<PAGE>
<PAGE>
1998
============================================================================
FORM 10-K/A
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, 1998
-----------------
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)
Registrant's telephone number, including area code (314) 694-1000
--------------
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
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
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 $29.0 billion as of the
close of business on February 26, 1999.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date:
628,044,729 shares of Common Stock, $2 par value, outstanding at
February 26, 1999.
Documents Incorporated by Reference
Portions of Monsanto Company Notice of Annual Meeting and Proxy Statement
dated March 15, 1999. (Part III of Form 10-K.)
============================================================================
<PAGE>
<PAGE>
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. Trademarks and service marks owned or
licensed by Monsanto and its subsidiaries are indicated by special type.
For 1998, Monsanto reported its business under four segments:
Agricultural Products, Nutrition and Consumer 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
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
The four paragraphs appearing under "Definitions" on page 1, the
tabular and narrative information appearing under "Geographic Data" on
page 14, and the tabular and narrative information appearing under
"Segment Data" on page 15 and the top of page 16, appearing in Exhibit
99 of this Report, are incorporated herein by reference.
PRINCIPAL PRODUCTS
Monsanto's principal products for 1998, categorized by segments
reclassified as described above, include the following:
<TABLE>
- --------------------------------------------------------------------------------------------------
AGRICULTURAL PRODUCTS
- --------------------------------------------------------------------------------------------------
<CAPTION>
MAJOR PRODUCTS END-USE PRODUCTS AND APPLICATIONS
- --------------------------------------------------------------------------------------------------
<S> <C>
Roundup(R) herbicide and other glyphosate-based Nonselective agricultural and industrial
herbicides applications
- --------------------------------------------------------------------------------------------------
Roundup(R) herbicide<F*> Residential lawn and garden applications
<FN>
<F*>Previously reported in Nutrition and Consumer
Products segment
- --------------------------------------------------------------------------------------------------
2
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------------------------
Lasso(R) and Harness(R)<F*> herbicides and other Corn, soybean, peanut and milo (sorghum)
acetanilide-based herbicides crops
<FN>
<F*> Corn only
- --------------------------------------------------------------------------------------------------
Avadex(R) BW herbicide, Far-Go(R) herbicide Wheat crops
- --------------------------------------------------------------------------------------------------
Machete(R) herbicide Rice crops
- --------------------------------------------------------------------------------------------------
Permit(R), Manage(R) and Sempra(R) herbicides Postemergence control of sedges and broadleaf
weeds in corn and grain sorghum, turf and
sugarcane crops
- --------------------------------------------------------------------------------------------------
Roundup Ready(R) canola, Crops tolerant of Roundup(R) herbicide
Roundup Ready(R) cotton,
Roundup Ready(R) soybeans
Roundup Ready(R) corn
- --------------------------------------------------------------------------------------------------
Bollgard(R) insect-protected cotton, Crops protected against certain insect pests
NewLeaf(R) insect-protected potatoes,
YieldGard(R) insect-protected corn
- --------------------------------------------------------------------------------------------------
AgriPro(R), Agroceres(TM), Asgrow(R), Cargill(R), Corn hybrids, soybean varieties, alfalfa,
DEKALB(R), Hartz(R), Hybritech(R), Monsoy(TM) and grain sorghum and forage varieties,
Stoneville(R)<F*> branded seeds; Holden's(TM) and sunflowers, oilseed rape and barley
PBi(R) foundation seed varieties, cotton varieties, wheat varieties
and hybrids
<FN>
<F*>The Company has sold this business.
- --------------------------------------------------------------------------------------------------
Posilac(R) bovine somatotropin Increase efficiency of milk production in
dairy cows
- --------------------------------------------------------------------------------------------------
<CAPTION>
PHARMACEUTICALS
- --------------------------------------------------------------------------------------------------
MAJOR PRODUCTS END-USE PRODUCTS AND APPLICATIONS
- --------------------------------------------------------------------------------------------------
<S> <C>
Daypro(R) (oxaprozin), Anti-inflammatory
Arthrotec(R) (misoprostol/diclofenac)
- --------------------------------------------------------------------------------------------------
Aldactone(R) (spironolactone), Cardiovascular
Aldactazide(R) (spironolactone/
hydrochlorothiazide),
Calan(R) formulations and
Covera-HS(R) (verapamil hydrochloride)
- --------------------------------------------------------------------------------------------------
Ambien(R) (zolpidem tartrate) Central nervous system (sleep)
- --------------------------------------------------------------------------------------------------
Cytotec(R) (misoprostol), Gastrointestinal
Lomotil(R) (diphenoxylate hydrochloride)
- --------------------------------------------------------------------------------------------------
Demulen(R) (ethynodiol diacetate), Women's health
Flagyl(R) formulations (metronidazole),
Synarel(R) (nafarelin acetate)
- --------------------------------------------------------------------------------------------------
<CAPTION>
CORPORATE AND OTHER
- --------------------------------------------------------------------------------------------------
MAJOR PRODUCTS END-USE PRODUCTS AND APPLICATIONS
- --------------------------------------------------------------------------------------------------
<S> <C>
Enviro-Chem(R) engineering and construction Processing plants for fertilizer producers,
management services for processing plants using basic metals production, oil refining
sulfuric acid; proprietary equipment and air
pollution control systems
- --------------------------------------------------------------------------------------------------
</TABLE>
The businesses related to the following products were formerly
classified within the Nutrition & Consumer Products segment and are now
classified as discontinued operations. Monsanto has sold the algins
business and announced its intention to sell the other businesses.
3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
MAJOR PRODUCTS END-USE PRODUCTS AND APPLICATIONS
- --------------------------------------------------------------------------------------------------
<S> <C>
NutraSweet(R) brand sweetener High-intensity sweetener used primarily in
beverages and food products
- --------------------------------------------------------------------------------------------------
Alginate products, under various tradenames Soups, sauces, gravies, dressings, beverages,
such as Keltone(R) and Manugel(R) sodium snack foods, breadings, batters, bakery
alginates, and Kelcoloid(R) propylene glycol products, dairy products, pet foods
alginate;
Xanthan gum products under various tradenames
such as Keltrol(R);
Kelcogel(R) gellan gum
- --------------------------------------------------------------------------------------------------
Equal(R), Canderel(R), NutraSweet(R), Tabletop sweeteners
SweetMate(R), Chuker(R), Misura(R) and other
tabletop sweeteners
- --------------------------------------------------------------------------------------------------
Alginate products, under various tradenames Cleaners, textile printing, paper sizings and
such as Manutex(R) and Kelgin(R) sodium alginates; coatings, firefighting foams
Xanthan gum products, under various
tradenames such as Kelzan(R) AR
- --------------------------------------------------------------------------------------------------
Xanthan gum products, under various Oil and gas well drilling applications
tradenames such as Kelzan(R) and Xanvis(R);
Biozan(R) welan gum
- --------------------------------------------------------------------------------------------------
</TABLE>
On December 31, 1998, G. D. Searle & Co. ("Searle"), a subsidiary
of the Company, received approval from the U.S. Food and Drug
Administration ("FDA") to market Celebrex(R), a new arthritis treatment
for the signs and symptoms of osteoarthritis and adult rheumatoid
arthritis. Celebrex(R) was launched in the United States in February
1999.
PRINCIPAL EQUITY AFFILIATES
Monsanto participates in a number of joint ventures in which it
shares management control with other companies. For example, aspartame
is manufactured and sold in Europe by fifty percent-owned joint
ventures; and Monsanto has a 60% ownership interest in a joint venture
with Solutia Inc., from which it purchases elemental phosphorus. In
addition, on January 7, 1999, Monsanto and Cargill Incorporated formed
Renessen LLC, a worldwide joint 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 products are sold 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 new 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.
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,
4
<PAGE>
<PAGE>
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.
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.
5
<PAGE>
<PAGE>
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
Monsanto owns a large number of patents which relate to a wide
variety of products and processes and has pending a substantial number
of patent applications. In addition, Monsanto holds a number of licenses
granted by other parties, some of which may be significant. Also,
Monsanto owns a considerable number of established trademarks in many
countries under which it markets its products. Monsanto's patents and
trademarks in the aggregate are of material importance in the operation
of its business, particularly in the Agricultural Products and
Pharmaceuticals segments and with respect to NutraSweet(R) brand
sweetener. Certain proprietary products such as Roundup(R) herbicide are
covered by patents. 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 plant products
(including NewLeaf(R) potato, YieldGard(R) corn and Bollgard(R) cotton)
are protected by patents which extend until at least 2013. Monsanto's
herbicide-resistant plant products, Roundup Ready(R) cotton, corn,
canola and soybeans, are protected by patents which extend until at
least 2014. 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 will
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 October
29, 1999. Arthrotec(R) an 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.
6
<PAGE>
<PAGE>
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 "Review of Consolidated Results of
Operations--Development and Commercialization of New Products Remain
Priorities," "Agricultural Products--Outlook," "Pharmaceutical Products"
and "Notes to Financial Statements--Supplemental Data" on pages 10, 18-
19, 20-22 and 63, respectively, appearing in Exhibit 99 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 under "Notes to
Financial Statements--Commitments and Contingencies" on pages 61 and 62
appearing in Exhibit 99 of this Report and incorporated herein by
reference.
