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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-2516
MONSANTO COMPANY
----------------
(Exact name of registrant as specified in its charter)
DELAWARE 43-0420020
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 NORTH LINDBERGH BLVD., ST. LOUIS, MO 63167
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(314) 694-1000
--------------
(Registrant's telephone number, including area code)
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class June 30, 1999
----- --------------
Common Stock, $2 par value 633,709,156 shares
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The Statement of Consolidated Income of Monsanto Company and subsidiaries for
the three months and six months ended June 30, 1999 and the three months and six
months ended June 30, 1998, the Statement of Consolidated Financial Position as
of June 30, 1999 and December 31, 1998, the Statement of Consolidated Cash Flow
for the six months ended June 30, 1999 and six months ended June 30, 1998, and
related Notes to Financial Statements follow. In the opinion of management,
these unaudited consolidated financial statements contain all adjustments
necessary to present fairly the financial position, results of operations and
cash flows for the interim periods reported. This Quarterly Report on Form 10-Q
should be read in conjunction with Monsanto's 1998 Annual Report on Form 10-K
and Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1999.
Unless otherwise indicated, "Monsanto" and "the company" are used
interchangeably to refer to Monsanto Company or to Monsanto Company and
consolidated subsidiaries, as appropriate to the context. Unless otherwise
indicated, "earnings per share" and "per share" means diluted earnings per
share. In tables, all dollars are in millions, except per share data.
Throughout this quarterly filing, "EBITDA (excluding unusual items)" is net
earnings (loss) before income taxes, interest expense, depreciation expense,
amortization expense, and excludes the effects of unusual items. There have been
no unusual items in 1999; however, net income and income from continuing
operations for the second quarter of 1998 included an aftertax net charge of $13
million for the cost of exiting the company's optical products business,
partially offset by a restructuring reserve reversal. EBITDA (excluding unusual
items) may not be directly comparable to EBITDA performance measures reported by
other companies because it excludes unusual items. Although EBITDA (excluding
unusual items) is a financial performance measure commonly used in the financial
community, it is not a measure of financial performance under accounting
principles generally accepted in the United States. The presentation of EBITDA
(excluding unusual items) in this quarterly report is intended to supplement
investors' understanding of Monsanto's operating performance and not to replace
net income, cash flows, financial position nor comprehensive income as
determined in accordance with accounting principles generally accepted in the
United States. EBITDA (excluding unusual items) excludes the effects of
intangible amortization and interest expense. For this reason, the increases in
these two elements of the financial statements resulting from the 1998
acquisitions will not be reflected in EBITDA (excluding unusual items), but will
impact net income in future periods.
1
<PAGE>
<TABLE>
MONSANTO COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(Dollars in millions, except per share)
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------ ------ ------
Net Sales $2,586 $2,098 $4,896 $3,817
Costs and Expenses:
Cost of Goods Sold 850 842 1,721 1,492
Selling, General and Administrative Expenses 726 546 1,393 1,011
Technological Expenses 316 317 669 585
Amortization of Intangible Assets 84 70 167 116
Restructuring and Other Special Charges - Net (35) (35)
Interest Expense 108 51 204 95
Interest Income (7) (12) (14) (20)
Other Income (Expense) - Net (24) (2) 14 1
--------- --------- -------- ---------
Income from Continuing Operations Before Income Taxes 533 321 742 572
Income Taxes 207 97 296 182
------- -------- ------- -------
Income from Continuing Operations 326 224 446 390
Income from Discontinued Operations, net of taxes of $8,
$17, $15, and $32 million, respectively 18 33 30 63
-------- -------- -------- --------
Net Income $ 344 $ 257 $ 476 $ 453
------ ------ ------ ------
Basic Earnings per Share:
Continuing Operations $ 0.51 $ 0.37 $ 0.70 $ 0.65
Discontinued Operations 0.03 0.06 0.05 0.11
------- ------- ------- -------
Net Income $ 0.54 $ 0.43 $ 0.75 $ 0.76
------ ------ ------ ------
Diluted Earnings per Share:
Continuing Operations $ 0.50 $ 0.36 $ 0.69 $ 0.63
Discontinued Operations 0.03 0.05 0.04 0.10
------- ------- ------- -------
Net Income $ 0.53 $ 0.41 $ 0.73 $ 0.73
------ ------ ------ ------
Dividends per Share $ 0.03 $ 0.03 $ 0.06 $ 0.06
------ ------ ------ ------
The accompanying notes are an integral part of the financial statements.
</TABLE>
2
<PAGE>
<TABLE>
MONSANTO COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Dollars in millions, except per share)
June 30, December 31,
1999 1998
------- -------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 102 $ 78
Receivables, net of allowances of $143 in 1999 and $87 in 1998 3,347 2,119
Miscellaneous receivables and prepaid expenses 738 777
Deferred income tax benefit 478 475
Inventories 1,474 1,702
--------- ---------
Total Current Assets 6,139 5,151
--------- ---------
Property, Plant and Equipment 5,298 5,185
Less Accumulated Depreciation 2,316 2,320
--------- ---------
Net Property, Plant and Equipment 2,982 2,865
--------- ---------
Intangible Assets, net of accumulated amortization 4,914 5,281
Other Assets 1,155 1,120
Net Assets of Discontinued Operations 1,605 1,847
--------- ---------
Total Assets $ 16,795 $ 16,264
-------- --------
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Accounts payable $ 453 $ 821
Accrued liabilities 2,054 1,845
Short-term debt 1,743 1,058
---------- ---------
Total Current Liabilities 4,250 3,724
---------- ---------
Long-Term Debt 6,130 6,259
Postretirement Liabilities 836 784
Other Liabilities 344 511
Shareowners' Equity:
Common stock (authorized: 1,000,000,000 shares, par value $2)
Issued: 846,927,220 shares in 1999 and 1998 1,694 1,694
Additional contributed capital 1,451 1,389
Treasury stock, at cost (213,218,064 shares in 1999
and 217,632,240 shares in 1998) (2,459) (2,508)
Reinvested earnings 5,090 4,652
Reserve for ESOP debt retirement (95) (106)
Accumulated other comprehensive loss (446) (135)
----------- -----------
Total Shareowners' Equity 5,235 4,986
---------- -----------
Total Liabilities and Shareowners' Equity $ 16,795 $ 16,264
-------- --------
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
<PAGE>
<TABLE>
MONSANTO COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOW
(Dollars in millions)
<S> <C> <C>
Six Months Ended
June 30,
----------------
1999 1998
---- ----
Increase (Decrease) in Cash and Cash Equivalents
Operating Activities:
Income from continuing operations $ 446 $ 390
Add income taxes - continuing operations 296 182
----- -------
Income from continuing operations before income taxes 742 572
Adjustments to reconcile to Cash Used in Continuing Operations:
Income tax refunds (payments) (45) (21)
Items that did not use (provide) cash:
Depreciation and amortization 342 231
Restructuring expense (income) (35)
Bad debt expense and other 77 89
Working capital changes that provided (used) cash:
Accounts receivable (1,347) (1,273)
Inventories 152 11
Accounts payable and accrued liabilities (352) 63
Other 31 (134)
Pharmaceutical licensing and product rights sales 207
Other items (44) 107
-------- ---------
Cash Used in Continuing Operations (444) (183)
Cash Used in Discontinued Operations (102) (111)
-------- --------
Total Cash Used in Operations (546) (294)
-------- --------
Investing Activities:
Property, plant and equipment purchases (392) (363)
Acquisition of seed companies (50) (68)
Acquisition and investment payments (9) (60)
Investment and property disposal proceeds 116 126
Discontinued Operations 314 (14)
------ ---------
Cash Used in Investing Activities (21) (379)
-------- --------
Financing Activities:
Net change in short-term financing 685 456
Long-term debt proceeds 22 223
Long-term debt reductions (150) (68)
Dividend payments (38) (36)
Common stock issued under employee stock plans 72 96
-------- --------
Cash Provided by Financing Activities 591 671
------- ------
Increase (Decrease) in Cash and Cash Equivalents 24 (2)
Cash and cash equivalents beginning of year 78 116
------- --------
Cash and cash equivalents at end of period $ 102 $ 114
----- -------
The effect of exchange rate changes on cash and cash equivalents was not
material. Cash payments for interest (net of amounts capitalized) were $192
million as of June 30, 1999, and $114 million as of June 30, 1998.
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. In 1998, Monsanto announced that it had entered into a definitive
agreement with Delta and Pine Land Company ("D&PL") to merge it with
Monsanto. Under terms of the agreement, D&PL shareowners would be
entitled to receive 0.8625 shares of Monsanto's common stock in
exchange for each share of D&PL they hold. Approximately 33 million
shares of Monsanto common stock would be issued to D&PL shareowners.
Based on Monsanto's closing stock price of $53 1/2 per common share on
May 8, 1998, the date of the merger agreement, this would result in a
purchase price of approximately $1.8 billion. The merger, already
approved by D&PL shareowners, is subject to regulatory approvals and
other customary conditions. This transaction will be accounted for as
a purchase.
Also during 1998, Monsanto completed its acquisition of DEKALB Genetics
Corporation. ("DEKALB") and acquired Plant Breeding International
Cambridge Limited (PBIC) and certain international seed operations of
Cargill Incorporated (Cargill). Monsanto accounted for these
acquisitions as purchases. The purchase price allocations were based on
preliminary assumptions and are subject to revision during 1999,
pending final appraisal and valuation studies. Significant components
of the current purchase price allocation for the principal acquisitions
made during 1998 were to goodwill, $2,997 million; germplasm and core
technology, $324 million; trademarks, $206 million; in-process research
and development, $402 million; exit costs and employee termination
liabilities, ($78) million; inventories and other individually
insignificant tangible assets and liabilities, $374 million. The
company is continuing to obtain additional information related to
intangible assets (primarily germplasm and trademarks), litigation,
costs to complete the exit plan for certain activities of the acquired
businesses, and inventories. The information necessary to complete the
allocation of purchase price is expected to be obtained by the end of
the third quarter of 1999.
Near the end of the second quarter of 1999, Monsanto and Cargill
reached an agreement that resolves outstanding issues related to
Monsanto's purchase of certain international seed operations of
Cargill. As a result, final estimates related to the purchase price
allocation to goodwill, inventories and other individually
insignificant tangible assets are expected to be completed and adjusted
in the third quarter 1999. Any other adjustment to the purchase price
allocation for the businesses acquired is not expected to materially
impact Monsanto's financial position, results of operations or cash
flows.
2. Comprehensive income (loss) includes all non-shareowner changes in
equity and consists of net income, foreign currency translation
adjustments, unrealized gains and losses on available-for-sale
securities, and minimum pension liability adjustments. Total
comprehensive income (loss) for the three months and six months ended
June 30, 1999 and June 30, 1998, were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------ ------ ------
Net Income $ 344 $ 257 $ 476 $ 453
----- ----- ----- -----
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustments (41) (27) (317) (52)
Unrealized Investment Gains (Losses) 9 (14) 6 7
--------- ------- --------- ----------
Total Other Comprehensive (Loss) (32) (41) (311) (45)
------- ------- ------- -------
Total Comprehensive Income $ 312 $ 216 $ 165 $ 408
------ ----- ------ -------
</TABLE>
5
<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
3. In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133
requires all derivatives to be recognized as assets or liabilities on
the balance sheet and measured at fair value. Changes in the fair
value of derivatives should be recognized in either Net Income or
Other Comprehensive Income, depending on the designated purpose of the
derivative. This statement is effective for Monsanto Jan. 1, 2001.
Because of the effect of recent acquisitions, Monsanto is reassessing
its position and has not yet determined the effect this statement will
have on its consolidated financial position or results of operations.
4. Basic earnings per share (EPS) from continuing operations were
computed using the weighted average number of common shares
outstanding each period (632 million in 1999 and 599 million in 1998).
Diluted EPS from continuing operations were computed taking into
account the effect of dilutive potential common shares (16.4 million
in 1999 and 25.3 million in 1998). Dilutive potential common shares
consist of outstanding stock options. Certain common share equivalents
were not included in the computation of diluted earnings per share,
because the effect of their exercise or conversion is not dilutive,
when based on the average market price of Monsanto common stock for
the period. These included approximately 55.3 million of outstanding
stock options, which expire through 2008, and 17.5 million Adjustable
Conversion-rate Equity Securities (ACES) that include stock purchase
contracts exercisable in November 2001.
5. Monsanto's 1998 restructuring plan resulted in the recognition of a
reserve liability totaling $280 million (current and long-term) at
December 31, 1998. During the second quarter of 1999, 280 employees
were severed at a cost of approximately $14 million. Year-to-date
severances for 1999 total 810 employees at a cost of $54 million. Cash
outflows associated with these separations were charged against the
restructuring liability. In addition, Monsanto completed a portion of
the facility closures in the first six months of 1999, reducing the
restructuring liability by another $18 million.
Work force reductions and facility closures were behind expectations as
of June 30, 1999; however, Monsanto expects to complete the remaining
restructuring actions within the originally planned time frame.
<TABLE>
<S> <C> <C> <C>
Work force Facility
Reduction Closures Total
---------- -------- -----
1998 restructuring reserve balance as of
December 31, 1998 $ 219 $ 61 $ 280
Costs charged against reserves (54) (18) (72)
-------- -------- ------
1998 restructuring reserve balance as of
June 30, 1999 $ 165 $ 43 $ 208
------ ------- ------
6. Components of inventories as of June 30, 1999 and Dec. 31, 1998 were as follows:
June 30, Dec. 31,
1999 1998
---- ----
Finished goods $ 673 $ 855
Goods in process 336 366
Raw materials and supplies 498 516
--------- ---------
Inventories, at FIFO cost 1,507 1,737
Excess of FIFO over LIFO cost (33) (35)
----------- ---------
Total $ 1,474 $ 1,702
-------- --------
</TABLE>
6
<PAGE>
7. During 1998, a jury verdict was returned against Monsanto in a lawsuit
filed in the California Superior Court. The lawsuit was brought by
Mycogen Corp., Agrigenetics Inc., and Mycogen Plant Sciences Inc.,
claiming that Monsanto delayed providing access to certain gene
technology under a 1989 agreement with Lubrizol Genetics Inc., a
company which Mycogen Corp. subsequently purchased. The jury awarded
$174.9 million in damages. Monsanto has filed an appeal of the verdict,
has meritorious defenses and grounds to overturn the award, and intends
to vigorously pursue all available means to have this verdict set
aside. No provision has been made in Monsanto's consolidated financial
statements with respect to this verdict.
In April 1999, a jury verdict was returned against DEKALB Genetics
Corporation (which became a wholly-owned subsidiary of Monsanto during
December 1998), in a lawsuit filed in U.S. District Court in North
Carolina. The lawsuit was brought by Rhone Poulenc Agrochimie S.A.,
claiming that a 1994 license agreement was induced by fraud stemming
from DEKALB's nondisclosure of relevant information and that DEKALB did
not have the right to license, make or sell products using Rhone
Poulenc's technology for glyphosate resistance under this agreement.
The jury verdict included an award of $50 million in punitive damages.
