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1999
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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-2516
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MONSANTO COMPANY
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(Exact name of Registrant as specified in its charter)
DELAWARE 43-0420020
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 NORTH LINDBERGH BLVD., ST. LOUIS, MO 63167
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 694-1000
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Securities Registered Pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on which registered
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Common Stock $2 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Adjustable Conversion-Rate Equity Security Units New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant: approximately $24.7 billion as of the
close of business on February 29, 2000.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date:
635,054,641 shares of Common Stock, $2 par value, outstanding at
February 29, 2000.
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PART I
ITEM 1. BUSINESS.
Monsanto Company is a life sciences company, committed to finding
solutions to the growing global needs for food and health by applying
common forms of science and technology among agriculture, nutrition and
health. Monsanto makes, researches and markets high-value agricultural
products, pharmaceuticals and nutrition-based health products. Monsanto
Company was incorporated in 1933 under Delaware law and is the successor
to a Missouri corporation, Monsanto Chemical Works, organized in 1901.
"Monsanto" and the "Company" are used interchangeably to refer to
Monsanto Company or to Monsanto Company and its subsidiaries, as
appropriate to the context.
For 1999, Monsanto reported its business under three segments:
Agricultural Products, Pharmaceuticals, and Corporate and Other. In
1999, Monsanto announced its intention to sell the artificial sweetener
and biogum businesses. The results of operations, financial position,
and cash flows of these businesses, and of the alginates and Ortho(R)
lawn-and-garden products businesses, the dispositions of which were
approved by Monsanto's Board of Directors in 1998, have been
reclassified as discontinued operations; and, for all periods presented,
the consolidated financial statements and notes have been reclassified
to conform to this presentation. In addition, Monsanto transferred the
Roundup(R) lawn-and-garden and nutrition research operations of the
former Nutrition and Consumer Products segment to the Agricultural
Products and Corporate and Other segments, respectively.
The first and last paragraphs appearing under "Definitions" on
page 3, the information regarding sales of certain herbicides in 1999,
1998 and 1997 appearing under "Agricultural Products" on pages 11 and 12,
the information regarding sales of certain arthritis treatments in 1999,
1998 and 1997 appearing under "Pharmaceuticals" on pages 14 and 15, and the
tabular and narrative information appearing in "Note 3: Geographic Data"
on page 32 and in "Note 23: Segment Information" on pages 52 and 53, all
appearing in Exhibit 99.1 of this Report, are incorporated herein by
reference.
PRINCIPAL PRODUCTS
Monsanto's principal products for 1999, categorized by segments
reclassified as described above, include the following:
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AGRICULTURAL PRODUCTS
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MAJOR PRODUCTS END-USE PRODUCTS AND APPLICATIONS
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Roundup(R) herbicide and other glyphosate-based herbicides Nonselective agricultural and industrial applications
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Roundup(R) herbicide Residential lawn and garden applications
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Lasso(R) and Harness(R)<F*> herbicides and other Corn, soybean, peanut and milo (sorghum) crops
acetanilide-based herbicides
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<F*> Corn only
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Avadex(R) BW herbicide, Far-Go(R) herbicide Wheat crops
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Machete(R) herbicide Rice crops
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Permit(R), Manage(R) and Sempra(R) herbicides Postemergence control of sedges and broadleaf weeds in corn and
grain sorghum, turf and sugarcane crops
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Roundup Ready(R) traits in canola, cotton, soybeans Crops tolerant of Roundup(R) and other glyphosate herbicides
and corn
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Bollgard(R) trait in cotton; Crops protected against certain viruses and insect pests
NewLeaf(R), NewLeaf(R) Y and NewLeaf(R) Plus
traits in potatoes; YieldGard(R) trait in corn
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Bollgard(R) and Roundup Ready(R) trait in cotton, Crops tolerant of Roundup(R) and other glyphosate herbicides
YieldGard(R) and Roundup Ready(R) trait in corn and protected against certain insect pests
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AgriPro(R), Agroceres(TM), Asgrow(R), Cargill(R), Corn hybrids, soybean varieties, alfalfa, grain sorghum and
DEKALB(R), Hartz(R), Hybritech(R) and Monsoy(TM) forage varieties, sunflowers, oilseed rape and barley
branded seeds; Holden's Foundation Seeds(TM); varieties, cotton varieties, wheat varieties and hybrids
PBi(R) foundation seed
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Posilac(R) bovine somatotropin Increase efficiency of milk production in dairy cows
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PHARMACEUTICALS
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MAJOR PRODUCTS END-USE PRODUCTS AND APPLICATIONS
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Celebrex(R) (celecoxib), Anti-inflammatory
Daypro(R) (oxaprozin),
Arthrotec(R) (misoprostol/diclofenac)
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Aldactone(R) (spironolactone), Cardiovascular
Aldactazide(R) (spironolactone/ hydrochlorothiazide),
Calan(R) formulations and
Covera-HS(R) (verapamil hydrochloride)
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Ambien(R) (zolpidem tartrate) Central nervous system (sleep)
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CORPORATE AND OTHER
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MAJOR PRODUCTS END-USE PRODUCTS AND APPLICATIONS
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Enviro-Chem(R) engineering and construction management Processing plants for fertilizer producers, basic metals
services for processing plants using sulfuric acid; production, oil refining
proprietary equipment and air pollution control systems
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</TABLE>
Products may be sold under different brand names outside the United
States.
Monsanto's products are sold and/or licensed directly to customers in
various industries, to wholesalers and other distributors, to retailers and
to the ultimate user or consumer, principally by its own sales force, or,
in some cases, through third parties. With respect to pharmaceuticals, such
sales force concentrates on detailing to physicians and managed health care
providers. The Pharmaceuticals segment's anti-arthritis product Celebrex(R)
will be co-promoted with Yamanouchi Pharmaceutical Co. Ltd. in Japan and with
Pfizer Inc. in most other countries of the world.
PRINCIPAL EQUITY AFFILIATES
Monsanto participates in a number of joint ventures in which it
shares management control with other companies. For example, Monsanto has a
60% ownership interest in a joint venture with Solutia Inc., from which it
purchases elemental phosphorus. In addition, Monsanto and Cargill
Incorporated have established Renessen LLC, a worldwide joint
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venture in which Monsanto has a 50% interest, to create and market new
products enhanced through biotechnology for the crop processing and animal
feed markets.
SALE OF PRODUCTS
Monsanto's net income has been historically higher during the first
half of the year, primarily because of the concentration of generally more
profitable sales of the Agricultural Products segment during that part of
the year. Monsanto's marketing and distribution practices do not result in
unusual working capital requirements on a consolidated basis, although the
seasonality of sales of the Agricultural Products segment results in short-
term borrowings to finance customer accounts receivable and inventories.
Inventories of finished goods, goods in process and raw materials are
maintained to meet customer requirements and Monsanto's scheduled
production. In general, Monsanto does not manufacture its products against
a backlog of firm orders; production is geared primarily to the level of
incoming orders and to projections of future demand.
Monsanto generally is not dependent upon one or a group of customers
and Monsanto has no material contracts with the government of the United
States or any state, local or foreign government. However, pursuant to
contracts executed under U.S. federal and state laws, the Pharmaceuticals
segment pays rebates to state governments for pharmaceuticals sold under
state Medicaid programs and under state-funded programs for the indigent.
The Pharmaceuticals segment also grants discounts to certain managed health
care providers. Sales through managed health care providers constitute an
increasing percentage of that segment's sales.
Introduction of new products by the Agricultural Products and
Pharmaceuticals segments typically is, and introduction of new products by
other segments may be, subject to prior review and approval by the FDA, the
U.S. Environmental Protection Agency and/or the U.S. Department of
Agriculture (or comparable agencies of governments outside the United
States) before they can be sold. Such reviews are often time-consuming and
costly. These agencies also have continuing jurisdiction over many existing
products of these segments. Governmental actions may also affect or
determine the pricing of certain products, particularly in the
Pharmaceuticals segment.
RAW MATERIALS AND ENERGY RESOURCES
Monsanto is both a producer and significant purchaser of a wide
spectrum of its basic and intermediate raw material requirements. Major
requirements for key raw materials and fuels are typically purchased
pursuant to long-term contracts. Monsanto is not dependent on any one
supplier for a material amount of its raw materials or fuel requirements,
but certain important raw materials are obtained from a few major
suppliers. Monsanto purchases its North American supply, and has the option
to purchase its ex-North American supplies, of elemental phosphorus, a key
raw material for the production of Roundup(R) brand herbicides, from P4
Production, L.L.C., a joint venture between the Company and Solutia Inc. In
general, where Monsanto has limited sources of raw materials, it has
developed contingency plans to minimize the effect of any interruption or
reduction in supply.
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While temporary shortages of raw materials and fuels may occasionally
occur, these items are generally sufficiently available to cover current
and projected requirements. However, their continuing availability and
price are subject to unscheduled plant interruptions occurring during
periods of high demand, or due to domestic and world market and political
conditions, as well as to the direct or indirect effect of U.S. and other
countries' government regulations. The impact of any future raw material
and energy shortages on Monsanto's business as a whole or in specific world
areas cannot be accurately predicted. Operations and products may, at
times, be adversely affected by legislation, shortages or international or
domestic events.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
Monsanto owns a large number of patents which relate to a wide
variety of products and processes and has pending a substantial number of
patent applications. United States Plant Variety Protection Act
Certificates and foreign plant registrations are also significant to the
Agricultural Products segment. In addition, Monsanto holds a number of
licenses granted by other parties, some of which may be significant.
Monsanto also owns a considerable number of established trademarks in many
countries under which it markets its products. Monsanto's patents and
trademarks in the aggregate are of material importance to the Agricultural
Products and Pharmaceuticals segments. Certain proprietary products are
covered by patents. Certain of Monsanto's patents and licenses are
currently the subject of litigation; see "Legal Proceedings" below.
Although patents protecting Roundup(R) herbicide have expired in most
countries, compound per se patent protection for the active ingredient in
Roundup(R) herbicide continues in the United States until September 20,
2000. Monsanto's insect-resistant seed traits (including NewLeaf(R) traits
in potato, YieldGard(R) trait in corn and Bollgard(R) trait in cotton) are
protected by patents which extend until at least 2013. Monsanto's
herbicide-resistant seed traits (Roundup Ready(R) traits in cotton, corn,
canola and soybeans) are protected by patents which extend until at least
2014. Posilac(R) bovine somatotropin is protected by a United States patent
that expires in 2008, and by corresponding patents in other countries, most
of which expire in 2005. Other patents protect various aspects of bovine
somatotropin manufacture in the United States and expire as late as 2012;
corresponding patents in other countries have varying terms.
Calan(R) SR, an antihypertensive pharmaceutical, is licensed through
the year 2004 to Searle by a third party, which has retained co-marketing
rights. The product no longer has patent protection nor non-patent
regulatory exclusivity conferred by the Waxman-Hatch amendments to the U.S.
Food, Drug and Cosmetics Act. Cytotec(R) ulcer preventive drug is protected
by a U.S. composition patent until July 29, 2000. Ambien(R) short-term
treatment for insomnia is licensed to a joint venture of which Searle is a
general partner for the duration of the venture. Pursuant to the joint
venture agreement, the other partner has agreed to purchase Searle's
interest and thereby terminate the venture in April 2002. Ambien(R) is
protected by a U.S. patent until October 21, 2006. Daypro(R) once-a-day
arthritis treatment is licensed to Searle until January 5, 2003 in the U.S.
and varying dates in other countries. This product is protected by a U.S.
process patent that expires on February 26, 2002 and by non-patent
regulatory exclusivity extending to April 29, 2000. Arthrotec(R)
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arthritis treatment is protected by a U.S. patent until February 11, 2014.
Celebrex(R), a COX-2 inhibitor for the treatment of osteoarthritis and
rheumatoid arthritis is protected by a U.S. patent to November 30, 2013 and
by regulatory exclusivity under the Waxman-Hatch Act to December 31, 2003.
COMPETITION
Monsanto encounters substantial competition in each of its industry
segments. This competition, from other manufacturers of the same products
and from manufacturers of different products designed for the same uses, is
expected to continue in both U.S. and ex-U.S. markets. Depending on the
product involved, various types of competition are encountered, including
price, delivery, service, performance, product innovation, product
recognition and quality.
The number of Monsanto's principal competitors varies from product to
product. It is not practical to discuss Monsanto's numerous competitors
because of the large variety of Monsanto's products, the markets served and
the worldwide business interests of Monsanto. Overall, however, Monsanto
regards its principal product groups to be competitive with many other
products of other producers and believes that it is an important producer
of many of such product groups.
RESEARCH AND DEVELOPMENT
Research and development constitute an important part of Monsanto's
activities. See "Development and Commercialization of New Products Continue
to be Priorities," and "Note 21: Supplemental Data", on pages 8 and 51,
respectively, appearing in Exhibit 99.1 of this Report and incorporated
herein by reference.
ENVIRONMENTAL MATTERS
Monsanto remains strongly committed to complying with various laws
and government regulations concerning environmental matters and employee
safety and health in the United States and other countries. Monsanto is
dedicated to long-term environmental protection and compliance programs
that reduce and monitor emissions of hazardous materials into the
environment, as well as to the remediation of identified existing
environmental concerns. While the costs of compliance with environmental
laws and regulations cannot be predicted with certainty, Monsanto does not
expect such costs to have a material adverse effect upon its capital
expenditures, earnings, or competitive position. See information regarding
remediation of waste disposal sites appearing in "Note 20: Commitments and
Contingencies" on page 50 appearing in Exhibit 99.1 of this Report and
incorporated herein by reference.
On November 22, 1999, Monsanto, Solutia Inc. and P4 Production,
L.L.C. ("P4 Production") received notice that the Department of Justice
("DOJ") was preparing a federal court enforcement action against the
companies on behalf of the Environmental Protection Agency (EPA). P4
Production is a joint venture formed by Monsanto and Solutia Inc.
("Solutia"), and operated by Solutia under an operating agreement with P4
Production. The potential action concerned alleged violations of Wyoming's
environmental laws and
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regulations, and an air permit issued in 1994 by the Wyoming Department of
Environmental Quality to Sweetwater Resources, Inc., a former subsidiary of
Monsanto's. The permit was issued for a coal coking facility in Rock
Springs, Wyoming that is currently owned by P4 Production. The DOJ
recommended a proposed settlement of $2.5 million. After discussions with
the DOJ, Monsanto, Solutia and P4 Production filed a lawsuit in the United
States District Court for the District of Wyoming on January 18, 2000
against the EPA seeking a declaratory judgment that the threatened
enforcement action is precluded by the doctrine of res judicata on the
grounds that the companies had already fully resolved the underlying
allegations in a consent decree entered in the First Judicial District
Court in Laramie County, Wyoming on June 25, 1999.
EMPLOYEE RELATIONS
As of December 31, 1998, Monsanto had approximately 29,900 employees
worldwide, 1,700 of whom were associated with businesses classified as
discontinued operations. Satisfactory relations have prevailed between
Monsanto and its employees.
INTERNATIONAL OPERATIONS
Monsanto and affiliated companies are engaged in manufacturing, sales
and/or research and development in the United States, Europe, Canada, Latin
America, Australia, Asia and Africa. A number of products are manufactured
abroad. Ex-U.S. operations are potentially subject to a number of unique
risks and limitations, including: fluctuations in currency values; exchange
control regulations; import and trade restrictions, including embargoes;
governmental instability; economic conditions in other countries; and other
potentially detrimental domestic and foreign governmental practices or
policies affecting U.S. companies doing business abroad. See "Note 3:
Geographic Data" on page 32 appearing in Exhibit 99.1 of this Report and
incorporated herein by reference.
LEGAL PROCEEDINGS
Because of the size and nature of its business, Monsanto is a party
to numerous legal proceedings. Most of these proceedings have arisen in the
ordinary course of business and involve claims for money damages or seek to
restrict Monsanto's business activities. While the results of litigation
cannot be predicted with certainty, Monsanto does not believe these matters
or their ultimate disposition will have a material adverse effect on
Monsanto's financial position, profitability or liquidity in any one year,
as applicable.
In 1974, Searle introduced in the United States an intrauterine
contraceptive product, commonly referred to as an intrauterine device
("IUD"), under the name Cu-7(R). Following extensive testing by Searle and
review by the FDA, the Cu-7(R) was approved for sale as a prescription drug
in the United States. It was marketed internationally as the Gravigard(R).
Searle has been named as a defendant in a number of product liability
lawsuits alleging that this IUD caused personal injury resulting from
pelvic inflammatory disease, perforation, pregnancy or ectopic pregnancy.
As of March 1, 2000, there remains 1 case pending in the United States, and
approximately 270 cases filed outside the United States (the vast majority
in Australia). On February 22, 1999, Searle received a defense verdict
after a trial of the nine lead Australian plaintiffs. Though not
technically a class
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action, these nine individuals are considered representative of the entire
group of Australian plaintiffs. Plaintiffs' are appealing that verdict.
The lawsuits seek damages in varying amounts, including compensatory and
punitive damages, with most suits seeking at least $50,000 in damages.
Searle believes it has meritorious defenses and is vigorously defending
each of these lawsuits. On January 31, 1986, Searle voluntarily
discontinued the sale of the Cu-7(R) in the United States, citing the cost
of defending such litigation. Ex-U.S. sales were discontinued in 1990.
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. On November 30, 1998, Searle and its co-defendants in
the Federal class action case received a verdict for the defense and all
claims were dismissed. On July 13, 1999, the U. S. Court of Appeals for
the Seventh Circuit upheld most of the lower court's decision to throw out
price fixing charges against the manufacturers as well as the wholesalers,
but reversed the trial judge on one discrete issue involving the Consumer
Price Index. Petitions for a rehearing on that issue have been denied.
Cases relating to the chain pharmacies that had opted out of the class are
in the final stages of discovery. 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, New Mexico and West Virginia.
On December 14, 1999, suit was filed against Monsanto in the United
States District Court for the District of Columbia (Cause No. 1:99CV03337)
by six farmers as representative of a putative class action alleging that
purchasers of genetically modified soybean and corn seed may assert
antitrust and other claims against Monsanto. The suit alleges that
Monsanto has violated various antitrust laws and unspecified international
laws through its patent license agreements and has breached an implied
warranty of merchantability by offering for sale genetically modified seed.
Nine other companies are accused in the lawsuit of participating in an
international cartel to violate the antitrust laws but Monsanto is the only
named defendant. The suit claims anti-competitive behavior and
monopolistic practices by artificially inflating the prices of genetically
modified seed and imposing excessive technology fees, prohibiting the reuse
of modified seed, or requiring the use of specified herbicides with the
seed. The suit claims that despite governmental approval for the sale of
the genetically modified products there are uncertain risks posed by the
technology which subjects Monsanto to liability regardless of the actual
safety of the products. Plaintiffs seek declaratory and injunctive relief
in addition to antitrust, treble,
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compensatory and punitive damages and attorneys' fees. On November 8,
1999, a similar lawsuit was filed by a single plaintiff in United States
District Court for the Northern District of Mississippi (Cause No.
2:99CV218-P-B) alleging to represent a putative class of soybean farmers
who have purchased genetically-modified soybeans which contain Monsanto's
patented technology. The complaint asserts claims under the Racketeer
Influenced and Corrupt Organizations Act (RICO) and various antitrust acts
and also asserts claims for breach of contract. The suit seeks an award of
antitrust damages, treble damages and compensatory damages and attorneys'
fees. On February 14, 2000, a similar lawsuit was filed in United States
District Court for the Southern District of Illinois (Cause No. 00-403JLF),
on behalf of five farmers purporting to represent various classes of
farmers and alleging claims virtually identical to those in the District of
Colombia and Mississippi cases. Monsanto has filed motions to dismiss the
District of Columbia and Mississippi cases with prejudice. Subsequently,
plaintiffs filed motions to dismiss these cases without prejudice, and have
expressed their intention to refile in connection with the Illinois case.
Monsanto is vigorously defending these lawsuits and has meritorious
defenses to all claims in the lawsuits, including: failure to state any
claim under existing law, no breach of any legal duty, lack of damage,
legal authorization to extend technology licenses under the patent laws and
other defenses. Monsanto will maintain in the litigation that its products
are safe, approved for sale by regulatory authorities and that its actions
have been pro-competitive under the antitrust laws and protected under the
patent laws.
In 1996 Monsanto was the first to commercially introduce cotton
containing a gene encoding for Bacillus thuringiensis ("Bt") endotoxin.
Monsanto is a leader in this scientific field and has engaged in Bt
research and biotechnology development over many years and owns a number of
present and pending patents which relate to this technology. On October 22,
1996, Mycogen Corporation ("Mycogen") filed suit in U.S. District Court in
Delaware seeking damages and injunctive relief against Monsanto, DEKALB
Genetics Corporation ("DEKALB") (subsequently acquired by Monsanto) and
Delta & Pine Land Company alleging infringement of Bt related U.S. Patent
Nos. 5,567,600 and 5,567,862 issued to Mycogen on that date. Jury trial in
this matter concluded on February 3, 1998 with a verdict in favor of all
defendants. The patents of Mycogen were found invalid on the basis that
Monsanto was a prior inventor. On September 8, 1999, the District Court
issued a revised order which upheld the jury verdict and also ruled that
Mycogen's patents were invalid due to their lack of enablement. Mycogen's
appeal was filed in the Court of Appeals for the Federal Circuit on
December 6, 1999, as appeal number 00-1001-1051. Monsanto has meritorious
legal positions and will continue to vigorously oppose Mycogen's claims in
the appeal.
On May 19, 1995, Mycogen Plant Science Inc. initiated suit in U.S.
District Court in California against Monsanto alleging infringement of U.S.
Patent No. 5,380,831 involving synthetic Bt genes and seeking damages and
injunctive relief. On November 10, 1999, the District Court granted summary
judgment in Monsanto's favor dismissing all of Mycogen's patent claims and
finding the patent invalid on the basis of prior invention by Monsanto.
Previously, the District Court had also held that products containing Bt
genes made prior to January 1995 did not infringe the patent. Mycogen has
filed an appeal with the Court of Appeals for the Federal Circuit (Appeal
Number 00-1127) seeking to overturn the dismissal. Monsanto has various
meritorious defenses against all claims of Mycogen
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including non-infringement, lack of validity, prior invention and
collateral estoppel as a result of the outcome in the jury trial in which
Mycogen's related patents were found invalid. Monsanto will continue to
vigorously oppose the claims of Mycogen in the litigation. Monsanto is
also a party in interference proceedings against Mycogen in the U.S. Patent
and Trademark Office to determine the first party to invent certain
inventions related to Bt technology and has requested a stay of the
interference pending determination of the appeals. In all of the foregoing
actions Monsanto has meritorious legal positions which it is vigorously
litigating to establish that the final judgment in the Delaware litigation
is dispositive of Mycogen's claims and that all Mycogen Bt patents are
invalid as a result of prior judicial determinations.
On December 22, 1999, Mycogen Plant Science, Inc. ("MPS"), filed a
patent suit in the Federal Court of Australia, Victoria District Registry
as Cause No. V746 of 1999, against Monsanto Australia Limited and DeltaPine
Australia Limited. The suit alleges that the respondents have infringed
certain claims of two Australian patents (574101 and 623429) associated
with Bt technology. These patents are Australian counterparts to patents
and inventions found invalid in other jurisdictions. Monsanto has
meritorious defenses against the lawsuit, including patent invalidity due
to lack of enablement, prior art and obviousness. Monsanto will vigorously
defend against MPS's claims in the action.
Monsanto and/or DEKALB are involved in various legal actions
involving herbicide-resistant and/or insect-resistant fertile, transgenic
corn. The DEKALB patents involved in the most significant DEKALB-initiated
transactions are: U.S. Patent No. 5,484,956 covering fertile, transgenic
corn plants expressing genes encoding Bacillus thuringiensis (Bt)
insecticidal proteins; U.S. Patent No. 5,489,520 covering the
microprojectile method for producing fertile, transgenic corn plants
covering a bar or pat gene, as well as the production and breeding of
progeny of such plants; U.S. Patent Nos. 5,538,880 and 5,538,877 directed
to methods of producing either herbicide-resistant or insect-resistant
transgenic corn; and U.S. Patent No. 5,550,318 directed to transgenic corn
plants containing a bar or pat gene (all lawsuits related to this patent
have been stayed pending resolution of an interference proceeding at the
U.S. Patent and Trademark Office). (a) DEKALB has filed infringement
actions in U.S. District Court for the Northern District of Illinois (the
"Rockford Litigation"). These include actions initially filed on April 30,
1996, against Pioneer Hi-Bred International, Inc. ("Pioneer") and Mycogen
Corporation and two of its subsidiaries; and on August 27, 1996, against
several Hoechst Schering AgrEvo GmbH entities. In each case DEKALB has
asked the court to determine that infringement has occurred, to enjoin
further infringement and to award unspecified compensatory and exemplary
damages. By order dated June 30, 1999, a special master appointed in the
Rockford Litigation construed the patent claims in a manner largely in
accord with the position of DEKALB. The judge has adopted the findings of
the special master and appointed a settlement mediator to conduct
discussions among the parties. (b) On July 2, 1999, DEKALB sued Pioneer in
United States District Court for the Northern District of Illinois in a
patent interference action to declare that DEKALB was the first inventor of
the microprojectile method of producing fertile transgenic corn. Pioneer's
motion to dismiss that litigation has been denied. On July 30, 1999,
DEKALB moved to consolidate this suit with the remainder of the Rockford
Litigation for purposes of trial but the consolidation request has been
provisionally denied. (c) On November 23, 1999, Pioneer sued Monsanto,
DEKALB and Novartis Seeds Inc. in United States District Court for the
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Eastern District of Iowa (Cause No 4-99-CV90666) for alleged infringement
of its new patent (United States Patent No. 5,990,387) pertaining to
microprojectile transformation of corn. Suit was also filed by DEKALB (CA
99-C-50385) on the same date in the federal court responsible for the
Rockford Litigation seeking an interference action to declare that DEKALB
was the first inventor of the microprojectile method of producing fertile
transgenic corn.
On March 19, 1996, Monsanto was issued U.S. Patent No. 5,500,365
pertaining to synthetic Bt genes 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. On September 8, 1999 the District Court affirmed
in part the jury's verdict on the issue of prior invention but overturned
the finding of non-infringement on the reverse doctrine of equivalents.
The matter remains pending on appeal and Monsanto is continuing to litigate
vigorously its position on appeal.
On March 27, 1997, Pioneer Hi-Bred International Inc. ("Pioneer")
filed an action against Monsanto which is now pending in U.S. District
Court for the Eastern District of Missouri (4:97CV01609-ERW). In the
lawsuit, Pioneer alleged that it was entitled to obtain via Monsanto a
license to the corn transformation patents of DEKALB which were being
enforced against Pioneer in the Rockford Litigation. Pioneer's license
claims all have been denied by the District Court and Pioneer's claims have
been dismissed. The litigation remains pending only to consider Monsanto's
counterclaim to terminate the 1993 license to Pioneer pertaining to Bt corn
technology, including the Yieldgard(R) corn product which is currently sold
by Pioneer. Monsanto's counterclaims allege that Pioneer's actions
breached the contract. All of Pioneer's summary judgment motions have been
denied. Compensatory damages and equitable relief to terminate Pioneer's
existing rights under the 1993 license for Yieldgard(R) Bt corn product and
technology are sought by Monsanto in the litigation. The case is set for
jury trial commencing in August 2000.
On November 30, 1999, Monsanto filed suit against Pioneer Hi-Bred
International Inc. (4:99CV0917-LOD) ("Pioneer") in U.S. District Court for
the Eastern District of Missouri to terminate a technology license for
glyphosate tolerant soybeans and canola which had been previously extended
to Pioneer and was assigned by Pioneer in connection with its merger with
E.I. DuPont De Nemours and Company. The lawsuit alleges that the
assignment resulted in unauthorized sales of herbicide tolerant soybeans
and canola and thereby infringed Monsanto patents and violated certain of
its trademark rights. Monsanto seeks injunctive relief and is vigorously
pursuing its claims against Pioneer in the lawsuit.
In 1997 Monsanto commercially introduced corn containing a gene
providing glyphosate resistance. On November 20, 1997, Aventis CropScience
S.A. (formerly Rhone Poulenc Agrochimie S. A.) ("Aventis") filed suit in
U.S. District Court in North Carolina (Charlotte) against Monsanto and DEKALB
(now a subsidiary of Monsanto) alleging that a 1994 license agreement (the
"1994 Agreement") between DEKALB and Aventis was
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induced by fraud stemming from DEKALB's nondisclosure of a research report
involving testing of plants to determine glyphosate tolerance. Aventis
also alleged that DEKALB did not have a right to license, make or sell
products using Aventis technology for glyphosate resistance under the terms
of the 1994 Agreement. The subject of the 1994 Agreement and of the
lawsuit is certain technology incorporated in herbicide-resistant corn
known as "GA21 corn". On April 5, 1999, the trial court rejected Aventis's
claim that the contract language did not convey a license but found that a
disputed issue of fact existed as to whether the contract was obtained by
fraud. Jury trial of the fraud claims ended April 22, 1999, with a verdict
for Aventis and against DEKALB, under which the jury awarded $15 million in
actual damages for "unjust enrichment" and $50 million in punitive damages.
The trial was bifurcated to allow claims for patent infringement and
misappropriation of trade secrets to be tried before a different jury.
Jury trial of the patent infringement and misappropriation claims ended
June 3, 1999, with a verdict for Aventis and against DEKALB. On or about
February 8, 2000, the District Court issued its order affirming both the
fraud and infringement/misappropriation jury verdicts against DEKALB and
enjoining DEKALB from future sales of GA21 corn (other than materials held
in DEKALB's inventory on June 2, 1999). The District Court suspended entry
of the injunction for 30 days to allow DEKALB to file an appeal and request
a stay of the injunction. Notice of Appeal has been filed by DEKALB and
the matter is now on appeal to the U. S. Court of Appeals for the Federal
Circuit, which has extended the stay and is considering whether the stay
should be extended for the duration of the appeal. DEKALB will vigorously
appeal the injunction and verdicts and will assert its meritorious defenses
to all remaining claims in the litigation. DEKALB is continuing to defend
the litigation and maintains that it also remains licensed to use any
Aventis technology incorporated in GA21 corn notwithstanding the verdict or
any subsequent action that may occur to rescind the 1994 license between
Aventis and DEKALB. In addition to the claim of license, DEKALB believes
that it has other meritorious defenses to the patent and trade secret
allegations, including patent invalidity and absence of trade secret status
due to Aventis's own public disclosure of the alleged trade secret. The
District Court had dismissed Monsanto from both phases of the trial prior
to verdict on the legal basis that it was a bona fide licensee of the GA21
corn technology. Monsanto, its licensees and DEKALB (to the extent
permitted under the District Court's order and an agreement with Aventis)
continue to sell GA21 corn pursuant to a royalty-bearing agreement with
Aventis, entered into prior to the June 3, 1999 jury verdict. Previously,
Monsanto and DEKALB had announced their intention to replace GA21 corn,
commencing in 2001, with new technology that is not associated with the
claims asserted by Aventis in the litigation.
In June 1996, Mycogen Corporation ("Mycogen"), Agrigenetics Inc. and
Mycogen Plant Sciences, Inc. ("MPS") filed suit against Monsanto in
California State Superior Court in San Diego, alleging damage by an alleged
failure of Monsanto to license, under an option agreement, technology
relating to Bt corn and to glyphosate resistant corn, cotton and canola. On
September 9, 1996, Monsanto successfully demurred to all claims but
plaintiffs were permitted to amend to file a damage claim seeking recovery
under a theory of continuing breach. On October 20, 1997, the court
construed the contract as involving only a license to receive genes rather
than a license to receive germplasm. Jury trial of the remaining damage
claim for lost future profits from the alleged delay in performance ended
March 20, 1998, with a verdict against Monsanto awarding damages totaling
$174.9 million. The case is now on appeal as Appeal No. D031336 before the
California Court of
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Appeal for the Fourth Appellate District. Mycogen, Agrigenetics Inc. and
MPS have filed a cross appeal seeking to reinstate claims for damages that
were dismissed prior to trial. This cross appeal has been consolidated for
all purposes on appeal. Monsanto has numerous meritorious defenses and
grounds to overturn the award, including the speculative nature of the
damages for lost future profits, improper splitting of the causes of
action, lack of continuing breach, and trial error in directing a verdict
against Monsanto on the issue of liability. Mycogen and MPS are also
seeking to overturn an award of monetary sanctions against them in
connection with this litigation and to obtain a determination that the
contract entitles Mycogen and MPS to a license to germplasm from Monsanto.
Monsanto will continue to vigorously litigate its position on appeal.
On October 28, 1998, two related lawsuits were filed in U.S. District
Court in Iowa: one against Asgrow Seed Company, L.L.C. ("Asgrow"), a
subsidiary of Monsanto (No. 4-98-CV-70577); and the other against DEKALB
(since acquired by Monsanto) (No. 4-98-CV-90578). The lawsuits allege that
defendants misappropriated trade secrets of Pioneer in their corn breeding
programs. On October 8, 1999, Pioneer added the prior owners of Asgrow and
DEKALB (The Upjohn Company and Pfizer Inc.) and Monsanto as defendants in
the litigation. In addition to claims under Iowa state law for trade
secret misappropriation, Pioneer alleges violations of the Lanham Act and
the patent law. Actual and exemplary damages and injunctive relief are
sought. Pioneer also asserts that defendants have violated an unspecified
contractual obligation not to breed with Pioneer germplasm. On July 17,
1999, the court denied without prejudice defendants' motions to dismiss the
initial trade secret claims. On January 4, 2000, the District Court
allowed Pioneer to amend its claims in the litigation to assert claims that
the defendants infringed numerous patents. As a consequence of the new
claims the prior trial date has been vacated and no trial date has been
assigned. The defendants have meritorious defenses including non-
infringement of patents, lack of validity of the patents on numerous
grounds, preemption, laches, statute of limitations, lack of trade secrets,
ownership of the germplasm, bona fide purchaser status and other defenses.
The defendants will vigorously defend against Pioneer's claims in the
litigation.
Monsanto is engaged in litigation relating to the failed merger with
Delta and Pine Land Company ("D&PL"). On December 20, 1999, Monsanto
announced that it had withdrawn its filing for U.S. antitrust clearance of
the proposed merger. The filing was withdrawn in light of the U.S.
Department of Justice's unwillingness to approve the transaction on
commercially reasonable terms. (a) Following the announcement on May 11,
1998, of the merger agreement between Monsanto and D&PL, five alleged
holders of D&PL common stock filed suits, now consolidated (the "D&PL
Shareholder Suit"), in the Delaware Court of Chancery in and for New Castle
County against Monsanto, D&PL, and members of the D&PL Board of Directors
(the "D&PL Board"). Seeking to represent a purported class of D&PL
shareowners, plaintiffs in the D&PL Shareholder Suit alleged that the
consideration that was to be received by holders of D&PL common stock in
the merger was unfair and inadequate, that the members of the D&PL Board
breached their fiduciary duties by approving the transaction and that
Monsanto aided and abetted such breaches. Plaintiffs in the D&PL
Shareholder Suit sought judgment declaring that each Delaware action is
maintainable as a class action, preliminarily and permanently enjoining
consummation of the merger or rescinding the transaction in the event that
it was consummated, awarding unspecified compensatory damages against
defendants, and
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awarding plaintiffs their attorneys' fees and expenses. On or about
November 18, 1998, the parties in the D&PL Shareholder Suit entered into
a Memorandum of Understanding to settle the litigation. That Memorandum
of Understanding, however, appears to be null and void because of the
failure of completion of the merger. (b) On December 30, 1999, a
derivative and class action lawsuit was filed (Civil Action 17707) (the
"Delaware Suit"), by two alleged holders of D&PL common stock, in the
Delaware Court of Chancery. Defendants include Monsanto, D&PL and
members of the D&PL Board. The Delaware Suit relates to Monsanto's
withdrawal of its filing for U.S. antitrust clearance of the proposed
merger, and alleges that D&PL has been harmed by the termination of the
effort to complete the transaction and that the individual defendants
have a continuing duty to seek a value-maximizing transaction for the
shareholders. The suit seeks a declaration that the individual
defendants have violated their fiduciary duties and a direction that the
individual defendants take certain actions to maximize shareholder
value. The suit also requests compensatory damages, costs,
disbursements and fees. (c) On January 18, 2000, suit was reinstituted
against Monsanto by D&PL (Cause No. 2000-2) in Circuit Court of the
First Judicial District of Bolivar County, Mississippi, seeking
compensatory and punitive damages allegedly as a result of the failure
to complete the merger pursuant to the exercise of reasonable efforts.
Monsanto did exercise commercially reasonable efforts to complete the
transaction and believes it has meritorious defenses to the claims in
the lawsuits and will vigorously defend the actions. Monsanto has
requested a stay of the Bolivar County suit during the pendency of the
previously-filed Delaware Suit.
On April 15, 1996, one hundred ten (110) current and former
employees of Fisher Controls International, Inc. ("Fisher"), a former
subsidiary of Monsanto, filed suit against Monsanto in the District
Court of Brazoria County, Texas, 149th Judicial District (Cause No.
96M0975), alleging breach of contract, breach of a duty of good faith
and fair dealing, and fraud. Plaintiffs challenged Monsanto's
decision, pursuant to the terms of the stock option plans in effect, to
curtail the duration of plaintiffs' options to purchase common stock of
Monsanto following the divestiture of Fisher from the Monsanto corporate
family in 1992. On June 24, 1997, the trial court granted Monsanto's
motion for summary judgment and dismissed the case with prejudice.
Plaintiffs appealed the judgment to the Court of Appeals for the First
District of Texas (No. 01-97-01142-CV). On September 7, 1999, the Court
of Appeals issued an opinion reversing the summary judgment and
remanding the case to the trial court for further proceedings.
Monsanto's motion for rehearing or, in the alternative, for rehearing en
banc, was denied. Monsanto believes that the decision of the trial
court was correct and that its actions regarding the Fisher employees
were in accordance with the terms of the stock option plans and entitled
to substantial deference under Delaware law. Monsanto intends to pursue
its efforts to overturn the decision of the Court of Appeals and will
continue to vigorously defend against all claims of plaintiffs.
On December 2, 1999, a complaint was filed in United States
District Court for the Eastern District of Pennsylvania as a putative
class action purporting to represent the claims of over 9,000 Korean and
1,000 U.S. service persons allegedly exposed to the herbicide Agent
Orange and other defoliants, including Agent Blue and Monuran, sprayed
during 1967-1970 in or near the demilitarized zone separating North
Korea from South Korea. The complaint names Monsanto and five other
manufacturers of the defoliants which were made and sold to the U.S.
government for use in Vietnam. The complaint does
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not assert any specific causes of action or demand a specified amount in
damages. The Judicial Panel on Multidistrict Litigation has granted
provisional transfer of the case to the United States District Court for
the Eastern District of New York for coordinated pretrial proceedings as
part of In re "Agent Orange" Product Liability Litigation, MDL 381
(which is the multidistrict litigation proceeding established in 1977
to coordinate Agent Orange related litigation in the United States).
Various other claims by veterans or civilians alleging personal injury
from exposure to herbicides used in Vietnam have been filed since a 1984
settlement in the MDL proceeding concluded all class action litigation
filed on behalf of U.S. and certain other groups of plaintiffs. In a
suit filed against Dow Chemical Company and Monsanto in Seoul Korea
during October 1999, approximately 13,760 Korean veterans of the Vietnam
war alleged they were exposed to herbicides and suffered injuries as a
result. The suit involves three separate complaints which were filed
and are being handled collectively as Case No. 99 Kahap 84147 (84123;
84130), 13th Civil Division, Seoul District Court. The complaints fail
to assert any specific causes of action but seek damages of 300 million
won (approximately $250,000) per plaintiff. Other ancillary actions are
also pending in Korea, including a request for provisional relief
pending resolution of the main action. In all of the above referenced
matters Monsanto has numerous meritorious defenses including: lack of
jurisdiction; absence of injury; lack of causation; lack of negligence
or legal liability; acting under the supervision and direction of the
U.S. government; and statutes of limitations. In all of the actions
Monsanto is vigorously defending the actions.
RISK MANAGEMENT
Monsanto continually evaluates risk retention and insurance levels
for product liability, property damage and other potential areas of
risk. Monsanto devotes significant effort to maintaining and improving
safety and internal control programs, which reduce its exposure to
certain risks. Management decides the amount of insurance coverage to
purchase from unaffiliated companies and the appropriate amount of risk
to retain, based on the cost and availability of insurance and the
likelihood of a loss. Since 1986, Monsanto's liability insurance has
been on the "claims made" policy form. Management believes that the
current levels of risk retention are consistent with those of other
companies in the various industries in which Monsanto operates and are
reasonable for Monsanto. There can be no assurance that Monsanto will
not incur losses beyond the limits of, or outside the coverage of, its
insurance. Monsanto's liquidity, financial position and profitability
are not expected to be affected materially by the levels of risk
retention that the Company accepts.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
Information regarding forward-looking statements, and factors that
could cause actual performance or results to differ materially from
those described in this Report, are set forth under the heading
"Cautionary Statements Regarding Forward-Looking Information" described
on pages 21 through 23 of Exhibit 99.1, accompanying this Report and
incorporated herein by reference.
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ITEM 2. PROPERTIES.
The General Offices of the Company are located on a 245-acre tract
of land in St. Louis County, Missouri. The Company also owns a 210-acre
tract in St. Louis County on which additional research facilities are
located. These two office and research facilities serve the
Agricultural Products, Pharmaceuticals and Corporate and Other segments.
In addition, Monsanto and its subsidiaries own or lease manufacturing
facilities, laboratories, agricultural facilities, office space,
warehouses, and other land parcels in North America, South America,
Europe, Asia, Australia and Africa.
In addition to the facilities in St. Louis County, Missouri,
Monsanto's principal properties include the following locations, serving
the segments noted: Alvin, Texas (Agricultural Products); Antwerp,
Belgium (Agricultural Products); Augusta, Georgia (Agricultural
Products, Pharmaceuticals); Barceloneta, Puerto Rico (Pharmaceuticals);
Caguas, Puerto Rico (Pharmaceuticals); Fayetteville, North Carolina
(Agricultural Products); Feucht, Germany (Pharmaceuticals); Luling,
Louisiana (Agricultural Products); Morpeth, United Kingdom
(Pharmaceuticals); Muscatine, Iowa (Agricultural Products); Sao Jose dos
Campos, Brazil (Agricultural Products); Skokie (Old Orchard), Illinois
(Pharmaceuticals); Skokie (Searle Parkway), Illinois (Pharmaceuticals);
and Zarate, Argentina (Agricultural Products). All of these properties
are manufacturing facilities, except for the research building in Skokie
(Searle Parkway), Illinois, and the office building in Skokie (Old
Orchard), Illinois. The Company is also constructing a new Agricultural
Products manufacturing facility at Camacari, Brazil.
Monsanto's principal properties are suitable and adequate for
their use. Utilization of these facilities may vary with seasonal,
economic and other business conditions, but none of the principal
properties is substantially idle. The facilities generally have
sufficient capacity for existing needs and expected near-term growth,
and expansion projects are undertaken as necessary to meet future needs.
Most of these properties are owned in fee. However, the Company leases
the land underlying facilities that it owns at Alvin, Texas. In certain
instances, Monsanto has granted leases on portions of plant sites not
required for current operations.
ITEM 3. LEGAL PROCEEDINGS.