EMPLOYEE RELATIONS
As of December 31, 1998, Monsanto had approximately 31,800
employees worldwide. Satisfactory relations have prevailed between
Monsanto and its employees.
INTERNATIONAL OPERATIONS
Monsanto and affiliated companies are engaged in manufacturing,
sales and/or research and development in the United States, Europe,
Canada, Latin America, Australia, Asia and Africa. A number of products
are manufactured abroad. Ex-U.S. operations are potentially subject to a
number of unique risks and limitations, including: fluctuations in
currency values; exchange control regulations; import and trade
restrictions, including embargoes; governmental instability; economic
conditions in other countries; and other potentially detrimental
domestic and foreign governmental practices or policies affecting
7
<PAGE>
<PAGE>
U.S. companies doing business abroad. See "Geographic Data" on page 14
appearing in Exhibit 99 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 the Company's business activities. While the
results of litigation cannot be predicted with certainty, Monsanto does
not believe these matters or their ultimate disposition will have a
material adverse effect on Monsanto's financial position, profitability
or liquidity in any one year, as applicable.
In 1974, 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 October 28, 1999, 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 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. Trial of
the federal class action case commenced on September 14, 1998. On
November 30, 1998, Searle and its co-defendants received a verdict for
the defense and all claims were dismissed. On January 4, 1999, the
class plaintiffs filed a notice of appeal with the U. S. Court of
Appeals for the Seventh Circuit. Following oral arguments in June 1999,
the Seventh Circuit Court of Appeals ruled on July 13, 1999. The
opinion upheld most of the lower court's decision to throw out
8
<PAGE>
<PAGE>
price fixing charges against the manufacturers as well as the
wholesalers. The court reversed the trial judge on one discrete issue
involving the Consumer Price Index. 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
and North Dakota.
On December 14, 1999, suit was filed against the Company 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 the Company to liability regardless of the
actual safety of the products. Plaintiffs seek declaratory and
injunctive relief in addition to antitrust, treble, compensatory and
punitive damages and attorneys' fees. On November 8, 1999, a similar
lawsuit was filed (Cause No. 2:99CV218-P-B) by a single plaintiff in
Federal District Court for the Northern District of Mississippi 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. Monsanto 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. Monsanto is vigorously defending both of these lawsuits.
In 1996 the Company was the first to commercially introduce cotton
containing a gene encoding for Bacillus thuringiensis ("Bt") endotoxin.
Monsanto is a leader in this scientific field and has engaged in Bt
research and biotechnology development over many years and owns a number
of present and pending patents which relate to this technology. On
October 22, 1996, Mycogen Corporation ("Mycogen") filed suit in U.S.
District Court in Delaware seeking damages and injunctive relief against
the Company, 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
9
<PAGE>
<PAGE>
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 initiated suit in U.S. District Court in
California against the Company alleging infringement of U.S. Patent No.
5,380,831 involving synthetic Bt genes and seeking damages and
injunctive relief. 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 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. The Company is also a party in interference
proceedings against Mycogen in the U.S. Patent and Trademark Office to
determine the first party to invent certain inventions related to Bt
technology and has requested a stay of the interference pending
determination of the appeals. In all of the foregoing actions the
Company 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., 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. The Company will
vigorously defend against Mycogen Plant Science Inc's. claims in the
action.
In 1997 the Company commercially introduced corn containing a gene
encoding for Bt endotoxin. Monsanto is a leader in this scientific field
and has engaged in Bt research and biotechnology development over many
years and owns a number of present and pending patents which relate to
this technology. On January 21, 1997, Novartis Seeds, Inc. ("Novartis")
filed suits in U.S. District Court in Delaware seeking damages and
injunctive relief against the Company and DEKALB, alleging infringement
of Bt related U.S. Patent No. 5,595,733 issued to Ciba-Geigy Corporation
(Seed Division) and now held by Novartis. The cases of Monsanto and
DeKalb were consolidated and tried to jury verdict in favor of
defendants on November 9, 1998. The jury determined that the Novartis
patent was invalid and not enabled. As part of a settlement of all
pending litigation between the Company and Novartis, in November 1999
the parties stipulated to the entry of final
10
<PAGE>
<PAGE>
judgment on the jury verdict. Claims by or against Novartis or
Novartis entities in other lawsuits (USDC MN CA 97-2925; USDC MO
4:98CV00286CDP; and the "Rockford Litigation" described herein) were
also part of the settlement. Under the settlement, various royalty-
bearing licenses were extended to Novartis for Bt corn technology,
genetic transformation of corn and gluphosinate herbicide tolerance in
addition to the other consideration to be provided by Novartis, which
will include licenses to certain Novartis corn transformation technology
and monetary payment for prior infringement of patents owned by the
Company. All of the claims specified herein which were filed by or
against Novartis were settled and dismissed on or about November 12,
1999, pursuant to the agreement between Novartis and Monsanto.
The Company and/or DEKALB are involved in various legal actions
involving Bt technology, herbicide-resistant and/or insect-resistant
transgenic corn, or corn transformation patents. (a) The DEKALB patents
involved in the most significant DEKALB-initiated transactions are: U.S.
Patent No. 5,484,956 covering fertile, transgenic corn plants expressing
genes encoding Bacillus thuringiensis (Bt) insecticidal proteins; U.S.
Patent No. 5,489,520 covering the microprojectile method for producing
fertile, transgenic corn plants covering a bar or pat gene, as well as
the production and breeding of progeny of such plants; U.S. Patent Nos.
5,538,880 and 5,538,877 directed to methods of producing either
herbicide-resistant or insect-resistant transgenic corn; and U.S. Patent
No. 5,550,318 directed to transgenic corn plants containing a bar or pat
gene (all lawsuits related to this patent have been stayed pending
resolution of an interference proceeding at the U.S. Patent and
Trademark Office). In each case DEKALB has asked the court to determine
that infringement has occurred, to enjoin further infringement and to
award unspecified compensatory and exemplary damages. Most of these
actions have been filed in U.S. District Court for the Northern District
of Illinois (the "Rockford Litigation"). By order dated June 30, 1999,
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. The
actions in the Rockford Litigation were initially filed on April 30,
1996, against Pioneer Hi-Bred International, Inc. ("Pioneer"), Mycogen
Corporation (and two of its subsidiaries) and Ciba-Geigy Corporation (a
Novartis entity). Additional actions were filed in the Rockford
Litigation against: Northrup King Co. (a Novartis entity) on June 10,
1996 and several Hoechst Schering AgrEvo GmbH entities on August 27,
1996. On July 2, 1999, DEKALB sued Pioneer in a patent interference
action to declare that DEKALB was the first inventor of the
microprojectile method of producing fertile transgenic corn; on July 30,
1999, DEKALB moved to consolidate the new suit with the remainder of the
Rockford Litigation for purposes of trial but the consolidation request
has been provisionally denied. On November 23, 1999, Pioneer was issued
United States Patent No. 5,990,387 pertaining to microprojectile
transformation of corn and Pioneer sued Monsanto, DEKALB and Novartis
Seeds Inc. in USDC in Iowa (Cause No 4-99-CV00988) for alleged
infringment of the new patent. Suit was also filed by DEKALB
(CA 99-C-50385) on the same date in the federal court responsible for
the Rockford Litigation. The DEKALB suit seeks an interference action to
declare that DEKALB was the first inventor of the microprojectile method
of producing fertile transgenic corn. In addition to the Rockford
Litigation, DEKALB sued Beck's Hybrids, Inc. and Countrymark
Cooperative, Inc. on July 23, 1996, in U. S. District Court for the
Northern District of Indiana (Indianapolis Division); this action has
been stayed
11
<PAGE>
<PAGE>
awaiting decision on the Rockford Litigation. (b) On March 19, 1996,
Monsanto was issued U.S. Patent No. 5,500,365 and filed suit in U.S.
District Court in Delaware seeking damages and injunctive relief against
Mycogen Plant Science, Inc., Agrigenetics, Inc. and Ciba-Geigy
Corporation (Seed Division) (now Novartis Seeds, Inc.) for infringement
of that patent. Trial of this matter ended June 30, 1998, with a jury
verdict that while the patent was literally infringed by defendants,
the patent was not enforceable due to a finding of prior invention (now
owned by Monsanto) by another party, and not infringed due to the
defense of the reverse doctrine of equivalents. 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-infringment on the
reverse doctrine of equivalents. The matter remains pending on appeal
and Monsanto is continuing to litigate vigorously its position on
appeal. In November 1999, all claims by Monsanto and DEKALB against
Novartis were dismissed, in recognition of patent license agreements
among those parties.