DEKALB has filed a motion to have the damage award set aside and has
filed a Motion for Judgment as a Matter of Law to overturn the verdict.
DEKALB has meritorious grounds to overturn the verdict and intends to
vigorously pursue all available means to have the verdict overturned.
No provision has been made in Monsanto's consolidated financial
statements with respect to the award for punitive damages.
Monsanto is party to a number of lawsuits and claims, which it is
vigorously defending. Such matters arise in 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
Monsanto's business activities.
Although the results of litigation cannot be predicted with certainty,
management's belief 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.
7
<PAGE>
8. On January 13, 1999, Monsanto announced its intent to sell its
alginates business and on July 1, 1999, Monsanto announced its intent
to sell its artificial sweetener and biogum businesses. As a result,
these businesses have been reclassified as discontinued operations.
The company expects to sell these businesses for a gain within the
next twelve months. In addition, Monsanto transferred the remaining
Roundup(R) lawn-and-garden and nutrition research operations of the
former Nutrition and Consumer Products segment to the Agricultural
Products and Corporate and Other segments, respectively. Accordingly,
the Nutrition and Consumer Products segment is no longer reported and,
for all periods presented, the consolidated financial statements and
notes have been reclassified to conform to this presentation.
Net sales, income and net assets from discontinued operations are as
follows:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------ ------ ------
Net Sales $ 234 $ 372 $ 469 $ 697
Income from Discontinued Operations, Before Tax 26 50 45 95
Discontinued Operations Income Tax 8 17 15 32
-------- -------- ------ ------
Income from Discontinued Operations $ 18 $ 33 $ 30 $ 63
------ ----- ----- -----
Net Assets of Discontinued Operations: As of June 30, 1999 As of December 31, 1998
-------------------- -----------------------
Current Assets $ 650 $1,039
Non-Current Assets 1,290 1,268
------- -------
Total Assets $1,940 $2,307
------ ------
Current Liabilities $ 189 $328
Non-Current Liabilities 146 132
-------- ------
Total Liabilities $ 335 $460
------- -------
Net Assets of Discontinued Operations $1,605 $ 1,847
------ -------
On August 6, 1999, Monsanto announced the signing of a definitive
agreement to sell Stoneville Pedigree Seed Company to an affiliate of
Hicks, Muse, Tate & Furst, Inc.
</TABLE>
8
<PAGE>
9. Business segment data for the three months and six months ended June
30, 1999 and the three months and six months ended June 30, 1998 were
as follows for net sales, EBIT (earnings before interest expense and
income taxes) and EBITDA (earnings before interest expense, income
taxes, depreciation and amortization). Segment EBIT and EBITDA exclude
unusual items and are indicated as "EBIT (excluding unusual items)"
and "EBITDA (excluding unusual items)". Total Monsanto consolidated
EBIT includes the effects of unusual items. There have been no unusual
items in 1999; however, net income and income from continuing
operations for the second quarter of 1998 included an aftertax net
charge of $13 million for the cost of exiting the company's optical
products business, partially offset by a restructuring reserve
reversal.
<TABLE>
<S> <C> <C> <C> <C>
Net Sales
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------ ------ ------
Agricultural Products $1,612 $1,439 $3,069 $2,572
Pharmaceuticals 937 607 1,762 1,139
Corporate and Other 37 52 65 106
--------- --------- --------- --------
Total Net Sales $2,586 $2,098 $4,896 $3,817
------ ------ ------ ------
EBIT
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------ ------ ------
Segment EBIT (excluding unusual items)
from Continuing Operations:
Agricultural Products $ 505 $ 483 $ 803 $ 818
Pharmaceuticals 212 (15) 290 (2)
Corporate and Other (76) (83) (147) (136)
--------- -------- ------- -------
Total segment EBIT (excluding unusual items) 641 385 946 680
-------- ------- ------- --------
Restructuring and Other Unusual Items - Net (13) (13)
--------- -------- --------- ---------
Total EBIT from Continuing Operations $ 641 $ 372 $ 946 $ 667
----- ------ ------ -------
EBITDA (excluding unusual items) from Continuing Operations:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------ ------ ------
Agricultural Products $ 618 $ 555 $1,030 $ 969
Pharmaceuticals 256 15 369 56
Corporate and Other (57) (87) (111) (138)
------- ------- -------- ------
Total EBITDA from Continuing
Operations (excluding unusual items) 817 483 1,288 887
------- ------- ------ ------
Interest Expense 108 51 204 95
Income Taxes 207 97 296 182
Amortization Expense 84 46 167 92
Depreciation 92 52 175 115
Restructuring and Other Unusual Items - Net (13) (13)
---------- -------- ---------- ----------
Income from Continuing Operations $ 326 $ 224 $ 446 $ 390
------ ------- ------ ------
Financial information for the second quarter or first half should not be
annualized. Monsanto's sales and operating income are historically higher during
the first half of the year, primarily because of the concentration of sales from
the Agricultural Products segment in the first half of the year.
</TABLE>
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Recent Events
- -------------
On January 13, 1999, Monsanto announced its intent to sell the alginates
business and on July 1, 1999, Monsanto announced its intent to sell the
artificial sweetener and biogum businesses. As a result, these businesses have
been reclassified as discontinued operations. The company expects to sell these
businesses for a gain within the next twelve months. In addition, Monsanto
transferred the remaining Roundup(R) lawn-and-garden and nutrition research
operations of the former Nutrition and Consumer Products segment to the
Agricultural Products and Corporate and Other segments, respectively.
Accordingly, the Nutrition and Consumer Products segment is no longer reported
and, for all periods presented, the consolidated financial statements and notes
have been reclassified to conform to this presentation.
Results from Continuing Operations - Second Quarter 1999 Compared with Second
- -----------------------------------------------------------------------------
Quarter 1998
- ------------
Net income for Monsanto totaled $344 million, or $0.53 per share, in the second
quarter of 1999 compared with net income of $257 million, or $0.41 per share for
the second quarter of 1998. Monsanto recorded income from continuing operations
for the second quarter of 1999 of $326 million, or $.50 per share compared with
income from continuing operations of $224 million, or $0.36 per share for the
prior year quarter. There have been no unusual items in 1999; however, net
income and income from continuing operations for the second quarter of 1998
included an aftertax net charge of $13 million, or $0.02 per share, for the cost
of exiting the company's optical products business, partially offset by a
restructuring reserve reversal. Excluding unusual items in the second quarter of
1998, net income was $270 million, or $0.43 per share, and income from
continuing operations was $237 million, or $0.38 per share for the quarter.
Consolidated earnings before interest expense and taxes (EBIT) from continuing
operations increased 72 percent to $641 million in the second quarter of 1999,
compared with EBIT from continuing operations of $372 million in the second
quarter of 1998. Net sales grew to a record $2,586 million in the second quarter
of 1999, compared with net sales of $2,098 million for the same period a year
ago. Gross profit increased 38% in the second quarter of 1999 compared with the
second quarter 1998, primarily because of the strong performance of the
Pharmaceuticals segment. Selling, general and administrative ("SG&A" ) expenses
increased to $726 million in the second quarter of 1999 compared with prior year
quarter SG&A expenses of $546 million. The inclusion in 1999 of SG&A expenses
from acquired seed companies and profit sharing expenses associated with the
co-promotion alliance for Celebrex(R) arthritis treatment were the primary
reasons for the increase. Technological expense in the second quarter of 1999
remained flat when compared with technological expense in the second quarter of
1998 because of planned timing of 1999 technological expenditures.
Amortization of intangible assets increased in the second quarter of 1999
principally because of the increase in intangible assets related to the seed
company acquisitions made in 1998. Monsanto financed the 1998 seed company
acquisitions primarily with long-term borrowings which created a higher debt
level in 1999. As a result, interest expense increased $57 million in the second
quarter 1999 when compared to the same period a year ago. Other income increased
$22 million in the second quarter of 1999 vs. the prior year second quarter
primarily because of a pretax gain of $40 million recorded on the sale of the
NSC Technologies, LLC business in the second quarter of 1999.
10
<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Business segment data for the three months and six months ended June 30, 1999
and June 30, 1998, were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Net Sales
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------ ------ ------
Agricultural Products $1,612 $1,439 $3,069 $2,572
Pharmaceuticals 937 607 1,762 1,139
Corporate and Other 37 52 65 106
--------- --------- --------- --------
Total Net Sales $2,586 $2,098 $4,896 $3,817
------ ------ ------ ------
EBIT
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------ ------ ------
Segment EBIT (excluding unusual items)
from Continuing Operations:
Agricultural Products $ 505 $ 483 $ 803 $ 818
Pharmaceuticals 212 (15) 290 (2)
Corporate and Other (76) (83) (147) (136)
--------- -------- ------- -------
Total segment EBIT (excluding unusual items) 641 385 946 680
-------- ------- ------- --------
Restructuring and Other Unusual Items - Net (13) (13)
--------- -------- --------- ---------
Total EBIT from Continuing Operations $ 641 $ 372 $ 946 $ 667
----- ------ ------ -------
</TABLE>
Agricultural Products Segment
Agricultural Products segment EBIT (excluding unusual items) increased $22
million, or 5 percent, in the second quarter of 1999 to $505 million, compared
with $483 million in the second quarter of 1998. The impact of record sales was
partially offset by increases in SG&A, technological expenses and amortization
costs. The inclusion in the second quarter of 1999 of the acquired seed
companies and increased spending on crop biotechnology initiatives were
primarily responsible for the increase in SG&A and technological expenses when
compared with the second quarter of 1998. The continued unfavorable economic
conditions in certain Latin American and eastern European countries caused an
increase in bad debt expense in the second quarter of 1999. An increase in
amortization of intangible assets in the second quarter of 1999 compared with
the second quarter of 1998 was principally because of the acquisition of seed
companies.
Net sales for the Agricultural Products segment increased to $1,612 million in
the second quarter of 1999 compared with net sales of $1,439 million in the
second quarter of 1998, a 12 percent increase. The inclusion of sales from seed
companies acquired in 1998 accounted for most of the increase. In addition,
higher licensing revenues from crops developed through biotechnology, and record
sales for the quarter for the family of Roundup(R) herbicides, partially offset
by lower sales of other herbicides including Harness(R) and Lasso(R),
contributed to the increase. Biotechnology licensing revenues increased 80
percent in the second quarter of 1999 compared with licensing fees in the same
period a year ago, led by RoundupReady(R) seed traits in soybean, corn, cotton
and canola.
Sales for the family of Roundup(R) herbicides in the second quarter of 1999 were
higher when compared with sales in the second quarter of 1998, fueled by higher
sales volumes, primarily in North America, Australia/New Zealand and China.
Roundup(R) herbicide volumes increased by 18 percent in the second quarter of
1999 compared with the second quarter of 1998, as both conservation tillage and
post-emergent markets continued to grow. Sales associated with these volume
increases were largely offset by lower overall prices of Roundup(R) herbicides
and lower sales of Roundup(R) herbicides in Latin America. Favorable weather
conditions contributed to the quarterly increase in Roundup(R) sales volumes, as
sales that were expected to occur later in the year occurred in the second
quarter of 1999. The favorable weather is expected to affect the timing of third
and fourth quarter 1999 sales, but not the overall volume for the year. The
recovery in certain southeast Asian economies also positively affected sales
volumes of Roundup(R) herbicides; however, this was offset by a decline in Latin
America because of weak economic conditions.
11
<PAGE>
Pharmaceuticals Segment
EBIT (excluding unusual items) for the Pharmaceuticals segment was $212 million
in the second quarter of 1999, compared with a loss of $15 million in EBIT
(excluding unusual items) in the second quarter of 1998. The strong product
sales of Celebrex(R) arthritis treatment were the primary reason for the
increase. SG&A expenses rose because of increased spending associated with the
marketing of Celebrex(R), which included co-promotion payments for the second
quarter of 1999. Technological expenses were lower when compared to the year-ago
quarter primarily because of planned timing of second quarter 1999 technological
expenditures.
The Pharmaceuticals segment recorded net sales of $937 million in the second
quarter of 1999, compared with net sales of $607 million during the same period
in 1998, a 54 percent increase. The strong product sales of Celebrex(R) were
primarily responsible for the increase. Sales of Arthrotec(R) arthritis
treatment also were higher in the second quarter of 1999, despite market share
shifts toward Celebrex(R). Sales of Ambien(R) short-term treatment for insomnia
slightly increased in the second quarter of 1999, as new and refill prescription
rates continued to grow.
Corporate and Other Segment
Corporate and Other segment EBIT (excluding unusual items) increased 8 percent
in the second quarter of 1999 when compared with the second quarter of the prior
year because 1998 included losses from business divestitures. The disposal of
the Orcolite(R) and Diamonex(R) optical products businesses during the second
quarter 1998 contributed to the decreases in net sales and SG&A expenses of $15
million and $27 million, respectively.
Segment EBITDA (excluding unusual items)
- ----------------------------------------
Business segment earnings before interest expense, taxes, depreciation and
amortization (EBITDA) excluding unusual items for the three months and six
months ended June 30, 1999 and June 30, 1998, were as follows:
<TABLE>
EBITDA (excluding unusual items) from Continuing Operations:
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
----- ----- ----- -----
Agricultural Products $ 618 $ 555 $1,030 $ 969
Pharmaceuticals 256 15 369 56
Corporate and Other (57) (87) (111) (138)
------- ------- -------- ------
Total EBITDA from Continuing
Operations (excluding unusual items) 817 483 1,288 887
------- ------- ------ ------
Interest Expense 108 51 204 95
Income Taxes 207 97 296 182
Amortization Expense 84 46 167 92
Depreciation 92 52 175 115
Restructuring and Other Unusual Items - Net (13) (13)
---------- -------- ---------- ----------
Income from Continuing Operations $ 326 $ 224 $ 446 $ 390
------ ------- ------ ------
</TABLE>
Monsanto's EBITDA (excluding unusual items) in the second quarter of 1999 was
$817 million, compared with EBITDA (excluding unusual items) of $483 million in
the second quarter of 1998, an increase of 69 percent. The increase reflects
increased net sales in the second quarter of 1999 compared with net sales in the
second quarter of 1998, partially offset by increased SG&A expenses and
technological expenses. On a segment basis, Monsanto's Agricultural Products
segment EBITDA (excluding unusual items) increased to $618 million in the second
quarter of 1999 compared with EBITDA (excluding unusual items) of $555 million
in the second quarter of 1998, an 11 percent increase. Inclusion of sales from
the seed companies acquired in 1998 and higher licensing revenues from crops
developed through biotechnology drove the growth in EBITDA (excluding unusual
items). On a quarter-to-quarter basis, Monsanto's Pharmaceuticals segment EBITDA
(excluding unusual items) improved to $256 million in the second quarter of 1999
12
<PAGE>
from EBITDA of $15 million in the second quarter of 1998 primarily because of
the strong product sales of Celebrex(R) arthritis treatment which was launched
in first quarter 1999.
Financial information for the second quarter or first half of 1999 should not be
annualized. Monsanto's sales and operating income are historically higher during
the first half of the year, primarily because of the concentration of sales from
the Agricultural Products segment in the first half of the year.
