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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-2516
MONSANTO COMPANY
----------------
(Exact name of registrant as specified in its charter)
DELAWARE 43-0420020
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 NORTH LINDBERGH BLVD., ST. LOUIS, MO 63167
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(314) 694-1000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS MARCH 31, 1999
----- --------------
COMMON STOCK, $2 PAR VALUE 631,467,979 shares
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Statement of Consolidated Income of Monsanto Company and
subsidiaries for the three months ended March 31, 1999 and 1998, the
Statement of Consolidated Financial Position as of March 31, 1999 and
Dec. 31, 1998, the Statement of Consolidated Cash Flow for the three
months ended March 31, 1999 and 1998, and related Notes to Financial
Statements follow. In the opinion of management, these unaudited
consolidated financial statements contain all adjustments necessary to
present fairly the financial position, results of operations and cash
flows for the interim periods reported. This Quarterly Report on Form
10-Q/A should be read in conjunction with Monsanto's 1998 amended Annual
Report on Form 10-K/A.
Unless otherwise indicated, "Monsanto" and "the company" are used
interchangeably to refer to Monsanto Company or to Monsanto Company and
consolidated subsidiaries, as appropriate to the context. Unless
otherwise indicated, "earnings per share" and "per share" means diluted
earnings per share. In tables, all dollars are in millions, except per
share data.
Throughout this quarterly filing "EDITDA (excluding unusual items)" is
net earnings (loss) before income taxes, interest expense, depreciation
expense, amortization expense, and excluding the effects of unusual
items. EBITDA (excluding unusual items) may not be directly comparable
to EBITDA performance measures reported by other companies because it
excludes unusual items. Although EBITDA (excluding unusual items) is a
financial performance measure commonly used in the financial community,
it is not a measure of financial performance under accounting principles
generally accepted in the United States. The presentation of EBITDA
(excluding unusual items) in this quarterly report is intended to
supplement investors' understanding of Monsanto's operating performance
and not to replace net income, cash flows, financial position nor
comprehensive income as determined in accordance with accounting
principles generally accepted in the United States. EBITDA (excluding
unusual items) excludes the effects of intangible amortization and
interest expense. For this reason, the increases in these two elements
of the financial statements resulting from the 1998 acquisitions will
not be reflected in EBITDA (excluding unusual items), but will impact
net income in future periods. Investors and other users of the financial
statements should refer to management's discussion and analysis for a
description of events that have impacted EBITDA (excluding unusual
items) and net income during the three months ended March 31, 1999 and
the three months ended March 31, 1998.
EBITDA (excluding unusual items) excludes the effects of intangible
amortization and interest expense. For this reason, the anticipated
increase in these two elements of the financial statements resulting
from the recent acquisitions of DEKALB Genetics Corporation, Plant
Breeding International Cambridge, and the international seed businesses
of Cargill, will not be reflected in EBITDA (excluding unusual items)
but will impact net income in future periods. Investors and other users
of the financial statements should refer to management's discussion and
analysis for a description of events that have impacted EBITDA
(excluding unusual items) and net income during each of the three years
ended December 31, 1998.
Subsequent to the date of these consolidated financial statements (March
31, 1999), but prior to the date of this amended 10-K/A, 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 divestiture of which was 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. The Company expects to sell these
businesses for a 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 (see
Discontinued Operations disclosure for further details).
1
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<TABLE>
MONSANTO COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(Dollars in millions, except per share)
Unaudited
<CAPTION>
Three Months Ended
March 31,
------------------
1999 1998
------ ------
<S> <C> <C>
Net Sales $2,310 $1,719
Costs and Expenses:
Cost of Goods Sold 871 650
Selling, General and Administrative Expenses 666 465
Technological Expenses 352 268
Amortization of Intangible Assets 83 46
Interest Expense 96 44
Interest Income (8) (8)
Other Expense - Net 40 3
------ ------
Income from Continuing Operations Before Income Taxes 210 251
Income Tax Expense 90 85
------ ------
Income from Continuing Operations Before Change in Accounting Principle 120 166
Income from Discontinued Operations, Net of taxes of
$6 and $15 million, respectively 12 30
------ ------
Income before Cumulative Effect of Accounting Change $ 132 $ 196
Cumulative Effect of a Change in Accounting Principle, Net of taxes of $12 million (20)
------ ------
Net Income $ 112 $ 196
====== ======
Basic Earnings (Loss) per Share:
Continuing Operations $ 0.19 $ 0.28
Discontinued Operations 0.02 0.05
Cumulative Effect of Accounting Change (0.03)
------ ------
Net Income $ 0.18 $ 0.33
Diluted Earnings (Loss) per share:
Continuing Operations $ 0.18 $ 0.27
Discontinued Operations 0.02 .05
Cumulative Effect of Accounting Change (0.03)
------ ------
Net Income $ 0.17 $ 0.32
Dividends per Share: $0.03 $ 0.03
------ ------
The accompanying notes are an integral part of the financial statements.
</TABLE>
2
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<TABLE>
MONSANTO COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
(Dollars in millions, except per share)
Unaudited
<CAPTION>
March 31, Dec. 31,
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 101 $ 89
Receivables, net of allowances of $140 in 1999 and $87 in 1998 2,885 2,119
Miscellaneous receivables and prepaid expenses 724 777
Deferred income tax 439 488
Inventories 1,562 1,722
------- -------
Total Current Assets 5,711 5,195
------- -------
Property, Plant and Equipment 5,243 5,185
Less Accumulated Depreciation 2,323 2,320
------- -------
Net Property, Plant and Equipment 2,920 2,865
------- -------
Intangible Assets, net of accumulated amortization 5,040 5,281
Other Assets 1,170 1,120
Net Assets of Discontinued Operations 1,669 1,924
------- -------
Total Assets $16,510 $16,385
------- -------
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Accounts payable $ 414 $ 823
Accrued liabilities 1,790 1,888
Short-term debt 1,939 1,069
------- -------
Total Current Liabilities 4,143 3,780
------- -------
Long-Term Debt 6,269 6,259
Postretirement Liabilities 897 848
Other Liabilities 345 512
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 1,411 1,389
Treasury stock, at cost (215,623,984 shares in 1999
and 217,632,240 shares in 1998) (2,485) (2,508)
Reinvested earnings 4,745 4,652
Reserve for ESOP debt retirement (95) (106)
Accumulated other comprehensive loss (414) (135)
------- -------
Total Shareowners' Equity 4,856 4,986
------- -------
Total Liabilities and Shareowners' Equity $16,510 $16,385
------- -------
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
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<TABLE>
MONSANTO COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOW
(Dollars in millions)
Unaudited
<CAPTION>
Three Months Ended
March 31,
------------------
1999 1998
---- ----
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Operating Activities:
Income from continuing operations $ 120 $ 166
Add income taxes - continuing operations 90 85
------- ------
Income from continuing operations before income taxes 210 251
Adjustments to reconcile to cash provided (used in) continuing operations:
Income tax refunds (payments) (28) 37
Items that did not use (provide) cash:
Depreciation and amortization 166 109
Bad Debt Expense and other 53 20
Working capital changes that provided(used) cash:
Accounts receivable (883) (596)
Inventories 116 (54)
Accounts payable and accrued liabilities (549) (246)
Other 47 (130)
Pharmaceutical licensing and product rights sales - 108
Other items (74) (66)
------- ------
Cash Used in Continuing Operations (942) (567)
Cash Provided by (Used in) Discontinued Operations (60) 56
------- ------
Total Cash Used in Operations (1,002) (511)
Investing Activities:
Property, plant and equipment purchases (192) (122)
Acquisition and investment payments (15) (15)
Discontinued Operations proceeds (payments) 327 (12)
------- ------
Cash Provided by (Used in) Investing Activities 120 (149)
------- ------
Financing Activities:
Net change in short-term financing 870 522
Long-term debt proceeds 25 100
Long-term debt reductions (15) (19)
Dividend payments (19) (18)
Common stock issued under employee stock plans 33 58
------- ------
Cash Provided by Financing Activities 894 643
------- ------
Increase (decrease) in Cash and Cash Equivalents 12 (17)
Cash and cash equivalents at beginning of year 89 134
Cash and cash equivalents at end of period $ 101 $ 117
======= ======
</TABLE>
The effect of exchange rate changes on cash and cash equivalents was not
material. Cash payments for interest (net of amounts capitalized) were
$69 million as of March 31, 1999, and $60 million as of March 31, 1998.
The accompanying notes are an integral part of the financial statements.
