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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 March 31, 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
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(Address of principal executive offices)
(Zip Code)
(314) 694-1000
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(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 March 31, 1999
----- --------------
Common Stock, $2 par value 631,467,979 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 ended March 31, 1999 and 1998, the Statement of Consolidated
Financial Position as of March 31, 1999 and December 31, 1998, the Statement of
Consolidated Cash Flow for the three months ended March 31, 1999 and 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.
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 excluding the effects of unusual items. 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, or
comprehensive income, 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.
<TABLE>
MONSANTO COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(Dollars in millions, except per share)
<CAPTION>
Three Months Ended
March 31,
------------------
1999 1998
---- ----
<S> <C> <C>
Net Sales $2,546 $2,044
Costs and Expenses:
Cost of Goods Sold 997 819
Selling, General and Administrative Expenses 711 535
Technological Expenses 361 279
Amortization of Intangible Assets 93 59
Interest Expense 122 66
Interest Income (8) (9)
Other (Income) / Expense - Net 42 (1)
------ ------
Income Before Income Taxes 228 296
Income Taxes 96 100
------ ------
NET INCOME $ 132 $ 196
------ ------
Basic Earnings per Share: $ 0.21 $ 0.33
------ ------
Diluted Earnings per Share: $ 0.20 $ 0.32
------ ------
Dividends per Share $ 0.03 $ 0.03
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</TABLE>
1
<PAGE>
<TABLE>
MONSANTO COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Dollars in millions, except per share)
<CAPTION>
March 31, December 31,
1999 1998
ASSETS --------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 101 $ 89
Receivables, net of allowances of $143 in 1999 and $91 in 1998 3,175 2,404
Miscellaneous receivables and prepaid expenses 768 1,126
Deferred income tax benefit 487 567
Inventories 1,875 2,004
------- -------
Total Current Assets 6,406 6,190
------- -------
Property, Plant and Equipment 6,046 6,022
Less Accumulated Depreciation 2,768 2,768
------- -------
Net Property, Plant and Equipment 3,278 3,254
------- -------
Intangible Assets, net of accumulated amortization 5,797 6,047
Other Assets 1,281 1,233
------- ----------
Total Assets $ 16,762 $ 16,724
-------- --------
LIABILITIES AND SHAREOWNERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable $ 458 $ 918
Accrued liabilities 1,917 2,065
Short-term debt 1,939 1,069
--------- --------
Total Current Liabilities 4,314 4,052
--------- --------
Long-Term Debt 6,269 6,259
Postretirement Liabilities 897 848
Other Liabilities 406 579
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 1,411 1,389
Treasury stock, at cost (215,623,984 shares in 1999
and 217,632,240 shares in 1998) (2,485) (2,508)
Reinvested earnings 4,765 4,652
Reserve for ESOP debt retirement (95) (106)
Accumulated other comprehensive loss (414) (135)
---------- --------
Total Shareowners' Equity 4,876 4,986
---------- --------
Total Liabilities and Shareowners' Equity $ 16,762 $ 16,724
---------- --------
</TABLE>
2
<PAGE>
<TABLE>
MONSANTO COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOW
(Dollars in millions)
<CAPTION>
Three Months Ended
March 31,
------------------
1999 1998
---- ----
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Operating Activities:
Net income $132 $ 196
Add income taxes 96 100
------- -------
Income before income taxes 228 296
Adjustments to reconcile income before taxes to cash (used in) operations:
Income tax refunds (payments) (28) 37
Items that did not use (provide) cash:
Depreciation and amortization 189 137
Bad Debt Expense 53 20
Working capital changes that provided (used) cash:
Accounts receivable (903) (617)
Inventories 86 (83)
Accounts payable and accrued liabilities (653) (231)
Other 47 (130)
Pharmaceutical licensing and product rights sales - 108
Other items (21) (48)
-------- --------
Total Cash (Used in) Operations (1,002) (511)
Investing Activities:
Property, plant and equipment purchases (205) (134)
Proceeds from sale of investments and assets 340 12
Acquisition and investment payments (15) (27)
-------- --------
Cash Provided by (Used in) Investing Activities 120 (149)
-------- --------
Financing Activities:
Net change in short-term financing 870 522
Long-term debt proceeds 25 100
Long-term debt reductions (15) (19)
Dividend payments (19) (18)
Common stock issued under employee stock plans 33 58
-------- --------
Cash Provided by Financing Activities 894 643
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 12 (17)
Cash and cash equivalents at beginning of year 89 134
------ --------
Cash and cash equivalents at end of period $ 101 $ 117
-------- --------
</TABLE>
The effect of exchange rate changes on cash and cash equivalents was not
material.
Cash payments for interest (net of amounts capitalized) were $69 million as of
March 31, 1999 and $60 million as of March 31, 1998.
3
<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 would be accounted for as
a purchase.
Also during 1998, Monsanto completed its acquisition of DEKALB Genetics
Corp. ("DEKALB") and acquired Plant Breeding International Cambridge
Limited (PBIC) and certain international seed operations of Cargill
Inc. 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.
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 ended March 31, 1999
and 1998, was:
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Net income $ 132 $ 196
Other comprehensive income (loss):
Foreign currency translation adjustments (276) (24)
Unrealized investment gains / (losses) (3) 21
---------- ------
Total other comprehensive (loss) (279) (3)
-------- -------
Total Comprehensive Income (Loss) $ (147) $ 193
--------- -----
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, 2000.
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 operation.
4. Basic earnings per share (EPS) from continuing operations were
computed using the weighted average number of common shares
outstanding each period (630.5 million in 1999 and 597.7 million in
1998). Diluted EPS from continuing operations were computed taking
into account the effect of dilutive potential common shares (16.8
million in 1999 and 21.7 million in 1998). Dilutive potential common
shares consist of outstanding stock options. Other common share
equivalents also were not included in the computation of diluted
earnings per share as of March 31, 1999, 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 which are
exercisable in November, 2001.
