historical exchange rates, as appropriate. These currency
adjustments are included in net income.
Major currencies are the U.S. dollar, British pound sterling, Belgian
franc and Japanese yen. Other important currencies include the Brazilian
real, Canadian dollar, French franc, German mark and Italian lira. Currency
restrictions are not expected to have a significant effect on Monsanto's cash
flow, liquidity or capital resources.
Currency option contracts are purchased to manage currency exposure for
anticipated transactions (for example, expected export sales in the following
year denominated in foreign currencies). Currency option and forward
contracts are used to manage other currency exposures, primarily for
receivables and payables denominated in currencies other than the entities'
functional currencies. This hedging activity is intended to protect the
company from adverse fluctuations in foreign currencies vs. the entities'
functional currencies.
As of Dec. 31, 1997, Monsanto had currency forward contracts to
purchase $189 million and to sell $131 million, and purchased currency option
contracts to sell $38 million, of other currencies. Gains and losses on
contracts that are designated and effective as hedges are deferred and are
included in the recorded value of the transaction being hedged. Net deferred
hedging losses as of Dec. 31, 1997, were not material. Gains and losses on
other currency forward and option contracts are included in net income
immediately. Monsanto is subject to loss if the counterparties to these
contracts do not perform.
Principal Acquisitions and Divestitures
In 1997, the company made several strategic acquisitions of agricultural seed
companies. In February 1997, Monsanto completed its acquisition of the Asgrow
Agronomics seed business. In September 1997, Monsanto completed the
acquisitions of Holden's Foundation Seeds Inc. and Corn States Hybrid Service
Inc. In December 1997, the company acquired controlling interest in Sementes
Agroceres S.A., a Brazilian seed company. The combined purchase price of
these acquisitions was approximately $1.4 billion. The purchase price
allocations for Agroceres are based on preliminary assumptions and are
subject to revision.
In 1997, Monsanto recorded aftertax charges of $383 million, or $0.64
per share, for the write-off of in-process research and development (R&D)
related to the seed company acquisitions. The amounts of purchased in-process
R&D were determined by independent valuations. Management believes that the
technological feasibility of the acquired in-process research has not been
established and that it has no alternative future use. Accordingly, the
amounts allocated to in-process R&D are required to be expensed immediately
under generally accepted accounting principles.
The following unaudited pro forma information combines the consolidated
results of operations of Monsanto with those of Asgrow, Holden's, Corn States
and Agroceres as if these acquisitions had occurred at
51 1997 Monsanto Annual Report
<PAGE> 25
==============================================================================
NOTES TO FINANCIAL STATEMENTS (continued)
==============================================================================
the beginning of 1996. The pro forma results give effect to certain purchase
accounting adjustments, including additional amortization expense from
goodwill and other identified intangible assets, and increased interest
expense from acquisition debt. Pro forma income from continuing operations for
1997 excludes unusual charges of $455 million, or $0.75 per share, related to
in-process R&D. Pro forma income from continuing operations for 1996 excludes
restructuring and other unusual charges of $257 million, or $0.43 per share.
</TABLE>
<TABLE>
<CAPTION>
--------------------------
1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Sales $7,642 $6,661
Income from continuing operations 683 587
Earnings per share --
continuing operations 1.12 0.98
- ------------------------------------------------------------------
</TABLE>
This pro forma financial information is presented for comparative
purposes only and is not necessarily indicative of the operating results that
actually would have occurred had the acquisitions occurred on the earliest
day of the periods presented. In addition, these results are not intended to
be a projection of future results.
In May 1997, Monsanto completed its acquisition of the remaining shares
of Calgene Inc. that Monsanto did not already own for $8.00 per share, in
cash, or approximately $267 million. In conjunction with this acquisition,
Monsanto recorded a $72 million aftertax charge ($72 million pretax), or
$0.11 per share, for acquired in-process R&D. This charge was not tax
effected because the transaction was a stock acquisition rather than an asset
purchase. The purchase price allocations are based upon preliminary
assumptions and are subject to revision. The amount of this write-off was
determined by an independent valuation. Management believes that the
technological feasibility of the acquired in-process research has not been
established and that it has no alternative future use. Accordingly, the
amounts allocated to in-process R&D are required to be expensed immediately
under generally accepted accounting principles.
Also in 1997, Monsanto completed several smaller acquisitions. The
combined purchase price of these acquisitions was approximately $200 million.
The purchase price allocations for these acquisitions are based on
preliminary assumptions and are subject to revision.
The above acquisitions were accounted for as purchases, and,
accordingly, the results of operations for these companies were included in
the Statement of Consolidated Income from the dates of acquisition. The
excess of the purchase price over the estimated fair value of net assets
acquired was recorded as goodwill and is being amortized over not more than
20 years.
In March 1996, Monsanto acquired significant equity positions in
Calgene and DEKALB Genetics Corp. In November 1996, Monsanto acquired a
controlling interest in Calgene. The combined investment in these businesses
was approximately $340 million. In May 1996, Monsanto acquired the plant
biotechnology assets of Agracetus for approximately $150 million.
In September 1995, Searle acquired the women's health care assets,
primarily product rights, of the former Syntex Corp., a subsidiary of Roche
Holding Ltd., for approximately $240 million. In February 1995, Monsanto
completed its acquisition of the worldwide business of Kelco, the specialty
chemicals division of Merck & Co. Inc., for $1.062 billion.
Discontinued Operations
In December 1996, the board of directors approved a plan to spin off the
company's chemical businesses to shareowners by means of the distribution of
shares of a newly formed, wholly owned subsidiary, later named Solutia Inc.
Effective Aug. 12, 1997, the board declared the distribution on Sept. 1,
1997, to shareowners of record on Aug. 20, 1997, of one share of Solutia
common stock and one preferred share purchase right of Solutia for every five
shares of Monsanto common stock, subject to certain conditions, including
shareowner approval. At a special meeting held Aug. 18, 1997, shareowners
approved the spinoff. It became effective Sept. 1, 1997.
As a result of shareowner approval of the spinoff, Monsanto's financial
statements have been restated to present the results of operations, cash flow
and financial position of the chemical businesses as discontinued operations.
Discontinued operations also include certain other operations of the
company's chemical businesses that have been sold, primarily the styrenics
plastics business. Operating results for discontinued operations were:
<TABLE>
<CAPTION>
---------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,943 $2,914 $3,552
====================================================================================
Income (loss) before
income taxes $ 266 $ (13) $ 253
Pretax gain on sale
of business 189
Income taxes 90 15 164
- ------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 176 $ (28) $ 278
====================================================================================
</TABLE>
Pretax restructuring and other unusual charges related to discontinued
operations were $340 million in 1996 and $55 million in 1995. These costs
were associated with work force reductions, the rationalization or closure of
certain facilities, asset write-offs, and exit costs to separate the chemical
businesses. Other pretax items affecting discontinued operations in 1995 were
receipt of settlement payments of $88 million from various insurers for
environmental and other insurance litigation, offset by a lawsuit settlement
of $41 million and joint venture integration
52 1997 Monsanto Annual Report
<PAGE> 26
==============================================================================
NOTES TO FINANCIAL STATEMENTS (continued)
==============================================================================
costs of $40 million. Also in 1995, the styrenics plastics business and an
interest in a related joint venture were sold for a pretax gain of $189
million.
The effective tax rate for discontinued operations for 1996 exceeded
the 35 percent U.S. federal statutory rate, primarily because of the effect
of nondeductible exit costs incurred to separate the chemical businesses.
This, in turn, was partly offset by the effect of lower ex-U.S. tax rates.
The effective tax rates for discontinued operations in 1995 and 1994 exceeded
the U.S. federal statutory rate, primarily because of the effect of state
income taxes.
Interest expense of $39 million in 1997, $52 million in 1996, and $58
million in 1995 has been allocated to the operating results of Solutia based
on the debt assumed by Solutia. Historically, the company did not allocate
any debt to the chemical businesses because the company uses a centralized
approach to cash management and the financing of its operations.