For information concerning certain legal proceedings involving
Monsanto, see "Business--Environmental Matters", "Business--Legal
Proceedings" and "Business--Cautionary Statements Regarding Forward-
Looking Information" in Item 1 of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the security holders during the
fourth quarter of 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding executive officers is contained in Item 10
of Part III of this Report (General Instruction G) and is incorporated
herein by reference.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
SHAREOWNER MATTERS
The narrative information appearing under "Shareowner Matters" on
page 18, and the tabular information regarding Dividends Per Share and
Common Stock Price (for the years 1999 and 1998) appearing in "Note 25:
Quarterly Data" on pages 54 and 55, all appearing in Exhibit 99.1 of this
Report, are incorporated herein by reference.
SALE OF UNREGISTERED SECURITIES
On December 19, 1999, Monsanto and Pharmacia & Upjohn, Inc.
("Pharmacia & Upjohn") entered into a Stock Option Agreement (the "Stock
Option Agreement"), dated as of December 19, 1999, pursuant to which
Monsanto granted an option (the "Option") to Pharmacia & Upjohn to
purchase up to 94,774,810 shares (the "Option Shares") of the Company's
common stock at a price of $41.75 per share. The Option was granted by
the Company as an inducement to Pharmacia & Upjohn (1) to enter into the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of
December 19, 1999 (and subsequently amended as of February 18, 2000),
among the Company, a wholly owned subsidiary of the Company and
Pharmacia & Upjohn, pursuant to which such wholly owned subsidiary of
the Company will merger with and into Pharmacia & Upjohn (the "Merger")
and (2) to grant to Monsanto a substantially similar option to purchase
up to 77,388,932 shares of Pharmacia & Upjohn's common stock, par value
$0.01 per share, at an exercise price of $50.25.
The number of Option Shares is subject to adjustment in certain
circumstances, provided that the aggregate number of Option Shares may
not exceed 14.9% of the total outstanding shares of the Company's common
stock immediately prior to the time of exercise. The option will,
subject to certain limitations, become exercisable upon the occurrence
of an event the result of which is that the total fee or fees required
to be paid by the Company to Pharmacia & Upjohn pursuant to the Merger
Agreement equals $575 million (a "Purchase Event"). The Stock Option
Agreement provides that Monsanto may, after the occurrence of a Purchase
Event, repurchase all or a portion of the Option for a specified price
in cash. In no event may the "Total Profit" (as defined in the Stock
Option Agreement) of Pharmacia & Upjohn under the Stock Option Agreement
and the Merger Agreement exceed $635 million. No Purchase Event has
occurred at the time of this filing. The Option will terminate upon the
occurrence of certain events, including the consummation of the Merger.
The granting of the Option was deemed to be exempt from
registration under the Securities Act or 1933, as amended (the
"Securities Act"), in reliance on Section 4(2) of the Securities Act, as
a transaction by an issuer not involving a public offering.
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ITEM 6. SELECTED FINANCIAL DATA.
The following information, appearing on the pages indicated of
Exhibit 99.1 of this Report, is incorporated herein by reference: (a)
the second sentence of the first paragraph under "Definitions" on
page 3; and (b) the tabular information regarding Net Sales, Income
(Loss) From Continuing Operations, Income (Loss) From Continuing Operations
(per share), Total Assets, Long-Term Debt, and Dividends (per share),
appearing under "Financial Summary" on page 2.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
The following information, appearing on the pages indicated of
Exhibit 99.1 of this Report, is incorporated herein by reference: (a)
the four paragraphs under "Definitions" on page 3; and (b) the tabular
and narrative information appearing under "Management's Discussion and
Analysis of Financial Condition and Results of Operation" on pages 4
through 23.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The tabular and narrative information appearing under "Market Risk
Management" on pages 19 and 20 of Exhibit 99.1 of this Report is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following information, appearing on the pages indicated of
Exhibit 99.1 of this Report, is incorporated herein by reference: (a)
the first and last paragraphs under "Definitions" on page 3; (b) the
consolidated financial statements of Monsanto appearing on pages 24 through
55 (excluding "Key Financial Measures" on page 28); and (c) the Independent
Auditors' Report appearing on page 56.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS: The following information is as of March 1, 2000.
The following Directors have been elected to terms expiring at the
annual meeting of shareowners to be held in 2000:
<TABLE>
<CAPTION>
Year First
Became a
Name--Age Principal Occupation Director Business Experience since January 1, 1995; and Directorships
--------- -------------------- -------- ------------------------------------------------------------
<S> <C> <C> <C>
Michael Kantor, 60 Partner, Mayer, Brown & Platt 1997 Business Experience: Partner, Mayer, Brown & Platt,
--------------------
since 1997; U.S. Secretary of Commerce, 1996-97; U.S. Trade
Representative, 1993-96; National Chairman for the Clinton/Gore
Campaign, 1992; Partner, Manatt, Phelps, Phillips and Kantor,
1975-92.
Gwendolyn S. King, 59 Retired Senior Vice President, 1993 Business Experience: Senior Vice President, Corporate and
Corporate and Public Affairs, --------------------
PECO Energy Company Public Affairs, PECO Energy Company (formerly Philadelphia
Electric Company), 1992-98; Commissioner, Social Security
Administration, 1989-92.
Director: Lockheed Martin Corp.; Marsh & McLennan Companies,
---------
Inc.; Erie Indemnity Co.
John S. Reed, 61 Chairman and Co-Chief Executive 1985 Business Experience: Chairman and Co-Chief Executive
Officer, Citigroup, Inc. --------------------
Officer, Citigroup Inc. since 1998; Chairman and Chief
Executive Officer, Citicorp and Citibank, N.A., 1984-98.
Director: Citigroup Inc.; Philip Morris Companies, Inc.;
---------
Member: The Business Council
<CAPTION>
The following Directors have been elected to terms expiring at the annual meeting of shareowners to be held in 2001:
Year First
Became a
Name--Age Principal Occupation Director Business Experience since January 1, 1995; and Directorships
--------- -------------------- -------- ------------------------------------------------------------
<S> <C> <C> <C>
Philip Leder, 65 Chairman, Department of 1990 Business Experience: Chairman, Department of Genetics,
Genetics, Harvard Medical --------------------
School; Senior Investigator, Harvard Medical School since 1980; John Emory Andrus
Howard Hughes Medical Institute Professor of Genetics since 1980; Senior Investigator,
Howard Hughes Medical Institute since 1986.
Director: Genome Therapeutics Corporation; Trustee: The General
---------
Hospital Corporation; The Hadassah Medical Organization;
Massachusetts General Hospital; The Charles A. Revson Foundation
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<CAPTION>
Year First
Became a
Name--Age Principal Occupation Director Business Experience since January 1, 1995; and Directorships
--------- -------------------- -------- ------------------------------------------------------------
<S> <C> <C> <C>
John E. Robson, 69 Senior Advisor, Robertson 1996 Business Experience: Senior Advisor, Robertson Stephens,
Stephens --------------------
since 1993; Distinguished Faculty Fellow, Yale University
School of Management and Visiting Fellow, The Heritage
Foundation, 1993; Deputy Secretary of the U.S. Department of
the Treasury, 1989-92; Dean, Emory University Business School,
1986-89; President and Chief Executive Officer, G.D. Searle &
Co., 1985-86; Executive Vice President and Chief Operating
Officer, G.D. Searle & Co., 1978-85.
Director: Exide Corporation; Northrop Grumman Corp.; ProLogis
---------
Trust; First Horizon Pharmaceutical Company
William D. Principal, Madrona Investment 1985 Business Experience: Former Chairman, Browning-Ferris
Ruckelshaus, 67 Group, L.L.C. --------------------
Industries, Inc., 1995-1999; Principal, Madrona Investment
Group L.L.C., since 1996; Chairman and Chief Executive Officer,
Browning-Ferris Industries, Inc., 1988-95; Of Counsel, Perkins
Coie, 1985-88; Administrator, Environmental Protection Agency,
1983-85.
Director: Coinstar, Inc.; Cummins Engine Co., Inc.; Nordstrom,
---------
Inc.; Solutia Inc.; Weyerhaeuser Company
<CAPTION>
The following Directors have been elected to terms expiring at the annual meeting of shareowners to be held in 2002:
Year First
Became a
Name--Age Principal Occupation Director Business Experience since January 1, 1995; and Directorships
--------- -------------------- -------- ------------------------------------------------------------
<S> <C> <C> <C>
Richard U. De Vice Chairman and Chief 1999 Business Experience: Director, Vice Chairman and Chief
Schutter, 59 Administrative Officer, --------------------
Monsanto Company; Chairman Administrative Officer, Monsanto Company, 1999; Vice
and Chief Executive Officer, Chairman, Monsanto Company, 1997; Advisory Director,
G.D. Searle & Co. Monsanto Company, 1995; Chairman, President and Chief
Executive Officer, G. D. Searle & Co., 1994.
Director: Pharmaceutical Research and Manufacturers of America;
---------
Northwestern University Board of Trustees; Evanston Northwestern
Healthcare Board of Directors, where he additionally serves as
chairman of Research Institute; U.S. Japan Business Council Inc.;
General Binding Corporation; ReliaStar
20
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<PAGE>
<CAPTION>
Year First
Became a
Name--Age Principal Occupation Director Business Experience since January 1, 1995; and Directorships
--------- -------------------- -------- ------------------------------------------------------------
<S> <C> <C> <C>
Jacobus F. M. Retired Chairman of the 1993 Business Experience: Chairman of the Executive Board and
Peters, 68 Executive Board and Chief --------------------
Executive Officer, AEGON N.V. Chief Executive Officer, AEGON N.V., 1984-93.
Director: Kleinwort Endowment Policy Trust Plc; Chairman of
---------
Supervisory Board: Bank Dutch Municipalities; Member of
Supervisory Board: AEGON N.V.; Amsterdam Company for Town
Restoration Ltd.; Gilde Investment Funds; Randstad Holding
N.V.; SAMAS Group N.V.; United Flower Auctions Aalsmeer, KEMA
Robert B. Shapiro, 61 Chairman and Chief Executive 1996 Business Experience: Chairman and Chief Executive Officer,
Officer, Monsanto Company --------------------
Monsanto Company since 1997; Chairman, President and Chief
Executive Officer, Monsanto Company, 1995; Director, President
and Chief Operating Officer, Monsanto Company, 1993.
Director: Citigroup Inc.; Northwestern Memorial Hospital, Silicon
---------
Graphics, Inc.; Rockwell International Corporation; Trustee:
Washington University; Member: The Business Council; American
Society of Corporate Executives; The Business Roundtable
Hendrik A. Verfaillie, President and Chief Operating 1999 Business Experience: President, Chief Operating Officer and
54 Officer, Monsanto Company --------------------
Director, Monsanto Company, 1999; President, Monsanto Company,
1997; Advisory Director and Vice President, Monsanto
Company, 1995; Advisory Director, Vice President and President
of The Agricultural Group, Monsanto Company, 1993.
</TABLE>
21
<PAGE>
<PAGE>
EXECUTIVE OFFICERS
The following information with respect to the Executive Officers of
the Company on March 1, 2000, is included pursuant to Instruction 3 of Item
401(b) of Regulation S-K:
<TABLE>
<CAPTION>
Year First
Became an
Present Position Executive
Name--Age with Registrant Officer Other Business Experience since January 1, 1995
--------- ---------------- ------- -----------------------------------------------
<S> <C> <C> <C>
Bruce P. Bickner, 56 Executive Vice President, 1999 Chairman and Chief Executive Officer - DEKALB Genetics
Agricultural Sector- Corporation, 1988 to present; Co-President, Global Seed
Monsanto Company Group - Monsanto Company, 1999; and present position, 1999.
Martin E. Blaylock, Vice President, 1999 Director, Manufacturing Operations - Monsanto Company, 1993;
59 Manufacturing Operations and present position, 1995.
- Monsanto Company
Gary L. Crittenden, 46 Senior Vice President, 1998 Executive Vice President and Chief Financial Officer -
Chief Financial Officer Melville Corp., 1994; Executive Vice President, Strategy and
- Monsanto Company Business Development - Sears Roebuck & Co., 1996; President,
Hardware Stores Division - Sears Roebuck & Co., 1996; Executive Vice
President and Chief Financial Officer - Sears Roebuck & Co., 1998;
and present position, 1998.
Richard U. Vice Chairman and Chief 1995 Chairman, Chief Executive Officer and President - G.D.
De Schutter, 59 Administrative Officer - Searle & Co., 1994; Advisory Director-Monsanto Company,
Monsanto Company; Chairman 1995; Vice Chairman - Monsanto Company, 1997-1999; and
and Chief Executive Officer, present positions, 1999.
G.D. Searle & Co.
Steven L. Engelberg, Senior Vice President - 1995 Vice President, Worldwide Government Affairs - Monsanto
57 Monsanto Company Company, 1994; and present position, 1996.
Robert Fraley, 47 Co-President, Agricultural 1999 Group Vice President and General Manager, New Products
Sector - Monsanto Company Division - Monsanto Company, 1993; President, Ceregen-
Monsanto Company, 1995; and present position, 1997.
Hugh Grant, 41 Co-President, Agricultural 1999 Director, Global Roundup(R) Product Strategy - Monsanto
Sector - Monsanto Company Company, 1994; General Manager, Agricultural Sector for
Southeast Asia, Australia, New Zealand & South Korea - Monsanto
Company, 1995; and present position, 1998.
Alan L. Heller, 46 Co-President - 1999 Vice President, Finance - G.D. Searle & Co. 1994; President,
G.D. Searle & Co. Americas, G.D. Searle & Co.; 1995; Chief Operating Officer-G.D.
Searle & Co., 1997; and present position, 1999.
22
<PAGE>
<PAGE>
<CAPTION>
Year First
Became an
Present Position Executive
Name--Age with Registrant Officer Other Business Experience since January 1, 1995
--------- ---------------- ------- -----------------------------------------------
<S> <C> <C> <C>
R. William Ide III, 59 Senior Vice President, 1996 President, American Bar Association, 1993-1994; partner,
General Counsel and Long, Aldridge & Norman, 1993; and present position, 1996.
Secretary - Monsanto
Company
Madonna A. Kindl, 42 Senior Vice President - 1996 Director of Human Resources, Staff of the Vice Chairman -
Monsanto Company Monsanto Company, 1993; Director, Human Resources, Crop
Protection Business Unit - Monsanto Company, 1995; Vice President -
Human Resources-Monsanto Company, 1996; and present position, 1999.
Ganesh M. Kishore, 46 Co-President, Nutrition 1999 Director of Technology, Agricultural Sector - Monsanto
and Consumer Products - Company, 1994; Director of Technology, Ceregen-Monsanto
Monsanto Company Company, 1995; Director of Crop Enhancement, Ceregen-
Monsanto Company, 1996; Distinguished Science Fellow - Monsanto
Company, 1996; and present position, 1997.
David L. Morley, 43 Senior Vice President 1998 Global Strategies and Operations - The Agricultural Group,
1993; Group Vice President and General Manager, Americas Division,
Crop Protection Business Unit, 1995; President, Nutrition and
Consumer Products, 1997; and present position, 1998.
Philip Needleman, 61 Senior Vice President, 1991 Senior Vice President, Research and Development and Chief
Research and Development Scientist-Monsanto Company; President, Research and
and Chief Scientist; Development - G.D. Searle & Co., 1993; Co-President,
Co-President, G.D. Searle Pharmaceuticals Sector-Monsanto Company, 1996; and present
& Co. position, 1996.
Nicholas E. Rosa, 48 Senior Vice President - 1999 Executive Vice President - The NutraSweet Company, 1994;
Monsanto Company President, Benevia-Monsanto Company, 1996; President,
Nutrition and Consumer Products - Monsanto Company, 1997;
Co-President, Nutrition and Consumer Products Sector, 1999;
and present position, 1999.
Robert B. Shapiro, 61 Chairman and Chief Executive 1987 Director, President and Chief Operating Officer - Monsanto
Officer - Monsanto Company Company, 1993; Director, Chairman, Chief Executive Officer
and President - Monsanto Company, 1995; and present position, 1997.
23
<PAGE>
<PAGE>
<CAPTION>
Year First
Became an
Present Position Executive
Name--Age with Registrant Officer Other Business Experience since January 1, 1995
--------- ---------------- ------- -----------------------------------------------
<S> <C> <C> <C>
Hendrik A. Verfaillie, President and Chief 1993 Vice President and Advisory Director - Monsanto Company;
54 Operating Officer President - The Agricultural Group - Monsanto Company, 1993;
- Monsanto Company Vice President and Advisory Director - Monsanto Company, 1995;
Executive Vice President and Advisory Director - Monsanto Company,
1995; President-Monsanto Company, 1997; and present positions, 1999.
Joan H. Walker, 52 Senior Vice President 1999 President and Chief Executive Officer - Bozell Public
Relations, 1993; Senior Vice President, Corporate Communications -
Ameritech Corporation, 1996; and present position, 1999.
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires all Company executive officers, directors, and persons owning more
than 10% of any registered class of Company stock to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission. During 1999, Mr. Nick E. Rosa was inadvertently late in filing
his initial report on Form 3.
24
<PAGE>
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
DIRECTORS' FEES AND OTHER ARRANGEMENTS
Non-employee directors receive annual compensation having an anticipated
total annual value of $90,000 ($100,000 for directors who serve as Chair of
a Board Committee). One-half of this amount is in the form of stock options
to purchase shares of the Company's common stock. Each director may elect
the form of the other half of compensation, choosing any combination of
additional options, cash paid currently, deferred cash, common stock that
is subject to forfeiture if the director does not complete his or her term,
or common stock the delivery of which is deferred. Each director makes this
election at the beginning of each term for which he or she is elected.
The number of options granted as compensation to each director is
determined in accordance with the Black-Scholes option valuation method
used for employee option grants, with an exercise price equal to the value
of a share of the Company's common stock on the date of grant. Options
granted for a term will vest in pro rata installments on the day before
each Annual Meeting of Shareowners during that term. After vesting, options
will generally be exercisable until the tenth anniversary of the date of
grant. When a director's service as a director of the Company ends, any
unvested options will be forfeited automatically.
The portion of his or her compensation, if any, which a director elects
to receive in cash is paid on a pro rata basis throughout the director's term.
Deferred cash will accrue interest at an interest rate equal to the average
Moody's Baa Bond Index Rate for the prior calendar year until it is paid
either in a lump sum or in installments after the director's service as a
director terminates.
A director who elects to receive a portion of Board compensation in
restricted stock will be issued the number of shares of the Company's
common stock having a value, as of the first day of the term to which the
compensation relates, equal to such portion. Restricted stock will be
forfeitable and nontransferable until it vests in pro rata installments on
the day before each Annual Meeting of Shareowners during the term. The
portion, if any, of director compensation that a director elects to receive
in deferred stock will be provided by crediting a stock unit account
maintained by the Company for the director with a number of stock units
representing hypothetical shares of the Company's common stock having a
value, as of the first day of the term to which the compensation relates,
equal to such portion. Stock units are paid in shares of the Company's
common stock either in a lump sum or in installments after the director's
service as a director terminates. Whenever the Company declares a dividend
or other distribution with respect to its common stock, deferred stock
accounts will be credited with additional stock units equal to the number
of shares of the Company's common stock having a value equal to the
dividend or other distribution that the director would have received had
the stock units on the record date of such dividend or other distribution
been shares of the Company's common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the People Committee of the Board of Directors is
or has been an
25
<PAGE>
<PAGE>
officer or employee of Company. However, until his consulting agreement
with the Company expired in January 2000, Dr. Leder, who is a member of the
Committee, provided consulting services and the benefit of his considerable
professional skills, knowledge, experience, and judgment in areas of
interest to the Company, particularly in the field of biological sciences.
In 1999, Dr. Leder received $143,400 under the consulting agreement.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
(A) (B) (C) (D) (E) (G) (H)
OTHER (F) SECURITIES (I)
ANNUAL RESTRICTED UNDER- ALL OTHER
NAME AND COMPEN- STOCK LYING LTIP COMPEN-
PRINCIPAL SATION AWARDS OPTIONS PAYOUTS SATION
POSITION YEAR SALARY($) BONUS($) ($)<F1> ($) (#) ($) ($)<F5>
- ----------------------- -------- --------- ---------- ------- ------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. B. Shapiro 1999 850,000 1,440,000 61,207 0 394,064 0 120,185
Chairman, CEO 1998 800,000 800,000 --- 0 0 0 101,070
and Director 1997 800,000 965,000 69,466 0 79,811 750,365<F2> 171,624
G. L. Crittenden 1999 565,000 900,000 --- 445,000<F6> 146,777 0 64,379
Senior Vice President 1998<F3> 176,667 800,000 --- 1,359,435<F6> 303,289 0 6,492
and Chief Financial 1997<F3> --- --- --- --- --- --- ---
Officer
R. U. De Schutter 1999 650,000 950,000 --- 0 160,339 0 156,452
Vice Chairman, Chief 1998 600,000 810,000 --- 0 0 0 60,236
Administrative Officer 1997 525,000 700,000 --- 0 460,391 6,757,745<F4> 66,339
and Director; Chairman
and CEO, G.D.
Searle & Co.
P. Needleman 1999 550,000 1,100,000 --- 0 96,005 0 105,221
Senior Vice President; 1998 495,833 700,000 --- 0 193,588 0 67,761
Co-President, G.D. 1997 450,000 700,000 --- 0 76,904 4,570,360<F4> 53,367
Searle & Co.
H. A. Verfaillie 1999 650,000 900,000 --- 0 222,115 0 138,932
President, Chief 1998 600,000 810,000 --- 0 0 0 72,439
Operating Officer and 1997 566,667 645,000 --- 0 34,917 979,000<F2> 96,146
Director
<FN>
NOTE: Information regarding shares and stock options reported in this
table and in succeeding tables has been adjusted to reflect the
spinoff of the Company's chemicals business in 1997.
<F1> Applicable regulations set reporting levels for certain non-
cash compensation. The 1999 and 1997 amounts for Mr. Shapiro
include $36,938 and $53,891, respectively, for personal use, as
directed by resolution of the Board of Directors, of Company
aircraft, and other perquisites totaling $24,269 and $15,575,
respectively.
<F2> The annual incentive program for the years 1994 through 1996
was designed to encourage sustained performance by withholding
a percentage (i) of each annual award (15% of the 1994 award
and 30% of the awards for each of 1995 and 1996) and, (ii) for
certain employees working in selected business units, including
Mr. Verfaillie, of such employees' cash long-term incentive
opportunity.
These withheld amounts were adjusted upward or downward based
on sustained
26
performance during the three-year period. The amounts shown
represent the March 1997 payment of the withheld amounts after
application of the sustained performance adjustment.
<F3> Gary L. Crittenden commenced employment with the Company on
September 1, 1998.
<F4> Prior to February 1997, Messrs. De Schutter and Needleman
participated in the Searle Phantom Stock Option Plan of 1986
("Searle Phantom Plan"), which gave participants the
opportunity to receive the appreciation in the value of a
hypothetical share of the common stock of G.D. Searle & Co.
("Searle"), now a wholly-owned subsidiary of the Company. Such
"shares" represented units of valuation created solely for
purposes of measuring the increase, if any, in the value of
Searle. Options to receive the appreciation in the value of
these units were granted for a ten-year period. In February
1997, the Executive Compensation and Development Committee
decided to terminate the Searle Phantom Plan and to credit
Messrs. De Schutter and Needleman and other active participants
with a combination of cash and options on Company common stock
representing current and anticipated future appreciation of the
units. The amount shown for Mr. De Schutter represents payment
of $1,495,000 in cash, $2,445,000 in deferred cash (deferred to
avoid losing the compensation deduction under Section 162(m) of
the Code), and the value of 227,474 Company stock options, with
an exercise price equal to the fair market value per underlying
share on the date of grant, paid to Mr. De Schutter in cash in
connection with the termination of the Searle Phantom Plan,
plus $403,848 in payment of the withheld amounts, after
application of the sustained performance adjustment, as
discussed in footnote 2 to this Summary Compensation Table. The
amount shown for Mr. Needleman represents payment of $660,000
in cash, $1,770,000 in deferred cash (deferred to avoid losing
the compensation deduction under Section 162(m) of the Code),
and the value of 162,162 Company stock options, with an
exercise price equal to the fair market value per underlying
share on the date of grant, paid to Mr. Needleman in cash in
connection with the termination of the Searle Phantom Plan,
plus $421,605 in payment of the withheld amounts, after
application of the sustained performance adjustment, as
discussed in footnote 2 to this Summary Compensation Table.
<F5> Amounts shown for 1999 include: contributions to savings plans
for Mr. Shapiro, $120,185; Mr. Crittenden, $64,379; Mr. De
Schutter, $74,148; Mr. Needleman, $103,491; and Mr.
Verfaillie, $116,432; split dollar life insurance premiums for
Mr. Shapiro, $7,497; Mr. De Schutter, $32,002; Mr. Needleman,
$10,721; and Mr. Verfaillie, $11,391; compensation for changes
made to the Company's vacation program: Mr. De Schutter
$31,154 and Mr. Verfaillie $22,500; performance match payments
on deferred bonus awards: Mr. De Schutter $51,150 and Mr.
Needleman $1,400; and costs for executive travel accident plans
for each of the named executive officers of $146.
<F6> Mr. Crittenden held a total of 35,410 shares of restricted
stock on December 31, 1999, none of which had vested. The
value of such shares based on the closing price of the
Company's common stock on such date of $35.625 was $1,261,481.
Dividends are paid in cash on the restricted shares.
</TABLE>
27
<PAGE>
<PAGE>
<TABLE>
OPTION GRANTS IN 1999
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
----------------- ----------------
(A) (B) (C) (D) (E) (F)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE ($)<F1>
---- ---------- ------------ --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
R. B. Shapiro 102,960<F2> 0.2 75 4/23/07<F3> 1,350,835
229,344<F4> 0.3 75 4/23/07<F3> 4,790,996
61,760<F5> .01 51 6/30/09 1,248,787
G. L. Crittenden 50,000<F6> .01 42.406 1/12/09 788,000
13,642<F2> .01 75 4/23/07<F3> 178,983
62,548<F4> .01 75 4/23/07<F3> 1,306,628
20,587<F5> .01 51 6/30/09 416,269
R. U. De Schutter 15,444<F2> .01 75 4/23/07<F3> 202,625
62,548<F4> .01 75 4/23/07<F3> 1,306,628
82,347<F5> .01 51 6/30/09 1,665,056
P. Needleman 12,870<F2> .01 75 4/23/07<F3> 168,854
62,548<F4> .01 75 4/23/07<F3> 1,306,628
20,587<F5> .01 51 6/30/09 416,269
H. A. Verfaillie 77,220<F2> .01 75 4/23/07<F3> 1,013,126
62,548<F2> .01 75 4/23/07<F3> 1,306,628
82,347<F5> .01 51 6/30/09 1,665,056
<FN>
<F1> In accordance with Securities and Exchange Commission rules, the
Black-Scholes option pricing model was chosen to estimate the grant
date present value of the options set forth in this table. The
Company's use of this model should not be construed as an endorsement
of its accuracy at valuing options. Accordingly, there is no
assurance that the value realized by an executive, if any, will be at
or near the value estimated by the Black-Scholes model. Future
compensation resulting from option grants is based solely on the
performance of the Company's stock price. For the options granted
under the 1999 Premium Option Purchase Program, the option purchase
price of $7.77 per share was subtracted from the Black-Scholes value
before the grant date value was determined. The following weighted-
average assumptions were made for purposes of calculating the
original Grant Date Present Value: an option term of ten years,
average volatility of 42.5%, dividend yield of 0.28%, and a risk-free
interest rate equal to the then current ask yield of ten-year
Treasury Bonds.
<F2> The units represent shares purchased under the 1999 Premium Option
Purchase Program. Pursuant to this Program, the named executive
officers purchased these options at a price of $7.77 per share. The
purchase price is being paid through base salary or bonus reductions
over a four year period. These options become exercisable on the
latest to occur of (i) the date on which payment is made for such
option, and (ii) the first to occur of (a) April 23, 2000 and (b) the
date, if any, on which the average of the highest and lowest sales
price of a share of the Company's common stock has been equal to or
greater than $75 for at least ten consecutive trading days (the
"Stock Price Target").
<F3> These options will instead expire on April 23, 2005 if, prior to such
date, the Stock Price Target is not achieved.
<F4> The units represent long-term compensation awards for 2000 and were
granted in tandem with the Premium Option Purchase Program. The
options are exercisable on a pro-rata basis based upon the number of
months of employment in 2000, but in no event prior to April 23,
2000.
28
<PAGE>
<PAGE>
<F5> Represents the grant of 1999 Premium Priced Options. These options
are exercisable in the later of (i) the first business day next
following a period of the consecutive trading days during which the
optional shares equals or exceeds $51 per share, or (ii) March 1,
200l.
<F6> The exercise price of $42.406 for this tranche of options, granted to
Mr. Crittenden for retention purposes, was the fair market value on
January 13, 1999, the date of grant. These options will become
exercisable on January 14, 2002.
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES IN 1999 AND OPTION VALUES ON DECEMBER 31, 1999
<CAPTION>
(A) (B) (C) (D) (E)
- ----------------- ----------- --------- ----------------- -----------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED ON VALUE FY-END (#)<F2> FY-END ($)<F2>
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)<F1> UNEXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------------- -----------------
<S> <C> <C> <C> <C>
R. B. Shapiro 229,865 8,077,456 2,407,887/425,988 3,400,051/63,050
G. L. Crittenden 0 0 106,052/344,015 0/0
R. U. De Schutter 0 0 921,425/174,305 4,919,640/27,583
P. Needleman 0 0 926,018/185,479 12,887,310/24,826
H. A. Verfaillie 0 0 1,365,841/236,081 14,534,090/27,583
<FN>
<F1> The amount in column (c) reflects the value of shares received on the
exercises of options granted February 24, 1995 at a fair market value
of $14.36.
<F2> Unexercised options shown in columns (d) and (e) reflect grants
received over an extended period of time.
</TABLE>
LONG-TERM INCENTIVE PLANS--AWARDS IN 1999
There were no long-term incentive awards to the named executive officers
in 1999.
PENSION PLAN
The named executive officers (as well as other employees of the Company)
are eligible for retirement benefits payable under the Company's tax-
qualified and non-qualified defined benefit pension plans. Effective
January 1, 1997, the U.S. defined benefit pension plans for the Company,
Searle and The NutraSweet Company, a wholly owned subsidiary of the Company
("NutraSweet"), were amended and unconsolidated. The amended defined
benefit pension plan consists of two accounts: a "Prior Plan Account" and a
"Cash Balance Account."
The opening balance of the Prior Plan Account was the lump sum value of
the executive's December 31, 1996 monthly retirement benefit earned prior to
January 1, 1997 under the old defined benefit pension plans described
below, calculated using the assumption that the monthly benefit would be
payable at age 55 with no reduction for early payment. The formula used to
calculate the opening balance for employment with the Company was the
29
<PAGE>
<PAGE>
greater of 1.4% (1.2% for employees hired by the Company on or after April
1, 1986) of average final compensation multiplied by years of service,
without reduction for Social Security or other offset amounts, or 1.5% of
average final compensation multiplied by years of service, less a 50%
Social Security offset. Average final compensation for purposes of
determining the opening balance was the greater of (1) average compensation
received during the 36 months of employment prior to 1997 or (2) average
compensation received during the highest three of the five calendar years
of employment prior to 1997. The annual normal retirement benefits under
the Searle and NutraSweet pension plans used to determine the opening
balance for employment with Searle or NutraSweet was (1) 1.8% of average
compensation (the average compensation for the highest consecutive 60 of
the last 120 months of employment preceding 1997) multiplied by years of
service (up to a maximum of 30 years) less (2) 1.67% of estimated annual
Social Security benefits at age 65 multiplied by years of service (up to a
maximum of 30 years).
For each year of the executive's continued employment with the Company,
the executive's Prior Plan Account will be increased by 4% to recognize that
prior plan benefits would have grown as a result of pay increases.
For each year that the executive is employed by the Company after 1996,
3% of annual eligible compensation in excess of the Social Security wage base
and a percentage (based on age) of annual compensation (salary and annual
bonus) will be credited to the Cash Balance Account. The applicable
percentages and age ranges are: 3% before age 30, 4% for ages 30 to 39, 5%
for ages 40 to 44, 6% for ages 45 to 49, and 7% for age 50 and over. In
addition, the Cash Balance Account of executives who earned benefits under
the Company's old defined benefit pension plan will be credited each year
(for up to 10 years based on prior years of service with the Company),
during which the executive is employed after 1996, with an amount equal to
a percentage (based on age) of annual compensation. The applicable
percentages and age ranges are: 2% before age 30, 3% for ages 30 to 39, 4%
for ages 40 to 44, 5% for ages 45 to 49, and 6% for age 50 and over.
The estimated annual benefits payable as a single life annuity beginning
at age 65 (assuming that each executive officer remains employed by the
Company until age 65 and receives 4% annual compensation increases) are as
follows: Mr. Shapiro, $751,290; Mr. Crittenden, $660,375; Mr. De Schutter,
$828,269; Mr. Needleman, $280,810; and Mr. Verfaillie, $785,296.
Mr. Shapiro will be provided supplemental retirement benefits to recognize
his experience prior to employment by the Company. The Company will provide
Mr. Shapiro with supplemental retirement benefits equal to 12% of average
final compensation. The supplemental retirement benefits become non-
revocable immediately in the event of a change of control of the Company.
The estimated annual supplemental benefits payable to Mr. Shapiro upon
retirement at age 65 are $222,837. Mr. Shapiro will also receive the same
Company contribution to the retiree medical plan as an eligible retiree
with 30 years of service. The value of his benefits will be determined at
retirement based on age, the premium paid for medical coverage, and
projected premium cost increases.
If the total of the benefits payable to Mr. De Schutter under the
Company's defined benefit pension plans described above do not equal the
benefit Mr. De Schutter would have
30
<PAGE>
<PAGE>
received if all his service had been with the Company, he will be provided
supplemental retirement benefits in an amount equal to the benefits he
would have received under the Company's plans had all his years of service
been with the Company, less the benefits provided by the Searle plans. It
is estimated that there will be no annual supplemental benefit payable to
Mr. De Schutter if he retires at age 65.
Mr. Needleman will be provided supplemental retirement benefits equal to
14% of his annual compensation to recognize his experience prior to
employment by the Company. The supplemental retirement benefits become
non-revocable immediately in the event of a change of control of the
Company. The estimated annual supplemental benefits payable to Mr.
Needleman upon retirement at age 65 are $196,952.
In addition to the retirement benefits for Mr. Verfaillie based on his
years of service as a Company employee in the U.S., Mr. Verfaillie is also
eligible for regular retirement benefits based on his years of service as
an employee outside the U.S. In addition, he participates in the Company's
regular, non-qualified pension plan designed to protect retirement benefits
for employees serving in more than one country. However, his total
retirement benefits from the combined plans when considering his total
service are expected to be generally comparable to the benefits described
in this section.
CERTAIN AGREEMENTS
The Company has entered into Change of Control Employment Agreements
with each of the executive officers who are named in the Summary Compensation
Table and certain other key executives. Each such Change of Control
Employment Agreement becomes effective upon a "change of control" of the
Company (as defined in the Change of Control Employment Agreement). Each
Change of Control Employment Agreement provides for the continuing
employment of the executive after the change of control on terms and
conditions no less favorable than those in effect before the change of
control. If the executive's employment is terminated by the Company without
"cause" or if the executive terminates his or her own employment for "good
reason" (each as defined in the Change of Control Employment Agreement),
the executive is entitled to severance benefits equal to a "multiple" of
his or her annual compensation (including bonus) and continuation of
certain benefits for a number of years equal to the multiple. For two
executives, including Mr. Crittenden, the severance benefits calculation
also includes such executive's long-term incentive opportunity. The
multiple is three for the executive officers who are named in the Summary
Compensation Table and two or three for the other executives (or, in either
case, the shorter number of years until the executive's normal retirement
date). In addition, each of the executive officers who are named in the
Summary Compensation Table and the other executives who are entitled to a
severance multiple of three is entitled to receive the severance benefits
if he or she voluntarily terminates his or her own employment during the
30-day period beginning on the first anniversary of the occurrence of
certain changes of control. Finally, the executives are entitled to an
additional payment, if necessary, to make them whole as a result of any
excise tax imposed by the Code on certain change of control payments
(unless the safe harbor below which the excise tax is imposed is not
exceeded by more than 10%, in which event the payments will be reduced to
avoid the excise tax). A cash medical allowance of $15,000 for payment of
medical insurance premiums will also be provided to Mr. Verfaillie if he
does not qualify for retiree
31
<PAGE>
<PAGE>
medical coverage.
In addition to any payments that may be due to him pursuant to his Change
of Control Employment Agreement, under a supplemental agreement Mr. De
Schutter will be entitled to receive a payment from the Company in the
event his employment is terminated for any reason other than cause. This
supplemental agreement was entered into to retain Mr. De Schutter's
employment with the Company. If triggered, the payment will be equal to
one year of base salary and annual incentive at one-half of Mr. De
Schutter's opportunity at an outstanding level of performance if such
termination occurs prior to December 31, 2000 and two years of base salary
and annual incentive at one-half his opportunity at an outstanding level of
performance if such termination occurs after December 31, 2000. The
estimated amounts that would be payable to Mr. De Schutter pursuant to this
agreement prior to and after December 31, 2000, are $1,820,000 and
$3,640,000, respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information is set forth below regarding beneficial ownership of common
stock of the Company by (i) each person who is a director or nominee; (ii)
each executive officer named in the Summary Compensation Table on page 24;
and (iii) all directors and executive officers as a group. Except as
otherwise noted, each person has sole voting and investment power as to his
or her shares. All information is as of December 31, 1999.
<TABLE>
<CAPTION>
SHARES OF SHARES UNDERLYING
COMMON STOCK OPTIONS EXERCISABLE
OWNED DIRECTLY WITHIN 60
NAME OR INDIRECTLY<Fa> DAYS<Fb> TOTAL
---- ----------------- ------------------- ----------
<S> <C> <C> <C>
Gary L. Crittenden 35,544 53,026 88,570
Richard U. De Schutter 243,806 921,425 1,165,231
Michael Kantor 800 13,637 14,437
Gwendolyn S. King 3,865 7,387 11,252
Philip Leder 9,002 13,636 22,638
Phil Needleman 204,807 926,018 1,130,825
Jacobus F. M. Peters 4,705 10,227 14,932
John S. Reed 91,947 14,395 106,342
John E. Robson 6,093<Fc> 10,546 16,639
William D. Ruckelshaus 16,286 8,919 25,205
Robert B. Shapiro 1,042,353 2,407,887 3,450,240
Hendrik A. Verfaillie 231,894<Fd> 1,365,841 1,597,735
23 directors and executive
officers as a group 2,074,038<Fe> 9,048,549 11,122,587
<FN>
<Fa> Includes shares held under Monsanto Company's Savings and Investment
Plan ("SIP"): Mr. Crittenden, 404; Mr. De Schutter, 16,996;
Mr. Needleman, 3,216; Mr. Shapiro, 4,274; Mr. Verfaillie, 16,285; and
directors and executive officers as a group, 86,155. With respect to
shares held under the SIP, employee directors and officers have sole
discretion as to voting and, within limitations provided by the SIP,
investment of shares. Shares are voted by the trustees in accordance
with instructions from participants. If instructions are not received
by the trustees as to the voting of particular shares, shares are to
be voted in proportion to instructions actually received from other
participants in SIP. With respect to shares held under other benefit
and incentive plans, employee directors and officers have sole voting
power and no current investment power.
32
<PAGE>
<PAGE>
<Fb> The Securities and Exchange Commission deems a person to have
beneficial ownership of all shares which that person has the right to
acquire within 60 days of December 31, 1999. The shares indicated
represent stock options granted under incentive plans. The shares
underlying options cannot be voted.
<Fc> Includes 1,378 shares owned jointly by Mr. Robson and his wife.
<Fd> Includes 150,374 shares owned jointly by Mr. Verfaillie and his wife.
<Fe> Includes 1,999 shares as to which certain executive officers not
named above have shared voting and investment power; and 54,485
shares under contract pursuant to the Company's Employee Stock
Purchase Plan.
</TABLE>
The percentage of shares of outstanding common stock of the Company,
including options exercisable within 60 days of December 31, 1999,
beneficially owned by all directors and executive officers as a group is
approximately 1.7%. The percentage of such shares beneficially owned by any
director or nominee does not exceed 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS AND RELATIONSHIPS
Mr. Michael Kantor is a partner at the law firm of Mayer, Brown & Platt,
which provided services to the Company in 1999 and is providing services to
the Company in 2000.
Mr. John E. Robson is Senior Advisor of BancBoston Robertson Stephens,
which provided services to the Company in 1999 and is expected to provide
services to the Company in 2000.
INDEBTEDNESS
In May 1996, the Company's shareowners approved a plan whereby each of
the Company's executive officers received full-recourse, interest bearing
loans for the purchase price of Company common stock purchased pursuant to the
Monsanto Executive Stock Purchase Incentive Plan ("Executive Plan"). The
loans have an eight-year term and accrue interest at the applicable federal
rate (as determined pursuant to Section 1274(d) of the Code) on the
purchase date for loans of such maturity, compounded annually. Interest is
payable prior to maturity to the extent of dividends paid on the purchased
shares, with the balance due at the maturity of the loan. The proceeds of
the deferred cash incentives awarded during the performance cycle under the
Executive Plan must also be applied to prepay the loans. Following such
prepayment, the balance of the loans at the end of the performance cycle,
together with accrued and unpaid interest thereon, will generally be
payable in three equal installments (plus interest) on the first three
anniversaries after the end of the performance cycle. The payment of the
loan will be accelerated if the executive officer's service is terminated
during the performance cycle for any reason other than retirement or
following a change of control. In the event of retirement, there is no loan
acceleration. In the event of a change of control, the loan must be repaid
over a three-year period following such event. The loan may also be prepaid
at any time at the executive officer's option.
33
<PAGE>
<PAGE>
In addition to the Executive Plan, executive officers may also participate
in the Company's Employee Stock Purchase Plan ("Employee Plan"). The Employee
Plan is open to all regular U.S., Canada, and Singapore full-time
and regular part-time employees of the Company for shares of stock they
contracted to purchase over a period of months by means of payroll
deductions. No interest is charged on loans granted under the Employee Plan.
The following table describes the indebtedness of the executive officers
under the Executive Plan, except where otherwise indicated:
<TABLE>
<CAPTION>
GREATEST AGGREGATE
AMOUNT OF AGGREGATE AMOUNT OF
INDEBTEDNESS IN INDEBTEDNESS AS OF
INTEREST RATE 1999 DECEMBER 31, 1999
NAME YEAR OF LOAN (%) ($) ($)
---- ------------ ------------- ------------------ -------------------
<S> <C> <C> <C> <C>
M. L. Blaylock 1997 6.8 553,004 553,004
R. U. De Schutter 1996/1998 6.36/5.69 1,721,672 1,721,672
A. W. Donald 1996 6.36 728,146 728,146
S. L. Engelberg <F1> <F1> 1,279,787 1,275,118<F5>
R. T. Fraley <F2> <F2> 835,178 797,153<F5>
H. Grant 1998<F3> <F3> 19,670 12,682<F5>
R. W. Ide III <F4> <F4> 1,096,121 1,082,655<F5>
D. A. Kindl 1996 6.20 1,224,985 1,224,985
G. M. Kishore 1997 6.80 434,134 434,134
D. L. Morley 1997 6.80 434,134 434,134
P. Needleman 1996 6.36 728,146 728,146
N. E. Rosa 1996 6.36 728,146 728,146
R. B. Shapiro 1996 6.36 6,553,310 6,553,310
H. A. Verfaillie 1996 6.36 2,366,473 2,366,473
<FN>
<F1> Mr. Engelberg obtained loans under the Executive Plan in 1996 and
1997, with applicable interest rates of 6.36% and 6.80%,
respectively. In addition, Mr. Engelberg obtained a no-interest loan
under the Employee Plan in 1996.