4
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<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
1. In 1998, Monsanto announced that it had entered into a definitive
agreement with Delta and Pine Land Company ("D&PL") to merge it
with Monsanto. Under terms of the agreement, D&PL Shareowners
would be entitled to receive 0.8625 shares of Monsanto's common
stock in exchange for each share of D&PL they hold. Approximately
33 million shares of Monsanto common stock would be issued to D&PL
Shareowners. Based on Monsanto's closing stock price of $53 1/2
per common share on May 8, 1998, the date of the merger agreement,
this would result in a purchase price of approximately $1.8
billion. The merger, already approved by D&PL Shareowners, is
subject to regulatory approvals and other customary conditions.
This transaction would be accounted for as a purchase.
Also during 1998, Monsanto completed its acquisition of DEKALB
Genetics Corp. ("DEKALB") and acquired Plant Breeding
International Cambridge Limited (PBIC) and certain international
seed operations of Cargill Inc. Monsanto accounted for these
acquisitions as purchases. The purchase price allocations were
based on preliminary assumptions and are subject to revision
during 1999, pending final appraisal and valuation studies.
Significant components of our preliminary purchase price
allocations for the principal acquisitions made during 1998 were
to goodwill, $2,835 million; germplasm and core technology, $324
million; trademarks, $206 million; in-process research and
development, $402 million; restructuring related activities,
($78) million; inventories, $115 million; and other individually
insignificant tangible assets and liabilities, $107 million. The
Company is continuing to obtain additional information related to
intangible assets, primarily germplasm and trademarks, litigation,
cost to complete the exit plan for certain activities of the
acquired business and inventories. The information necessary to
complete the allocation of purchase price is expected to be
obtained by the end of the third quarter 1999. Any adjustment to
the purchase price allocation for the business acquired is not
expected to materially impact Monsanto's financial position,
results of operations, cash flows or other comprehensive income in
any one year.
2. Comprehensive income (loss) includes all non-shareowner changes in
equity and consists of net income, foreign currency translation
adjustments, unrealized gains and losses on available-for-sale
securities, and minimum pension liability adjustments. Total
comprehensive income (loss) for the three months ended March 31,
1999 and 1998, was:
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Net income $ 112 $ 196
Other comprehensive income (loss):
Foreign currency translation adjustments (276) (24)
Unrealized investment gains / (losses) (3) 21
----- -----
Total other comprehensive (loss) (279) (3)
----- -----
Total Comprehensive Income (Loss) $(167) $ 193
----- -----
3. In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("FAS 133").
FAS 133 requires all derivatives to be recognized as assets or
liabilities on the balance sheet and measured at fair value.
Changes in the fair value of derivatives should be recognized in
either Net Income or Other Comprehensive Income, depending on the
designated purpose of the derivative. This statement is effective
for Monsanto Jan. 1, 2001. Because of the effect of recent
acquisitions, Monsanto is reassessing its position and has not yet
determined the effect this statement will have on its consolidated
financial position or results of operation.
5
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<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
4. Basic earnings per share (EPS) from continuing operations were
computed using the weighted average number of common shares
outstanding each period (630.5 million in 1999 and 597.7 million
in 1998). Diluted EPS from continuing operations were computed
taking into account the effect of dilutive potential common shares
(16.8 million in 1999 and 21.7 million in 1998). Dilutive
potential common shares consist of outstanding stock options.
Other common share equivalents also were not included in the
computation of diluted earnings per share as of March 31, 1999,
because the effect of their exercise or conversion is not
dilutive, when based on the average market price of Monsanto
common stock for the period. These included approximately 55.3
million of outstanding stock options, which expire through 2008,
and 17.5 million Adjustable Conversion-rate Equity Securities
(ACES) that include stock purchase contracts which are exercisable
in November, 2001.
5. Monsanto's 1998 restructuring plan resulted in the recognition of
liabilities totaling $220 million (current and long-term) at
December 31, 1998. During the first quarter of 1999, 445 employees
were severed at a cost of approximately $34 million. Cash outflows
associated with these separations were charged against the
restructuring liability. In addition, Monsanto completed a portion
of the facility closures in the first quarter, reducing the
restructuring liability by another $12 million.
Work force reductions were behind expectations at the end of the
first quarter but Monsanto expects to complete the remaining
restructuring actions within the originally planned time frame.
<TABLE>
<CAPTION>
Work Force Facility
Reduction Closures Total
---------- -------- -----
<S> <C> <C> <C>
1998 restructuring reserve balance as of
December 31, 1998 $ 188 $ 32 $ 220
Costs charged against reserves (34) (12) (46)
----- ----- -----
1998 restructuring reserve balance as of
March 31, 1999 $ 154 $ 20 $ 174
===== ===== =====
</TABLE>
6. Components of inventories as of March 31, 1999 and Dec. 31, 1998
were as follows:
March 31, Dec. 31,
1999 1998
------ ------
Finished goods $ 760 $1,064
Goods in process 387 469
Raw materials and supplies 451 224
------ ------
Inventories, at FIFO cost 1,598 1,757
Excess of FIFO over LIFO cost (36) (35)
------ ------
Total $1,562 $1,722
------ ------
7. During 1998, a jury verdict was returned against Monsanto in a
lawsuit filed in the California Superior Court. The lawsuit was
brought by Mycogen Corp., Agrigenetics Inc., and Mycogen Plant
Sciences Inc., claiming that Monsanto delayed providing access to
certain gene technology under a 1989 agreement with Lubrizol
Genetics Inc., a company which Mycogen Corp. subsequently
purchased. The jury awarded $174.9 million in future damages.
Monsanto has filed an appeal of the verdict, has meritorious
defenses and grounds to overturn the award, and intends to
vigorously pursue all available means to have this verdict set
aside. No provision has been made in Monsanto's consolidated
financial statements with respect to this verdict.
In April 1999, a jury verdict was returned against DEKALB Genetics
Corporation (which became a wholly-owned subsidiary of Monsanto
during December 1998), in a lawsuit filed in U.S. District Court
in North Carolina. The lawsuit was brought by Rhone Poulenc
Agrochimie S.A., claiming that a 1994 license agreement was
induced by fraud stemming from DEKALB's nondisclosure of relevant
information and that DEKALB did not have the right to license,
make or sell products using Rhone Poulenc's technology for
glyphosate resistance under this agreement. The jury awarded $15
million in actual damages for unjust enrichment and $50 million
6
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<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
in punitive damages. DEKALB has filed a motion to have the damage
award set aside and has filed a Motion for Judgment as a Matter
of Law to overturn the verdict. DEKALB has meritorious grounds to
overturn the verdict and intends to vigorously pursue all
available means to have the verdict overturned. No provision has
been made in Monsanto's consolidated financial statements with
respect to this verdict.
Monsanto is party to a number of lawsuits and claims, which it is
vigorously defending. Such matters arise in the normal course of
business and relate to a variety of issues. Certain of the
lawsuits and claims seek damages in very large amounts or seek to
restrict Monsanto's business activities.
Although the results of litigation cannot be predicted with
certainty, management's belief is that the final outcome of such
litigation will not have a material adverse effect on Monsanto's
consolidated financial position, profitability or liquidity in any
one year.
7
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MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
8. Business segment data for the three months ended March 31, 1999
and 1998 were as follows for net sales EBIT (earnings before
interest expense and income taxes) and EBITDA (earnings before
interest expense, income taxes, depreciation and amortization).
Segment EBIT and EBITDA exclude unusual items and are indicated as
"EBIT (excluding unusual items)" and "EBITDA (excluding unusual
items)". Monsanto consolidated EBIT includes the effects of
unusual items:
<TABLE>
<CAPTION>
Net Sales
Three Months Ended
March 31,
------------------
1999 1998
------ ------
<S> <C> <C>
Agricultural Products $1,457 $1,133
Pharmaceuticals 825 532
Corporate and Other 28 54
------ ------
Total Net Sales $2,310 $1,719
------ ------
<CAPTION>
EBIT
Three Months Ended
March 31,
------------------
1999 1998
------ ------
<S> <C> <C>
Segment EBIT (excluding unusual items)
from continuing operations:
Agricultural Products $ 299 $ 335
Pharmaceuticals 78 12
Corporate and Other (71) (52)
------ ------
Total segment EBIT (excluding unusual items) $ 306 $ 295
Unusual items - -
------ ------
Total EBIT from continuing operations
(excluding unusual items) $ 306 $ 295
------ ------
<CAPTION>
EBITDA (excluding unusual items)
Three Months Ended
March 31,
------------------
1999 1998
------ ------
<S> <C> <C>
Agricultural Products $ 413 $ 414
Pharmaceuticals 113 41
Corporate and Other (54) (51)
------ ------
Total EBITDA (excluding unusual items) $ 472 $ 404
------ ------
Interest Expense 96 44
Income Tax Expense 90 85
Amortization Expense 83 46
Depreciation 83 63
Unusual Items - -
------ ------
Income from continuing operations $ 120 $ 166
------ ------
</TABLE>
8
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<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
Financial information for the first quarter should not be
annualized. Monsanto's sales and operating income are
historically higher during the first half of the year, primarily
because of the concentration of generally more profitable sales
from the Agricultural Products segment in the first half of the
year.