4
<PAGE>
5. Components of inventories as of March 31, 1999 and Dec. 31, 1998 were
as follows:
March 31, Dec. 31,
1999 1998
-------- -------
Finished goods $ 918 $ 1,179
Goods in process 490 561
Raw materials and supplies 496 298
------ -------
Inventories, at FIFO cost 1,904 2,038
Excess of FIFO over LIFO cost (29) (34)
------ -------
Total $1,875 $2,004
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6. 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 future 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 awarded $15 million in actual damages for unjust enrichment
and $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 this
verdict.
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.
5
<PAGE>
7. Business segment data for the three months ended March 31, 1999 and
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)". Monsanto consolidated
EBIT includes the effects of unusual items:
<TABLE>
<CAPTION>
Net Sales
Three Months Ended
March 31,
------------------
1999 1998
------- ------
<S> <C> <C>
Agricultural Products $1,401 $1,073
Nutrition and Consumer Products 304 385
Pharmaceuticals 825 532
Corporate and Other 16 54
------ ------
Total Net Sales $2,546 $2,044
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EBIT
Three Months Ended
March 31
------------------
1999 1998
------ ------
Segment EBIT (excluding unusual items):
Agricultural Products $281 $306
Nutrition and Consumer Products 39 82
Pharmaceuticals 78 12
Corporate and Other (48) (38)
------ ------
Total segment EBIT (excluding unusual items) $350 $362
Unusual items - -
--------------------
Total EBIT $ 350 $ 362
------ ------
EBITDA (excluding unusual items)
Three Months Ended
March 31,
------------------
1999 1998
------ ------
Agricultural Products $396 $384
Nutrition and Consumer Products 65 111
Pharmaceuticals 113 41
Corporate and Other (35) (37)
------- -------
Total EBITDA (excluding unusual items) $ 539 $ 499
------ ------
Interest Expense 122 66
Tax Expense 96 100
Amortization Expense 93 59
Depreciation 96 78
Unusual Items - -
-------- --------
Net Income $132 $196
----- -----
</TABLE>
Financial information for the first quarter 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
generally more profitable sales from the Agricultural Products segment
in the first half of the year.
6
<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations--First Quarter 1999 Compared with First Quarter 1998
Net income totaled $132 million, or $0.20 per share, in the first quarter of
1999 compared with net income of $196 million, or $0.32 per share, for the first
quarter of 1998. Sales grew $502 million, or 25 percent, primarily because of
the Pharmaceuticals segment product launch of Celebrex(R) arthritis treatment
and the inclusion of sales from seed companies acquired in 1998. The decrease in
net income was primarily attributable to higher selling, general and
administrative ("SG&A") expenses, and technological expenses along with
increases in interest expense and amortization costs.
Business segment data for the three months ended March 31, 1999 and 1998, were
as follows:
Net Sales
Three Months Ended
March 31,
-------------------
1999 1998
----- -----
Agricultural Products $1,401 $1,073
Nutrition and Consumer Products 304 385
Pharmaceuticals 825 532
Corporate and Other 16 54
------- -------
Total Consolidated Net Sales $2,546 $2,044
------- -------
EBIT
(Earnings before interest
expense and income taxes)
Three Months Ended
March 31,
--------------------
1999 1998
------ ------
Segment EBIT (excluding unusual items):
Agricultural Products $281 $306
Nutrition and Consumer Products 39 82
Pharmaceuticals 78 12
Corporate and Other (48) (38)
------ ------
Total segment EBIT (excluding unusual items) $350 $362
Unusual items - -
------ ------
Total EBIT $ 350 $ 362
------ ------
Interest Expense 122 66
Tax Expense 96 100
------ ------
Net Income $132 $196
------ ------
7
<PAGE>
Consolidated EBIT of $350 million decreased 3 percent in the first quarter of
1999, compared with $362 million in the first quarter of 1998 primarily because
of increases in SG&A expenses, technological expenses, and increased
amortization costs, which more than offset increased sales. SG&A expenses and
technological expenses increased in the first quarter of 1999 compared with
expenses in the year-ago quarter because of increased expenses in the
Pharmaceuticals and Agricultural Products segments. The increase in selling
expenses for Pharmaceuticals was caused mainly by increased spending associated
with the Jan. 1999 launch of Celebrex(R) arthritis treatment in the United
States. SG&A expenses for the Agricultural Products segment increased in
quarter-to-quarter comparisons because of the inclusion in 1999 of SG&A expenses
from the acquired seed companies. Technological expenses for Pharmaceuticals
grew as new product candidates continued to move through the final, more
expensive stages of the research and development approval process. Technological
expenses for the Agricultural Products segment grew primarily because of higher
spending on crop biotechnology initiatives, including genomics, and the
inclusion of technological expenses from the acquired seed companies.
Amortization of intangible assets increased in the first quarter of 1999
principally because of the increase in intangible assets related to seed company
acquisitions made in 1998. The decline in other income was because first quarter
1999 results no longer include the equity income of DEKALB, which is now
included in consolidated results; and higher foreign currency exchange losses.
The increase in interest expense in quarter-to-quarter comparisons was caused by
a higher debt level during the first quarter of 1999 vs. the comparable
prior-year quarter.
Agricultural Products Segment
Agricultural Products segment EBIT (excluding unusual items) decreased $25
million, or 8 percent, in the first quarter of 1999, compared with $306 million
in the first quarter of 1998 because increased sales were more than offset by
increases in SG&A expenses, bad debt expense, and incremental amortization
costs. SG&A and technological expenses rose primarily because of the inclusion
in 1999 of the acquired seed companies and spending on crop biotechnology
initiatives. Bad debt expense increased because of the continued deterioration
of economic conditions in Latin America and eastern Europe. Amortization of
intangible assets increased principally because of the increase in intangible
assets related to seed company acquisitions made in 1998.