<F2> Mr. Fraley obtained a loan under the Executive Plan in 1996, with an
applicable interest rate of 6.36%. In addition, Mr. Fraley obtained a
no-interest loan under the Employee Plan in 1998.
<F3> Mr. Grant obtained a no-interest loan under the Employee Plan in
1998.
<F4> Mr. Ide obtained a loan under the Executive Plan in 1996, with an
applicable interest rate of 6.60%. In addition, Mr. Ide obtained a
no-interest loan under the Employee Plan in 1998.
<F5> The aggregate amount of indebtedness for Messrs. Engelberg, Fraley,
Grant and Ide includes amounts owed under the Employee Plan as of
February 28, 2000.
34
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report:
1. The financial statements set forth at page 24 through the top
of page 28 of Exhibit 99.1 to this Report
2. Financial Statement Schedules
None required
3. Exhibits--See the Exhibit Index beginning at page 39 of this
Report. For a listing of all management contracts and
compensatory plans or arrangements required to be filed as
exhibits to this Form 10-K, see the Exhibits listed under
Exhibit No. 10, items 4 through 30 on pages 40 through 43 of
the Exhibit Index. The following Exhibits listed in the Exhibit
Index are filed with this Report:
3 2. By-Laws of the Company, as amended effective
February 10, 2000
10 4. Monsanto Company Non-Employee Director Deferred
Compensation Plan, as amended February 25, 2000
29. Supplemental Retirement Plan and Amendment to
Supplemental Retirement Plan for Philip Needleman
21 Subsidiaries of the registrant
23 Consent of Independent Auditors
24 1. Powers of attorney submitted by Richard U. De
Schutter, Michael Kantor, Gwendolyn S. King, Philip
Leder, Jacobus F.M. Peters, John S. Reed, John E.
Robson, William D. Ruckelshaus, Robert B. Shapiro,
Hendrik A. Verfaillie, Gary L. Crittenden and
Richard B. Clark
2. Certified copy of Board resolution authorizing Form
10-K filing utilizing powers of attorney
27 Financial Data Schedule (part of electronic submission
only)
99 1. Financial Information for Fiscal Year Ended
December 31, 1999
35
<PAGE>
<PAGE>
2. Computation of the Ratio of Earnings to Fixed
Charges for Monsanto Company and Subsidiaries
(b) Reports on Form 8-K during the quarter ended December 31, 1999:
The following reports on Form 8-K were filed by the Company on the
dates indicated: December 21, 1999 (announcement of merger with Pharmacia &
Upjohn, Inc.); December 22, 1999 (additional financial information
regarding the merger); December 29, 1999 (merger agreement and stock option
agreements); and December 30, 1999 (preferred share purchase rights).
36
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MONSANTO COMPANY
------------------------------------
(Registrant)
By: /s/ Richard B. Clark
---------------------------------
Richard B. Clark
Vice President and Controller
(Principal Accounting Officer)
Date: March 17, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
</TABLE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
<F*> Chairman March 17, 2000
----------------------- President and Director
(Robert B. Shapiro) (Principal Executive Officer)
<F*> Vice Chairman, Chief March 17, 2000
----------------------- Administrative Officer,
(Richard U. De Schutter and Director
<F*> Director March 17, 2000
-----------------------
(Michael Kantor)
<F*> Director March 17, 2000
-----------------------
(Gwendolyn S. King)
<F*> Director March 17, 2000
-----------------------
(Philip Leder)
<F*> Director March 17, 2000
-----------------------
(Jacobus F. M. Peters)
<F*> Director March 17, 2000
-----------------------
(John S. Reed)
<F*> Director March 17, 2000
-----------------------
(John E. Robson)
<F*> Director March 17, 2000
-----------------------
(William D. Ruckelshaus)
37
<PAGE>
<PAGE>
<F*> President, Chief Operating March 17, 2000
----------------------- Officer and Director
(Hendrik A. Verfaillie)
<F*> Senior Vice President, March 17, 2000
----------------------- Chief Financial Officer
(Gary L. Crittenden) (Principal Financial Officer)
/s/ Richard B. Clark Vice President and March 17, 2000
------------------------ Controller (Principal
(Richard B. Clark) Accounting Officer)
<FN>
<F*> Sonya M. Davis by signing his/her name hereto, does sign this document
on behalf of the above noted individuals, pursuant to powers of attorney duly
executed by such individuals which have been filed as an Exhibit to this
Report.
</TABLE>
/s/ Sonya M. Davis
--------------------------
Sonya M. Davis
Attorney-in-Fact
38
<PAGE>
<PAGE>
EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item
601 of Regulation S-K.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2 1. Agreement and Plan of Merger, dated as of December 19,
1999, as amended by Amendment No. 1 dated as of February
18, 2000, among Monsanto Company, MP Sub, Incorporated
and Pharmacia & Upjohn, Inc. (incorporated herein by
reference to Exhibit 2.1 of the Company's Form S-4 filed
on February 22, 2000, File No. 333-30824)
2. Stock Option Agreement, dated as of December 19, 1999,
by and between Monsanto Company, as Issuer, and Pharmacia
& Upjohn, Inc., as Grantee (incorporated herein by
reference to Exhibit 2.2 of the Company's Form S-4 filed
on February 22, 2000, File No. 333-30824)
3. Stock Option Agreement, dated as of December 19, 1999,
by and between Pharmacia & Upjohn, Inc. and Monsanto
Company, as Grantee (incorporated herein by reference to
Exhibit 2.3 of the Company's Form S-4 filed on February
22, 2000, File No. 333-30824)
3 1. Restated Certificate of Incorporation of the Company
as of October 28, 1997 (incorporated herein by reference
to Exhibit 3(i) of the Company's Form 10-Q for the
quarter ended September 30, 1997)
2. By-Laws of the Company, as amended effective February
10, 2000
4 1. Form of Rights Agreement, dated as of December 19,
1999 between the Company and EquiServe Trust Company
N.A., First Chicago Trust Company as successor to The
First National Bank of Boston (incorporated herein by
reference to Form 8-A filed on December 30, 1999)
2. Master Unit Agreement, dated as of November 30, 1998,
by and between the Company and The First National Bank of
Chicago, as Unit Agent (incorporated herein by reference
to Exhibit 4.2 of the Company's Form 8-K filed on
December 14, 1998)
3. Call Option Agreement, dated as of November 30, 1998,
by and between Goldman, Sachs & Co., as Call Option
Holder, and The First National Bank of Chicago, as Unit
Agent and as Attorney-In- Fact (incorporated herein by
reference to Exhibit 4.3 of the Company's Form 8-K filed
on December 14, 1998)
39
<PAGE>
<PAGE>
4. Pledge Agreement, dated as of November 30, 1998, by
and among the Company, Goldman, Sachs & Co., as Call
Option Holder, First Union National Bank, as Collateral
Agent and Securities Intermediary, and The First National
Bank of Chicago, as Unit Agent and as Attorney-In-Fact
(incorporated herein by reference to Exhibit 4.4 of the
Company's Form 8-K filed on December 14, 1998)
5. Registrant agrees to furnish to the Securities and
Exchange Commission upon request copies of instruments
defining the rights of holders of certain long-term debt
not being registered of the registrant and all
subsidiaries for which consolidated or unconsolidated
financial statements are required to be filed.
9 Omitted--Inapplicable
10 1. Distribution Agreement by and between Monsanto Company
and Solutia Inc., as of September 1, 1997, plus
identification of contents of omitted schedules and
exhibits and agreement to furnish supplementally a copy
of any omitted schedule or exhibit to the Securities and
Exchange Commission upon request (incorporated herein by
reference to Exhibit 2.1 of the Company's Form 8-K filed
September 16, 1997)
2. Employee Benefits and Compensation Allocation
Agreement between Monsanto Company and Solutia Inc.,
dated as of September 1, 1997 (incorporated herein by
reference to Exhibit 99.1 of the Company's Form 8-K filed
September 16, 1997)
3. Tax Sharing and Indemnification Agreement dated as
of September 1, 1997, by and between Monsanto Company and
Solutia Inc. (incorporated herein by reference to Exhibit
99.2 of the Company's Form 8-K filed September 16, 1997)
4. Monsanto Company Non-Employee Director Deferred
Compensation Plan, as amended February 25, 2000
5. Monsanto Company Non-Employee Director Equity
Incentive Compensation Plan (incorporated herein by
reference to Exhibit 10.4 of the Company's Form 10-Q for
the quarter ended September 30, 1997)
6. Non-Employee Directors Stock Plan, as amended in 1991
(incorporated herein by reference to Exhibit 19(ii)1 of
the Company's Form 10-Q for the quarter ended June 30,
1991)
7. Amendment to Non-Employee Directors Stock Plan
(incorporated herein by reference to Exhibit 10.8 of the
Company's Form 10-Q for the quarter ended June 30, 1997)
40
<PAGE>
<PAGE>
8. Charitable Contribution Program effective April 1,
1992 (incorporated herein by reference to Exhibit 19(i)1
of the Company's Form 10-K for the year ended December
31, 1991)
9. Deferred Compensation Plan for Non-Employee Directors,
as amended in 1983 and 1991 (incorporated herein by
reference to Exhibit 19(ii)1 of the Company's Form 10-K
for the year ended December 31, 1991)
10. Excerpt of Resolutions of Monsanto Company Board of
Directors Regarding Directors' Compensation, adopted by
Unanimous Consent effective August 4, 1997 (incorporated
herein by reference to Exhibit 10.5 of the Company's Form
10-Q for the quarter ended September 30, 1997)
11. Monsanto Management Incentive Plan of 1988/I, as
amended in 1988, 1989, 1991, 1992, April 1997, July 1997,
and 1999 (incorporated herein by reference to Exhibit
10.2 of the Company's Form 10-Q for the quarter ended
September 30, 1999)
12. Monsanto Management Incentive Plan of 1988/II, as
amended in 1989, 1991, 1992, April 1997, July 1997, and
1999 (incorporated herein by reference to Exhibit 10.3 of
the Company's Form 10-Q for the quarter ended September
30, 1999)
13. Monsanto Management Incentive Plan of 1994, as
amended in April 1997, July 1997, and 1999 (incorporated
herein by reference to Exhibit 10.4 of the Company's Form
10-Q for the quarter ended September 30, 1999)
14. Monsanto Management Incentive Plan of 1996 as amended
April 25, 1997, July 25, 1997, August 18, 1997, February
26, 1998, September 25, 1998, April 23, 1999, and October
22, 1999, and as Adjusted to Reflect Stock Split as of
May 15, 1996 and Spinoff as of September 1, 1997
(incorporated herein by reference to Exhibit 10.1 of the
Company's Form 10-Q for the quarter ended September 30,
1999)
15. Monsanto Executive Stock Purchase Incentive Plan
(incorporated herein by reference to Appendix B of the
Monsanto Company Notice of Annual Meeting and Proxy
Statement dated March 14, 1996)
41
<PAGE>
<PAGE>
16. Form of Non-Qualified Purchased and Year 2000 Premium
Stock Option Certificate (incorporated herein by
reference to Exhibit 10 of the Company's Form 10-Q for
the quarter ended March 31, 1999)
17. Form of Non-Qualified Premium Stock Option
Certificate (incorporated herein by reference to Exhibit
10.2 of the Company's Form 10-Q for the quarter ended
June 30, 1998)
18. Form of Monsanto Company 1999 Non-Qualified Premium
Stock Option Certificate (incorporated herein by
reference to Exhibit 10.5 of the Company's Form 10-Q for
the quarter ended September 30, 1999)
19. Annual Incentive Program for Executive Officers
(incorporated herein by reference to the description on
pages 25-26 of the Monsanto Company Notice of Annual
Meeting and Proxy Statement dated March 15, 1999)
20. Split-dollar Life Insurance Plan (incorporated herein
by reference to Exhibit 10(iii)19 of the Company's Form
10-K for the year ended December 31, 1987)
21. Form of Employment Agreement for Executive Officers
(incorporated herein by reference to Exhibit 10.7 of the
Company's Form 10-Q for the quarter ended September 30,
1997)
22. 1999 Form of Employment Agreement for Executive
Officers (incorporated herein by reference to Exhibit
10.24 of the Company's Form 10-K/A filed January 21,
2000)
23. Letter Agreement between the Company and Robert B.
Shapiro entered into as of July 23, 1990 (incorporated
herein by reference to Exhibit 19(i)3 of the Company's
Form 10-Q for the quarter ended September 30, 1990)
24. Amendment to Letter Agreement between the Company and
Robert B. Shapiro entered into as of July 23, 1990
(incorporated herein by reference to Exhibit 10.23 of the
Company's Form 10-K for the year ended December 31, 1996)
25. Agreement between Monsanto Company and Robert B.
Shapiro dated as of December 19, 1999 (incorporated
herein by reference to Exhibit 10.1 of the Company's Form
S-4 filed February 22, 2000, File No. 333-30824)
26. Letter Agreement between the Company and Hendrik A.
Verfaillie entered into as of June 27, 1988 (incorporated
herein by reference to Exhibit 10.20 of the Company's
Form 10-K for the year ended December 31, 1996)
27. Supplemental Retirement Plan regarding Richard U. De
Schutter (incorporated herein by reference to Exhibit
10.26 of the Company's Form 10-K for the year ended
December 31, 1996)
42
<PAGE>
<PAGE>
28. Letter Agreement between the Company and Richard U.
De Schutter, dated February 7, 1997 (incorporated herein
by reference to Exhibit 10.2 of the Company's Form 10-Q
for the quarter ended June 30, 1999)
29. Supplemental Retirement Plan and Amendment to
Supplemental Retirement Plan for Philip Needleman
30. G. D. Searle & Co. Split Dollar Life Insurance Plan,
as amended in 1989 (incorporated herein by reference to
Exhibit 19(ii)3 of the Company's Form 10-Q for the
quarter ended June 30, 1989)
11 Omitted--Inapplicable; see "Note 18: Earnings per Share" on page
49 of Exhibit 99.1 to this Report
12 Statement re Computation of the Ratio of Earnings to
Fixed Charges - See Exhibit 99.2 below
13 Omitted - Inapplicable
18 Omitted--Inapplicable
21 Subsidiaries of the registrant
22 Omitted--Inapplicable
23 Consent of Independent Auditors
24 1. Powers of attorney submitted by Richard U. De
Schutter, Michael Kantor, Gwendolyn S. King, Philip
Leder, Jacobus F.M. Peters, John S. Reed, John E. Robson,
William D. Ruckelshaus, Robert B. Shapiro Hendrik A.
Verfaillie, Gary L. Crittenden and Richard B. Clark
2. Certified copy of Board resolution authorizing Form
10-K filing utilizing powers of attorney
27 Financial Data Schedule (part of electronic submission
only)
99 1. Financial Information for Fiscal Year Ended December
31, 1999
2. Computation of the Ratio of Earnings to Fixed Charges
for Monsanto Company and Subsidiaries
[FN]
- -------------
Only Exhibits Nos. 21, 23, 99.1 and 99.2 have been included in the printed
copy of this Report.
43
<PAGE>
<PAGE>
APPENDIX
1. Throughout the electronic submission, trademarks are designated on
each page by the letter "R" in parentheses or the letters "TM" in
parentheses. In the printed copy of the Form 10-K, trademarks are
indicated by the "R" registered symbol or the "TM" symbol.
<PAGE>
EXHIBIT 3.2
MONSANTO COMPANY
BY-LAWS
As adopted February 10, 2000
OFFICES
-------
1. Registered
The name of the registered agent of the Company is The Corporation
Trust Company and the registered office of the Company shall be located
in the City of Wilmington, County of New Castle, State of Delaware.
2. Other
The Company shall have its General Offices in the County of
St. Louis, State of Missouri, and may also have offices at such other
places both within or without the State of Delaware as the Board of
Directors may from time to time designate or the business of the Company
may require.
STOCKHOLDERS' MEETINGS
----------------------
3. Annual Meeting
An annual meeting of stockholders shall be held on such day and at
such time as may be designated by the Board of Directors for the purpose
of electing Directors and for the transaction of such other business as
properly may come before such meeting. Any previously scheduled annual
meeting of the stockholders may be postponed by resolution of the Board
of Directors upon public notice given on or prior to the date previously
scheduled for such annual meeting of stockholders.
4. Business to be Conducted at Annual Meeting
(a) At an annual meeting of stockholders, only such business
shall be conducted as shall have been brought before the meeting (i)
pursuant to the Company's notice of the meeting, (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of the
Company who is a stockholder of record at the time of giving of the
notice provided for in this By-Law, who shall be entitled to vote at
such meeting and who shall have complied with the notice procedures set
forth in this By-Law.
<PAGE>
<PAGE>
(b) For business to be properly brought before an annual meeting
by a stockholder pursuant to Section (a)(iii) of this By-Law, notice in
writing must be delivered or mailed to the Secretary and received at the
General Offices of the Company, not less than 90 days nor more than 120
days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the
meeting is advanced by more than 30 days or delayed by more than 60 days
from such anniversary date, notice by the stockholder must be received
not earlier than the 120th day prior to such annual meeting and not
later than the close of business on the later of the 90th day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of the annual meeting is first made. Such
stockholder's notice shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (i) a brief description of
the business to be brought before the annual meeting and the reasons for
conducting such business at such meeting; (ii) the name and address, as
they appear on the Company's books, of the stockholder proposing such
business, and the name and address of the beneficial owner, if any, on
whose behalf the proposal is made; (iii) the class and number of shares
of the Company's stock which are beneficially owned by the stockholder,
and by the beneficial owner, if any, on whose behalf the proposal is
made; and (iv) any material interest of the stockholder, and of the
beneficial owner, if any, on whose behalf the proposal is made, in such
business. For purposes of these By-Laws, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable news service or in a document
publicly filed by the Company with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(b) of the Securities
Exchange Act of 1934, as amended.
(c) Notwithstanding anything in these By-Laws to the contrary,
no business shall be conducted at an annual meeting except in accordance
with the procedures set forth in this By-Law. The chairman of the
meeting may, if the facts warrant, determine that the business was not
properly brought before the meeting in accordance with the provisions of
this By-Law; and if the chairman should so determine, the chairman shall
so declare to the meeting, and any such business not properly brought
before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this By-Law, a stockholder shall also comply
with all applicable requirements of the Securities Exchange Act of 1934,
as amended, (the "Exchange Act") and the rules and regulations
thereunder with respect to the matters set forth in this By-Law. Nothing
in this By-Law shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Company's proxy statement pursuant
to Rule 14a-8 under the Exchange Act. The provision of this Section 4
shall also govern what constitutes timely notice for purposes of Rule
14a-4(c) of the Exchange Act.
5. Special Meetings
Special meetings of stockholders, unless otherwise provided by the
law of Delaware, may be called by the Chairman of the Board or the
President, or pursuant to resolution of the Board of Directors, and such
person calling the meeting shall have
2
<PAGE>
<PAGE>
the sole right to determine the proper purpose or purposes of such
meeting. Business transacted at a special meeting of stockholders shall
be confined to the purpose or purposes of the meeting as stated in the
notice of such meeting. Any previously scheduled special meeting of the
stockholders may be postponed by resolution of the Board of Directors
upon notice by public announcement given on or prior to the date
previously scheduled for such special meeting of stockholders.
6. Place of Meetings
All meetings of stockholders shall be held at the General Offices
of the Company in the County of St. Louis, State of Missouri, unless
otherwise determined by resolution of the Board of Directors.
7. Notice of Meetings
Except as otherwise required by the law of Delaware, notice of
each meeting of the stockholders, whether annual or special, shall, at
least ten days but not more than sixty days before the date of the
meeting, be given to each stockholder of record entitled to vote at the
meeting by mailing such notice in the United States mail, postage
prepaid, addressed to such stockholder at such stockholder's address as
the same appears on the records of the Company. Such notice shall state
the place, date and hour of the meeting, and in the case of a special
meeting, shall also state the purpose or purposes thereof.
8. Nominations of Directors
(a) Only persons who are nominated in accordance with the
procedures set forth in these By-Laws shall be eligible for election as
Directors. Nominations of persons for election to the Board of
Directors may be made at a meeting of stockholders (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Company who is a stockholder of record at the time of giving of the
notice provided for in this By-Law, who shall be entitled to vote for
the election of Directors at the meeting and who complies with the
notice procedures set forth in this By-Law.
(b) Nominations by stockholders shall be made pursuant to notice
in writing, delivered or mailed to the Secretary and received at the
General Offices of the Company (i) in the case of an annual meeting, not
less than 60 days nor more than 90 days prior to the first anniversary
of the preceding year's annual meeting, provided, however, that in the
event that the date of the meeting is advanced by more than 30 days or
delayed by more than 60 days from such anniversary date, notice by the
stockholder must be received not earlier than the 90th day prior to such
annual meeting and not later than the close of business on the later of
the 60th day prior to such annual meeting or the tenth day following the
day on which public announcement of the date of the meeting is first
made; or (ii) in the case of a special
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meeting at which directors are to be elected, not earlier than the 90th
day prior to such special meeting and not later than the close of
business on the later of the 60th day prior to such special meeting or
the tenth day following the day on which public announcement of the date
of the meeting and of the nominees proposed by the Board of Directors to
be elected at such meeting is first made. In the case of a special
meeting of stockholders at which Directors are to be elected,
stockholders may nominate a person or persons (as the case may be) for
election only to such position(s) as are specified in the Company's
notice of meeting as being up for election at such meeting. Such
stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a
Director, all information relating to such person that would be required
to be disclosed in solicitations of proxies for election of Directors,
or is otherwise required, in each case pursuant to Regulation 14A under
the Exchange Act (including such person's written consent to being
named as a nominee and to serving as a Director if elected); (ii) as to
the stockholder giving the notice, the name and address, as they appear
on the Company's books, of such stockholder and the class and number of
shares of the Company's stock which are beneficially owned by such
stockholder; and (iii) as to any beneficial owner on whose behalf the
nomination is made, the name and address of such person and the class
and number of shares of the Company's stock which are beneficially owned
by such person. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a Director shall
furnish to the Secretary that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee.
Notwithstanding anything in this By-Law to the contrary, in the event
that the number of directors to be elected to the Board of Directors of
the Company is increased and there is no public statement naming all the
nominees for Director or specifying the size of the increased Board of
Directors made by the Company at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's
notice required by this By-Law shall also be considered timely, but only
with respect to nominees for any new positions created by such increase,
if it shall be delivered to the Secretary at the General Offices of the
Company not later than the close of business on the 10th day following
the day on which such public announcement is first made by the Company.
(c) No person shall be eligible for election as a Director of
the Company unless nominated in accordance with the procedures set forth
in these By-Laws. The chairman of the meeting may, if the facts
warrant, determine that a nomination was not made in accordance with the
procedures prescribed in this By-Law; and if the chairman should so
determine, the chairman shall so declare to the meeting, and the
defective nomination shall be disregarded. Notwithstanding the
foregoing provisions of this By-Law, a stockholder shall also comply
with all applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in this By-
Law.
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9. List of Stockholders
(a) The Secretary of the Company shall prepare, at least ten days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and
showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten
days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is
to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected
by any stockholder who is present.
(b) The stock ledger of the Company shall be the only evidence as
to the identity of the stockholders entitled (i) to vote in person or by
proxy at any meeting of stockholders, or (ii) to exercise the rights in
accordance with Delaware law to examine the stock ledger, the list
required by this By-Law or the books and records of the Company.
10. Quorum
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy,
shall constitute a quorum for the transaction of any business at all
meetings of the stockholders, except as otherwise provided by the law of
Delaware, by the Certificate of Incorporation or by these By-Laws. The
stockholders present at any duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of
sufficient stockholders to render the remaining stockholders less than a
quorum. Whether or not a quorum is present, either the Chairman of the
meeting or a majority of the stockholders entitled to vote thereat,
present in person or by proxy, shall have power to adjourn the meeting
from time to time, without notice other than announcement at the
meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting. At such adjourned meeting at
which the requisite amount of voting stock shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally noticed.
11. Voting and Required Vote
Subject to the provisions of the Certificate of Incorporation,
each stockholder shall, at every meeting of stockholders, be entitled to
one vote for each share of capital stock held by such stockholder.
Subject to the provisions of the Certificate of Incorporation and
Delaware law, Directors shall be chosen by the vote of a plurality of
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the shares present in person or represented by proxy at the meeting; and
all other questions shall be determined by the affirmative vote of the
majority of shares present in person or represented by proxy at the
meeting. In all matters, votes cast in any method adopted by the
Company shall be valid so long as such method is permitted under
Delaware law.
12. Proxies
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for such stockholder by
proxy, in any manner permitted by law. No proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a
longer period.
13. Inspectors of Election; Polls
Before each meeting of stockholders, the Chairman of the Board or
another officer of the Company designated by resolution of the Board of
Directors shall appoint one or more inspectors of election for the
meeting and may appoint one or more inspectors to replace any inspector
unable to act. If any of the inspectors appointed shall fail to attend,
or refuse or be unable to serve, substitutes shall be appointed by the
Chairman of the meeting. Each inspector shall have such duties as are
provided by law, and shall take and sign an oath faithfully to execute
the duties of inspector with strict impartiality and according to the
best of such person's ability. The Chairman of the meeting shall fix
and announce at the meeting the date and time of the opening and closing
of the polls for each matter upon which the stockholders will vote at
the meeting.
14. Organization
The Chairman of the Board of Directors, or in the Chairman's
absence, (i) the President, if a member of the Board of Directors, (ii)
one of the Vice Chairmen of the Board who is a member of the Board of
Directors, if any, in such order as may be designated by the Chairman of
the Board, in that order, or (iii) in the absence of each of them, a
chairman chosen by a majority of the Directors present, shall act as
chairman of the meetings of the stockholders. The order of business and
the procedure at any meeting of stockholders shall be determined by the
chairman of the meeting.
15. No Stockholder Action by Written Consent
Any action required or permitted to be taken by the stockholders
of the Company must be effected at a duly called annual or special
meeting of stockholders of the Company and may not be effected by any
consent in writing in lieu of a meeting of such stockholders.
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BOARD OF DIRECTORS
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16. General Powers, Number, Term of Office
The business of the Company shall be managed under the direction
of its Board of Directors. Subject to the rights of the holders of any
series of preferred stock, without par value, of the Company ("Preferred
Stock") to elect additional directors under specified circumstances, the
number of directors of the Company which shall constitute the whole
Board shall be not less than five nor more than 20. The exact number of
directors within the minimum and maximum limitation specified in the
preceding sentence shall be fixed from time to time exclusively by
resolution of a majority of the whole Board. The Directors, other than
those who may be elected by the holders of any series of Preferred
Stock, shall be divided into three classes, as nearly equal in number as
possible. One class of directors shall have a term expiring at the
annual meeting of stockholders to be held in 1998, another class shall
have a term expiring at the annual meeting of stockholders to be held in
1999, and another class shall have a term expiring at the annual meeting
of stockholders to be held in 2000. Members of each class shall hold
office until their successors are elected and qualified. At each annual
meeting of the stockholders of the Company commencing with the 1998
annual meeting, (1) directors elected to succeed those directors whose
terms then expire shall be elected to hold office for a term expiring at
the third succeeding annual meeting of stockholders after their
election, with each director to hold office until his or her successor
shall have been duly elected and qualified, and (2) only if authorized
by a resolution of the Board of Directors, directors may be elected to
fill any vacancy on the Board of Directors, regardless of how such
vacancy shall have been created. Directors need not be stockholders of
the Company or residents of the State of Delaware.
17. Vacancies
Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, and
unless the Board of Directors otherwise determines, vacancies resulting
from death, resignation, retirement, disqualification, removal from
office or other cause, and newly created directorships resulting from
any increase in the authorized number of directors, may be filled only
by the affirmative vote of a majority of the remaining directors, though
less than a quorum of the Board of Directors, or by a sole remaining
director, and directors so chosen shall hold office for a term expiring
at the annual meeting of stockholders at which the term of office of the
class to which they have been elected expires and until such director's
successor shall have been duly elected and qualified. No decrease in
the number of authorized directors constituting the Board of Directors
shall shorten the term of any incumbent director.
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18. Regular Meetings
Following the annual meeting of stockholders, the first meeting of
each newly elected Board of Directors may be held, without notice, on
the same day and at the same place as such stockholders' meeting. The
Board of Directors by resolution may provide for the holding of regular
meetings and may fix the times and places at which such meetings shall
be held. Notice of regular meetings shall not be required provided that
whenever the time or place of regular meetings shall be fixed or
changed, notice of such action shall be given promptly to each director,
as provided in Section 19 below, who was not present at the meeting at
which such action was taken.
19. Special Meetings
Special meetings of the Board of Directors shall be held whenever
called by the Chairman of the Board of Directors or the President, or in
the absence of each of them, by any Vice Chairman of the Board, in such
order as may be designated by the Chairman of the Board, or by the
Secretary at the written request of a majority of the Directors.
20. Notices
Notice of any special meeting of the Board of Directors shall be
addressed to each Director at such Director's residence or business
address and shall be sent to such Director by mail, electronic mail,
telecopier, telegram or telex or telephoned or delivered to such
Director personally. If such notice is sent by mail, it shall be sent
not later than three days before the day on which the meeting is to be
held. If such notice is sent by electronic mail, telecopier, telegram
or telex, it shall be sent not later than 12 hours before the time at
which the meeting is to be held. If such notice is telephoned or
delivered personally, it shall be received not later than 12 hours
before the time at which the meeting is to be held. Such notice shall
state the time, place and purpose or purposes of the meeting.
21. Quorum
One-third of the total number of Directors constituting the whole
Board, but not less than two, shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if
less than such required number of Directors for a quorum is present at a
meeting, a majority of the Directors present may adjourn the meeting
from time to time without further notice. Except as otherwise
specifically provided by the law of Delaware, the Certificate of
Incorporation or these By-Laws, the act of a majority of the Directors
present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
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22. Organization
At each meeting of the Board of Directors, the Chairman of the
Board or, in the Chairman's absence, (i) the President, if a member of
the Board of Directors, (ii) one of the Vice Chairmen of the Board who
is a member of the Board of Directors, if any, in such order as may be
designated by the Chairman of the Board, in that order, or (iii) in the
absence of each of them, a chairman chosen by a majority of the
Directors present, shall act as chairman of the meeting, and the
Secretary or, in the Secretary's absence, an Assistant Secretary or any
employee of the Company appointed by the chairman of the meeting, shall
act as secretary of the meeting.
23. Resignations
Any Director may resign at any time by giving written notice to
the Chairman of the Board, the President or the Secretary of the
Company. Such resignation shall take effect upon receipt thereof or at
any later time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to
make it effective.
24. Removal
Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, any
director may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least 80 percent of
the voting power of the then outstanding Voting Stock, voting together
as a single class. For purposes of these By-Laws, "Voting Stock" shall
mean the outstanding shares of capital stock of the Company entitled to
vote generally in the election of directors.
25. Action Without a Meeting
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
26. Location of Books
Except as otherwise provided by resolution of the Board of
Directors and subject to the law of Delaware, the books of the Company
may be kept at the General Offices of the Company and at such other
places as may be necessary or convenient for the business of the
Company.
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27. Dividends
Subject to the provisions of the Certificate of Incorporation and
the law of Delaware, dividends upon the capital stock of the Company may
be declared by the Board of Directors at any regular or special meeting.
Dividends may be paid in cash, in property, or in shares of the
Company's capital stock.
28. Compensation of Directors
Directors shall receive such compensation and benefits as may be
determined by resolution of the Board for their services as members of
the Board and committees. Directors shall also be reimbursed for their
expenses of attending Board and committee meetings. Nothing contained
herein shall preclude any Director from serving the Company in any other
capacity and receiving compensation therefor.
29. Additional Powers
In addition to the powers and authorities by these By-Laws
expressly conferred upon it, the Board of Directors may exercise all
such powers of the Company and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-
Laws directed or required to be exercised or done by the stockholders.
COMMITTEES OF DIRECTORS
-----------------------
30. Designation, Power, Alternate Members
The Board of Directors may, by resolution or resolutions passed by
a majority of the whole Board, designate an Executive Committee and one
or more additional committees, each committee to consist of two or more
of the Directors of the Company. Any such committee, to the extent
provided in said resolution or resolutions and subject to any
limitations provided by law, shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs of
the Company. The Board of Directors may designate one or more Directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. If at a meeting of
any committee one or more of the members thereof is absent or
disqualified, and if either the Board of Directors has not so designated
any alternate member or members, or the number of absent or disqualified
members exceeds the number of alternate members who are present at such
meeting, then the member or members of such committee (including
alternates) present at any meeting and not disqualified from voting,
whether or not they constitute a quorum, may unanimously appoint another
Director to act at the meeting in the place of such absent or
disqualified member. The term of office of the members of each
committee shall be as fixed from time to time by the Board;
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provided, however, that any committee member who ceases to be a member
of the Board shall automatically cease to be a committee member.
31. Quorum, Manner of Acting
At any meeting of a committee, the presence of one-third, but not
less than two, of its members then in office shall constitute a quorum
for the transaction of business; and the act of a majority of the
members present at a meeting at which a quorum is present shall be the
act of the committee; provided that in the event that any member or
members of the committee is or are in any way interested in or connected
with any other party to a contract or transaction being approved at such
meeting, or are themselves parties to such contract or transaction, the
act of a majority of the members present who are not so interested or
connected, or are not such parties, shall be the act of the committee.
Each committee may provide for the holding of regular meetings, make
provision for the calling of special meetings and, except as otherwise
provided in these By-Laws or by resolution of the Board of Directors,
make rules for the conduct of its business.
32. Minutes
The committees shall keep minutes of their proceedings and report
the same to the Board of Directors when required; but failure to keep
such minutes shall not affect the validity of any acts of the committee
or committees.
ADVISORY DIRECTORS
------------------
33. Advisory Directors
The Board of Directors may, by resolution adopted by a majority of
the whole Board, appoint such number of senior executives of the Company
as Advisory Directors as the Board may from time to time determine. The
Advisory Directors shall have such advisory responsibilities as the
Chairman of the Board may designate and the term of office of such
Advisory Directors shall be as fixed by the Board.
OFFICERS
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34. Designation
The officers of the Company shall be a Chairman of the Board, and a
President, one of whom shall be designated by the Board of Directors as
the Chief Executive Officer, one or more Vice Presidents, a Secretary, a
Treasurer and a Controller. The Board of Directors may also elect one
or more Vice Chairmen of the Board, one or more Vice Chairmen of the
Company, one or more Executive Vice Presidents, Senior Vice Presidents,
Group Vice Presidents, a Chief Financial Officer, Deputy and Assistant
Secretaries, Deputy and Assistant Treasurers,
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Deputy and Assistant Controllers and such other officers as it shall
deem necessary. Any number of offices may be held by the same person.
The Chairman of the Board of Directors shall be chosen from among the
Directors.
35. Election and Term
At least annually, the Board of Directors of the Company shall
elect the officers of the Company and at any time thereafter the Board
may elect additional officers of the Company and each such officer shall
hold office until the officer's successor is elected and qualified or
until the officer's earlier death, resignation, termination of
employment or removal.
36. Removal
Any officer shall be subject to removal or suspension at any time,
for or without cause, by the affirmative vote of a majority of the whole
Board of Directors.
37. Resignations
Any officer may resign at any time by giving written notice to the
Chairman of the Board, the President or to the Secretary. Such
resignation shall take effect upon receipt thereof or at any later time
specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective.
38. Vacancies
A vacancy in any office because of death, resignation, removal or
any other cause may be filled for the unexpired portion of the term by
the Board of Directors.
39. Compensation
The People Committee of the Board of Directors shall fix the salaries of
all employees of the Company who are subject to the reporting
requirements of Section 16(a) of the Securities Exchange Act of 1934 or
any successor statute, rule or provision, and other members of executive
management designated by such committee.
40. Chairman of the Board
The Chairman of the Board shall preside at all meetings of the
stockholders and of the Board of Directors, except as may be otherwise
required under the law of Delaware. The Chairman shall act in an
advisory capacity with respect to matters of policy and other matters of
importance pertaining to the affairs of the Company. The Chairman,
alone or with the President, one or more of the Vice Chairmen of the
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Board, and/or the Secretary shall sign and send out reports and other messages
which are to be sent to stockholders from time to time. The Chairman shall
also perform such other duties as may be assigned to the Chairman by these
By-Laws, the Board of Directors or, if applicable, the Chief Executive Officer.
41. President
The President, if a member of the Board of Directors, shall, in the
absence of the Chairman of the Board, preside at all meetings of the
stockholders and of the Board of Directors. The President shall perform
such other duties as may be assigned to the President by these By-Laws,
the Board of Directors or, if applicable, the Chief Executive Officer.
42. Chief Executive Officer
The Chief Executive Officer shall have the general and active
management and supervision of the business of the Company. The Chief
Executive Officer shall see that all orders and resolutions of the Board
of Directors are carried into effect. The Chief Executive Officer shall
also perform such other duties as may be assigned to the Chief Executive
Officer by these By-Laws or the Board of Directors. The Chief Executive
Officer shall designate who shall perform the duties of the Chief
Executive Officer in the Chief Executive Officer's absence.
43. Vice Chairmen of the Board; Vice Chairmen
The Vice Chairmen of the Board, if a member of the Board of
Directors, shall, in the absence of the Chairman of the Board and the
President, and in such order as may be designated by the Chairman of the
Board, preside at all meetings of the stockholders and of the Board of
Directors. The Vice Chairmen of the Board and the Vice Chairmen shall
perform such other duties as may be assigned to them by these By-Laws,
the Board of Directors or the Chief Executive Officer.
44. Executive, Senior, Group and other Vice Presidents
Each Executive Vice President, Senior Vice President, Group Vice
President and each other Vice President shall perform the duties and
functions and exercise the powers assigned to such officer by the Board
of Directors or the Chief Executive Officer.
45. Chief Financial Officer
The Chief Financial Officer (if any) shall act in an executive
financial capacity. The Chief Financial Officer shall assist the
Chairman of the Board and the President in the general supervision of
the Company's financial policies and affairs.
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46. Secretary
The Secretary shall attend all meetings of the Board of Directors
and of the stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose. The Secretary shall
give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the Board of Directors and, when appropriate,
shall cause the corporate seal to be affixed to any instruments executed
on behalf of the Company. The Secretary shall also perform all duties
incident to the office of Secretary and such other duties as may be
assigned to the Secretary by these By-Laws, the Board of Directors, the
Chairman of the Board or the Chief Executive Officer.
47. Assistant Secretaries
The Assistant Secretaries shall, during the absence of the
Secretary, perform the duties and functions and exercise the powers of
the Secretary. Each Assistant Secretary shall perform such other duties
as may be assigned to such Assistant Secretary by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
Secretary.
48. Treasurer
The Treasurer shall have the custody of the funds and securities
of the Company and shall deposit them in the name and to the credit of
the Company in such depositories as may be designated by the Board of
Directors or by any officer or officers authorized by the Board of
Directors to designate such depositories; disburse funds of the Company
when properly authorized by vouchers prepared and approved by the
Controller; and invest funds of the Company when authorized by the Board
of Directors or a committee thereof. The Treasurer shall render to the
Board of Directors, the Chief Executive Officer, the Senior Vice
President-Finance or the Vice President-Finance, whenever requested, an
account of all transactions as Treasurer and shall also perform all
duties incident to the office of Treasurer and such other duties as may
be assigned to the Treasurer by these By-Laws, the Board of Directors,
the Chief Executive Officer, the Senior Vice President-Finance or the
Vice President-Finance.
49. Assistant Treasurers
The Assistant Treasurers shall, during the absence of the
Treasurer, perform the duties and functions and exercise the powers of
the Treasurer. Each Assistant Treasurer shall perform such other duties
as may be assigned to the Assistant Treasurer by the Board of Directors,
the Chief Executive Officer, the Senior Vice President-Finance, the Vice
President-Finance or the Treasurer.
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50. Controller
The Controller shall serve as the principal accounting officer of
the Company and shall keep full and accurate account of receipts and
disbursements in books of the Company and render to the Board of
Directors, the Chief Executive Officer, the Senior Vice President-
Finance or the Vice President-Finance, whenever requested, an account of
all transactions as Controller and of the financial condition of the
Company. The Controller shall also perform all duties incident to the
office of Controller and such other duties as may be assigned to the
Controller by these By-Laws, the Board of Directors, the Chief Executive
Officer, the Senior Vice President-Finance or the Vice President-
Finance.
51. Assistant Controllers
The Assistant Controllers shall, during the absence of the
Controller, perform the duties and functions and exercise the powers of
the Controller. Each Assistant Controller shall perform such other
duties as may be assigned to such officer by the Board of Directors, the
Chief Executive Officer, the Senior Vice President-Finance, the Vice
President-Finance or the Controller.
COMPANY CHECKS, DRAFTS AND PROXIES
----------------------------------
52. Checks, Drafts
All checks, drafts or other orders for the payment of money by the
Company shall be signed by such person or persons as from time to time
may be designated by the Board of Directors or by any officer or
officers authorized by the Board of Directors to designate such signers;
and the Board of Directors or such officer or officers may determine
that the signature of any such authorized signer may be facsimile.
53. Proxies
Except as otherwise provided by resolution of the Board of
Directors, the Chairman of the Board, the President, any Vice Chairman
of the Board, any Vice President, the Treasurer and any Assistant
Treasurer, the Controller and any Assistant Controller, the Secretary
and any Assistant Secretary of the Company, shall each have full power
and authority, in behalf of the Company, to exercise any and all rights
of the Company with respect to any meeting of stockholders of any
corporation in which the Company holds stock, including the execution
and delivery of proxies therefor, and to consent in writing to action by
such corporation without a meeting.
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CAPITAL STOCK
-------------
54. Stock Certificates
Each holder of stock in the Company shall be entitled to have a
certificate signed by, or in the name of the Company by, the Chairman of
the Board, the President, any Vice Chairman of the Board, any Executive
Vice President, any Senior Vice President, any Group Vice President or
any other Vice President, and by the Secretary or any Assistant Secre-
tary of the Company, certifying the number of shares owned by such
holder in the Company. Any of or all the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the
Company with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue.
55. Record Ownership
The Company shall be entitled to treat the person in whose name
any share, right or option is registered as the owner thereof, for all
purposes, and shall not be bound to recognize any equitable or other
claim to or interest in such share, right or option on the part of any
other person, whether or not the Company shall have notice thereof,
except as otherwise provided by the law of Delaware.
56. Record Dates
In order that the Company may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may
fix a record date, which shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors
and which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other
action.
57. Transfer of Stock
Transfers of shares of stock of the Company shall be made only on
the books of the Company by the registered holder thereof, or by the
registered holder's attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary or a transfer agent of the
Company, and on surrender of the certificate or certificates for such
shares properly endorsed and the payment of all taxes thereon.
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58. Lost, Stolen or Destroyed Certificates
The Board of Directors may authorize a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Company alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of the fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board
of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or the owner's legal representative, to
give the Company a bond sufficient to indemnify it against any claim
that may be made against the Company on account of the alleged loss,
theft or destruction of such certificate or the issuance of such new
certificate.