Results from Continuing Operations - First Six Months of 1999 Compared with
- ---------------------------------------------------------------------------
First Six Months of 1998
- ------------------------
Net income for Monsanto totaled $476 million, or $0.73 per share, for the first
six months of 1999 compared with net income of $453 million, or $0.73 per share
for the first six months of 1998. Monsanto earned income from continuing
operations for the first six months of 1999 of $446 million, or $0.69 per share
compared with income from continuing operations of $390 million, or $0.63 per
share for the same period in 1998. There have been no unusual items in 1999;
however, results for second quarter of 1998 included an aftertax net charge of
$13 million, or $0.02 per share, for the cost of exiting the company's optical
products business partially offset by a restructuring reserve reversal.
Excluding unusual items in 1998, net income was $466 million, or $0.75 per share
and income from continuing operations was $403 million, or $0.65 per share.
Consolidated earnings before interest expense and taxes (EBIT) from continuing
operations increased 42 percent to $946 million for the first six months of
1999, compared with EBIT from continuing operations of $667 million for the
first six months of 1998. Sales for the first six months of 1999 grew to a
record $4,896 million while gross profit increased 37 percent, primarily because
of the strong performance of the Pharmaceuticals segment. Selling, general and
administrative (SG&A ) expenses increased to $1,393 million in the first half of
1999 compared with SG&A expenses of $1,011 million in the first-half of 1998.
Inclusion in the first half of 1999 of SG&A expenses from acquired seed
companies and continued spending associated with the launch of Celebrex(R)
arthritis treatment were principally responsible for the increase. Technological
expenses rose 14 percent in the first half of 1999 compared with the first half
of 1998, driven by higher expenses in the Agricultural Products segment and the
Pharmaceuticals segment. Continued spending on crop biotechnology initiatives
was responsible for the increase in the Agricultural Products segment.
Technological expenses for the Pharmaceuticals segment increased to support
several late-stage new product candidates combined with close-out expenses
associated with discontinuation of clinical trials for the fibans research
program.
Amortization of intangible assets increased 44 percent for the first six months
of 1999 compared with the first six months of 1998, principally because of the
increase in intangible assets related to seed company acquisitions in 1998.
Interest expense increased $109 million for the first six months of 1999
primarily due to higher debt levels when compared to the same period a year ago.
The higher debt level in 1999 was required as Monsanto financed the 1998 seed
company acquisitions primarily with long-term borrowings. The decline in other
income of $13 million was primarily because 1999 six months results no longer
include the equity income of DEKALB, which is now included in Monsanto's
consolidated results.
Agricultural Products Segment
Agricultural Products segment EBIT (excluding unusual items) was $803 million in
the first six months of 1999 compared with EBIT (excluding unusual items) of
$818 million for the first six months of 1998, a 2 percent decrease. The impact
of increased sales for the Agricultural Products segment in the first half of
1999 compared with the first half of 1998 was more than offset by increases in
SG&A and technological expenses, and amortization costs. The inclusion in 1999
of the acquired seed companies and spending on crop biotechnology initiatives
caused an increase in SG&A and technological expenses in the first six months of
1999. Continued unfavorable economic conditions in certain Latin American and
eastern European countries caused an increase in bad debt expense in the first
six months of 1999 compared with the same period a year ago. An increase in
intangible assets related to seed company acquisitions in 1998 caused higher
amortization expense in the first half of 1999 compared with the first half of
1998.
Net sales for the Agricultural Products segment increased $497 million, or 19
percent, in the first six months of 1999, primarily because of the inclusion of
sales from seed companies acquired in 1998. In addition, higher licensing
revenues from crops developed through biotechnology, and strong sales for the
family of Roundup(R) herbicides, partially offset by lower sales of other
herbicides including Harness(R) and Lasso(R), contributed to the increase.
Biotechnology licensing revenues increased 50 percent in the first six months of
1999 from licensing fees in the same period in 1998.
13
<PAGE>
The increase in sales volume for the family of Roundup(R) herbicides was
primarily driven by increased usage in conservation tillage and over the top of
RoundupReady(R) crop applications. Sales volumes rose in many world areas,
especially North America, Australia/New Zealand and China. Sales associated with
these volume increases were largely offset by lower overall prices of Roundup(R)
herbicides and lower sales of Roundup(R) herbicides in Latin America. Sales
volumes and prices were lower in Latin America due to the weakened economy.
Favorable weather conditions contributed to the first six months of 1999
increase in Roundup(R) sales volumes, as sales that would have been expected to
occur later in the year occurred earlier in the year. The favorable weather is
expected to affect the timing of third and fourth quarter 1999 sales, but not
the overall volume for the year.
Pharmaceuticals Segment
EBIT (excluding unusual items) for the Pharmaceuticals segment increased to $290
million for the first six months of 1999 compared with a loss of $2 million for
the first six months of 1998, which included $100 million of revenue related to
the co-promotion of Celebrex(R) arthritis treatment. The strong EBIT(excluding
unusual items) performance for the first six months of 1999 can primarily be
attributed to the strong product launch and continued sales of Celebrex(R)
arthritis treatment. SG&A expenses increased $279 million, or 42 percent
primarily because of increased spending associated with the Celebrex(R) product
launch. Technological expenses increased $33 million when compared to the same
period a year ago primarily to support several late stage new product
candidates, clinical studies for launched products, and close-out expenses
associated with the discontinuation of clinical trials for the fibans research
program.
Net sales for the Pharmaceuticals segment rose to $1,762 million in the first
six months of 1999 compared with net sales of $1,139 million in the same period
of 1998, an increase of 55 percent. The successful launch and continued strong
sales of Celebrex(R) arthritis treatment drove the increase. In addition,
segment sales for the first six months of 1999 reflect significant increases in
sales volumes of Arthrotec(R) and Daypro(R) arthritis treatments when compared
to sales volumes in the same period in 1998, despite market share shifts towards
Celebrex(R) arthritis treatment.
Corporate and Other Segment
Corporate and Other segment EBIT (excluding unusual items) decreased $11
million, or 8 percent, for the first six months of 1999 when compared with the
same period a year ago primarily because 1998 included losses on business
divestitures. The disposal of the Orcolite(R) and Diamonex(R) optical products
businesses during the second quarter of 1998 contributed to the decreased net
sales and SG&A expenses of $41 million and $27 million, respectively.
Results from Discontinued Operations
- ------------------------------------
Net sales in the second quarter of 1999 were $234 million compared with net
sales of $372 million in the same period of 1998. The decline was primarily
because of the January 1999 divestiture of the Ortho(R) lawn-and-garden products
business. Income from discontinued operations was $18 million in the second
quarter of 1999 compared with income from discontinued operations in the second
quarter 1998 of $33 million. Income from discontinued operations for the second
quarter of 1999 and the second quarter of 1998 is net of tax expense of $8
million and $17 million, respectively.
Net sales for the first six months of 1999 were $469 million, down 33 percent
compared with $697 million in the prior year primarily because of the
divestiture of the Ortho(R) lawn-and-garden products business. Income from
discontinued operations for the first six months of 1999 was $30 million
compared with $63 million in the prior year. Income from discontinued operations
for the first six months of 1999 and first six months of 1998 is net of tax
expense of $15 million and $32 million, respectively.
Changes in Financial Condition -- June 30, 1999 Compared with Dec. 31, 1998
- ---------------------------------------------------------------------------
Working capital as of June 30, 1999 increased to $1,889 million from $1,427
million as of December 31, 1998, primarily because of a seasonal increase in the
Agricultural Products segment's trade receivables partially offset by inventory
decrease of $228 million. The current ratio was 1.4 at June 30, 1999 and
year-end 1998. Accounts payable decreased by $368 million, or 45 percent,
primarily because of payments made to seed growers in the first half of 1999.
14
<PAGE>
Short-term debt increased $685 million when compared to the year-end balance.
The restructuring liability of $280 million established in 1998 was reduced by
$72 million in the first six months of 1999 to cover the cost for employees
severed and facility closures. Work force reductions and facility closures were
behind expectations as of June 30, 1999, however, Monsanto expects to complete
the remaining restructuring actions within the originally planned time frame.
The percent of total debt to total capitalization increased to 60 percent as of
June 30, 1999 compared with 59 percent as of December 31, 1998 because of the
increase in short-term debt to fund the seasonal needs of the Agricultural
Products segment and the Pharmaceutical segment's launch of Celebrex(R)
arthritis treatment.
Operating activities from continuing operations used a net $444 million of cash
in the first six months of 1999, compared with $183 million of net cash used in
operations during the same period in 1998. The increase in cash used in
operations resulted primarily from the seasonal working capital requirements of
the Agricultural Products segment and the Pharmaceuticals segment product launch
of Celebrex(R) arthritis treatment. For comparative purposes, cash used in
operations for the first six months of 1998 included the collection of $207
million of miscellaneous receivables related to 1997 Pharmaceuticals licensing
and product rights sales. Investing activities in the first six months of 1999
used $21 million of cash compared with a use of cash of $379 million in the
first six months of 1998. Investing activities for the 1999 period included the
proceeds from the divestment of the Ortho(R) lawn-and-garden business for $340
million. Financing activities for the first six months of 1999 provided $591
million of cash compared with $671 million in the first six months of 1998.
Financing activities for the first six months of 1999 include the net increase
in short-term financing of $685 million, which was primarily used to fund
Agricultural Product's higher seasonal working capital levels and
Pharmaceuticals' launch and marketing of Celebrex(R).
The company had previously announced its plan to divest certain businesses that
are no longer critical to its life sciences strategy. These divestitures,
including those recently completed or announced, are currently expected to
generate proceeds of at least $1.5 billion to $2 billion pretax.
On June 4, 1999, Monsanto announced that the interest rate on $2.5 billion of
senior unsecured debt, issued in a private placement in late 1998, would
increase 25 basis points beginning June 8, 1999. These debt securities were to
be registered with the Securities and Exchange Commission ("SEC") by June 7,
1999. As one of roughly 150 companies originally contacted by the SEC regarding
certain accounting issues, Monsanto is currently in discussions with the SEC.
The registration statement for these securities, which was filed in March 1999,
will not be declared effective until the discussions are concluded. This
interest rate increase is temporary, and will be discontinued when the SEC
declares the company's registration statement effective and other conditions are
met.
Near the end of the second quarter of 1999, Monsanto and Cargill reached an
agreement that resolves outstanding issues related to Monsanto's purchase of
certain international seed operations of Cargill. As a result, final estimates
related to the purchase price allocation to goodwill, inventories and other
individually insignificant tangible assets are expected to be completed and
adjusted in the third quarter 1999. Any other adjustment to the purchase price
allocation for the businesses acquired is not expected to materially impact
Monsanto's financial position, results of operations or cash flows.
In 1998, Monsanto announced that it had entered into a definitive agreement with
Delta and Pine Land Company ("D&PL") to merge it with Monsanto. Under terms of
the agreement, D&PL shareowners would be entitled to receive 0.8625 shares of
Monsanto's common stock in exchange for each share of D&PL they hold.
Approximately 33 million shares of Monsanto common stock would be issued to D&PL
shareowners. Based on Monsanto's closing stock price of $53 1/2 per common share
on May 8, 1998, the date of the merger agreement, this would result in a
purchase price of approximately $1.8 billion. The merger, already approved by
D&PL shareowners, is subject to regulatory approvals and other customary
conditions. This transaction will be accounted for as a purchase.
Outlook for Agricultural Products - Update
Worldwide agricultural economic conditions continue to be challenging to the
industry. Monsanto is monitoring the effect on the business of low commodity
prices and reduced farmer margins.
On August 12, a Judge of the 6th Federal Court's Section, Brasilia, issued a
decision requiring Monsanto to submit an environmental impact report in order to
obtain approval for the commercial planting of RoundupReady (R) soybeans in
Brazil. The decision makes final the injunction issued by the same Court on June
18, 1999, which is currently on appeal by Monsanto. Monsanto had received
approval for commercial planting of RoundupReady(R) soybeans in Brazil on
September 29, 1998 from CTNBio, the agency which oversees products developed
15
<PAGE>
through biotechnology. CTNBio previously had waived the requirement for an
environmental impact report. The decision means that prior to commercialization
of RoundupReady(R) Soybeans in Brazil, either an environmental impact report
must be approved by the appropriate environmental regulatory authorities in
Brazil, or the decision of the 6th Federal Court's Section must be overturned or
modified. Monsanto intends to pursue all available legal procedures to overturn
the decision. In addition, Monsanto intends to continue, within the bounds of
the Court's decision, working with the regulatory authorities in Brazil to
obtain all approvals necessary for the commercial planting of RoundupReady(R)
soybeans.
On August 6, 1999, Monsanto announced the signing of a definitive agreement to
sell Stoneville Pedigreed Seed Company to an affiliate of Hicks, Muse, Tate &
Furst, Inc.
Company Prepares for Year 2000
- ------------------------------
Beginning in 1996, the company initiated the Global Year 2000 Program (the "Y2K
Program") to ensure that its business would not be adversely affected by the
inability of many existing computer systems to distinguish between the year 1900
and the year 2000. The Y2K Program covers all company sites in all world areas.
Description and Status of the Y2K Program
Internal Systems. The company's Y2K Program encompasses all areas of the
company's internal systems including conventional information technology ("IT")
business applications, IT infrastructure, and embedded systems. Embedded systems
include process control/manufacturing, laboratory automation systems, and
site-specific facility management systems such as elevators and heating and
cooling systems. The remediation process applied to each area consists of
four-steps: Identification of the systems or components that need to be replaced
or fixed; assessment of the extent of the work required (internal investigation
or research with vendor or manufacturer); prioritization of the work; and
successful completion of the required remediation activity. As part of the
overall remediation activity still underway, two major initiatives specifically
address two significant remaining areas of compliance: IT Infrastructure
(specifically PC compliance); and overall Y2K readiness in Monsanto's recently
acquired seed businesses. Both initiatives have aggressive milestones and are
scheduled to complete by end of third quarter, 1999. The company is on track to
achieve the target date for completion of all other material remediation work
for internal systems by the end of the third quarter of 1999.