9. Subsequent to the date of these consolidated financial statements
(March 31, 1999), but prior to the date of this amended 10-K/A,
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 divestiture
of which was 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. The
Company expects to sell these businesses for a 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 (see Discontinued
Operations disclosure for further details).
Net sales, income and net assets from discontinued operations are
as follows:
<TABLE>
<CAPTION
Three Months Ended
March 31,
1999 1998
------ ------
<S> <C> <C>
Net Sales $ 235 $ 325
Income from Discontinued Operations, Before Tax 18 50
Discontinued Operations Income Tax 8 17
------ ------
Income from Discontinued Operations $ 12 $ 33
------ ------
Net Assets of Discontinued Operations: As of March 31, 1999 As of December 31, 1998
-------------------- -----------------------
Current Assets $ 708 $ 994
Non-Current Assets 1,225 1,269
------ ------
Total Assets $1,933 $2,263
------ ------
Current Liabilities $ 171 $ 272
Non-Current Liabilities 93 67
------ ------
Total Liabilities $ 269 $ 339
------ ------
Net Assets of Discontinued Operations $1,669 $1,924
------ ------
</TABLE>
10. On August 6, 1999, Monsanto announced the signing of a definitive
agreement to sell Stoneville Pedigree Seed Company to an
affiliate of Hicks, Muse, Tate & Furst, Inc.
11. In December 1999, the 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 requires companies to
report any changes in revenue recognition as an accounting change
in accordance with APB opinion No. 20, "Accounting Changes".
Monsanto recorded a cumulative effect of a change in accounting
principle, effective January 1, 1999, for revenue recognized in
1998 related to the sale of marketing rights to Scotts Company.
The impact to earnings in 1999 was an aftertax loss of $20
million, net of taxes of $12 million.
9
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<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Subsequent to the date of these consolidated financial statements (March
31, 1999), but prior to the date of this amended 10-K/A, 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 divestiture of which was 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. The Company expects to sell these
businesses for a 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 (see
Discontinued Operations disclosure for further details).
RESULTS OF OPERATIONS--FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998
Net income totaled $112 million, or $0.17 per share, in the first
quarter of 1999 compared with net income of $196 million, or $0.32 per
share, for the first quarter of 1998. Sales grew $591 million, or 34
percent, primarily because of the Pharmaceuticals segment product launch
of Celebrex(R) arthritis treatment and the inclusion of sales from seed
companies acquired in 1998. The decrease in net income was primarily
attributable to higher selling, general and administrative ("SG&A")
expenses, and technological expenses along with increases in interest
expense and amortization costs.
Business segment data for the three months ended March 31, 1999 and
1998, were as follows:
<TABLE>
<CAPTION>
Net Sales
Three Months Ended
March 31,
------------------
1999 1998
---- ----
<S> <C> <C>
Agricultural Products $1,457 $1,133
Pharmaceuticals 825 532
Corporate and Other 28 54
------ ------
Total Consolidated Net Sales $2,310 $1,719
------ ------
<CAPTION>
EBIT
----
(Earnings before interest
expense and income taxes)
Three Months Ended
March 31,
------------------
1999 1998
---- ----
<S> <C> <C>
Segment EBIT (excluding unusual items):
Agricultural Products $ 299 $ 335
Pharmaceuticals 78 12
Corporate and Other (71) (52)
------ ------
Total segment EBIT (excluding unusual items) $ 306 $ 295
Unusual items - -
------ ------
Total EBIT $ 350 $ 295
------ ------
Interest Expense 96 44
Income Tax Expense 90 85
------ ------
Income from continuing operations $ 112 $ 166
------ ------
</TABLE>
10
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<PAGE>
MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Consolidated EBIT of $306 million increased nearly 4 percent in the
first quarter of 1999, compared with $295 million in the first quarter
of 1998 primarily because of increased pharmaceutical sales offset by
higher SG&A expenses, technological expenses, and increased amortization
costs. SG&A expenses and technological expenses increased in the first
quarter of 1999 compared with expenses in the year-ago quarter because
of increased expenses in the Pharmaceuticals and Agricultural Products
segments. The increase in selling expenses for Pharmaceuticals was
caused mainly by increased spending associated with the Jan. 1999 launch
of Celebrex(R) arthritis treatment in the United States. SG&A expenses
for the Agricultural Products segment increased in quarter-to-quarter
comparisons because of the inclusion in 1999 of SG&A expenses from the
acquired seed companies. Technological expenses for Pharmaceuticals grew
as new product candidates continued to move through the final, more
expensive stages of the research and development approval process.
Technological expenses for the Agricultural Products segment grew
primarily because of higher spending on crop biotechnology initiatives,
including genomics, and the inclusion of technological expenses from the
acquired seed companies.
Amortization of intangible assets increased in the first quarter of 1999
principally because of the increase in intangible assets related to seed
company acquisitions made in 1998. The decline in other income was
because first quarter 1999 results no longer include the equity income
of DEKALB, which is now included in consolidated results; and higher
foreign currency exchange losses. The increase in interest expense in
quarter-to-quarter comparisons was caused by a higher debt level during
the first quarter of 1999 vs. the comparable prior-year quarter.
In December 1999, the 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 requires companies to report any changes in revenue
recognition as an accounting change in accordance with APB opinion No.
20, "Accounting Changes". Monsanto recorded a cumulative effect of a
change in accounting principle, effective January 1, 1999, for revenue
recognized in 1998 related to the sale of marketing rights to Scotts
Company. The impact to earnings in 1999 was an aftertax loss of $20
million, net of taxes of $12 million.
Agricultural Products Segment
- -----------------------------
Agricultural Products segment EBIT (excluding unusual items) decreased
$36 million, or 11 percent, in the first quarter of 1999, compared with
$335 million in the first quarter of 1998 because increased sales were
more than offset by increases in SG&A expenses, bad debt expense, and
incremental amortization costs. SG&A and technological expenses rose
primarily because of the inclusion in 1999 of the acquired seed
companies and spending on crop biotechnology initiatives. Bad debt
expense increased because of the continued deterioration of economic
conditions in Latin America and eastern Europe. Amortization of
intangible assets increased principally because of the increase in
intangible assets related to seed company acquisitions made in 1998.
Net sales for the Agricultural Products segment increased $324 million,
or 29 percent, in the first quarter of 1999, largely because of the
inclusion of sales from seed companies acquired in 1998, and because of
higher licensing revenues from crops developed through biotechnology,
principally Roundup Ready(R) soybeans. Sales for the family of
Roundup(R) herbicides in the first quarter of 1999 also were higher when
compared with sales in the first quarter of 1998, as increased volumes
more than offset price reductions announced in 1998. Roundup(R) volumes
increased vs. first-quarter 1998 volumes with increased usage of
conservation tillage in the United States, and favorable weather
conditions in Asia-Pacific and the southern region of North America when
compared with the same period a year ago. The favorable weather is
expected to affect the timing of 1999 sales, but not the overall volume,
as sales that would have been expected to occur later in the planting
season occurred in the first quarter. The recovery in certain southeast
Asia economies also positively affected Roundup(R) sales volumes, but
this was offset by a decline in Brazil related to a weakened economy.
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MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Pharmaceuticals Segment
- -----------------------
EBIT (excluding unusual items) for the Pharmaceuticals segment increased
$66 million in quarter-to-quarter comparison primarily because of the
strong product launch of Celebrex(R) arthritis treatment. For
comparative purposes, first quarter 1998 included $100 million of
revenue related to the co-promotion of Celebrex(R). SG&A expenses rose
primarily because of increased spending associated with the Celebrex(R)
product launch, which included co-promotion payments for the first
quarter of 1999. Technological expenses grew to support several late
stage new product candidates, clinical studies for launched products,
and close-out expenses associated with discontinuation of clinical
trials for the fibans research program.
Net sales for the Pharmaceuticals segment increased $293 million, or 55
percent, in the first quarter of 1999, primarily because of the strong
product launch of Celebrex(R). Sales of Arthrotec(R) and Daypro(R)
arthritis treatments also were higher when compared with sales in the
first quarter 1998, despite market share shifts toward Celebrex(R).