59. Terms of Preferred Stock
The provisions of these By-Laws, including those pertaining to
voting rights, election of Directors and calling of special meetings of
stockholders, are subject to the terms, preferences, rights and
privileges of any then outstanding class or series of Preferred Stock as
set forth in the Certificate of Incorporation and in any resolutions of
the Board of Directors providing for the issuance of such class or
series of Preferred Stock; provided, however, that the provisions of any
such Preferred Stock shall not affect or limit the authority of the
Board of Directors to fix, from time to time, the number of Directors
which shall constitute the whole Board as provided in Section 16 above,
subject to the right of the holders of any class or series of Preferred
Stock to elect additional Directors as and to the extent specifically
provided by the provisions of such Preferred Stock.
INDEMNIFICATION
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60. Indemnification
(a) The Company shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to
be made a party or is otherwise involved in any claim, action, suit, or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that the person, or a person for
whom he or she is the legal representative, is or was a Director,
officer, employee or agent of the Company or is or was serving at the
request of the Company as a director, officer, employee, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
non-profit entity, or other enterprise, including service with respect
to employee benefit plans, against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person. The right to indemnification
conferred in this By-Law shall be a contract right. Except as provided
in paragraph (c) of this By-Law with respect to proceedings
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seeking to enforce rights to indemnification, the Company shall
indemnify a person in connection with a proceeding initiated by such
person or a claim made by such person against the Company only if such
proceeding or claim was authorized by the Board of Directors of the
Company.
(b) The Company shall pay the expenses incurred in defending any
proceeding in advance of its final disposition, provided, however, that
if and to the extent required by law the payment of expenses incurred by
any person covered hereunder in advance of the final disposition of the
proceeding shall be made only upon receipt of an undertaking by or on
behalf of the affected person to repay all amounts advanced if it should
ultimately be determined that such person is not entitled to be indem-
nified under this By-Law or otherwise.
(c) If a claim for indemnification or payment of expenses under
this By-Law is not paid in full within thirty days, or such other period
as might be provided pursuant to contract, after a written claim
therefor has been received by the Company, the claimant may file suit to
recover the unpaid amount of such claim or may seek whatever other
remedy might be provided pursuant to contract. In any such action the
Company shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law. If successful in whole or in part, claimant shall be
entitled to be paid the expense of prosecuting such claim. Neither the
failure of the Company (including its Directors, independent legal
counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is
proper in the circumstances because the claimant has met the applicable
standard of conduct set forth in the General Corporation Law of the
State of Delaware, nor an actual determination by the Company (including
its Directors, independent legal counsel or stockholders) that the
claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not
met the applicable standard of conduct.
(d) Any determination regarding whether indemnification of any
person is proper in the circumstances because such person has met the
applicable standard of conduct set forth in the General Corporation Law
of the State of Delaware shall be made by independent legal counsel
selected by such person with the consent of the Company (which consent
shall not unreasonably be withheld).
(e) The rights conferred on any person by this By-Law shall not
be exclusive of any other rights which such person may have or hereafter
acquire under any statute, provision of the Certificate of
Incorporation, these By-Laws, agreement, vote of stockholders or
disinterested Directors or otherwise.
(f) Any repeal or modification of the foregoing provisions of
this By-Law 60 shall not adversely affect any right or protection
hereunder of any person with respect to any act or omission occurring
prior to or at the time of such repeal or modification.
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MISCELLANEOUS
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61. Corporate Seal
The seal of the Company shall be circular in form, containing the
words "Monsanto Company" and the word "Delaware" on the circumference
surrounding the word "Seal". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner
reproduced.
62. Fiscal Year
The fiscal year of the Company shall begin on the first day of
January in each year.
63. Auditors
The Board of Directors shall select certified public accountants
to audit the books of account and other appropriate corporate records of
the Company annually and at such other times as the Board shall
determine by resolution.
64. Waiver of Notice
Whenever notice is required to be given pursuant to the law of
Delaware, the Certificate of Incorporation or these By-Laws, a written
waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting of stockholders or the Board of
Directors or a committee thereof shall constitute a waiver of notice of
such meeting, except when the stockholder or Director attends such
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders
or the Board of Directors or committee thereof need be specified in any
written waiver of notice unless so required by the Certificate of
Incorporation or by these By-Laws.
AMENDMENT TO BY-LAWS
--------------------
65. Amendments
Notwithstanding any provision of law which might otherwise permit
a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any series of Preferred Stock of the Corporation required by
law, the Certificate of Incorporation or any Preferred Stock
designation, the affirmative vote of the holders of at least 80 percent
of the voting power of all of the then-outstanding Voting Stock (as
defined in the Certificate of Incorporation), voting together as a
single class, shall be required
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for the stockholders to amend or repeal the By-Laws or to adopt new By-
Laws. The By-Laws may also be amended or repealed and new By-Laws may
be adopted by the affirmative vote of a majority of the whole Board of
Directors at any regular or special meeting of the Board of Directors.
----------------------------
EMERGENCY BY-LAWS
-----------------
These Emergency By-Laws, notwithstanding any different provision
in the Certificate of Incorporation or By-Laws, shall be operative
during any emergency resulting from an attack on the United States or on
a locality in which the Company conducts its business or customarily
holds meetings of the Board of Directors or its stockholders, or during
any nuclear or atomic disaster, or during the existence of any
catastrophe, or other similar emergency condition, as a result of which
a quorum of the Board of Directors or a committee thereof cannot be
readily convened for action. These Emergency By-Laws shall cease to be
operative upon termination of such emergency.
During any such emergency:
(a) A meeting of the Board of Directors or a committee thereof
may be called by any officer or Director. Notice of the time and place
of the meeting shall be given by the person calling the meeting to only
such of the Directors as it may be feasible to reach at the time and by
such means as may be feasible at the time. Such notice shall be given
at such time in advance of the meeting as circumstances permit in the
judgment of the person calling the meeting.
(b) The officers or other persons designated on a list approved
by the Board of Directors before the emergency, all in such order or
priority and subject to such conditions and for such period of time (not
longer than reasonably necessary after the termination of the emergency)
as may be provided in the resolution approving the list, shall, to the
extent required to constitute a quorum at any meeting of the Board of
Directors during the emergency, be deemed Directors for such meeting.
If at the time of the emergency the Board of Directors has not approved
such a list of persons, then to the extent required to constitute a
quorum at any meeting of the Board of Directors during the emergency,
the officers of the Company who are present shall be deemed, in order of
rank and within the same rank in order of seniority, Directors for such
meeting. Two Directors (including persons deemed to be Directors) in
attendance at the meeting shall constitute a quorum.
(c) The Board of Directors, either before or during any such
emergency, may provide, and from time to time modify, lines of
succession in the event that during such an emergency any or all
officers or agents of the Company shall for any reason be rendered
incapable of discharging their duties.
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(d) The Board of Directors, either before or during any such
emergency, may, effective in the emergency, change the General Offices
or designate several alternative General Offices or regional offices, or
authorize an officer, or officers, so to do.
No officer, Director or employee acting in accordance with these
Emergency By-Laws shall be liable except for willful misconduct.
These Emergency By-Laws shall be subject to repeal or change by
further action of the Board of Directors or by action of the
stockholders, but no such repeal or change shall modify the provisions
of the next preceding paragraph with regard to action taken prior to the
time of such repeal or change. Any amendment of these Emergency By-Laws
may make any further or different provision that may be practical and
necessary for the circumstances of the emergency.
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EXHIBIT 10.4
THE MONSANTO COMPANY
NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN
(AS AMENDED FEBRUARY 25, 2000)
1. NAME OF PLAN. This plan shall be known as the "The Monsanto
Company Non-Employee Director Deferred Compensation Plan" and is
hereinafter referred to as the "Plan."
2. PURPOSES OF PLAN. The purposes of the Plan are to enable
Monsanto Company, a Delaware corporation (the "Company"), to retain
qualified persons to serve as Directors, and to replace the vested
benefits of currently active Directors under the Monsanto Company Non-
Employee Directors Retirement Plan (the "Retirement Plan") with
interests in the equity of the Company or in a deferred cash account.
3. EFFECTIVE DATE AND TERM. The Plan shall be effective as of
the date of the Chemicals Distribution (as defined in Section 4 below)
(the "Effective Date"). The Plan shall remain in effect until
terminated by action of the Board, or until all Participants have
received all amounts to which they are entitled hereunder, if earlier.
4. DEFINITIONS. The following terms shall have the meanings
set forth below:
"Annual Meeting" means an annual meeting of the shareholders
of the Company.
"Beneficiary" has the meaning set forth in Section 7(d).
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"Cash Account" has the meaning set forth in Section 6(a).
"Change of Control" means any of the following events:
(a) The acquisition (other than from the Company) by any person,
entity or "group", within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934 (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 (i) the then
outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) 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: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this
definition; or
(b) Individuals who, as of the date hereof, constitute the Board
of Directors (as of the date hereof the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board of Directors; 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
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by or on behalf of a Person other than the Board; or
(c) Approval by the stockholders of the Company of a
reorganization, merger, 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"), or, if consummation
of such Business Combination is subject, at the time of such
approval by shareholders, to the consent of any government
or governmental agency, the obtaining of such consent
(either explicitly or implicitly by consummation), in each
case unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were
the beneficial owners, respectively, of the 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, (ii) 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 (iii) at least
a majority of the members of the board of directors of the
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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
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
"Change of Control Consideration" means (i) the amount of any
cash, plus the value of any securities and other noncash
consideration, constituting the most valuable consideration per
share of Common Stock paid to any shareholder in the transaction
or series of transactions that results in a Change of Control or
(ii) if no consideration per share of Common Stock is paid to any
shareholder in the transaction or series of transactions that
results in a Change of Control, the highest reported sales price,
regular way, of a share of Common Stock in any transaction
reported on the New York Stock Exchange Composite Tape or other
national exchange on which such shares are listed or on NASDAQ
during the 60-day period prior to and including the date of a
Change of Control. To the extent that such consideration consists
all or in part of securities or other noncash consideration, the
value of such securities or other noncash consideration shall be
determined by the Committee in good faith.
"Chemicals" means the Company's newly formed chemicals subsidiary.
"Chemicals Distribution" means the distribution to the holders of
Common Stock of the stock of Chemicals.
The "Committee" means the committee that administers the Plan, as
more fully defined in Section 13.
"Common Stock" means the Company's common stock, par value $2.00
per share.
"Common Stock Value" means the excess of (i) the average of the
daily high and low trading prices on the New York Stock Exchange
for the Monsanto Common Stock with due bills on each of the five
trading days prior to the date of the Chemicals Distribution over
(ii) one-fifth of the average of the daily high and low trading
Prices on the New York Stock Exchange for the
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common stock of Chemicals on a when-issued basis on each of such
five trading days.
The "Company" has the meaning set forth in Section 2.
"Deferral Account" means a bookkeeping account maintained by the
Company for a Director representing the Director's interest in the
stock units or cash credited to such account pursuant to Section 6.
"Deferred Delivery Election" has the meaning set forth in Section
7(a).
"Delivery Election" has the meaning set forth in Section 7(a).
"Director" means an individual who is a non-employee member of the
Board of Directors of the Company.
The "Dividend Equivalent" for a given dividend or distribution
means a number of shares of Common Stock having a Value, as of the
date such Dividend Equivalent is credited to a Stock Unit Account,
equal to the amount of cash, plus the fair market value on the
date of distribution of any property, that is distributed with
respect to one share of Common Stock pursuant to such dividend or
distribution; such fair market value to be determined by the
Committee in good faith.
The "Effective Date" has the meaning set forth in Section 3.
"Immediate Payment Election" has the meaning set forth in Section
7(a).
The "Initial Amount" has the meaning set forth in Section 6(a).
The "Interest Rate" means Moody's Baa Bond Index Rate, as in
effect from time to time.
"IRA Election" means an election to receive distributions under
the Plan in annual installments beginning on the Starting Date,
over a period of years equal to the life expectancy of the
Participant or joint life expectancy of the Participant and his or
her spouse (if any), as elected by the Participant, such life
expectancy to be determined as of the Starting Date.
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"Keogh Election" means an election to receive distributions under
the Plan in annual installments beginning on the Starting Date,
over a period of years equal to the life expectancy of the
Participant or joint life expectancy of the Participant and his or
her spouse (if any), as elected by the Participant, such life
expectancy to be determined as of the Starting Date and
redetermined as of each anniversary thereof.
"Participant" has the meaning set forth in Section 5.
"Retirement Plan" has the meaning set forth in Section 2.
"Single Sum Election" means an election to receive distributions
under the Plan in a single payment on the Starting Date.
"Stock Unit Account" has the meaning set forth in Section 6(a).
"Starting Date" has the meaning set forth in Section 7(a).
"Term Certain Election" means an election to receive distributions
under the Plan in annual installments over a specified number of
years beginning on the Starting Date, provided, that in the case
of a Stock Unit Account, such number of years may not exceed ten,
and in the case of a Cash Account, such number of years may not
exceed the Participant's life expectancy determined as of the
Starting Date.
The "Termination Date" for a Participant is the date his or her
service as a Director terminates for any reason.
The "Value" of a share of Common Stock as of the last day of a
given Plan Year shall mean the average (rounded to the nearest
cent) of the monthly average for each of the full calendar months
during such Plan Year of the means between the reported high and
low sale prices of a share of Common Stock on the New York Stock
Exchange composite tape (or, if the Common Stock is not listed on
such exchange, on any other national securities exchange on which
the Common Stock is listed) for each trading day during each such
calendar month. If the Common Stock is not traded on any national
securities exchange, the Value of the Common
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Stock shall be determined by the Committee in good faith.
"Vested Benefit" has the meaning set forth in Section 6(a).
5. ELIGIBLE PARTICIPANTS; INITIAL ELECTIONS. Each individual
who is a Director on the last business day before the Effective Date and
has a vested benefit in the Retirement Plan as of that date shall be a
participant ("Participant") in the Plan.
6. ACCOUNTS; CREDITS. (a) Except as provided in Section 7(b)
below, the Company shall maintain a Deferral Account for each
Participant, which shall be a "Stock Unit Account" or a "Cash Account,"
as elected by the Participant on or before August 15, 1997, in
accordance with procedures established by the Committee. Each
Participant's Deferral Account shall initially be credited with an
amount (the "Initial Amount") having a value on the last business day
before the Effective Date equal to the amount of the Participant's
vested benefit under the Retirement Plan as of the Effective Date (the
"Vested Benefit"). The amounts of such Vested Benefits shall be
determined by Towers Perrin based upon information supplied by the
Company.
(b) If a Participant's Deferral Account is a Cash Account the
Initial Amount shall be a cash amount, and shall accrue interest on the
balance therein at the Interest Rate, such interest to be credited at
least monthly.
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(c) If a Participant's Deferral Account is a Stock Unit Account,
the Initial Amount credited to such account pursuant to such account
pursuant to Section 6(a) shall take the form of stock units representing
shares of Common Stock determined by dividing (i) the amount of the
Participant's Vested Benefit by (ii) the Common Stock Value. Whenever a
dividend is paid or other distribution made with respect to the Common
Stock, each Stock Unit Account shall be credited with a number of shares
of Common Stock having a Value equal to (i) the number of stock units in
such Stock Unit Account as of the record date for such dividend or
distribution multiplied by (ii) the Dividend Equivalent for such
dividend or other distribution. Notwithstanding the foregoing, no
amounts shall be credited to any Stock Unit Account as a result of the
Chemicals Distribution, because the amounts initially credited to the
Stock Unit Accounts are being determined based upon the ex-dividend
trading value of the Common Stock with respect to the Chemicals
Distribution. The stock units credited to the Stock Unit Accounts
pursuant to this Section 6 may represent fractional as well as whole
shares of Common Stock.
(d) As soon as practicable after the Effective Date, the
Committee shall cause each Participant to be notified in writing of the
value of his or her Vested Benefit and, in the case of Participants who
have elected Stock Unit Accounts, the
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average price described in clause (ii) of the preceding sentence, and
the number of stock units credited to his or her Stock Unit Account.
7. DELIVERY OF ACCOUNT BALANCES. (a) Each Participant shall
be provided the opportunity to elect, in accordance with procedures
established by the Committee, the manner in which his or her interest in
the Plan will be distributed on or after his or her Termination Date
(each such election, a "Delivery Election"). Such Delivery Election may
call for delivery in a single sum or in installments on or beginning on
the later of (i) the Termination Date or (ii) the date which is six
months after the Delivery Election is made (an "Immediate Payment
Election") or for deferred delivery in a single sum or in installments
(a "Deferred Delivery Election on or beginning on a specified date (in
either case, the date on which delivery is to be made or is to being is
referred to as the "Starting Date"). The Starting Date for a Deferred
Delivery Election must be on or after the third anniversary of the
Termination Date; provided, that in no event shall the Starting Date for
a Deferred Delivery Election be later than the later of (i) the
Participant's 73rd birthday and (ii) the third anniversary of the
Termination Date. Each Delivery Election shall specify whether it is a
Single Sum Election, a Term Certain Election, a Keogh Election, or an
IRA Election; provided, that
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Keogh Elections and IRA Elections may only be made in connection with
Deferred Delivery Elections made with respect to Cash Accounts.
(b) Notwithstanding any other provision of this Plan, a
Participant who makes an Immediate Payment Election and who ceases to be
a Director and becomes a director of Chemicals in connection with the
Chemicals Distribution shall not be credited with a Deferral Account,
but shall receive a cash lump sum payment equal to the value of his or
her Vested Benefit as soon as practicable after the Effective Date.
(c) The stock units in a Participant's Stock Unit Account or the
cash in a Participant's Cash Account, as applicable, shall be delivered
on or beginning on the Starting Date in accordance with the
Participant's Delivery Election. If the Participant's Deferral Account
is a Stock Unit Account, such delivery shall be made in the form of
stock representing a number of Common Shares equal to the number of
stock units as and when they are to be delivered. If any such stock
units or cash are to be delivered after the Participant has died or
become legally incompetent, they shall be delivered to the Participant's
Beneficiary or legal guardian, as the case may be, in accordance with
the foregoing; provided, that if a Participant who has made a Keogh
Election dies before beginning to receive or receiving all of his or her
distributions, the entire balance in his or her
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Deferral Account shall be distributed to his or her Beneficiary
immediately. References to a Participant in this Plan shall be deemed
to refer to the Participant's Beneficiary or legal guardian, where
appropriate.
(d) Participants shall be provided with the opportunity to
designate, in accordance with procedures to be established by the
Committee, the person or persons ("Beneficiaries") who will receive
distributions of his or her interests in the Plan upon the death of the
Participant (a "Beneficiary Designation"). Once made, a Beneficiary
Designation or Delivery Election may be superseded by another
Beneficiary Designation or Delivery Election (as applicable) or revoked
in writing by the Participant. However, in order for any initial or
superseding Delivery Election or revocation thereof to be valid, it must
be received by the Committee before the Participant's Termination Date.
In the case of multiple Beneficiary Designations, Delivery Elections
and/or revocations by any Participant, the most recent valid Beneficiary
Designation, Delivery Election or revocation (as applicable) in effect
as of the date of death or Termination Date, as applicable, shall be
controlling. If a Participant does not have a valid Beneficiary
Designation in effect as of the date of his or her death, his or her
Beneficiary shall be his or her estate. If a Participant does not have
a valid Delivery Election in effect as of his or
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her Termination Date, he or she shall be deemed to have made an
Immediate Payment Election.
8. SHARE CERTIFICATES; VOTING AND OTHER RIGHTS. The shares
delivered to a Participant pursuant to Section 7 above shall be issued
in the name of the Participant, and the Participant shall be entitled to
all rights of a shareholder with respect to Common Stock for all such
shares issued in his or her name, including the right to vote the
shares, and the Participant shall receive all dividends and other
distributions paid or made with respect thereto.
9. GENERAL RESTRICTIONS. (a) Notwithstanding any other
provision of the Plan or agreements made pursuant thereto, the Company
shall not be required to issue or deliver any shares of Common Stock
under the Plan prior to fulfillment of all of the following conditions:
(i) Listing or approval for listing upon official notice
of issuance of such shares on the New York Stock Exchange, Inc.,
or such other securities exchange as may at the time be a market
for the Common Stock;
(ii) Any registration or other qualification of such shares
under any state or federal law or regulation, or the maintaining
in effect of any such registration or other qualification which
the Committee shall, in its absolute discretion upon the advice of
counsel, deem necessary or advisable; and
(iii) Obtaining any other consent, approval, or permit from
any state or federal governmental agency which the Committee
shall, in its absolute discretion after receiving the advice of
counsel, determine to be necessary or advisable.
-12-
<PAGE>
<PAGE>
(b) Nothing contained in the Plan shall prevent the Company from
adopting other or additional compensation arrangements for the
Participants.
10. NUMBER AND SOURCE OF SHARES AVAILABLE. Subject to adjustment
pursuant to Section 11 below, 75,000 shares of Common Stock may be
issued under the Plan. Shares of Common Stock issuable under the Plan
shall be taken from treasury shares of the Company or purchased on the
open market.
11. CHANGE IN CAPITAL STRUCTURE; CHANGE OF CONTROL. (a) In the
event that there is, at any time after the Board adopts the Plan, any
change in the Common Stock by reason of any stock dividend, stock split,
combination of shares, exchange of shares, warrants or rights offering
to purchase Common Stock at a price below its fair market value,
reclassification, recapitalization, merger, consolidation, spin-off or
other change in capitalization of the Company, other than the Chemicals
Distribution, appropriate adjustment shall be made in the number and
kind of shares or other property subject to the Plan and the number and
kind of shares or other property held in the Stock Unit Accounts (taking
into account whether any Dividend Equivalent is credited to the Stock
Unit Accounts in connection therewith), and any other relevant
provisions of the Plan by the Committee, whose determination shall be
binding and conclusive on all persons.
-13-
<PAGE>
<PAGE>
(b) Without limiting the generality of the foregoing, and
notwithstanding any other provision of this Plan, in the event of a
Change of Control, the Company shall immediately pay to each Participant
in a cash lump sum (i) the Change of Control Consideration multiplied by
the number of stock units in such Participant's Stock Unit Account
immediately before such Change of Control, or (ii) the cash balance in
such Participant's Cash Account, as applicable, and the Plan shall be
terminated. Notwithstanding the foregoing, if the payment of cash with
respect to Stock Unit Accounts pursuant to the preceding sentence would
make a Change in Control transaction ineligible for pooling-of-interests
accounting under APB No. 16 that but for the nature of such grant would
otherwise be eligible for such accounting treatment, the Committee shall
have the ability to substitute for such cash Common Stock or other
equity securities with a Value equal to the amount of such cash.
Notwithstanding any other provision of the Plan, with respect to a
"Change of Control" that occurs as a result of the consummation of the
transactions contemplated by the Agreement and Plan of Merger dated as
of December 19, 1999 among Monsanto Company, MP Sub, Incorporated, and
Pharmacia & Upjohn, Inc., the provisions of Section 11(b) of the Plan
shall not apply with respect to any Electing Participant (as defined in
the next sentence), and if one or more Participants are Electing
-14-
<PAGE>
<PAGE>
Participants, the Plan shall not terminate with respect to such Electing
Participant(s) as a result of such a "Change of Control." An "Electing
Participant" means a Participant who delivers a written notice, electing
to have the foregoing provision of this Amendment apply to himself or
herself, to the Committee no later than 10 business days after the
Change of Control.
(c) If the shares of Common Stock credited to the Stock Unit
Accounts are converted pursuant to this Section 11 into another form of
property, references in the Plan to the Common Stock shall be deemed,
where appropriate, to refer to such other form of property, with such
other modifications as may be required for the Plan to operate in
accordance with its purposes. Without limiting the generality of the
foregoing, references to delivery of certificates for shares of Common
Shares shall be deemed to refer to delivery of cash and the incidents of
ownership of any other property held in the Stock Unit Accounts.
12. ADMINISTRATION; AMENDMENT. (a) The Plan shall be
administered by a committee consisting of the Chief Financial Officer,
the General Counsel and the Corporate Vice President -- Human Resources
of the Company (or the holder of any successor officer position thereto)
(the "Committee"), which shall have full authority to construe and
interpret the Plan, to establish, amend and rescind rules and
regulations relating to the Plan, and
-15-
<PAGE>
<PAGE>
to take all such actions and make all such determinations in
connection with the Plan as it may deem necessary or desirable,
including without limitation the determination of life expectancies and
other assumptions and information to be used in determining the effect
of Installment Delivery Elections.
(b) The Board may from time to time make such amendments to the
Plan as it may deem proper and in the best interest of the Company, and
it may terminate the Plan at any time.
13. MISCELLANEOUS. (a) Nothing in the Plan shall be deemed to
create any obligation on the part of the Board to nominate any Director
for reelection by the Company's shareholders or to limit the rights of
the shareholders to remove any Director.
(b) The Company shall have the right to require, prior to the
issuance or delivery of any cash or shares of Common Stock pursuant to
the Plan, that a Director make arrangements satisfactory to the
Committee for the withholding of any taxes required by law to be
withheld with respect to the issuance or delivery of such cash or
shares, including without limitation by the withholding of shares that
would otherwise be so issued or delivered, by withholding from any other
payment due to the Director, or by a cash payment to the Company by the
Director.
-16-
<PAGE>
<PAGE>
14. GOVERNING LAW. The Plan and all actions taken thereunder
shall be governed by and construed in accordance with the laws of the
State of Delaware.
-17-
<PAGE>
EXHIBIT 10.29
Monsanto
----------------------------
Monsanto Company
RICHARD J. MAHONEY 800 N. Lindbergh Boulevard
Chairman and St. Louis, Missouri 63167
Chief Executive Officer Phone: (314) 694-3756
February 1, 1989
Dr. Philip Needleman
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Dear Philip:
It is my pleasure to advise you that the Executive Compensation and
Development Committee of the Board ("ECDC") at its October 28, 1988
meeting, reviewed the retirement benefits which will be available to you
under the Company's Salaried Employees' Pension Plan ("Pension Plan")
and the Monsanto ERISA Parity Pension Plan. In recognition of the
experience and expertise which you have brought to the Company,
including 21 years of service with Washington University, and in
recognition of your potential service with the Company, the ECDC has
determined to award you, subject to certain conditions, a Supplemental
Retirement Benefit equal to 14% of your "Average Total Earnings", as
defined in the Pension Plan. Except as specifically provided below, the
Supplemental Retirement Benefit will not be payable unless you accrue at
least ten years of vesting service with Monsanto. Any optional payment
form you elect under the Parity Pension Plan will also apply to the
Supplemental Retirement Benefit, using the same actuarial factors as are
used under the Pension Plan.
If you choose to do so, you may request deferral of your Supplemental
Retirement Benefit if you make a timely request prior to retirement. The
terms and conditions of this deferral option are described in Attachment
A, which is hereby incorporated in this agreement.
<PAGE>
<PAGE>
If you die while employed, and your wife survives you, she will be
entitled to receive a survivor's benefit equal to 50% of this
Supplemental Retirement Benefit. In addition, if your widow is not yet
eligible for a survivor benefit under the Pension and Pension Parity
Plans, she would receive from this Supplemental Retirement Benefit a 50%
survivor benefit based on the actual benefit accrued to the date of your
death under these Plans. Each of these survivor benefits will be subject
to the normal reductions provided in the Pension Plans. Such survivor's
benefits would be payable for the remainder of your wife's lifetime.
If you Terminate Employment with the Company after a Change of Control
of the Company but before you attain ten years of Vesting Service, you
will be entitled to a monthly Supplemental Retirement Benefit equal to
14% of your Average Total Earnings multiplied by a fraction, the
numerator of which is your actual years of Vesting Service and the
denominator of which is 10. The benefit will be payable to you
commencing on the first day of the month following the later of your
Termination or your attainment of age 55. Alternatively, you may elect
to receive the actuarially commuted value of your Supplemental
Retirement Benefit, or a portion thereof, in a single sum, in which
case, the value of your Supplemental Retirement Benefit will be
calculated by the Qualified Actuary for the Salaried Pension Plan who
was serving as such immediately prior to the Change of Control using the
actuarial assumptions applicab1e to the Plan. The amount so calculated
by the Qualified Actuary will be paid to you in a single sum as soon as
practicable after you Terminate Employment.
This Supplemental Retirement Benefit will, be separate from and in
addition to any pension benefit which you are entitled to receive under
the Company's Pension Plan.
This Supplemental Retirement Benefit is provided and continued at the
sole discretion of the ECDC and may be terminated in whole or in part at
any time for reasons such as, but not limited to, your subsequent
employment with a chemical, pharmaceutical or other company in
competition with Monsanto, or your engaging in activities deemed by the
ECDC not to be in the best of interest of Monsanto. This Supplemental
Retirement Benefit may not be assigned either by you or your spouse, and
any attempted assignment, pledge or other transfer shall be void. If any
court, agency, or other party orders or is otherwise successful in
obtaining an order for transfer in whole or in part of the Supplemental
Retirement Benefit, it shall thereupon be deemed automatically
terminated in full.
<PAGE>
<PAGE>
I am pleased to be able to offer this Supplemental Retirement Benefit on
behalf of the Company. Please acknowledge your receipt and acceptance of
this agreement by signing and returning one copy to my office.
Very truly yours,
MONSANTO COMPANY
By /s/ Richard J. Mahoney
------------------------------
Richard J. Mahoney
Chairman and Chief
Executive Officer
Received and Acknowledged:
/s/ Philip Needleman
- ----------------------------
Philip Needleman PhD.
Date: 2/1/89
-------
<PAGE>
<PAGE>
Attachment A
2/1/89
PHILIP R. NEEDLEMAN
SUPPLEMENTAL RETIREMENT BENEFIT AGREEMENT
Supplemental Retirement Benefit Deferral Option
- -----------------------------------------------
You may request deferral of your Supplemental Retirement Benefit if you
submit a timely request at least six months prior to retirement. The
ECDC will consider your deferral request, and if it is approved, you
will be permitted to defer payment of your Supplemental Retirement
Benefit on the same terms and conditions as permitted under the ERISA
Pension Parity Plan ("Parity Plan"). For this reason, the terms and
conditions of the Parity Plan are incorporated by reference herein and
made a part of this Agreement.
In making any request to defer the Supplemental Retirement Benefit under
the Agreement, you may request that the Company measure the return on
all or a portion of any deferred amount by the investment return on one
or more participating funds in a related mutual fund group. The Company
will consider your request, provided, among other things, that the
mutual fund group meets certain criteria established by the Company,
including diversification, liquidity, published valuation data, and
exchange privileges among the funds participating within the group. The
Company's decision as to whether it will follow your directed investment
request will be final and binding and it may actually invest in the
mutual fund, Interest on non-directed amounts will be credited in a
manner authorized by the Company.
You may make up to four requests in any calendar year to make changes in
the mutual fund group. If your directed investment request is approved
by the Company, you will assume full risk on the portion of your
deferred amounts subject to your request. The Company's approval of your
request should in no way be considered to be the Company's endorsement
of the particular mutual fund, the mutual fund group, or the
appropriateness of the investment decision. The Company in no way will
guarantee investment return. Investment return will be measured on a
"net" basis; that is, the gross investment return will be reduced by any
sales or redemption charges of any type imposed by the mutual fund.
In acknowledging acceptance of this Agreement, you specifically
acknowledge and agree that the Company will in no way be responsible for
the investment return on any directed Investment, that the Company in no
way guarantees any performance on any such amounts, that you will have
consulted with your personal financial or tax advisors and that the
Company is in no way responsible for financial or other consequences
resulting from any directed investment, and that the amount of the
Supplemental Retirement Benefit payable to you or your beneficiary under
this Agreement at the end of any deferral period will be directly
affected by the investment performance of any directed investment. You
further acknowledge and agree that the terms of this Agreement, and any
directed investment made by you, will be binding on you, your estate,
heirs, and beneficiaries, and you agree to indemnify and hold the
Company, its directors, officers and employees, harmless from any claims
or litigation.
<PAGE>
<PAGE>
Monsanto
-----------------------------
Monsanto Company
ROBERT L. BERRA 800 N. Lindbergh Boulevard
Senior Vice President, Administration St. Louis, Missouri 63167
Phone: (314) 694-3756
June 12, 1989
Dr. Philip Needleman
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, MC 63167
Dear Philip:
As you know, on February 1, 1989, you entered into an agreement
("Agreement") with the Company under which the Company awarded you,
subject to certain conditions, a Supplemental Retirement Benefit.
The Agreement provides that your Supplemental Retirement Benefit is
provided and continued at the sole discretion of the Executive
Compensation and Development Committee ("ECDC") and may be terminated in
whole or in part at any time for reasons such as, but not limited to,
your subsequent employment with a chemical, pharmaceutical or other
company in competition with Monsanto or your engaging in activities
deemed by the ECDC not to be in the best interests of Monsanto.
The ECDC has decided that in order to minimize any distractions that
could be caused by the personal uncertainties and risks created by a
change of control proposal, it is in the Company's best interest to
amend the Agreement by this addendum ("Addendum") to provide that upon a
Change of Control of the Company, your Supplemental Retirement Benefit
shall be fully vested and not subject to divestment for any reason by
the ECDC or its successor, the Board of Directors of Monsanto or
Monsanto's successor, or by any other person, committee, corporation or
other legal entity. The term "Change of Control" has the same meaning
as it does in your Key Executive Employment Agreement. This Addendum
incorporates the terms of the Agreement which shall remain in full force
and effect, except to the extent specifically modified hereby.
<PAGE>
<PAGE>
On behalf of the Company, I am pleased to be able to inform you of this
Addendum authorized by the ECDC. Please acknowledge your acceptance of
the terms of the Addendum by signing both copies of this letter and
returning one copy to me.
Sincerely,
MONSANTO COMPANY
/s/ R.L. Berra
---------------------------------
Senior Vice President
ACKNOWLEDGED AND AGREED:
/s/ Philip Needleman
- --------------------------------
Philip Needleman, Ph.D.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the Company's subsidiaries as of
December 31, 1999, except for unnamed subsidiaries which, considered in
the aggregate as a single subsidiary, would not constitute a significant
subsidiary.
G. D. Searle & Co. (Delaware)
DEKALB Genetics Corporation (Delaware)
Monsanto International Sales Company, Inc. (Virgin Islands)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
MONSANTO COMPANY:
We consent to the incorporation by reference in Monsanto Company's
Registration Statements on Form S-8 (Nos. 2-36636, 2-76696, 2-90152,
33-13197, 33-21030, 33-39704, 33-39705, 33-39706, 33-39707, 33-49717,
33-53363, 33-53365, 33-53367, 333-02783, 333-02961, 333-02963,
333-33531, 333-38599, 333-45341 and 333-76653) and Registration
Statements on Form S-4 (Nos. 333-66175, 333-73233 and 333-30824) of our
report dated February 25, 2000, incorporated by reference in this annual
report on Form 10-K of Monsanto Company for the year ended December 31,
1999.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
March 17, 2000
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That each person whose signature appears below, as a Director or Officer
of Monsanto Company (the "Company"), a Delaware corporation with its
general offices in the County of St. Louis, Missouri, does hereby make,
constitute and appoint R. WILLIAM IDE III, JUDITH A REINSDORF, SONYA M.
DAVIS or JANET L. HORGAN, or any one of them acting alone, his or her
true and lawful attorneys, with full power of substitution and
resubstitution, in his or her name, place and stead, in any and all
capacities, to execute and sign the Company's Annual Report on Form 10-K
and the following registration statements: (i) any registration
statement on Form S-8 covering the registration of additional securities
of the Company to be issued under the Monsanto Shared Success Stock
Option Plan, the Monsanto Company ERISA Parity Savings and Investment
Plan, the Monsanto Savings and Investment Plan or the Monsanto
Management Incentive Plan of 1996, in each case as approved by the Board
of Directors of the Company, (ii) any registration statement on Form S-8
covering the registration of securities of the Company to be issued
under any other new or existing stock-based incentive or compensation
plans of the Company or any subsidiary; and (iii) any amendments or
post-effective amendments to any registration statement previously filed
by the Company, and any and all amendments to any of the foregoing, and
documents in connection therewith, all to be filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, giving and granting
unto said attorneys full power and authority to do and perform such
actions as fully as they might have done or could do if personally
present and executing any of said documents.
Dated and effective as of the 25th of February, 2000.
/s/ Robert B. Shapiro /s/ Richard U. De Schutter
- -------------------------------- --------------------------------
Robert B. Shapiro, Director and Richard U. De Schutter, Director
Principal Executive Officer
/s/ Michael Kantor /s/ Gwendolyn S. King
- -------------------------------- --------------------------------
Michael Kantor, Director Gwendolyn S. King, Director
/s/ Philip Leder /s/ Jacobus F. M. Peters
- -------------------------------- --------------------------------
Philip Leder, Director Jacobus F. M. Peters, Director
<PAGE>
<PAGE>
/s/ John S. Reed /s/ John E. Robson
- -------------------------------- --------------------------------
John S. Reed, Director John E. Robson, Director
/s/ William D. Ruckelshaus /s/ Hendrik A. Verfaillie
- -------------------------------- --------------------------------
William D. Ruckelshaus, Director Hendrik A. Verfaillie, Director
/s/ Gary L. Crittenden /s/ Richard B. Clark
- -------------------------------- --------------------------------
Gary L. Crittenden, Principal Richard B. Clark, Principal
Financial Officer Accounting Officer
2
<PAGE>
EXHIBIT 24.2
MONSANTO COMPANY
CERTIFICATE
-----------
I, Sonya M. Davis, Assistant Secretary of Monsanto Company, hereby
certify that the following is a full, true and correct copy of excerpts
from resolutions adopted by the Board of Directors of Monsanto Company
on February 25, 2000, at which meeting a quorum was present and acting
throughout:
1. The Chairman of the Board, the President, any Vice Chairman of the
Company, any Vice President, the Chief Financial Officer, the
Secretary, any Assistant Secretary, the Treasurer, any Assistant
Treasurer or the Controller or any Assistant Controller of the
Company is hereby authorized to sign and execute, for and on
behalf of the Company, the Company's Annual Report on Form 10-K
("Form 10-K") for the year 1999 and any other report to be filed
with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Exchange Act of 1934, as amended.
2. Each officer and director who may be authorized or required to
sign and execute the Form 10-K or any document in connection
therewith or any Registration Statement (whether for and on behalf
of the Company, or as an officer or director of the Company, or
otherwise), be and hereby is authorized to execute a power of
attorney appointing R. William Ide III, Judith A. Reinsdorf, Sonya
M. Davis or Janet L. Horgan, or any of them acting alone, his or
her true and lawful attorney or attorneys, with full power of
substitution and resubstitution to sign in his or her name, place
and stead in any such capacity such Form 10-K or Registration
Statement and any and all amendments thereto and documents in
connection therewith, and to file the same with the Commission or
any other governmental body, each of said attorneys to have power
to act with or without the others, and to have full power and
authority to do and perform, in the name and on behalf of each of
said officers and directors, every act whatsoever which such
attorneys, or any one of them, may deem necessary, appropriate or
desirable to be done in connection therewith as fully and to all
intents and purposes as such officers or directors might or could
do in person.
. . .
IN WITNESS WHEREOF, I have hereunto set my hand in my official capacity
and affixed the corporate seal of Monsanto Company this 7th day of
March, 2000.
/s/ Sonya M. Davis
--------------------------
Sonya M. Davis
[SEAL] Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE STATEMENT OF CONSOLIDATED INCOME OF
MONSANTO COMPANY AND SUBSIDIARIES FOR THE YEAR ENDED
DECEMBER 31, 1999, AND THE STATEMENT OF CONSOLIDATED
FINANCIAL POSITION AS OF DECEMBER 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 284
<SECURITIES> 0
<RECEIVABLES> 2,618<F1>
<ALLOWANCES> 0
<INVENTORY> 1,728
<CURRENT-ASSETS> 5,787
<PP&E> 5,754
<DEPRECIATION> 2,434
<TOTAL-ASSETS> 16,535
<CURRENT-LIABILITIES> 3,750
<BONDS> 5,903
<COMMON> 1,694
0
0
<OTHER-SE> 3,655
<TOTAL-LIABILITY-AND-EQUITY> 16,535
<SALES> 9,146
<TOTAL-REVENUES> 9,146
<CGS> 3,272
<TOTAL-COSTS> 3,272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 345
<INCOME-PRETAX> 751
<INCOME-TAX> 248
<INCOME-CONTINUING> 503
<DISCONTINUED> 92
<EXTRAORDINARY> 0
<CHANGES> (20)
<NET-INCOME> 575
<EPS-BASIC> .91
<EPS-DILUTED> .88
<FN>
<F1>Reported net of allowances of $167
</TABLE>
<PAGE>
========================================================================
Financial Section Contents
========================================================================
FINANCIAL SUMMARY
Page 02
DEFINITIONS
Page 03
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Page 04
STATEMENT OF CONSOLIDATED INCOME (LOSS)
Page 24
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
Page 25
STATEMENT OF CONSOLIDATED CASH FLOW
Page 26
STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY
Page 27
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
Page 28
NOTES TO FINANCIAL STATEMENTS
Page 29
INDEPENDENT AUDITORS' REPORT
Page 56
1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
FINANCIAL SUMMARY (unaudited)
==================================================================================================================================
(Dollars in millions, except per share) 1999<F1> 1998<F2> 1997<F2> 1996<F2> 1995<F2>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net Sales $ 9,146 $ 7,237 $ 6,058 $ 4,862 $ 4,165
Income (Loss) from Continuing Operations 503 (131) 149 279 386
As a Percent of Net Sales<F3> 5% 2% 6% 9%
Income (Loss) from
Discontinued Operations<F4> 92 (119) 321 106 353
Cumulative Effect of a Change in Accounting Principle (20)
Net Income (Loss) 575 (250) 470 385 739
- ----------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE:
Income (Loss) from Continuing Operations $ 0.77 $ (0.22) $ 0.24 $ 0.47 $ 0.67
Net Income (Loss) 0.88 (0.41) 0.77 0.64 1.27
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR-END FINANCIAL POSITION
Total Assets $16,535 $16,385 $10,517 $ 8,619 $ 8,008
Working Capital 2,037 1,415 270 446 896
Long-Term Debt $ 5,903 $ 6,259 $ 1,979 $ 1,608 $ 1,667
Shareowners' Equity 5,349 4,986 4,104 3,690 3,732
- ----------------------------------------------------------------------------------------------------------------------------------
Current Ratio 1.5 1.4 1.1 1.2 1.5
Percent of Total Debt to Total Capitalization 56% 60% 47% 38% 35%
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Stock Price:
High $ 50 13/16 $ 63 15/16 $ 52 15/16 $ 43 1/4 $ 25
Low 32 3/4 33 3/4 34 3/4 23 13 3/4
Year-End 35 7/16 47 1/2 42 38 7/8 24 1/2
Price/Earnings Ratio on Year-End Stock Price<F3> 40 55 60 19
- ----------------------------------------------------------------------------------------------------------------------------------
Per Share:
Dividends<F5> $ 0.120 $ 0.120 $ 0.500 $ 0.588 $ 0.540
Shareowners' Equity 8.41 7.93 6.89 6.31 6.46
- ----------------------------------------------------------------------------------------------------------------------------------
Shareowners (year-end) 54,973 62,769 61,265 54,828 50,745
- ----------------------------------------------------------------------------------------------------------------------------------
Shares Outstanding (year-end, in millions) 636 627 595 584 575
- ----------------------------------------------------------------------------------------------------------------------------------
Employees (year-end)<F6> 29,935 31,800 21,900 28,000 28,500
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Income from continuing operations for 1999 included $57 million, or $0.09 per share, for costs related to the failed merger
between Monsanto and Delta and Pine Land Company, accelerated seed company integration costs, a gain on the divestiture of
Stoneville Pedigreed Seed Company, and reversals of restructuring liabilities established in 1998.