In connection with the spinoff, Solutia assumed the pension liabilities
and received related assets for its active employees and for certain former
employees of the chemical businesses. Solutia also assumed the postretirement
benefit liabilities for its active employees and former employees who last
worked in a chemical business.
To complete the spinoff, Monsanto contributed certain assets to
Solutia, and Solutia assumed certain liabilities of Monsanto. In addition to
the assets and liabilities reported as discontinued operations in the
Consolidated Statement of Financial Position, the assets contributed to
Solutia and liabilities assumed by Solutia included a joint venture interest
in Monsanto's elemental phosphorus business, $75 million of cash and $1.0
billion of short-term debt. Also in connection with the spinoff, Solutia's
employee stock ownership plan (ESOP) received 2.4 million shares of
unallocated company common stock held by Monsanto's ESOP, and assumed $29
million of ESOP borrowings. The excess of the liabilities assumed by Solutia
and Solutia's ESOP over the assets contributed to Solutia in connection with
the spinoff (approximately $141 million) increased Monsanto's shareowners'
equity.
In connection with the spinoff, several agreements entered into by
Monsanto and Solutia allocated responsibility between them for various debts,
liabilities and obligations. These agreements provide that Solutia will
indemnify Monsanto for the liabilities assumed by Solutia pursuant to such
agreements.
Restructuring and Other Actions -- Continuing Operations
In December 1996, the company recorded pretax restructuring charges and other
unusual items related to continuing operations of $376 million ($257 million
aftertax) to cover the closure or rationalization of certain facilities,
asset write-offs, and work force reductions. Approximately 940 of the 1,520
positions expected to be eliminated by these actions had been eliminated by
the end of 1997. Included in these charges were aftertax amounts for asset
impairments totaling $39 million. These write-offs were related to intangible
assets for products no longer marketed and excess production capacity. Assets
were written down to their discounted cash values, using appropriate discount
rates.
In December 1995, the company recorded pretax restructuring charges
associated with continuing operations of $114 million ($78 million aftertax)
that covered the costs of work force reductions, business consolidations,
facility closures, and the exit from nonstrategic businesses and facilities.
This plan was substantially completed by the end of 1996 and reduced
employment by approximately 370 people. Other unusual items in 1995 included
approximately $20 million in favorable pretax adjustments ($13 million
aftertax) under certain sales rebate programs in the United States for
product sales made in prior years, and approximately $4 million ($2 million
aftertax) in insurance settlements.
The components of the pretax expense (income) related to income from
continuing operations before income taxes for the restructuring programs and
the other actions were:
<TABLE>
<CAPTION>
-------------------------
1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
Cost of employee reductions $255 $ 41
Shutdown and consolidation of
various facilities and departments 57 73
Asset impairments 51
Insurance-related settlement (income) (4)
Other costs (income) 13 (20)
- -------------------------------------------------------------------
TOTAL $376 $ 90
===================================================================
</TABLE>
The restructuring expenses recorded were based on estimates prepared at
the time the restructuring actions were approved by the board of directors.
The balance in restructuring reserves as of Dec. 31, 1997, was $235 million.
It is earmarked primarily for remaining work force reduction costs and the
costs associated with the shutdown and consolidation of various facilities
and departments. Management believes that the balance of these reserves as of
Dec. 31, 1997, is adequate for completion of those activities. Restructuring
actions during the last three years have reduced these liabilities by
approximately $330 million. Approximately one-half of these reductions were
related to the cost of work force reduction programs. The remaining
reductions were primarily related to write-offs and expenditures related to
the termination or sale of nonstrategic products and facilities.
The pretax expenses (income) related to the restructuring programs and
the other unusual items were
53 1997 Monsanto Annual Report
<PAGE> 27
==============================================================================
NOTES TO FINANCIAL STATEMENTS (continued)
==============================================================================
recorded in the Statement of Consolidated Income in the following categories:
<TABLE>
<CAPTION>
--------------------------
1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Net sales $ (20)
Cost of goods sold $ 28 (4)
Amortization of intangible assets 23
Restructuring expenses 356 114
- ------------------------------------------------------------------
Decrease in operating income 407 90
Other (income) expense -- net (31)
- ------------------------------------------------------------------
TOTAL DECREASE IN INCOME FROM
CONTINUING OPERATIONS BEFORE
INCOME TAXES $376 $ 90
==================================================================
</TABLE>
In 1996, other expense was reduced by reversals of restructuring
reserves that were no longer required, and by a minority interest associated
with restructuring and other unusual items recorded by Calgene.
Income from continuing operations decreased $257 million, or $0.43 per
share, in 1996, and decreased $63 million, or $0.11 per share, in 1995
because of these restructurings and other unusual items.
Depreciation and Amortization
<TABLE>
<CAPTION>
-------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation $299 $276 $272
Amortization of
intangible assets 173 128 119
Obsolescence 15 19 14
- ------------------------------------------------------------------------------
TOTAL $487 $423 $405
==============================================================================
</TABLE>
Property, plant and equipment is recorded at cost. The cost of plant
and equipment is depreciated over weighted average periods of 18 years for
buildings and 10 years for machinery and equipment, by the straight-line
method.
In 1996, total amortization of intangible assets reflected in the
Statement of Consolidated Income includes $23 million of charges for asset
impairments.
Intangible assets are recorded at cost less accumulated amortization.
The components of intangible assets and their estimated remaining useful
lives were:
<TABLE>
<CAPTION>
-----------------------------------------------------------
ESTIMATED
REMAINING
LIFE<F1> 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goodwill 21 $1,835 $1,519 $1,372
Patents and other
intangible assets 10 1,002 647 593
- ------------------------------------------------------------------------------------------
TOTAL $2,837 $2,166 $1,965
==========================================================================================
<FN>
<F1> Weighted average, in years, as of Dec. 31, 1997.
</TABLE>
Goodwill and other intangible assets increased in 1997, primarily
because of the acquisitions of Asgrow, Calgene and Holden's.
Goodwill is the cost of acquired businesses in excess of the fair value
of their identifiable net assets and is amortized over the estimated periods
of benefit (five to 40 years). Patents obtained in a business acquisition are
recorded at the present value of estimated future cash flows resulting from
patent ownership. The cost of patents is amortized over their legal lives.
The cost of other intangible assets (principally seed germplasm, product
rights and trademarks) is amortized over their estimated useful lives.
Impairment tests of long-lived assets are made when conditions indicate
a possible loss. Such impairment tests are based on a comparison of
undiscounted cash flows to the recorded value of the asset. If an impairment
is indicated, the asset value is written down to its discounted cash value,
using an appropriate discount rate.
Investments
Certain investments in equity securities, other than investments in equity
affiliates, are classified as available-for-sale securities, and are recorded
at their market values. When a decline in market value is deemed other than
temporary, the reduction to the investment in a security is charged to
expense. As of Dec. 31, these equity securities were detailed as follows:
<TABLE>
<CAPTION>
-----------------------
1997 1996
- ------------------------------------------------------------
<S> <C> <C>
Aggregate fair value $72 $79
Gross unrealized holding:
Gains -- 31
Losses 12 11
- ------------------------------------------------------------
</TABLE>
In 1996, proceeds and realized gains from sales of available-for-sale
securities were $80 million and $33 million, respectively.
Debt securities held are recorded at amortized cost, because the
company has the ability and intent to hold these securities to their maturity
date. These securities mature in less than five years. As of Dec. 31, 1997
and 1996, the total amortized cost of these securities was $116 million and
$147 million, respectively.