Pioneer Hi-Bred International Inc. 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) 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 DeNemours. 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, Rhone Poulenc
Agrochimie S. A. ("Rhone Poulenc") filed suit in the U. S. District
Court in North Carolina (Charlotte) against the Company and DEKALB (now
a subsidiary of the Company) alleging that a 1994 license agreement (the
"1994 Agreement") between DEKALB and Rhone Poulenc was induced by fraud
stemming from DEKALB's nondisclosure of a research report involving
testing of plants to determine glyphosate tolerance. Rhone Poulenc also
alleged that neither DEKALB nor Monsanto has a right to license, make or
sell products using Rhone Poulenc technology for glyphosate resistance
under the terms of the 1994 Agreement. On April 5, 1999, the trial
court rejected Rhone Poulenc's claim that the contract language did not
convey a license but found that a disputed issue of fact existed as to
whether the contract
12
<PAGE>
<PAGE>
was obtained by fraud. Jury trial of the fraud claims ended April 22,
1999, with a verdict for Rhone Poulenc and against DEKALB. Monsanto was
dismissed from the trial prior to verdict since it was not involved in
the inducement allegation and was involved in the case only due to the
fact that in 1996, DEKALB sublicensed to Monsanto certain technology
previously licensed by Rhone Poulenc. The jury awarded $15 million in
actual damages for "unjust enrichment" and $50 million in punitive
damages. DEKALB has filed motions with the trial court to set aside the
damage award. DEKALB has meritorious grounds to overturn the jury
verdict and has filed a Motion for Judgment as a Matter of Law to
overturn the jury verdict. The trial was bifurcated to allow claims
against DEKALB and Monsanto for patent infringement and misappropriation
of trade secrets to be tried before a different jury. On May 6, 1999,
the District Court dismissed Monsanto from all remaining claims and
granted Monsanto's motion for summary judgment holding that Monsanto
was a bona fide purchaser which retained all license rights to the Rhone
Poulenc technology notwithstanding the prior verdict against DEKALB.
The Court concurred that Monsanto was not liable for trade secret or
patent infringement claims since Monsanto obtained its license from
DEKALB without any knowledge of the claims that allegedly gave rise to
the jury verdict against DEKALB. Jury trial of the patent infringement
and misappropriation claims ended June 3, 1999, with a verdict for Rhone
Poulenc and against DEKALB. DEKALB is continuing to defend the
litigation and maintains that it remains 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 it
has other meritorious defenses to the patent and trade secret
allegations, including patent invalidity and absence of trade secret
status due to Rhone Poulenc's own public disclosure of the alleged trade
secret. On July 16, 1999, a hearing occurred on all post-trial motions
including the request by Rhone Poulenc for injunctive relief against
future sales of DEKALB-brand RoundupReady(R) corn products if the
material was not currently in inventory or within the scope of the prior
damage verdict. No ruling has occurred on the post-trial motions.
Pursuant to an agreement between the Company and Rhone Poulenc, certain
RoundupReady(R) corn products are being sold under a royalty bearing
arrangement. DEKALB will vigorously appeal the verdict to the Federal
Circuit and will assert its meritorious defenses to all remaining claims
in the litigation and will vigorously seek to avoid further claims of
liability, the possible entry of injunctive relief and will seek to
overturn by appeal any judgment entered in the lawsuit.
In June 1996, Mycogen Corporation, Agrigenetics Inc. and Mycogen
Plant Sciences, Inc. 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 the Company
awarding damages totaling $174.9 million. The case is now on appeal as
Appeal No. D031336 before the California Court of Appeal for the Fourth
Appellate District. Mycogen and Agrigenetics Inc. have filed a cross
appeal seeking to reinstate claims for damages that were dismissed prior
to trial. This cross appeal has
13
<PAGE>
<PAGE>
been consolidated for all purposes on appeal. The Company 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 the Company on the issue of
liability. Mycogen is also seeking to overturn an award of sanctions
against it in connection with this litigation and to obtain a
determination that the contract entititles Mycogen to a license to
germplasm not genes from Monsanto. The Company 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 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. 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.
Following the announcement on May 11, 1998, of the merger
agreement between Monsanto and Delta and Pine Land Company ("Delta and
Pine Land"), five alleged holders of Delta and Pine Land common stock
filed suits, now consolidated (the "Delta and Pine Land Suit"), in the
Delaware Court of Chancery in and for New Castle County against
Monsanto, Delta and Pine Land, and members of the Delta and Pine Land
Board of Directors (the "Delta and Pine Land Board"). Seeking to
represent a purported class of Delta and Pine Land shareowners,
plaintiffs in the Delta and Pine Land Suit allege that the consideration
to be received by holders of Delta and Pine Land common stock in the
merger is unfair and inadequate, that the members of the Delta and Pine
Land Board have breached their fiduciary duties by approving the
transaction and that Monsanto has aided and abetted such breaches.
Plaintiffs in the Delta and Pine Land Suit seek 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 is consummated, awarding unspecified
compensatory damages against defendants, and awarding plaintiffs their
attorneys' fees and expenses. On December 30, 1999, a derivative and
class action lawsuit was filed, as Civil Action 17707, by two alleged
holders of Delta and Pine Land common stock, in the Delaware Court of
Chancery. Defendants include Monsanto, Delta and Pine Land and members
of the Delta and Pine Land Board. The suit seeks a declaration that the
individual defendants have violated
14
<PAGE>
<PAGE>
their fiduciary duties and to direct the individual defendants to take
certain actions to maximize shareholder value. The suit also requests
compensatory damages, costs, disbursements and fees. The suit relates
to Monsanto's withdrawal of its filing for U.S. antitrust clearance of
its proposed merger with Delta and Pine Land in light of the U.S.
Department of Justice's unwillingness to approve the transaction on
commercially reasonable terms. The Delaware lawsuit alleges that Delta
and Pine Land 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. On January 3, 2000, Monsanto paid Delta and Pine Land $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. On
January 18, 2000, suit was filed against Monsanto by Delta and Pine Land
(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 acquisition
pursuant to the exercise of reasonable efforts. Monsanto did exercise
commercially reasonable efforts to complete the transaction and has
meritorious defenses to the claims in the lawsuits and will vigorously
defend the actions.
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 the Company 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. On
October 1, 1999, Monsanto filed a motion for rehearing or, in the
alternative, for rehearing en banc and the motion was denied on January
4, 2000. 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.
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
15
<PAGE>
<PAGE>
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, are set forth under the heading "Cautionary Statements
Regarding Forward-Looking Information" in Exhibit 99, accompanying this
Report and incorporated herein by reference.
ITEM 2. PROPERTIES.
The General Offices of the Company are located on a 285-acre tract
of land in St. Louis County, Missouri. The Company also owns a 210-acre
tract in St. Louis County on which additional research facilities are
located. 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 sectors 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); Mt. Prospect, Illinois (Pharmaceuticals);
Morpeth, United Kingdom (Pharmaceuticals); Muscatine, Iowa (Agricultural
Products); Sao Jose dos Campos, Brazil (Agricultural Products); Skokie
(Old Orchard), Illinois (Pharmaceuticals, Corporate and Other); Skokie
(Searle Parkway), Illinois (Pharmaceuticals); and Zarate, Argentina
(Agricultural Products). All of these properties are manufacturing
facilities, except for the research buildings in Mt. Prospect, Illinois
and Skokie (Searle Parkway), Illinois, and the office building in Skokie
(Old Orchard), Illinois.
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.
16
<PAGE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
For information concerning certain legal proceedings involving
Monsanto, see "Business--Environmental Matters", "Business--Legal
Proceedings" and "Business--Disclosure of Forward-Looking Statements"
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 1998.
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.
17
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The narrative information appearing under "Review of Cash Flow--
Dividend Policy is Unchanged" on page 29, and the tabular information
regarding Dividends Per Share and Common Stock Price (for the years 1997
and 1998) appearing under "Quarterly Data" on page 36, all appearing in
Exhibit 99 of this Report, are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The following information, appearing on the pages indicated of
Exhibit 99 of this Report, are incorporated herein by reference: the four
paragraphs under "Definitions" on page 1; and the tabular information
under "Financial Summary--Operating Results, Earnings (Loss) per Share and
Year-End Financial Position" and the amounts of Dividends per Share, all
for the years 1994 through 1998, on page 70.
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 of this Report, is incorporated herein by reference: (a) the
four paragraphs under "Definitions" on page 1; (b) the tabular and
narrative information appearing under "Review of Consolidated Results of
Operations" on pages 4 through 12, "Review of Consolidated Results of
Operations--Analysis of Change in Earnings (Loss) Per Share from
Continuing Operations" on page 13, "Segment Data" and information
regarding segments on pages 15 through 24, "Review of Changes in Financial
Position" on page 26, "Review of Cash Flow" on page 29 and "Additional
Financial Information" on pages 30 through 32; and (c) the narrative
information appearing under "Geographic Data" on page 14 and "Cautionary
Statements Regarding Forward-Looking Information" on pages 65 through 69.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The tabular and narrative information appearing under "Financial
Instruments" on pages 33 -34 of Exhibit 99 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 of this Report, is incorporated herein by reference: (a) the
four paragraphs under "Definitions" on page 1; (b) the consolidated
financial statements of Monsanto appearing on pages 3, 25, 28, 30, 35, and
38 through 63; (c) the Independent Auditors' Report appearing on page 2;
and (d) the tabular and narrative information appearing under "Quarterly
Data" on pages 36 -37.