<F2> Loss from continuing operations for 1998 included $610 million, or $1.01 per share, for restructuring and special charges,
write-offs for acquired in-process research and development and charges for the cancellation of DEKALB(R) Genetics Corporation
stock options. Income from continuing operations for 1997 included $404 million, or $0.66 per share, for the write-off of
acquired in-process research and development. Income from continuing operations for 1996 included restructuring and other
unusual charges of $226 million, or $0.38 per share, associated with the closure or rationalization of certain facilities,
asset write-offs and workforce reductions. Income from continuing operations for 1995 included net restructuring expenses
and other unusual items of $63 million, or $0.11 per share.
<F3> This financial statistic is not meaningful for 1998 because Monsanto reported a loss from continuing operations.
<F4> Includes sales of styrenics plastics business in 1995, spinoff of the chemicals businesses in 1997 and classification of the
alginates, Ortho lawn-and-garden products, artificial sweeteners, and biogums businesses as discontinued operations.
<F5> The quarterly common stock dividend was reduced from $0.16 per share to $0.03 per share in the fourth quarter of 1997.
<F6> 1999 includes approximately 1,700 employees associated with businesses Monsanto has classified as discontinued operations
(former Nutrition and Consumer Products segment). Numbers prior to 1999 were not restated for the classification of
Nutrition and Consumer Products segment as discontinued operations. In addition, numbers prior to 1997 were not restated to
reflect the spinoff of the chemical businesses.
</TABLE>
2
<PAGE>
<PAGE>
========================================================================
Definitions:
========================================================================
"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" means diluted earnings per share. In tables, all dollars are in
millions, except per share data.
Earnings from continuing operations before interest expense and
income taxes (EBIT), and earnings from continuing operations before
interest expense, income taxes, depreciation and amortization expense
(EBITDA), and excluding unusual items are used as financial performance
measures throughout this publication. For Monsanto's business segments,
EBIT also excludes the effects of unusual items. Unusual items
primarily were comprised of restructuring charges and reversals, write-
offs of in-process research and development (R&D) related to
acquisitions, matters related to mergers, acquisitions and divestments,
accelerated agricultural chemical and seed operations integration costs,
and the cancellation of DEKALB(R) Genetics Corporation (DEKALB(R)) stock
options. EBITDA (excluding unusual items) may not be directly
comparable to other companies' EBITDA performance measures because those
companies may not exclude unusual items. Although EBITDA (excluding
unusual items) is a 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 annual report is intended to
supplement investors' understanding of Monsanto's operating performance.
It is not intended to replace net income, cash flows, financial position
or comprehensive income, as determined in accordance with accounting
principles generally accepted in the United States.
EBITDA (excluding unusual items) excludes the effects of intangible
amortization and interest expense. For this reason, increases in these two
costs in the financial statements resulting from the acquisitions in 1998 of
DEKALB(R), Plant Breeding International Cambridge Limited, and certain
international seed businesses of Cargill(R), Incorporated, were not reflected in
EBITDA (excluding unusual items) but did affect net income in 1999. Investors
and other users of the financial statements should refer to management's
discussion and analysis for a description of events that have affected EBITDA
(excluding unusual items) and net income during each of the three years ended
Dec. 31, 1999, 1998 and 1997.
Trademarks and service marks owned or licensed by Monsanto and its
subsidiaries are indicated by special type throughout this publication.
Ortho, Diamonex and Orcolite are trademarks associated with businesses
formerly owned by Monsanto.
3
<PAGE>
<PAGE>
========================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
========================================================================
MONSANTO ACHIEVES RECORD SALES AND STRONG NET INCOME PERFORMANCE
Sales in 1999 reached a record as a result of the successful
product launch of Celebrex(R) arthritis treatment and as sales of key
agricultural products continued to grow. Net income totaled $575
million, or $0.88 per share, in 1999. However, results included net
aftertax charges of $75 million, or $0.12 per share, for costs
associated with the failed merger between Monsanto and Delta and Pine
Land Company (D&PL), accelerated integration expenses related to
agricultural chemical and seed operations, a gain from the divestiture
of Stoneville Pedigreed Seed Company (Stoneville), reversal of prior
year restructuring liabilities, cumulative effect of an accounting
change, and other unusual items. If these unusual items were excluded,
net income would have been $650 million, or $1.00 per share, in 1999.
Income from continuing operations totaled $503 million, or $0.77 per
share, in 1999. Excluding unusual items, income from continuing
operations would have been $560 million, or $0.86 per share. In
comparison, 1999 results represent an $81 million, or $0.10 per share,
increase from prior year income from continuing operations of $479
million, or $0.76 per share, excluding unusual items. In 1999, Monsanto
continued to focus its efforts on its core businesses - agriculture,
pharmaceutical and nutrition research. In the first half of 1999,
Monsanto management committed to a plan to sell the company's artificial
sweeteners and biogums businesses. The results of operations, financial
position, and cash flows of these businesses, and of the alginates and
Ortho lawn-and-garden products businesses, the dispositions of which
were approved by Monsanto's board of directors in 1998, have been
reclassified as discontinued operations. The company expects to sell
the artificial sweeteners (bulk aspartame and tabletop sweeteners
businesses) and biogums businesses for a net gain by July 2000. In
addition, Monsanto transferred the Roundup(R) lawn-and-garden and nutrition
research operations of the former Nutrition and Consumer Products
segment to the Agricultural Products and Corporate and Other segments,
respectively.
Net sales reached a record $9.1 billion in 1999, surpassing prior
year net sales of $7.2 billion by 26 percent. The increase came from
strong performances by both the Pharmaceuticals and Agricultural
Products segments. Record sales for the Pharmaceuticals segment
increased $1.1 billion, or 41 percent, from 1998 net sales. The
increase was driven by the success of Celebrex(R) arthritis treatment which
was launched in early 1999. With the introduction of Celebrex(R) arthritis
treatment in 1999, Searle, Monsanto's Pharmaceuticals segment, is the
No. 1 provider of branded arthritis treatments in the United States.
In addition, higher sales volumes of Ambien(R) short-term treatment for
insomnia, and the Covera-HS(R) and spironolactone lines of cardiovascular
products, contributed to the strong net sales performance. Sales of
Ambien(R) captured a 53 percent share of the United States insomnia
prescription market at the end of 1999. These sales increases were
offset by lower sales of Daypro(R) arthritis treatment as market share
shifted in the United States toward Celebrex(R), lower sales of Cytotec(R)
ulcer preventive treatment and lower sales of other individually
insignificant Pharmaceutical products.
Despite an unfavorable agricultural economy, net sales for
Agricultural Products set another record in 1999, led by the inclusion
of a full year of revenues from seed companies acquired in 1998,
increased planting of biotech acres and significant sales volume
increases for the family of Roundup(R) herbicides. Demand for Roundup
Ready(R) soybeans, cotton and corn, YieldGard(R) insect-protected corn,
Bollgard(R) insect-protected cotton, and Bollgard(R) with Roundup Ready(R)
cotton rose substantially in 1999. The increase in 1999 net sales for the
Agricultural Products segment also reflected higher technology fee
revenues from crops developed through biotechnology. Lower selling
prices in the 1999 crop season, increases in the use of conservation
tillage, new applications, and the use of Roundup(R) over the top of
Roundup Ready(R) soybeans, cotton, canola, and corn resulted in more than a
20 percent volume gain for the family of Roundup(R) herbicides. Segment
net sales also benefited from record sales volumes of Posilac(R) bovine
somatotropin. Total net sales in markets outside the United States
represented 38 percent of 1999 net sales, compared with 44 percent in
1998.
An analysis of the company's sales change, along with comparative
data, follows:
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SALES ANALYSIS 1999 1998
- -------------------------------------------------------------------------------------------
<S> <S> <C>
Selling prices (5)% (1)%
Sales volumes and mix 38 18
Acquisitions (Divestitures) - net (1) 1
Pharmaceutical licensing revenues (3) 4
Exchange rates (3) (3)
- -------------------------------------------------------------------------------------------
Total Change 26% 19%
===========================================================================================
</TABLE>
Near the close of this successful year in the face of stiff
competition and unfavorable agricultural economic conditions, Monsanto's
board of directors agreed to create a dynamic and powerful new global
competitor in the pharmaceuticals industry and
4
<PAGE>
<PAGE>
maintain one of the world's leading agricultural business. On Dec. 19,
1999, Monsanto entered into a definitive agreement with Pharmacia &
Upjohn Inc. (PNU) to combine the two companies in a merger-of-equals
transaction. Upon completion of the merger, the new company will have
one of the strongest sales forces in the pharmaceutical industry, an
expansive product portfolio, and a world class agricultural products
business. (See Notes to Financial Statements, Note 5 - Principal
Mergers, Acquisitions, and Divestitures for further detail.)
In December 1999, the United States Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements" (SAB 101). SAB 101 provides
guidance related to revenue recognition issues based on interpretations
and practices followed by the SEC. SAB 101 allows companies to report
any change in revenue recognition related to adopting its provisions as
an accounting change in accordance with Accounting Principles Board
(APB) Opinion No. 20, "Accounting Changes". Monsanto recognized the
cumulative effect of a change in accounting principle, effective Jan. 1,
1999, for revenue recognized in 1998 related to the sale of marketing
rights to The Scotts Company. The effect on 1999 earnings was an
aftertax loss of $20 million, net of taxes of $12 million. If Monsanto
had recorded the sales of marketing rights as deferred revenues in 1998,
net income (loss) would have been $595 million in 1999 and ($270)
million in 1998.
EVENTS AFFECT COMPARABILITY
The company recorded a net aftertax charge of $57 million ($64
million pretax), or $0.09 per share in income from continuing operations
for unusual items principally associated with costs related to the
failed merger between Monsanto and D&PL, combined with expenses to
accelerate the integration of Monsanto's agricultural chemical and seed
operations. These net charges included the reversal of restructuring
liabilities established in 1998 and the gain on the divestiture of
Stoneville. Monsanto recorded a pretax charge of $85 million for a
termination fee and other expenses associated with the failed merger
between Monsanto and D&PL, and a $67 million charge to continuing
operations principally associated with the company's continued focus on
improving operating efficiency through accelerated integration of the
agricultural chemical and seed operations. The charge of $67 million
was recorded in the Statement of Consolidated Income (Loss) in cost of
goods sold ($20 million), amortization of intangible assets ($8
million), and restructuring ($39 million); and was comprised of asset
impairments of $10 million, workforce reduction costs of $18 million and
facility shut-down charges of $39 million. These shut-down charges
included $14 million for contractual research payments, $9 million for
intangible assets, $8 million for inventories, $6 million for leasehold
termination costs, and $2 million for property, plant and equipment
write-offs.
This charge for accelerated chemical and seed operations
integration included involuntary employee separation costs for 360
employees worldwide and reflected charges for positions in
administration of $14 million, and research and development of $4
million. As of Dec. 31, 1999, 150 of the planned employee eliminations
were completed; 80 of these employees received cash severance payments
totaling $6 million during 1999 and 70 employees elected deferred
payments of $4 million which were paid in Jan. 2000. As of Dec. 31,
1999 these deferred severance payments were classified in the Statement
of Consolidated Financial Position as other liabilities. During 1999,
the company also made cash payments of $2 million under this plan for
completed facility shut-down actions. In addition, the company
reclassified contractual commitments of $18 million associated with 1999
accelerated integration plan to other liabilities. The remaining
balance for employee severance related to the remaining 210 positions
was $8 million at Dec. 31, 1999. The company expects these employee
reductions for the 1999 charges to be completed by June 2000. Cash
payments to complete the remaining accelerated integration actions will
be funded from operations and are not expected to significantly impact
Monsanto's liquidity. The accelerated integration plan is expected to
result in annual pretax savings of approximately $25 million.
Offsetting the accelerated integration costs and other unusual
item charges from continuing operations in 1999 was a pretax gain of $54
million from the reversal of restructuring liabilities established in
1998. These restructuring liability reversals were required as a result
of lower actual severance and facility shut-down costs than originally
estimated. Also offsetting these charges was a pretax gain of
approximately $35 million recognized on the sale of Stoneville.
In 1998, the company recorded net restructuring and other unusual
items of $340 million ($239 million aftertax) as part of the company's
overall strategy to reduce costs and continue the commitment to its core
businesses. The 1998 net restructuring and unusual charges were taken in
the second and fourth quarters of 1998. The 1998 net restructuring and
unusual items were recorded in the Statement of Consolidated Income
(Loss) in the following categories:
5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
WORKFORCE FACILITY ASSET
REDUCTIONS CLOSURES IMPAIRMENTS OTHER TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of goods sold $ 6 $ 8 $ 84 $ 98
Amortization and adjustment of
intangible assets 3 63 66
Restructuring and
other special items 103 64 $(14) 153
Other expense (income) - net 43 (20) 23
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN LOSS FROM
OPERATIONS BEFORE INCOME
TAXES $ 109 $ 75 $ 190 $(34) $ 340
==================================================================================================================================
</TABLE>
In December 1998, the board of directors approved a plan to close
certain facilities, reduce the current workforce and exit nonstrategic
businesses. These activities principally were comprised of a tomato
business and a business involved in the operation of membership-based
health and wellness centers. This plan also contemplated exiting
several small, embryonic business activities, none of which had a
significant effect on the restructuring reserve. The company recorded
pretax restructuring charges and other unusual items of $327 million
($226 million aftertax) to cover the costs associated with these actions
in 1998. The charges reflected the elimination of approximately 1,400
jobs, primarily in manufacturing and administrative functions. Included
in these actions were approximately 190 positions that had been part of
a restructuring plan approved in 1996. The affected employees are
entitled to receive severance benefits based on established severance
policies or by governmentally mandated employee regulations. The
charges also reflected pretax amounts for asset impairments, primarily
for property, plant and equipment, intangible assets, and certain other
investments, totaling $130 million. The asset impairments were recorded
primarily because of the company's decision to sell certain nonstrategic
businesses. As a result, the net assets of these businesses were
classified as assets held for sale and were carried at their net
realizable value, estimated to be approximately $36 million ($33 million
in the Agricultural Products segment, and $3 million in the Corporate
and Other segment) as of Dec. 31, 1998. These businesses were sold
during 1999. The effect on net income and the aftertax effect of
suspending depreciation on assets held for sale were not material in
1999, 1998 nor 1997.
Other impairment charges totaling $40 million pretax were recorded
in December 1998 because of management's decision to exit certain long-
term investments. Fair values of the impaired assets and the businesses
held for sale were recorded at their current market values or based on
estimated sale proceeds using either discounted cash flows or sales
contracts. The December 1998 restructuring amounts also included pretax
charges of $99 million for the shutdown or other rationalization of
certain production and administrative facilities. Rationalization
entails the consolidation, shutdown or movement of facilities to achieve
more efficient operations. Approximately 80 facilities, located
primarily in the United States, Europe and Latin America, were affected
by these actions. Charges for these shutdowns included $21 million for
property, plant and equipment, $15 million for intangible assets, $26
million for miscellaneous investments, and $6 million for inventories.
Leasehold termination costs of $13 million and various facility closure
costs of $18 million, principally for facility shutdown costs, equipment
dismantling and contract cancellation payments, were also included in
the shutdown charges. The closure or rationalization of these facilities
were completed by Dec. 31, 1999. As of Dec. 31, 1999, cash payments of
$81 million were made to eliminate approximately 1,100 positions and
deferred employee severance costs of $9 million were paid in Jan. 2000.
In addition, $20 million of facility shut-down costs were incurred in
connection with the 1998 restructuring plans.
As of Dec. 31, 1999, the remaining reserve balance for employee
severance related to the approximately 175 positions was $30 million,
and $4 million in facility shut down costs. The company expects these
employee reduction obligations to be substantially completed by March
2000. An additional 125 positions were eliminated through attrition.
Cash payments to complete the 1998 plan will be funded from operations
and are not expected to significantly impact Monsanto's liquidity.
These restructuring actions are expected to result in annual pretax cash
savings of $150 million.
In May 1998, the board of directors approved a plan to exit
Monsanto's optical products business, which included the Orcolite and
Diamonex optical products business and the Diamonex performance products
business (both reported in the Corporate and Other segment). As a
result, the company recorded a net pretax charges of $48 million ($34
million aftertax). Monsanto recognized a $20 million pretax gain on the
sale of the Orcolite business and recorded pretax charges of $68 million
for the rationalization of the Diamonex business, primarily for
severance costs and the write-off of manufacturing facilities and
intangible assets. In connection with this rationalization, certain
Diamonex product lines were sold, and others were shut down. In
connection with the shutdown of the
6
<PAGE>
<PAGE>
Diamonex business approximately 200 jobs, primarily in manufacturing and
administrative functions, were eliminated at a total cost of $6 million.
These actions, including workforce reductions and payment of severance,
were completed by Dec. 31, 1998. The sale of the remaining assets,
which were classified as assets held for sale as of Dec. 31, 1998 and
carried at their net realizable value of $7 million, was completed
during 1999. Fair values of the impaired assets and the businesses held
for sale were recorded at their current market values, based on
estimated cash flows, appraisals or sales contracts. Net income
generated by the optical products businesses in 1998, and 1997 totaled
$2 million, and $5 million, respectively. Also during the second
quarter of 1998, Monsanto recognized a pretax gain of $35 million ($21
million aftertax) primarily related to the reversal of a restructuring
reserve based on a decision not to rationalize a European pharmaceutical
production facility. There were approximately 70 jobs scheduled to be
eliminated as part of this rationalization plan. The decision was
driven by changes in the business and regulatory environment, and
successes in the R&D pipeline. The net result of the actions was a
pretax charge of $13 million ($13 million aftertax) in the second
quarter of 1998, recorded in the Statement of Consolidated Income (Loss)
in the following categories:
<TABLE>
<CAPTION>
==================================================================================================================================
WORKFORCE FACILITY ASSET
REDUCTIONS CLOSURES IMPAIRMENTS OTHER TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of goods sold $6 $ 2 $36 $44
Amortization and adjustment
of intangible assets 24 24
Restructuring and other
special items (26) $ (9) (35)
Other expense (income) - net (20) (20)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN LOSS FROM
OPERATIONS BEFORE INCOME
TAXES $6 $(24) $60 $ (29) $13
==================================================================================================================================
</TABLE>
Also in 1998, Monsanto acquired several seed companies, including
Plant Breeding International Cambridge Limited (PBIC), DEKALB Genetics
Corporation (DEKALB), and certain international seed operations of
Cargill, Incorporated (Cargill), which are included in the Agricultural
Products segment. Monsanto recorded pretax charges of $422 million
($371 million aftertax) related to these acquisitions, of which $402 million
related to the write-off of acquired in-process R&D and $20 million related
to the cancellation of DEKALB stock options associated with that
acquisition. Management believes that the technological feasibility of
the acquired in-process R&D has not been established and that the
research has no alternative future uses. Accordingly, the amounts
allocated to in-process R&D are required to be expensed immediately
under generally accepted accounting principles. The acquired in-process
R&D was valued using a discounted cash flow method with risk-adjusted
discount rates generally ranging from 12 percent to 20 percent. This
valuation took into account the stage of completion and development
cycle of each in-process R&D category. (See further discussion under
AGRICULTURAL PRODUCTS and Notes to Financial Statements, Note 5 -
Principal Mergers, Acquisitions, and Divestitures.)
As part of restructuring actions approved prior to 1998, Monsanto
reorganized U.S. staff operations and closed approximately 20
production, administrative and research facilities and made final
payments to complete contractual commitments as part of a U.S.
production facility shut-down. These actions eliminated approximately
1,020 positions.
PRODUCT LAUNCH OF CELEBREX(R) AND INCREASED SEED SALES DRIVE EBIT HIGHER
Consolidated EBIT from continuing operations was $1.1 billion in
1999 compared to $125 million in 1998. EBIT for 1999 included pretax
charges of $64 million related to costs associated with the failed
merger between Monsanto and D&PL, accelerated integration costs, and
other unusual items. EBIT for 1998 included unusual charges of $762
million for restructuring and special charges, write-offs for acquired
in-process R&D, and charges for the cancellation of DEKALB stock
options. Excluding these unusual charges, EBIT would have been $1.2
billion in 1999 compared with $887 million in 1998. The 31 percent
increase in EBIT (excluding unusual items) was the result of strong
sales performance of Celebrex(R) arthritis treatment and the inclusion of a
full year of results from seed companies acquired in 1998, partially
offset by increased selling, general, and administrative (SG&A)
expenses, technological costs, and amortization expense. EBITDA
(excluding unusual items) was $1.9 billion in 1999, a $485 million, or
35 percent, increase from EBITDA (excluding unusual items) of $1.4
billion in 1998.
7
<PAGE>
<PAGE>
Total SG&A expenses increased $855 million, or 40 percent, in 1999
compared with expenses in 1998, principally because of increased
spending in the Agricultural Products and Pharmaceutical segments. SG&A
expenses for Agricultural Products rose primarily because of the
inclusion of a full year of results from seed companies acquired in
1998. These expenses were offset partially by $25 million of licensing
fees for technical data on glyphosate. SG&A expenses for
Pharmaceuticals increased as Searle expanded its sales infrastructure
and marketing programs, which include co-promotion payments to support
the launch of Celebrex(R) in early 1999 and fund the continued marketing
support throughout the rest of the year.
Total technological expenses in 1999 increased $65 million, or 5
percent, from those in 1998 primarily because of continued spending on
biotechnology initiatives for the Agricultural Products segment.
Searle's technological expenses remained relatively unchanged from the
prior year, as cost sharing gains offset increased expenses as several
new-product candidates continued to advance through the later, more
expensive phases of development. There were no charges for acquired in-
process R&D in 1999, compared with $402 million in the prior year.
Amortization and adjustment of intangible assets, which is
included in income from continuing operations and EBIT (excluding
unusual items), increased because of the increase in intangible assets
from seed company acquisitions in 1998. Interest expense increased 64
percent to $345 million in 1999, compared with interest expense of $210
million in the prior year. Higher debt levels existed throughout 1999
because Monsanto financed the 1998 seed company acquisitions primarily
with long-term borrowings.
Other expense (income) - net of $107 million were incurred in 1999
compared with other expense (income) - net of ($31) million in the prior
year. This decrease of $138 million was principally because of a one-
time charge of $85 million associated with the failed merger between
Monsanto and D&PL. In addition, there were lower gains from sales of
product rights, higher minority interest expense and increased foreign
currency losses, partially offset by an increase in gains on the sale of
fixed assets. Gain on the sale of product rights decreased $74 million
compared with the prior year, combined with minority interest expense
increase of $19 million, and increases in foreign currency losses of $14
million. These other expenses were partially offset by a $56 million
increase in gains from sale of businesses and other fixed assets in
1999. Income tax expense of $248 million in 1999 was higher than income
tax expense of $46 million in 1998, primarily because of the increase in
pretax income. The annual effective tax rate was 33 percent in 1999. In
1998, Monsanto recorded tax expense on a pretax loss from continuing
operations, primarily because of nondeductible goodwill from seed
company acquisitions. The lower 1999 effective tax rate was the result
of increased earnings in jurisdictions with lower tax rates. If unusual
items from both years were excluded, the effective tax rates from
continuing operations would have been 31 percent in 1999 and 29 percent
in 1998.
DEVELOPMENT AND COMMERCIALIZATION OF NEW PRODUCTS CONTINUE TO BE
PRIORITIES
New product discovery, development and commercialization continue
to be strategic priorities for Monsanto. Recent successes include
Celebrex(R), a novel arthritis treatment, and Maverick(R) wheat herbicide.
Late stage agricultural product development efforts are focused on
insect-protected and herbicide-tolerant crops. Monsanto's late stage
(Phase III) pharmaceutical development programs include celecoxib for
oncology related applications; eplerenone for hypertension and heart
failure; parecoxib for analgesic use in hospitals; valdecoxib for pain,
rheumatoid arthritis and osteoarthritis; leridistim for supportive care
of patients undergoing chemotherapy; and tifacogin for sepsis. The
Agricultural Products research pipeline includes corn rootworm protected
corn, high oil corn, disease protected wheat, and nutritionally enhanced
seeds.
Monsanto's R&D expenditures were $1.3 billion in 1999, or 15
percent of net sales, a level that reflects management's strong, long-
term commitment to research. The discovery and development of
pharmaceutical, agricultural and science-based nutritional products
continue to be a major focus of these expenditures. Significant R&D
efforts in existing product technologies and new product applications
also continue across all business sectors with the use of genomics being
a critical enabling technology. Additionally, Monsanto's research
program includes new technologies and proprietary information obtained
through licensing and strategic acquisitions. As a result, Monsanto has
numerous products in the R&D pipeline and expects many of them to be
commercialized in the next few years.
<PAGE>
PRIOR YEAR REVIEW
In 1998, the company recorded a loss from continuing operations of
$131 million, or $0.22 per share, compared with income from continuing
operations of $149 million, or $0.24 per share, in 1997. Both years'
results, however, were affected by unusual events. Results for 1998
included pretax charges of $762 million ($610 million aftertax, or $1.01
per share) for restructuring charges, write-offs of in-process R&D
related to acquisitions, and other unusual charges. In 1997, the
company recorded pretax charges of $633 million ($404 million aftertax,
$0.66 per share) for the write-off of acquired in-process R&D related to
the acquisitions of several seed companies, including the Asgrow
Agronomics business (Asgrow), Holden's Foundation Seeds Inc. (Holden's),
Corn States Hybrid Services Inc. (Corn States), and Sementes Agroceres
S. A. (Agroceres), and the remaining interest in Calgene.
8
<PAGE>
<PAGE>
Without the unusual events in 1998 and 1997, income from
continuing operations would have been $479 million, or $0.76 per share
for 1998, compared with $553 million, or $0.91 per share for 1997, a
decrease of 13 percent. The decrease was driven primarily by higher
SG&A, technological and interest expenses, which more than offset a 19
percent increase in net sales. Sales grew primarily because of higher
volumes, technology fee revenues and increased seed sales.
EBIT was $125 million in 1998 compared with $262 million in 1997.
EBIT for 1998 included $762 million of restructuring and special
charges, write-offs for acquired in-process R&D, and charges for
cancellation of DEKALB stock options, as summarized in the following
table:
<TABLE>
<CAPTION>
==================================================================================================================================
WRITE-OFFS
FOR CANCELLATION
WORKFORCE FACILITY ASSET ACQUIRED OF DEKALB
REDUCTIONS CLOSURES IMPAIRMENTS IN-PROCESS STOCK OTHER TOTAL
R&D OPTIONS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cost of goods sold $ 6 $ 8 $ 84 $ 98
Acquired in-process R&D $ 402 402
Amortization and
Adjustment of intangible
assets 3 63 66
Restructuring and special
charges 103 64 $ (14) 153
Other expense (income) - net 43 $ 20 (20) 43
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL DECREASE IN
EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES $109 $ 75 $190 $ 402 $ 20 $ (34) $762
==================================================================================================================================
</TABLE>
EBIT for 1997 included unusual charges of $633 million for in-
process R&D write-offs. If these unusual charges were excluded, EBIT
would have been $887 million in 1998, compared with $895 million in
1997. The $8 million decrease in EBIT excluding unusual items was caused
by increased selling, general, and administrative expenses,
technological costs and amortization expense, partially offset by the
aforementioned growth in sales. EBITDA (excluding unusual items) grew
to $1.4 billion in 1998, a $132 million, or 10 percent, increase from
EBITDA (excluding unusual items) of $1.3 billion in 1997.
Total SG&A expenses increased $384 million, or 22 percent, in 1998
compared with 1997, principally because of increased spending in the
Agricultural Products and Pharmaceuticals segments. SG&A expenses for
Agricultural Products rose primarily because of the inclusion in 1998 of
SG&A expenses from the acquired seed companies. These expenses were
offset partially by $36 million of licensing fees for technical data on
glyphosate. Selling, general, and administrative expenses for
Pharmaceuticals increased as Searle expanded its sales infrastructure to
accommodate the launch of Arthrotec(R) in 1998 and prepared for the launch
of Celebrex(R) arthritis treatment in early 1999. Total technological
expenses in 1998 grew $259 million, or 25 percent, compared with those
in 1997, primarily because of higher expenses in the Agricultural
Products and Pharmaceuticals segments. Technological expenses for the
Agricultural Products segment rose principally because of higher
spending on genomics and crop biotechnology initiatives, and the
inclusion of expenses from the acquired seed companies. Searle's
technological expenses increased markedly, as several product candidates
in the pipeline advanced through the later, more expensive phases of
development.
Expenses for amortization and adjustment of intangible assets,
which are included in income from continuing operations and EBIT,
increased year-to-year because of the increase in intangible assets
related to seed company acquisitions made in 1998 and late 1997, and
because of the write-offs of goodwill related to the company's exit from
non-core businesses. The non-core business goodwill write-offs reduced
EBIT (excluding unusual items) of the Agricultural Products segment by
$38 million and the Corporate and Other segment by $26 million. Interest
expense -- included in income (loss) from continuing operations -- rose
as the amount of debt outstanding increased during 1998. In 1998, other
income of $31 million decreased significantly from other income in 1997
of $89 million. The decrease of $58 million was primarily because of
$40 million of losses on common stock investments and $35 million of
losses from equity affiliates in 1998, compared with $6 million of
income from equity affiliates in the prior year. This decrease of other
income was partially offset by lower foreign currency losses of $22
million, primarily in the Asia Pacific region, compared with $52
9
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<PAGE>
million in 1997, and slightly higher gains from the sale of product
rights of $124 million in 1998 compared with gains of $120 million in
1997. Income tax expense for 1998 of $46 million increased from income
tax benefit for 1997 of $22 million, primarily because of $402 million
of nondeductible in-process R&D charges and $46 million of nondeductible
goodwill charges principally related to the PBIC, Cargill seed operation and
DEKALB acquisitions. If unusual items in 1998 and 1997 were excluded, the
effective tax rate would have been 29 percent in 1998 and 27 percent in
1997.
<TABLE>
ANALYSIS OF CHANGE IN EARNINGS (LOSS) PER SHARE FROM CONTINUING OPERATIONS
<CAPTION>
BETTER (WORSE)
--------------------------
1999 vs. 1998 vs.
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SALES-RELATED FACTORS:
Selling prices $(0.44) $(0.10)
Sales volumes and mix 2.65 0.88
Pharmaceutical licensing revenues (0.23) 0.32
- ----------------------------------------------------------------------------------------------------------------------------------
Total Sales-Related Factors 1.98 1.10
==================================================================================================================================
COST-RELATED FACTORS:
Raw material and
manufacturing costs (0.04) (0.05)
Selling, general and
administrative expenses (1.06) (0.44)
Technological expenses (0.11) (0.28)
Amortization of intangible assets (0.18) (0.08)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Cost-Related Factors (1.39) (0.85)
==================================================================================================================================
OTHER FACTORS:
Change in shares outstanding (0.11)
Exchange rates (0.12) (0.17)
Acquisitions and divestitures - net - (0.14)
Interest expense (0.16) (0.03)
Pharmaceutical product right sales (0.06)
Other expense - net (0.08) (0.01)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Other Factors (0.53) (0.35)
==================================================================================================================================
Change in earnings (loss) per share before unusual items 0.06 (0.10)
Unusual Items:
Restructuring and special charges - net 0.52 (0.46)
Acquired in-process research and development 0.53 0.13
Accelerated integration costs (0.08)
Failed merger costs (0.08)
Other unusual items - net 0.04 (0.03)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Unusual Items 0.93 (0.36)
- ----------------------------------------------------------------------------------------------------------------------------------
Change in Earnings (Loss) per Share
from Continuing Operations $ 0.99 $(0.46)
==================================================================================================================================
</TABLE>
10
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<PAGE>
<TABLE>
<CAPTION>
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AGRICULTURAL PRODUCTS
==================================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $5,102 $4,264 $3,470
EBIT (excluding unusual items) 775 868 827
EBITDA (excluding unusual items) 1,275 1,223 1,035
Capital Expenditures 607 469 316
Depreciation and Amortization 500 355 208
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE AGRICULTURAL PRODUCTS SEGMENT IS A LEADING DEVELOPER, PRODUCER AND
MARKETER OF CROP PROTECTION PRODUCTS AND SEEDS. THIS INCLUDES THE
DEVELOPMENT AND MARKETING OF PRODUCTS ENHANCED BY BIOTECHNOLOGY, WHICH
IMPROVE THE EFFICIENCY OF FOOD PRODUCTION AND PRESERVE ENVIRONMENTAL
QUALITY FOR AGRICULTURAL AND INDUSTRIAL USES. MORE THAN HALF OF THE
UNIT'S HERBICIDE NET SALES ARE MADE OUTSIDE OF THE UNITED STATES.
WEATHER CONDITIONS IN AGRICULTURAL MARKETS WORLDWIDE AFFECT SALES
VOLUMES.
Despite the unfavorable agricultural economy, net sales for
Agricultural Products set a record at $5.1 billion, an increase of 20
percent over the previous sales record set in 1998. The increase in net
sales was led by higher seed sales, particularly in seed lines
containing the Roundup Ready(R) gene, with Monsanto branded Roundup Ready(R)
soybeans holding approximately 25 percent of the market for soybeans in
the United States. Seed sales increased to over $1.3 billion in 1999
compared with $670 million in 1998 primarily because of the inclusion of
a full year of results from seed companies acquired in 1998. In
addition, Roundup Ready(R) corn volume increased more than 100 percent from
the prior year's sales in the United States.
Continued increased demand for crops developed through
biotechnology - especially Roundup Ready(R) soybeans, corn and cotton,
YieldGard(R) insect-protected corn, and Bollgard(R) with Roundup Ready(R)
cotton - generated substantially higher technology fee revenues from these
crops in 1999. Worldwide acreage of crops developed through
biotechnology increased over 49 percent to approximately 88 million
acres for the 1999 crop season compared to 59 million acres in the 1998
crop season. In addition, the technology fee for Roundup Ready(R) soybeans
in the United States increased approximately 25 percent in 1999. As a
result, technology fee revenues increased 51 percent over prior year
revenues. Total cost to soybean farmers per acre decreased as lower
Roundup(R) herbicide prices more than offset increases in technology fees
for the 1999 crop season.
Contributing to the 1999 sales record was the Roundup(R) family of
herbicides, which delivered volume growth in 1999 slightly above the
historical 20 percent trendline. Operations in the United States,
Canada, Brazil, Argentina, and Australia posted record sales volumes of
Roundup(R). Lower selling prices, principally in the United States, made
Roundup(R) more cost effective in a wide range of crop and industrial uses.
The effect of generic competition in certain markets outside the United
States required modestly lower selling prices. However, the effect of
lower selling prices was more than offset by the increased sales
volumes. The large gains in sales volumes of Roundup(R) were driven by
lower selling prices, the continued adoption of conservation tillage
(the practice of substituting the judicious use of herbicides for
mechanical tillage), new applications, and increased use of Roundup(R) over
the top of Roundup Ready(R) soybeans, cotton, canola, and corn. Net sales
of Roundup and other glyphosate-based herbicides totaled 29 percent of
total company net sales compared with 35 percent of total company net
sales in the prior year. Net sales for the Agricultural Products
segment also benefited from record sales of Posilac(R) bovine somatotropin.
Sales volumes of Posilac(R) bovine somatotropin increased 14 percent over
volumes in the prior year.
Declines in the U.S. dollar value of local currencies in certain
Latin American and Eastern European countries negatively affected the
translation to U.S. dollars of local currency-denominated operating
results in 1999 compared with 1998. Poor economic conditions in certain
world areas limited liquidity and lessened the demand for herbicides,
especially in Eastern Europe, where volumes of Roundup(R) declined in 1999.
Drought conditions in key areas of Brazil during the planting season
lessened the demand for herbicides and negatively affected planned sales
volumes of Roundup(R) in 1999.
Revenues from the Roundup(R) lawn-and-garden products business
declined 37 percent, or $86 million, to $146 million in 1999 compared
with revenues of $232 million in 1998. The decrease in revenues was
primarily because of a change in the distribution network.
Additionally, Roundup(R) lawn-and-garden revenues for 1998 included a one-
time $32 million payment from The Scotts Company (Scotts) for the
exclusive right to sell and market Roundup(R) herbicide for lawn-and-garden
uses. (See Notes to Financial Statements, Note 2 - New Accounting
Standards for further details.) In 1999, Roundup(R) for residential use
was marketed by Scotts along with its broad line of residential lawn-
and-garden products. Under the current agreement, Scotts receives a
commission for its services as agent based on a varying percentage of
the earnings before interest and taxes (EBIT) for the Roundup(R) lawn-and-
garden
11
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<PAGE>
business. Scotts is also responsible for contributing annually towards
the expenses of the Roundup(R) lawn-and-garden business. Monsanto
recognizes the amounts due to and from Scotts as marketing expenses as
they are incurred.
EBIT (excluding unusual items) for the Agricultural Products
segment in 1999 decreased $93 million compared with 1998, while EBITDA
(excluding unusual items) increased $52 million, or 4 percent, from
1998. EBIT (excluding unusual items) totaled $775 million in 1999,
compared with $868 million in 1998, a decrease primarily associated with
an increase in amortization expense related to the 1998 seed company
acquisitions. In addition, SG&A expenses rose primarily because of the
inclusion of a full year of SG&A costs from the seed companies acquired
in 1998, higher seed integration costs, and higher information
technology expenses. These increases were offset partially by $25
million of licensing fees for technical data on glyphosate.
Technological expenses grew principally because of the inclusion of the
acquired seed company technological spending and additional
biotechnology research. Depreciation and amortization increased $145
million, or 41 percent, primarily because of the seed company
acquisitions in the prior year and the completion of additional
manufacturing capacity for herbicides.
Pretax unusual items from continuing operations in 1999 for the
Agricultural Products segment totaled $101 million and included an $85
million charge associated with the failed merger between Monsanto and
D&PL, and $61 million for the accelerated integration of Monsanto's
agricultural chemical and seed operations. These charges were offset by
a $35 million gain from the divestiture of Stoneville, and $10 million
from the reversal of restructuring reserves established in 1998. The
reversal of $10 million of restructuring reserves was required as a
result of lower actual severance and facility shut-down costs than
originally estimated. In 1998, unusual items from continuing operations
included charges of $402 million for the write-off of in-process R&D;
and a charge of $166 million for restructuring and other actions; and a
$20 million charge for the cancellation of stock options in exchange for
cash related to the acquisition of DEKALB. The restructuring and other
action charges principally related to the cost of workforce reductions
($52 million), and asset impairments ($81 million). The in-process R&D
charges were primarily associated with the acquisitions of DEKALB, PBIC
and certain international seed operations of Cargill.
PRIOR YEAR REVIEW
Net sales for Agricultural Products in 1998 were $4.3 billion, an
increase of 23 percent compared with sales in 1997 of $3.5 billion. The
increase in net sales was led by the Roundup(R) family of herbicides, with
volume growth in 1998 over 20 percent. The United States, Argentina,
Brazil, and Australia posted record sales volumes of Roundup(R). The large
gains in volumes of Roundup(R) were driven by continued adoption of
conservation tillage, new applications, and increased use of Roundup(R)
over the top of Roundup Ready(R) soybeans, cotton, canola, and corn.
Declines in the U.S. dollar value of local currencies in Indonesia,
Australia and Malaysia negatively impacted the translation to U.S.
dollars of local currency-denominated operating results in 1998 compared
to 1997. Poor economic conditions in Asia lessened the demand for
herbicides, especially in Southeast Asia, where volumes of Roundup(R)
declined in 1998. Lower selling prices, principally outside the United
States, made Roundup(R) more cost effective in a wide range of crop and
industrial uses. The effect of generic competition, especially in
certain markets outside the United States, lowered selling prices
modestly. However, the effect of lower selling prices was more than
offset by increased sales volumes. Net sales of Roundup(R) and other
glyphosate-based herbicides totaled 35 percent of total company net
sales in 1998 compared with 36 percent of total company net sales in
1997.
Increased demand for crops developed through biotechnology,
especially Roundup Ready(R) soybeans, canola and cotton, and Yieldgard(R)
insect-protected corn, drove technology fee revenues from these crops
substantially higher. In addition, Roundup Ready(R) corn sold out in its
introductory year in the United States. Seed sales also were higher in
1998 as the company's Asgrow seed business enjoyed a strong year,
particularly with seed lines containing the Roundup Ready(R) gene. Sales
from Agroceres and from Holden's, both acquired in late 1997, also added
to revenues. Net sales for the Agricultural Products segment also
benefited from record sales of Posilac(R) bovine somatotropin, which
increased 26 percent from sales in the prior year.
Revenues from the lawn-and-garden products business rose 8
percent to $232 million in 1998, compared with revenues of $214 million
in 1997. Revenues increased primarily because of $32 million in
payments associated with an agreement signed with The Scotts Company for
the exclusive rights to sell and market Roundup(R) herbicide. (See Notes to
Financial Statements, Note 2 - New Accounting Standards for further
details.)
<PAGE>
EBIT (excluding unusual items) for the Agricultural Products
segment in 1998 increased $41 million compared with 1997, while EBITDA
(excluding unusual items) increased $188 million, or 18 percent, from
1997. EBIT (excluding unusual items) totaled $868 million in 1998,
compared with $827 million in 1997, as the growth in net sales was
nearly offset by increased operating expenses. Selling, general and
administrative (SG&A) expenses rose in 1998 primarily because of a full
year inclusion of SG&A costs from the seed companies acquired in 1997,
and higher global development costs, including higher information
technology expenses. These increases were partially offset by $36
million of licensing fees for technical data on glyphosate.
Technological expenses grew principally because of higher spending on
crop biotechnology development initiatives, inclusion of recently
acquired seed company technological spending, and additional genomics
research. Depreciation and amortization increased by $147 million, or 71
percent, primarily because of the completion of additional manufacturing
capacity for Roundup(R) and because of 1997 seed company acquisitions.
12
<PAGE>
<PAGE>
Pretax unusual items in 1998 included: charges of $402 million for
the write-off of in-process research and development (R&D); a $20
million charge for the cancellation of stock options in exchange for
cash related to the acquisition of DEKALB; and a charge of $166 million
for restructuring and other actions, principally related to the cost of
work force reductions ($52 million) and asset impairments ($81 million).
The in-process R&D charges were primarily associated with the
acquisitions of DEKALB, PBIC and certain international seed operations
of Cargill. In 1997, the unusual items included $633 million of pretax
charges for in-process R&D write-offs associated with several seed
company acquisitions.
In-process R&D charges for the seed company acquisitions cover
numerous seed breeding projects, no single one of which was significant,
as is typical in the seed breeding industry. These projects consist of
conventional breeding programs for corn, wheat and other hybrids;
conventional breeding for soybean varieties; and the development of
transgenic crops. The in-process R&D projects were valued by a
discounted cash flow method with risk-adjusted discount rates, generally
from 12 to 20 percent, which took into account the stage of development
of each in-process R&D category. Successful commercialization of
products developed through these projects is expected to occur five to
nine years after program initiation. Although there are risks associated
with the ultimate completion and commercialization of these research
projects (specific risks are discussed under "Cautionary Statements
Regarding Forward-Looking Information - Factors Affecting the
Agricultural Products Segment" section), the failure of any one project
would not materially affect the total value of the research programs.