Inventory Valuation
Inventories are stated at cost or market, whichever is less. Actual cost is
used to value raw materials and supplies. Standard cost, which approximates
actual cost, is used to value finished goods and goods in process. Standard
cost includes direct labor and raw materials, and manufacturing overhead
based on practical capacity. The cost of certain inventories (49 percent as
of Dec. 31, 1997) is determined by using the last-in, first-out (LIFO)
method, which generally reflects the effects of inflation or deflation on
cost of goods sold sooner than other inventory
54 1997 Monsanto Annual Report
<PAGE> 28
==============================================================================
NOTES TO FINANCIAL STATEMENTS (continued)
==============================================================================
cost methods do. The cost of other inventories generally is determined by the
first-in, first-out (FIFO) method. Inventories at FIFO approximate current
cost.
The components of inventories were:
<TABLE>
<CAPTION>
----------------------------
1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 762 $ 630
Goods in process 265 287
Raw materials and supplies 390 333
- -------------------------------------------------------------------
Inventories, at FIFO cost 1,417 1,250
Excess of FIFO over LIFO cost (43) (67)
- -------------------------------------------------------------------
TOTAL $1,374 $1,183
===================================================================
</TABLE>
Commodity futures and options contracts are used to hedge the price
volatility of certain commodities, primarily soybeans and corn. This hedging
activity is intended to manage the cost of soybean and corn seeds that
Monsanto's seed companies purchase from seed growers and to reduce the risk
of incurring higher seed costs in periods of rising commodity prices. Gains
and losses on contracts that are designated and effective as hedges are
deferred in inventory and are included in cost of goods sold when the
underlying seeds are sold. As of Dec. 31, 1997, Monsanto had futures
contracts to purchase $68 million of corn and soybeans.
Income Taxes
The components of income from continuing operations before income taxes were:
<TABLE>
<CAPTION>
-------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $(55) $313 $339
Outside United States 421 240 306
- ------------------------------------------------------------------------------
TOTAL $366 $553 $645
==============================================================================
</TABLE>
The components of income tax expense charged to operations were:
<TABLE>
<CAPTION>
---------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. federal $ 138 $ 42 $ 180
U.S. state 20 14 6
Outside United States 124 91 108
- -------------------------------------------------------------------------------
282 147 294
- -------------------------------------------------------------------------------
Deferred:
U.S. federal (194) 10 (108)
U.S. state (17) (6) 6
Outside United States 1 (11) (8)
- -------------------------------------------------------------------------------
(210) (7) (110)
- -------------------------------------------------------------------------------
TOTAL $ 72 $140 $ 184
===============================================================================
</TABLE>
Factors causing Monsanto's effective tax rate to differ from the U.S.
federal statutory rate were:
<TABLE>
<CAPTION>
-------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory rate 35% 35% 35%
U.S. export earnings (7) (6) (2)
Puerto Rican operations (5) (4) (4)
U.S. R&D tax credit (7) (1) --
Lower ex-U.S. rates (2) (1) --
Nondeductible goodwill 3 2 1
Valuation allowances (4) -- (2)
Acquired in-process R&D 7
Other -- -- 1
- ------------------------------------------------------------------------------
EFFECTIVE INCOME TAX RATE 20% 25% 29%
==============================================================================
</TABLE>
Deferred income tax balances were related to:
<TABLE>
<CAPTION>
-----------------------
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Property $(180) $(243)
Postretirement benefits 231 171
Restructuring reserves 71 181
Inventory 6 40
Net operating tax loss and
tax credit carryforwards 138 163
Acquired in-process R&D 207
Other (53) 66
Valuation allowances (22) (168)
- -------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 398 $ 210
===============================================================================
</TABLE>
Deferred tax balances were:
<TABLE>
<CAPTION>
-----------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets $495 $312
Deferred tax liabilities 97 102
- ------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $398 $210
==============================================================================
</TABLE>
The balance in valuation allowances as of Dec. 31, 1996, included $107
million for Calgene, primarily related to U.S. net operating loss
carryforwards. In 1997, Monsanto acquired the remaining 46 percent interest
in Calgene and, as part of the acquisition accounting, recognized the
majority of the deferred tax assets related to these carryforwards. These
carryforwards expire from 1999 through 2011. In 1997, Monsanto recognized $24
million in benefits from certain ex-U.S. net operating loss carryforwards. As
of Dec. 31, 1997, Monsanto had available approximately $50 million in
remaining ex-U.S. net operating loss carryforwards, which expire from 1998
through 2001.
Income taxes and remittance taxes have not been recorded on $1.4
billion in undistributed earnings of subsidiaries, either because any taxes
on dividends would be offset substantially by foreign tax credits or because
Monsanto intends to reinvest those
55 1997 Monsanto Annual Report
<PAGE> 29
==============================================================================
NOTES TO FINANCIAL STATEMENTS (continued)
==============================================================================
earnings indefinitely. It is not practicable to estimate the income tax
liability that might be incurred if such earnings were remitted to the United
States.
Short-Term Debt and Credit Arrangements
Short-term debt was:
<TABLE>
<CAPTION> --------------------------
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to banks $ 312 $129
Commercial paper 1,200 332
Bank overdrafts 126 112
Current portion of long-term debt 88 81
- -------------------------------------------------------------------------------
TOTAL $1,726 $654
===============================================================================
Weighted average interest rates of
notes payable as of Dec. 31:
Banks <F1> 8.5% 7.7%
Commercial paper 5.9% 5.5%
- -------------------------------------------------------------------------------
<FN>
<F1> Includes the effect of notes in certain countries where local inflation
results in high interest rates.
</TABLE>
Monsanto had aggregate short-term loan facilities of $746 million,
under which loans totaling $312 million were outstanding as of Dec. 31, 1997.
Interest on these loans is related to various bank rates. Monsanto has a $1.0
billion credit facility, expiring in 2001, which allows the company to
request that lenders increase their commitments up to an aggregate of $1.6
billion. There were no borrowings under this credit facility as of Dec. 31,
1997. This facility is used to support the issuance of commercial paper.
Interest on amounts borrowed under this agreement is expected to be at money
market rates. Covenants under this credit facility restrict maximum
borrowings. The company does not anticipate that future borrowings will be
limited by the terms of this agreement. Historically, Monsanto did not
allocate any short-term debt to the chemical businesses, because the company
uses a centralized approach to cash management and the financing of its
operations. Effective Sept. 1, 1997, in connection with the spinoff, Solutia
assumed $1.0 billion of the company's short-term debt, primarily commercial
paper, outstanding on that date.
Long-Term Debt
Long-term debt (exclusive of current maturities) was:
<TABLE>
<CAPTION>
------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Industrial revenue bond obligations,
average rate in 1997 of 4.96%,
due 1999 to 2028 $ 338 $ 338
Medium-term notes, rates in 1997
ranging from 8.55% to 9%,
due 1999 to 2005 90 145
Commercial paper 625 325
6% notes due 2000 150 150
7.09% and 8.13% amortizing ESOP<F1>
notes and debentures due 2000 and
2006, guaranteed by the company 101 138
8 7/8% debentures due 2009 99 99
5.6% yen note due 2016 77 88
8.7% debentures due 2021 100 100
8.2% debentures due 2025 150 150
6.75% debentures due 2027 198
Other 51 75
- ------------------------------------------------------------------------------
TOTAL $1,979 $1,608
==============================================================================
<FN>
<F1> ESOP stands for employee stock ownership plan.
</TABLE>
Maturities and sinking-fund requirements on long-term debt, excluding
commercial paper, are $88 million in 1998, $84 million in 1999, $226 million
in 2000, $43 million in 2001, and $35 million in 2002.
Commercial paper balances of $625 million and $325 million as of Dec.
31, 1997 and 1996, respectively, have been classified as long-term debt.
Monsanto has the ability and intent to renew these obligations beyond 1998.
Interest-rate swap agreements are used to reduce interest rate risks
and to manage interest expense. By entering into these agreements, the
company changes the fixed/variable interest-rate mix of its debt portfolio.