Sales of Ambien(R) short-term treatment for insomnia increased in the
first quarter of 1999 when compared to first quarter 1998, because of
lower purchasing by drug wholesalers in the first quarter of 1998
following Dec. 1997 price increases.
Corporate and Other Segment
- ---------------------------
Corporate and Other segment EBIT (excluding unusual items) decreased $19
million, or 37 percent, in the first quarter of 1999 when compared with
the first quarter of 1998 because of business divestments and increased
spending for nutrition research. Net sales for the Corporate and Other
segment decreased $26 million, or 48 percent, in the first quarter of
1999, largely because of the 1998 disposal of the Orcolite(R) and
Diamonex(R) businesses.
SEGMENT EBITDA (EXCLUDING UNUSUAL ITEMS)
- ----------------------------------------
Business segment earnings before interest expense, taxes, depreciation,
amortization (EBITDA) excluding unusual items for the three months ended
March 31, 1999 and 1998, was as follows:
EBITDA (excluding unusual items)
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Agricultural Products $413 $414
Pharmaceuticals 113 41
Corporate and Other (54) (51)
---- ----
EBITDA (excluding unusual items) $472 $404
---- ----
Interest Expense 96 44
Tax Expense 90 85
Amortization Expense 83 46
Depreciation 83 63
Unusual Items - -
---- ----
Net Income from continuing operations $120 $166
---- ----
EBITDA (excluding unusual items) for Monsanto was $472 million, an
increase of 17 percent over the same period a year ago, reflecting
increased net sales offset by increased SG&A expenses and technological
expenses. On a segment basis, Pharmaceuticals EBITDA (excluding unusual
items) in 1999 was nearly flat when compared with the same period a year
ago primarily because of the strong product launch of Celebrex(R).
Agricultural Products segment EBITDA (excluding unusual items) was
nearly flat in the first quarter of 1999 when compared with the first
quarter of 1998 primarily because of the inclusion of the seed company
acquisitions made in 1998 offset by reduced results from the lawn and
garden business.
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MONSANTO COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Financial information for the quarter should not be annualized.
Monsanto's sales and operating income are historically higher during the
first half of the year, primarily because of the concentration of
generally more profitable sales from the Agricultural Products segment
in the first half of the year.
Results from Discontinued Operations
- ------------------------------------
Net sales in the first quarter of 1999 were $235 million compared with
net sales of $325 million in the same period of 1998. The decline was
primarily because of the January 1999 divestiture of the Ortho(R) lawn-
and-garden products business. Income from discontinued operations was
$12 million in the first quarter of 1999 compared with income from
discontinued operations in the first quarter 1998 of $33 million. Income
from discontinued operations for the first quarter of 1999 and the first
quarter of 1998 is net of tax expense of $8 million and $17 million,
respectively.
CHANGES IN FINANCIAL CONDITION -- MARCH 31, 1999 COMPARED WITH DEC. 31, 1998
Working capital as of March 31, 1999, increased 11 percent, to $1,568
million from $1,415 million as of Dec. 31, 1998, primarily because of
seasonal increases in trade receivables, partly offset by higher short-
term debt. Accounts payable decreased by $409 million, or 50 percent,
primarily because of payments made to seed growers in the first quarter
of 1999. The current ratio was 1.4 as of both March 31, 1999 and as of
year-end 1998. The percent of total debt to total capitalization
increased to 63 percent as of March 31, 1999 compared with 60 percent as
of Dec. 31, 1998 because of the increase in short-term debt to fund the
seasonal need of the Agricultural Products segment.
Operating activities used a net $1,002 million of cash in the first
quarter of 1999, compared with $511 million of net cash used in
operations during the same period in 1998. The increase in cash used in
operations resulted primarily from the inclusion of seed companies
acquired in 1998 coupled with the Pharmaceuticals segment product launch
of Celebrex(R) arthritis treatment. For comparative purposes, cash used
in operations for the first quarter of 1998 decreased by the collection
of miscellaneous receivables related to 1997 Pharmaceuticals licensing
and product rights sales. Investing activities in the first quarter of
1999 provided $120 million of cash compared with a use of cash of $149
million in the comparable prior-year quarter. Investing activities for
the 1999 period included the divestment of the Ortho(R) lawn-and-garden
business for $340 million. Cash provided by financing activities in the
first quarter 1999 was $894 million compared with $643 million in the
same period a year ago. Financing activities include the net increase in
short-term financing of $870 million for the three months ended March
31, 1999, which was primarily used to fund Agricultural Products' higher
seasonal working capital levels and Pharmaceutical's launch of
Celebrex(R).
The company had previously announced its plan to divest certain
businesses that are no longer critical to its life sciences strategy.
These divestitures, including those recently completed or announced, are
currently expected to generate approximately $1.5 billion to $2 billion
pre-tax.
COMPANY PREPARES FOR YEAR 2000
Beginning in 1996, the company initiated the Global Year 2000 program
(the "Y2K program") to ensure that its business would not be adversely
affected by the inability of many existing computer systems to
distinguish between the year 1900 and the year 2000. The Y2K program
covers all company sites in all world areas.
Description and Status of the Y2K Program
- -----------------------------------------
Internal Systems. The company's Y2K program encompasses all internal
systems including conventional information technology ("IT") business
applications, IT infrastructure and embedded systems. Embedded systems
include process control and manufacturing, and laboratory automation
systems, as well as, site-specific facility management systems, such as
elevator service and heating and cooling systems. The remediation
process applied to each area consists of four-steps: Identification of
the systems or components that need to be replaced or fixed; assessment
of the extent of the work required (internal investigation or research
with vendor or manufacturer); prioritization of the work; and successful
completion of the required remediation activity. The company remains on
track to achieve the target date for completion of all remediation work
for Internal Systems, which is the third quarter of 1999.
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The following summarizes the status of the Y2K program with respect to
internal systems:
IT Applications Portfolio:
<TABLE>
<CAPTION>
As of March 31, 1999
--------------------
<S> <C>
Number of applications identified 1,310
Applications assessed for Y2K compliance 100%
Applications compliant 66%
Applications to be remediated through replacements and upgrades 17%
Anticipated retirements 3%
Applications at various stages of renovation, redevelopment or testing 14%
IT Infrastructure Products:
<CAPTION>
As of March 31, 1999
--------------------
<S> <C>
Number of products identified 530
Products researched for compliance 100%
Products compliant 56%
Products requiring remediation with minor upgrades 10%
Non-compliant products requiring remediation or retirement 34%
Embedded Systems:
<CAPTION>
As of March 31, 1999
--------------------
<S> <C>
Number of process control products identified 7,630
Products successfully researched for compliance 99%
Number of process control items in use 16,209
Items compliant, remediated, or risk eliminated 69%
Number of laboratory automation products identified 5,383
Products successfully researched for compliance 74%
Number of laboratory automation items in use 14,250
Items compliant, remediated, or risk eliminated 72%
Number of site facilities products identified 696
Products successfully researched for compliance 100%
Number of site facilities items in use 1,086
Items compliant, remediated, or risk eliminated 71%
Number of products in newly acquired businesses 3,489
Products successfully researched for compliance 40%
Number of items in use 8,858
Items compliant, remediated, or risk eliminated 37%
</TABLE>
Suppliers. The company has contacted its major suppliers to assess their
preparations for the Year 2000. More than 650 key corporate suppliers
have been identified and contacted in addition to numerous suppliers
critical to individual locations. Approximately 70 percent of the
company's key corporate suppliers have been identified as likely to be
Y2K compliant. The status of the remaining 30 percent of these key
suppliers is of concern and further action is being taken by managers
responsible for these suppliers or supplier contracts. Where
appropriate, company representatives may conduct an in-depth
investigation of a particular supplier's ability to be compliant and
site visits may be made.
Contingency Plans. The company's contingency plans are continuously
evolving as it proceeds with the Y2K program. The company began a major
initiative in Nov. 1998 in this area with the establishment of the Y2K
Business Continuity Team. Continuity plans have been prepared in
critical functional areas throughout the company and are currently being
consolidated into comprehensive plans around key business sectors. These
plans include cost analysis, testing, failure response, safety,
procedures, communications, among other items. Senior management
periodically reviews these business-level continuity plans to ensure
Monsanto's supply chain has identified relevant risks and have planned
accordingly. Where a supplier's performance is in doubt, the company's
contingency plans may include the stockpiling of raw materials or a
switch to a different supplier. The company will increase testing of
Pharmaceuticals and Nutrition and Consumer products as the Year 2000
nears and may also increase production of critical product inventory.