The following summarizes the status of the Y2K Program with respect to internal
systems:
<TABLE>
<S> <C> <C>
IT Applications Portfolio:
At Jun. 30, 1999 At Mar. 31, 1999
---------------- ----------------
Number of applications identified 1,676 1,309
Applications assessed for Y2K compliance 100 percent 100 percent
Applications compliant 82 percent 66 percent
Applications to be remediated through replacements and upgrades 11 percent 17 percent
Anticipated retirements 1 percent 3 percent
Applications at various stages of renovation, redevelopment or 6 percent 14 percent
testing
16
<PAGE>
IT Infrastructure Products:
At Jun. 30, 1999 At Mar. 31, 1999
---------------- ----------------
Number of IT infrastructure products identified 531 531
Products successfully researched for compliance 100 percent 100 percent
Number of IT infrastructure items in use 38,919 N/A
Items compliant, remediated, or risk eliminated 38 percent N/A
Embedded Systems:
At Jun. 30, 1999 At Mar. 31, 1999
---------------- ----------------
Number of process control products identified 7,733 7,631
Products successfully researched for compliance 100 percent 99 percent
Number of process control items in use 16,529 16,209
Items compliant, remediated, or risk eliminated 93 percent 69 percent
Number of laboratory automation products identified 5,487 5,383
Products successfully researched for compliance 75 percent 74 percent
Number of laboratory automation items in use 14,378 14,250
Items compliant, remediated, or risk eliminated 81 percent 72 percent
Number of site facilities products identified 792 696
Products successfully researched for compliance 98 percent 100 percent
Number of site facilities items in use 1,213 1,086
Items compliant, remediated, or risk eliminated 78 percent 71 percent
Number of products in newly acquired businesses 5,856 3,489
Products successfully researched for compliance 56 percent 40 percent
Number of items in use 10,463 8,858
Items compliant, remediated, or risk eliminated 46 percent 37 percent
</TABLE>
Suppliers. The company has contacted its major suppliers to assess their
preparations for the Year 2000. More than 650 key corporate suppliers have been
identified and contacted in addition to numerous suppliers critical to
individual locations. Approximately 70 percent of the company's key corporate
suppliers have been identified as likely to be Y2K compliant. The status of the
remaining 30 percent of these key suppliers is of concern and further action is
being taken by managers responsible for these suppliers or supplier contracts.
Where appropriate, company representatives may conduct an in-depth investigation
of a particular supplier's ability to be compliant and site visits may be made.
Contingency Plans. The company's contingency plans are continuously evolving as
it proceeds with the Y2K Program. The company began a major initiative in
November 1998 in this area with the establishment of the Y2K Business Continuity
Team. Continuity plans have been prepared in critical functional areas
throughout the company and have been consolidated into comprehensive plans
around key business sectors. These plans include cost analysis, testing, failure
response, safety, procedures, communications, among other items. Senior
management periodically reviews these business-level continuity plans to ensure
Monsanto's supply chain has identified relevant risks and have planned
accordingly. Where a supplier's performance is in doubt, the company's
contingency plans include, when appropriate, the stockpiling of raw materials or
a switch to a different supplier. The company will increase testing of
pharmaceutical and nutrition products as the Year 2000 nears and may also
increase production of critical product inventory.
Costs
The company continues to evaluate the estimated costs associated with Y2K
compliance based on actual experience. The total cost is currently projected at
about $35 million, with approximately $27.4 million expended through Jun. 30,
1999. Such costs encompass only the company's Y2K remediation efforts and do not
include expenses such as overtime wages, additional warehouse space or increased
finance costs which may be incurred upon implementation of the company's
contingency plans. The company does not expect the costs associated with its
Year 2000 efforts to be materially adverse to the company's business operations,
financial position, profitability or liquidity.
Risks
The company believes that the Y2K Program follows both prudent and best
demonstrated practices (including contingency planning) and makes use of
appropriate internal and external skills at the proper level and in the proper
amount to minimize the impact of any failures. However, since the Year 2000
problem is unprecedented in scope or complexity, no complete assurance of risk
avoidance can be given. In the company's case, failure to correct a material
Year 2000 problem could result in lost profits or breach of contract claims in
the event the company is unable to deliver its products pursuant to the terms of
its agreements or such products fail to meet contract specifications as well as
claims for personal injury or property damage at its facilities. The company may
also experience lost revenues in the event any of its customers experience Y2K
problems which cause them to order less product from the company or which cause
financial difficulties resulting in a breach of their payment obligations to the
company.
17
<PAGE>
Readers are cautioned that forward-looking statements contained in this section
should be read in conjunction with the company's disclosures under the heading
"Disclosure of Forward-Looking Statements."
Euro Conversion
- ---------------
On Jan. 1, 1999, more than two-thirds of the member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the euro as common legal currency. During the transition period
from Jan. 1, 1999 until June 30, 2002, both the existing sovereign currencies of
the participating countries and the euro will be legal currency. Beginning July
1, 2002, the existing sovereign currencies of the participating countries will
no longer be legal tender for any transactions.
In Sept. 1997, Monsanto formed a cross-functional team which has been addressing
issues associated with the euro conversion. Since Jan. 1, 1999, the company has
been able to engage in euro-denominated transactions and is legally compliant
with respect to the euro. Monsanto expects to have all affected information
systems fully converted by Apr. 2001. Monsanto does not expect the euro
conversion to have a material effect on its competitive position, business
operations, financial position or results of operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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, the inventory valuation note, and
the long-term debt note in Notes to Financial Statements in Monsanto's annual
report for the year ended December 31, 1998 ("1998 Annual Report"), incorporated
by reference in Monsanto's Annual Report on Form 10-K for the year ended
December 31, 1998 ("1998 Form 10-K").
The tables under Market Risk Management in the Management's Discussion and
Analysis section of the 1998 Annual Report, incorporated by reference in the
1998 Form 10-K, 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. There have been no material
changes to the information provided in the tables in the 1998 Annual Report and
Form 10-K except as noted below.
<TABLE>
Significant interest rate risk sensitive instruments as of June 30, 1999 were:
<S> <C> <C> <C> <C> <C> <C> <C>
Expected Maturity Date
1999 2000 2001 2002 2003 Thereafter TOTAL
------- ------ ------ ------ ------ ---------- -----
Long-Term Debt:
Fixed Rate ($US)
Principal Amount $ 161 533 $ 19 $ 738 $ 2, 797 $ 4,248
Average Interest Rate 6.1% 5.6% 8.3% 6.1% 6.7% 6.5%
Fixed Rate (Japanese Yen) $ 82 $ 82
Average Interest Rate 5.6% 5.6%
Variable Rate ($US)
Principal Amount (1) $ 60 1,063 $ 72 $ 365 $ 208 $ 1,769
Average Interest Rate 4.4% 4.9% 4.3% 4.5% 4.0% 4.7%
Short-Term Debt:
Fixed Rate ($US)
Principal Amount $ 148 $ 148
Average Interest Rate 7.7% 7.7%
Variable Rate ($US)
Principal Amount (2) $ 1,429 $ 1,429
Average Interest Rate 5.0% 5.0%
</TABLE>
18
<PAGE>
(1) Includes $1.0 billion of commercial paper that is assumed to be renewed
through 2001, when the company's $1.0 billion credit facility expires.
(2) Average variable rates are based on the variable rates on June 30, 1999.
Actual rates may be higher or lower.
The instruments in the table of significant currency exchange rate risk
sensitive instruments that appeared in the 1998 Annual Report and Form 10-K were
no longer outstanding at June 30, 1999. At June 30, 1999, the following
significant forward contracts were outstanding (all expected to mature by June
30, 2000): sales of Brazilian real with a notional amount of $15 million and an
average exchange rate of 1.805 Brazilian real per U.S. dollar; sales of Canadian
dollars with a notional amount of $97 million and an average exchange rate of
1.4663 Canadian dollars per U.S. dollar; sales of British pounds with a notional
amount of $385 million and an average exchange rate of 0.6256 British pounds per
U.S. dollar; sales of Australian dollars with a notional amount of $41 million
and an average exchange rate of 1.5184 Australian dollars per U.S. dollar; sales
of Polish zlotys with a notional amount of $27 million and an average exchange
rate of 3.9634 Polish zlotys per U.S. dollar; purchases of Japanese yen with a
notional amount of $30 million and an average exchange rate of 120.85 Japanese
yen per U.S. dollar; sales of South African rand with a notional amount of $32
million and an average exchange rate of 6.0960 South African rand per U.S.
dollar; sales of Czech koruna with a notional amount of $7 million and an
average exchange rate of 35.5652 Czech koruna per U.S. dollar; sales of Mexican
pesos with a notional amount of $11 million and an average exchange rate of
9.6825 Mexican pesos per U.S. dollar; and sales of European euros with a
notional amount of $246 million and an average exchange rate of 0.9594 European
euros per U.S. dollar. The fair market values of these contracts approximated
the notional amounts at June 30, 1999.
The instruments in the table of significant commodity price risk sensitive
instruments that appeared in the 1998 Annual Report and Form 10-K were no longer
outstanding at June 30, 1999. At June 30, 1999, the following significant
commodity price risk sensitive instruments were outstanding: purchased soybean
futures contracts totaling $101.2 million (18.5 million bushels at a weighted
average price per bushel of $5.48) with a fair value of $85.4 million, purchased
corn futures contracts totaling $20.2 million (8.6 million bushels at a weighted
average price per bushel of $2.34) with a fair value of $19.6 million, and sold
lean hogs futures contracts totaling $13.0 million (0.2 million CWT with a
weighted average price per CWT of $54.92) with a fair value of $10.5 million.
PART II. OTHER INFORMATION
Item 1. 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, as applicable.
As described in the company's Annual Report on Form 10-K for the year ended
December 31, 1998, and in its Report on Form 10-Q for the quarter ended March
31, 1999, 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 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 alleged 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, settled the
federal class action case. Trial of the federal class action case commenced on
September 14, 1998. On November 30, 1998, Searle and its co-defendants received
a verdict for the defense and all claims were dismissed. On January 4, 1999, the
class plaintiffs filed a notice of appeal with the U. S. Court of Appeals for
the Seventh Circuit. Following oral arguments in June 1999, the Seventh Circuit
Court of Appeals ruled on July 13, 1999. The opinion upheld most of the lower
court's decision to throw out price fixing charges against the manufacturers as
well as the wholesalers. The court reversed the trial judge on one discrete
issue involving the Consumer Price Index and that is currently the subject of a
petition for a re-hearing by the appellate court. In addition, consumers and a
number of retail pharmacies have filed suit in various state courts throughout
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the country alleging violations of state antitrust and pricing laws. While many
of these suits have been settled, suits remain pending in a number of states
including California, Alabama and North Dakota.
As described in the company's Annual Report on Form 10-K for the year ended
December 31, 1998, and in its Report on Form 10-Q for the quarter ended March
31, 1999, in 1997 the company commercially introduced corn containing a gene
providing glyphosate resistance. On November 20, 1997, Rhone Poulenc Agrochimie
S. A. ("Rhone Poulenc") filed suit in the U. S. District Court in North Carolina
(Charlotte) against the company and DEKALB (now a subsidiary of the company)
alleging that a 1994 license agreement (the "1994 Agreement") between DEKALB and
Rhone Poulenc was induced by fraud stemming from DEKALB's nondisclosure of a
research report involving testing of plants to determine glyphosate tolerance.
Rhone Poulenc also alleged that neither DEKALB nor Monsanto has a right to
license, make or sell products using Rhone Poulenc technology for glyphosate
resistance under the terms of the 1994 Agreement. On April 5, 1999, the trial
court rejected Rhone Poulenc's claim that the contract language did not convey a
license but found that a disputed issue of fact existed as to whether the
contract was obtained by fraud. Jury trial of the fraud claims ended April 22,
1999, with a verdict for Rhone Poulenc and against DEKALB. Monsanto was
dismissed from the trial prior to verdict since it was not involved in the
inducement allegation and was involved in the case only due to the fact that in
1996, DEKALB sublicensed to Monsanto certain technology previously licensed by
Rhone Poulenc. The jury awarded $15 million in actual damages for "unjust
enrichment" and $50 million in punitive damages. DEKALB has filed motions with
the trial court to set aside the damage award. DEKALB has meritorious grounds to
overturn the jury verdict and has filed a Motion for Judgment as a Matter of Law
to overturn the jury verdict. The trial was bifurcated to allow claims against
DEKALB and Monsanto for patent infringement and misappropriation of trade
secrets to be tried before a different jury. On May 6, 1999, the District Court
dismissed Monsanto from all remaining claims and granted Monsanto's motion for
summary judgment holding that Monsanto was a bona fide purchaser which retained
all license rights to the Rhone Poulenc technology notwithstanding the prior
verdict against DEKALB. The Court concurred that Monsanto was not liable for
trade secret or patent infringement claims since Monsanto obtained its license
from DEKALB without any knowledge of the claims that allegedly gave rise to the
jury verdict against DEKALB. Jury trial of the patent infringement and
misappropriation claims ended June 3, 1999, with a verdict for Rhone Poulenc and
against DEKALB. DEKALB is continuing to defend the litigation and maintains that
they remain licensed to use the Rhone Poulenc technology notwithstanding the
verdict or any subsequent action that may occur to rescind the 1994 license
between Rhone Poulenc and DEKALB. In addition to the claim of license, DEKALB
believes that they have other meritorious defenses to the patent and trade
secret allegations, including patent invalidity and absence of trade secret
status due to Rhone Poulenc's own public disclosure of the alleged trade secret.
On July 16, 1999, a hearing occurred on all post-trial motions including the
request by Rhone Poulenc for injunctive relief against future sales of
DEKALB-brand RoundupReady(R) corn products if the material was not currently in
inventory or within the scope of the prior damage verdict. No ruling has
occurred on the post-trial motions. DEKALB will vigorously appeal the verdict to
the Federal Circuit and will assert its meritorious defenses to all remaining
claims in the litigation and will vigorously seek to avoid further claims of
liability, the possible entry of injunctive relief and will seek to overturn by
appeal any judgment entered in the lawsuit.
As described in the company's Annual Report on Form 10-K for the year ended Dec.
31, 1998, the company and/ or DEKALB is the plaintiff in various legal actions
involving Bt technology, herbicide-resistant and/or insect-resistant transgenic
corn, or corn transformation patents. (a) The DEKALB patents involved in the
most significant DEKALB-initiated transactions are: U.S. Patent No. 5,484,956
covering fertile, transgenic corn plants expressing genes encoding Bacillus
thuringiensis (Bt) insecticidal proteins; U.S. Patent No. 5,489,520 covering the
microprojectile method for producing fertile, transgenic corn plants covering a
bar or pat gene, as well as the production and breeding of progeny of such
plants; U.S. Patent Nos. 5,538,880 and 5,538,877 directed to methods of
producing either herbicide-resistant or insect-resistant transgenic corn; and
U.S. Patent No. 5,550,318 directed to transgenic corn plants containing a bar or
pat gene (all lawsuits related to this patent have been stayed pending
resolution of an interference proceeding at the U.S. Patent and Trademark
Office). In each case DEKALB has asked the court to determine that infringement
has occurred, to enjoin further infringement and to award unspecified
compensatory and exemplary damages. Most of these actions have been filed in
U.S. District Court for the Northern District of Illinois (the "Rockford
Litigation"). By order dated June 30, 1999, the special master in the Rockford
Litigation construed the patent claims in a manner largely in accord with the
position of DEKALB. No trial date has been established in the Rockford
Litigation. The actions in the Rockford Litigation were initially filed on April
30, 1996, against Pioneer Hi-Bred International, Inc. ("Pioneer"), Mycogen
Corporation (and two of its subsidiaries) and Ciba-Geigy Corporation. Additional
actions were filed in the Rockford Litigation against: Northrup King Co. on June
10, 1996; and several Hoechst Schering AgrEvo GmbH entities on August 27, 1996.