As of Dec. 31, 1997, Monsanto was party to interest-rate swap agreements with
an aggregate notional principal amount of $90 million related to existing
debt. The agreements effectively convert floating-rate debt into fixed-rate
debt. This reduces the company's risk of incurring higher interest costs in
periods of rising interest rates. Monsanto is subject to loss if the
counterparties to these agreements do not perform. Interest differentials to
be paid or received because of swap agreements are reflected as an adjustment
to interest expense over the related debt period.
Historically, Monsanto did not allocate any long-term debt to the
chemical businesses, because the company uses a centralized approach to cash
management and the financing of its operations. Effective Sept. 1, 1997, in
connection with the spinoff, Solutia's ESOP assumed $29 million of ESOP
borrowings.
56 1997 Monsanto Annual Report
<PAGE> 30
==============================================================================
NOTES TO FINANCIAL STATEMENTS (continued)
==============================================================================
Fair Values of Financial Instruments
The estimated fair values of Monsanto's financial instruments were:
<TABLE>
<CAPTION>
----------------------------------------------------------
1997 1996
----------------------------------------------------------
RECORDED FAIR RECORDED FAIR
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt $1,979 $2,053 $1,608 $1,681
- ------------------------------------------------------------------------------------------
</TABLE>
The recorded amounts of cash, trade receivables, investments in
securities, discounted receivables, third-party guarantees, commodity futures
contracts, currency forward contracts and swaps, accounts payable,
interest-rate swaps, and short-term debt approximate their fair values.
Fair values are estimated by the use of quoted market prices, estimates
obtained from brokers, and other appropriate valuation techniques based on
information available as of Dec. 31, 1997. The fair-value estimates do not
necessarily reflect the values Monsanto could realize in the current market.
Postretirement Benefits -- Pensions
Most Monsanto employees are covered by noncontributory pension plans. The
components of pension cost were:
<TABLE>
<CAPTION>
--------------------------------------
1997 1996<F1> 1995<F1>
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits
earned during the year $ 61 $ 83 $ 70
Interest cost on
benefit obligation 148 287 291
Assumed return on
plan assets<F2> (167) (322) (326)
Amortization of unrecog-
nized net (gain) loss 13 9 (25)
- -------------------------------------------------------------------------------
TOTAL $ 55 $ 57 $ 10
===============================================================================
Continuing operations $ 55 $ 54 $ 29
Discontinued operations 3 (19)
- -------------------------------------------------------------------------------
TOTAL $ 55 $ 57 $ 10
===============================================================================
<FN>
<F1> In connection with the spinoff, Solutia assumed the pension liabilities
and received related assets for its active employees and for certain
former employees of the chemical businesses. The components of pension
cost for 1996 and 1995 have not been restated for amounts related to
continuing and discontinued operations as no detailed information was
available.
<F2> Actual returns on plan assets were $350 million in 1997, $558 million in
1996, and $671 million in 1995.
</TABLE>
Pension benefits are based on an employee's years of service and/or
compensation level. Pension plans are funded in accordance with Monsanto's
long-range projections of the plans' financial conditions. These projections
take into account benefits earned and expected to be earned, anticipated
returns on pension plan assets, and income tax and other regulations.
Pension costs were determined through the use of the preceding year-end
rate assumptions. Assumptions used as of Dec. 31 for the principal plans
were:
<TABLE>
<CAPTION>
-------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.00% 7.50% 7.25%
Assumed long-term rate of
return on plan assets 9.50% 9.50% 9.50%
Annual rates of salary
increase (for plans that
base benefits on final
compensation level) 4.00% 4.50% 4.50%
- ------------------------------------------------------------------------------
</TABLE>
The funded status of Monsanto's pension plans at year-end was:
<TABLE>
<CAPTION>
---------------------------------------
1997 1996<F1>
- -------------------------------------------------------------------------------
ASSETS ABO
EXCEED EXCEEDS
ABO ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value
of plan benefits:
Vested $428 $1,750 $3,495
Nonvested 1 77 154
- -------------------------------------------------------------------------------
Accumulated benefit
obligation (ABO) 429 1,827 3,649
Effect of projected future
salary increases 54 173 377
- -------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION<F2> 483 2,000 4,026
- -------------------------------------------------------------------------------
PLAN ASSETS AT FAIR VALUE 466 1,563 3,817
- -------------------------------------------------------------------------------
Excess of projected benefit
obligation over plan assets 17 437 209
Unrecognized initial
net gain 6 21 94
Unrecognized prior
service costs (29) (77) (264)
Unrecognized subsequent
net gain (loss) (25) (45) 241
Minimum liability
adjustment -- 33
- -------------------------------------------------------------------------------
ACCRUED NET PENSION
LIABILITY (ASSET)<F3> $(31) $ 369 $ 280
===============================================================================
Continuing operations $(31) $ 369 $ 208
Discontinued operations 72
- -------------------------------------------------------------------------------
TOTAL ACCRUED NET PENSION
LIABILITY (ASSET) $(31) $ 369 $ 280
===============================================================================
<FN>
<F1> In connection with the spinoff, Solutia assumed the pension liabilities
and received related assets for its active employees and for certain
former employees of the chemical businesses. The projected benefit
obligation, the fair value of plan assets and the components of accrued
pension liability for 1996 have not been restated for amounts related to
continuing and discontinued operations as no detailed information was
available.
<F2> Included $228 million in 1996 for unfunded plans.
<F3> Included $138 million in 1996 for unfunded plans.
</TABLE>
57 1997 Monsanto Annual Report
<PAGE> 31
==============================================================================
NOTES TO FINANCIAL STATEMENTS (continued)
==============================================================================
The accrued net pension liability related to continuing operations was
included in:
<TABLE>
<CAPTION>
---------------------------
1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
Postretirement liabilities $390 $264
Less other assets (52) (56)
- -------------------------------------------------------------------
ACCRUED NET PENSION LIABILITY $338 $208
===================================================================
</TABLE>
As a result of employment reductions from the 1996 restructuring
program, $36 million of restructuring reserves was transferred to accrued net
pension liability during 1997.
Included in the preceding table are plan assets and projected benefit
obligations for the principal U.S. plans of approximately $1.55 billion and
$1.96 billion, respectively, as of Dec. 31, 1997. Plan assets consist
principally of common stocks and U.S. government and corporate obligations.
Contributions to these plans were neither required nor made in 1997, 1996 and
1995 because the company's principal pension plans are adequately funded,
using assumed returns.
Postretirement Benefits --
Health Care and Other
Monsanto provides certain health care and life insurance benefits for retired
employees. Substantially all of Monsanto's regular, full-time U.S. employees
and certain employees in other countries may become eligible for these
benefits if they reach retirement age while employed by Monsanto. These
postretirement benefits are unfunded and are generally based on the
employee's years of service and/or compensation level. The costs of
postretirement benefits are accrued by the date the employees become eligible
for the benefits.
The components of the cost of these postretirement benefits,
principally health care and life insurance, were:
<TABLE>
<CAPTION>
--------------------------------------
1997 1996<F1> 1995<F1>
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits
earned during the year $10 $ 25 $ 21
Interest cost on benefit obligation 27 88 94
Amortization of unrecognized
net (gain) loss (3) 2 (2)
- ------------------------------------------------------------------------------
TOTAL $34 $115 $113
==============================================================================
Continuing operations $34 $ 33 $ 32
Discontinued operations 82 81
- ------------------------------------------------------------------------------
TOTAL $34 $115 $113
==============================================================================
<FN>
<F1> In connection with the spinoff, Solutia assumed the postretirement
benefit liabilities for its active employees and for former employees who
last worked at a chemical facility. The components of the cost of
postretirement benefits for 1996 and 1995 have not been restated for
amounts related to continuing and discontinued operations as no detailed
information was available.