Net sales for the Agricultural Products segment increased $328 million, or 31
percent, in the first quarter of 1999, largely because of the inclusion of sales
from seed companies acquired in 1998, and because of higher licensing revenues
from crops developed through biotechnology, principally Roundup Ready(R)
soybeans. Sales for the family of Roundup(R) herbicides in the first quarter of
1999 also were higher when compared with sales in the first quarter of 1998, as
increased volumes more than offset price reductions announced in 1998.
Roundup(R) volumes increased vs. first-quarter 1998 volumes with increased usage
of conservation tillage in the United States, and favorable weather conditions
in Asia-Pacific and the southern region of North America when compared with the
same period a year ago. The favorable weather is expected to affect the timing
of 1999 sales, but not the overall volume, as sales that would have been
expected to occur later in the planting season occurred in the first quarter.
The recovery in certain southeast Asia economies also positively affected
Roundup(R) sales volumes, but this was offset by a decline in Brazil related to
a weakened economy.
Nutrition and Consumer Products Segment
EBIT (excluding unusual items) for the Nutrition and Consumer Products segment
in the first quarter of 1999 decreased $43 million, or 52 percent, vs. the
comparable 1998 period because of the loss of sales associated with the
divestment of the Ortho(R) lawn-and-garden products business. The sales decline
was partially offset by a decline in SG&A expenses principally because of cost
eliminations associated with the divested Ortho(R) lawn-and-garden products
business.
Quarterly net sales for the Nutrition and Consumer Products segment declined 21
percent from sales in the year-ago quarter primarily because of the Jan. 1999
divestiture of the Ortho(R) lawn-and-garden products business and lower
sweetener sales. Sales of NutraSweet(R) brand sweetener, declined because of
timing shifts in bulk aspartame shipments to customers. Sales of Roundup(R)
lawn-and-garden products to U.S. retailers and European tabletop sales were
strong vs. the comparable quarter.
8
<PAGE>
Pharmaceuticals Segment
EBIT (excluding unusual items) for the Pharmaceuticals segment increased $66
million in quarter-to-quarter comparison primarily because of the strong product
launch of Celebrex(R) arthritis treatment. For comparative purposes, first
quarter 1998 included $100 million of revenue related to the co-promotion of
Celebrex(R). SG&A expenses rose primarily because of increased spending
associated with the Celebrex(R) product launch, which included co-promotion
payments for the first quarter of 1999. Technological expenses grew to support
several late stage new product candidates, clinical studies for launched
products, and close-out expenses associated with discontinuation of clinical
trials for the fibans research program.
Net sales for the Pharmaceuticals segment increased $293 million, or 55 percent,
in the first quarter of 1999, primarily because of the strong product launch of
Celebrex(R). Sales of Arthrotec(R) and Daypro(R) arthritis treatments also were
higher when compared with sales in the first quarter 1998, despite market share
shifts toward Celebrex(R). Sales of Ambien(R) short-term treatment for insomnia
increased in the first quarter of 1999 when compared to first quarter 1998,
because of lower purchasing by drug wholesalers in the first quarter of 1998
following Dec. 1997 price increases.
Corporate and Other Segment
Corporate and Other segment EBIT (excluding unusual items) decreased $10
million, or 26 percent, in the first quarter of 1999 when compared with the
first quarter of 1998 because of business divestments. Net sales for the
Corporate and Other segment decreased $38 million, or 70 percent, in the first
quarter of 1999, largely because of the 1998 disposal of the Orcolite(R) and
Diamonex(R) businesses.
Segment EBITDA (excluding unusual items)
Business segment earnings before interest expense, taxes, depreciation,
amortization (EBITDA) excluding unusual items for the three months ended March
31, 1999 and 1998, was as follows:
EBITDA (excluding unusual items)
Three Months Ended
March 31,
------------------
1999 1998
------ ------
Agricultural Products $396 $384
Nutrition and Consumer Products 65 111
Pharmaceuticals 113 41
Corporate and Other (35) (37)
--------- -------
EBITDA (excluding unusual items) $ 539 $ 499
------ ------
Interest Expense 122 66
Tax Expense 96 100
Amortization Expense 93 59
Depreciation 96 78
Unusual Items - -
-------- --------
Net Income $132 $196
----- -----
EBITDA (excluding unusual items) for Monsanto was $539 million, an increase of 8
percent over the same period a year ago, reflecting increased net sales offset
by increased SG&A expenses and technological expenses. On a segment basis,
Pharmaceuticals EBITDA (excluding unusual items) increased $72 million when
compared with the same period a year ago primarily because of the strong product
launch of Celebrex(R). Agricultural Products segment EBITDA (excluding unusual
items) increased $12 million in the first quarter of 1999 when compared with the
first quarter of 1998 primarily because of the inclusion of the seed company
acquisitions made in 1998. Nutrition and Consumer Products segment EBITDA
(excluding unusual items) decreased $46 million, or 41 percent, when compared
with the same period a year ago primarily because of the divestiture of the
Ortho(R) lawn-and-garden products business.
9
<PAGE>
Financial information for the quarter 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 generally more profitable sales from
the Agricultural Products segment in the first half of the year.
Changes in Financial Condition -- March 31, 1999 Compared with Dec. 31, 1998
Working capital as of March 31, 1999, decreased 2 percent, to $2,092 million
from $2,138 million as of Dec. 31, 1998, primarily because of higher short-term
debt and seasonal decreases in Agricultural Products' inventories, partially
offset by seasonal increases in trade receivables. Accounts payable decreased by
$460 million, or 50 percent, primarily because of payments made to seed growers
in the first quarter of 1999. The current ratio was 1.5 as of both March 31,
1999 and as of year-end 1998. The percent of total debt to total capitalization
increased to 63 percent as of March 31, 1999 compared with 60 percent as of Dec.
31, 1998 because of the increase in short-term debt to fund the seasonal need of
the Agricultural Products segment.