14
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Costs
- -----
The company continues to evaluate the estimated costs associated with
Y2K compliance based on actual experience. The total cost is currently
projected at about $35 million, with approximately $19.5 million
expended through March 31, 1999. Such costs encompass only the company's
Y2K remediation efforts and do not include expenses such as overtime
wages, additional warehouse space or increased finance costs which may
be incurred upon implementation of the company's contingency plans. The
company does not expect the costs associated with its Year 2000 efforts
to be materially adverse to the company's business operations, financial
position, profitability or liquidity.
Risks
- -----
The company believes that the Y2K program follows both prudent and best
demonstrated practices (including contingency planning) and makes use of
appropriate internal and external skills at the proper level and in the
proper amount to minimize the impact of any failures. However, since the
Year 2000 problem is unprecedented in scope or complexity, no complete
assurance of risk avoidance can be given. In the company's case, failure
to correct a material Year 2000 problem could result in lost profits or
breach of contract claims in the event the company is unable to deliver
its products pursuant to the terms of its agreements or such products
fail to meet contract specifications as well as claims for personal
injury or property damage at its facilities. The company may also
experience lost revenues in the event any of its customers experience
Y2K problems which cause them to order less product from the company or
which cause financial difficulties resulting in a breach of their
payment obligations to the company.
Readers are cautioned that forward-looking statements contained in this
section should be read in conjunction with the company's disclosures
under the heading "Disclosure of Forward-Looking Statements."
EURO CONVERSION
On Jan. 1, 1999, more than two-thirds of the member countries of the
European Union established fixed conversion rates between their existing
sovereign currencies and the euro as common legal currency. During the
transition period from Jan. 1, 1999 until June 30, 2002, both the
existing sovereign currencies of the participating countries and the
euro will be legal currency. Beginning July 1, 2002, the existing
sovereign currencies of the participating countries will no longer be
legal tender for any transactions.
In Sept. 1997, Monsanto formed a cross-functional team which has been
addressing issues associated with the euro conversion. Since Jan. 1,
1999, the company has been able to engage in euro-denominated
transactions and is legally compliant with respect to the euro. Monsanto
expects to have all affected information systems fully converted by Apr.
2001. Monsanto does not expect the euro conversion to have a material
effect on its competitive position, business operations, financial
position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Monsanto is exposed to market risk, including changes in interest rates,
currency exchange rates and commodity prices. To manage the volatility
relating to these exposures, the Company enters into various derivative
transactions. Monsanto does not hold or issue derivative financial
instruments for trading purposes. For more information about how
Monsanto manages specific risk exposures, see the currency translation
note, the inventory valuation note, and the long-term debt note in Notes
to Financial Statements in Monsanto's annual report for the year ended
Dec. 31, 1998 ("1998 Annual Report"), incorporated by reference in
Monsanto's Annual Report on Form 10-K for the year ended Dec. 31, 1998
("1998 Form 10-K").
The tables under Market Risk Management in the Management's Discussion
and Analysis section of the 1998 Annual Report, incorporated by
reference in the 1998 Form 10-K, provide information about the Company's
derivative instruments and other financial instruments that are
sensitive to changes in interest rates, currency exchange rates and
commodity prices. There have been no material changes to the information
provided in the tables in the 1998 Annual Report and Form 10-K except as
noted in the following paragraphs.
Interest rate risk sensitive financial instruments that appeared in the
1998 Annual Report and Form 10-K but were no longer outstanding as of
March 31, 1999, included $542 million of short-term, variable-rate debt
(denominated in U.S. dollars) and $276 million of short-term, fixed-rate
debt (denominated in U.S. dollars). Significant interest rate risk
instruments that were not outstanding as of Dec. 31, 1998, but that were
outstanding at March 31, 1999, included (all denominated in U.S.
dollars): $1,355 million of short-term, variable-rate debt with an
average interest rate of 4.97
15
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<PAGE>
percent due 1999; and $252 million of short-term, fixed-rate debt with
an average interest rate of 7.24 percent, due 1999. The fair value of
these instruments approximated their book values at March 31, 1999. The
total $1,816 million of long-term, variable-rate debt outstanding at
March 31, 1999, included $1,000 million of commercial paper that is
assumed to be renewed through 2001, when Monsanto's $1,000 million
credit facility expires.
The instruments in the table of significant currency exchange rate risk
sensitive instruments that appeared in the 1998 Annual Report and Form
10-K were no longer outstanding at March 31, 1999. As of March 31, 1999,
the following significant forward contracts were outstanding (all
expected to mature by Dec. 31, 1999): sales of Brazilian real with a
notional amount of $70 million and an average exchange rate of 1.28
Brazilian real per U.S. dollar; sales of Canadian dollars with a
notional amount of $202 million and an average exchange rate of 1.5169
Canadian dollars per U.S. dollar; sales of British pounds with a
notional amount of $384 million and an average exchange rate of 0.615
British pounds per U.S. dollar; sales of European Euro with a notional
amount of $169 million and an average exchange rate of 0.9244 European
Euro per U.S. dollar; sales of Australian dollars with a notional amount
of $55 million and an average exchange rate of 1.5876 Australian dollars
per U.S. dollar; sales of Polish zlotys with a notional amount of $26
million and an average exchange rate of 3.99 Polish zlotys per U.S.
dollar; purchases of Japanese yen with a notional amount of $39 million
and an average exchange rate of 120.54 Japanese yen per U.S. dollar;
sales of South African rand with a notional amount of $30 million and an
average exchange rate of 6.27 South African rand per U.S. dollar; sales
of Czech koruny with a notional amount of $6.8 million and an average
exchange rate of 35.64 Czech koruny per U.S. dollar; sales of Mexican
pesos with a notional amount of $11 million and an average exchange rate
of 9.77 Mexican pesos per U.S. dollar; and sales of Philippine pesos
with a notional amount of $5 million and an average exchange rate of
39.80 Philippine pesos per U.S. dollar. The fair market values of these
contracts approximated the notional amounts as of March 31, 1999.
The instruments in the table of significant commodity price risk
sensitive instruments that appeared in the 1998 Annual Report and Form
10-K were no longer outstanding as of March 31, 1999. As of March 31,
1999, the following significant commodity price risk sensitive
instruments were outstanding: purchased soybean futures contracts
totaling $118.8 million (21.6 million bushels at a weighted average
price per bushel of $5.49) with a fair value of $108.2 million,
purchased corn futures contracts totaling $8.8 million (3.7 million
bushels at a weighted average price per bushel of $2.39) with a fair
value of $8.9 million, and sold lean hogs futures contracts totaling
$21.1 million (0.4 million per hundred weight with a weighted average
price per hundred weight of $52.51) with a fair value of $20.6 million.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Because of the size and nature of its business, Monsanto is a party to
numerous legal proceedings. Most of these proceedings have arisen in the
ordinary course of business and involve claims for money damages or seek
to restrict the Company's business activities. While the results of
litigation cannot be predicted with certainty, Monsanto does not believe
these matters or their ultimate disposition will have a material adverse
effect on Monsanto's financial position, profitability or liquidity in
any one year, as applicable.
As described in the Company's Annual Report on Form 10-K for the year
ended Dec. 31, 1998, Searle has been named, together with numerous other
prescription pharmaceutical manufacturers and in some cases wholesalers
or distributors, as a defendant in a large number of related actions
brought in federal and/or state court, based on the practice of
providing discounts or rebates to managed care organizations and certain
other large purchasers. The federal cases have been consolidated for
pre-trial proceedings in the Northern District of Illinois. The federal
suits include a certified class action on behalf of retail pharmacies
representing the majority of retail pharmacy sales in the United States.
The class plaintiffs alleged an industry-wide agreement in violation of
the Sherman Act to deny favorable pricing on sales of brand-name
prescription pharmaceuticals to certain retail pharmacies in the United
States. The other federal suits, brought as individual claims by several
thousand pharmacies, allege price discrimination in violation of the
Robinson-Patman Act as well as Sherman Act claims. Several defendants,
not including Searle, settled the federal class action case. Trial of
the federal class action case commenced on Sept. 14, 1998. On Nov. 30,
1998, Searle and its co-defendants received a verdict for the defense
and all claims were dismissed. On Jan. 4, 1999, the class plaintiffs
filed a notice of appeal with the U. S. Court of Appeals for the Seventh
Circuit. In addition, consumers and a number of retail pharmacies have
filed suit in various state courts throughout the country alleging
violations of state antitrust and pricing laws. While many of these
suits have been settled, suits remain pending in a number of states
including California, Alabama and North Dakota.
16
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As described in the Company's Annual Report on Form 10-K for the year
ended Dec. 31, 1998, in 1997 the Company commercially introduced corn
containing a gene providing glyphosate resistance. On Nov. 20, 1997,
Rhone Poulenc Agrochimie S. A. ("Rhone Poulenc") filed suit in U. S.