</TABLE>
Postretirement costs were determined by using the preceding year-end
rate assumptions. Assumptions used as of Dec. 31 for the principal plans
were:
<TABLE>
<CAPTION>
--------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.00% 7.50% 7.25%
Initial trend rate for
health care costs<F1> 7.00% 8.00% 9.00%
Ultimate trend rate for
health care costs 5.00% 5.00% 5.00%
- ------------------------------------------------------------------------------
<FN>
<F1> The initial trend rate for health care costs declines by 1 percent per
year, to 5 percent for years after the year 1999.
</TABLE>
A 1 percent increase in the assumed trend rate for health care costs
would have increased the cost of 1997 postretirement health care benefits by
$1 million and the accumulated benefit obligation by $15 million as of Dec.
31, 1997.
As of Dec. 31, the status of Monsanto's postretirement health care and
life insurance benefit plans, and employee disability benefit plans was:
<TABLE>
<CAPTION>
-----------------------------
1997 1996<F1>
- -------------------------------------------------------------------
<S> <C> <C>
ACCUMULATED BENEFIT OBLIGATION:
Retirees $314 $ 938
Eligible active employees 17 60
Other active employees 52 251
- -------------------------------------------------------------------
TOTAL 383 1,249
- -------------------------------------------------------------------
Unrecognized benefits from
prior service 12 27
Unrecognized subsequent net loss (26) (28)
- -------------------------------------------------------------------
ACCRUED LIABILITY $369 $1,248
===================================================================
Continuing operations $369 $ 356
Discontinued operations 892
- -------------------------------------------------------------------
ACCRUED LIABILITY $369 $1,248
===================================================================
<FN>
<F1> In connection with the spinoff, Solutia assumed the postretirement
benefit liabilities for its active employees and for former employees who
last worked at a chemical facility. The accumulated benefit obligation
and the components of the accrued liability for 1996 have not been
restated for amounts related to continuing and discontinued operations as
no detailed information was available.
</TABLE>
The accrued liability related to continuing operations was included in:
<TABLE>
<CAPTION>
---------------------------
1997 1996<F1>
- ------------------------------------------------------------------
<S> <C> <C>
Miscellaneous accruals $ 24 $ 26
Postretirement liabilities 345 330
- ------------------------------------------------------------------
ACCRUED LIABILITY $369 $356
==================================================================
</TABLE>
The assumptions used to compute the accumulated benefit obligation of
the principal plans were changed as of Dec. 31, 1997. That resulted in a
decrease of approximately $26 million in the obligation.
58 1997 Monsanto Annual Report
<PAGE> 32
==============================================================================
NOTES TO FINANCIAL STATEMENTS (continued)
==============================================================================
Employee Savings Plans
For some company employee savings plans, employee contributions are matched
in part by Monsanto. The value of these contributions for such plans was $39
million in 1997, and $30 million in both 1996 and 1995.
Monsanto has established an Employee Stock Ownership Plan (ESOP), which
held 14.7 million shares of Monsanto common stock as of Dec. 31, 1997. The
ESOP acquired shares by using proceeds from the issuance of long-term notes
and debentures guaranteed by Monsanto. The ESOP also borrowed $50 million
from Monsanto. A portion of the ESOP shares is allocated each year to
employee savings accounts as matching contributions. In 1997, 954,778 shares
were allocated to participants under the plan, leaving 10,150,488 unallocated
shares as of Dec. 31, 1997. Unallocated shares held by the ESOP are
considered outstanding for earnings-per-share calculations. Compensation
expense is equal to the cost of the shares allocated to participants,
less cash dividends paid on the shares held by the ESOP. Dividends on the
common stock owned by the ESOP are used to repay the ESOP borrowings, which
were $139 million as of Dec. 31, 1997.
In September 1997, the ESOP received Solutia shares from the spinoff.
These shares were exchanged for Monsanto shares. Also in connection with the
spinoff, Solutia's ESOP received 2.4 million unallocated shares of Monsanto
common shares held by the ESOP, and also assumed $29 million of ESOP
borrowings.
<TABLE>
<CAPTION>
--------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Total ESOP expense $18 $14 $21
Interest portion of total
ESOP expense 12 12 13
Cash contribution 6 16 18
Dividends paid on ESOP
shares held 8 11 10
- ------------------------------------------------------------------------------
</TABLE>
Stock Option Plans
The company grants stock options under two fixed plans. Under the company's
Management Incentive Plan of 1996, the company may grant key officers and
management employees stock-based awards, including stock options, of up to
71,605,350 shares of common stock. Under this plan, the exercise price of
each option equals not less than the market price of the company's stock on
the date of grant. An option's maximum term is 10 years. Options are granted
at the discretion of the board of directors' people committee or its
delegate. Options generally vest upon the achievement of business performance
targets or the ninth anniversary of the option grant date, whichever comes
first. Certain options granted to senior management vest upon the attainment
of pre-established prices within specified time periods. Under the company's
Shared Success Stock Option Plan, most regular full-time and regular
part-time employees of the company were granted options on 200 shares of
common stock in 1996 and 330 shares in 1997. The maximum number of shares for
which stock options may be granted under this plan totals 14.8 million.
Approximately 10.4 million options, which vest from April 1999 to February
2000, are outstanding under this plan. The exercise price of each option is
determined by the committee and generally equals the market price of the
company's stock on the date of grant. An option's maximum term is 10 years.
As permitted by Statement of Financial Accounting Standard (SFAS) No.
123, "Accounting for Stock-Based Compensation," the company has elected to
continue following the guidance of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," for measurement and
recognition of stock-based transactions with employees. Accordingly, no
compensation cost has been recognized for the company's option plans. Had the
determination of compensation cost for these plans been based on the fair
value at the grant dates for awards under these plans, consistent with the
method of SFAS No. 123, the company's income from continuing operations and
earnings per share from continuing operations would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
--------------------------
1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
INCOME FROM CONTINUING OPERATIONS:
As reported $ 294 $ 413
Pro forma 206 331
EARNINGS PER SHARE --
CONTINUING OPERATIONS:
As reported $0.48 $0.69
Pro forma 0.34 0.57
- ------------------------------------------------------------------
</TABLE>
The pro forma compensation expense may not be representative of pro
forma compensation expense that would be incurred in future years.
In computing the pro forma compensation expense, the fair value of each
option grant is estimated on the date of grant by using the Black-Scholes
option-pricing model. The following weighted-average assumptions were used
for grants:
<TABLE>
<CAPTION>
---------------------------
1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
Expected dividend yield 0.29% 1.5%
Expected volatility 27.0% 25.0%
Risk-free interest rates 6.4% 6.0%
Expected option lives (years) 4.3 4.0
- ------------------------------------------------------------------
</TABLE>
59 1997 Monsanto Annual Report
<PAGE> 33
==============================================================================
NOTES TO FINANCIAL STATEMENTS (continued)
==============================================================================
A summary of the status of the company's stock option plans for the
three-year period ended Dec. 31, 1997, follows:
<TABLE>
<CAPTION>
OUTSTANDING
----------------------------------
EXERCISABLE WEIGHTED-AVERAGE
SHARES SHARES EXERCISE PRICE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEC. 31, 1994 35,842,995 68,543,900 $11.75
- ----------------------------------------------------------------------------------------
1995:
Granted 7,278,725 16.01
Exercised (20,135,570) 10.83
Expired (417,745) 14.12
- ----------------------------------------------------------------------------------------
DEC. 31, 1995 45,383,790 55,269,310 $12.63
- ----------------------------------------------------------------------------------------
1996:
Granted 25,004,150 33.38
Exercised (16,327,617) 11.93
Expired (801,605) 22.59
- ----------------------------------------------------------------------------------------
DEC. 31, 1996 38,362,943 63,144,238 $20.90
- ----------------------------------------------------------------------------------------
1997:
GRANTED 27,740,275 37.98
EXERCISED (12,002,286) 13.64
EXPIRED (3,476,815) 34.71
- ----------------------------------------------------------------------------------------
DEC. 31, 1997 45,257,512 75,405,412 $25.22
========================================================================================
</TABLE>
The weighted-average fair values of options granted during 1997 and
1996 were $10.01 and $6.86, respectively.