18
<PAGE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
19
<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors and executive officers appearing
under "Election of Directors" on pages 2 through 4, and "Other
Information Regarding Management--Section 16(a) Beneficial Ownership
Reporting Compliance" on pages 18-19, of the Monsanto Company Notice of
Annual Meeting and Proxy Statement (the "1999 Proxy Statement") dated
March 15, 1999, is incorporated herein by reference. The following
information with respect to the Executive Officers of the Company on
March 1, 1999, 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, 1994
--------- ---------------- --------- -----------------------------------------------
<S> <C> <C> <C>
Bruce P. Bickner, 55 Co-President, Global Seed 1999 Chairman and Chief Executive Officer - DEKALB
Group - Monsanto Company Energy Co., 1986; Chairman and Chief Executive
Officer - DEKALB Genetics Corporation,1988 to
present.
Martin E. Blaylock, 58 Vice President, 1999 Director, Manufacturing Operations - Monsanto
Manufacturing Operations - Company, 1993; and present position, 1995.
Monsanto Company
Gary L. Crittenden, 45 Senior Vice President, Chief 1998 Executive Vice President and Chief Financial
Financial Officer - Monsanto Officer - Melville Corp., 1994; Executive Vice
Company President, Strategy and 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. De Schutter, 57 Vice Chairman - Monsanto 1995 President and Chief Operating Officer - G.D.
Company; Chairman, Chief Searle & Co., 1993; Chairman, Chief Executive
Executive Officer and Officer and President - G.D. Searle & Co.;
President - G.D. Searle & Co. Advisory Director-Monsanto Company, 1995; and
present position, 1997.
Arnold W. Donald, 44 Senior Vice President; Co- 1998 Group Vice President North America Division -
President, Nutrition and Monsanto Company, 1993; Group Vice President and
Consumer Products - General Manager - Monsanto Company, 1994;
Monsanto Company President, Crop Protection -Monsanto Company,
1995; Co-President, Agricultural Sector - Monsanto
Company, 1997; Senior Vice President - Monsanto
Company, 1998; and present position, 1999.
20
<PAGE>
<PAGE>
<CAPTION>
Year
First
Became
an
Present Position Executive
Name--Age with Registrant Officer Other Business Experience since January 1, 1994
--------- ---------------- --------- -----------------------------------------------
<S> <C> <C> <C>
Steven L. Engelberg, 55 Senior Vice President - 1995 Partner-in-Charge, Keck, Mahin & Cate Washington,
Monsanto Company D.C. office, 1986; Chief of Staff of Office of the
United States Trade Representative (on leave from
Keck, Mahin & Cate until May 1993), 1993; Vice
President, Worldwide Government Affairs - Monsanto
Company, 1994; and present position, 1996.
Patrick J. Fortune, 50 Vice President and Chief 1997 Corporate Vice President, Information Management -
Knowledge Officer - Monsanto Bristol-Myers Squibb, 1991; President and Chief
Company Operation Officer - Coram Healthcare Corporation,
1994; Vice President, Information Technology -
Monsanto Company, 1995; Vice President and Chief
Information Officer - Monsanto Company, 1997; and
present position, 1998.
Robert Fraley, 46 Co-President, Agricultural 1999 Group Vice President and General Manager, New
Sector - Monsanto Company Products Division - Monsanto Company, 1993;
President, Ceregen-Monsanto Company, 1995; and
present position, 1997.
Hugh Grant, 40 Co-President, Agricultural 1999 Director, Global Roundup(R) Product Strategy -
Sector - Monsanto Company Monsanto Company, 1994; General Manager,
Agricultural Sector for Southeast Asia, Australia,
New Zealand & South Korea - Monsanto Company,
1995; and present position, 1998.
Alan L. Heller, 45 Chief Operating Officer-G.D. 1999 Vice President, Sales - G.D. Searle & Co., 1992;
Searle & Co. Vice President, Finance - G.D. Searle & Co. 1994;
President, Americas, G.D. Searle & Co.; 1995; and
present position, 1997.
R. William Ide III, 58 Senior Vice President, 1996 President, American Bar Association, 1993-1994;
General Counsel and partner, Long, Aldridge & Norman, 1993; and
Secretary - Monsanto present position, 1996.
Company
Madonna A. Kindl, 40 Vice President, Human 1996 Director of Human Resources, Staff of the Vice
Resources - Monsanto Chairman - Monsanto Company, 1993; Director,
Company Human Resources, Crop Protection Business Unit -
Monsanto Company, 1995; and present position,
1996.
21
<PAGE>
<PAGE>
<CAPTION>
Year
First
Became
an
Present Position Executive
Name--Age with Registrant Officer Other Business Experience since January 1, 1994
--------- ---------------- --------- -----------------------------------------------
<S> <C> <C> <C>
Ganesh M. Kishore, 45 Co-President, Nutrition and 1999 Director of Technology, Agricultural Sector -
Consumer Products - Monsanto Company, 1994; Director of Technology,
Monsanto Company Ceregen-Monsanto Company, 1995; Director of Crop
Enhancement, Ceregen-Monsanto Company, 1996;
Distinguished Science Fellow - Monsanto Company,
1996; and present position, 1997.
Philip Needleman, 60 Senior Vice President, 1991 Vice President, Research and Development; Advisory
Research and Development Director - Monsanto Company; President, Research
and Chief Scientist; Co- and Development-G.D. Searle & Co., 1992; Senior
President, Pharmaceuticals Vice President, Research and Development and Chief
Sector-Monsanto Company Scientist-Monsanto Company; President, Research
and Development- G.D. Searle & Co., 1993; and
present position, 1996.
Robert W. Reynolds, 54 Vice Chairman - Monsanto 1994 Vice President and Managing Director, Latin
Company America World Area - Monsanto Company, 1992; Vice
President, International Operations and
Development - Monsanto Company, 1995; and present
position, 1997.
Nicholas E. Rosa, 47 Co-President, Nutrition and 1999 President - NutraSweet Europe, 1991; Executive
Consumer Products Vice President - The NutraSweet Company, 1994;
President, Benevia-Monsanto Company, 1996;
President, Nutrition and Consumer Products -
Monsanto Company, 1997; and present position,
1999.
Robert B. Shapiro, 60 Director; Chairman and Chief 1987 Director, President and Chief Operating Officer -
Executive Officer - Monsanto Monsanto Company, 1993; Director, Chairman, Chief
Company Executive Officer and President - Monsanto
Company, 1995; and present position, 1997.
Hendrik A. Verfaillie, 53 President - Monsanto Company 1993 Vice President and Advisory Director - Monsanto
Company; President - The Agricultural Group -
Monsanto Company, 1993; Vice President and
Advisory Director - Monsanto Company, 1995;
Executive Vice President and Advisory Director -
Monsanto Company, 1995; and present position,
1997.
</TABLE>
Effective April 9, 1999, Patrick J. Fortune is no longer an executive
officer of Monsanto Company. Effective April 23, 1999, Madonna A. Kindl
and Nicholas E. Rosa were elected Senior Vice Presidents of Monsanto
Company. Effective April 30, 1999, Robert W. Reynolds retired as an
employee and
22
<PAGE>
<PAGE>
officer of Monsanto Company. Effective June 25, 1999: Richard U. De
Schutter was elected Chief Administrative Officer and a Director of
Monsanto Company, in addition to his other responsibilities; Hendrik A.
Verfaillie was elected Chief Operating Officer and a Director of
Monsanto Company, in addition to his duties as President; and Alan L.
Heller was elected Co-President of G. D. Searle & Co. Effective August
1, 1999, David L. Morley, Senior Vice President of Monsanto Company,
became an executive officer. Mr. Morley initially became an executive
officer of Monsanto Company in 1998. His prior positions with Monsanto
(comprising his other business experience since January 1,1994) were:
Group Vice President and General Manager, Global Strategies and
Operations - The Agricultural Group, 1993; Group Vice President and
General Manager, Americas Division, Crop Protection Business Unit, 1995;
President, Nutrition and Consumer Products, 1997; and present position,
1998. Effective November 1, 1999, Joan H. Walker, became Senior Vice
President of Monsanto Company and an executive officer. Her prior
positions since January 1, 1994 include: President and Chief Executive
Officer - Bozell Public Relations, 1993 to August 1996; and Senior Vice
President, Corporate Communications - Ameritech Corporation, August 1996
to November 1999.
23
<PAGE>
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under "Directors' Fees and Other
Arrangements" on pages 8-9, and under "Executive Compensation" beginning
on page 15 and continuing through "Certain Agreements" on page 18 of the
1999 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information appearing under "Stock Ownership of Management and
Certain Beneficial Owners" on pages 5 and 6 of the 1999 Proxy Statement
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under "Other Information Regarding
Management--Transactions and Relationships" and "--Indebtedness" on
pages 18 through 20 of the 1999 Proxy Statement is incorporated herein
by reference.
24
<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 pages 3, 25, 28, 30,
35, and 38 through 63 of Exhibit 99 to this Report
2. Financial Statement Schedules
None required
3. Exhibits--See the Exhibit Index beginning at page 28 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 32 on pages 29 through 32 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
December 10, 1999
10 24. 1999 Form of Employment Agreement for Executive
Officers
23 Consent of Independent Auditors
24 2. Powers of attorney submitted by Richard U. De
Schutter and Hendrik A. Verfaillie.