District Court in North Carolina (Charlotte) against the Company and
DEKALB (now a subsidiary of the Company) alleging that a 1994 license
agreement (the "1994 Agreement") between DEKALB and Rhone Poulenc was
induced by fraud stemming from DEKALB's nondisclosure of a research
report involving testing of plants to determine glyphosate tolerance.
Rhone Poulenc also alleged that neither DEKALB nor Monsanto has a right
to license, make or sell products using Rhone Poulenc technology for
glyphosate resistance under the terms of the 1994 Agreement. On Apr. 5,
1999, the trial court rejected Rhone Poulenc's claim that the contract
language did not convey a license but found that a disputed issue of
fact existed as to whether the contract was obtained by fraud. Jury
trial of the fraud claims ended Apr. 22, 1999, with a verdict for Rhone
Poulenc and against DEKALB. Monsanto was dismissed from the trial prior
to verdict since it was not involved in the inducement allegation and
was involved in the case only due to the fact that in 1996, DEKALB
sublicensed to Monsanto certain technology previously licensed by Rhone
Poulenc. The jury awarded $15 million in actual damages for "unjust
enrichment" and $50 million in punitive damages. DEKALB has filed
motions with the trial court to set aside the damage award. DEKALB has
meritorious grounds to overturn the jury verdict and has filed a Motion
for Judgment as a Matter of Law to overturn the jury verdict. The trial
was bifurcated to allow claims against DEKALB and Monsanto for patent
infringement and misappropriation of trade secrets to be tried
commencing May 17, 1999, before a different jury. On May 6, 1999, the
District Court dismissed Monsanto from all remaining claims and granted
Monsanto's motion for summary judgment holding that Monsanto was a bona
fide purchaser which retained all license rights to the Rhone Poulenc
technology notwithstanding the prior verdict against DEKALB. The Court
concurred that Monsanto was not liable for trade secret or patent
infringement claims since Monsanto obtained its license from DEKALB
without any knowledge of the claims that allegedly gave rise to the jury
verdict against DEKALB. DEKALB is continuing to defend the litigation
and maintains that they remain licensed to use the Rhone Poulenc
technology notwithstanding the verdict or any subsequent action that may
occur to rescind the 1994 license between Rhone Poulenc and DEKALB. In
addition to the claim of license, DEKALB believes that they have other
meritorious defenses to the patent and trade secret allegations,
including patent invalidity and absence of trade secret status due to
Rhone Poulenc's own public disclosure of the alleged trade secret.
DEKALB will vigorously appeal the verdict to the Federal Circuit and the
will assert its meritorious defenses to all remaining claims in the
litigation and will vigorously seek to avoid further claims of
liability, the possible entry of injunctive relief and will seek to
overturn by appeal any judgment entered in the lawsuit.
As described in the Company's Annual Report on Form 10-K for the year
ended Dec. 31, 1998, the Company and/ or DEKALB is the plaintiff in
various legal actions involving Bt technology or associated gluphosinate
tolerance or corn transformation patents. The most significant of the
DEKALB-initiated actions have been filed in U.S. District Court for the
Northern District of Illinois and allege infringement of one or up to
five of DEKALB's biotechnology related patents. The DEKALB patents
involved are U.S. patent No. 5,484,956 covering fertile, transgenic corn
plants expressing genes encoding Bacillus thuringiensis (Bt)
insecticidal proteins, U.S. patent No. 5,489,520 covering the
microprojectile method for producing fertile, transgenic corn plants
covering a bar or pat gene, as well as the production and breeding of
progeny of such plants; U.S. patent Nos. 5,538,880 and 5,538,877
directed to methods of producing either herbicide-resistant or insect-
resistant transgenic corn; and U.S. patent no. 5,550,318 directed to
transgenic corn plants containing a bar or pat gene. In each such case
DEKALB has asked the court to determine that infringement has occurred,
to enjoin further infringement and to award unspecified compensatory and
exemplary damages. No trial date has been established in the litigation
but a hearing to construe certain of the patent claims in the cases
filed in the U.S. District Court for the Northern District of Illinois
is scheduled to commence May 25, 1999, before the special master.
Lawsuits were initially filed on Apr. 30, 1996, against Pioneer Hi-Bred
International, Inc., Mycogen Corporation (and two of its subsidiaries)
and Ciba-Geigy Corporation. A similar lawsuit was filed against Northrup
King Co. on June 10, 1996. In addition, DEKALB sued Beck's Hybrids, Inc.
and Countrymark Cooperative, Inc. on July 23, 1996, and filed against
several Hoechst Schering AgrEvo GmbH entities on Aug. 27, 1996. All
lawsuits related to patent No. 5,550,318 have been stayed pending
resolution to an interference proceeding involving that patent at the
U.S. Patent and Trademark Office. (b) On March 19, 1996, Monsanto was
issued U.S. Patent No. 5,500,365 and filed suit in U.S. District Court
in Delaware seeking damages and injunctive relief against Mycogen Plant
Science, Inc., Agrigenetics, Inc. and Ciba-Geigy Corporation (Seed
Division) (now Novartis Seeds, Inc.) for infringement of that patent.
Trial of this matter ended June 30, 1998, with a jury verdict that while
the patent was literally infringed by defendants the patent was not
enforceable due to a finding of prior invention (now owned by Monsanto)
by another party, and not infringed due to the defense of the reverse
doctrine of equivalents. Monsanto has filed a motion for judgment as a
matter of law to overturn the jury verdict and will continue to litigate
vigorously its position in the matter.
17
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As described in the Company's Annual Report on Form 10-K for the year
ended Dec. 31, 1998, on July 30, 1998, Monsanto was served with a
lawsuit filed in United States District Court in Delaware by Zeneca Inc.
("Zeneca"). The complaint alleged that Monsanto violated Sections 3, 4
and 16 of the Clayton Act and Sections 1 and 2 of the Sherman Act and
sought treble damages. In addition to the antitrust allegations, the
complaint sought a declaration that certain United States patents
assigned to Monsanto (U.S. Patent Nos. 4,940,835; 5,352,605; 4,535,060)
were invalid, unenforceable or not infringed by Zeneca. The complaint
also asserted a claim for tortious acts of unfair competition with
prospective economic advantage. The allegations in the complaint
centered on Monsanto's technology related to Roundup Ready(R) seed and
marketing activity associated with soybeans. The complaint asserted that
Zeneca would be precluded in its ability to sell a herbicide with
respect to which it is seeking registration for use in application over
Roundup Ready(R) seed. Regulatory approval of this Zeneca herbicide has
not occurred. On Aug. 12, 1998, the complaint was amended, adding
Pioneer Hi-Bred International, Inc. ("Pioneer") as a plaintiff. Pioneer
sought a declaratory judgment that it did not breach its license
agreement with Monsanto by providing Roundup Ready(R) soybean seed to
Zeneca for testing. The complaint was also amended to add an additional
claim for relief by Zeneca, seeking a declaratory judgment that its
obtaining the Roundup Ready(R) soybean seed from Zeneca was not
improper. Under an agreement announced March 18, 1999, the parties
agreed to dismiss this lawsuit and the litigation was dismissed on March
23, 1999.
As described in the Company's Annual Report on Form 10-K for the year
ended Dec. 31, 1998, on Feb. 4, 1999, Pioneer Hi-Bred International
Inc. ("Pioneer") filed suit against Monsanto Company, (Civil Action No.
4-99-CV-90063) in U.S. District Court for the Southern District of Iowa.
The suit seeks equitable relief and jury trial, and alleges that Monsanto
misappropriated trade secrets through the acquisition and purchase of
certain international seed operations of Cargill International
("Cargill"). Pioneer alleges that Cargill's employees misappropriated
(via theft) germplasm belonging to Pioneer's corn seed business and then
bred the Pioneer germplasm into the corn lines of Cargill. A related
lawsuit, Civil Action No. 4-98-CV-90576 has been filed by Pioneer
against Cargill. On Feb. 2, 1999, a joint statement issued by Pioneer
and Cargill indicated that a former Cargill employee may have
misappropriated technology of Pioneer and that efforts were underway
between those Companies to resolve this issue. Monsanto purchased the
Cargill seed operations pursuant to the warranty and representation of
Cargill's parent that all intellectual property and seed lines were the
property of the business and not any third party. Discussions between
the parties are underway to ascertain the scope of the seed lines that
may be affected by the allegations of misappropriation and the
relationship of the facts to the various warranties and representations
issued to Monsanto. Monsanto has denied that it is liable for damages
from its unknowing acquisition of the business and has numerous
meritorious defenses against liability including its status as a bona
fide purchaser and will vigorously defend this action and may assert
claims for indemnity, breach and other causes against Cargill. In the
lawsuit Pioneer seeks the return of its alleged trade secrets,
injunction against Monsanto's further use of the material, an accounting
and damages for any sales of the misappropriated material and other
relief. On Oct. 28, 1998, two related lawsuits were filed in U.S.