The following table summarizes information about stock options
outstanding as of Dec. 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ----------------------------------------------------------------------------------
WEIGHTED-AVERAGE WEIGHTED-
RANGE OF REMAINING AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 7.00 to 9.99 8,890,440 4.5 years $ 9.11
10.00 to 14.99 18,433,740 5.3 13.13
15.00 to 19.99 451,112 7.6 16.95
20.00 to 29.99 10,283,175 8.2 26.20
30.00 to 39.99 34,997,093 8.9 34.19
40.00 to 55.00 2,349,852 6.8 44.72
- ----------------------------------------------------------------------------------
$ 7.00 to 55.00 75,405,412 8.2 $25.22
==================================================================================
<CAPTION>
OPTIONS EXERCISABLE
- ----------------------------------------------------------------------------------
WEIGHTED-
RANGE OF AVERAGE
EXERCISE PRICES SHARES EXERCISE PRICE
- ----------------------------------------------------------------------------------
<S> <C> <C>
$ 7.00 to 9.99 8,890,440 $ 9.11
10.00 to 14.99 18,410,240 13.13
15.00 to 19.99 394,528 16.73
20.00 to 29.99 5,533,204 24.97
30.00 to 39.99 12,029,100 34.42
- --------------------------------------------------------------------------------
$ 7.00 to 39.99 45,257,512 $19.48
==================================================================================
</TABLE>
As a result of the spinoff, options to purchase the company's common
stock under the aforementioned plans were converted to options to purchase
Solutia common stock or to adjusted options to purchase the company's common
stock, or a combination of both. Recognition of compensation expense was not
required as a result of these conversions.
Earnings per Share
Effective Dec. 31, 1997, Monsanto adopted Statement of Financial Accounting
Standard (SFAS) No. 128, "Earnings per Share." SFAS 128 establishes
standards for computing and presenting earnings per share (EPS). The
presentation of primary and fully diluted EPS required by old standards is
replaced by basic and diluted EPS. Basic EPS measures operating performance
assuming no dilution from securities or contracts to issue common stock.
Diluted EPS measures operating performance giving effect to the dilution that
would occur when securities or contracts to issue common stock are exercised
or converted.
Basic EPS from continuing operations were computed using the weighted
average number of common shares outstanding each year (590.2 million in 1997,
581.2 million in 1996, and 567.2 million in 1995). Diluted EPS from
continuing operations were computed taking into account the effect of
dilutive potential common shares (20.3 million in 1997, 17.7 million in 1996,
and 13.4 million in 1995). Dilutive potential common shares consist of
outstanding stock options. As of Dec. 31, 1997, options to purchase
approximately 3.6 million shares of common stock were outstanding, but they
were not included in the computation of diluted EPS because the exercise
prices of the options were greater than the average market price of the
common shares. These options expire from 2006 through 2007. See the previous
note for more information about Monsanto's stock options.
Capital Stock
As of Dec. 31, 1997, there were 119.8 million common shares reserved for
employee stock options.
In January 1990, the company's board of directors declared a dividend
of one preferred stock purchase right on each then-outstanding share of the
company's common stock. If a person or group acquires beneficial ownership of
20 percent or more, or announces a tender offer that would result in
beneficial ownership of 20 percent or more, of the company's outstanding
common stock, the rights become exercisable and, as a result of two
subsequent stock splits, for every 10 rights held, the owner will be entitled
to purchase one one-hundredth of a share of a new series of preferred stock
for $450. If Monsanto is acquired in a business combination transaction while
the rights are outstanding, for every 10 rights held, the holder will be
entitled to purchase, for $450, common shares of the acquiring company
60 1997 Monsanto Annual Report
<PAGE> 34
==============================================================================
NOTES TO FINANCIAL STATEMENTS (continued)
==============================================================================
having a market value of $900. In addition, if a person or group acquires
beneficial ownership of 20 percent or more of the company's outstanding common
stock, for every 10 rights held, the holder (other than such person or members
of such group) will be entitled to purchase, for $450, a number of shares of
the company's common stock having a market value of $900. Furthermore, at any
time after a person or group acquires beneficial ownership of 20 percent or
more (but less than 50 percent) of the company's outstanding common stock,
the board of directors may, at its option, exchange part or all of the rights
(other than rights held by the acquiring person or group) for shares of the
company's common stock on a one-share-for-every-10-rights basis. At any time
prior to the acquisition of such a 20 percent position, the company can
redeem each right for $0.001. The board of directors also is authorized to
reduce the aforementioned 20 percent thresholds to not less than 10 percent.
The rights expire in the year 2000.
Commitments and Contingencies
Commitments, principally in connection with uncompleted additions to
property, were approximately $116 million as of Dec. 31, 1997. Excluding the
ESOP notes and debentures, Monsanto was contingently liable as a guarantor
for bank loans and for discounted customers' receivables totaling
approximately $123 million as of Dec. 31, 1997, and $156 million as of Dec.
31, 1996. Future minimum payments under noncancelable operating leases,
unconditional inventory purchases, and R&D alliances are $105 million for
1998, $83 million for 1999, $57 million for 2000, $47 million for 2001, $43
million for 2002, and $76 million thereafter.
The more significant concentrations in Monsanto's trade receivables at
year-end were:
<TABLE>
<CAPTION>
--------------------
1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
U.S. agricultural product distributors $359 $361
European agricultural product distributors 203 156
Pharmaceutical distributors worldwide 435 399
Customers in the former Soviet Union 75 44
Customers in southeast Asia 31 50
- ------------------------------------------------------------------
</TABLE>
Management does not anticipate losses on its trade receivables in
excess of established allowances.
Costs for remediation of waste disposal sites are accrued in the
accounting period in which the responsibility is established and when the
cost is estimable. Postclosure and remediation costs for hazardous and other
waste facilities at operating locations are accrued over the estimated life
of the facility as part of its anticipated closure cost. Monsanto's Statement
of Consolidated Financial Position included accrued liabilities of $19
million as of Dec. 31, 1997, and $25 million as of Dec. 31, 1996, for the
remediation of identified waste disposal sites.
Monsanto's future remediation expenses for waste disposal sites are
affected by a number of uncertainties. These uncertainties include, but are
not limited to, the method and extent of remediation, the percentage of
material attributable to Monsanto at the sites relative to that attributable
to other parties, and the financial capabilities of the other potentially
responsible parties (PRPs). The company does not expect the resolution of
such uncertainties to have a material effect on profitability.
Monsanto is a party to a number of lawsuits and claims, which it is
vigorously defending. Such matters arise out of the normal course of business
and relate to a variety of issues. Certain of the lawsuits and claims seek
damages in very large amounts, or seek to restrict the company's business
activities.
Although the results of litigation cannot be predicted with certainty,
management's belief, based upon the advice of company counsel, is that the
final outcome of such litigation will not have a material adverse effect on
Monsanto's consolidated financial position, profitability or liquidity in any
one year, as applicable.
Supplemental Data
Supplemental income statement data were:
<TABLE>
<CAPTION>
----------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Rent expense $ 130 $111 $102
===============================================================================
Technological expenses:
Research and development $ 939 $647 $568
Engineering, commercial
development and patent 105 55 33
- -------------------------------------------------------------------------------
Total technological expenses $1,044 $702 $601
===============================================================================
Interest expense:
Total interest cost $ 184 $128 $137
Less capitalized interest (14) (9) (5)
- -------------------------------------------------------------------------------
Net interest expense $ 170 $119 $132
===============================================================================
Currency losses including
equity in affiliates'
currency gains and losses $ 68 $ 6 $ 6
===============================================================================
</TABLE>
Segment Information
Certain segment data and geographic data for 1997, 1996 and 1995 that appear
on pages 35 and 42 are integral parts of the accompanying financial
statements. The company's principal product lines are discussed in the
segment data.