27 Financial Data Schedule (part of electronic submission
only)
99 Amended Financial Information for Fiscal Year Ended
December 31, 1998
(b) Reports on Form 8-K during the quarter ended December 31, 1998:
The following reports on Form 8-K were filed by the Company on the
dates indicated: October 13, 1998 (termination of merger agreement with
American Home Products Corporation); October 19, 1998 (information
presented to the financial community); October 30, 1998 (financial
information for quarter ended September 30, 1998); November 13 and 16,
1998; (announcement of financing plans); November 27, 1998 (offerings of
common stock and Adjustable Conversion-rate Equity Security Units);
December 8, 1998 (acquisition of DEKALB Genetics Corporation); and
December 14, 1998 (closings of financings and filing of related
documents).
25
<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
------------------------------
Richard B. Clark
Vice President and Controller
(Principal Accounting Officer)
Date: January 21, 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>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
_________________________ Chairman _______, 2000
(Robert B. Shapiro) President and Director
(Principal Executive
Officer)
_________________________ Vice Chairman, Chief _______, 2000
(Richard U. De Schutter) Administrative Officer,
and Director
_________________________ Director _______, 2000
(Michael Kantor)
_________________________ Director _______, 2000
(Gwendolyn S. King)
_________________________ Director _______, 2000
(Philip Leder)
_________________________ Director _______, 2000
(Jacobus F. M. Peters)
_________________________ Director _______, 2000
(John S. Reed)
_________________________ Director _______, 2000
(John E. Robson)
_________________________ Director _______, 2000
(William D. Ruckelshaus)
26
<PAGE>
<PAGE>
_________________________ Senior Vice President, _______, 2000
(Gary L. Crittenden) Chief Financial Officer
(Principal Financial
Officer)
_________________________ President, Chief Operating _______, 2000
(Hendrik A. Verfaillie) Officer and Director
_________________________ Vice President and _______, 2000
(Richard B. Clark) Controller (Principal
Accounting Officer)
<FN>
<F*> ____________, by signing his or 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>
_____________________________
Attorney-in-Fact
27
<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 Omitted--Inapplicable
3 1. Restated Certificate of Incorporation of the
Company as of October 28, 1997 (incorporated herein
by reference to Exhibit 3(i) of the Company's Form 10-
Q for the quarter ended September 30, 1997)
2. By-Laws of the Company, as amended effective
December 10, 1999
4 1. Form of Rights Agreement, dated as of January 26,
1990 between the Company and First Chicago Trust
Company as successor to The First National Bank of
Boston (incorporated herein by reference to Form 8-A
filed on January 31, 1990)
2. 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)
3. 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)
4. 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)
5. 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)
6. 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.
28
<PAGE>
<PAGE>
9 Omitted--Inapplicable
10 1. Distribution Agreement by and between Monsanto
Company and Solutia Inc., as of September 1, 1997,
plus identification of contents of omitted schedules
and exhibits and agreement to furnish supplementally a
copy of any omitted schedule or exhibit to the
Securities and Exchange Commission upon request
(incorporated herein by reference to Exhibit 2.1 of
the Company's Form 8-K filed September 16, 1997)
2. Employee Benefits and Compensation Allocation
Agreement between Monsanto Company and Solutia Inc.,
dated as of September 1, 1997 (incorporated herein by
reference to Exhibit 99.1 of the Company's Form 8-K
filed September 16, 1997)
3. Tax Sharing and Indemnification Agreement dated as
of September 1, 1997, by and between Monsanto Company
and Solutia Inc. (incorporated herein by reference to
Exhibit 99.2 of the Company's Form 8-K filed September
16, 1997)
4. Monsanto Company Non-Employee Director Deferred
Compensation Plan (incorporated herein by reference to
Exhibit 10.3 of the Company's Form 10-Q for the
quarter ended September 30, 1997)
5. Monsanto Company Non-Employee Director Equity
Incentive Compensation Plan (incorporated herein by
reference to Exhibit 10.4 of the Company's Form 10-Q
for the quarter ended September 30, 1997)
6. Non-Employee Directors Stock Plan, as amended in
1991 (incorporated herein by reference to Exhibit
19(ii)1 of the Company's Form 10-Q for the quarter
ended June 30, 1991)
7. Amendment to Non-Employee Directors Stock Plan
(incorporated herein by reference to Exhibit 10.8 of
the Company's Form 10-Q for the quarter ended June 30,
1997)
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)
29
<PAGE>
<PAGE>
10. Excerpt of Resolutions of Monsanto Company Board
of Directors Regarding Directors' Compensation,
adopted by Unanimous Consent effective August 4, 1997
(incorporated herein by reference to Exhibit 10.5 of
the Company's Form 10-Q for the quarter ended
September 30, 1997)
11. Consulting Agreement between the Company and
Philip Leder dated January 17, 1990 (incorporated
herein by reference to Exhibit 19(i)3 of the Company's
Form 10-K for the year ended December 31, 1989)
12. Monsanto Management Incentive Plan of 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)
13. 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)
14. 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)
15. 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)
16. 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)
17. 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)
18. 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)
30
<PAGE>
<PAGE>
19. 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)
20. 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)
21. Long-Term Incentive Program and Premium Option
Purchase Program for Executive Officers (incorporated
herein by reference to the description on pages 12-13
of the Monsanto Company Notice of Annual Meeting and
Proxy Statement dated March 15, 1999)
22. 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)
23. 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)
24. 1999 Form of Employment Agreement for Executive
Officers
25. 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)
26. 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)
27. 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)
28. 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)
29. 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)
31
<PAGE>
<PAGE>
30. Searle/Monsanto Stock Plan of 1994, as amended in
1995, April 1997 and July 1997 (incorporated herein by
reference to Exhibit 10.6 of the Company's Form 10-Q
for the quarter ended June 30, 1997)
31. 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)
32. G. D. Searle & Co. Legal/Tax/Financial Counseling
Plan (incorporated herein by reference to Exhibit
19(i)8 of the Company's Form 10-Q for the quarter
ended June 30, 1988)
11 Omitted--Inapplicable; see "Earnings per Share" on
page 61 of Exhibit 99 to this Report
13 Omitted -- Inapplicable
18 Omitted--Inapplicable
21 Subsidiaries of the registrant (incorporated by
reference to Exhibit 24.1 of the Company's Form 10-K
for the year ended December 31, 1998)
22 Omitted--Inapplicable
23 Consent of Independent Auditors
24 1. Powers of attorney submitted by Gwendolyn S. King,
Philip Leder, Jacobus F.M. Peters, John S. Reed, John
E. Robson, William D. Ruckelshaus, Robert B. Shapiro
Gary L. Crittenden and Richard B. Clark (incorporated
by reference to Exhibit 24.1 of the Company's Form 10-
K for the year ended December 31, 1998)
2. Powers of attorney submitted by Richard U. De
Schutter and Hendrik A.Verfaillie
3. Certified copy of Board resolution authorizing Form
10-K filing utilizing powers of attorney
(incorporated by reference to Exhibit 24.1 of the
Company's Form 10-K for the year ended December 31,
1998)
27 Financial Data Schedule (part of electronic submission
only)
99 Amended Financial Information for Fiscal Year Ended
December 31, 1998
_____________
Only Exhibits Nos. 23 and 99 have been included in the printed copy of
this Report.
32
<PAGE>
EXHIBIT 3.2
MONSANTO COMPANY
BY-LAWS
As adopted December 10, 1999
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.
(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
<PAGE>
<PAGE>
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 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
2
<PAGE>
<PAGE>
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 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
3
<PAGE>
<PAGE>
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.
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
4
<PAGE>
<PAGE>
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
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.
5
<PAGE>
<PAGE>
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, provided the instrument authorizing such proxy to act shall have
been executed in writing in the manner prescribed 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.
6
<PAGE>
<PAGE>
BOARD OF DIRECTORS
------------------
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.
7
<PAGE>
<PAGE>
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.
8
<PAGE>
<PAGE>
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.
9
<PAGE>
<PAGE>
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; provided, however, that any committee member who ceases to be
a member of the Board shall automatically cease to be a committee member.
10
<PAGE>
<PAGE>
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
--------
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,
11
<PAGE>
<PAGE>
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
12
<PAGE>
<PAGE>
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.
13
<PAGE>
<PAGE>
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.
14
<PAGE>
<PAGE>
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.
15
<PAGE>
<PAGE>
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 Secretary
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.
16
<PAGE>
<PAGE>
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
---------------
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
17
<PAGE>
<PAGE>
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.
18
<PAGE>
<PAGE>
MISCELLANEOUS
-------------
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
19
<PAGE>
<PAGE>
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.
20
<PAGE>
<PAGE>
(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.
21
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Monsanto Company, a Delaware
corporation (the "Company"), and ___________________ (the "Executive"),
dated as of the _____ day of ___________, _______.