Operating activities used a net $1,002 million of cash in the first quarter of
1999, compared with $511 million of net cash used in operations during the same
period in 1998. The increase in cash used in operations resulted primarily from
the inclusion of seed companies acquired in 1998 coupled with the
Pharmaceuticals segment product launch of Celebrex(R) arthritis treatment. For
comparative purposes, cash used in operations for the first quarter of 1998
decreased by the collection of miscellaneous receivables related to 1997
Pharmaceuticals licensing and product rights sales. Investing activities in the
first quarter of 1999 provided $120 million of cash compared with a use of cash
of $149 million in the comparable prior-year quarter. Investing activities for
the 1999 period included the divestment of the Ortho(R) lawn-and-garden business
for $340 million. Cash provided by financing activities in the first quarter
1999 was $894 million compared with $643 million in the same period a year ago.
Financing activities include the net increase in short-term financing of $870
million for the three months ended March 31, 1999, which was primarily used to
fund Agricultural, Products' higher seasonal working capital levels and
Pharmaceutical's launch 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 approximately $1.5 billion to $2 billion pre-tax.
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 internal systems
including conventional information technology ("IT") business applications, IT
infrastructure and embedded systems. Embedded systems include process control
and manufacturing, and laboratory automation systems, as well as, site-specific
facility management systems, such as elevator service 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. The company remains
on track to achieve the target date for completion of all remediation work for
Internal Systems, which is the third quarter of 1999.
The following summarizes the status of the Y2K program with respect to internal
systems:
<TABLE>
<CAPTION>
IT Applications Portfolio:
As of March 31, 1999
--------------------
<S> <C>
Number of applications identified 1,310
Applications assessed for Y2K compliance 100%
Applications compliant 66%
Applications to be remediated through replacements and upgrades 17%
Anticipated retirements 3%
Applications at various stages of renovation, redevelopment or testing 14%
10
<PAGE>
IT Infrastructure Products:
As of March 31, 1999
--------------------
Number of products identified 530
Products researched for compliance 100%
Products compliant 56%
Products requiring remediation with minor upgrades 10%
Non-compliant products requiring remediation or retirement 34%
Embedded Systems:
As of March 31, 1999
--------------------
Number of process control products identified 7,630
Products successfully researched for compliance 99%
Number of process control items in use 16,209
Items compliant, remediated, or risk eliminated 69%
Number of laboratory automation products identified 5,383
Products successfully researched for compliance 74%
Number of laboratory automation items in use 14,250
Items compliant, remediated, or risk eliminated 72%
Number of site facilities products identified 696
Products successfully researched for compliance 100%
Number of site facilities items in use 1,086
Items compliant, remediated, or risk eliminated 71%
Number of products in newly acquired businesses 3,489
Products successfully researched for compliance 40%
Number of items in use 8,858
Items compliant, remediated, or risk eliminated 37%
</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 Nov.
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 are currently being 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 may include
the stockpiling of raw materials or a switch to a different supplier. The
company will increase testing of Pharmaceuticals and Nutrition and Consumer
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 $19.5 million expended through March 31,
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.
11
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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.
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 Dec. 31, 1998 ("1998 Annual Report"), incorporated by
reference in Monsanto's Annual Report on Form 10-K for the year ended Dec. 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 in the following paragraphs.
Interest rate risk sensitive financial instruments that appeared in the 1998
Annual Report and Form 10-K but were no longer outstanding as of March 31, 1999,
included $542 million of short-term, variable-rate debt (denominated in U.S.
dollars) and $276 million of short-term, fixed-rate debt (denominated in U.S.
dollars). Significant interest rate risk instruments that were not outstanding
as of Dec. 31, 1998, but that were outstanding at March 31, 1999, included (all
denominated in U.S. dollars): $1,355 million of short-term, variable-rate debt
with an average interest rate of 4.97 percent due 1999; and $252 million of
short-term, fixed-rate debt with an average interest rate of 7.24 percent, due
1999. The fair value of these instruments approximated their book values at
March 31, 1999. The total $1,816 million of long-term, variable-rate debt
outstanding at March 31, 1999, included $1,000 million of commercial paper that
is assumed to be renewed through 2001, when Monsanto's $1,000 million credit
facility expires.
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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 March 31, 1999. As of March 31, 1999, the following
significant forward contracts were outstanding (all expected to mature by Dec.
31, 1999): sales of Brazilian real with a notional amount of $70 million and an
average exchange rate of 1.28 Brazilian real per U.S. dollar; sales of Canadian
dollars with a notional amount of $202 million and an average exchange rate of
1.5169 Canadian dollars per U.S. dollar; sales of British pounds with a notional
amount of $384 million and an average exchange rate of 0.615 British pounds per
U.S. dollar; sales of European Euro with a notional amount of $169 million and
an average exchange rate of 0.9244 European Euro per U.S. dollar; sales of
Australian dollars with a notional amount of $55 million and an average exchange
rate of 1.5876 Australian dollars per U.S. dollar; sales of Polish zlotys with a
notional amount of $26 million and an average exchange rate of 3.99 Polish
zlotys per U.S. dollar; purchases of Japanese yen with a notional amount of $39
million and an average exchange rate of 120.54 Japanese yen per U.S. dollar;
sales of South African rand with a notional amount of $30 million and an average
exchange rate of 6.27 South African rand per U.S. dollar; sales of Czech koruny
with a notional amount of $6.8 million and an average exchange rate of 35.64
Czech koruny per U.S. dollar; sales of Mexican pesos with a notional amount of
$11 million and an average exchange rate of 9.77 Mexican pesos per U.S. dollar;
and sales of Philippine pesos with a notional amount of $5 million and an
average exchange rate of 39.80 Philippine pesos per U.S. dollar. The fair market
values of these contracts approximated the notional amounts as of March 31,
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 as of March 31, 1999. As of March 31, 1999, the following
significant commodity price risk sensitive instruments were outstanding:
purchased soybean futures contracts totaling $118.8 million (21.6 million
bushels at a weighted average price per bushel of $5.49) with a fair value of
$108.2 million, purchased corn futures contracts totaling $8.8 million (3.7
million bushels at a weighted average price per bushel of $2.39) with a fair
value of $8.9 million, and sold lean hogs futures contracts totaling $21.1
million (0.4 million per hundred weight with a weighted average price per
hundred weight of $52.51) with a fair value of $20.6 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 in any one year, as applicable.