District Court in Iowa: one against Asgrow Seed Company, L.L.C., a
subsidiary of the Company (No. 4-98-CV-70577); and the other against
DEKALB (since acquired by the Company) (No. 4-98-CV-90578). The lawsuits
allege that defendants misappropriated trade secrets of Pioneer in their
corn breeding programs. In addition to claims under Iowa state law for
trade secret misappropriation, Pioneer alleges violations of the Lanham
Act. Actual and exemplary damages and injunctive relief are sought.
Pioneer also asserts that defendants have violated an unspecified
contractual obligation not to breed with Pioneer germplasm. A hearing
was held May 5, 1999, on defendants' motions to dismiss on the basis
that the claims of Pioneer are preempted by federal law (the Plant
Variety Protection Act) which expressly permits the activities of
breeding and research with germplasm sold in commerce. No ruling on the
motion has been issued. The defendants have various meritorious defenses
including preemption, laches, statute of limitations, lack of trade
secrets, ownership of the germplasm, bona fide purchaser status and
other defenses.
Other information with respect to legal proceedings appears in the
Company's Report on Form 10-K for the year ended Dec. 31, 1998.
ITEM 5. OTHER INFORMATION
DISCLOSURE REGARDING FORWARD LOOKING INFORMATION
Under the Private Securities Litigation Reform Act of 1995, companies
are provided with a "safe harbor" for making forward-looking statements
about the potential risks and rewards of their strategies. Monsanto
believes it's in the best
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interest of its shareowners to use these provisions in discussing future
events. Forward-looking statements include Monsanto's plans for growth;
the potential for the development, regulatory approval, and public
acceptance of new products; and other factors that could affect
Monsanto's future operations or financial position. Such statements
often include the words "believes," "expects," "anticipates," "intends,"
"plans," "estimates," or similar expressions.
Monsanto's ability to achieve its goals depends on many known and
unknown risks and uncertainties, including changes in general economic
and business conditions. These factors could cause the anticipated
performance and results of the company to differ materially from those
described or implied in forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to,
those discussed below.
FACTORS AFFECTING THE AGRICULTURAL PRODUCTS SEGMENT
Roundup Generic Competition: The family of Roundup(R) herbicides is a
- ---------------------------
major product line for Monsanto's Agricultural Products segment. These
herbicides are likely to face increasing competition from generic
products. Patents protecting Roundup(R) in several countries expired in
1991. Compound per se patent protection for the active ingredient in
Roundup(R) herbicide expires in the United States in Sept. 2000.
Monsanto believes that it can compensate for increased generic
competition both within and outside the United States and continue to
increase revenues and profits from Roundup(R) through a combination of
(1) marketing strategy, (2) pricing strategy, and (3) decreased
production costs.
Marketing Strategy. Monsanto expects to increase Roundup(R) sales by
- ------------------
focusing on brand premiums, providing unique formulations and services,
offering integrated seed and biotech solutions through cross selling and
the growth and introduction of Roundup Ready(R) crops, and continuing to
encourage the practice of conservation tillage. In addition, Monsanto
will seek to enter into strategic agreements to supply glyphosate to
other herbicide producers. The success of the company's Roundup(R)
marketing strategy will depend on the continued expansion of
conservation tillage practices and the company's ability to realize and
promote cost and production benefits of its product packages, introduce
new Roundup Ready(R) crops and economically produce glyphosate in
sufficient quantities to allow it to market to such producers.
Pricing Strategy. Monsanto recently significantly reduced the price of
- ----------------
Roundup(R) in the United States. This price elasticity strategy is
expected to result in increased demand for Roundup(R) in the United
States because the lower prices will make Roundup(R) more economical,
encouraging both new uses of the product and expansion of the number of
acres treated. Monsanto's experience in numerous markets worldwide has
been that price reductions have stimulated volume growth. However, the
volume increases in the other countries also may have been influenced by
a variety of other factors, such as weather; the increased use of
conservation tillage practices; development of other new markets or
applications for Roundup(R); launch of new products including Roundup
Ready(R) crops; competitive products and practices; and an increase in
agricultural acres planted. Conditions, and therefore volume trends in
one country may or may not be duplicated in other world areas. As a
result, Monsanto's experience with price elasticity in markets outside
the United States may or may not be replicated in the United States.
Production Cost Decreases. Monsanto also believes that increased volumes
- -------------------------
and technological innovations will lead to efficiencies that will reduce
the production cost of glyphosate. Such cost reductions will depend on
realizing such increased volumes and innovations, and securing the
resources required to expand production of Roundup(R).
Realization and Introduction of New Biotech Products: The company's
- ----------------------------------------------------
ability to develop and introduce to market new agricultural biotech
products, including new Roundup Ready(R) crops, will be dependent, among
other things, upon the availability of sufficient financial resources to
fund research and development needs, demonstrated product effectiveness,
the company's ability to develop, purchase or license required
technology, the existence of sufficient distribution channels and the
acceptance and competition factors discussed below.
Governmental and Consumer Acceptance: The commercial success of
- ------------------------------------
agricultural and food products developed through biotechnology will
depend in part on government and public acceptance of their cultivation,
distribution and consumption. Monsanto continues to work with consumers,
customers and regulatory bodies to encourage understanding of
nutritional and agricultural biotechnology products. However, public
attitudes may be influenced by claims that genetically modified plant
products are unsafe for consumption or pose unknown risks to the
environment or to traditional social or economic practices. Securing
governmental approvals for, and consumer confidence in, such products
poses numerous challenges, particularly outside the United States. For
instance, France has instituted a
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moratorium on the planting of certain genetically modified seeds, and
consumer groups have brought lawsuits in various countries seeking to
halt industry activities with respect to products developed through
biotechnology. Some countries also have labeling requirements. In some
markets, because these crops are not yet approved for import, growers in
other countries may be restricted from introducing or selling their
grain. In these cases, the grower may have to arrange to sell the grain
only in the domestic market or to use the grain for feed on his or her
farm. The market success of Monsanto's products developed through
biotechnology could be delayed or impaired in certain geographical areas
because of such factors.
Technological Change and Competition: A number of companies are engaged
- ------------------------------------
in plant biotechnology research. Technological advances by others could
render Monsanto's products less competitive. In addition, the ability to
be first to market a new product can result in a significant competitive
advantage. Monsanto believes that competition will intensify, not only
from agricultural biotechnology firms but from major agrichemical, seed
and food companies with biotechnology laboratories. Some of Monsanto's
agricultural competitors have substantially greater financial, technical
and marketing resources than Monsanto does.
Successful Integration of Recent Transactions: Monsanto has made
- ---------------------------------------------
significant acquisitions, mergers and joint ventures involving seed,
agricultural biotechnology and grain processing companies. These
transactions are designed to strengthen Monsanto's capability to bring
important new life sciences products to customers worldwide, and to
contribute to the company's long-term growth. The Delta and Pine Land
Co. (D&PL) transaction is subject to regulatory approval and other
customary conditions. It is anticipated that the pending D&PL
transaction, when final, and the recently completed acquisitions of
DEKALB Genetics Corp., Plant Breeding International Cambridge, and
certain international seed operations of Cargill Inc., will
significantly dilute Monsanto's financial results for the next several
years. Long term, Monsanto must integrate these companies into its
business to realize projected synergies and to provide the distribution
channels necessary to quickly and efficiently launch new products. It
must also fit such acquisitions, mergers and joint ventures into its
growth strategy to generate sufficient value to justify their cost.
Mergers, acquisitions, and joint ventures also present other challenges,
including geographical coordination, personnel integration, and the
reconciliation of corporate cultures. This integration could cause a
temporary interruption of or loss of momentum in Monsanto's business and
the loss of key personnel from the acquired company. There can be no
assurance that the diversion of management's attention to such matters
or the delays or difficulties encountered in connection with integrating
these operations will not have an adverse effect on Monsanto's business,
results of operations, or financial condition.
Planting Decisions and Weather: The company's agricultural products
- ------------------------------
business is highly seasonal. It is subject to weather conditions and
natural disasters that affect commodity prices, seed yields, and
decisions by growers regarding purchases of seed and herbicides.
Commodity prices also affect growers' decisions about the types and
amounts of crops to plant. All of these factors influence sales of
Monsanto's herbicide and seed products.