61 1997 Monsanto Annual Report
<PAGE> 35
==============================================================================
FINANCIAL SUMMARY
==============================================================================
<TABLE>
<CAPTION>
(Dollars in millions, except per share) 1997<F1> 1996<F2> 1995<F3> 1994<F4> 1993<F5> 1992<F6>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net Sales $ 7,514 $ 6,348 $ 5,410 $ 4,679 $ 4,304 $ 4,119
Operating Income (Loss) 499 595 698 643 485 (16)
As a Percent of Net Sales 7% 9% 13% 14% 11% --
Income (Loss) from Continuing Operations 294 413 461 454 298 (151)
As a Percent of Net Sales 4% 7% 9% 10% 7% (4)%
Income (Loss) from
Discontinued Operations<F7> 176 (28) 278 168 196 603
Cumulative Effect of Accounting Changes (540)
Net Income (Loss) 470 385 739 622 494 (88)
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE: <F8>
Income (Loss) from Continuing Operations $ 0.48 $ 0.69 $ 0.79 $ 0.78 $ 0.50 $ (0.24)
Net Income (Loss) 0.77 0.64 1.27 1.06 0.82 (0.14)
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR-END FINANCIAL POSITION
Total Assets $10,774 $11,237 $10,731 $ 9,103 $ 8,788 $ 9,210
Working Capital 727 939 1,493 1,448 1,377 1,512
- ------------------------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment:
Gross $ 4,701 $ 4,428 $ 4,111 $ 3,748 $ 3,687 $ 3,689
Net 2,400 2,095 1,893 1,673 1,669 1,737
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt $ 1,979 $ 1,608 $ 1,667 $ 1,405 $ 1,502 $ 1,423
Shareowners' Equity 4,104 3,690 3,732 2,948 2,855 3,005
- ------------------------------------------------------------------------------------------------------------------------------------
Current Ratio 1.2 1.3 1.5 1.6 1.6 1.6
Percent of Total Debt to Total Capitalization 47% 38% 35% 37% 38% 36%
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Stock Price: <F8><F9>
High $ 52-15/16 $ 43-1/4 $ 25 $ 17-3/8 $ 15 $ 14-1/4
Low 34-3/4 23 13-3/4 13-3/8 9-7/8 9-7/8
Year-End 42 38-7/8 24-1/2 14-1/8 14-3/4 11-5/8
Price/Earnings Ratio on Year-End Stock Price 55 60 19 13 18 --
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share: <F8>
Dividends <F10> $ 0.500 $ 0.588 $ 0.540 $ 0.494 $ 0.460 $ 0.440
Shareowners' Equity 6.89 6.31 6.46 5.29 4.92 4.99
- ------------------------------------------------------------------------------------------------------------------------------------
Shareowners (year-end) 61,265 54,828 50,745 53,694 56,601 60,074
Shares Outstanding (year-end, in millions) <F8> 595 584 575 560 580 600
Employees (year-end) <F9> 21,900 28,000 28,500 29,400 30,000 33,800
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Income from continuing operations for 1997 included $455 million,
or $0.75 per share, for the write-off of acquired in-process research
and development.
<F2> Income from continuing operations for 1996 included restructuring and
other unusual charges of $257 million, or $0.43 per share, associated
with the closure or rationalization of certain facilities, asset write-
offs and work force reductions.
<F3> Income from continuing operations for 1995 included net restructuring
expenses and other unusual items of $63 million, or $0.11 per share.
<F4> Income from continuing operations for 1994 included a net aftertax
gain for restructuring and other unusual items of $20 million, or
$0.03 per share.
<F5> Income from continuing operations for 1993 included a net aftertax loss
for restructuring and other unusual items of $11 million, or $0.02 per
share.
<F6> Loss from continuing operations for 1992 included a net aftertax loss
for restructuring and other unusual items of $393 million, or $0.64 per
share.
<F7> Includes sale of styrenics plastics business in 1995 and sale of Fisher
Controls in 1992.
<F8> Stock prices, per share amounts and shares outstanding were restated to
reflect the May 1996 five-for-one stock split.
<F9> Amounts prior to 1997 were not restated to reflect the spinoff of the
chemical businesses.
<F10> The quarterly common stock dividend was reduced from $0.16 per share to
$0.03 per share in the 1997 fourth quarter.
62 1997 Monsanto Annual Report
<PAGE> 36
APPENDIX
1. In Exhibit 13 to the printed Form 10-K, the following bar graphs appear,
all depicting data for 1995, 1996 and 1997: on page 36, "Agricultural
Products Net Sales" and "Agricultural Products Operating Measures"; on
page 38, "Nutrition and Consumer Products Operating Measures"; on page 39,
"Pharmaceuticals Net Sales"; on page 40, "Pharmaceuticals Operating
Measures"; and on page 47, "Cash Provided by Continuing Operations". On
page 35, a pie-chart graph entitled "1997 Net Sales" appears, depicting
a percentage breakdown of Monsanto's 1997 net sales by segment.
2. Throughout the electronic submission of Exhibit 13, trademarks are
designated on each page by the letter "R" in parentheses or the letters
"TM" in parentheses; whereas in the printed copy of the annual report, all
trademarks are indicated by special type.
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the Company's subsidiaries and jurisdictions of
incorporation as of December 31, 1997, except for unnamed subsidiaries which,
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
G. D. Searle & Co. (Delaware)
Monsanto Europe, S.A. N.V. (Belgium)
Monsanto Do Brasil Ltda. (Brazil)
Monsanto International Sales Company, Inc.
(Virgin Islands)
Monsanto p.l.c. (United Kingdom)
Calgene LLC (Delaware)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
MONSANTO COMPANY:
We consent to the incorporation by reference in Monsanto Company's
Registration Statements on Form S-8 (Nos. 2-36636, 2-76696, 2-90152, 33-13197,
33-21030, 33-39704, 33-39705, 33-39706, 33-39707, 33-49717, 33-53363, 33-53365,
33-53367, 333-02783, 333-02961, 333-02963, 333-33531, 333-38599 and 333-45341)
of our report dated February 27, 1998, incorporated by reference in this annual
report on Form 10-K of Monsanto Company for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Saint Louis, Missouri
March 16, 1998
------------------------
<PAGE> 1
EXHIBIT 23.2
CONSENT OF COMPANY COUNSEL
I hereby consent to the reference to Company counsel in the "Commitments
and Contingencies" note to the financial statements in the Company's 1997
Annual Report to shareowners and incorporated in the Company's Registration
Statements on Form S-8 (Nos. 2-36636, 2-76696, 2-90152, 33-13197, 33-21030,
33-39704, 33-39705, 33-39706, 33-39707, 33-49717, 33-53363, 33-53365, 33-53367,
333-02783, 333-02961, 333-02963, 333-33531, 333-38599 and 333-45341). In giving
this consent I do not thereby admit that I am within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
/s/ R. WILLIAM IDE III
R. WILLIAM IDE III
General Counsel
Monsanto Company
Saint Louis, Missouri
March 17, 1998
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That each person whose signature appears below, as a Director or Officer of
Monsanto Company (the "Company"), a Delaware corporation with its general
offices in the County of St. Louis, Missouri, does hereby make, constitute
and appoint R. WILLIAM IDE III, BARBARA L. BLACKFORD, SONYA M. DAVIS or ERIC
R. FENCL, or any of them acting alone, his or her true and lawful attorneys,
with full power of substitution and resubstitution, in his or her name, place
and stead, in any and all capacities, to execute and sign the Annual Report
on Form 10-K or registration statements including (i) registration statements
on Form S-8 covering the registration of additional securities of the Company
to be issued under the Monsanto Shared Success Stock Option Plan, the
Monsanto Company ERISA Parity Savings and Investment Plan, and the Monsanto
Savings and Investment Plan, (ii) any amendment to any registration statement
previously filed by the Company, and (iii) any registration statement on Form
S-8 covering the registration of securities to issued under new or existing
stock-based incentive plans, and any and all Amendments thereto and documents
in connection therewith to be filed with the Commission under the Securities
Exchange Act of 1934, giving and granting unto said attorneys full power and
authority to do and perform such actions as fully as they might have done or
could do if personally present and executing any of said documents.