As described in the Company's Annual Report on Form 10-K for the year ended Dec.
31, 1998, 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
Sept. 14, 1998. On Nov. 30, 1998, Searle and its co-defendants received a
verdict for the defense and all claims were dismissed. On Jan. 4, 1999, the
class plaintiffs filed a notice of appeal with the U. S. Court of Appeals for
the Seventh Circuit. In addition, consumers and a number of retail pharmacies
have filed suit in various state courts throughout the country alleging
violations of state antitrust and pricing laws. While many of these suits have
been settled, suits remain pending in a number of states including California,
Alabama and North Dakota.
13
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As described in the Company's Annual Report on Form 10-K for the year ended Dec.
31, 1998, in 1997 the Company commercially introduced corn containing a gene
providing glyphosate resistance. On Nov. 20, 1997, Rhone Poulenc Agrochimie S.
A. ("Rhone Poulenc") filed suit in U. S. District Court in North Carolina
(Charlotte) against the Company and DEKALB (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 Apr. 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 Apr. 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 commencing May 17, 1999, 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. 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. DEKALB will vigorously appeal the
verdict to the Federal Circuit and the 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 or associated gluphosinate tolerance or corn
transformation patents. The most significant of the DEKALB-initiated actions
have been filed in U.S. District Court for the Northern District of Illinois and
allege infringement of one or up to five of DEKALB's biotechnology related
patents. The DEKALB patents involved 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. In each such case DEKALB has asked the court to determine that
infringement has occurred, to enjoin further infringement and to award
unspecified compensatory and exemplary damages. No trial date has been
established in the litigation but a hearing to construe certain of the patent
claims in the cases filed in the U.S. District Court for the Northern District
of Illinois is scheduled to commence May 25, 1999, before the special master.
Lawsuits were initially filed on Apr. 30, 1996, against Pioneer Hi-Bred
International, Inc., Mycogen Corporation (and two of its subsidiaries) and
Ciba-Geigy Corporation. A similar lawsuit was filed against Northrup King Co. on
June 10, 1996. In addition, DEKALB sued Beck's Hybrids, Inc. and Countrymark
Cooperative, Inc. on July 23, 1996, and filed against several Hoechst Schering
AgrEvo GmbH entities on Aug. 27, 1996. All lawsuits related to patent No.
5,550,318 have been stayed pending resolution to an interference proceeding
14
<PAGE>
involving that patent at the U.S. Patent and Trademark Office. (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 Dec.
31, 1998, on July 30, 1998, Monsanto was served with a lawsuit filed in United
States District Court in Delaware by Zeneca Inc. ("Zeneca"). The complaint
alleged that Monsanto violated Sections 3, 4 and 16 of the Clayton Act and
Sections 1 and 2 of the Sherman Act and sought treble damages. In addition to
the antitrust allegations, the complaint sought a declaration that certain
United States patents assigned to Monsanto (U.S. Patent Nos. 4,940,835;
5,352,605; 4,535,060) were invalid, unenforceable or not infringed by Zeneca.
The complaint also asserted a claim for tortious acts of unfair competition with
prospective economic advantage. The allegations in the complaint centered on
Monsanto's technology related to Roundup Ready(R) seed and marketing activity
associated with soybeans. The complaint asserted that Zeneca would be precluded
in its ability to sell a herbicide with respect to which it is seeking
registration for use in application over Roundup Ready(R) seed. Regulatory
approval of this Zeneca herbicide has not occurred. On Aug. 12, 1998, the
complaint was amended, adding Pioneer Hi-Bred International, Inc. ("Pioneer") as
a plaintiff. Pioneer sought a declaratory judgment that it did not breach its
license agreement with Monsanto by providing Roundup Ready(R) soybean seed to
Zeneca for testing. The complaint was also amended to add an additional claim
for relief by Zeneca, seeking a declaratory judgment that its obtaining the
Roundup Ready(R) soybean seed from Zeneca was not improper. Under an agreement
announced March 18, 1999, the parties agreed to dismiss this lawsuit and the
litigation was dismissed on March 23, 1999.
As described in the Company's Annual Report on Form 10-K for the year ended Dec.
31, 1998, on Feb. 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 Feb. 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 purchased 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. Discussions
between the parties are underway to ascertain the scope of the seed lines that
may be affected by the allegations of misappropriation and the relationship of
the facts to the various warranties and representations issued to Monsanto.
Monsanto has denied that it is liable 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 and may assert claims for indemnity, breach and other causes against
Cargill. 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 Oct.
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. A hearing was held May 5, 1999,
on 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.
No ruling on the motion has been issued. The defendants have various meritorious
defenses including preemption, laches, statute of limitations, lack of trade
secrets, ownership of the germplasm, bona fide purchaser status and other
defenses.
15
<PAGE>
Other information with respect to legal proceedings appears in the Company's
Report on Form 10-K for the year ended Dec. 31, 1998.
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 Roundup Ready(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
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
Roundup Ready(R) crops and economically produce glyphosate in sufficient
quantities to allow it to market to such producers.
Pricing Strategy. Monsanto recently significantly reduced the price of
Roundup(R) in the United States. This price elasticity strategy is expected to
result in increased demand for Roundup(R) in the United States because the lower
prices will make 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).
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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. Securing
governmental approvals for, and consumer confidence in, such products poses
numerous challenges, particularly outside the United States. For instance,
France has instituted a moratorium on the planting of certain genetically
modified seeds, and consumer groups have brought lawsuits in various countries
seeking to halt industry activities with respect to products developed through
biotechnology. 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
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 also affect growers'
decisions about the types and amounts of crops to plant. All of these factors
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.