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the Company. The
Board believes it is imperative to diminish the inevitable distraction
of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage
the Executive's full attention and dedication to the Company currently
and in the event of any threatened or pending Change of Control, and to
provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter
into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall
-------------------
mean the first date during the Change of Control Period (as defined in
Section 1(b)) on which a Change of Control (as defined in Section 2)
occurs. Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Executive's employment with the
Company is terminated by the Company prior to the date on which the
Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of
a third party who has taken steps reasonably calculated to effect a
Change of Control or (ii) otherwise arose in connection with or
anticipation of a Change of Control, then for all purposes of this
Agreement the "Effective Date" shall mean the date immediately prior to
the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on May 31, 2002; provided,
however, that commencing on May 31, 2000, and on each May 31 thereafter,
the Change of Control Period shall be automatically extended so as to
terminate on the third anniversary of such May 31, unless the Company
shall give notice to the Executive before the immediately preceding
April 1 that the Change of Control Period shall not be so extended.
(c) An "Alternative Change of Control" shall mean a Change
of Control as defined in Section 2, except that the references in such
definition to "20%" shall be deemed to be references to "50%."
2. Change of Control. For the purpose of this
-----------------
Agreement, a "Change of Control" shall mean:
<PAGE>
<PAGE>
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either
(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 Section 2;
or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered
as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation by the Company of a reorganization,
merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the acquisition
of assets or stock of another corporation (a "Business
Combination"), in each case, unless, following such Business
Combination, (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
-2-
<PAGE>
<PAGE>
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
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.
3. Employment Period. The Company hereby agrees to
-----------------
continue the Executive in its employ, and the Executive hereby agrees to
remain in the employ of the Company subject to the terms and conditions
of this Agreement, for the period (the "Employment Period") commencing
on the Effective Date and ending on the earlier of the third anniversary
of such date and the first day of the month following the month in which
the executive attains age 65 (the Executive's "Normal Retirement Date").
4. Terms of Employment. (a) Position and Duties. (i)
------------------- -------------------
During the Employment Period, (A) the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned
to the Executive at any time during the 120-day period immediately
preceding the Effective Date and (B) the Executive's services shall be
performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35
miles from such location, unless the Executive is on international
assignment on the Effective Date and is relocated as a result of the
Executive's being repatriated pursuant to the terms of his international
assignment agreement as in effect before the Effective Date.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and, to
the extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance
of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed
to interfere with the performance of the Executive's responsibilities to
the Company.
(b) Compensation. (i) Base Salary. During the
------------ -----------
Employment Period, the Executive shall receive an annual base salary
("Annual Base Salary"), which shall be paid at a monthly rate, at least
equal to twelve times the highest monthly base salary paid or payable,
-3-
<PAGE>
<PAGE>
including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base
Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and
thereafter at least annually. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the Executive under
this Agreement. Annual Base Salary shall not be reduced after any such
increase and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Bonuses. In addition to Annual Base Salary,
-------
the Executive shall be awarded the following bonuses. For each fiscal
year ending during the Employment Period, the Executive shall be awarded
an annual bonus (the "Annual Bonus") in cash at least equal to the
average of the Executive's bonuses under the Company's Annual Incentive
Program, or any comparable bonus under any predecessor or successor
plan(s), for the last three full fiscal years prior to the Effective
Date (annualized in the event that the Executive was not employed by the
Company for the whole of such fiscal year) (the "Recent Annual Bonus").
Each such Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which the
Annual Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus. In addition, during the Employment Period,
the Executive shall be entitled to participate in all long-term and
other incentive plans, practices, policies and programs applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with incentive opportunities (measured
with respect to both regular and special incentive opportunities, to the
extent, if any, that such distinction is applicable) less favorable, in
the aggregate, than the most favorable of those provided by the Company
and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and its
affiliated companies. Without limiting the generality of the foregoing,
the Executive shall be entitled to receive long-term incentive
compensation (whether in cash, equity awards, or a combination thereof)
having a value, on an annualized basis, at least equal to the annualized
value of the long-term incentive compensation component of the
Executive's total compensation, as established by the People Committee
of the Board most recently before the Effective Date (such value, the
"Recent Long-Term Incentive Value").
(iii) Savings and Retirement Plans. During the
----------------------------
Employment Period, the Executive shall be entitled to participate in all
savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with savings opportunities
and retirement benefit opportunities, in each case, less favorable, in
the aggregate, than the most favorable of those provided by the Company
and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any time after
the Effective Date to other
-4-
<PAGE>
<PAGE>
peer executives of the Company and its affiliated companies. Without
limiting the generality of the foregoing, the Company and its affiliated
companies shall continue to honor any individual agreements between any
of them and the Executive regarding the provision of supplemental
retirement benefits such as (but not limited to) post-retirement income
and/or welfare benefits (each of which is hereafter referred to as an
"Individual SERP")
(iv) Welfare Benefit Plans. During the Employment
---------------------
Period, the Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided
by the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less favorable,
in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and its
affiliated companies.
(v) Expenses. During the Employment Period, the
--------
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) Fringe Benefits. During the Employment Period,
---------------
the Executive shall be entitled to fringe benefits, including, without
limitation, tax and financial planning services, payment of club dues,
and, if applicable, use of an automobile and payment of related
expenses, in accordance with the most favorable plans, practices,
programs and policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the
------------------------
Employment Period, the Executive shall be entitled to an office or
offices of a size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at least equal to
the most favorable of the foregoing provided to the Executive by the
Company and its affiliated companies at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to
the Executive, as provided generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the
--------
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and
-5-
<PAGE>
<PAGE>
practices of the Company and its affiliated companies as in effect for
the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or
------------------------- ---------
Disability. The Executive's employment shall terminate automatically
- ----------
upon the Executive's death during the Employment Period. If the Company
determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice
in accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the 30th day
after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall
mean the Executive's long-term disability for purposes of any reasonable
occupation as determined under the Company's disability plan that is
applicable to the Executive.
(b) Cause. The Company may terminate the Executive's
-----
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or
one of its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Executive
by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable
belief that the Executive's action or omission was in the best interests
of the Company. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or upon the
instructions of the Chief Executive Officer or a senior officer of the
Company or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The
cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive
a copy of a resolution duly adopted by the affirmative vote of not less
than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice
is provided to the Executive and the Executive is given an opportunity,
together with counsel, to be heard before the Board), finding that, in
the good faith opinion of the Board, the Executive is
-6-
<PAGE>
<PAGE>
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be
-----------
terminated by the Executive for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section
4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than as provided in Section
4(a)(i)(B) hereof or the Company's requiring the Executive to
travel on Company business to a substantially greater extent than
required immediately prior to the Effective Date, unless the
Executive is on international assignment on the Effective Date and
the relocation is as a result of the Executive's being repatriated
pursuant to the terms of his international assignment agreement as
in effect before the Effective Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately following
the first anniversary of an Alternative Change of Control shall be
deemed to be a termination for Good Reason for all purposes of this
Agreement.
(d) Notice of Termination. Any termination by the
---------------------
Company for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as
-7-
<PAGE>
<PAGE>
defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company, respectively,
hereunder or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i)
-------------------
if the Executive's employment is terminated by the Company for Cause, or
by the Executive for Good Reason, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be,
(ii) if the Executive's employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be the date
on which the Company notifies the Executive of such termination and
(iii) if the Executive's employment is terminated by reason of death or
Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability. If,
------------------------------------------------------
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the
Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination the aggregate
of the following amounts:
A. the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I)
the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has
been earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during which
the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during
the Employment Period, if any (such higher amount being
referred to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination, and
the denominator of which is 365, and (3) any accrued
vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1), (2)
and (3) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the product of (1) the
lesser of three and the number of years and fractions
thereof remaining between the Date of Termination and the
Executive's Normal Retirement Date (such lesser number, the
"Multiplier") and (2) the sum of (w) the Executive's Annual
Base Salary, (x) the Highest Annual Bonus, (y) the higher of
(I) the Recent Long-Term Incentive Value and (II) the
highest value, on an annualized basis, of the Executive's
long-term incentive compensation (whether in cash, equity
awards, or a combination thereof) in
-8-
<PAGE>
<PAGE>
effect following the Effective Date, and (z) the amount of
the employer matching contributions (not including any
performance contribution) made to the Executive's account in
the Company's Savings and Investment Plan and the Savings
and Investment Parity Plan or any successor to either of
them with respect to the most recent plan year that ended
before the Effective Date or, if higher, for the most recent
plan year that ended after the Effective Date (in either
case annualized to the extent such plan year consisted of
less than 12 months and/or the Executive was not eligible to
participate in such plan for the full plan year); and
C. an amount equal to the difference between (a)
the aggregate benefit under the Monsanto Pension Plan and
any successor thereto, and any other qualified defined
benefit retirement plans of the Company and its affiliated
companies in which the Executive participates (collectively,
the "Retirement Plan") and the Monsanto Company ERISA Parity
Pension Plan, the Monsanto Company Supplemental Retirement
Plan, and any successors thereto, any other "top hat,"
excess or supplemental defined benefit retirement plans of
the Company and its affiliated companies in which the
Executive participates, and any Individual SERP
(collectively, the "SERP") which the Executive would have
accrued (whether or not vested) if the Executive's
employment had continued for a number of years after the
Date of Termination equal to the Multiplier, and (b) the
actual vested benefit, if any, of the Executive under the
Retirement Plan and the SERP, determined as of the Date of
Termination (with the foregoing amounts to be computed on an
actuarial present value basis, based on the assumption that
the Executive's compensation during such period of deemed
continued employment after the Date of Termination was that
required by Section 4(b)(i) and Section 4(b)(ii), and using
actuarial assumptions no less favorable to the Executive
than the most favorable of those in effect for purposes of
computing benefit entitlements under the Retirement Plan and
the SERP at any time from the day before the Effective Date)
through the Date of Termination;
(ii) for a number of years after the Executive's Date of
Termination equal to the Multiplier, or such longer period as may
be provided by the terms of the appropriate plan, program,
practice or policy (such number of years or longer period, the
"Welfare Benefits Continuation Period"), the Company shall
continue benefits to the Executive and/or the Executive's family
at least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies
described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible
to receive medical or other welfare benefits under another
employer provided plan during the Welfare Benefits Continuation
Period, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during
such applicable period of eligibility; and for purposes of
determining eligibility of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until the
end of the Welfare Benefits
-9-
<PAGE>
<PAGE>
Continuation Period and to have retired on the last day of such
period; and provided, further, that if the Executive has reached
age 50 as of the Date of Termination, then the Executive shall be
fully vested in, and shall be entitled to receive, beginning at
the end of the Welfare Benefits Continuation Period, lifetime
retiree medical benefits at least as favorable as those to which
the Executive would have been entitled if the Executive had
retired with full eligibility for benefits under the retiree
medical benefit plans and programs of the Company and its
Affiliated Companies in effect as of the Effective Date;
(iii) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and
provider of which shall be selected by the Executive in the
Executive's sole discretion; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy
or practice or contract or agreement of the Company and its
affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated
-----
by reason of the Executive's death during the Employment Period, this
Agreement shall terminate without further obligations to the Executive's
legal representatives under this Agreement, other than for payment of
Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the
Date of Termination. With respect to the provision of Other Benefits,
the term Other Benefits as utilized in this Section 6(b) shall include,
without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most
favorable benefits provided by the Company and affiliated companies to
the estates and beneficiaries of peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies
relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to
the Executive's estate and/or the Executive's beneficiaries, as in
effect on the date of the Executive's death with respect to other peer
executives of the Company and its affiliated companies and their
beneficiaries.