The in-process projects were at various stages of completion at the
dates of acquisition. In 1999, Monsanto spent $82 million on
biotechnology-related activities and $47 million on conventional
breeding activities related to completing these in-process R&D projects.
During the next eight years, management expects to spend approximately
$250 million on biotechnology-related activities and approximately $180
million on conventional breeding activities to complete these in-process
R&D projects; approximately $120 million in 2000, $100 million in 2001,
$80 million in 2002, $60 million in 2003, $60 million in 2004, and $70
million thereafter. Monsanto intends to fund these costs, consisting
primarily of salary and benefit expenses for R&D employees, with cash
generated from existing businesses. Revenues from the in-process R&D
projects related to the 1998 acquisitions began in 1999. Revenues from
the in-process R&D projects related to the 1997 acquisitions began in
1998.
OUTLOOK
Monsanto's family of Roundup(R) herbicides continues to face
increasing competition from generic producers in certain markets outside
the United States. Patents protecting Roundup(R) expired in various
countries in 1991. Compound per se patent protection for the active
ingredient in Roundup(R) herbicide continues in the United States until
Sept. 2000. Management expects technological breakthroughs in
manufacturing processes and formulation advancements, as well as rapidly
expanding production capacity, to continue to improve Monsanto's cost
structure and to help maintain its leadership position. Significant
growth potential remains for Roundup(R) in conservation tillage
applications, new uses, and in applications over-the-top of crops
designed to tolerate Roundup(R).
As discussed in the Notes to Financial Statements (see Note 6 -
Restructuring and Unusual Items for further details), Monsanto made
significant progress to complete several strategic actions in 1999. In
1999, the company began the accelerated integration of the agricultural
chemical and seed operations. The successful integration of these seed
companies as members of Monsanto's agriculture business, and
partnerships such as the Monsanto/Cargill joint venture, Renessen LLC,
should enhance the company's ability to bring new products to market.
At the same time, these relationships should help Monsanto gain
worldwide distribution of its and other companies' agronomic traits, as
well as technology traits designed to improve the quality of food or
feed currently in R&D pipelines.
A planned price reduction for Roundup(R) herbicide was implemented in
the United States to accelerate volume growth, and to further strengthen
the long-term competitive position in the 1999 crop year. In numerous
markets worldwide during the past 15 years, management believes that
price reductions for Roundup(R) were an important factor in volume growth
via price elasticity in key market segments. At lower prices in the
past, more growers used more Roundup(R) in new applications (such as
conservation tillage and preharvest), treated more acres in existing
applications and used higher rates per treated acre as Roundup(R) became
more economical.
The company marketed the following biotechnology-related plant
sciences products during 1999: Roundup Ready(R) corn, canola, cotton and
soybeans; corn and cotton protected from certain insects; potatoes
protected from certain insects and viruses; and cotton and corn that are
both insect-protected and Roundup Ready(R). These products were developed
by Monsanto either alone or in partnership with biotechnology and seed
production companies.
<PAGE>
Monsanto continues to address concerns of consumers, public
interest groups and government regulators regarding acceptance and
approval of agricultural and food products developed through
biotechnology. The European Union continues to delay approvals for
planting of seeds with agricultural biotechnology traits; and a court
decision in Brazil has delayed planting of Roundup Ready(R) soybeans in
that country. Despite these continuing concerns, Monsanto anticipates
that farmers, particularly in North and South America and the Asia-
Pacific region, will continue to make use of this new technology because
of the economic benefits and reduced use of pesticides that it allows.
The company continues to be involved in intellectual property
disputes with several parties regarding biotechnology products.
Management expects that such disputes will continue to occur as the
agricultural biotechnology industry evolves.
13
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<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS
==================================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $3,920 $2,771 $2,323
EBIT, (excluding unusual items) 655 309 286
EBITDA, (excluding unusual items) 813 451 422
Capital Expenditures 188 236 175
Depreciation and Amortization 158 142 136
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE PHARMACEUTICALS SEGMENT REFLECTS THE OPERATIONS OF SEARLE, WHICH
DEVELOPS, PRODUCES AND MARKETS PRESCRIPTION PHARMACEUTICALS. ITS MAJOR
PRODUCTS INCLUDE MEDICATIONS TO RELIEVE THE SIGNS AND SYMPTOMS OF
ARTHRITIS, TO CONTROL HIGH BLOOD PRESSURE, TO RELIEVE INSOMNIA AND TO
PREVENT THE FORMATION OF ULCERS.
In 1999, net sales for Pharmaceuticals increased to a record $3.9
billion, or 41 percent higher than 1998 net sales. The successful launch
and continued strong sales of Celebrex(R) arthritis treatment were the
primary drivers behind the strong sales performance. Celebrex(R) net sales
totaled more than $1.5 billion in 1999 or 16 percent of total company
net sales. The increase in net sales was partially offset by a 26
percent decrease in sales of Daypro(R) arthritis treatment, which recorded
sales of $227 million, and a slight decrease in sales of Arthrotec(R)
arthritis treatment, with full year sales of $344 million in 1999.
Decreases in sales volumes of Arthrotec(R) and Daypro(R) occurred primarily
because of market share shifts toward Celebrex(R). Searle remained the No.
1 provider of prescription arthritis treatments in the United States, as
Celebrex(R), Arthrotec(R), and Daypro(R) arthritis treatments combined for 54
percent of the branded market share. Moreover, with the launch of
Celebrex(R), Searle achieved the No. 1 sales position in prescription
arthritis treatments worldwide. Celebrex(R) remains the top selective COX-2
inhibitor despite the introduction of a competing product during 1999.
Net sales of arthritis treatments totaled $2.1 billion, or 23 percent of
total company net sales in 1999 compared with $654 million, or 9 percent
of total company net sales, in the prior year. Also contributing to the
strong sales performance were sales of Ambien(R) short-term treatment for
insomnia, which grew $77 million, or 17 percent, to $535 million, and
sales of Covera-HS(R), a cardiovascular treatment, which grew $17 million,
or 21 percent, to $98 million. Ambien(R) held a 53 percent market share of
total U.S. hypnotic prescriptions. Partially offsetting these higher
revenues were lower sales of Cytotec(R) ulcer preventive drug and lower
sales of other individually insignificant Pharmaceutical products.
Segment net sales also included licensing revenues totaling $145 million
associated with several collaborative alliances compared with $335
million of licensing revenues in 1998.
EBIT (excluding unusual items) for the Pharmaceuticals segment
more than doubled to a record $655 million in 1999, compared with $309
million in 1998. EBITDA (excluding unusual items) totaled $813 million
in 1999 compared with EBITDA (excluding unusual items) of $451 million
in 1998, an increase of $362 million, or 80 percent. The improvements in
EBIT (excluding unusual items) and EBITDA (excluding unusual items) in
1999 resulted primarily from sales of Celebrex(R) and from higher volumes
of other key products, partially offset by lower licensing revenues and
increased SG&A expenses. SG&A expenses rose $714 million, or 67
percent, primarily because of the launch and co-promotion expenses
related to Celebrex(R). Technological expense of $763 million remained
relatively unchanged from the prior year, as cost sharing gains were
offset as several new product candidates continued to advance through
the later, more expensive phases of development. Other income of $25
million decreased $60 million when compared with $85 million in 1998.
The $60 million decrease was primarily caused by lower product rights
sales in 1999 compared with product rights sales in 1998 ($50 million
compared with $124 million).
The Pharmaceuticals segment's 1999 results included an unusual
pretax gain of $6 million related to the reversal of restructuring
liabilities established in 1998. The restructuring liability reversal
was required as a result of lower actual severance and facility shut-
down costs than originally estimated. Pretax net unusual charges in
1998 totaled $29 million and included a gain of $35 million for the
reversal of a prior year restructuring reserve and $64 million of
charges, primarily for asset impairments ($42 million) and workforce
reductions ($22 million).
As a result of discussions with the staff of the United States
Securities and Exchange Commission (SEC) and clarification of its
interpretation regarding the classification of certain transactions,
Monsanto agreed to reclassify certain revenues in the Statement of
Consolidated Income (Loss). As a result, the company has reclassified
revenues associated with the sales of pharmaceutical product rights from
net sales to other expense (income) - net for all periods presented. The
effect of this reclassification was to reduce net sales and increase
other income included in other expense (income) - net by ($124) million
and ($120) million in 1998 and 1997, respectively. In 1999, $50
million of sales of pharmaceutical product rights were included in other
expense (income) - net. This reclassification had no effect on net
income.
14
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<PAGE>
PRIOR YEAR REVIEW
In 1998, net sales for Pharmaceuticals grew to $2.8 billion, 19
percent higher than 1997 net sales. Sales of Arthrotec(R) arthritis
treatment more than tripled to $346 million, aided by launches in the
United States and France, and by increased volume growth in other key
countries. Searle ended the year as the No. 1 provider of branded
arthritis treatments in the United States, as Arthrotec(R) and Daypro(R)
arthritis treatments combined for 13 percent branded market share. Net
sales of arthritis treatments totaled $654 million, or 9 percent of
total company net sales in 1998 compared with $434 million or 7 percent
of total company net sales in 1997. Ambien(R) short-term treatment for
insomnia grew in market share; by year-end, it held 52 percent share of
total U.S. hypnotic prescriptions. Sales for Ambien(R) increased 16 percent
to a record $458 million. Segment net sales also benefited from
licensing revenues totaling $335 million associated with several
collaborative alliances; licensing revenues were $75 million in 1997.
Partially offsetting these higher revenues were lower sales of verapamil
calcium channel blockers and Cytotec(R) ulcer preventive drug.
EBIT (excluding unusual items) for the Pharmaceuticals segment
totaled $309 million in 1998, compared with $286 million in 1997, an
increase of $23 million or 8 percent. EBITDA (excluding unusual items)
totaled $451 million in 1998 compared with EBITDA (excluding unusual
items) of $422 million in 1997, an increase of $29 million, or 7
percent. The improvements in EBIT (excluding unusual items) and EBITDA
(excluding unusual items) in 1998 resulted primarily from higher volumes
of key products and from licensing revenues, partially offset by
increased SG&A and technological expenses. SG&A expenses rose primarily
because of the launches of Arthrotec(R) and preparations for the launch of
Celebrex(R) arthritis treatment. Other income of $85 million remained
relatively unchanged compared with $81 million in 1997. Included in
other income was the sale of product rights totaling $124 million in
1998 and $120 million in 1997. On Dec. 31, 1998, the U.S. Food and Drug
Administration (FDA) approved Celebrex(R) for the treatment of the signs
and symptoms of osteoarthritis and adult rheumatoid arthritis.
Technological cost increases were driven by late-stage, more expensive
clinical trials.
Pretax net unusual charges in 1998 totaled $29 million and
included a gain of $35 million for the reversal of a prior year
restructuring reserve; and $64 million of charges, primarily for asset
impairments ($42 million) and workforce reductions ($22 million).
OUTLOOK
As of February 25, 2000, Celebrex(R) had been approved in 41
countries, representing more than 53 percent of the worldwide
prescription anti-arthritic market, and launched in 28 of these
countries, covering most of the Western Hemisphere and certain European
and Asia-Pacific countries. It is anticipated that, following the first
European Union (EU) approval of Celebrex(R) in Sweden on Dec. 3, 1999,
Celebrex(R) will be approved and launched in almost all EU countries during
2000. Searle and Pfizer Inc. will co-promote Celebrex(R) in all countries
except Japan, where Searle has formed an alliance with Yamanouchi
Pharmaceutical Co. to develop and commercialize the drug. On Dec. 3,
1999, the U.S. FDA approved Celebrex(R) as an oral adjunct to usual care
for patients with familial adenomatous polyposis (FAP) - a rare disease
which left, untreated almost, always leads to colorectal cancer.
Celebrex(R) is the first pharmacological agent to be indicated to reduce
the number of polyps in FAP patients. In 2000, Searle will begin
commercial activities related to the new FAP indication, which
represents the first oncology-related application for the product. In
early 2000, Searle initiated long-term clinical studies, in
collaboration with the National Cancer Institute, in four additional
oncology applications: a type of colon cancer known as SAP; bladder
cancer; actinic keratosis (a type of skin cancer); and Barrett's
esophagus, a precursor to cancer of the esophagus.
Ambien(R), a short-term treatment for insomnia, continues as the
leader in the U.S. hypnotic market with a 53 percent share of total
prescriptions, despite the entry of the first new product competitor in
the hypnotic market in years. Ambien(R) is licensed to a joint venture in
which Searle is a general partner. Under the joint venture agreement
amended in 1998, Searle's share of profits will be gradually reduced
from 90 percent in 1998 to 51 percent in early 2002. The partner will
buy-out Searle's interest in the joint venture on April 16, 2002.
Searle currently has 11 compounds in clinical trials. Searle's
research-and-development (R&D) pipeline is focused on three therapeutic
areas: arthritis/pain and inflammation; cardiovascular disease; and
oncology. Among the arthritis/inflammation candidates are valdecoxib,
which is in late Phase III trials and is being developed as a possible
analgesic for pain, osteoarthritis, and rheumatoid arthritis; and
parecoxib, which is also in late Phase III trials as an injectable COX-2
inhibitor for acute, moderate-to-severe pain.
Three compounds are under clinical development in the
cardiovascular pipeline. Eplerenone is being developed for the
treatment of heart failure and high blood pressure, and has entered
Phase III clinical trials for both indications. Tifacogin is entering
Phase III clinical trials for treatment of patients with sepsis. An
ASBT inhibitor, for treatment of high cholesterol, has recently entered
clinical development.
<PAGE>
Searle also has three oncology compounds under clinical
development. Celecoxib is being studied in Phase III trials as a
preventive drug for certain types of cancers (outlined above).
Leridistim is being developed to stimulate the replenishment of white
blood cells and platelets in chemotherapy patients. Leridistim is
currently in Phase III clinical trials. Progenipoietin is being
developed
15
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<PAGE>
in conjunction with cancer vaccines to support cancer immune therapy and
independently to stimulate blood cell replenishment in chemotherapy
patients. Progenipoietin and cancer vaccine programs are in early
clinical development.
Management expects technological expenses and selling expenses to
increase in the next few years as Searle continues its commitment to
discovering and developing new products, and as it commercializes
products now in the R&D pipeline. It is anticipated that these
increased expense levels will be supported by increased sales from
Celebrex(R) and, longer term, by additional new product launches.
- ------------------------------------------------------------------------
CORPORATE AND OTHER
========================================================================
The Corporate and Other segment comprises various smaller
businesses, as well as certain corporate items that are not allocated to
the segments. Net sales decreased in 1999 from 1998 levels by $78
million. This decline was primarily driven by lower sales of Enviro-
Chem's environmental abatement products, the divestiture of the Orcolite
opthalmics business in 1998, and shutdown of the Diamonex optical
products division in 1998. Also contributing to the sales decline was
the divestment of the company's interest in the health and wellness
business area in the first half of 1999.
EBIT (excluding unusual items) for the corporate and other segment
recorded a loss of $270 million in 1999 compared with a loss of $290
million in 1998. The segment loss decreased principally because of lower
SG&A expenses due to fewer product lines, partially offset by increased
spending associated with nutrition research operations in 1999. Unusual
items from continuing operations in 1999 included a net pretax gain of
$31 million primarily related to the reversal of restructuring reserves
established in 1998, required because actual severance and facility
shut-down costs were lower than originally estimated.
PRIOR YEAR REVIEW
Corporate and Other segment net sales decreased in 1998 from 1997
levels by $63 million. This change was primarily driven by lower sales
of Enviro-Chem's environmental abatement products. The divestiture of
the Orcolite opthalmics business in the second quarter of 1998 also
contributed to the sales decline. Monsanto also shut down the Diamonex
optical products division in 1998.
On an EBIT (excluding unusual items) basis, the corporate and
other segment recorded a loss of $290 million in 1998 compared with a
loss of $218 million in 1997. The segment loss increased principally
because of the sales decline in the segment and because of higher
selling, general and administrative (SG&A) and technological spending,
primarily related to incentive compensation and information technology
expenses.
In 1998, unusual charges included pretax restructuring and other
special charges of $145 million, principally for the cost of facility
shutdowns ($64 million) and asset impairments ($67 million). There were
no unusual items in the Corporate and Other segment in 1997.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
==================================================================================================================================
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $980 $1,288 $3,279
Income (Loss) from Discontinued
Operations Before Income Tax 150 (158) 506
Income Tax Expense (Benefit) 58 (39) 185
Net Income (Loss) from
Discontinued Operations 92 (119) 321
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DISCONTINUED OPERATIONS INCLUDE THE ALGINATES, ARTIFICIAL SWEETENERS,
ORTHO LAWN-AND-GARDEN AND BIOGUMS BUSINESSES. THESE BUSINESSES
MANUFACTURE AND MARKET SWEETENERS (INCLUDING NUTRASWEET(R) BRAND SWEETENER
AND EQUAL(R) AND CANDEREL(R) TABLETOP SWEETENERS), LAWN-AND-GARDEN PRODUCTS,
ALGINS, BIOGUMS, AND OTHER FOOD INGREDIENTS. DISCONTINUED OPERATIONS FOR
1997 ALSO INCLUDES THE CHEMICALS BUSINESS WHICH WAS SPUN OFF TO
SHAREHOLDERS ON SEPT. 1, 1997.
Net sales for discontinued operations decreased in 1999 compared
with 1998 primarily because of the Jan. 1999 divestiture of the Ortho
lawn-and-garden products business. In Jan. 1999, the company sold its
lawn-and-garden products business, exclusive of Roundup(R) herbicide, to
The Scotts Company. Revenues for NutraSweet(R), the company's trademark
aspartame product, and for tabletop sweeteners declined in 1999 compared
with 1998 reflecting increased competition. Biogum sales declined
modestly as sales of xanthan and gellan gum products declined due to a
recession in the oil field industry.
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<PAGE>
Income from discontinued operations was $92 million, net of tax of
$58 million, compared with a loss of $119 million, net of tax benefit of
$39 million in the prior year. This increase of $211 million was
primarily because 1998 discontinued operations included restructuring
charges of $220 million aftertax ($298 million pretax), principally for
the cost of facility shutdowns ($187 million pretax), asset impairments
($84 million pretax), and workforce reductions ($27 million pretax).
Unusual items in 1999 included a net gain of $2 million aftertax which
included the reversal of $27 million aftertax of 1998 restructuring
reserves and charges of $25 million aftertax associated with cost to
exit the alginates business.
Income tax expense for discontinued operations for 1999 and 1998
exceeded the 35 percent U.S. federal statutory rate primarily because of
a nondeductible write-off of intangibles assets associated with the
alginates business. Income tax expense for discontinued operations for
1997 exceeded the U.S. federal statutory amount primarily because of
nondeductible exit costs incurred to separate the chemicals business.
In October 1999, the company completed the sale of the alginates
business for proceeds of $40 million, which resulted in an aftertax loss
of $25 million on the sale from discontinued operations. Offsetting
this loss on disposal were restructuring liability reversals of $27
million aftertax, representing severance and facility shut-down costs
originally estimated which were no longer required as a result of the
sale of the business on terms more favorable than originally
anticipated.
On Feb. 4, 2000, Monsanto announced the signing of a definitive
agreement to sell the tabletop sweetener business, including the Equal(R),
Canderel(R) and NutraSweet(R) tabletop brands, to Tabletop Acquisition Corp.
(TAC). Expected proceeds of $570 million from the sale will primarily
be used to reduce debt. On February 22, 2000, Monsanto announced the
signing of a definitive agreement to sell the biogums business to a
joint venture between Hercules Inc. and Lehman Brothers Merchant Banking
Partners II, L.P. Expected proceeds of $685 million will primarily be
used to reduce debt.
PRIOR YEAR REVIEW
Net sales for discontinued operations decreased in 1998 compared
with net sales in 1997, primarily because of the spinoff to shareholders
of the chemicals business in Sept. of 1997. Sales of NutraSweet(R), the
company's trademark aspartame product, decreased 17 percent in 1998
compared with sales in 1997, because of lower sales volumes. Sales of
tabletop sweeteners rose modestly in 1998, reflecting market share gains
in the United States and higher sales of sweetener products in Latin
America. Biogum sales rose from sales of xanthan and gellan gum products
to food manufacturers and to industrial customers.
Discontinued operations reported a net loss of $119 million in
1998 compared with net income of $321 million in 1997. This decrease of
$440 million is primarily because the chemical company results were no
longer included in 1998 discontinued operations and unusual charges
included pretax restructuring charges of $298 million, principally for
the cost of facility shutdowns ($187 million), asset impairments ($84
million), and workforce reductions ($27 million). Unusual items in
1997 included $51 million of pretax charges for in-process R&D related
to the acquisition of the Calgene oils business.
REVIEW OF CHANGES IN FINANCIAL POSITION
The company's working capital improved $622 million to $2.0
billion compared with $1.4 billion at the end of 1998, primarily because
of increases in cash and cash equivalents, trade receivables, and
decreases in short-term debt, partially offset by increases in marketing
program accruals and other miscellaneous accruals. Cash and cash
equivalents at year-end 1999 increased to $284 million from $89 million
in 1998. Trade receivables at year-end 1999 increased compared with
those at the prior year-end primarily because of higher sales levels
from both business segments. Higher collections from increased sales in
1999 enabled the company to reduce short-term debt by $289 million in
1999. Increased sales in the fourth quarter of 1999 resulted in a 46
percent increase in marketing programs and a 30 percent increase in
other miscellaneous accruals compared with the prior year. Working
capital as a percent of net sales was 22 percent in 1999 compared with
20 percent in 1998. Working capital requirements were lower in 1999,
primarily because of higher sales levels and business divestments. The
current ratio improved to 1.5 compared with 1.4 at year-end 1998.
Net cash provided by continuing operations increased $657 million
from the prior year primarily from improved management of working
capital and increased income from continuing operations of $634 million.
Cash provided by continuing operations totaled $891 million in 1999
compared with $234 million in 1998, which included the collection of
$180 million of miscellaneous receivables related to 1997 Pharmaceutical
licensing and product rights sales. Partly offsetting these increases
in cash were tax payment increases of $128 million.
<PAGE>
Monsanto's operations have historically generated sufficient cash
to fund both its existing businesses and its research and development
expenses. Cash provided by continuing operations is a major source of
working capital funds. Monsanto also uses financial markets worldwide
to meet its financing needs. To the extent the company's cash provided
by operations was not sufficient to fund its cash needs at certain times
during the year, short-term borrowings were used to finance these
requirements. The company has available various short and medium-term
bank credit facilities, which are discussed in the Notes to Financial
Statements, Note 11 - Short-Term Debt and Credit Arrangements. These
credit facilities give Monsanto the financing flexibility it needs to
satisfy future short
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<PAGE>
and medium-term funding requirements. Improved working capital
management and proceeds from divestitures were used to reduce the
company's long-term debt by $356 million by year-end 1999. As a result,
the percentage of debt to total capitalization decreased 4 percent to 56
percent in 1999. In Dec. 1998, Monsanto issued $2.5 billion of long-
term debt with various maturities; and in Nov. 1998, Monsanto issued
17,500,000 units of 6.50 percent Adjustable Conversion-rate Equity
Security Units with a public offering price of $40 per unit (stated
value), or $700 million. The company also issued 25 million shares of
common stock for $944 million in Nov. 1998. Further details related to
Monsanto's commitments and contingencies are described in the Notes to
Financial Statements, Note 20 - Commitments and Contingencies.
In 1999, 1998 and 1997, investment and property disposal proceeds
were largely related to sales of nonstrategic properties and
investments. Major uses of cash in 1999, 1998 and 1997 included
investments, capital expenditures, dividends and treasury stock
purchases. Investments in 1999 included acquisitions and joint ventures
in plant biotechnology and equity investments. Major investments in 1998
included the acquisitions of DEKALB, certain international seed
operations of Cargill, and PBIC. Major investments in 1997 were the
acquisitions of Holden's, Corn States, the remaining interest in Calgene
Inc., the Asgrow Agronomics business, and Agroceres Net property,
plant and equipment at the end of 1999 was approximately $455 million
higher than the comparable period of 1998. Capital expenditures of $1.0
billion and the effects of $121 million of acquisitions were only
partially offset by 1999 non-cash charges and $472 million of
divestitures. The decrease in intangible assets was attributable
primarily to amortization expense for the year.
SHAREOWNER MATTERS
Monsanto has paid quarterly dividends on its common shares without
interruption since 1928. Throughout 1999, the quarterly dividend paid
was $0.03 per share. The dividend rate reflects a policy adopted by the
board of directors following the spinoff of the company's chemical
businesses in 1997, to fund the company's growth opportunities to create
long-term economic value for shareowners. Monsanto's common stock is
traded principally on the New York Stock Exchange. The number of
shareowners of record as of Feb. 25, 1999, was 54,251. The high and low
common stock prices for the year were $50 13/16 and $32 3/4,
respectively.
- ------------------------------------------------------------------------
ADDITIONAL FINANCIAL INFORMATION
========================================================================
RISK MANAGEMENT
Monsanto continually evaluates risk retention and insurance levels
for product liability, property damage, and other potential areas of
risk. Monsanto devotes significant efforts to maintaining and improving
safety and internal control programs, which reduce its exposure to
certain risks. Management decides the amount of insurance coverage to
purchase from unaffiliated companies and the appropriate amount of risk
to retain based on the cost and availability of insurance and the
likelihood of a loss. Since 1986, Monsanto's liability insurance has
been a "claims made" policy form. Management believes that the current
levels of risk retention are consistent with those of comparable
companies in the industries in which Monsanto operates. There can be no
assurance that Monsanto will not incur losses beyond the limits of, or
outside the coverage of, its insurance. Monsanto's liquidity, financial
position, and profitability are not expected to be affected materially
by the levels of risk retention that the company accepts.
Y2K - STATE OF READINESS
Monsanto's preparations for the year 2000 were successfully
completed. The company remediated and tested its internal business
application systems and information technology infrastructure and
embedded systems components vital to serving customer needs. It also
monitored the year 2000 compliance efforts of its key suppliers and
customers and developed and tested business continuity plans. The total
costs associated with this three-year effort are projected at
approximately $35 million, with almost all that amount incurred prior to
Jan. 2000. Monsanto has not experienced any significant disruptions in
its business due to year 2000 problems to date and is committed to
making certain that its systems and processes continue to function
properly in the future.
EURO CONVERSION
On Jan. 1, 1999, 11 of the 15 member countries of the European
Union established fixed conversion rates between their national
currencies and the euro. During the transition period, from Jan. 1,
1999, until June 30, 2002, both the national currencies and the euro
will be legal currencies. Beginning July 1, 2002, the national
currencies of the participating countries no longer will be legal tender
for any transactions.
In September 1997, Monsanto formed a cross-functional team and
engaged a consultant to address issues associated with the
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<PAGE>
<PAGE>
euro conversion. As of Jan. 1, 1999, Monsanto began to engage in euro-
denominated transactions and was legally compliant. Monsanto expects to
have all affected information systems fully converted by April 2002.
Monsanto does not expect the euro conversion to have a material effect
on its competitive position, business operations, financial position or
results of operations.
MARKET RISK MANAGEMENT
Monsanto is exposed to market risk, including changes in interest
rates, currency exchange rates, and commodity prices. To manage the
volatility relating to these exposures, the company enters into various
derivative transactions. Monsanto does not hold or issue derivative
financial instruments for trading purposes. For more information about
how Monsanto manages specific risk exposures, see the currency
translation note, the inventories note, and the long-term debt note, in
Notes to Financial Statements.
The tables below provide information about the company's
derivative instruments and other financial instruments that are
sensitive to changes in interest rates, currency exchange rates and
commodity prices. The financial instruments are grouped by market risk
exposure category. Instrument denominations are indicated in
parentheses. For instruments denominated in currencies other than the
U.S. dollar, the information is presented in U.S. dollar equivalents,
which is the company's reporting currency.
Significant interest rate risk sensitive instruments as of Dec. 31,
1999, were:
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except
average interest rate) 2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT:
Fixed rate ($US)
Principal amount $ 533 $ 19 $ 738 $ 22 $2,774 $4,086 $3,724
Average interest rate 5.6% 8.3% 6.1% 8.1% 6.7% 6.5%
Fixed rate (Japanese yen)
Principal amount<F1> $ 99 $ 99 $ 136
Average interest rate 5.6% 5.6%
Variable rate ($US)
Principal amount<F1> $1,070 $ 107 $ 333 $ 7 $ 201 $1,718 $1,746
Average interest rate<F2> 5.9% 5.0% 5.3% 5.7% 5.6% 5.7%
SHORT-TERM DEBT:
Fixed rate ($US)
Principal amount $ 161 $ 161 $ 161
Average interest rate 6.1% 6.1%
Variable rate ($US)
Principal amount $ 562 $ 562 $ 565
Average interest rate<F2> 6.2% 6.2%
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Includes $1.0 billion of commercial paper that is assumed to be renewed through 2001, when the company's $1.0 billion credit
facility expires.
<F2> Average variable rates are based on 1999 year-end variable rates. Actual rates in future years may be higher or lower.
</TABLE>
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<PAGE>
<PAGE>
Significant currency exchange rate risk sensitive instruments as of Dec.
31, 1999 (dollars in millions):
<TABLE>
<CAPTION>
AVERAGE
NOTIONAL EXCHANGE FAIR
EXPECTED MATURITY 2000 AMOUNT RATE<F1> VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FORWARD CONTRACTS:
Sale of British pound $382 0.609 $375
Sale of Canadian dollar 41 1.467 41
Sale of Australian dollar 48 1.566 48
Sale of South African rand 32 6.135 32
Sale of Mexican peso 14 9.561 14
Sale of Polish zloty 47 4.210 47
Sale of Czech crown 29 35.471 29
Sale of Philippine peso 10 40.460 10
Sale of Hungarian forint 8 249.100 8
Sale of Indonesian rupiah 24 8057.988 27
Sale of European Euro 113 0.948 109
Purchase of Japanese yen 78 104.083 80
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Average contract exchange rates are stated in currency units per U.S. dollar.
</TABLE>
As of Dec. 31, 1999, Monsanto had purchased currency option
contracts to sell $72 million of various currencies which had a fair
value of approximately $1 million.
Significant commodity price risk sensitive instruments as of Dec. 31,
1999:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
EXPECTED
MATURITY FAIR
2000 VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PURCHASED CORN FUTURES CONTRACTS:
Contract volumes (million bushels) 13.6
Weighted average price (per bushel) $ 2.05
Contract amount ($US in millions) $ 28 $ 28
PURCHASED SOYBEAN FUTURES CONTRACTS:
Contract volumes (million bushels) 15.9
Weighted average price (per bushel) $ 4.89
Contract amount ($US in millions) $ 78 $ 75
SOLD LEAN HOGS FUTURES CONTRACTS:
Contract volumes (million hundred weight) 0.2
Weighted average price (per hundred weight) $ 54.40
Contract amount ($US in millions) $ (9) $ (9)
- ----------------------------------------------------------------------------------------------------------------------------------
Contract amounts are used to calculate the contractual payments and quantity of the
commodity to be exchanged.
</TABLE>
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<PAGE>
- ------------------------------------------------------------------------
CAUTIONARY STATEMENTS 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 is 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(R) 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 continue to 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 has significantly reduced the sales price of
Roundup(R) in the United States. This price elasticity strategy is designed
to increase demand for Roundup(R) in the United States by making Roundup(R)
more economical, encouraging both new uses of the product and expansion
of the number of acres treated. Monsanto's experience in numerous
markets worldwide, and to date in the United States, has been that price
reductions have stimulated volume growth. However, such volume increases
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 experienced to date by Monsanto, may or may
not continue.
Production Cost Decreases: Monsanto also believes that increased
volumes and technological innovations will lead to efficiencies that
will reduce the production cost of glyphosate. Such cost reductions
will depend on realizing such increased volumes and innovations, and
securing the resources required to expand production of Roundup(R).
Realization and Introduction of New Biotech Products: The company's
ability to develop and introduce to market new agricultural biotech
products, including new Roundup Ready(R) crops, will be dependent, among
other things, upon the availability of sufficient financial resources to
fund research and development needs, demonstrated product effectiveness,
the company's ability to develop, purchase or license required
technology, the existence of sufficient distribution channels and the
acceptance and competition factors discussed below.
<PAGE>
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. Biotechnology has
enjoyed and continues to enjoy substantial support from the scientific
community, regulatory agencies and many governmental officials around
the world (including in the United States). 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
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<PAGE>
economic practices. For instance, consumer groups have brought lawsuits
in various countries seeking to halt industry activities with respect to
products developed through biotechnology. Securing governmental
approvals for, and consumer confidence in, such products poses numerous
challenges, particularly outside the United States. Some countries also
have labeling requirements. In some markets, because these crops are
not yet approved for import, growers in other countries may be
restricted from introducing or selling their grain. In these cases, the
grower may have to arrange to sell the grain only in the domestic market
or to use the grain for feed on his or her farm. The market success of
Monsanto's products developed through biotechnology could be delayed or
impaired in certain geographical areas because of such factors.
Technological Change and Competition: A number of companies are engaged
in plant biotechnology research. Technological advances by others could
render Monsanto's products less competitive. In addition, the ability
to be first to market a new product can result in a significant
competitive advantage. Monsanto believes that competition will
intensify, not only from agricultural biotechnology firms but from major
agrichemical, seed and food companies with biotechnology laboratories.
Some of Monsanto's agricultural competitors have substantially greater
financial, technical and marketing resources than Monsanto does.
Successful Integration of Recent Transactions: Monsanto has made
significant acquisitions, mergers and joint ventures involving seed,
agricultural biotechnology and grain processing companies. These
transactions are designed to strengthen Monsanto's capability to bring
important new life sciences products to customers worldwide, and to
contribute to the company's long-term growth. It is anticipated that
the acquisitions of DEKALB Genetics Corporation, Plant Breeding
International Cambridge Limited, and certain international seed operations
of Cargill, Incorporated, 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 synergy's 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. As
they have for all of 1999, crop commodity prices continue to be at
historically low levels. There can be no assurance that this trend will
not continue. These lower commodity prices affect growers' decisions
about the types and amounts of crops to plant and may negatively
influence sales of Monsanto's herbicide and seed products.
FACTORS AFFECTING THE PHARMACEUTICALS SEGMENT
Ability to Realize Potential of Existing Pipeline Products:
Pharmaceutical R&D is subject to inherent uncertainty, difficulties and
delays. These include, but are not limited to, successful completion of
clinical trials and the ability to obtain regulatory approval for the
compounds worldwide. Failure to receive government approvals as
anticipated could preclude or substantially delay commercialization of
products in the company's R&D programs.
Development and Commercialization of New Products and Expansion of
Existing Product Uses: The Pharmaceuticals Segment's long-term success
will depend in great part on its ability to commercialize new products
(including second generation products) and to expand the use of its
existing products by developing new indications for such products. Such
efforts require substantial funding of R&D and, in the case of new
products, launch expenses. If Monsanto is unable to earn or borrow
sufficient resources to fund such expenses, its ability to develop new
products and expand uses of existing products will suffer. Further, the
outcome of R&D is inherently difficult to predict. Anticipated results
may never materialize, or they may not be promising enough. Even when
new pharmaceutical products are marketed, there can be no guarantees of
their commercial success. Consumer demand and competitive factors,
including the availability and price of treatment alternatives,
influence sales. In addition, timing is crucial. The results of R&D of
new pharmaceutical products are difficult to forecast, and new products
must be carefully deployed, with resources sufficient to realize the
full value of the products.
<PAGE>
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.
22
<PAGE>
<PAGE>
Competition: Pharmaceutical research is intense and highly competitive.
It is characterized by rapid technological change. Depending on the
product involved, competition may be encountered in price, delivery,
service, performance, innovation, brand recognition and quality. Many
of Monsanto's pharmaceutical competitors have greater research,
financial, marketing and other resources than Monsanto does. Some of
Monsanto's trademarked pharmaceutical products also face increasing
pressures from producers of lower-priced generic products and from new
products entering the marketplace. Finally, as the company introduces
new products intended for use in the treatment of the same conditions as
existing Monsanto products, sales of such existing products may suffer.
Pricing: Managed care groups, health care organizations and government
agencies worldwide actively seek discounts and lower prices on
pharmaceutical products. Monsanto's challenge is to provide overall
economic benefits to health care providers and negotiate prices for
specific products that will allow it to profit at acceptable levels.
FACTORS AFFECTING ALL SEGMENTS
Financial Requirements: 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.
Intellectual property positions are becoming increasingly important
within the agricultural biotechnology and pharmaceutical industries, as
products developed through biotechnology become a larger part of the
product landscape.
Monsanto generally relies upon patent and trademark laws worldwide to
establish and maintain its proprietary rights in its technology and
products. There is some uncertainty about the value of available patent
protection in certain countries outside the United States. Moreover,
the patent positions of biotechnology and pharmaceutical companies
involve complex legal and factual questions. Rapid technological
advances and the number of companies performing such research can create
an uncertain environment. Patent applications in the United States are
kept secret: outside the United States, patent applications are
published 18 months after filing. Accordingly, competitors may be
issued patents from time to time without any prior warning to the
company. That could decrease the value of similar technologies under
development at Monsanto. Because of this rapid pace of change, some of
the company's products may unknowingly rely on key technologies
developed by others. If that occurs, the company must obtain licenses
to such technologies in order to continue to use them.
Certain of Monsanto's germplasm and other genetic material, patents, and
licenses are currently the subject of litigation and additional future
litigation is anticipated. Although the outcome of such litigation
cannot be predicted with certainty, Monsanto will continue to defend and
litigate its positions vigorously. The company believes it has
meritorious defenses and claims in the pending suits.
Markets Outside the United States: Sales outside the United States made
up approximately 38 percent of the company's 1999 revenues and Monsanto
intends to continue to actively explore international sales
opportunities. Challenges the company may face in international markets
include changes in foreign currency exchange rates, changes in a
specific country's or region's political or economic conditions, trade
protection measures, import or export licensing requirements, and
unexpected changes in regulatory requirements. In particular, the
decline in certain Latin American economies may, if not reversed,
adversely affect future income. Also, future sales may decrease because
the decline in such economies could cause customers to purchase fewer
goods in general, and also because imported Monsanto products could
become more expensive for customers to purchase in their local currency.
Joint Ventures and Alliances: The company plans to continue to
frequently explore the potential benefits of possible strategic
alliances and joint ventures. Such arrangements can help speed the
development and commercialization of new products or assist in product
distribution and marketing. However, despite its efforts, the company
may be unable to reach agreement with third parties with whom it desires
to enter into a joint venture or other alliance.
<PAGE>
Divestitures: In 1999, Monsanto announced its intention to sell several
non-strategic business, including many of the businesses comprising the
Nutrition & Consumer Sector. Since that announcement, Monsanto has sold
several of these businesses and has reached agreements to sell others.
Monsanto's success in selling the remaining businesses included in its
divestiture plan will depend on its ability to negotiate acceptable
sales prices for such businesses which in turn is largely dependent on
the long-term prospects and strategic value of the businesses and the
availability of buyers with sufficient financial resources.
23
<PAGE>
<PAGE>
<TABLE>
================================================================================================================================
STATEMENT OF CONSOLIDATED INCOME (LOSS)
================================================================================================================================
<CAPTION>
Year Ended Dec. 31,
(Dollars in millions, except per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $9,146 $7,237 $6,058
Costs, expenses and other:
Cost of goods sold 3,272 2,912 2,382
Selling, general and administrative expenses 2,984 2,129 1,745
Technological expenses 1,373 1,308 1,049
Acquired in-process research and development 402 633
Amortization and adjustment of intangible assets 374 286 121
Restructuring and other special items (15) 153
Interest expense 345 210 135
Interest income (45) (47) (45)
Other expense (income) - net 107 (31) (89)
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 751 (85) 127
Income taxes (benefits) 248 46 (22)
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS $ 503 $ (131) $ 149
- --------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Discontinued Operations, Net of income
taxes (benefits) of $30, ($39) and $185, respectively 57 (119) 321
Gain on Sale of Discontinued Operations, Net of
taxes of $28 million 35
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ 595 $ (250) $ 470
Cumulative Effect of a Change in Accounting Principle, Net of a
tax benefit of $12 million (20)
================================================================================================================================
NET INCOME (LOSS) $ 575 $ (250) $ 470
================================================================================================================================
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations $ 0.79 $(0.22) $ 0.26
Discontinued operations 0.09 (0.19) 0.54
Gain on sale of discontinued operations 0.06
Cumulative effect of accounting change (0.03)
- --------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 0.91 $(0.41) $ 0.80
================================================================================================================================
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations $ 0.77 $(0.22) $ 0.24
Discontinued operations 0.09 (0.19) 0.53
Gain on sale of discontinued operations 0.05
Cumulative effect of accounting change (0.03)
- --------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 0.88 $(0.41) $ 0.77
================================================================================================================================
The above statement should be read in conjunction with Notes to Financial Statements.
</TABLE>
24
<PAGE>
<PAGE>
<TABLE>
================================================================================================================================
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
================================================================================================================================
<CAPTION>
(Dollars in millions, except per share amounts)
ASSETS 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 284 $ 89
Trade receivables, net of allowances of $167 in 1999 and $87 in 1998 2,618 2,119
Miscellaneous receivables, prepaid expenses and other 711 777
Deferred income tax asset 446 488
Inventories 1,728 1,722
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 5,787 5,195
- --------------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 121 135
Buildings 1,196 1,133
Machinery and equipment 3,415 3,175
Construction in progress 1,022 742
- --------------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment 5,754 5,185
Less accumulated depreciation 2,434 2,320
- --------------------------------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 3,320 2,865
- --------------------------------------------------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization of $257 in 1999 and $125 in 1998 3,776 4,496
Other intangible assets, net of accumulated amortization of $368 in 1999 and $269 in 1998 894 785
Other Assets 1,201 1,120
Net Assets of Discontinued Operations 1,557 1,924
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $16,535 $16,385
================================================================================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term debt $ 780 $ 1,069
Accounts payable $ 874 $ 823
Accrued marketing programs 487 334
Compensation and benefits 394 436
Restructuring reserves 52 222
Miscellaneous accruals 1,163 896
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,750 3,780
- --------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 5,903 6,259
POSTRETIREMENT LIABILITIES 962 848
OTHER LIABILITIES 571 512
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 1,504 1,389
Treasury stock, at cost (210,694,577 shares in 1999 and 217,632,240 shares in 1998) (2,430) (2,508)
Reinvested earnings 5,150 4,652
Reserve for ESOP debt retirement<F1> (82) (106)
Accumulated other comprehensive loss (487) (135)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREOWNERS' EQUITY 5,349 4,986
================================================================================================================================
Total Liabilities and Shareowners' Equity $16,535 $16,385
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> ESOP stands for Employee Stock Ownership Plan.
The above statement should be read in conjunction with Notes to Financial Statements.