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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 the Nutrition and Consumer Products Segment
Monsanto's Nutrition and Consumer Products Segment faces many challenges similar
to those faced by the Agricultural Products and Pharmaceuticals Segments. These
challenges include increased competition from generic substitutes for its
aspartame-based tabletop and ingredient sweeteners, rapid technological changes,
the ability to realize the potential of its pipeline products, the development
of new products, and the ability to negotiate favorable pricing terms with its
major customers. Each of these challenges is subject to risks and uncertainties
comparable to those described above.
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
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.
18
<PAGE>
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 the Southeast Asia and Brazilian 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.
19
<PAGE>
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 March 31, 1999:
A Form 8-K/A was filed Feb. 8, 1999, in connection with the
acquisition of DEKALB Genetics Corporation ("DEKALB"), disclosing
financial statements of DeKalb together with related reports of
Independent Public Accounts, and pro forma financial information.
A Form 8-K was filed March 1, 1999, in connection with the fourth
quarter 1998 press release announcing the company's fourth quarter
and full year 1998 financial results.
20
<PAGE>
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)
RICHARD B. CLARK
----------------------
Vice President and Controller
On behalf of the Registrant and
as Principal Accounting Officer)
Date: May 17, 1999
21
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2 Omitted - Inapplicable
3 Omitted - Inapplicable
4 Omitted - Inapplicable
10 Form of Non-Qualified Purchased and Year 2000 Premium
Stock Option Certificate
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
99 Computation of the Ratio of Earnings to Fixed Charges
for Monsanto Company and Subsidiaries
22
EXHIBIT 10
MONSANTO COMPANY
NON-QUALIFIED PURCHASED AND YEAR 2000
PREMIUM STOCK OPTION CERTIFICATE
(NOT TRANSFERABLE)
MONSANTO COMPANY, a Delaware corporation (the "Company"),
pursuant to action of Monsanto Company's People Committee (the "Committee")
hereby grants to ____________________(the "Optionee")
(Employee ID ___________)
the following Non-Qualified Premium Stock Options (the "Options") to purchase
shares ("Shares") of its common stock, par value $2.00 per share (the "Common
Stock") (such Shares, the "Optioned Shares"):
Options to purchase Shares, which are granted in consideration of the
Optionee's agreement to pay a total of $ therefore (the "Purchase Price")
($7.77 per Share being the "Per-Share Purchase Price"), as more fully set
forth in the Terms and Conditions set forth in this Certificate (the
"Purchased Options"); and
Additional Options (the "Year 2000 Options") to purchase____________Shares.
The exercise price for the Optioned Shares shall be $75.00 per share, and the
Options shall be otherwise subject to the provisions of the Monsanto Management
Incentive Plan of 1996 (the "Plan") and to the Terms and Conditions set forth in
this Certificate, which constitute the entire understanding between the Company
and the Optionee with respect to the Options
Option granted on and this Certificate executed at St. Louis County, Missouri,
as of April 23, 1999 (the "Option Grant Date").
MONSANTO COMPANY
By:_______________________
<PAGE>
Terms and Conditions of Premium Stock Option
1. Definitions. The Purchased Options and the Year 2000 Options are referred to
collectively as the "Options." Other terms used herein and not otherwise defined
shall have the meanings set forth in the Plan, as may be amended from time to
time.
2. Option Term. The Options shall each have a term ending at the close of
business on the eighth anniversary of the Option Grant Date; provided, that such
term shall instead expire at the close of business on the fifth anniversary of
the Option Grant Date unless before such date, the Premium Price Target of $75
with respect to such Options has been achieved or there has occurred a Change of
Control; and provided, further, that in the case of Year 2000 Options, such term
shall end earlier to the extent so provided in Section 4(c) below. The "Premium
Price Target" with respect to any Option shall be considered to have been
achieved if and only if the Fair Market Value of a Share has been equal to or
greater than $75 for at least ten consecutive trading days.
3. Purchased Options.
(a) The Purchased Options are granted in consideration of the Optionee's
election (a "Purchase Election") to pay the Purchase Price as set forth in
this Section 3(a). The Optionee may elect to pay the Purchase Price by
relinquishing a portion of the base salary and, if Optionee so elects,
annual incentive awards that would otherwise be payable to the Optionee
during the period from July 1, 1999, through June 30, 2003 (the "Purchase
Period" for the Purchased Options), with salary to be reduced on a pre-tax
basis from the salary that is to be paid to the Optionee during the
Purchase Period (on a pro rata basis from each salary payment unless an
alternate payment schedule in a form acceptable to the Company, which may
include pre-tax reduction of annual incentive awards, is specified in the
Purchase Election), so long as the Optionee does not experience a
Termination of Employment. The Optionee may also elect, at the time of
making the Purchase Election and at any time and from time to time
thereafter, to pay to the Company part or all of the Purchase Price to the
extent not already paid through reduction of the Optionee's base salary and
annual incentive awards, and the remaining unpaid Purchase Price (if any)
shall thereafter continue to be paid through reduction of the Optionee's
base salary and annual incentive awards over the remainder of the Purchase
Period (on a pro rata basis or in accordance with the alternate payment
schedule, if any, unless otherwise agreed by the Committee); provided, that
if the Optionee experiences a Termination of Employment, the Optionee shall
be permitted to make such payments of the Purchase Price to the Company
<PAGE>
only until the close of business on the 30th day after such Termination of
Employment, unless the Committee expressly authorizes later payments; and
provided, further, that an Optionee who experiences a Termination of
Employment for cause (as determined by the Committee) before a Change of
Control shall not be permitted to make such payments after such Termination
of Employment.
(b) The Purchased Options shall become nonforfeitable as to a pro rata portion
of the Shares subject thereto as and when the Purchase Price is paid
(whether by the reduction of base salary, annual incentive awards, direct
payment to the Company, or a combination thereof). To the extent any
portion of the Purchase Price is not paid in accordance with Section 3(a)
above, a pro rata portion of the Purchased Options shall be forfeited.