On July 2, 1999, DEKALB sued Pioneer in a patent interference action to declare
that DEKALB was the first inventor of the microprojectile method of producing
fertile transgenic corn; on July 30, 1999, DEKALB moved to consolidate the new
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suit with the remainder of the Rockford Litigation for purposes of trial. In
addition to the Rockford Litigation, DEKALB sued Beck's Hybrids, Inc. and
Countrymark Cooperative, Inc. on July 23, 1996, in U. S. District Court for the
Northern District of Indiana (Indianapolis Division); this action has been
stayed awaiting decision on the Rockford Litigation. (b) On March 19, 1996,
Monsanto 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
ended June 30, 1998, with a jury verdict that while the patent was literally
infringed by defendants the patent was not enforceable due to a finding of prior
invention (now owned by Monsanto) by another party, and not infringed due to the
defense of the reverse doctrine of equivalents. Monsanto has filed a motion for
judgment as a matter of law to overturn the jury verdict and will continue to
litigate vigorously its position in the matter.
As described in the company's Annual Report on Form 10-K for the year ended
December 31, 1998, and in its Report on Form 10-Q for the quarter ended March
31, 1999, on February 4, 1999, Pioneer Hi-Bred International Inc. ("Pioneer")
filed suit against Monsanto company, (Civil Action No. 4-99-CV-90063) in U.S.
District Court for the Southern District of Iowa. The suit seeks equitable
relief and jury trial, and alleges that Monsanto misappropriated trade secrets
through the acquisition and purchase of certain international seed operations of
Cargill International ("Cargill"). Pioneer alleges that Cargill's employees
misappropriated (via theft) germplasm belonging to Pioneer's corn seed business
and then bred the Pioneer germplasm into the corn lines of Cargill. A related
lawsuit, Civil Action No. 4-98-CV-90576 has been filed by Pioneer against
Cargill. On February 2, 1999, a joint statement issued by Pioneer and Cargill
indicated that a former Cargill employee may have misappropriated technology of
Pioneer and that efforts were underway between those companies to resolve this
issue. Monsanto and Cargill have resolved issues arising from the purchase of
the Cargill seed operations pursuant to the warranty and representation of
Cargill's parent that all intellectual property and seed lines were the property
of the business and not any third party. Monsanto has denied that it is liable
to Pioneer for damages from its unknowing acquisition of the business and has
numerous meritorious defenses against liability including its status as a bona
fide purchaser and will vigorously defend this action. In the lawsuit, Pioneer
seeks the return of its alleged trade secrets, injunction against Monsanto's
further use of the material, an accounting and damages for any sales of the
misappropriated material and other relief. On October 28, 1998, two related
lawsuits were filed in U.S. District Court in Iowa: one against Asgrow Seed
company, L.L.C., a subsidiary of the company (No. 4-98-CV-70577); and the other
against DEKALB (since acquired by the company) (No. 4-98-CV-90578). The lawsuits
allege that defendants misappropriated trade secrets of Pioneer in their corn
breeding programs. In addition to claims under Iowa state law for trade secret
misappropriation, Pioneer alleges violations of the Lanham Act. Actual and
exemplary damages and injunctive relief are sought. Pioneer also asserts that
defendants have violated an unspecified contractual obligation not to breed with
Pioneer germplasm. On July 17, 1999, the court denied defendants' motions to
dismiss on the basis that the claims of Pioneer are preempted by federal law
(the Plant Variety Protection Act) which expressly permits the activities of
breeding and research with germplasm sold in commerce. The defendants have other
meritorious defenses including preemption, laches, statute of limitations, lack
of trade secrets, ownership of the germplasm, bona fide purchaser status and
other defenses. Trial of the Asgrow and DEKALB cases is scheduled for April
2000.
Other information with respect to legal proceedings appears in the company's
Report on Form 10-K for the year ended December 31, 1998, and the company's
Report on Form 10-Q for the quarter ended March 31, 1999.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the company's Annual Meeting of Shareowners on April 23, 1999, five matters
were submitted to a vote of shareowners.
1. The following directors were elected, each to hold office until the Annual
Meeting to be held in 2002 or until a successor is elected and has
qualified or until his or her earlier death, resignation or removal. Votes
were cast as follows:
Votes Votes
Name "For" "Withhold Authority"
----- ------- --------------------
J. F. M. Peters 518,429,744 15,397,281
R. B. Shapiro 516,660,924 17,166,101
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The following directors are continuing current terms expiring at the 2000
Annual Meeting: Michael Kantor, Gwendolyn S. King and John S. Reed. The
following directors are continuing current terms expiring at the 2001
Annual Meeting: Philip Leder, John E. Robson and William D. Ruckelshaus.
2. A proposal to amend the Management Incentive Plan to increase shares
available for grants to 87,605,350 was submitted to a vote of shareowners.
The Board recommended a vote for the proposal. A total of 329,726,441 votes
were cast in favor of this proposal, a total of 198,767,675 votes were cast
against it, 5,332,909 votes were counted as abstentions.
3. The approval of the Annual Incentive Program was submitted to a vote of
shareowners. The Board recommended a vote for the proposal. A total of
487,943,760 votes were cast in favor, a total of 40,390,487 votes were cast
against it and 5,492,778 were counted as abstentions.
4. The appointment by the Board of Directors of Deloitte & Touche LLP as
principal independent auditors for the year 1999 was ratified by the
shareowners. A total of 527,392,757 votes were cast in favor of
ratification, 3,816,351 votes were cast against it, and 2,617,917 votes
were counted as abstentions.
5. A proposal by a certain shareowner relating to cumulative voting was
submitted to a vote of shareowners. The Board recommended a vote against
the proposal. A total of 142,033,838 votes were cast in favor of this
proposal, a total of 272,826,300 votes were cast against it, 22,304,517
votes were counted as abstentions, and 96,662,370 votes were counted as
broker non-votes.
Brokers were permitted to vote on the following items in the absence of
instructions from street-name holders and, therefore, broker non-votes did not
occur in those matters: the election of directors; the amendment of the
Management Incentive Plan; the approval of the Annual Incentive Plan; and the
ratification of auditors.
Item 5. OTHER INFORMATION
DISCLOSURE REGARDING FORWARD LOOKING INFORMATION
Under the Private Securities Litigation Reform Act of 1995, companies are
provided with a "safe harbor" for making forward-looking statements about the
potential risks and rewards of their strategies. Monsanto believes it's in the
best interest of its shareowners to use these provisions in discussing future
events. Forward-looking statements include Monsanto's plans for growth; the
potential for the development, regulatory approval, and public acceptance of new
products; and other factors that could affect Monsanto's future operations or
financial position. Such statements often include the words "believes,"
"expects," "anticipates," "intends," "plans," "estimates," or similar
expressions.
Monsanto's ability to achieve its goals depends on many known and unknown risks
and uncertainties, including 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 are not limited to, those discussed below.
Factors Affecting the Agricultural Products Segment
Roundup Generic Competition: The family of Roundup(R) herbicides is a major
product line for Monsanto's Agricultural Products segment. These herbicides are
likely to face increasing competition from generic products. Patents protecting
Roundup(R) in several countries expired in 1991. Compound per se patent
protection for the active ingredient in Roundup(R) herbicide expires in the
United States in Sept. 2000. Monsanto believes that it can compensate for
increased generic competition both within and outside the United States and
continue to increase revenues and profits from Roundup(R) through a combination
of (1) marketing strategy, (2) pricing strategy, and (3) decreased production
costs.
Marketing Strategy. Monsanto expects to increase Roundup(R) sales by
focusing on brand premiums, providing unique formulations and services,
offering integrated seed and biotech solutions through cross selling
and the growth and introduction of RoundupReady(R) crops, and
continuing to encourage the practice of conservation tillage. In
addition, Monsanto will seek to enter into strategic agreements to
supply glyphosate to other herbicide producers. The success of the
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company's Roundup(R) marketing strategy will depend on the continued
expansion of conservation tillage practices and the company's ability
to realize and promote cost and production benefits of its product
packages, introduce new RoundupReady(R) crops and economically produce
glyphosate in sufficient quantities to allow it to market to such
producers.
Pricing Strategy. Monsanto significantly reduced the sales price of
Roundup(R) in the United States. This price elasticity strategy is
designed to increase demand for Roundup(R) in the United States by
making Roundup(R) more economical, encouraging both new uses of the
product and expansion of the number of acres treated. Monsanto's
experience in numerous markets worldwide has been that price reductions
have stimulated volume growth. However, the volume increases in the
other countries also may have been influenced by a variety of other
factors, such as weather; the increased use of conservation tillage
practices; development of other new markets or applications for
Roundup(R); launch of new products including Roundup Ready(R) crops;
competitive products and practices; and an increase in agricultural
acres planted. Conditions, and therefore volume trends in one country
may or may not be duplicated in other world areas. As a result,
Monsanto's experience with price elasticity in markets outside the
United States may or may not be replicated in the United States.
Production Cost Decreases. Monsanto also believes that increased
volumes and technological innovations will lead to efficiencies that
will reduce the production cost of glyphosate. Such cost reductions
will depend on realizing such increased volumes and innovations, and
securing the resources required to expand production of Roundup(R).
Realization and Introduction of New Biotech Products: The company's ability to
develop and introduce to market new agricultural biotech products, including new
Roundup Ready(R) crops, will be dependent, among other things, upon the
availability of sufficient financial resources to fund research and development
needs, demonstrated product effectiveness, the company's ability to develop,
purchase or license required technology, the existence of sufficient
distribution channels and the acceptance and competition factors discussed
below.
Governmental and Consumer Acceptance: The commercial success of agricultural and
food products developed through biotechnology will depend in part on government
and public acceptance of their cultivation, distribution and consumption.
Monsanto continues to work with consumers, customers and regulatory bodies to
encourage understanding of nutritional and agricultural biotechnology products.
However, public attitudes may be influenced by claims that genetically modified
plant products are unsafe for consumption or pose unknown risks to the
environment or to traditional social or economic practices. For instance,
consumer groups have brought lawsuits in various countries seeking to halt
industry activities with respect to products developed through biotechnology.
Securing governmental approvals for, and consumer confidence in, such products
poses numerous challenges, particularly outside the United States. Some
countries also have labeling requirements. In some markets, because these crops
are not yet approved for import, growers in other countries may be restricted
from introducing or selling their grain. In these cases, the grower may have to
arrange to sell the grain only in the domestic market or to use the grain for
feed on his or her farm. The market success of Monsanto's products developed
through biotechnology could be delayed or impaired in certain geographical areas
because of such factors.
Technological Change and Competition: A number of companies are engaged in plant
biotechnology research. Technological advances by others could render Monsanto's
products less competitive. In addition, the ability to be first to market a new
product can result in a significant competitive advantage. Monsanto believes
that competition will intensify, not only from agricultural biotechnology firms
but from major agrichemical, seed and food companies with biotechnology
laboratories. Some of Monsanto's agricultural competitors have substantially
greater financial, technical and marketing resources than Monsanto does.
Successful Integration of Recent Transactions: Monsanto has made significant
acquisitions, mergers and joint ventures involving seed, agricultural
biotechnology and grain processing companies. These transactions are designed to
strengthen Monsanto's capability to bring important new life sciences products
to customers worldwide, and to contribute to the company's long-term growth. The
Delta and Pine Land Co. (D&PL) transaction is subject to regulatory approval and
other customary conditions. It is anticipated that the pending D&PL transaction,
when final, and the recently completed acquisitions of DEKALB Genetics Corp.,
Plant Breeding International Cambridge, and certain international seed
operations of Cargill Inc., will significantly dilute Monsanto's financial
results for the next several years. Long term, Monsanto must integrate these
companies into its business to realize projected synergies and to provide the
distribution channels necessary to quickly and efficiently launch new products.
It must also fit such acquisitions, mergers and joint ventures into its growth
strategy to generate sufficient value to justify their cost. Mergers,
acquisitions, and joint ventures also present other challenges, including
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geographical coordination, personnel integration, and the reconciliation of
corporate cultures. This integration could cause a temporary interruption of or
loss of momentum in Monsanto's business and the loss of key personnel from the
acquired company. There can be no assurance that the diversion of management's
attention to such matters or the delays or difficulties encountered in
connection with integrating these operations will not have an adverse effect on
Monsanto's business, results of operations, or financial condition.
Planting Decisions and Weather: The company's agricultural products business is
highly seasonal. It is subject to weather conditions and natural disasters that
affect commodity prices, seed yields, and decisions by growers regarding
purchases of seed and herbicides. Commodity prices for several crops have
decreased significantly in the last several months and there can be no assurance
that this trend will not continue. These lower commodity prices affect growers'
decisions about the types and amounts of crops to plant and may negatively
influence sales of Monsanto's herbicide and seed products.
Factors Affecting the Pharmaceuticals Segment
Ability to Realize Potential of Existing Pipeline Products: Pharmaceutical
research and development (R&D) is subject to inherent uncertainty, difficulties
and delays. These include, but are not limited to, successful completion of
clinical trials and the ability to obtain regulatory approval for the compounds
worldwide. Failure to receive government approvals as anticipated could preclude
or substantially delay commercialization of products in the company's R&D
programs.
Development and Commercialization of New Products and Expansion of Existing
Product Uses: The Pharmaceuticals Segment's long-term success will depend in
great part on its ability to commercialize new products (including second
generation products) and to expand the use of its existing products by
developing new indications for such products. Such efforts require substantial
funding of R&D and, in the case of new products, launch expenses. If Monsanto is
unable to earn or borrow sufficient resources to fund such expenses, its ability
to develop new products and expand uses of existing products will suffer.
Further, the outcome of R&D is inherently difficult to predict. Anticipated
results may never materialize, or they may not be promising enough. Even when
new pharmaceutical products are marketed, there can be no guarantees of their
commercial success. Consumer demand and competitive factors, including the
availability and price of treatment alternatives influence sales. In addition,
timing is crucial. The results of R&D of new pharmaceutical products are
difficult to forecast, and new products must be carefully deployed, with
resources sufficient to realize the full value of the products.
Product Liability and Consumer Acceptance: The sale of pharmaceutical products
always involves a risk of product liability claims and associated adverse
publicity. Substantial damage awards for injuries allegedly caused by the use of
pharmaceuticals have been made against certain companies in past years. In
addition, unexpected safety or efficacy concerns can arise with respect to
marketed products. Whether or not they are scientifically justified, such
concerns could lead to product recalls, withdrawals, or declining sales.
Competition: Pharmaceutical research is intense and highly competitive. It is
characterized by rapid technological change. Depending on the product involved,
competition may be encountered in price, delivery, service, performance,
innovation, brand recognition and quality. Many of Monsanto's pharmaceutical
competitors have greater research, financial, marketing and other resources than
Monsanto does. Some of Monsanto's trademarked pharmaceutical products also face
increasing pressures from producers of lower-priced generic products and from
new products entering the marketplace. Finally, as the company introduces new
products intended for use in the treatment of the same conditions as existing
Monsanto products, sales of such existing products may suffer.
Pricing: Managed care groups, health care organizations and government agencies
worldwide actively seek discounts and lower prices on pharmaceutical products.
Monsanto's challenge is to provide overall economic benefits to health care
providers and negotiate prices for specific products that will allow it to
profit at acceptable levels.