FACTORS AFFECTING THE PHARMACEUTICALS SEGMENT
Ability to Realize Potential of Existing Pipeline Products:
- ----------------------------------------------------------
Pharmaceutical research and development (R&D) is subject to inherent
uncertainty, difficulties and delays. These include, but are not limited
to, successful completion of clinical trials and the ability to obtain
regulatory approval for the compounds worldwide. Failure to receive
government approvals as anticipated could preclude or substantially
delay commercialization of products in the company's R&D programs.
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.
20
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Product Liability and Consumer Acceptance: The sale of pharmaceutical
- -----------------------------------------
products always involves a risk of product liability claims and
associated adverse publicity. Substantial damage awards for injuries
allegedly caused by the use of pharmaceuticals have been made against
certain companies in past years. In addition, unexpected safety or
efficacy concerns can arise with respect to marketed products. Whether
or not they are scientifically justified, such concerns could lead to
product recalls, withdrawals, or declining sales.
Competition: Pharmaceutical research is intense and highly competitive.
- -----------
It is characterized by rapid technological change. Depending on the
product involved, competition may be encountered in price, delivery,
service, performance, innovation, brand recognition and quality. Many of
Monsanto's pharmaceutical competitors have greater research, financial,
marketing and other resources than Monsanto does.Some of Monsanto's
trademarked pharmaceutical products also face increasing pressures from
producers of lower-priced generic products and from new products entering
the marketplace. Finally, as the company introduces new products intended
for use in the treatment of the same conditions as existing Monsanto
products, sales of such existing products may suffer.
Pricing: Managed care groups, health care organizations and government
- -------
agencies worldwide actively seek discounts and lower prices on
pharmaceutical products. Monsanto's challenge is to provide overall
economic benefits to health care providers and negotiate prices for
specific products that will allow it to profit at acceptable levels.
FACTORS AFFECTING ALL SEGMENTS
Financial Requirements: Monsanto's recent acquisitions will require a
- ----------------------
significant commitment of the company's financial resources. In
addition, new technological innovations generally require a significant
investment for R&D and product launch. Lack of funds for investment in
these areas could hinder the company's ability to make technological
innovations and to introduce and distribute new products. Monsanto
expects to generate the required capital by increasing the revenues of
its core businesses, by seeking sufficient outside financing and by
containing costs. The company's ability to do so will depend upon a
variety of specific factors listed elsewhere in this report and upon
capital market conditions generally.
Intellectual Property: Monsanto has devoted significant resources to
- ---------------------
obtaining and maintaining patent protection worldwide for its products.
It seeks to preserve its trade secrets and to operate without infringing
the proprietary rights of third parties. Monsanto's patents and
trademarks are of material importance in the operation of its business,
particularly in the Agricultural Products and Pharmaceuticals segments.
Intellectual property positions are becoming increasingly important
within the agricultural biotechnology and pharmaceutical industries, as
products developed through biotechnology become a larger part of the
product landscape.
Monsanto generally relies upon patent and trademark laws worldwide to
establish and maintain its proprietary rights in its technology and
products. There is some uncertainty about the value of available patent
protection in certain countries outside the United States. Moreover, the
patent positions of biotechnology and pharmaceutical companies involve
complex legal and factual questions. Rapid technological advances and
the number of companies performing such research can create an uncertain
environment. Patent applications in the United States are kept secret:
outside the United States, patent applications are published 18 months
after filing. Accordingly, competitors may be issued patents from time
to time without any prior warning to the company. That could decrease
the value of similar technologies under development at Monsanto. Because
of this rapid pace of change, some of the company's products may
unknowingly rely on key technologies developed by others. If that
occurs, the company must obtain licenses to such technologies in order
to continue to use them.
Certain of Monsanto's germplasm and other genetic material, patents, and
licenses are currently the subject of litigation and additional future
litigation is anticipated. Although the outcome of such litigation
cannot be predicted with certainty, Monsanto will continue to defend and
litigate its positions vigorously. The company believes it has
meritorious defenses and claims in the pending suits.
Markets Outside the United States: Sales outside the United States made
- ---------------------------------
up approximately 45 percent of the company's 1998 revenues and Monsanto
intends to continue to actively explore international sales opportunities.
Challenges the company may face in international markets include changes
in foreign currency exchange rates, changes in a specific country's or
region's political or economic conditions, trade protection measures,
import or export licensing requirements, and unexpected changes in
regulatory requirements. In particular, the decline in the Southeast
Asia and Brazilian economies may, if not reversed, adversely affect
future income. Also, future sales may decrease because the
21
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decline in such economies could cause customers to purchase fewer goods
in general, and also because imported Monsanto products could become
more expensive for customers to purchase in their local currency.
Joint Ventures and Alliances: The company plans to continue to
- ----------------------------
frequently explore the potential benefits of possible strategic
alliances and joint ventures. Such arrangements can help speed the
development and commercialization of new products or assist in product
distribution and marketing. However, despite its efforts, the company
may be unable to reach agreement with third parties with whom it desires
to enter into a joint venture or other alliance.
Restructuring: Monsanto has announced an aggressive plan to restructure
- -------------
its business, including the elimination of a number of employment
positions and the divestiture of certain non-strategic assets. The
inherent uncertainty related to a restructuring, and the resulting
increased demands on certain employees, could cause a temporary
interruption of or loss of momentum in Monsanto's business. In addition,
the success of the company's divestiture plan will depend on its ability
to negotiate acceptable sales prices for such assets which is in turn
largely dependent on the long-term prospects and strategic value of the
divested businesses and the availability of a buyer with sufficient
financial resources.
Year 2000 Readiness: The dates on which Monsanto believes the Year 2000
- -------------------
(Y2K) Program will be completed are based on management's best
estimates, which include numerous assumptions about future events. There
can be no guarantee that these estimates will be achieved, or that there
will not be a delay in, or increased costs associated with, the
implementation of the Y2K Program. Factors that may cause delays in the
Y2K Program or increased costs in connection with it include, but are
not limited to, the continued availability and cost of experts trained
in these areas, the ability to locate and correct all relevant computer
code and embedded systems, and the success of similar programs conducted
by suppliers and other third parties.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See the Exhibit Index.
(b) Reports on Form 8-K during the quarter ended March 31, 1999:
A Form 8-K/A was filed Feb. 8, 1999, in connection with the
acquisition of DEKALB Genetics Corporation ("DEKALB"),
disclosing financial statements of DeKalb together with
related reports of Independent Public Accounts, and pro
forma financial information.
A Form 8-K was filed March 1, 1999, in connection with the
fourth quarter 1998 press release announcing the company's
fourth quarter and full year 1998 financial results.
22
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MONSANTO COMPANY
-----------------------------------
(Registrant)
/s/ RICHARD B. CLARK
-----------------------------------
RICHARD B. CLARK
Vice President and Controller
(On behalf of the Registrant and
as Principal Accounting Officer)
Date: January 21, 2000
23
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<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2 Omitted - Inapplicable
3 Omitted - Inapplicable
4 Omitted - Inapplicable
10<F*> Form of Non-Qualified Purchased and Year 2000 Premium Stock Option Certificate
11 Omitted - Inapplicable; see Note 4 of Notes to Financial Statements
15 Omitted - Inapplicable
18 Omitted - Inapplicable
19 Omitted - Inapplicable
22 Omitted - Inapplicable
23 Omitted - Inapplicable
24 Omitted - Inapplicable
27 Financial Data Schedule
<FN>
- ----------------
<F*> Previously filed.
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF CONSOLIDATED INCOME OF MONSANTO COMPANY AND SUBSIDIARIES FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1999, AND THE STATEMENT OF CONSOLIDATED
FINANCIAL POSITION AS OF SEPTEMBER 30, 1999. SUCH INFORMATION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-30-1999
<CASH> 101
<SECURITIES> 0
<RECEIVABLES> 2,885
<ALLOWANCES> 0
<INVENTORY> 1,562
<CURRENT-ASSETS> 5,711
<PP&E> 5,243
<DEPRECIATION> 2,323
<TOTAL-ASSETS> 16,510
<CURRENT-LIABILITIES> 4,143
<BONDS> 6,269
<COMMON> 0
1,694
0
<OTHER-SE> 3,162
<TOTAL-LIABILITY-AND-EQUITY> 16,510
<SALES> 2,310
<TOTAL-REVENUES> 2,310
<CGS> 871
<TOTAL-COSTS> 871
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> 210
<INCOME-TAX> 90
<INCOME-CONTINUING> 120
<DISCONTINUED> 12
<EXTRAORDINARY> 0
<CHANGES> (20)
<NET-INCOME> 112
<EPS-BASIC> .18
<EPS-DILUTED> .17
</TABLE>