(c) Disability. If the Executive's employment is
----------
terminated by reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further obligations to
the Executive, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall
be paid to the Executive in a lump sum in cash within 30 days of the
Date of Termination. With respect to the provision of Other Benefits,
the term Other Benefits as utilized in this Section 6(c) shall include,
and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance
with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer
executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as
-10-
<PAGE>
<PAGE>
in effect at any time thereafter generally with respect to other peer
executives of the Company and its affiliated companies and their
families.
(d) Cause; Other than for Good Reason. If the
---------------------------------
Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the
Executive (x) the Annual Base Salary through the Date of Termination,
(y) the amount of any compensation previously deferred by the Executive,
and (z) Other Benefits, in each case to the extent theretofore unpaid.
If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall
terminate without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement
-------------------------
shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies for which the Executive may
qualify, nor, subject to Section 12(f), shall anything herein limit or
otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall
be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
Notwithstanding the foregoing, from and after the Effective Date, the
compensation and benefits provided for pursuant to Sections 5, 8 and 9
hereof shall be in lieu of any severance or separation pay or benefits
to which the Executive might otherwise be entitled under any plan,
program, policy or arrangement of the Company and its affiliates.
8. Full Settlement; Legal Fees. The Company's
---------------------------
obligation to make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by
any set-off, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and except as
specifically provided in Section 6(a)(ii), such amounts shall not be
reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law,
all legal fees and expenses which the Executive may reasonably incur as
a result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
performance thereof (whether such contest is between the Company and the
Executive or between either of them and any third party, and including
as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the
"Code").
-11-
<PAGE>
<PAGE>
9. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 9) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 9(a), if it shall be determined
that the Executive is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced
Amount") that could be paid to the Executive such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment
shall be made to the Executive and the Payments, in the aggregate, shall
be reduced to the Reduced Amount. Such reduction shall be carried out in
such a manner as to maximize the value of the Payments received by the
Executive while still reducing them to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment, whether and in what manner any Payments are to be
reduced to the Reduced Amount, and the assumptions to be utilized in
arriving at such determinations, shall be made by the certified public
accounting firm that was serving as the Company's auditors immediately
before the Effective Date (the "Accounting Firm"), which shall provide
detailed supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change of
Control, the Executive shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within
five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company
and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant
to Section 9(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has
-12-
<PAGE>
<PAGE>
occurred and any such Underpayment shall be promptly paid by the Company
to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
business days after the Executive is informed in writing of such claim
and shall apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the
date on which the Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect
to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this Section
9(c), the Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for
a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the taxable year
of the Executive with respect to which such
-13-
<PAGE>
<PAGE>
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of
Section 9(c)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is
made that the Executive shall not be entitled to any refund with respect
to such claim and the Company does not notify the Executive in writing
of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Confidential Information. As used herein,
------------------------
"Confidential Information" means all technical and business information
of the Company and its Subsidiaries, whether patentable or not, which is
of a confidential, trade secret and/or proprietary character and which
is either developed by the Executive (alone or with others) or to which
the Executive has had access during the Executive's employment.
"Confidential Information" shall also include confidential evaluations
of, and the confidential use or non-use by the Company or any Subsidiary
of, technical or business information in the public domain.
The Executive shall use the Executive's best efforts and
diligence both during and after employment by the Company to protect the
confidential, trade secret and/or proprietary character of all
Confidential Information. The Executive shall not, directly or
indirectly, use (for the Executive or another) or disclose any
Confidential Information, for so long as it shall remain proprietary or
protectible as confidential or trade secret information, except as may
be necessary for the performance of the Executive's duties with the
Company.
The Executive shall deliver promptly to the Company, at the
termination of the Executive's employment, or at any other time at the
Company's request, without retaining any copies, all documents and other
material in the Executive's possession relating, directly or indirectly,
to any Confidential Information.
Each of the Executive's obligations in this Section shall
also apply to the confidential, trade secret and proprietary information
learned or acquired by the Executive during the Executive's employment
from others with whom the Company or any Subsidiary has a business
relationship.
The Executive understands that the Executive is not to
disclose to the Company or any Subsidiary, or use for its benefit, any
of the confidential, trade secret or proprietary information of others,
including any of the Executive's former employers. In no event shall an
asserted
-14-
<PAGE>
<PAGE>
violation of the provisions of this Section 10 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
11. Successors. (a) This Agreement is personal to the
----------
Executive and without the prior written consent of the Company shall not
be assignable by the Executive otherwise than by will or the laws of
descent and distribution. This Agreement shall inure to the benefit of
and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no
such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed
-------------
by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws. The captions of
this Agreement are not part of the provisions hereof and shall have no
force or effect. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
-------------------
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
If to the Company:
-----------------
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Attention: General Counsel
or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications shall
be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
-15-
<PAGE>
<PAGE>
(d) The Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as
shall be required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's or the Company's failure to insist
upon strict compliance with any provision of this Agreement or the
failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of
this Agreement, shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except
as may otherwise be provided under any other written agreement between
the Executive and the Company, the employment of the Executive by the
Company is "at will" and, subject to Section 1(a) hereof, prior to the
Effective Date, the Executive's employment and/or this Agreement may be
terminated by either the Executive or the Company at any time prior to
the Effective Date, in which case the Executive shall have no further
rights under this Agreement. Upon its execution by both parties hereto,
this Agreement shall supersede the Key Executive Employment Agreement
previously entered into by the Executive and the Company (the "Key
Executive Agreement"). From and after the Effective Date this Agreement
shall supersede any prior employment agreement between the parties, but
shall have no effect on any Individual SERP or on the Executive's rights
under any plan, program, policy or practice provided by the Company or
any of its affiliated companies except as specifically provided in
Section 7 above; provided, that from and after the execution of this
Agreement, references in any individual SERP Letter to "Termination of
Employment" or "Terminate Employment" as defined in the Key Executive
Agreement shall be deemed amended to refer to termination of the
Executive's employment by the Executive for Good Reason and termination
of the Executive's employment by the Company for Cause, in each case as
defined in this Agreement, and references in any individual SERP Letter
to "Change of Control" as defined in the Key Executive Agreement shall
be deemed amended to refer to "Change of Control" as defined in this
Agreement.
-16-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of
Directors, the Company has caused these presents to be executed in its
name on its behalf, all as of the day and year first above written.
-------------------------------
[NAME OF EXECUTIVE]
MONSANTO COMPANY
By
-----------------------------
Title:
-------------------------
-17-
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
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 and 333-73233) of our report dated February 26, 1999
(December 29, 1999 as to the Subsequent Events and Discontinued
Operations Notes), incorporated by reference in this amended annual
report on Form 10-K/A of Monsanto Company for the year ended December 31,
1998.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
January 21, 2000
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That each person whose signature appears below, as a Director or Officer
of Monsanto Company (the "Company"), a Delaware corporation with its
general offices in the County of St. Louis, Missouri, does hereby make,
constitute and appoint R. WILLIAM IDE III, BARBARA L. BLACKFORD, SONYA M.