</TABLE>
25
<PAGE>
<PAGE>
<TABLE>
================================================================================================================================
STATEMENT OF CONSOLIDATED CASH FLOW
================================================================================================================================
<CAPTION>
Year Ended Dec. 31,
(Dollars in millions) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes 751 (85) 127
Adjustments to reconcile to Cash Provided by Continuing Operations:
Income tax (payments) refunds (84) 44 (134)
Items that did not use (provide) cash:
Depreciation and amortization 730 518 378
Acquired in-process research and development expenses 402 633
Restructuring and other unusual items 57 340
Other 92 49 (27)
Working capital changes that provided (used) cash:
Accounts receivable (497) (700) (230)
Inventories (36) (223) (120)
Accounts payable and accrued liabilities 114 (280) (238)
Receivables from licensing arrangements (109) 180 (232)
Other (22) (55) (73)
Other items (105) 44 (83)
- --------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY CONTINUING OPERATIONS 891 234 1
CASH PROVIDED BY DISCONTINUED OPERATIONS 171 198 215
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CASH PROVIDED BY OPERATIONS 1,062 432 216
- --------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Property, plant and equipment purchases (976) (859) (583)
Seed company acquisitions and investments (86) (4,061) (1,325)
Other acquisitions and investments (35) (231) (358)
Investment and property disposal proceeds 472 199 88
Discontinued operations 288 (143) (365)
- --------------------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (337) (5,095) (2,543)
- --------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net change in short-term financing (289) (282) 2,372
Long-term debt proceeds 24 3,878 208
Long-term debt reductions (380) (85) (142)
Common stock issuance 944
Dividend payments (77) (73) (294)
Common stock issued under employee stock plans 78 62 91
Cash transferred to Solutia Inc. (75)
Other financing activities 114 174 135
- --------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (530) 4,618 2,295
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 195 (45) (32)
CASH AND CASH EQUIVALENTS:
Beginning of year 89 134 166
- --------------------------------------------------------------------------------------------------------------------------------
End of Year $ 284 $ 89 $ 134
================================================================================================================================
The effect of exchange rate changes on cash and cash equivalents was not material.
Cash payments for interest (net of amounts capitalized) were $328 million in 1999,
$331 million in 1998, and $210 million in 1997.
The above statement should be read in conjunction with Notes to Financial Statements.
</TABLE>
26
<PAGE>
<PAGE>
<TABLE>
================================================================================================================================
STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY
================================================================================================================================
<CAPTION>
(Dollars in millions)
Year Ended Dec. 31,
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Balance, Jan. 1 $ 1,694 $ 1,644 $ 1,644
Issuance of shares (24,956,250 shares in 1998) 50
- --------------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31 $ 1,694 $ 1,694 $ 1,644
- --------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL CONTRIBUTED CAPITAL:
Balance, Jan. 1 $ 1,389 $ 321 $ 65
Employee stock plans and ESOP<F1> 119 174 135
Issuance of shares (4) 894
Spinoff of chemical businesses 121
- --------------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31 $ 1,504 $ 1,389 $ 321
- --------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK:
Balance, Jan. 1 $(2,508) $(2,570) $(2,661)
Net shares issued under employee stock plans (6,937,663 in 1999;
9,054,062 shares in 1998; and 10,908,529 shares in 1997) 78 62 91
- --------------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31 $(2,430) $(2,508) $(2,570)
- --------------------------------------------------------------------------------------------------------------------------------
REINVESTED EARNINGS:
Balance, Jan. 1 $ 4,652 $ 4,973 $ 4,795
Net income (loss) 575 (250) 470
Dividends (net of ESOP<F1> tax benefits) (77) (71) (292)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31 $ 5,150 $ 4,652 $ 4,973
- --------------------------------------------------------------------------------------------------------------------------------
RESERVE FOR ESOP DEBT RETIREMENT:
Balance, Jan. 1 $ (106) $ (123) $ (174)
Allocation of ESOP<F1> shares 24 17 20
Spinoff of chemical businesses 31
- --------------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31 $ (82) $ (106) $ (123)
- --------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
- --------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED CURRENCY ADJUSTMENT:
Balance, Jan. 1 $ (116) $ (128) $ 10
Translation adjustments (350) 12 (127)
Spinoff of chemical businesses (11)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31 $ (466) $ (116) $ (128)
- --------------------------------------------------------------------------------------------------------------------------------
UNREALIZED NET GAINS (LOSSES) ON INVESTMENTS:
Balance, Jan. 1 $ 14 $ 3 $ 11
Unrealized gains (losses) on investments (5) 11 (8)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31 $ 9 $ 14 $ 3
- --------------------------------------------------------------------------------------------------------------------------------
MINIMUM PENSION LIABILITY:
Balance, Jan. 1 $ (33) $ (16) $
Additional minimum pension liability adjustment 3 (17) (16)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, Dec. 31 $ (30) $ (33) $ (16)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance, Dec. 31 $ (487) $ (135) $ (141)
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1>ESOP stands for Employee Stock Ownership Plan
The above statement should be read in conjunction with Notes to Financial Statements.
</TABLE>
27
<PAGE>
<PAGE>
<TABLE>
================================================================================================================================
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
================================================================================================================================
<CAPTION>
Year Ended Dec. 31,
(Dollars in millions) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME (LOSS) $ 575 $(250) $ 470
- --------------------------------------------------------------------------------------------------------------------------------
Other Comprehensive Loss:
Foreign currency translation adjustments (350) 12 (138)
Unrealized net holding gains (losses) on investments:
Unrealized net holding gains (losses) arising during
period, before tax (4) (1) (12)
Related income tax (expense) benefit (1) 2 4
Reclassification adjustments for losses included in net income 16
Related income tax (expense) benefit (6)
Additional minimum pension liability adjustment, before tax 4 (24) (27)
Related income tax (expense) benefit (1) 7 11
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) (352) 6 (162)
- --------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 223 $(244) $ 308
================================================================================================================================
The above statement should be read in conjunction with Notes to Financial Statements.
<CAPTION>
================================================================================================================================
KEY FINANCIAL MEASURES (UNAUDITED) 1999 1998 1997
================================================================================================================================
<S> <C> <C> <C>
CURRENT RATIO (Current assets divided by current liabilities) 1.54 1.37
TRADE RECEIVABLES -- DAYS SALES OUTSTANDING 98 111
(Fourth-quarter trade receivables divided by fourth-quarter
net sales times 30 days)
INVENTORY TURNOVER RATIO (Cost of goods sold divided by inventory) 1.89 1.69
INTEREST COVERAGE<F1> 2.87 .60
(Income from continuing operations before interest expense
and income taxes divided by total interest cost)
CASH PROVIDED BY CONTINUING OPERATIONS/TOTAL DEBT 13% 4%
TOTAL DEBT/TOTAL CAPITALIZATION<F2> 56% 60%
AS A PERCENT OF NET SALES:
Selling, General and Administrative Expenses 33% 29% 29%
Technological Expenses 15 18 17
Research and Development Expenses<F3> 14 17 16
Income from Continuing Operations<F4> 5 2
================================================================================================================================
<FN>
<F1> If the effects of non-recurring expenses associated with a failed merger between Monsanto and D&PL, accelerated seed
integration costs, gain on divestiture of Stoneville, and reversal of restructuring liabilities established in 1998 were
excluded in 1999, the interest coverage ratio would have been 3.0. If the effects of the restructuring, in-process R&D
write-offs and other unusual items were excluded in 1998, the interest coverage ratio would have been 4.0.
<F2> Total capitalization is the sum of short-term debt, long-term debt and shareowners' equity.
<F3> Research and development expenses are included in total technological expenses.
<F4> This financial statistic is not meaningful for 1998 because Monsanto reported a loss from continuing operations.
</TABLE>
28
<PAGE>
<PAGE>
=========================================================================
NOTES TO FINANCIAL STATEMENTS
=========================================================================
The following notes relate to the continuing operations of Monsanto,
unless otherwise indicated.
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements are presented on the
basis of accounting principles that are generally accepted in the United
States of America. All professional accounting standards that are
effective as of Dec. 31, 1999, have been taken into consideration in
preparing the financial statements.
Basis of Consolidation
The consolidated financial statements pertain to the company
and its majority-owned subsidiaries. Intercompany transactions have
been eliminated in consolidation. Other companies in which Monsanto has
a significant ownership interest (generally greater than 20 percent) are
included in "Investments in Affiliates" in the Statement of Consolidated
Financial Position. Monsanto's share of these companies' net earnings
or losses is included in "Other expense (income) - net" in the Statement
of Consolidated Income (Loss).
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements, and that affect revenues and expenses during the period
reported. Estimates are adjusted to reflect actual experience when
necessary. Significant estimates are used to account for restructuring
reserves, self-insurance reserves, employee benefit plans, asset
impairments, in-process R&D, business acquisitions, and contingencies.
Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized when title to finished goods
inventories is transferred and goods are delivered to customers. Where
the right of return exists, sales revenues are reduced at the time of
sale to reflect expected returns. In addition, charges for
uncollectable receivables, approximately $90 million in 1999, are made
when uncollectability is considered probable. These are estimated based
on historical experience. License revenues and revenues from the sale
of product rights are recognized when the rights have been contractually
conferred to the licensee or purchaser. Additional conditions for
recognition of revenue are that the collection of sales proceeds is
reasonably assured and that Monsanto has no further performance
obligations under the sale or license agreement.
Technological Expenses
Technological expenses consist of research and development,
engineering, commercial development, and patent management costs.
Research and development costs are expensed as incurred. Engineering
costs for capital projects are expensed until the costs contribute
directly to the final design and installation of the asset, at which
time subsequent costs incurred are capitalized. Commercial development
and patent management costs are also expensed as incurred.
Currency Translation
The financial statements for most of Monsanto's entities
outside the United States are translated into U.S. dollars at current
exchange rates. Unrealized currency translation adjustments in the
Statement of Consolidated Financial Position are accumulated in
shareowners' equity as a component of Accumulated Other Comprehensive
Loss. The financial statements of ex-U.S. entities that operate in
highly inflationary economies are translated at either current or
historical exchange rates, as appropriate. These currency adjustments
are included in net income. Gains and losses on contracts that are
designated and effective as hedges are deferred and are included in the
recorded value of the transaction being hedged. Gains and losses on
other currency forward and option contracts are included in net income
immediately.
29
<PAGE>
<PAGE>
Goodwill and Intangible Assets
Goodwill, the excess of cost over the fair value of net
assets acquired, is being amortized using the straight-line method over
various periods not exceeding 40 years. Monsanto periodically reviews
goodwill to evaluate whether changes have occurred that would suggest
that goodwill may be impaired based on the estimated undiscounted cash
flows of the assets acquired over the remaining amortization period. If
this review indicates that the remaining estimated useful life of
goodwill requires revision or that the goodwill is not recoverable, the
carrying amount of the goodwill is reduced by the estimated shortfall of
cash flows on a discounted basis. Trademarks are assessed for
impairment periodically using undiscounted cash flows over the remaining
useful life of the trademark. If this review indicates that the
remaining estimated useful life of the trademark requires revision, the
carrying amount of the trademark is reduced by the estimated shortfall
of cash flows on a discounted basis. Patents obtained in a business
acquisition are recorded at the present value of estimated future cash
flows resulting from patent ownership. The cost of patents is amortized
over their legal lives. Intangible assets are recorded at cost less
accumulated amortization. The cost of other intangible assets
(principally seed germplasm) is amortized over their estimated useful
lives.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. The cost
of plant and equipment is depreciated over weighted average periods of
18 years for buildings and 10 years for machinery and equipment, by the
straight-line method for financial reporting purposes. Impairment tests
of long-lived assets are made when conditions indicate a possible loss.
Such impairment tests are based on a comparison of undiscounted cash
flows to the recorded value of the asset. If an impairment is
indicated, the asset value is written down to its fair market value or
using an appropriate discount rate, if fair market value is not readily
determinable.
Investments
The company has investments in securities that are
classified in the Statement of Consolidated Financial Position as either
short-term (with maturities of less than one year) or long-term (with
maturities beyond one year). The company also has investments in
equity securities, all of which are classified as non-current other
assets. Investments are further categorized as being held for sale or
held to maturity. Those investments classified as available-for-sale
securities are recorded at their market values. When a decline in
market value is deemed other than temporary, the reduction to the
investment in a security is charged to expense. When a change in market
value for these securities is deemed temporary, the resulting adjustment
net of deferred tax is reported as a component of other comprehensive
income. Investments categorized as held to maturity are carried at
amortized cost, without recognition of gains or losses that are deemed
to be temporary, because the company has the intent and resources to
hold these investments until maturity.
Inventory
Inventories are stated at the lower of cost or market.
Actual cost is used to value raw materials and supplies. Standard cost,
which approximates actual cost, is used to value finished goods and
goods in process. Standard cost includes direct labor and raw
materials, and manufacturing overhead based on practical capacity. The
cost of certain inventories (32 percent as of Dec. 31, 1999) is
determined by using the last-in, first-out (LIFO) method, which
generally reflects the effects of inflation or deflation on cost of
goods sold sooner than other inventory cost methods do. The cost of
other inventories generally is determined by the first-in, first-out
(FIFO) method. Inventories at FIFO approximate current cost.
Income Taxes
Monsanto applies an asset and liability approach to
accounting for income taxes. Deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary
differences between the financial statement and tax basis of assets and
liabilities generally using statutory tax rates. Income taxes and
remittance taxes are-not recorded on undistributed earnings of
subsidiaries, either because any taxes on dividends would be offset
substantially by foreign tax credits or because Monsanto intends to
reinvest those earnings indefinitely.
Environmental Remediation Liabilities
Monsanto follows SOP 96-1, "Environmental Remediation
Liabilities," which provides guidance for recognizing, measuring and
disclosing environmental remediation liabilities. The company accrues
for these costs in which responsibility is established and when costs
are probable and reasonably estimable based on current law and existing
technology. Postclosure and remediation costs for
30
<PAGE>
<PAGE>
hazardous and other waste facilities at operating locations are accrued
over the estimated life of the facility as part of its anticipated
closure cost.
Employee Stock Options
As permitted by Statement of Financial Accounting Standard
(FAS) No. 123, "Accounting for Stock-Based Compensation," the company
has elected to continue following the guidance of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," for
measurement and recognition of stock-based transactions with employees.
Reclassifications
As a result of discussions with the staff of the United
States Securities and Exchange Commission (SEC) and clarification of its
interpretation regarding the classification of certain transactions,
Monsanto agreed to reclassify certain revenues in the Statement of
Consolidated Income (Loss). As a result, the company has reclassified
revenues associated with the sales of pharmaceutical product rights from
net sales to other expense (income) - net for all periods presented. The
effect of this reclassification was to reduce net sales and increase
other income included in other expense (income) - net by ($124) million
and ($120) million in 1998 and 1997, respectively. In 1999, $50
million of sales of pharmaceutical product rights were included in other
expense (income) - net. This reclassification had no effect on net
income.
NOTE 2: NEW ACCOUNTING STANDARDS
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 on Jan. 1, 2001.
Monsanto is assessing its position and has not yet determined the effect
this statement will have on its consolidated financial position or
results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin 101,
"Revenue Recognition in Financial Statements" (SAB 101) which provides
guidance related to revenue recognition based on interpretations and
practices followed by the SEC. SAB 101 allows companies to report any
changes in revenue recognition related to adopting its provisions as an
accounting change at the time of implementation in accordance with APB
Opinion No. 20, "Accounting Changes." Monsanto recorded a cumulative
effect of a change in accounting principle, effective Jan. 1, 1999, for
revenue recognized in 1998 related to the sale of marketing rights to
The Scotts Company. The effect on earnings in 1999 was an aftertax loss
of $20 million, net of taxes of $12 million. The pretax amount of $32
million will be amortized to income over twenty years. If Monsanto had
recorded the sales of marketing rights as deferred revenues in 1998, net
income (loss) would have been $595 million in 1999 and ($270) million in
1998.
31
<PAGE>
<PAGE>
NOTE 3: GEOGRAPHIC DATA
<TABLE>
<CAPTION>
NET SALES TO
UNAFFILIATED CUSTOMERS TOTAL ASSETS
(Excluding Inter-area Sales)
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States $5,635 $4,020 $3,352 $ 8,773 $ 8,780
Europe - Africa 1,365 1,371 1,185 2,231 2,437
Latin America 1,152 993 685 3,115 2,534
Asia - Pacific 601 556 589 608 520
Canada 393 297 247 251 190
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM CONTINUING
OPERATIONS $9,146 $7,237 $6,058 $14,978 $14,461
- --------------------------------------------------------------------------------------------------------------------------------
Discontinued Operations<F1> 1,557 1,924
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL $9,146 $7,237 $6,058 $16,535 $16,385
================================================================================================================================
<FN>
<F1> Net sales from discontinued operations are not included in this presentation. See Notes to Financial Statements, Note 20 -
Discontinued Operations for further details.
</TABLE>
The data above are prepared on an "entity basis," which means that
net sales, operating income and assets of each legal entity are assigned
to the geographic area where that legal entity is located. For example,
a sale from the United States to Latin America is reported as a U.S.
export sale. Direct export sales from the United States to third-party
customers outside the United States were $72 million for 1999, $150
million for 1998, and $129 million for 1997. In 1999 and 1998,
respectively, net assets of discontinued operations include net effect
of current liabilities of $213 million and $272 million and noncurrent
liabilities of $15 million and $67 million.
NOTE 4: CURRENCY TRANSLATION
Currencies in which Monsanto has significant exposures are the
Euro (which, as of Jan. 1, 1999, replaced the Belgian franc, German
mark, Italian lira, and eight other European currencies), Brazilian
real, Argentine peso, and the U.K. pound sterling. Other currency
exposures include the Japanese yen, and the Canadian dollar. Currency
restrictions are not expected to have a significant effect on Monsanto's
cash flow, liquidity, or capital resources.
Currency option contracts are purchased to manage currency
exposure for anticipated transactions (for example, expected export
sales in the following year denominated in foreign currencies).
Currency option and forward contracts are used to manage other currency
exposures, primarily for receivables and payables denominated in
currencies other than the entities' functional currencies. This hedging
activity is intended to protect the company from adverse fluctuations in
foreign currencies compared with the entities' functional currencies.
As of Dec. 31, 1999, Monsanto had currency forward contracts to
purchase $78 million and to sell $748 million, and purchased currency
option contracts to sell $72 million, of various foreign currencies.
Gains and losses on contracts that are designated and effective as
hedges are deferred and are included in the recorded value of the
transaction being hedged. Monsanto is subject to loss if the
counterparties to these contracts do not perform. Net deferred hedging
losses as of Dec. 31, 1999, were not material.
Monsanto designated Ecuador, Turkey, Russia, Romania, and
Venezuela as hyperinflationary countries as of Jan. 1, 1999. Monsanto
designated the Brazilian economy as non-hyperinflationary as of Jan. 1,
1998, and established the Brazilian real as the functional currency. In
January, 1999, Brazil floated its currency - the real - in response to
worsening economic conditions. The value of the real fell by
approximately 40% after the float with a net immaterial impact on
Monsanto's 1999 results because of favorable hedge positions.
Throughout the remainder of the year, the real stabilized and ended the
year approximately 7% higher than its level immediately after the float.
The real has recovered due to the improving economic situation in Brazil
and due to the economic austerity plan implemented as a response to the
currency crisis.
NOTE 5: PRINCIPAL MERGERS, ACQUISITIONS, AND DIVESTITURES
On Dec. 19, 1999, Monsanto announced that it had entered into a
definitive agreement with Pharmacia & Upjohn Inc. (PNU) to combine the
two companies in a merger-of-equals transaction. As the transaction is
currently structured, Monsanto will change its
32
<PAGE>
<PAGE>
name to Pharmacia Corporation (Pharmacia) and holders of PNU common
stock will receive 1.19 shares of Pharmacia common stock for each share
of PNU common stock held on the date the transaction is consummated.
Each Monsanto share outstanding prior to the transaction will represent
one share of Pharmacia common stock. In conjunction with the creation
of the newly combined enterprise, it was announced that up to 19.9
percent of the agricultural products business is expected to be offered
in an initial public offering (IPO) as soon as practical following the
closing of the merger. The agricultural products business will become a
separate legal entity, with a separate board of directors and its own
publicly-traded securities upon completion of the intended IPO. The
transaction is subject to approval by both companies' shareowners,
normal governmental reviews and other customary conditions. The merger
is intended to qualify as a tax-free reorganization and to be accounted
for as a pooling of interests. Completion of the proposed merger is
expected to occur during the first half of 2000. Monsanto announced on
Feb. 22, 2000 that a special meeting of shareholders will be held on
March 23, 2000 to consider and vote upon the proposed merger. In the
unlikely event that the merger agreement is terminated under specified
circumstances, a party may be required to pay termination fees of $575
million to the other party. In connection with the merger agreement,
Monsanto and PNU entered into reciprocal stock option agreements which
become exercisable under circumstances in which a $575 million
termination fee is payable. The stock option agreements limit the
amount of profit either party is permitted to receive as a result of
both the receipt of a termination fee and the exercise of the option to
$635 million in total.
In connection with the merger and intended IPO, Monsanto adopted
Staff Accounting Bulletin 51, "Accounting for Sale of Stock by a
Subsidiary" (SAB 51) which provides guidance related to gain recognition
upon public sale of shares of a subsidiary. SAB 51 allows for the
recording of gains from the sale of newly issued shares of a subsidiary
directly to shareholder's equity.
On July 1, 1999, Monsanto announced its intention to sell the
artificial sweetener and biogum businesses. In addition, Monsanto has
transferred the remaining Roundup(R) lawn-and-garden and nutrition research
operations of the former Nutrition and Consumer Products segment to the
Agricultural Products and Corporate and Other segments, respectively.
In 1998, the company committed to a plan to sell the alginates and Ortho
lawn-and-garden products businesses. In September 1997, the company spun
off its chemical businesses to shareowners by distributing shares of a
newly formed company called Solutia Inc. The financial results of these
businesses have been reclassified as discontinued operations and, for
all periods presented, the consolidated financial statements and notes
have been reclassified to conform to this presentation. Previously
reported amounts have also been reclassified to make them consistent
with the current presentation. See Notes to Financial Statements, Note
24 - Discontinued Operations for further details. In 1999, Monsanto
completed the sale of Stoneville Pedigreed Seed Company (Stoneville).
Proceeds were $92 million, resulting in a pretax gain of $35 million.
Proceeds from the sale were used to reduce debt. In April 1999,
Monsanto completed the sale of NSC Technologies Company to Great Lakes
Chemical Corporation for proceeds of $125 million. Proceeds from the
sale were primarily used to reduce debt and resulted in a pretax gain
of approximately $40 million. In December 1999, Monsanto withdrew its
filing for U.S. antitrust clearance of its proposed merger with Delta
and Pine Land Company (D&PL) in light of the U.S. Department of
Justice's unwillingness to approve the transaction on commercially
reasonable terms. On Jan. 3, 2000, Monsanto paid D&PL $80 million in
cash, equal to the amount of a termination fee set forth in the merger
agreement, plus reimbursement of $1 million in expenses. In addition,
Monsanto recognized $4 million of related expenses in 1999 in connection
with the failed merger with D&PL, resulting in a total charge of $85
million.
In 1998, the company made strategic acquisitions of several seed
companies. In July 1998, Monsanto acquired Plant Breeding International
Cambridge (PBIC) for approximately $525 million. In October 1998,
Monsanto announced the acquisition of certain international seed
operations of Cargill Inc. in Asia, Africa, Central and South America,
and Europe, excluding certain operations in the United Kingdom, for
approximately $1.4 billion. In December 1998, Monsanto completed its
acquisition of DEKALB for approximately $2.3 billion. Monsanto recorded
the following pretax charges in 1998 for the write-off of acquired in-
process research and development (R&D) related to these acquisitions:
approximately $60 million for PBIC, approximately $150 million for
DEKALB Genetics Corporation (DEKALB) and approximately $190 million for
certain Cargill Inc. seed operations. Management believes that the
technological feasibility of the acquired in-process R&D has not been
established and that it has no alternative future uses. Accordingly, the
amounts allocated to in-process R&D are required to be expensed
immediately under generally accepted accounting principles.
<PAGE>
Monsanto accounted for the 1998 acquisitions as purchases. On
October 20, 1999, Monsanto and Cargill reached an agreement that
resolves outstanding issues related to Monsanto's purchase of certain
international seed operations of Cargill. Under terms of the agreement,
Cargill made a cash payment of $335 million to Monsanto for the lost use
of certain germplasm and damages caused by the delay in integrating
certain international seed operations and legal expenses. Additionally,
Monsanto and Pioneer Hi-Bred International, Inc. (Pioneer) announced a
resolution of the litigation between them stemming from Monsanto's
purchase of Cargill's international seed operations. Under terms of
this agreement, Monsanto was required to destroy genetic material
derived from Pioneer's seed lines and pay damages of $42 million to
Pioneer. As a result, the purchase price for certain international seed
operations of Cargill was reduced by $265 million. Monsanto's final
purchase price allocations for the principal acquisitions made during
1998 are to goodwill, $2,868 million; germplasm and core technology,
$323 million; trademarks, $222 million; in-process research and
development, $402 million; exit costs and employee termination
liabilities, ($64) million; inventories and other individually
insignificant tangible assets and liabilities, $212 million. The final
purchase price allocations were based on final valuation studies. The
33
<PAGE>
<PAGE>
net balance ($28 million) of the Cargill and Pioneer settlements was
recorded in the 1999 Statement of Consolidated Income (Loss) as
reimbursement of incremental cost incurred.
At the time of and in connection with the 1998 seed company
acquisitions, Monsanto established a plan to integrate the acquired
businesses. Monsanto is in the process of closing, or rationalizing,
(consolidating, shutting down or moving facilities to achieve more
efficient operations) certain assets or facilities and eliminating
approximately 1,400 jobs, primarily in manufacturing and administrative
functions, as part of this integration plan. Approximately 300 of these
positions were related to Monsanto's existing seed operations and were
therefore included in the Dec. 1998 restructuring plan. The costs
related to the 1,000 of the positions and the other actions, were
originally estimated to be $78 million, and were recognized as
liabilities in 1998. As of December 31, 1999, over 900 positions have
been eliminated at a cost of approximately $50 million. The remaining
200 positions (including an estimated 100 additional positions
identified in 1999) are expected to be eliminated by the third quarter
of 2000 at a cost of $14 million which will complete the original plan.
In addition, the original liability established in 1998 was reduced by
$14 million as a result of lower actual severance costs and attrition
resulting in an adjustments and was recorded as an adjustment to the
final purchase price allocations to goodwill.
The in-process R&D charges for the 1998 and 1997 seed company
acquisitions cover numerous seed breeding projects, no single one of
which was significant, as is typical in the seed industry. These
projects consist of conventional breeding programs for corn, wheat and
other hybrids; conventional breeding for soybean varieties; and the
development of transgenic crops. Successful commercialization of
products developed through these projects is expected to occur five to
nine years after program initiation. The in-process projects were at
various stages of completion at the dates of acquisition. Revenues from
the in-process R&D projects related to the 1997 acquisitions began in
1998. Revenues from the in-process R&D projects related to the 1998
acquisitions began in 1999. On average, a new seed technology is in the
research process or developmental stage for eight years before it is
launched in a commercial product. Additionally, based on historical
experience, Monsanto assumed that one eighth of the products in the 'in-
process pipeline' would be released or launched each year for the next
eight years. From this information, a weighted-average percent complete
was computed. The present value of future cash flows was then
multiplied by the estimated percentage complete as of the valuation date
to determine the value of the acquired in-process R&D. The in-process
R&D projects were valued using a discounted cash flow method with risk-
adjusted discount rates generally ranging from 12 percent to 20 percent,
which took into account the stage of completion and the appropriate
development cycle of each in-process R&D category.
34
<PAGE>
<PAGE>
NOTE 6: RESTRUCTURING AND UNUSUAL ITEMS
In 1999, the company recorded a consolidated net aftertax charge
of $75 million associated with restructuring and other non-recurring
items. A net aftertax charge of $57 million, or $0.09 per share, from
continuing operations resulted from the failed merger between Monsanto
and D&PL, combined with costs associated with the accelerated
integration of agricultural chemical and seed operations. These charges
were net of the reversal of restructuring liabilities established in
1998 and the gain on the divestiture of Stoneville. The company
recorded a net aftertax gain of $2 million from discontinued operations
for the reversal of restructuring reserves related to the alginates
business which were partially offset by the loss on disposal of the
alginates business. Additionally, Monsanto recognized a loss of $20
million for the cumulative effect of a change in accounting principle,
effective Jan. 1, 1999. The 1999 net unusual charges were recorded in
the Statement of Consolidated Income (Loss) in the following categories:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Unusual Restructuring Total
Charges Reversals
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of goods sold $ 20 $ 20
Amortization / adjustment of intangible assets 8 8
Restructuring and special items 39 $(54) (15)
Other expense (income) - net 51 51
---- ---- ----
(Income) loss from continuing
operations before tax 118 (54) 64
Income taxes (benefit) (26) 19 (7)
---- ---- ----
(INCOME) LOSS FROM CONTINUING OPERATIONS 92 (35) 57
Income from Discontinued Operations,
Net of tax of $15 (27) (27)
Loss on sale of discontinued
operations, net of tax of $13 25 25
Cumulative effect of accounting change 20 20
- --------------------------------------------------------------------------------------------------------------------
NET (INCOME) LOSS $137 $(62) $ 75
====================================================================================================================
</TABLE>
During 1999, Monsanto recorded in "Other expense (income) - net" a
one-time pretax charge of $85 million equal to the amount of a
termination fee and other expenses associated with the failed merger
between Monsanto and D&PL. Monsanto also recorded a pretax charge of
$67 million from continuing operations, principally associated with the
company's continued focus on improving operating efficiency through
accelerated integration of the agricultural chemical and seed
operations. The charge of $67 million was comprised of facility shut-
down charges of $39 million, workforce reduction costs of $18 million,
and asset impairments of $10 million, and was recorded in the Statement
of Consolidated Income (Loss) as cost of goods sold of $20 million,
amortization of intangible assets of $8 million and restructuring
expense of $39 million. The affected employees are entitled to receive
severance benefits pursuant to established severance policies or by
governmentally mandated labor regulations.
The facility shut-down charges included $14 million for
contractual research and other commitments, $9 million for intangible
assets, $8 million for inventories, $6 million for leasehold termination
costs, and $2 million for property, plant and equipment write-offs.
These actions resulted in cash payments of $2 million for contractual
obligations, asset write-offs of $19 million, and reclassifications of
$18 million of commitments to other liabilities.
The workforce reduction charge included involuntary employee
separation costs for 360 employees worldwide and included charges of $14
million for positions in administration, and $4 million for positions in
research and development. As of Dec. 31, 1999, 150 of the planned
employee eliminations were completed; 80 of these employees received
cash severance payments totaling $6 million during 1999 and 70 employees
elected deferred payments of $4 million which were paid in Jan. 2000.
At Dec. 31, 1999, these deferred payments were classified in the
Statement of Consolidated Financial Position as other liabilities. The
remaining balance for employee severance related to the approximately
210 positions was $8 million at Dec. 31, 1999. The company expects
these employee reductions to be completed by June 2000. Cash payments to
complete the remaining accelerated integration actions will be funded
from operations and are not expected to significantly impact Monsanto's
liquidity.
Offsetting the unusual item charges from continuing operations in
1999 was a pretax gain of $54 million from the reversal of restructuring
liabilities established in 1998. The restructuring liability reversals
were required as a result of lower actual severance and
35
<PAGE>
<PAGE>
facility shut-down costs than originally estimated. In addition, the
Company recognized a pretax gain of $35 million for the divestiture of
Stoneville and miscellaneous other expense of $1 million which was
recorded in "Other expense (income) - net".
In Oct. 1999, the company completed the sale of the alginates
business for proceeds of $40 million, which resulted in an after tax
loss of $25 million from the sale of discontinued operations. Offsetting
this loss on disposition were reversals of restructuring liabilities
established in 1998 of $27 million aftertax which were no longer
required as a result of the sale of the alginates business on terms more
favorable than originally anticipated.
In 1998, the company recorded net restructuring and other unusual
charges of $340 million ($239 million aftertax) as part of the company's
overall strategy to reduce costs and continue the commitment to its core
businesses. The 1998 net restructuring and unusual charges were taken
in the second and fourth quarters of 1998 and were recorded in the
Statement of Consolidated Income (Loss) in the following categories:
<TABLE>
<CAPTION>
================================================================================================================================
WORKFORCE FACILITY ASSET
REDUCTIONS CLOSURES IMPAIRMENTS OTHER TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of goods sold $ 6 $ 8 $ 84 $ 98
Amortization and adjustment of
intangible assets 3 63 66
Restructuring and
other special items 103 64 $(14) 153
Other expense (income) - net 43 (20) 23
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL $109 $75 $190 $(34) $340
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In December 1998, the board of directors approved a plan to close
certain facilities, reduce the current workforce and exit nonstrategic
businesses. The activities Monsanto planned to exit in connection with
this plan principally comprised a tomato business, and a business
involved in the operation of membership-based health and wellness
centers. This plan also contemplated exiting several small, embryonic
business activities, none of which had a significant effect on the
restructuring reserve. The company recorded pretax restructuring
charges and other unusual items of $327 million ($226 million aftertax)
to cover the costs associated with these actions in 1998. The charges
reflected the elimination of approximately 1,400 jobs, primarily in
manufacturing and administrative functions. Included in these actions
were approximately 190 positions that had been part of a restructuring
plan approved in 1996. The affected employees are entitled to receive
severance benefits pursuant to established severance policies or by
governmentally mandated labor regulations. The charges also reflect
pretax amounts for asset impairments, primarily for property, plant and
equipment; intangible assets; and certain investments, totaling $130
million. The asset impairments were recorded primarily because of the
company's decision to sell certain nonstrategic businesses. As a result,
the net assets of these businesses were classified as assets held for
sale and were carried at their net realizable value, estimated to be
approximately $36 million ($33 million in the Agricultural Products
segment, and $3 million in the Corporate and Other segment) at Dec. 31,
1998. These businesses were sold during 1999. The effect of net income
and the aftertax effect of suspending depreciation on assets held for
sale was not material in 1999, 1998 or 1997.
Other impairment charges totaling $40 million were recorded in
Dec. 1998 because of management's decision to exit certain long-term
investments. Fair values of the impaired assets and the businesses held
for sale were recorded at their current market values or on estimated
sale proceeds, based on either discounted cash flows or sales contracts.
The December 1998 restructuring amounts also included pretax charges of
$99 million for the shutdown or other rationalization of certain
production and administrative facilities. Rationalization entails the
consolidation, shutdown or movement of facilities to achieve more
efficient operations. Approximately 80 facilities, located primarily in
the United States, Europe and Latin America, were affected by these
actions. Charges for these shutdowns included $21 million for property,
plant and equipment, $15 million for intangible assets, $26 million for
miscellaneous investments, and $6 million for inventories. Leasehold
termination costs of $13 million and various facility closure costs of
$18 million, principally for facilities shutdown costs, equipment
dismantling and contract cancellation payments, were also included in
the shutdown charges. The closure or rationalization of these facilities
was completed by Dec. 31, 1999. As of Dec. 31, 1999, cash payments of
$81 million were made to eliminate approximately 1,100 positions and
deferred employee severance payment of $9 million were incurred and
expected to be paid in Jan. 2000. In addition, $20 million in facility
shut-down costs were incurred in connection with the Dec. 1998
restructuring plan.
As of Dec. 31, 1999, the remaining reserve balance for employee
severance related to the approximately 175 positions was $31 million,
and $4 million for contractual obligations. The company expects these
employee reduction obligations to be completed by
36
<PAGE>
<PAGE>
June 2000. An additional 125 positions originally contemplated in the
plan were eliminated through attrition. Cash payments to complete the
1998 plan will be funded from operations and are not expected to
significantly impact Monsanto's liquidity.
In May 1998, the company's board of directors approved a plan to
exit Monsanto's optical products business, which included the Orcolite
and Diamonex optical products business and the Diamonex performance
products business (both reported in the Corporate and Other segment),
and recorded net pretax charges of $48 million ($34 million aftertax).
Monsanto recognized a $20 million pretax gain on the sale of the
Orcolite business and recorded pretax charges of $68 million for the
rationalization of the Diamonex business, primarily for severance costs
and the write-off of manufacturing facilities and intangible assets. In
connection with this rationalization, certain Diamonex product lines
were sold, and others were shut down. In connection with the shutdown
of the Diamonex business approximately 200 jobs, primarily in
manufacturing and administrative functions, were eliminated at a total
cost of $6 million. These actions, including workforce reductions and
payment of severance, were complete by Dec. 31, 1999. The sale of the
remaining assets, which were classified as assets held for sale as of
Dec. 31, 1998 and carried at their net realizable value of $7 million,
was completed during 1999. Fair values of the impaired assets and the
businesses held for sale were recorded at their current market values,
based on estimated cash flows, appraisals or sales contracts. Net
income generated by the optical products businesses in 1998 and 1997
totaled $2 million, and $5 million, respectively. Also during the
second quarter of 1998, Monsanto recognized a pretax gain of $35 million
($21 million aftertax) primarily related to the reversal of a
restructuring reserve based on a decision not to rationalize a European
pharmaceutical production facility. There were approximately 70 jobs
scheduled to be eliminated as part of this rationalization plan. The
decision was driven by changes in the business and regulatory
environment, and successes in the R&D pipeline. The net result of the
actions was a pretax charge of $13 million (also, $13 million aftertax)
in the second quarter of 1998, recorded in the Statement of Consolidated
Income (Loss) in the following categories:
<TABLE>
<CAPTION>
================================================================================================================================
WORKFORCE FACILITY ASSET
REDUCTIONS CLOSURES IMPAIRMENTS OTHER TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of goods sold $6 $ 2 $36 $ 44
Amortization and adjustment
of intangible assets 24 24
Restructuring and
other special items (26) (9) (35)
Other expense (income) - net (20) (20)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN LOSS FROM
OPERATIONS BEFORE INCOME
TAXES $6 $(24) $60 $(29) $ 13
================================================================================================================================
</TABLE>
37
<PAGE>
<PAGE>
Activity related to the accelerated integration action, 1998 and
1996 restructuring plan and special charges balances were as follows:
<TABLE>
<CAPTION>
==================================================================================================================================
RESTRUCTURING & UNUSUAL CHARGES: WORKFORCE FACILITY ASSET
REDUCTIONS CLOSURES IMPAIRMENTS OTHER TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JAN. 1, 1997 RESERVE BALANCE $224 $ 41 $ 265
Costs charged against reserves (76) (39) (115)
DEC. 31, 1997 RESERVE BALANCE 148 2 150
Reversal of reserves related to 1996
plan: (48) (48) <Fa>
Costs charged against reserves (21) (2) (23)
1998 Restructuring & Unusual Charges:<Fb>
May 1998 6 2 $ 60 68 <Fc>
Dec. 1998 103 99 130 28 360 <Fc>
Reclassification of reserves to other
balance sheet accounts:
Property (21) (73) (94)
Investments (40) (40)
Intangible assets (14) (66) (80)
Inventory (6) (15) (21)
Receivables (26) (26)
Other Assets 4 (28) (24)
DEC. 31, 1998 RESERVE BALANCE 188 34 222
Addition for accelerated integration
costs 18 39 10 67
Costs charged against reserves:
1998 Plan (81) (20) (101)
Accelerated integration (6) (2) (8)
Reversal of reserves related to 1998
plan: (44) (10) (54) <Fd>
Reclassification of reserves to other
balance sheet accounts:
1998 Plan - other liabilities (23) (23)
Accelerated integration
Property (2) (10) (12)
Inventories (8) (8)
Intangible assets (9) (9)
Other liabilities (4) (18) (22)
- ----------------------------------------------------------------------------------------------------------------------------------
DEC. 31, 1999 RESERVE BALANCE $ 48 $ 4 $ - $ - $ 52
==================================================================================================================================
<FN>
<Fa> In 1998, $33 million of restructuring reserves were reversed due to a reduction of approximately 120 job eliminations and $15
million because of a decision not to rationalize a European pharmaceutical production facility both of which had been part of
the 1996 restructuring plan.
<Fb> Approximately $85 million of workforce reduction costs originally accrued as part of the 1996 plan were delayed, principally
as a result of the failed merger with American Home Products. Monsanto remained committed to accomplishing these workforce
reductions and transferred the remaining accrual to the 1998 plan.
<Fc> Total 1998 restructuring plan of $428 million was partially offset by $68 million from reversal of prior year restructuring
reserves no longer needed and $20 million gain from the sale of Orcolite business, resulting in a net charge to earnings of
$340 million.
<Fd> Restructuring liability reversals were required in 1999 as a result of lower actual severance and facility shut-down costs
than originally estimated.
</TABLE>
38
<PAGE>
<PAGE>
As part of restructuring actions approved prior to 1998, Monsanto
reorganized U.S. staff operations, closed approximately 20 production,
administrative and research facilities and made final payments to
complete contractual commitments as part of a U. S. production facility
shutdown. These actions eliminated approximately 1,020 positions.
NOTE 7: DEPRECIATION AND AMORTIZATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation $321 $269 $242
Amortization of
intangible assets 366 220 121
Obsolescence 43 29 15
- --------------------------------------------------------------------
Total $730 $518 $378
====================================================================
</TABLE>
Total amortization of intangible assets reflected in the Statement
of Consolidated Income (Loss) includes $8 million of charges for asset
impairments in 1999 and $66 million of charges for asset impairments in
1998.
NOTE 8: INVESTMENTS
As of Dec. 31, the company had investments in securities as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------
<S> <C> <C>
Aggregate fair value $56 $75
Gross unrealized holding:
Gains 27 36
Losses 7 14
- --------------------------------------------------------------------
</TABLE>
Debt securities held are recorded at amortized cost, because the
company has the ability and intent to hold these securities to their
maturity date. These securities mature in less than five years. As of
Dec. 31, 1999 and 1998, the total amortized cost of these securities was
$40 million and $90 million, respectively.
NOTE 9: INVENTORIES
Inventories at FIFO approximate current cost. The components of
inventories were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 807 $1,064
Goods in process 467 469
Raw materials and supplies 477 224
- --------------------------------------------------------------------
Inventories, at FIFO cost 1,751 1,757
Excess of FIFO over LIFO cost (23) (35)
- --------------------------------------------------------------------
TOTAL $1,728 $1,722
====================================================================
</TABLE>
Commodity futures and options contracts are used to hedge the
price volatility of certain commodities, primarily soybeans and corn.
This hedging activity is intended to manage the price paid to production
growers for corn and soybean seeds. Gains and losses on contracts that
are designated and effective as hedges are deferred in inventory and are
included in cost of goods sold when the underlying seeds are sold. As
of Dec. 31, 1999, Monsanto had futures contracts to purchase $106
million of corn and soybeans. The excess of FIFO over LIFO cost
decreased $12 million due to reduced inventory levels and lower average
cost of inventory which favorably affected 1999 net income by $7
million.