Factors Affecting All Segments
Financial Requirements: Monsanto's recent acquisitions will require a
significant commitment of the company's financial resources. In addition, new
technological innovations generally require a significant investment for R&D and
product launch. Lack of funds for investment in these areas could hinder the
company's ability to make technological innovations and to introduce and
distribute new products. Monsanto expects to generate the required capital by
increasing the revenues of its core businesses, by seeking sufficient outside
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financing and by containing costs. The company's ability to do so will depend
upon a variety of specific factors listed elsewhere in this report and upon
capital market conditions generally.
Intellectual Property: Monsanto has devoted significant resources to obtaining
and maintaining patent protection worldwide for its products. It seeks to
preserve its trade secrets and to operate without infringing the proprietary
rights of third parties. Monsanto's patents and trademarks are of material
importance in the operation of its business, particularly in the Agricultural
Products and Pharmaceuticals segments. Intellectual property positions are
becoming increasingly important within the agricultural biotechnology and
pharmaceutical industries, as products developed through biotechnology become a
larger part of the product landscape.
Monsanto generally relies upon patent and trademark laws worldwide to establish
and maintain its proprietary rights in its technology and products. There is
some uncertainty about the value of available patent protection in certain
countries outside the United States. Moreover, the patent positions of
biotechnology and pharmaceutical companies involve complex legal and factual
questions. Rapid technological advances and the number of companies performing
such research can create an uncertain environment. Patent applications in the
United States are kept secret: outside the United States, patent applications
are published 18 months after filing. Accordingly, competitors may be issued
patents from time to time without any prior warning to the company. That could
decrease the value of similar technologies under development at Monsanto.
Because of this rapid pace of change, some of the company's products may
unknowingly rely on key technologies developed by others. If that occurs, the
company must obtain licenses to such technologies in order to continue to use
them.
Certain of Monsanto's germplasm and other genetic material, patents, and
licenses are currently the subject of litigation and additional future
litigation is anticipated. Although the outcome of such litigation cannot be
predicted with certainty, Monsanto will continue to defend and litigate its
positions vigorously. The company believes it has meritorious defenses and
claims in the pending suits.
Markets Outside the United States: Sales outside the United States made up
approximately 45 percent of the company's 1998 revenues and Monsanto intends to
continue to actively explore international sales opportunities. Challenges the
company may face in international markets include changes in foreign currency
exchange rates, changes in a specific country's or region's political or
economic conditions, trade protection measures, import or export licensing
requirements, and unexpected changes in regulatory requirements. In particular,
the decline in certain Latin American economies may, if not reversed, adversely
affect future income. Also, future sales may decrease because the decline in
such economies could cause customers to purchase fewer goods in general, and
also because imported Monsanto products could become more expensive for
customers to purchase in their local currency.
Joint Ventures and Alliances: The company plans to continue to frequently
explore the potential benefits of possible strategic alliances and joint
ventures. Such arrangements can help speed the development and commercialization
of new products or assist in product distribution and marketing. However,
despite its efforts, the company may be unable to reach agreement with third
parties with whom it desires to enter into a joint venture or other alliance.
Restructuring: Monsanto has announced an aggressive plan to restructure its
business, including the elimination of a number of employment positions and the
divestiture of certain non-strategic assets. The inherent uncertainty related to
a restructuring, and the resulting increased demands on certain employees, could
cause a temporary interruption of or loss of momentum in Monsanto's business. In
addition, the success of the company's divestiture plan will depend on its
ability to negotiate acceptable sales prices for such assets which is in turn
largely dependent on the long-term prospects and strategic value of the divested
businesses and the availability of a buyer with sufficient financial resources.
Year 2000 Readiness: The dates on which Monsanto believes the Year 2000 (Y2K)
Program will be completed are based on management's best estimates, which
include numerous assumptions about future events. There can be no guarantee that
these estimates will be achieved, or that there will not be a delay in, or
increased costs associated with, the implementation of the Y2K Program. Factors
that may cause delays in the Y2K Program or increased costs in connection with
it include, but are not limited to, the continued availability and cost of
experts trained in these areas, the ability to locate and correct all relevant
computer code and embedded systems, and the success of similar programs
conducted by suppliers and other third parties.
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See the Exhibit Index.
(b) Reports on Form 8-K during the quarter ended June 30, 1999:
A Form 8-K was filed May 4, 1999, in connection with a press
release announcing certain financial information presented to
financial analysts and investors.
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SIGNATURE
Pursuant to the requirements 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)
/s/ Richard B. Clark
--------------------
Vice President and Controller
(On behalf of the Registrant and
as Principal Accounting Officer)
Date: August 16, 1999
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EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2 Omitted - Inapplicable
3 By-Laws of the Company, as amended effective June 25,
1999 (incorporated herein by reference to exhibit 3.2
of Amendment No. 2 to the Company's Registration
Statement on Form S-4 filed July 28, 1999)
4 Omitted - Inapplicable
10 1. Monsanto Management Incentive Plan of 1996, as
amended April 25, 1997, July 25, 1997, August 18,
1997, February 26, 1998, September 25, 1998 and
April 23, 1999 and as Adjusted to Reflect Stock
Split as of May 15, 1996 and Spin-off as of
September 1, 1997
2. Letter Agreement between the Company and
Richard U. De Schutter, dated February 7, 1997
11 Omitted - Inapplicable; see Note 4 of Notes to
Financial Statements
15 Omitted - Inapplicable
18 Omitted - Inapplicable
19 Omitted - Inapplicable
22 Omitted - Inapplicable
23 Omitted - Inapplicable
24 Omitted - Inapplicable
27 Financial Data Schedule
28
MONSANTO MANAGEMENT INCENTIVE PLAN OF 1996
As Amended April 25, 1997, July 25, 1997, August 18, 1997
February 26, 1998, September 25, 1998 and April 23, 1999 and
As Adjusted to Reflect Stock Split as of May 15, 1996
and Spin-off as of September 1, 1997
I. GENERAL PROVISIONS
1. PURPOSES
The Monsanto Management Incentive Plan of 1996 is designed to:
o focus management on business performance that creates stockholder value,
o encourage innovative approaches to the business of the Company,
o reward for results,
o encourage ownership of Monsanto common stock by management, and
o encourage taking higher risks with an opportunity for higher reward.
This Incentive Plan shall be effective April 15, 1996 ("Effective Date"),
subject to the approval of this Incentive Plan by the stockholders of the
Company.
2. DEFINITIONS
Except where the context otherwise indicates, the following definitions apply:
"Associated Company" means any corporation (or partnership, joint venture, or
other enterprise), of which the Company owns or controls, directly or
indirectly, 10% or more, but less than 50% of the outstanding shares of stock
normally entitled to vote for the election of directors (or comparable equity
participation and voting power).
"Award" means any Stock Option, Stock Appreciation Right, Restricted Share,
unrestricted Share, dividend equivalent unit or other award granted under this
Incentive Plan.
"Board" means Board of Directors of the Company.
"Committee" means the People Committee, or its permitted delegate.
"Compensation Committee" means one or more committees appointed by the People
Committee composed of one or more senior managers of the Company or a Subsidiary
to whom the People Committee may delegate its powers (or a portion thereof) to
administer this Incentive Plan pursuant to Section 3(a) of this Article I.
"People Committee" means the People Committee of the Board or such other
committee consisting of two or more members of the Board as may be appointed by
the Board to administer this Incentive Plan pursuant to Section 3(a) of this
Article I.
"Company" means Monsanto Company, a Delaware corporation.
"Eligible Participant" means any officer or other salaried employee (including a
director who is a salaried employee) of the Company, a Subsidiary, or an
Associated Company.
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"Incentive Plan" means the Monsanto Management Incentive Plan of 1996, set forth
herein.
"Fair Market Value" shall mean, with respect to any given day, the average of
the highest and lowest sales prices of the Shares reported as the New York Stock
Exchange-Composite Transactions for such day, or if the Shares were not traded
on the New York Stock Exchange on such day, then on the next preceding day on
which the Shares were traded, all as reported by The Wall Street Journal,
mid-west edition, under the heading New York Stock Exchange-Composite
Transactions or by such other source as the Committee may select.
"Incentive Stock Option" or "Incentive Option" means an option meeting the
definition of that term as set forth in Section 3 of Article II of this
Incentive Plan.
"1984 Plan" means the Monsanto Management Incentive Plan of 1984, as amended.
"1986 Plan" means the Searle Monsanto Stock Option Plan of 1986, as amended.
"1988/I Plan" means the Monsanto Management Incentive Plan of 1988/I, as
amended.
"1988/II Plan" means the Monsanto Management Incentive Plan of 1988/II, as
amended.
"1991 Plan" means the NutraSweet/Monsanto Stock Plan of 1991, as amended.
"1994 NutraSweet/Monsanto Plan" means the NutraSweet/Monsanto Stock Plan of
1994, as amended.
"1994 Plan" means the Monsanto Management Incentive Plan of 1994, as amended.
"1994 Searle/Monsanto Plan" means the Searle/Monsanto Stock Plan of 1994, as
amended.
"Non-Qualified Stock Option" or "Non-Qualified Option" means an option referred
to in Section 4 of Article II of this Incentive Plan.
"Participant" means an Eligible Participant to whom a Stock Option or a Stock
Appreciation Right has been granted, a bonus commitment made or a bonus awarded
pursuant to this Incentive Plan.
"Reporting Person" means a person subject to the reporting requirements of
Section 16(a) of the Securities Exchange Act of 1934 (or any law, rule,
regulation or other provision that may replace such statute) with respect to
Shares.
"Restricted Shares" means Shares that were made subject to restrictions in
accordance with Section 6 of Article II of this Incentive Plan.
"Shares" means shares of common stock of the Company and any shares of stock or
other securities received as a result of a Share adjustment as set forth in
Section 4 of this Article I.
"Stock Appreciation Right" means a right referred to in Section 5 of Article II
of this Incentive Plan.
"Stock Appreciation Right Fair Market Value" or "SAR Fair Market Value" shall
mean a value established by the Committee for the exercise of a Stock
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Appreciation Right. If such exercise occurs during any quarterly "window period"
as specified by Rule 16b-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended from time to time, or any law, rule,
regulation or other provision that may hereafter replace such Rule, the
Committee may establish a common value for exercises during such window period.
"Stock Option" or "Option" shall mean Incentive Stock Options and/or
Non-Qualified Stock Options.
"Subsidiary" means: (i) for the purpose of an Incentive Stock Option, any
corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company if, at the time of the granting of the Option, each
of the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain; and (ii) for the
purposes of a Non-Qualified Stock Option, a Stock Appreciation Right or an Award
of Shares (restricted or not), any corporation (or partnership, joint venture,
or other enterprise) of which the Company owns or controls, directly or
indirectly, 50% or more of the outstanding shares of stock normally entitled to
vote for the election of directors (or comparable equity participation and
voting power).
"Termination of Employment" means the discontinuance of employment of a
Participant for any reason other than a Transfer.
"Transfer" means: (i) for the purpose of an Incentive Stock Option, a change of
employment of a Participant within the group consisting of the Company and its
Subsidiaries; and (ii) for the purpose of a Non-Qualified Stock Option, a Stock
Appreciation Right or an Award of Shares (restricted or not), a change of
employment of a Participant within the group consisting of the Company and its
Subsidiaries, or, if the Committee so determines, a change of employment of a
Participant within the group consisting of the Company, its Subsidiaries and
Associated Companies.
3. ADMINISTRATION
(a) This Incentive Plan shall be administered by the People Committee, except
to the extent the People Committee delegates administration pursuant to
this paragraph. The People Committee may delegate all or a portion of the
administration of this Incentive Plan to one or more Compensation
Committees or to senior managers of the Company or its Subsidiaries;
provided that determinations regarding the timing, pricing, amount and
terms of any Award to a Reporting Person shall be made only by the People
Committee. No person shall be eligible for the grant of an Award under this
Incentive Plan while serving as a Member of the People Committee.
(b) The Committee shall have the exclusive right to interpret this Incentive
Plan, to select the persons who are to receive Awards, and to act in all
matters pertaining to the granting of Awards under this Incentive Plan
including, without limitation, the timing, pricing, amount and terms of any
Award and the amendment thereof consistent with the provisions of this
Incentive Plan. No Eligible Participant shall have any right to be
considered for or to receive any Awards. All acts and decisions of the
Committee with respect to any questions arising in connection with the
administration and interpretation of this Incentive Plan, including the
severability of any and all of the provisions thereof, shall be conclusive,
final and binding upon all Eligible Participants.
(c) The Committee may adopt and amend from time to time rules and regulations
of general application for the administration of this Incentive Plan.
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(d) Without limiting the foregoing Sections 3(a), (b)and (c) of this Article I
(and notwithstanding any other provisions of this Incentive Plan), the
Committee is authorized to take such action as it determines to be
necessary or advisable, and fair and equitable to Participants, with
respect to Awards in the event of: a merger of the Company with,
consolidation of the Company into, or the acquisition of the Company by,
another corporation; a sale or transfer of all or substantially all of the
assets of the Company to another corporation or any other person or entity;
a separation from the Company, including any spin-off or other distribution
to stockholders other than an ordinary cash dividend; a tender or exchange
offer for Shares made by any corporation, person or entity (other than the
Company); or other reorganization in which the Company will not survive as
an independent, publicly-owned corporation. Such action may include (but
shall not be limited to) establishing, amending or waiving the forms,
terms, conditions and duration of Stock Options, Stock Appreciation Rights,
Awards of Restricted Shares and other Awards so as to provide for earlier,
later, extended or additional times for exercise or payments, differing
methods for calculating payments, alternate forms and amounts of payment,
accelerated release of restrictions or other modifications. The Committee
may take such actions pursuant to this Section 3(d) by adopting rules and
regulations of general applicability to all Participants or to certain
categories of Participants, by including, amending or waiving terms and
conditions in Awards (including, without limitation, agreements with
respect to Restricted Shares), or by taking action with respect to
individual Participants. The Committee may take such actions as part of the
Awards, or before or after the public announcement of any such merger,
consolidation, acquisition, sale or transfer of assets, separation, tender
or exchange offer or other reorganization.
4. SHARE ADJUSTMENTS
In the event that at any time or from time to time a stock dividend, stock
split, recapitalization, merger, consolidation, or other change in
capitalization, or a sale by the Company of all or part of its assets, or a
separation from the Company, including any spin-off or other distribution to
stockholders other than an ordinary cash dividend, results in (a) the
outstanding Shares, or any securities exchanged therefor or received in their
place, being exchanged for a different number or class of shares of stock or
other securities of the Company, or for shares of stock or other securities of
any other corporation; or (b) new, different or additional shares or other
securities of the Company or of any other corporation being received by the
holders of outstanding Shares, then:
(i) the total number of Shares authorized for Awards under this Incentive
Plan;
(ii) the number and class of Shares (A) that may be subject to Stock Options
or Stock Appreciation Rights, (B) which have not been issued or
transferred under outstanding Stock Options or Stock Appreciation
Rights, and (C) which have been awarded but are undelivered under this
Incentive Plan; and
(iii) the purchase price to be paid per Share under outstanding Stock Options
and the number of Shares to be transferred in settlement of outstanding
Stock Appreciation Rights;
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shall in each case be appropriately adjusted by the Committee in its discretion;
provided, however, that all adjustments made as the result of the foregoing in
respect of each Stock Option which is granted as an Incentive Stock Option shall
be made so that such Stock Option shall continue to be an Incentive Stock Option
as defined in Section 422 of the Internal Revenue Code of 1986, as may be
amended from time to time.