(c) Each Purchased Option, the term of which has not previously expired
pursuant to Section 2 above and that has not previously been forfeited
pursuant to Section 3(b) above, shall become exercisable on the latest of
(i) the date on which payment is made for such option pursuant to Section
3(b) above, (ii) the first to occur of the first anniversary of the Option
Grant Date or a Change of Control, and (iii) the date the Premium Price
Target is first achieved. Once a Purchased Option becomes exercisable, it
shall remain exercisable for the remainder of its term, regardless of
whether the Optionee has experienced a Termination of Employment.
4. Year 2000 Options.
(a) The Year 2000 Options shall become nonforfeitable on a pro rata basis for
each full calendar month of continued employment by the Company of the
Optionee during the calendar year 2000.
(b) Each Year 2000 Option, the term of which has not previously expired
pursuant to Section 2 above or Section 4(c) below, shall become exercisable
on the later of (i) the date it becomes nonforfeitable pursuant to Section
4(a) above and (ii) the first to occur of the first anniversary of the
Option Grant Date and a Change of Control. Once a Year 2000 Option becomes
exercisable, it shall remain exercisable for the remainder of its term.
(c) Notwithstanding any other provision of this Certificate other than Section
8, if the Optionee experiences a Termination of Employment, the term of any
unexpired Year 2000 Options held by such Optionee shall expire no later
than the close of business on the date set forth below (depending upon the
circumstances of the Termination of Employment): (i) if the Optionee's
Termination of Employment is for cause, the date of such Termination of
Employment; (ii) if such Termination of Employment occurs as a result of
the death, total and permanent disability or retirement at age 50 or older
of the Optionee, the eighth anniversary of the Option Grant; (iii) if such
<PAGE>
Termination of Employment occurs as a result of the termination of the
Optionee by the Company and its Subsidiaries other than for cause, the
first anniversary of the date of such Termination of Employment; and (iv)
if such Termination of Employment occurs as a result of the voluntary
resignation of the Optionee, the date that is three months after the date
of such Termination of Employment. The determination of the reason for any
Termination of Employment for purposes of this Section 4(c) shall be made
by the Committee in the sole but not unreasonable exercise of its judgment.
(d) Method of Exercise; Payment of Taxes. Options shall be exercised by (a)
written notice given to the Company, or its designee (at the address
specified by the Company from time to time), signed by the Optionee (or in
the event of the Optionee's death, by the Optionee's legal representative
or transferee pursuant to Section 11 hereof), specifying which Options
(Purchased or Year 2000) are being exercised and the number of Shares as to
which the Options are being exercised, plus (b) payment to the Company in
full for the exercise price for the Shares so specified. Within a
reasonable time after exercise of the Options, the Company shall issue or
cause to be issued a stock certificate or certificates to the Optionee (or
in the event of the Optionee's death, to the Optionee's legal
representative or transferee pursuant to Section 11 hereof) representing
the Shares in respect of which the Option shall have been exercised and
shall pay all stamp taxes in respect thereof, provided that upon or prior
to the issuance of such certificate or certificates, provision (as
specified by the Company from time to time) shall be made by the Optionee
for the payment to the employer of any and all taxes which it shall be
required to withhold, in connection with the exercise of the Options, by
any law or regulation of any government, whether federal, state or local
and whether domestic or foreign. Payment of such exercise price and of such
taxes may be made by delivery of Shares (or other evidence of ownership of
Shares satisfactory to the Company) with a Fair Market Value equal to the
Option price as payment.
5. Stockholder Status. The Optionee shall have no rights as a stockholder with
respect to any Optioned Shares unless and until the Optionee shall have become
the holder of record of such Shares and, subject to the provisions of Section 7
hereof, no adjustment shall be made for dividends, ordinary or extraordinary
(whether in cash or securities or other property), or other distributions, or
other rights in respect of such Shares as to which the record date is prior to
the date upon which the Optionee shall have become the holder of record thereof.
6. Share and Price Adjustment. In the event of any Share adjustments provided
for in Section 4 of Article I of the Plan, the number and class of Shares
subject to the Option (and not theretofore issued or transferred in respect
thereof), the price per Share and the Premium Price Target shall be adjusted in
such manner as the Committee may in its discretion deem equitable. The Company
shall notify the Optionee of any such adjustment and subject to Section 7, any
<PAGE>
such adjustment, or failure to adjust (whether or not such notice is given),
shall be final and binding upon the Company and the Optionee for all purposes of
the Plan.
7. Change in Control. (a) For purposes of this Option, "Change in Control" means
the occurrence of any of the following events:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (x) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (y) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that, for purposes of this
subsection (a), the following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Company, (B) any acquisition
by the Company, (C) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (D) any acquisition by any corporation
pursuant to a transaction which complies with clauses (A), (B) and (C) of
subsection (iii) of this Section 7(a); or
(ii) Individuals who, as of the Option Grant Date, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; or
(iii) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company or the acquisition of assets or stock of another
corporation (a "Business Combination"), in each case, unless, following
such Business Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
<PAGE>
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 60% of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result
of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (C) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(b) Notwithstanding any other provision of this Certificate other than
Section 7(c) below, if there occurs a Change of Control: (i) all
Options that have not previously been forfeited and that are not then
exercisable shall become exercisable in full on the later of the date
of the Change of Control and the date they become nonforfeitable as
provided above, but without regard to whether the Premium Price Target
has been or is achieved; and (ii) the provisions of Section 4(c) shall
cease to apply to the Year 2000 Options.
(c) Notwithstanding Section 7(b) above, if, as of the date of the Change of
Control, the Fair Market Value of a Share does not exceed the sum of
the per-share exercise price and the Per-Share Purchase Price of the
Purchased Options that are then outstanding, the Board may elect to
cancel such Purchased Options as of the date of the Change of Control,
provided that such cancellation shall be effective only if the Company
pays the Optionee an amount of cash equal to the amount of the Purchase
<PAGE>
Price previously paid by the Optionee pursuant to Section 3 (a) above
with respect to the canceled Purchased Options, together with interest
at the Moody's Baa Bond Index Rate.