Dated and effective as of the 27th day of February, 1998.
<F*> <F*>
- --------------------------------- ---------------------------------
Robert B. Shapiro, Director and Nicholas L. Reding, Director
Principal Executive Officer
<F*>
- --------------------------------- ---------------------------------
Robert M. Heyssel, Director John S. Reed, Director
<F*> <F*>
- --------------------------------- ---------------------------------
Michael Kantor, Director John E. Robson, Director
<F*> <F*>
- --------------------------------- ---------------------------------
Gwendolyn S. King, Director William D. Ruckelshaus, Director
<PAGE> 2
<F*> <F*>
- --------------------------------- ---------------------------------
Philip Leder, Director Robert B. Hoffman, Principal
Financial Officer
<F*> <F*>
- --------------------------------- ---------------------------------
Jacobus F. M. Peters, Director Michael R. Hogan, Principal
Accounting Officer
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That each person whose signature appears below, as a Director or Officer of
Monsanto Company (the "Company"), a Delaware corporation with its general
offices in the County of St. Louis, Missouri, does hereby make, constitute
and appoint R. WILLIAM IDE III, BARBARA L. BLACKFORD, SONYA M. DAVIS or ERIC
R. FENCL, or any of them acting alone, his or her true and lawful attorneys,
with full power of substitution and resubstitution, in his or her name, place
and stead, in any and all capacities, to execute and sign the Annual Report
on Form 10-K or registration statements including (i) registration statements
on Form S-8 covering the registration of additional securities of the Company
to be issued under the Monsanto Shared Success Stock Option Plan, the
Monsanto Company ERISA Parity Savings and Investment Plan, and the Monsanto
Savings and Investment Plan, (ii) any amendment to any registration statement
previously filed by the Company, and (iii) any registration statement on Form
S-8 covering the registration of securities to issued under new or existing
stock-based incentive plans, and any and all Amendments thereto and documents
in connection therewith to be filed with the Commission under the Securities
Exchange Act of 1934, giving and granting unto said attorneys full power and
authority to do and perform such actions as fully as they might have done or
could do if personally present and executing any of said documents.
Dated and effective as of the 26th day of February, 1998.
- --------------------------------- ---------------------------------
Robert B. Shapiro, Director and Nicholas L. Reding, Director
Principal Executive Officer
<F*>
- --------------------------------- ---------------------------------
Robert M. Heyssel, Director John S. Reed, Director
- --------------------------------- ---------------------------------
Michael Kantor, Director John E. Robson, Director
- --------------------------------- ---------------------------------
Gwendolyn S. King, Director William D. Ruckelshaus, Director
<PAGE> 4
- --------------------------------- ---------------------------------
Philip Leder, Director Robert B. Hoffman, Principal
Financial Officer
- --------------------------------- ---------------------------------
Jacobus F. M. Peters, Director Michael R. Hogan, Principal
Accounting Officer
<PAGE> 1
EXHIBIT 24.2
MONSANTO COMPANY
CERTIFICATE
I, Eric R. Fencl, Assistant Secretary of Monsanto Company, hereby certify that
the following is a full, true and correct copy of excerpts from resolutions
adopted by the Board of Directors of Monsanto Company on February 27, 1998, at
which meeting a quorum was present and acting throughout:
This Board hereby RESOLVES that:
1. The Chairman of the Board, any Vice Chairman of the Board, the
President, any Vice Chairman, any Vice President, the Secretary, the
Treasurer or the Controller of the Company is hereby authorized to
sign and execute, for and on behalf of the Company, Form 10-K for
the year 1997 and any other report to be filed with the Securities
and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended.
2. Each officer and director who may be authorized or required to sign
and execute Form 10-K or any document in connection therewith or any
Registration Statement (whether for and on behalf of the Company, or
as an officer or director of the Company, or otherwise), be and
hereby is authorized to execute a power of attorney appointing R.
William Ide III, Barbara L. Blackford, Sonya M. Davis or Eric R.
Fencl, or any of them acting alone, his or her true and lawful
attorney or attorneys, with full power of substitution and
resubstitution to sign in his or her name, place and stead in any
such capacity such Form 10-K or Registration Statement and any and
all amendments thereto and documents in connection therewith, and to
file the same with the Commission or any other governmental body,
each of said attorneys to have power to act with or without the
others, and to have full power and authority to do and perform, in
the name and on behalf of each of said officers and directors, every
act whatsoever which such attorneys, or any one of them, may deem
necessary, appropriate or desirable to be done in connection
therewith as fully and to all intents and purposes as such officers
or directors might or could do in person.
. . .
IN WITNESS WHEREOF, I have hereunto set my hand in my official capacity and
affixed the corporate seal of Monsanto Company this 17th day of March,
1998.
-----------------------------------
Eric R. Fencl, Assistant Secretary
SEAL
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF CONSOLIDATED INCOME OF MONSANTO COMPANY AND SUBSIDIARIES FOR
THE YEAR ENDED DECEMBER 31, 1997, AND THE STATEMENT OF CONSOLIDATED FINANCIAL
POSITION AS OF DECEMBER 31, 1997. SUCH INFORMATION IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 134
<SECURITIES> 0
<RECEIVABLES> 1,823<F1>
<ALLOWANCES> 0
<INVENTORY> 1,374
<CURRENT-ASSETS> 4,266
<PP&E> 4,701
<DEPRECIATION> 2,301
<TOTAL-ASSETS> 10,774
<CURRENT-LIABILITIES> 3,539
<BONDS> 1,979
<COMMON> 1,644
0
0
<OTHER-SE> 2,460
<TOTAL-LIABILITY-AND-EQUITY> 10,774
<SALES> 7,514
<TOTAL-REVENUES> 7,514
<CGS> 3,091
<TOTAL-COSTS> 3,091
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170
<INCOME-PRETAX> 366
<INCOME-TAX> 72
<INCOME-CONTINUING> 294
<DISCONTINUED> 176
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 470
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.77
<FN>
<F1>Reported net of allowances of $63
</TABLE>
<PAGE> 1
EXHIBIT 99
MONSANTO COMPANY AND SUBSIDIARIES
---------------------------------
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income from continuing operations before
provision for income taxes.................................... $366<F*> $553<F*> $645<F*> $636 $427
Add
Fixed charges........................................... 236 172 178 140 141
Less capitalized interest............................... (14) (9) (5) (4) (7)
Dividends from affiliated companies..................... 4 6 3 2 5
Less equity income (add equity loss) of affiliated
companies................................................. (20) 42 (3) (4) (20)
---- ---- ---- ---- ----
Income as adjusted.................................. $572 $764 $818 $770 $546
==== ==== ==== ==== ====
Fixed charges
Interest expense............................................ $170 $119 $132 $100 $101
Capitalized interest........................................ 14 9 5 4 7
Portion of rents representative of interest factor.......... 52 44 41 36 33
---- ---- ---- ---- ----
Fixed charges....................................... $236 $172 $178 $140 $141
==== ==== ==== ==== ====
Ratio of earnings to fixed charges.............................. 2.42 4.44 4.60 5.50 3.87
==== ==== ==== ==== ====
<FN>
- ---------
<F*>Includes charges for acquired in-process research and development of $684
million in 1997, and charges for restructuring and other unusual items of
$376 million in 1996 and $90 million in 1995. Excluding these unusual items,
the ratio of earnings to fixed charges would have been 5.32, 6.60 and 5.10 in
1997, 1996 and 1995, respectively. The ratio was not materially affected by the
restructuring and other unusual items in 1994 and 1993.
</TABLE>
21