5. SHARES AUTHORIZED
The total number of Shares for which awards may be granted under this Incentive
Plan shall not exceed 87,605,350 Shares. Notwithstanding the foregoing, the
total number of Shares that shall be available for Awards of Restricted or
unrestricted Shares shall be 1/2 of 1% of the total number of Shares
outstanding. The limitations in this Section 5 are subject to the adjustments
provided for in Section 4 of this Article I; the provisions of Section 1(b) of
Article II of this Incentive Plan; and the provisions of Section 3(d) of Article
III of this Incentive Plan.
The total number of Shares for which Awards may be granted under this Incentive
Plan to any one Eligible Participant shall not exceed in any three-year period
15% of the total number of Shares for which Awards may be made under this
Incentive Plan, subject to the adjustments provided for in Section 4 of this
Article I.
II. AWARDS
1. SHARES USED FOR AWARDS
(a) The Shares for which Options may be granted under this Option Plan may be
authorized but unissued Shares, or treasury Shares, or both.
(b) In the event that any unexercised Stock Option granted hereunder lapses or
ceases to be exercisable for any reason other than a surrender of the
Option pursuant to Section l(c) of this Article II or the exercise of a
Stock Appreciation Right under Section 5 of this Article II, the Shares
subject to such Option shall again be available for Option grants under
this Option Plan without again being charged against the authorized Shares
set forth in Section 5 of Article I if not prohibited by Rule 16b-3 under
the Securities Exchange Act of 1934 (or any successor rule or provision).
Any amendment of any Option or Stock Appreciation Right by the Committee
pursuant to Article I, Section 3 of this Incentive Plan shall not be
considered the grant of a new Option for the purpose of Section 5 of
Article I.
(c) In the event of death or total and permanent disability as determined by
the Committee, the Committee may, with the consent of the Participant, his
legal representative, or in the event of death, a beneficiary designated in
writing by the Participant during his lifetime, authorize payment, in cash
or in Shares, or partly in cash and partly in Shares, as the Committee may
direct, of an amount equal to the difference at the time between the Fair
Market Value of the Shares subject to an Option and the Option price in
consideration of the surrender of the Option. In such an event the Shares
subject to the Option so surrendered shall be charged against the
limitations set forth in Section 5 of Article I.
(d) In the event that any Award or installment thereof ceases to be payable for
any reason, the Shares subject to such Award shall again be available for
Award without again being charged against the limitations on the number of
Shares set forth in Section 5 of Article I if not prohibited by Rule 16b-3
under the Securities Exchange Act of 1934 (or any successor rule or
provision).
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2. INCIDENTS OF OPTIONS AND STOCK APPRECIATION RIGHTS
(a) An Award of Stock Options or Stock Appreciation Rights may be made at such
time or times determined by the Committee following the Effective Date to
any Eligible Participant, except that Incentive Options may not be awarded
to employees of Associated Companies. Each Stock Option and Stock
Appreciation Right shall be granted subject to such terms and conditions,
if any, not inconsistent with this Incentive Plan, as shall be determined
by the Committee, including any provisions as to continued employment as
consideration for the grant or exercise of such Option or Stock
Appreciation Right, provisions as to performance conditions and any
provisions which may be advisable to comply with applicable laws,
regulations or rulings of any governmental authority.
(b) An Incentive Stock Option or Stock Appreciation Right shall not be
transferable by the Participant otherwise than by will, by the laws of
descent and distribution, or pursuant to a written beneficiary designation,
and shall be exercisable during the lifetime of the Participant only by him
or by his guardian or legal representative. A Non-Qualified Stock Option or
Stock Appreciation Right shall not be transferable except by will, by the
laws of descent and distribution, pursuant to a written beneficiary
designation, pursuant to a qualified domestic relations order as defined by
the Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act or the rules thereunder, or in such
circumstances as would not result in the failure to comply with Rule 16b-3
under the Securities Exchange Act of 1934 (or any successor rule or
provision) if the transferor were a Reporting Person.
(c) Shares purchased upon exercise of a Stock Option shall be paid for in such
amounts, at such times and upon such terms as shall be determined by the
Committee and specified in the grant of the Option. Without limiting the
foregoing, the Committee may establish payment terms for the exercise of
Stock Options which permit the Participant to deliver Shares (or other
evidence of ownership of Shares satisfactory to the Company), including, at
the Committee's option, Restricted Shares, with a Fair Market Value equal
to the Option price as payment.
(d) The Option price per share shall be established by the grant and shall not
be decreased thereafter except pursuant to Section 4 of Article I of this
Incentive Plan.
(e) The Committee, in its discretion, may provide for the escalation of the
Option price per Share over all or part of the term of the Option.
(f) The Committee, in its discretion, may offer Participants the opportunity to
elect to receive an Option grant in lieu of a salary increase or a bonus or
may offer Participants the opportunity to purchase Options for cash or such
other consideration as the Committee in its discretion determines.
3. INCENTIVE OPTIONS
An Incentive Option shall be an "Incentive Stock Option" as that term is defined
in Section 422 of the Internal Revenue Code of 1986, as may be amended from time
to time, as in effect at the time of the grant of any such Option, or any
statutory provision that may be enacted to replace such Section. Each provision
of this Incentive Plan and of each Incentive Stock Option granted hereunder
shall be construed so that each such Option shall be an Incentive Stock Option,
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and any provision thereof that cannot be so construed shall be disregarded.
Incentive Stock Options shall be granted only to purchase unrestricted Shares
and only to Eligible Participants, each of whom may be granted one or more such
Options at such time or times determined by the Committee following the
Effective Date until April 14, 2006, subject to the following conditions:
(a) The Option price per Share shall be set by the grant but shall not be less
than 100% of the Fair Market Value at the time of the grant.
(b) The Option and its related Stock Appreciation Right, if any, may be
exercised in full or in part from time to time within ten (10) years from
the date of the grant, or such shorter period as may be specified by the
Committee in the grant, provided that in any event each shall lapse and
cease to be exercisable upon, or within such period following, Termination
of Employment as shall have been determined by the Committee and as
specified in the Option or Stock Appreciation Right; provided, however,
that such period following Termination of Employment shall not exceed
twelve months unless employment shall have terminated:
(i)as a result of retirement as defined by the Committee or total and
permanent disability as determined by the Committee, in which event
such period shall not exceed--
(A) in the case of an Option, the original term of the Option;
and
(B) in the case of a Stock Appreciation Right, one year after
such retirement or disability or after resignation as an
officer or director of the Company, whichever shall last
occur (unless earlier terminated pursuant to Section 5(b)
of this Article II);
or
(ii)as a result of death, or death shall have occurred following
Termination of Employment and while the Option or Stock Appreciation
Right was still exercisable; and
provided, further, that such period following Termination of Employment
shall in no event extend the original exercise period of the Option or
related Stock Appreciation Right, if any.
(c) The aggregate Fair Market Value (determined at the time the Option is
granted) of the Shares with respect to which Incentive Stock Options are
first exercisable during any calendar year by any Eligible Participant
shall not exceed $100,000; however, if the Fair Market Value of Incentive
Stock Option Shares (at date of grant) exceeds $100,000 in the calendar
year in which Incentive Stock Options are first exercisable, Shares with a
Fair Market Value at date of grant exceeding $100,000 shall not be deemed
to be Incentive Stock Options.
(d) Incentive Stock Options shall be granted only to an Eligible Participant
who, at the time the Option is granted, does not own stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company.
(e) Any other terms and conditions which the Committee determines, upon advice
of counsel, should be imposed for the Option to qualify as an Incentive
Stock Option and any other terms and conditions not inconsistent with this
Incentive Plan as determined by the Committee; including provisions making
the Shares subject to such Option Restricted Shares or provisions making
vesting or the ability to exercise subject to performance conditions.
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4. NON-QUALIFIED OPTIONS
One or more Options may be granted as Non-Qualified Options to purchase
unrestricted Shares or Restricted Shares to an Eligible Participant at such time
or times determined by the Committee, following the Effective Date, subject to
the following terms and conditions:
(a) The Option price per Share shall be established by the grant but shall not
be less than 100% of the Fair Market Value at the time of the grant (or
such later date as the Committee shall determine to be the grant date).
(b) The Option and its related Stock Appreciation Right, if any, may be
exercised in full or in part from time to time within ten (10) years from
the date of the grant, or such shorter period as may be specified by the
Committee in the grant, provided that in any event each shall lapse and
cease to be exercisable upon, or within such period following Termination
of Employment as shall have been determined by the Committee and as
specified in the Option or Stock Appreciation Right; provided, however,
that such period following Termination of Employment shall not exceed
twelve months unless employment shall have terminated:
(i) as a result of retirement as defined by the Committee or total and
permanent disability as determined by the Committee, in which
event such period shall not exceed--
(A) in the case of an Option, the original term of the Option; and
(B) in the case of a Stock Appreciation Right, one year after such
retirement or disability or after resignation as an officer or
director of the Company, whichever shall last occur (unless
earlier terminated pursuant to Section 5(b) of this Article
II);
or
(ii) as a result of death, or death shall have occurred following
Termination of Employment and while the Option or Stock
Appreciation Right was still exercisable; and
provided, further, that such period following Termination of Employment
shall in no event extend the original exercise period of the Option or
related Stock Appreciation Right, if
any.
(c) The Option grant may include any other terms and conditions not
inconsistent with this Incentive Plan as determined by the Committee,
including provisions making the Shares subject to such Option Restricted
Shares or provisions making vesting or the ability to exercise subject to
the satisfaction of performance conditions.
5. STOCK APPRECIATION RIGHTS
A Stock Appreciation Right may be granted to an Eligible Participant in
connection with (and only in connection with) an Incentive Stock Option or a
Non-Qualified Option granted under this Incentive Plan, or under any other
incentive plan of the Company or its Subsidiaries which was approved by the
stockholders, subject to the following terms and conditions:
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(a) Such Stock Appreciation Right shall entitle a holder of an Option within
the period specified for the exercise of the Option in the related Option
grant to surrender the unexercised Option (or a portion thereof) and to
receive in exchange therefor a payment in cash or Shares having an
aggregate value equal to the product of (i) the amount by which (A) the SAR
Fair Market Value of each Share exceeds (B) the Option price per Share,
times (ii) the number of Shares under the Option, or portion thereof, which
is surrendered.
(b) Except as expressly provided herein, each Stock Appreciation Right granted
hereunder shall be subject to the same terms and conditions as the related
Option. It shall be exercisable only to the extent such Option is
exercisable and shall terminate or lapse and cease to be exercisable when
the related Option terminates or lapses. The Committee may grant Stock
Appreciation Rights concurrently with grants of Options or in connection
with previously granted Options under this Incentive Plan, or under any
other incentive plan of the Company or its Subsidiaries which was approved
by the stockholders, which are unexercised and have not terminated or
lapsed. With respect to Stock Appreciation Rights granted in connection
with such previously granted Options, the Committee shall provide that such
Stock Appreciation Rights shall not be exercisable until the holder
completes six (6) months (or such longer period as the Committee shall
determine) of service with the Company, a Subsidiary, or an Associated
Company immediately following the date of the grant of such Stock
Appreciation Rights.
(c) The Committee shall have sole discretion to determine in each case whether
the payment will be in the form of all cash, all Shares (which may, at the
Committee's discretion, be Restricted Shares), or any combination thereof.
If payment is to be made in Shares, the number of Shares shall be
determined as follows: the amount payable in Shares shall be divided by the
SAR Fair Market Value of Shares. The payments to be made, in whole or in
part, in cash upon the exercise of Stock Appreciation Rights by any officer
of the Company shall be made in accordance with the provisions relating to
the exercise of stock appreciation rights of Rule 16b-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as in
effect at the time of such exercise, or any law, rule, regulation or other
provision that may hereafter replace such Rule.
(d) Upon exercise of a Stock Appreciation Right, the number of Shares subject
to exercise under the related Option shall automatically be reduced by the
number of Shares represented by the Option or portion thereof which is
surrendered. To the extent that a Stock Appreciation Right shall be
exercised, any Shares transferred upon such exercise shall not be charged
against the maximum limitations upon the grant of Options set forth in this
Incentive Plan under which such Option shall have been granted but the
Option in connection with which a Stock Appreciation Right shall have been
granted shall be deemed to have been exercised for the purpose of such
maximum limitations.
(e) The Committee shall have sole discretion as to the timing of any payment
made in cash, Shares, or a combination thereof upon exercise of Stock
Appreciation Rights hereunder, whether in a lump sum, in annual
installments or otherwise deferred and the Committee shall have sole
discretion to determine whether such payments may bear amounts equivalent
to interest or cash dividends.
(f) For purposes of this paragraph 5(f) of Article II:
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(i)"Unrelated Party" means any party or group of parties acting together
other than (A) the Company, its directors and officers, or (B) any
nominee holder for any stock exchange;
(ii)"Offer" means any tender or exchange offer made by an Unrelated Party
for the Shares and shall be deemed to occur upon the first purchase or
exchange of such Shares;
(iii) "Change of Control" means any acquisition, beneficially or otherwise,
by any Unrelated Party of 25% or more of the combined voting power of
the common and preferred stock of the Company and shall be deemed to
occur upon the date that the Unrelated Party attains control of said
25% or more of the combined voting power;
(iv)"Change of Control Market Value" of the Shares means the higher of--
(A) the value for which such Shares may be exchanged or offered under
any Offer pursuant to which Shares are actually exchanged or
purchased; or
(B) the Fair Market Value of such Shares on the date of exercise of a
Stock Appreciation Right.
Notwithstanding the foregoing provisions of this Section 5 of Article II
and without limiting the provisions of Section 3 of Article I of this
Incentive Plan, in the event of an Offer or Change of Control, a
Participant holding an unexercised Stock Appreciation Right may exercise
such Stock Appreciation Right and elect to be paid solely in cash in an
amount equal to the difference between the Option price and the Change of
Control Market Value of the Shares, unless within five (5) business days
after receipt of notification of such election by the Secretary of the
Company, the Committee acts to disapprove the cash election. Unless it acts
to disapprove, the Committee's consent shall be deemed to be given at the
close of business on the fifth business day after the Secretary's receipt
of notification of such election and payment shall be made as soon as
practicable after expiration of such five (5) business day period. The
election provided herein shall apply only: (x) during the thirty (30) day
period following the first exchange or purchase of Shares pursuant to an
Offer; or (y) during the thirty (30) day period following the date on which
sufficient Shares are acquired to constitute a Change of Control.