39
<PAGE>
<PAGE>
NOTE 10: INCOME TAXES
The components of income (loss) from continuing operations before income
taxes were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $711 $ 51 $(91)
Outside United States 40 (136) 218
- -----------------------------------------------------------------------------------
TOTAL $751 $ (85) $127
===================================================================================
</TABLE>
The components of income tax expense (benefit) charged to
operations were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. federal $111 $ 290 $ 84
U.S. state 11 22 13
Outside United States 46 (10) 59
- -----------------------------------------------------------------------------------
168 302 156
- -----------------------------------------------------------------------------------
Deferred:
U.S. federal 96 (245) (165)
U.S. state 14 (4) (14)
Outside United States (30) (7) 1
- -----------------------------------------------------------------------------------
80 (256) (178)
- -----------------------------------------------------------------------------------
TOTAL $248 $ 46 $ (22)
===================================================================================
</TABLE>
Factors causing Monsanto's effective tax rate to differ from the
U.S. federal statutory rate were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory rate $263 $(30) $ 45
U.S. export earnings (22) (25) (22)
Puerto Rican operations (19) (16) (14)
U.S. R&D tax credit (39) (34) (23)
Higher (lower) ex-U.S. rates 5 31 (6)
Nondeductible goodwill 50 30 6
Other nondeductible expenses 9 4 4
Valuation allowances (15)
Acquired in-process R&D 71 7
Equity loss (income) 9 (3)
Other 1 6 (1)
- -----------------------------------------------------------------------------------
INCOME TAXES $248 $ 46 $(22)
===================================================================================
</TABLE>
40
<PAGE>
<PAGE>
Deferred income tax balances were related to:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Pension postretirement and other employee benefits $ 314 267
Restructuring liability 31 186
Inventory 141 85
Net operating tax loss and tax credit carryforwards 407 282
Intangibles 120 180
Valuation Allowance (71) (13)
Other 245 179
- --------------------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS $1,187 $1,166
- --------------------------------------------------------------------------------------
Property 341 213
Other 106 139
- --------------------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES 447 352
- --------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 740 $ 814
======================================================================================
</TABLE>
The increase in the valuation allowance in 1999 was primarily
related to the establishment of a valuation allowance in Brazil.
Monsanto's management concluded that it was more likely than not that
the company would not be able to recognize a portion of deferred tax
assets in Brazil due to the weakening of the Brazilian economy against
the U.S. dollar. This valuation allowance had no effect on the 1999
effective tax rate because it was recorded in other comprehensive income
(loss) as an accumulated currency adjustment. As of December 31, 1999,
Monsanto had available approximately $164 million in net operating loss
carryforwards in the United States. These expire from 2000 through
2012. As of December 31, 1999, Monsanto also had available
approximately $430 million in net operating loss carryforwards outside
the United States, which do not expire.
Income taxes and remittance taxes have not been recorded on $1.8
billion in undistributed earnings of subsidiaries, either because any
taxes on dividends would be offset substantially by foreign tax credits
or because Monsanto intends to reinvest those earnings indefinitely. It
is not practical to estimate the income tax liability that might be
incurred if such earnings were remitted to the United States.
NOTE 11: SHORT-TERM DEBT AND CREDIT ARRANGEMENTS
Short-term debt was:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Notes payable to banks $ 42 $ 328
Commercial paper 455 541
Bank overdrafts 57 134
Current portion of long-term debt 226 66
- -----------------------------------------------------------------------
Total $780 $1,069
=======================================================================
Weighted average interest rates of
notes payable as of Dec. 31:
Banks<F1> 9.7% 9.5%
Commercial paper 6.0% 5.3%
- -----------------------------------------------------------------------
<FN>
<F1> Includes the effect of notes in certain countries which have
interest rates which are higher than those in the United States.
</TABLE>
Monsanto had aggregate short-term loan facilities of $191 million,
under which loans totaling $42 million were outstanding as of Dec. 31,
1999. Interest on these loans is related to various bank rates.
Monsanto has a $1.0 billion credit facility, expiring in 2001, which
allows the company to request that lenders increase their commitments up
to an aggregate of $1.6 billion. In August 1999, Monsanto entered into
a $1.5 billion, 364-day credit facility. There were no borrowings under
these credit facilities as of Dec. 31, 1999. These facilities are used
to support the issuance of commercial paper. Interest on amounts
borrowed under these agreements is expected to be at money market rates.
Covenants under these credit facilities restrict maximum borrowings.
The company does not anticipate that future borrowings will be limited
by the terms of these agreements.
41
<PAGE>
<PAGE>
NOTE 12: LONG-TERM DEBT
Long-term debt (exclusive of current maturities) was:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Industrial revenue bond obligations,
5.7% average rate at Dec. 31, 1999,
due 2001 to 2028 $ 324 $ 337
Medium-term notes, 7.0% average rate
at Dec. 31, 1999, due 2001 to 2018 165 165
Commercial paper 1,000 1,000
6% notes due 2000 150
8.13% amortizing ESOP<F1>
debentures due
2006, guaranteed by the company 80 91
5 3/8% notes due 2001 500 498
Adjustable conversion-rate equity
security units due 2003 700 700
Variable - rate notes due 2003 480 575
5.75% notes due 2005 599 596
5 7/8% notes due 2008 199 199
8 7/8% debentures due 2009 99 99
5.6% yen note due 2016 99 86
6.5% debentures due 2018 498 496
8.7% debentures due 2021 100 100
8.2% debentures due 2025 150 150
6.75% debentures due 2027 199 198
6.6% debentures due 2028 697 694
Other 14 125
- -----------------------------------------------------------------------
TOTAL $5,903 $6,259
=======================================================================
<FN>
<F1> ESOP stands for employee stock ownership plan.
</TABLE>
Maturities and sinking-fund requirements on long-term debt,
excluding commercial paper, are $226 million in 2000, $603 million in
2001, $127 million in 2002, $1,073 million in 2003, and $33 million in
2004. The weighted average maturity of long-term debt as of Dec. 31,
1999, was approximately 10 years. Commercial paper balances of $1.0
billion as of Dec. 31, 1999 and 1998 were classified as long-term debt.
Monsanto has the ability and intent to renew these obligations beyond
2000.
In November 1998, the company issued 17,500,000 units of 6.50
percent Adjustable Conversion-rate Equity Security (ACES) units at a
stated value of $40 per unit, for an aggregate initial offering price of
$700 million. Each unit consists of a purchase contract for the
company's common stock and a junior subordinated deferrable debenture.
Under the purchase contracts, in Nov. 2001, the unit holders will
purchase for $40 not more than one share and not less than 0.8197 of one
share of the company's common stock per unit, depending on the average
trading price of the common stock during a specified period in Nov.
2001. In addition, the company pays quarterly deferrable contract fees
to the unit holders at 0.55 percent of the stated amount. The junior
subordinated deferrable debentures have a principal amount equal to the
stated amount of the units, an interest rate of 5.95 percent, and mature
in 2003 subject to a call option granted to a third party.
Interest-rate swap agreements are used to reduce interest rate
risks and to manage interest expense. By entering into these
agreements, the company changes the fixed/variable interest-rate mix of
its debt portfolio. As of Dec. 31, 1999, Monsanto was party to
interest-rate swap agreements with an aggregate notional principal
amount of $90 million related to existing debt. The agreements
effectively convert floating-rate debt into fixed-rate debt, and the
agreements end in 2000. This reduces the company's risk of incurring
higher interest costs in periods of rising interest rates. Monsanto is
subject to loss if the counterparties to these agreements do not
perform. Interest differentials to be paid or received because of swap
agreements are reflected as an adjustment to interest expense over the
related debt period.
42
<PAGE>
<PAGE>
NOTE 13: FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of Monsanto's financial instruments were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------
Recorded Fair Recorded Fair
Amount Value Amount Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt $5,903 $5,606 $6,259 $6,579
- ------------------------------------------------------------------------------------------
</TABLE>
The recorded amounts of cash and cash equivalents, trade
receivables, investments in securities, miscellaneous discounted
receivables, third-party guarantees, commodity futures contracts,
currency forward contracts and swaps, accounts payable, interest-rate
swaps, and short-term debt approximate their fair values.
Fair values are estimated by the use of quoted market prices,
estimates obtained from brokers, and other appropriate valuation
techniques based on information available as of Dec. 31, 1999. The
fair-value estimates do not necessarily reflect the values Monsanto
could realize in the current market.
NOTE 14: POSTRETIREMENT BENEFITS - PENSIONS
Most Monsanto employees are covered by noncontributory pension plans.
The components of pension cost were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1999<F1> 1998<F1> 1997<F1>
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits
earned during the year $ 65 $ 58 $ 61
Interest cost on
benefit obligation 171 170 148
Assumed return on
plan assets (200) (156) (167)
Amortization of unrecog-
nized net loss 49 22 13
- ------------------------------------------------------------------------------------------
TOTAL $ 85 $ 94 $ 55
==========================================================================================
<FN>
<F1> In connection with the classification of the former Nutrition and
Consumer Products segment as discontinued operations (see Notes to
Financial Statements, Discontinued Operations disclosure for
further details), no pension liabilities or related assets were
allocated or assumed by the discontinued businesses for its active
employees or for certain former employees. Monsanto has retained
the pension liability and related assets for the employees of the
former Nutrition and Consumer Products segment now classified as
discontinued operations in the consolidated financial statements
because it is uncertain, at this time, whether the pension
liabilities and related assets will be assumed by the buyers of
these businesses. In connection with the spinoff of the company's
chemical businesses as Solutia Inc., Solutia assumed the pension
liabilities and received related assets for its active employees
and for certain former employees of the chemical businesses.
</TABLE>
Pension benefits are based on an employee's years of service
and/or compensation level. Pension plans are funded in accordance with
the company's long-range projections of the plans' financial conditions.
These projections take into account benefits earned and expected to be
earned, anticipated returns on pension plan assets, and income tax and
other regulations.
43
<PAGE>
<PAGE>
Pension costs were determined through the use of the preceding year-end
rate assumptions. Assumptions used as of Dec. 31 for the principal plans
were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.75% 6.75% 7.00%
Assumed long-term rate of
return on plan assets 9.50% 9.50% 9.50%
Annual rates of salary
increase (for plans that
base benefits on final
compensation level) 4.50% 4.00% 4.00%
- -----------------------------------------------------------------------------
</TABLE>
The funded status of Monsanto's pension plans at year-end was:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $2,655 $2,483
Service cost 65 58
Interest cost 171 170
Plan participants' contributions 1 1
Amendments 6 10
Actuarial (gain)/loss (143) 146
Acquisitions/divestitures 9
Settlements 15
Benefits paid (248) (222)
- -----------------------------------------------------------------------------
Benefit obligation at end of year $2,522 $2,655
- -----------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 2,146 2,029
Actual return on plan assets 411 310
Employer contribution 24 17
Plan participants' contributions 3 3
Acquisitions/divestitures 9
Settlements (4)
Fair value of benefits paid (248) (222)
- -----------------------------------------------------------------------------
Plan assets at end of year $2,332 $2,146
- -----------------------------------------------------------------------------
Unfunded status 190 509
Unrecognized initial net gain 9 15
Unrecognized prior service cost (82) (94)
Unrecognized subsequent gain (loss) 371 (22)
- -----------------------------------------------------------------------------
Accrued net pension liability $ 488 $ 408
=============================================================================
</TABLE>
Amounts recognized in the Statement of Consolidated Financial Position
were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Postretirement liabilities $515 $433
Additional minimum Pension Liability 53 61
Other assets (27) (25)
Intangible asset (5) (10)
Accumulated other comprehensive income (48) (51)
- -----------------------------------------------------------------------------
Accrued net pension liability $488 $408
- -----------------------------------------------------------------------------
</TABLE>
44
<PAGE>
<PAGE>
The projected benefit obligation, the accumulated benefit
obligation (ABO) and fair value of plan assets for pension plans with
ABOs in excess of plan assets were $319 million, $315 million and
zero, respectively, as of Dec. 31, 1999; and $2.1 billion, $2.0 billion,
and $2.0 billion, respectively, as of Dec. 31, 1998. Plan assets
consist principally of common stocks and U.S. government and corporate
obligations.
NOTE 15: POSTRETIREMENT BENEFITS - HEALTHCARE AND OTHER
Monsanto provides certain health care and life insurance benefits
for retired employees. Substantially all of Monsanto's regular, full-
time U.S. employees and certain employees in other countries may become
eligible for these benefits if they reach retirement age while employed
by Monsanto. These postretirement benefits are unfunded and generally
are based on employees' years of service and/or compensation levels. The
costs of postretirement benefits are accrued by the date the employees
become eligible for the benefits.
The components of the cost of these postretirement benefits, principally
health care and life insurance, were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1999<F1> 1998<F1> 1997<F1>
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits
earned during the year $16 $13 $10
Interest cost on
benefit obligation 27 27 27
Amortization of unrecognized
net (gain) loss 15 (1) (3)
- ------------------------------------------------------------------------------------------
Total - Continuing Operations $58 $39 $34
==========================================================================================
<FN>
<F1> In connection with the classification of the former Nutrition and
Consumer Products segment as discontinued operations (see Notes to
Financial Statements, Discontinued Operations disclosure for
further details), no postretirement benefit liabilities were
allocated or assumed by the discontinued business for its active
employees or for former employees. Monsanto has retained the
postretirement benefit liability for the employees of the former
Nutrition and Consumer Products segment now classified as
discontinued operations in the consolidated financial statements
because it is uncertain, at this time, whether the postretirement
benefit liabilities will be assumed by the buyers of these
businesses. In connection with the spinoff of the company's
chemical businesses as Solutia Inc., Solutia assumed the
postretirement benefit liabilities for its active employees and
for former employees who last worked at a chemical facility.
</TABLE>
Postretirement costs were determined by using the preceding year-end
rate assumptions. Assumptions used as of Dec. 31 for the principal plans
were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.75% 6.75% 7.00%
Initial trend rate for
health care costs 5.25% 5.75% 7.00%
Ultimate trend rate for
health care costs 5.25% 4.75% 5.00%
- ------------------------------------------------------------------------------------------
</TABLE>
A one percent increase in the assumed trend rate for health care
costs would have increased the cost of 1999 postretirement health care
benefits by $1 million and the accumulated postretirement benefit
obligation by $9 million as of Dec. 31, 1999. A one percent decrease in
the assumed trend rate for health care costs would have decreased the
cost of 1999 postretirement health care benefits by $1 million and the
accumulated postretirement benefit obligation by $11 million as of Dec.
31, 1999.
45
<PAGE>
<PAGE>
As of Dec. 31, the status of Monsanto's postretirement health care and
life insurance benefit plans and of its employee disability benefit
plans was:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $403 $383
Service cost 16 13
Interest cost 27 27
Actuarial (gain)/loss (10) 6
Benefits paid (16) (26)
- -----------------------------------------------------------------------
Benefit obligation at end of year 420 403
- -----------------------------------------------------------------------
Unfunded status 420 403
Unrecognized prior service cost 6 10
Unrecognized subsequent gain (loss) (3) (31)
- -----------------------------------------------------------------------
Accrued postretirement liability $423 $382
- -----------------------------------------------------------------------
</TABLE>
Amounts recognized in the Statement of Consolidated Financial Position
were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------
<S> <C> <C>
Miscellaneous accruals $ 29 $ 28
Postretirement liabilities 394 354
- -----------------------------------------------------------------------
Accrued postretirement liability $423 $382
- -----------------------------------------------------------------------
</TABLE>
NOTE 16: EMPLOYEE SAVINGS PLANS
For some company employee savings plans, employee contributions
are matched in part by Monsanto. The cost of the company's
contributions for such plans was $79 million in 1999, $45 million in
1998, and $39 million in 1997. Monsanto has established an Employee
Stock Ownership Plan (ESOP), which held 14.7 million shares of Monsanto
common stock as of Dec. 31, 1999. At its inception, the ESOP acquired
shares by using proceeds from the issuance of long-term notes and
debentures guaranteed by Monsanto, and the ESOP also borrowed $50
million from Monsanto. A portion of the ESOP shares is allocated each
year to employee savings accounts as matching contributions. In 1999,
1,302,590 shares were allocated to participants under the plan. An
additional 634,548 shares were released in 1999 awaiting allocation to
participants, leaving 7.3 million unallocated shares as of Dec. 31,
1999. Allocated shares held by the ESOP are considered outstanding for
earnings-per-share calculations; unallocated shares are not.
Compensation expense is equal to the cost of the shares allocated to
participants, less cash dividends paid on the shares held by the ESOP.
Dividends on the common stock owned by the ESOP are used to repay the
ESOP borrowings, which were $100 million as of Dec. 31, 1999.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Total ESOP expense $31 $21 $18
Interest portion of total
ESOP expense 9 10 12
Cash contribution 37 14 6
Dividends paid on ESOP
shares held 2 2 8
- -----------------------------------------------------------------------
</TABLE>
NOTE 17: STOCK OPTION PLANS
The company grants stock options under two fixed plans. Under the
company's Management Incentive Plan of 1996, the company may grant key
officers and management employees stock-based awards, including stock
options, of up to 87.6 million shares of common stock. Under this plan,
the exercise price of each option equals not less than the market price
of the company's stock on the date of grant. An option's maximum term
is 10 years. Options are granted at the discretion of the board of
directors' People Committee
46
<PAGE>
<PAGE>
or its delegate. Options generally vest upon the achievement of
business performance targets, or the ninth anniversary of the option
grant date, or upon a change in control of the company, whichever comes
first. Certain options granted to senior management vest upon the
attainment of pre-established prices within specified time periods and
are re-priced upon a change in control of the company. Under the
company's Shared Success Stock Option Plan, most regular full-time and
regular part-time employees of the company were granted options on 330
shares of common stock in 1997, 500 shares in 1998, and 300 shares in
1999. The maximum number of shares for which stock options may be
granted under this plan is 27.3 million. The exercise price of each
option is determined by the committee and generally equals the market
price of the company's stock on the date of grant. An option's maximum
term is 10 years.
As permitted by Statement of Financial Accounting Standard (FAS)
No. 123, "Accounting for Stock-Based Compensation," the company has
elected to continue following the guidance of Accounting Principles
Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees," for measurement and recognition of stock-based transactions
with employees. In accordance with APB 25, no compensation cost has
been recognized for the company's option plans. Had the determination
of compensation cost for these plans been based on the fair value at the
grant dates for awards under these plans, consistent with the method of
FAS No. 123, the company's income (loss) from continuing operations and
earnings (loss) per share from continuing operations would have been
reduced to the proforma amounts indicated below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing operations:
As reported $ 503 $ (131) $ 149
Proforma 337 (339) 61
Earnings (loss) per share --
continuing operations:
As reported $0.77 $(0.22) $0.24
Proforma 0.52 (0.56) 0.10
- ---------------------------------------------------------------------------------------
</TABLE>
The proforma compensation expense may not be representative of
proforma compensation expense that would be incurred in future years.
In computing the proforma compensation expense, the fair value of
each option grant is estimated on the date of grant by using the Black-
Scholes option-pricing model. The weighted-average fair values of
options granted during 1999, 1998, and 1997 were $12.57, $16.51, and
$10.01, respectively. The following weighted-average assumptions were
used for grants:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 0.34% 0.25% 0.29%
Expected volatility 39.5% 30.0% 27.0%
Risk-free interest rates 4.4% 5.6% 6.4%
Expected option lives (years) 4.1 4.0 4.3
- ---------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
<PAGE>
A summary of the status of the company's stock option plans for the
three-year period ended Dec. 31, 1999, follows:
<TABLE>
<CAPTION>
OUTSTANDING
-------------------
Exercisable Weighted-Average
Shares Shares Exercise Price
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEC. 31, 1996 38,362,943 63,144,238 $20.90
- --------------------------------------------------------------------------------------------
1997:
Granted 27,740,275 37.98
Exercised (12,002,286) 13.64
Expired (3,476,815) 34.71
- --------------------------------------------------------------------------------------------
DEC. 31, 1997 45,257,512 75,405,412 $25.22
- --------------------------------------------------------------------------------------------
1998:
Granted 42,132,104 50.23
Exercised (10,770,147) 17.76
Expired (2,932,138) 45.38
- --------------------------------------------------------------------------------------------
DEC. 31, 1998 51,055,016 103,835,231 $26.21
- --------------------------------------------------------------------------------------------
1999:
Granted 7,016,320 48.34
Exercised (6,961,353) 21.09
Expired (4,705,226) 48.44
============================================================================================
DEC. 31, 1999 52,446,942 99,184,972 $37.07
============================================================================================
</TABLE>
The following table summarizes information about stock options
outstanding as of Dec. 31, 1999:
<TABLE>
OPTIONS OUTSTANDING
<CAPTION>
- --------------------------------------------------------------------------------------------
Weighted-Average Weighted-
Range Of Remaining Average
Exercise Prices Shares Contractual Life Exercise Price
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 7.00 to 9.99 5,401,629 3.1 years $ 9.32
10.00 to 14.99 11,649,481 3.6 13.41
15.00 to 19.99 312,893 5.5 16.78
20.00 to 29.99 7,195,405 6.2 26.05
30.00 to 39.99 30,012,447 7.0 34.30
40.00 to 54.99 40,213,433 8.2 49.15
55.00 to 75.00 4,399,684 8.7 61.87
$ 7.00 to 75.00 99,184,972 7.5 $37.07
============================================================================================
</TABLE>
48
<PAGE>
<PAGE>
<TABLE>
OPTIONS EXERCISABLE
<CAPTION>
Weighted-
Range Of Average
Exercise Prices Shares Exercise Price
- ---------------------------------------------------------------------------
<S> <C> <C>
$ 7.00 to 9.99 5,401,629 $ 9.32
10.00 to 14.99 11,649,481 13.41
15.00 to 19.99 312,893 16.78
20.00 to 29.99 6,082,693 25.76
30.00 to 39.99 23,391,710 34.29
40.00 to 54.99 5,377,838 46.63
55.00 to 75.00 230,698 58.23
- ---------------------------------------------------------------------------
$ 7.00 to 75.00 52,446,942 $27.36
===========================================================================
</TABLE>
NOTE 18: EARNINGS PER SHARE
Basic earnings (loss) per share from continuing operations were
computed using the weighted average number of common shares outstanding
each year (633.4 million in 1999, 603.5 million in 1998, and 590.2
million in 1997). Diluted earnings per share from continuing operations
in 1999 and 1997 were computed taking into account the effect of
dilutive common share equivalents totaling 16.4 million in 1999 and 20.3
million in1997. In 1998, 23.5 million dilutive common share equivalents
were not included in computing the diluted per-share amounts because
Monsanto recognized a loss from continuing operations.
Dilutive common share equivalents consist of outstanding stock
options. Other common share equivalents also were not included in the
computation of 1999 diluted earnings per share because the effect of
their exercise or conversion was not dilutive, based on the average
market price of Monsanto common stock for the period. These include
approximately 45.5 million of outstanding stock options and up to 17.5
million shares of common stock to be issued under the Adjustable
Conversion-rate Equity Security Units (ACES) described in the Long-Term
Debt note. These options and ACES units expire from 2001 through 2008.
NOTE 19: CAPITAL STOCK
Pursuant to the company's Shareholder Rights Plan, in December
1999, the company's board of directors declared a dividend, effective as
of February 5, 2000, of one preferred stock purchase right on each then-
outstanding share of the company's common stock. The February 5, 2000
dividend replaced the preferred stock purchase rights which were granted
in 1990 and set to expire on February 5, 2000 under the company's 1990
Shareholder Rights Plan. Pursuant to the current Shareholder Rights
Plan, if a person or group acquires beneficial ownership of 20 percent
or more, or announces a tender offer that would result in beneficial
ownership of 20 percent or more of the company's outstanding common
stock, the rights become exercisable and for every right held, the owner
will be entitled to purchase one one-thousandth of a share of a Series A
preferred stock for $250. If Monsanto is acquired in a business
combination transaction while the rights are outstanding, for every
right held, the holder will be entitled to purchase, for $250, common
shares of the acquiring company having a market value of $500. In
addition, if a person or group acquires beneficial ownership of 20
percent or more of the company's outstanding common stock, for every
right held, the holder (other than such person or members of such group)
will be entitled to purchase, for $250, a number of shares of the
company's common stock having a market value of $500. At any time prior
to the acquisition of such a 20 percent position, the company can redeem
each right for $0.001. The board of directors also is authorized to
reduce the aforementioned 20 percent thresholds to not less than 10
percent. The rights expire in the year 2010.
As of Dec. 31, 1999, there were 129.8 million common shares
reserved for employee stock options. In November 1998, the company
issued 17,500,000 units of 6.50 percent Adjustable Conversion-rate
Equity Security Units (ACES) at a stated value of $40 per unit. For
further information, See the Notes to Financial Statements, Note 12 -
Long-Term Debt.
49
<PAGE>
<PAGE>
NOTE 20: COMMITMENTS AND CONTINGENCIES
Commitments, principally in connection with uncompleted additions
to property, were approximately $20 million as of Dec. 31, 1999.
Monsanto was contingently liable as a guarantor for bank loans and for
discounted customers' receivables totaling approximately $77 million as
of Dec. 31, 1999, and $158 million as of Dec. 31, 1998. Future minimum
payments under noncancelable operating leases, unconditional inventory
purchases, and R&D alliances are $112 million for 2000, $86 million for
2001, $71 million for 2002, $21 million for 2003, $17 million for 2004,
and $37 million thereafter. The more significant concentrations in
Monsanto's trade receivables at year-end were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
U.S. agricultural product distributors $709 $514
Customers in Latin American Southern Cone Countries 827 560
European agricultural product distributors 328 305
Pharmaceutical distributors worldwide 591 351
Customers in the former Soviet Union 76 99
Customers in southeast Asia 58 60
- --------------------------------------------------------------------------------------
</TABLE>
Management does not anticipate losses on its trade receivables in excess
of established allowances.
Monsanto's Statement of Consolidated Financial Position included
accrued liabilities of $19 million as of Dec. 31, 1999, and $21 million
as of Dec. 31, 1998, for the remediation of identified waste disposal
sites. Monsanto's future remediation expenses for waste disposal sites
are affected by a number of uncertainties. These uncertainties include,
but are not limited to, the method and extent of remediation, the
percentage of material attributable to Monsanto at the sites relative to
that attributable to other parties, and the financial capabilities of
the other potentially responsible parties (PRPs). The company does not
expect the resolution of such uncertainties to have a material effect on
profitability.
In April 1999, a jury verdict was returned against DEKALB (which
became a wholly-owned subsidiary of Monsanto during Dec. 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 appealed this verdict, has meritorious grounds to overturn
the verdict and intends to vigorously pursue all available means to have
the verdict overturned. No provision has been made in Monsanto's
consolidated financial statements with respect to the award for punitive
damages.
On March 20, 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
with the California Court of Appeal for the Fourth Judicial District.
No provision has been made in Monsanto's consolidated financial
statements with respect to this verdict. The company intends to
vigorously pursue all available means to have this verdict set aside.
Monsanto is a party to a number of lawsuits and claims, which it
is vigorously defending. Such matters arise out of the normal course of
business and relate to a variety of issues. Certain of the lawsuits and
claims seek damages in very large amounts, or seek to restrict the
company's business activities.
Although the results of litigation cannot be predicted with
certainty, management's belief is that the final outcome of such
litigation will not have a material adverse effect on Monsanto's
consolidated financial position, profitability or liquidity.
50
<PAGE>
<PAGE>
NOTE 21: SUPPLEMENTAL DATA
Supplemental income statement data were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rent expense $ 136 $ 102 $ 117
======================================================================================
Technological expenses:
Research and development $1,290 $1,238 $ 944
Engineering, commercial
development and patent 83 70 105
- --------------------------------------------------------------------------------------
Total technological expenses $1,373 $1,308 $1,049
======================================================================================
Interest expense:
Total interest cost $ 382 $ 224 $148
Less capitalized interest (37) (14) (13)
- --------------------------------------------------------------------------------------
Net interest expense $ 345 $ 210 $ 135
======================================================================================
</TABLE>
NOTE 22: OTHER EXPENSE (INCOME) - NET
<TABLE>
<CAPTION>
======================================================================================
Significant components of Other Expense (Income)
were: 1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity expense (income) 31 35 (6)
Minority interest expense 51 32 26
Royalty income (11) (7) (4)
Foreign currency loss 36 22 52
Gain on sale of pharmaceutical
product rights (50) (124) (120)
Gain on sale of business and other assets (75) (19) (25)
Losses on common stock investments - 40 -
Merger termination costs 85 - -
Other miscellaneous expense (income) 40 (10) (12)
- --------------------------------------------------------------------------------------
Other expense (income) - net 107 (31) (89)
======================================================================================
</TABLE>
51
<PAGE>
<PAGE>
NOTE 23: SEGMENT INFORMATION
<TABLE>
===================================================================================================================================
SEGMENT DATA
===================================================================================================================================
<CAPTION>
NET SALES EBIT<F1><F3>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Agricultural Products $5,102 $4,264 $3,470 $ 775 $ 868 $ 827
Pharmaceuticals 3,920 2,771 2,323 655 309 286
Corporate and Other 124 202 265 (270) (290) (218)
Unusual charges (64) (762) (633)
- -----------------------------------------------------------------------------------------------------------------------------------
Total $9,146 $7,237 $6,058 $1,096 $ 125 $ 262
===================================================================================================================================
<CAPTION>
======================================================================================
SEGMENT DATA
======================================================================================
EBITDA<F2><F3>
- --------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Agricultural Products $1,275 $1,223 $1,035
Pharmaceuticals 813 451 422
Corporate and Other (198) (269) (184)
Unusual charges
- --------------------------------------------------------------------------------------
Total $1,890 $1,405 $1,273
======================================================================================
<CAPTION>
TOTAL ASSETS<F4> CAPITAL EXPENDITURES
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Agricultural Products $10,470 $10,337 $607 $469 $316
Pharmaceuticals 3,004 2,778 188 236 175
Corporate and Other 1,504 1,346 181 154 92
Discontinued Operations 1,557 1,924
- --------------------------------------------------------------------------------------------------------------------
Total $16,535 $16,385 $976 $859 $583
====================================================================================================================
<CAPTION>
DEPRECIATION
AND AMORTIZATION
- --------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Agricultural Products $500 $355 $208
Pharmaceuticals 158 142 136
Corporate and Other 72 21 34
Discontinued Operations
- --------------------------------------------------------------------------------------
Total $730 $518 $378
======================================================================================
<FN>
<F1> Reconciliation of EBIT to income (loss) from continuing operations follows:
<CAPTION>
- --------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
EBIT $1,096 $ 125 $ 262
Less: Interest expense (345) (210) (135)
Income taxes (248) (46) 22
Income (Loss) from Continuing Operations $ 503 $(131) $ 149
======================================================================================
<FN>
<F2> EBITDA is EBIT excluding depreciation and amortization and the effects of unusual items.
<F3> Unusual items in 1999, 1998 and 1997 are not included in these amounts. Such items
included accelerated integration costs, restructuring charges and reversals, costs
associated with failed merger between Monsanto and D&PL, gain on the sale of
Stoneville, write-offs for acquired in-process research and development and other
special charges. The net total unusual items from continuing operations by segment
were as follows:
<PAGE>
<CAPTION>
=======================================================================================
SEGMENT 1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Agricultural Products $(101) $(588) $(633)
Pharmaceuticals 6 (29)
Corporate and Other 31 (145)
- ---------------------------------------------------------------------------------------
Total Net Unusual Items from Continuing Operations $ (64) $(762) $(633)
=======================================================================================
<FN>
<F4> In 1999 and 1998, respectively, net assets of discontinued operations include net
effect of current liabilities of $213 million and $272 million and noncurrent
liabilities of $15 million and $67 million.
</TABLE>
Although inflation is relatively low in most of Monsanto's major
markets, it continues to affect operating results. To mitigate the
effect of inflation, Monsanto has implemented measures to control costs,
to improve productivity, to manage new fixed and working capital, and to
raise selling prices when government regulations and competitive
conditions permit. In addition, the current costs of replacing certain
assets are estimated to be greater than the historical costs presented
in the financial statements. Accordingly, the depreciation expense
reported in the Statement of Consolidated Income (Loss) would be greater
if it were stated on a current-cost basis.
52
<PAGE>
<PAGE>
Sales between segments were not significant. Certain corporate
expenses, primarily those related to the overall management of Monsanto,
were not allocated to the segments or to geographic areas. Corporate
assets are primarily investments in affiliates.
The principal factors that accounted for the segments'
performances in 1999 and 1998, along with the factors that are expected
to affect operating results in the near term, are described in
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
NOTE 24: DISCONTINUED OPERATIONS
On July 1, 1999, Monsanto announced its intention to sell the
artificial sweetener (bulk aspartame and tabletop sweeteners) and biogum
businesses. The company expects to sell these businesses for a net gain
by July 2000. The results of operations, financial position, and cash
flows of these businesses, and of the alginates and Ortho lawn-and-
garden products businesses, the divestitures of which were approved by
Monsanto's Board of Directors in 1998, have been reclassified as
discontinued operations; and, for all periods presented, the
consolidated financial statements and notes have been reclassified to
conform to this presentation. In addition, Monsanto transferred the
Roundup(R) lawn-and-garden and nutrition research operations of the former
Nutrition and Consumer Products segment to the Agricultural Products and
Corporate and Other segments, respectively.
Net sales and income from discontinued operations in 1999 include
one month of the Ortho lawn-and-garden products business, and nine
months of the alginates business for 1999. Net sales, income and net
assets from discontinued operations include the Ortho lawn-and-garden
products, alginates, artificial sweeteners, and biogums businesses for
1998. Net sales and income from discontinued operations in 1997 also
include eight months of the chemicals business which was spun off to
shareholders Sept. 1, 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 980 $1,288 $3,279
Income (Loss) from Discontinued
Operations Before Income Tax 150 (158) 506
Income Tax Expense (Benefit) 58 (39) 185
Net Income (Loss) from Discontinued
Operations 92 (119) 321
Net Assets of Discontinued Operations:
Current Assets 545 994
Non-Current Assets 1,240 1,269
Total Assets 1,785 2,263
Current Liabilities 213 272
Non-Current Liabilities 15 67
Total Liabilities 228 339
Net Assets of Discontinued Operations $1,557 $1,924
- --------------------------------------------------------------------------------------
</TABLE>
Interest expense charged to discontinued operations was $96
million in 1999, $103 million in 1998, and $74 million in 1997, based on
working capital requirements and expected proceeds from the discontinued
Nutrition and Consumer segment and debt assumed by the spun-off chemical
business. Historically, the company did not allocate any debt to the
Nutrition and Consumer Products or Chemicals businesses because the
company centrally manages cash requirements for its operations.
Net assets of the Nutrition and Consumer Products segment do not
include pension liabilities, pension assets, and postretirement benefit
liabilities associated with its active employees or former employees.
Expenses related to pension and postretirement benefits have been
allocated to discontinued operations based on payroll costs. Monsanto
has not revised its existing retirement plans for any employment status
changes associated with the divestiture of the Nutrition and Consumer
Products segment. In 1997, the chemical company assumed the pension
liability and related pension assets for its active employees and
certain former employees of the chemical business.
In January 1999, Monsanto completed the sale of the Ortho lawn-
and-garden products business. Proceeds of $340 million were used to
reduce debt in 1999 and for general corporate purposes. On September
7, 1999, Monsanto announced the sale of the alginates business to
International Specialty Products (ISP). Proceeds of $40 million from
the sale were used to reduce debt. The closing of this transaction
occurred on Oct. 15, 1999, which resulted in an aftertax loss of $25
million from discontinued operations.
53
<PAGE>
<PAGE>
Offsetting this loss on disposal were restructuring liability
reversals of $27 million aftertax, which were required as severance
and facility shut-down costs were no longer required as a result of
the sale on terms more favorable than originally anticipated.
Monsanto announced Feb. 4, 2000, the signing of a definitive
agreement to sell the tabletop sweeteners business, including the Equal(R),
Canderel(R) and NutraSweet(R) tabletop brands, to Tabletop Acquisition Corp.
(TAC). Expected proceeds of $570 million from the sale will primarily
be used to reduce debt. On February 22, 2000, Monsanto announced the
signing of a definitive agreement to sell the biogums business to a
joint venture between Hercules Inc. and Lehman Brothers Merchant Banking
Partners II, L.P. Expected proceeds of $685 million will primarily be
used to reduce debt.
NOTE 25: QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPITON>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES
- -----------------------------------------------------------------------------------------------------------------------------------
1999 $2,310 $2,572 $1,922 $2,342 $9,146
1998 1,719 2,079 1,706 1,733 7,237
1997 1,542 1,736 1,369 1,411 6,058
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
1999 120 326 10 47 503
1998 166 223 (111) (409) (131)
1997 164 208 (198) (25) 149
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
1999 112 344 49 70 575
1998 196 257 (100) (603) (250)
1997 274 324 (133) 5 470
- -----------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE - CONTINUING OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
1999 0.18 0.50 0.02 0.07 0.77
1998 0.27 0.36 (0.18) (0.67) (0.22)
1997 0.27 0.34 (0.33) (0.04) 0.24
- -----------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE<F1>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 0.17 0.53 0.08 0.10 0.88
1998 0.32 0.41 (0.17) (1.00) (0.41)
1997 0.45 0.54 (0.23) 0.01 0.77
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER SHARE
- -----------------------------------------------------------------------------------------------------------------------------------
1999 0.030 0.030 0.030 0.030 0.120
1998 0.030 0.030 0.030 0.030 0.120
1997 0.150 0.160 0.160 0.030 0.500
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK PRICE<F2>
- -----------------------------------------------------------------------------------------------------------------------------------
1999
- -----------------------------------------------------------------------------------------------------------------------------------
HIGH 50 13/16 50 1/2 45 7/16 47 1/2 50 13/16
LOW 37 1/4 38 1/4 32 3/4 33 9/16 32 3/4
- -----------------------------------------------------------------------------------------------------------------------------------
1998
- -----------------------------------------------------------------------------------------------------------------------------------
High 53 1/16 60 3/8 63 15/16 55 7/8 63 15/16
Low 38 5/16 51 5/16 50 1/2 33 3/4 33 3/4
- -----------------------------------------------------------------------------------------------------------------------------------
1997
- -----------------------------------------------------------------------------------------------------------------------------------
High 42 1/4 46 1/2 52 5/16 45 3/4 52 5/16
Low 34 3/4 37 36 3/8 38 34 3/4
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Because Monsanto reported a loss from continuing operations for the fourth quarter and year ended Dec. 31, 1998, generally
accepted accounting principles require diluted loss per share to be calculated using weighted average common shares
outstanding, excluding common stock equivalents. As a result, the quarterly earnings (loss) per share do not total to the
full year amount.
<F2> Stock prices were not restated to reflect the spinoff of the chemical businesses on Sept. 1, 1997.
</TABLE>
54
<PAGE>
<PAGE>
Historically, Monsanto's income from continuing operations has
been higher during the first half of the year, primarily because of the
concentration of sales of the Agricultural Products segment during that
part of the year. Income from continuing operations for the third
quarter of 1999 included a net aftertax charge of $25 million, or $0.04
per share, for the cost associated with the accelerated integration of
Monsanto's agricultural chemical and seed operations of $49 million
aftertax, partially offset by the reversal of $24 million aftertax of
restructuring liabilities established in 1998. The restructuring
liability reversals were required as a result of lower actual severance
and facility shut-down costs than originally estimated. Income from
continuing operations for the fourth quarter of 1999 included a net
aftertax charge of $32 million, or $0.05 per share, principally for a
one-time aftertax charge of $53 million associated with the failed
merger between Monsanto and D&PL. This one-time charge in the fourth
quarter of 1999 was offset by the reversal of $12 million aftertax of
restructuring liabilities established in 1998 and an aftertax gain of $7
million from the divestiture of Stoneville. The reversal of
restructuring liabilities in the fourth quarter of 1999 were required as
a result of lower actual severance and facility shut-down costs than
originally estimated.
Income from continuing operations for the second quarter of 1998
included a net aftertax charge of $13 million, or $0.02 per share, for
the cost of exiting the company's optical products business offset by a
restructuring reserve reversal. Income from continuing operations for
the third quarter of 1998 included an aftertax charge of $187 million,
or $0.30 per share, for the write-off of in-process R&D for the
acquisition of PBIC. Income from continuing operations for the fourth
quarter of 1998 included an aftertax charge of $410 million, or $0.65
per share, for restructuring and special charges, write-offs for
acquired in-process R&D, and charges for the cancellation of DEKALB
stock options. The write-off of in-process R&D in the fourth quarter of
1998 was for the acquisition of DEKALB and certain international seed
operations of Cargill, net of a revision of the amount of in-process R&D
written off in the third quarter related to the PBIC acquisition. A
revision in the estimate was made in accordance with the U.S. Securities
and Exchange Commission's (SEC) clarified guidance on in-process R&D.
This revision was made as an adjustment to the initial purchase price
allocation, which was not yet finalized because outstanding
information, primarily related to intangible asset valuations and
liabilities assumed, was still being obtained.
Income from continuing operations for each quarter in 1997 was
affected by the write-off of in-process R&D from acquisitions. First-
quarter 1997 included an aftertax charge of $63 million, or $0.11 per
share, principally for the acquisition of the Asgrow Agronomics seed
business. Second-quarter 1997 included an aftertax charge of $21
million, or $0.03 per share, for the Calgene Inc. acquisition. Third-
quarter 1997 included an aftertax charge of $270 million, or $0.45 per
share, for the Holden's Foundation Seeds Inc. acquisition. Fourth-
quarter 1997 included $50 million, or $0.08 per share, for the Sementes
Agroceres S.A. acquisition.
55
<PAGE>
<PAGE>
========================================================================
INDEPENDENT AUDITORS' REPORT
========================================================================
To the shareowners of Monsanto Company:
We have audited the accompanying statement of consolidated
financial position of Monsanto Company and subsidiaries as of Dec. 31,
1999 and 1998, and the related statements of consolidated income (loss),
cash flow, shareowners' equity and comprehensive income (loss) for each
of the three years in the period ended Dec. 31, 1999. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Monsanto
Company and subsidiaries as of Dec. 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in
the period ended Dec. 31, 1999, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
St. Louis, Missouri
Feb. 25, 2000
56
<PAGE>
<PAGE>
APPENDIX
1. Throughout the electronic submission, trademarks are designated on
each page by the letter "R" in parentheses or the letters "TM" in
parentheses. In the printed copy of Exhibit 99.1 all trademarks are
indicated by special type.
<PAGE>
EXHIBIT 99.2
<TABLE>
MONSANTO COMPANY AND SUBSIDIARIES
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes $ 751<F*> $ (85)<F*> $127<F*> $356<F*> $553<F*> $478
Add
Fixed charges 423 269 188 131 133 123
Less capitalized interest (37) (14) (13) (8) (4) (3)
Dividends from affiliated companies 1 1 1 3 1 --
Less equity income (add equity loss)
of affiliated companies 31 35 (6) 32 (12) --
------ ----- ---- ---- ---- ----
Income as adjusted $1,169 $ 206 $297 $514 $651 $598
====== ===== ==== ==== ==== ====
Fixed charges
Interest expense $ 345 $ 210 $135 $83 $92 $88
Capitalized interest 37 14 13 8 4 3
Portion of rents representative
of interest factor 41 47 40 40 37 32
------ ----- ---- ---- ---- ----
Fixed charges $ 423 $ 271 $188 $131 $133 $123
====== ===== ==== ==== ==== ====
Ratio of earnings to fixed charges 2.76 0.76 1.58 3.92 4.89 4.86
==== ==== ==== ==== ==== ====
<FN>
<F*>Includes net charges for costs related to the failed merger between
Monsanto and Delta and Pine Land Company, accelerated integration of
agricultural chemical and seed businesses, a gain on divestiture of
Stoneville Pedigreed Seed Company, and reversals of restructuring
liabilities established in 1998, of $64 million for 1999 and
restructuring, acquired in-process research and development, and other
unusual items of $762 million, $663 million, $327 million, and $24
million for the years ended December 31, 1998, 1997, 1996, and 1995,
respectively. Excluding these unusual items, the ratio of earnings to
fixed charges would have been 2.91, 3.57, 4.95, 6.42 and 5.08 for
the years ended December 31, 1999, 1998, 1997, 1996 and 1995,
respectively. The ratio was not materially affected by the
restructuring and other unusual items in 1994.
</TABLE>