(d) In the event of a Change of Control, unless the Options are canceled
pursuant to Section 7(c) above, the Committee shall be required to make
adjustments pursuant to Section 6 above to the extent necessary to
ensure that the Options are exercisable for common stock and/or other
securities in a manner no less favorable to the Optionee than an
adjustment that would satisfy the requirements of Section 424(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), if such Section
were applicable.
8. Employment and Termination. Neither the Options nor any provision hereof
shall confer any employment right on the Optionee or affect the right of the
Optionee's employer to terminate the employment of the Optionee at any time,
with or without cause or assigning a reason therefor, and grant of the Options
neither implies nor precludes the grant of a stock option in the future.
9. Options Subject to Law and Regulations. Each exercise of the Options shall be
subject to all requirements as to (a) the listing, registration or qualification
of the Optioned Shares upon any securities exchange on which Shares are listed
or under any applicable federal, state or other law, (b) the consent or approval
of any governmental body determined by the Company to be necessary or desirable
and (c) compliance with any economic stabilization or other government
regulation at the time in effect. Anything herein to the contrary
notwithstanding, the Options may not be exercised, in whole or in part, unless
and until the Company shall have been able to comply with all such requirements
and regulations free of any conditions not acceptable to the Company. As a
condition to the exercise of the Options, either in whole or in part, the
Optionee shall execute such documents and take such action as the Company in its
sole discretion deems necessary or advisable to assist the Company in compliance
with any such requirements, and the Optionee shall comply with all requirements
of any regulatory authority having control of supervision.
10. Fractional Shares. The Company shall not be required to issue any fractional
Shares pursuant to the Plan. The Committee may, at its discretion, provide for
the elimination of fractions or for the settlement thereof in cash.
11. Transferability of Options. The Options are not transferable by the Optionee
otherwise than by will, by the laws of descent and distribution or pursuant to a
written beneficiary designation and shall not be subject, in whole or in part,
to attachment, execution, levy or other similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of the Options
contrary to the provisions hereof, and the levy of any attachment or similar
process upon the Options, shall be null and void and without effect. The Options
<PAGE>
shall be exercisable during the lifetime of the Optionee only by the Optionee or
by the guardian or legal representative of the Optionee acting in a fiduciary
capacity on behalf of the Optionee.
12. Amendment of Options for Accounting Changes. In the event the Company's
method of accounting for the Options changes in a manner that the Committee in
its discretion determines is detrimental to the Company, the Committee may
cancel the Options or amend them without the consent of the Optionee; provided,
that no such cancellation or amendment may be made in connection with, in
anticipation of, or after a Change of Control.
13. Governing Law. The validity, interpretation, performance and enforcement of
the Options shall be governed by the laws of the State of Delaware, determined
without regard to its conflict of law provisions (except for the Nonprobate
Transfers Law of Missouri to the extent applicable as determined by the
Committee).
14. Administration. Each and every provision of the Options shall be
administered, construed and interpreted so that the Options shall in all
respects conform to the provisions of the Plan, a copy of which has been
delivered to the Optionee, and any provision that cannot be so administered
shall be deemed appropriately modified, or, if necessary, disregarded. In no
event shall the Options be deemed to be Incentive Stock Options under Section
422 of the Code.
<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 MARCH 31, 1999, AND THE STATEMENT OF CONSOLIDATED FINANCIAL
POSITION AS OF MARCH 31, 1999. SUCH INFORMATION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 101
<SECURITIES> 0
<RECEIVABLES> 3,175
<ALLOWANCES> 0
<INVENTORY> 1,875
<CURRENT-ASSETS> 6,406
<PP&E> 6,046
<DEPRECIATION> 2,768
<TOTAL-ASSETS> 16,762
<CURRENT-LIABILITIES> 4,314
<BONDS> 6,269
0
0
<COMMON> 1,694
<OTHER-SE> 3,182
<TOTAL-LIABILITY-AND-EQUITY> 16,762
<SALES> 2,546
<TOTAL-REVENUES> 2,546
<CGS> 997
<TOTAL-COSTS> 997
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122
<INCOME-PRETAX> 228
<INCOME-TAX> 96
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132
<EPS-PRIMARY> 21
<EPS-DILUTED> 20
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 99
MONSANTO COMPANY AND SUBSIDIARIES
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended
March 31, Year Ended Dec. 31,
--------------------- -----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes $228 $296 ($243)* $366* $553* $645* $636
Add
Fixed charges 137 80 372 236 172 178 140
Less capitalized interest (4) (1) (15) (14) (9) (5) (4)
Dividends from affiliated companies -- -- 8 4 6 3 2
Less equity income (add equity loss)
of affiliated companies 1 (11) 23 (20) 42 (3) (4)
------- ------- ----- -------- ------ -------- ------
Income as adjusted $ 363 $364 $145 $572 $764 $818 $770
====== ==== ==== ==== ==== ==== ====
Fixed charges
Interest expense $122 $66 $312 $170 $119 $132 $100
Capitalized interest 4 1 15 14 9 5 4
Portion of rents representative
of interest factor 11 13 45 52 44 41 36
----- ----- ------ ------ ------ ------ ------
Fixed charges $ 137 $ 80 $ 372 $236 $172 $178 $140
====== ==== ====== ==== ==== ==== ====
Ratio of earnings to fixed charges 2.64 4.55 0.39 2.42 4.44 4.60 5.50
==== ==== ======= ==== ==== ==== ====
</TABLE>
* Includes charges for restructuring, acquired in-process research and other
unusual items of $1,060 million for the year ended Dec. 31, 1998, and $684
million, $376 million and $90 million for the year ended Dec. 31, 1997, and 1996
and 1995, respectively. Excluding these unusual items, the ratio of earnings to
fixed charges would have been 3.24 for the year ended Dec. 31, 1998, and 5.32,
6.60 and 5.10 for the years ended Dec. 31, 1997, 1996 and 1995, respectively.
The ratio was not materially affected by the restructuring and other unusual
items in 1994.