(g) For purposes of this paragraph 5(g) of Article II:
(i) "Unrelated Party" means any party or group of parties acting
together other than (A) the Company, its directors and officers,
or (B) any nominee holder for any stock exchange;
(ii) "Alternate Change of Control" means any acquisition, beneficially
or otherwise, by any Unrelated Party of a percentage of the
combined voting power of the common and preferred stock of the
Company specified by the Committee (but not less than 10%) and
shall be deemed to occur upon the date that the Unrelated Party
attains control of said percentage of the combined voting power;
(iii)"Change of Control Termination of Employment" means the
termination of employment of a Participant by the Company, the
Subsidiaries or the Associated Companies without cause (as defined
by the Committee) or by the Participant for good reason (as
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defined by the Committee) within a period of time specified by the
Committee following an Alternate Change of Control;
(iv) "Alternate Change of Control Market Value" of the Shares means the
Fair Market Value of such Shares on the date of exercise of a
Stock Appreciation Right.
Notwithstanding the foregoing provisions of this Section 5 of Article II
and without limiting the provisions of Section 3 of Article I of this
Incentive Plan, in the event of an Alternate Change of Control and a Change
of Control Termination of Employment, a Participant holding an unexercised
Stock Appreciation Right who is selected by the Committee may exercise such
Stock Appreciation Right and elect to be paid solely in cash in an amount
equal to the difference between the Option price and the Alternate Change
of Control Market Value of the Shares, unless within five (5) business days
after receipt of notification of such election by the Secretary of the
Company, the Committee acts to disapprove the cash election. Unless it acts
to disapprove, the Committee's consent shall be deemed to be given at the
close of business on the fifth business day after the Secretary's receipt
of notification of such election and payment shall be made as soon as
practicable after expiration of such five (5) business day period. The
election provided herein shall apply only during the thirty (30) day period
following a Change of Control Termination of Employment.
6. BONUS SHARES AND RESTRICTED SHARES
(a) An Award of Shares or Restricted Shares may be made at such time or times
determined by the Committee following the Effective Date to any person who
is an Eligible Participant. The Committee shall have full discretion to
determine the terms and conditions of payment of any Award, including
without limitation, what part of such Award shall be paid in unrestricted
Shares or Restricted Shares, the time or times of payment of any Award, and
the time or times of the lapse of the restrictions on Restricted Shares.
(b) For the purpose of determining the number of Shares to be used in payment
of an Award, the amount of the Award payable in Shares shall be divided by
the Fair Market Value of the Shares on the date of the determination of the
amount of the Award by the Committee, or if the Committee so directs, the
date immediately preceding the date the Award is paid.
(c) The portion of an Award payable in Restricted Shares shall be paid at the
time of the Award either by book-entry registration or by delivering to the
Participant, or a custodian or escrow designated by the Committee and the
Participant, a certificate or certificates for such Restricted Shares,
registered in the name of such Participant. The Participant shall have all
of the rights of a stockholder with respect to such Shares, subject to such
terms and conditions, including withholding of dividends, forfeitures or
resale to the Company, if any, as may be determined by the Committee. The
Committee and the Participant may designate the Company or one or more of
its employees to act as custodian or escrow for the certificates.
(d) Restricted Shares shall be subject to such terms and conditions, including
forfeiture, if any, and to such restrictions against sale, transfer or
other disposition as may be determined by the Committee at the time a
Non-Qualified Option for the purchase of Restricted Shares is granted, at
the time a Stock Appreciation Right to be settled with Restricted Shares is
A-11
<PAGE>
granted or at the time of making a bonus award of Restricted Shares. Any
new or additional or different Shares or other securities resulting from
any adjustment of such Shares of the type described in Section 4 of Article
I shall be subject to the same terms, conditions, and restrictions as the
Restricted Shares prior to such adjustment. The Committee may, in its
discretion, remove, modify or accelerate the release of restrictions on any
Restricted Shares in the event of hardship or disability of the Participant
while employed, in the event that the Participant ceases to be an employee
of the Company, a Subsidiary or Associated Company, as the result of death
or otherwise, in the event of a relocation of a Participant to another
country or for such other reasons as the Committee may deem appropriate. In
the event of the death of a Participant following the transfer of
Restricted Shares to him, the legal representative of the Participant, the
beneficiary designated in writing by the Participant during his lifetime,
or the person receiving such Shares under his will or under the laws of
descent and distribution shall take such Shares subject to the same
restrictions, conditions and provisions in effect at the time of his death,
to the extent applicable.
7. DIVIDENDS, DIVIDEND EQUIVALENTS AND INTEREST EQUIVALENTS
(a) No cash dividends shall be paid on Shares which have been awarded but not
registered or delivered. The Committee may provide, however, that a
Participant to whom an Option has been awarded which is exercisable in
whole or in part at a future time for Shares or a Participant who has been
awarded Shares payable in whole or in part at a future time, shall be
entitled to receive an amount per Share, equal in value to the cash
dividends, if any, paid per Share on issued and outstanding Shares, as of
the dividend record dates occurring during the period between the date of
the award and the time each such Share is delivered. Such amounts (herein
called "dividend equivalents") may, in the discretion of the Committee, be:
(i) paid in cash or Shares either from time to time prior to or at the
time of the delivery of such Shares or upon expiration of the
Option if it shall not have been fully exercised (except that
payment of the dividend equivalents on Incentive Options may not
be made prior to exercise); or
(ii) converted into contingently credited Shares (with respect to which
dividend equivalents shall accrue) in such manner, at such value,
and deliverable at such time or times, as may be determined by the
Committee.
Such Shares (whether delivered or contingently credited) shall be
charged against the limitations set forth in Section 5 of Article I.
(b) The Committee, in its discretion, may authorize payment of interest
equivalents on any portion of any Award payable at a future time in cash,
and interest equivalents on dividend equivalents which are payable in cash
at a future time.
(c) The Committee, in its discretion, may provide that dividends paid on
restricted Shares shall, during the applicable restricted period, be held
by the Company to be paid upon the lapse of restrictions or to be forfeited
upon forfeiture of the Shares.
A-12
<PAGE>
III. MISCELLANEOUS PROVISIONS
1. Neither a Stock Option nor a Stock Appreciation Right shall be
transferable except as provided for herein. If any Participant makes
such a transfer in violation hereof, any obligation of the Company with
respect to such Stock Option or Stock Appreciation Right shall
forthwith terminate.
2. Nothing in this Incentive Plan or any booklet or other documen
describing or referring to this Incentive Plan shall be deemed
to confer on any employee or Participant the right to continue in the
employ of his employer or affect the right of his employer to terminate
the employment of any such person with or without cause.
3. Nothing contained herein shall require the Company to segregate any
monies from its general funds, or to create any trusts, or to make any
special deposits for any immediate or deferred amounts payable to any
Participant.
4. This Incentive Plan and all actions taken hereunder shall be governed
by the laws of the State of Delaware.
5. The Company may make such provisions and take such steps as it may
deem necessary or appropriate for the withholding of any taxes which
the Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to
withhold in connection with any Stock Option or the exercise thereof,
any Stock Appreciation Right or the exercise thereof, or the payment
of any bonus award, including, but not limited to, the withholding of
cash or Shares which would be paid or delivered pursuant to such
exercise or award or another exercise or award under this Incentive
Plan until the Participant reimburses the Company for the amount the
Company is required to withhold with respect to such taxes, or
cancelling any portion of such award or another award under this
Incentive Plan in an amount sufficient to reimburse itself for the
amount it is required to so withhold, or selling any property
contingently credited by the Company for the purpose of paying such
award or another award under this Incentive Plan, in order to withhold
or reimburse itself for the amount it is required to so withhold. The
Committee may permit a Participant (or any beneficiary or other person
authorized to act) to elect to pay a portion or all of any amounts
required or permitted to be withheld to satisfy federal, state, local
or foreign tax obligations by directing the Company to withhold a
number of whole Shares which would otherwise be distributed and which
have a fair market value sufficient to cover the amount of such
required or permitted withholding taxes.
6. The Committee may grant Stock Options to Eligible Participants who are
foreign nationals or who are employed by the Company, a Subsidiary, or
an Associated Company outside of the United States of America. In
order to facilitate the granting of Stock Options, the Committee may
provide for special terms and conditions for grants to employees who
are foreign nationals or who are employed by the Company, a
Subsidiary, or an Associated Company outside of the United States of
America, as the Committee may consider necessary or appropriate to
accommodate differences in local law, tax policy or custom in other
countries in which the Company, a Subsidiary, or an Associated Company
operates or has employees. The Committee may also provide for such
substitutes for the Stock Options for employees who are foreign
A-13
<PAGE>
nationals or who are employed by the Company, a Subsidiary, or an
Associated Company outside of the United States of America as may be
deemed necessary or appropriate by the Committee.
Available Information: Each Malaysian Participant may request copies
of the Company's most recent audited financial statements available.
7. Notwithstanding any other provision of this Incentive Plan, for
purposes of any Award that is outstanding as of the date that the
Company spins off the Company's chemical businesses into a new
publicly traded company("Chemicals") and is held by a Participant who
in connection with such spinoff becomes an employee of Chemicals (or a
subsidiary or associated company of Chemicals) rather than an employee
of the Company (or a Subsidiary or Associated Company of the Company),
such change of employment shall not constitute a Termination of
Employment. With respect to any such Award held by such a Participant,
Termination of Employment shall mean such Participant's termination of
employment with Chemicals other than a Transfer, with Transfer defined
as a change of employment of a Participant within the group consisting
of Chemicals and its subsidiaries, or, if the Committee so determines,
a change of employment of a Participant within the group consisting of
Chemicals, its subsidiaries, and its associated companies. For
purposes of this section, a subsidiary of Chemicals means any
corporation (or partnership, joint venture, or other enterprise) of
which Chemicals owns or controls, directly or indirectly, 50% or more
of the outstanding shares of stock normally entitled to vote for the
election of directors (or comparable equity participation and voting
power) and an associated company of Chemicals means any corporation
(or partnership, joint venture, or other enterprise), of which
Chemicals owns or controls, directly or indirectly, 10% or more, but
less than 50% of the outstanding shares of stock normally entitled to
vote for the election of directors (or comparable equity participation
and voting power).
IV. AMENDMENTS
1. The Board, upon recommendation of the Committee but not otherwise, may
from time to time amend or modify this Incentive Plan, including, but
not limited to, an amendment which would authorize the Committee to
make Awards payable in other securities or other forms of property of
a kind to be determined by the Committee, and such other amendments as
may be necessary or desirable to implement such Awards, or discontinue
this Incentive Plan or any provision thereof, provided that no
amendments or modifications to this Incentive Plan shall, without the
prior approval of the stockholders normally entitled to vote for the
election of directors of the Company:
(a) permit the Company to decrease the Option price on any outstanding
Option;
(b) permit any change which would require the approval of
stockholders under Section 16 of the Securities Exchange Act of
1934 or the rules thereunder or under Section 422 of the Internal
Revenue Code of 1986, or the rules thereunder (or any law, rule,
regulation or other provision that may replace such statutes or
rules); or
A-14
<PAGE>
(c) change any of the provisions of this Article IV.
2. No amendment to or discontinuance of this Incentive Plan or any
provision thereof by the Board or the stockholders of the Company
shall, without the written consent of the Participant, adversely
affect any Stock Option or Stock Appreciation Right theretofore
granted or bonus commitment or bonus award theretofore made to
such Participant under this Incentive Plan.
V. INTERPRETATION
1. This Incentive Plan is not intended to and shall not affect any
option or stock appreciation right grant or bonus commitment or
award under the 1984 Plan, the 1986 Plan, the 1988/I Plan, the 1988/II
Plan, the 1991 Plan, the 1994 Plan, the 1994 Searle/Monsanto
Plan, or the 1994 NutraSweet/Monsanto Plan (or any other
incentive plan of the Company, its Subsidiaries, and Associated
Companies). No stock options or stock appreciation rights or
Awards of Restricted or unrestricted Shares shall be granted under
the 1994 Plan, the 1994 Searle/Monsanto Plan, or the 1994
NutraSweet/Monsanto Plan after April 14, 1996.
2. This Incentive Plan is not intended to and shall not preclude the
establishment or operation by the Company or any Subsidiary of (a) any
thrift, savings and investment, achievement award, stock purchase,
employee recognition or other benefit plan or arrangement for any
group of employees, or (b) any other incentive or bonus plan or
arrangement for any employees (hereinafter "Other Plan"), and any such
Other Plan may be authorized and payments made thereunder
independently of this Incentive Plan; provided, however, that no such
Other Plan shall provide for the granting of options or stock
appreciation rights to purchase or receive the appreciation on the
shares of any class of stock of the Company, or the making of bonus
commitments or bonus awards payable in any class of stock of the
Company, which in either form or substance are comparable to those
authorized under this Incentive Plan, unless (i) such Other Plan is
established or operated in connection with the assumption by the
Company or a Subsidiary of the plans, options, stock appreciation
rights, bonus commitments or bonus awards of another corporation, or
the substitution of an Other Plan or options, stock appreciation
rights, bonus commitments or bonus awards under such Other Plan in
lieu of the plans, options, stock appreciation rights, bonus
commitments or bonus awards of such other corporation, arising out of
a merger or consolidation with, or the acquisition of assets or stock
of, such other corporation, or other transaction described in Section
424(a) of the Internal Revenue Code of 1986, as may be amended from
time to time, as in effect at the time, or (ii) such Other Plan
provides for grants of options, stock appreciation rights, bonus
commitments or bonus awards to employees substantially all of whom are
not Participants.
A-15
February 7, 1997
Mr. Richard U. De Schutter
Chairman & CEO
Searle
World Headquarters
5200 Old Orchard Rd.
Skokie, IL 60077
Dear Dick:
This is to set forth our agreement which results from our various conversations
that started based on the letter to you from Peter Baron dated June 1988 and
continuing as you considered your role in the Life Sciences organization. Let me
start by saying I am very enthusiastic about your acceptance of the organization
and your role, and your commitment to what must be done to further the success
of the Pharma Sector and the Life Sciences Company.
We agreed that all prior agreements are replaced by the following terms: if for
whatever reason, other than for cause, you leave the Company within the next
five years, you are entitled to a minimum package of one year base and annual
incentive at target, and that at the discretion of the Life Sciences internal
compensation committee, based on performance, commitment, and attitude, another
year can be added. This is in lieu of any other payments or window benefits.
We also agreed that at our option, you would allow sufficient time for a proper
succession, up to 6 months.
This has been approved by the Monsanto internal compensation committee. Please
note your acceptance of this agreement on the below signature line.
/s/ Nicholas L. Reding
Nicholas L. Reding
cc: J. B. Bingham
R. W. Ide
D. A. Kindl
R. B. Shapiro
I accept the foregoing agreement:
Richard U. De Schutter
Date:
<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
THREE MONTHS ENDED JUNE 30, 1999, AND THE STATEMENT OF CONSOLIDATED FINANCIAL
POSITION AS OF JUNE 30, 1999. SUCH INFORMATION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
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<CURRENT-LIABILITIES> 4,250
<BONDS> 6,130
1,694
0
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<SALES> 4,896
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