DAVIS or 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 Annual Report on Form 10-K and any
and all Amendments thereto, and documents in connection therewith, all to
be filed with the Securities and Exchange Commission under 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 1st day of November, 1999.
/s/ Richard U. De Schutter /s/ Hendrik A. Verfaillie
- ------------------------------------ --------------------------------
Richard U. De Schutter, Director Hendrik A. Verfaillie
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 89
<SECURITIES> 0
<RECEIVABLES> 2,119
<ALLOWANCES> 0
<INVENTORY> 1,722
<CURRENT-ASSETS> 5,195
<PP&E> 5,185
<DEPRECIATION> 2,320
<TOTAL-ASSETS> 16,385
<CURRENT-LIABILITIES> 3,780
<BONDS> 6,259
<COMMON> 0
1,694
0
<OTHER-SE> 3,292
<TOTAL-LIABILITY-AND-EQUITY> 16,385
<SALES> 7,237
<TOTAL-REVENUES> 7,237
<CGS> 2,912
<TOTAL-COSTS> 2,912
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 210
<INCOME-PRETAX> (85)
<INCOME-TAX> 46
<INCOME-CONTINUING> (131)
<DISCONTINUED> (119)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (250)
<EPS-BASIC> (.41)
<EPS-DILUTED> (.41)
</TABLE>
<PAGE>
EXHIBIT 99
AMENDED FINANCIAL INFORMATION FOR FISCAL YEAR ENDED DECEMBER 31, 1998
- ---------------------------------------------------------------------
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.
EBIT (earnings before interest expense and income taxes) and EBITDA
(earnings before interest expense, income taxes, depreciation and
amortization, and excluding unusual charges) are used as financial
performance measures throughout this publication. For Monsanto's business
segments, EBIT also excludes the effects of unusual charges.
Throughout this annual report EBITDA (excluding unusual items) is net
earnings (loss) before income taxes, interest expense, depreciation
expense, amortization expense, and excluding the effects of unusual items.
Unusual items comprise restructuring charges, write-offs of in-process
research and development (R&D) related to acquisitions, and the
cancellation of DEKALB stock options. EBITDA (excluding unusual items) may
not be directly comparable to other companies' EBITDA performance measures
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 annual report is intended to
supplement investors' understanding of Monsanto's operating performance and
not to replace net income, cash flows, financial position, or comprehensive
income, determined in accordance with accounting principles generally
accepted in the United States.
EBITDA (excluding unusual items) excludes the effects of intangible
amortization and interest expense. For this reason, the 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.
1
<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, 1998 and 1997,
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, 1998. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Monsanto Company and
subsidiaries as of Dec. 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended Dec. 31, 1998, in conformity with generally accepted accounting
principles.
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
St. Louis, Missouri
Feb. 26, 1999 (December 29, 1999 as to the Subsequent Events and
Discontinued Operations Notes).
2
<PAGE>
<PAGE>
<TABLE>
Statement of Consolidated INCOME (LOSS)
- ---------------------------------------------------------------------------------------------------
<CAPTION>
(Dollars in millions, except per share amounts) Year Ended Dec. 31,
- ---------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $7,237 $6,058 $4,862
Costs, expenses and other:
Cost of goods sold 2,912 2,382 1,953
Selling, general and administrative expenses 2,129 1,745 1,540
Technological expenses 1,308 1,049 657
Acquired in-process research and development 402 633
Amortization and adjustment of intangible assets 286 121 98
Restructuring and special charges 153 312
Interest expense 210 135 83
Interest income (47) (45) (51)
Other expense (income) -- net (31) (89) (86)
- ---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (85) 127 356
Income taxes expense (benefit) 46 (22) 77
- ---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (131) 149 279
- ---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax (119) 321 106
- ---------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (250) $ 470 $ 385
===================================================================================================
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations $(0.22) $ 0.26 $ 0.48
Discontinued operations (0.19) 0.54 0.18
- ---------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(0.41) $ 0.80 $ 0.66
===================================================================================================
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations $(0.22) $ 0.24 $ 0.47
Discontinued operations (0.19) 0.53 0.17
- ---------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(0.41) $ 0.77 $ 0.64
===================================================================================================
<CAPTION>
KEY FINANCIAL STATISTICS (Unaudited) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AS A PERCENT OF NET SALES:
Selling, General and Administrative Expenses 29% 29% 32%
Technological Expenses 18 17 14
Research and Development Expenses <F1> 17 16 13
Income from Continuing Operations <F2> 2 6
===================================================================================================
The above statement should be read in conjunction with Notes to Financial
Statements of this report.
<FN>
<F1> Research and development expenses are included in total technological
expenses.
<F2> This financial statistic is not meaningful for 1998 because Monsanto
reported a loss from continuing operations.
</TABLE>
3
<PAGE>
<PAGE>
Review of Consolidated RESULTS OF OPERATIONS
- -----------------------------------------------------------------------
Subsequent to the date of these consolidated financial statements
(December 31, 1998), 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 Notes to
Financial Statements, DISCONTINUED OPERATIONS disclosure for further
details).
MONSANTO ACHIEVES RECORD SALES, BUT INCOME EXCLUDING UNUSUAL CHARGES
DECLINES
In 1998, Monsanto completed several critical steps in its life sciences
strategy. The company acquired three major seed companies - Plant
Breeding International Cambridge Limited (PBIC), a leading European
plant breeder with an emphasis in wheat; certain international seed
operations of Cargill(R) Inc., which includes germplasm, and a broad
marketing and distribution network; and DEKALB(R) Genetics Corp., a
worldwide leader in agricultural genetics and biotechnology for corn and
soybeans. In addition, the company announced an agreement to merge Delta
and Pine Land Co. (D&PL), a leading breeder, producer and marketer of
cotton seed, with Monsanto. In December 1998, Monsanto's board of
directors approved a restructuring plan to continue the commitment to
life sciences, to exit from nonstrategic businesses and to reduce costs.
The company also issued debt and equity of approximately $4.5 billion in
1998.
Sales reached a record in 1998, as sales of key products continued
to grow. However, the company recorded a loss from continuing
operations of $131 million, or $0.22 per share. Those results included
aftertax charges of $610 million, or $1.01 per share, for restructuring
charges, write-offs of in-process research and development (R&D) related
to acquisitions, and other unusual charges. If these unusual charges
were excluded, income from continuing operations would have totaled $479
million, or $0.76 per share. Income from continuing operations totaled
$149 million, or $0.24 per share, in 1997. Excluding unusual aftertax
charges of $404 million, or $0.66 per share, for write-offs of in-
process R&D, income from continuing operations in 1997 would have been
$553 million, or $0.91 per share. Without the unusual items in 1998 and
1997, income from continuing operations would have declined $74 million.
The decrease in income from continuing operations, excluding unusual
items, was caused by increased selling, general and administrative
(SG&A) expenses, technological expenses and interest costs, which more
than offset the 19 percent increase in net sales.
SALES BOOSTED BY AGRICULTURAL AND PHARMACEUTICAL BUSINESSES
Net sales reached a record $7.24 billion in 1998, surpassing last year's
net sales of $6.06 billion. The sales increase came primarily from
continued strong performances by the Agricultural Products and
Pharmaceuticals segments. Net sales for Agricultural Products set a
record in 1998, led by significant sales volume increases for the family
of Roundup(R) herbicides. Volume gains for Roundup (R) of more than 20
percent were driven by increased use of Roundup(R) for conservation
tillage and other applications, including the use of Roundup(R) over the
top of Roundup Ready(R) soybeans, canola, corn and cotton. The increase
in 1998 net sales for the Agricultural Products segment also reflected
higher technology fee revenues from crops developed through
biotechnology. Demand for Roundup Ready(R), soybeans, cotton, and
canola, Bollgard(R) insect-protected
4
<PAGE>
<PAGE>
cotton, and Yieldgard(R) insect-protected corn rose substantially in
1998. In addition, record sales volumes of Posilac(R) bovine
somatotropin and the successful introduction of Roundup Ready(R) corn
in the United States in 1998 contributed to the sales increase. An
increase in seed sales was driven by higher sales at the company's
Asgrow subsidiary and by the inclusion of sales from seed companies
Monsanto acquired in 1998 and late 1997. Net sales for the
Pharmaceuticals segment also grew to record levels, increasing $448
million, or 19 percent, from 1997 net sales. The increase was driven by
significantly higher sales volumes of Arthrotec(R) arthritis treatment,
which was launched in the United States and France in 1998. With
Arthrotec(R) and Daypro(R) arthritis treatments, Searle ended the year
as the No. 1 provider of branded prescription arthritis treatments in
the United States. Sales of Ambien(R) short-term treatment for insomnia
also grew, holding 52 percent of the total U.S. prescription market
share at the end of 1998. Higher segment sales year-to-year also came
from increased licensing revenues from several collaborative alliances.
Lower sales of verapamil calcium channel blockers and Cytotec(R) ulcer
preventive drug partially offset these increases. Monsanto's net sales
in markets outside the United States represented 44 percent of net sales
in both 1998 and 1997.
An analysis of the company's sales change, along with comparative
data, follows:
<TABLE>
<CAPTION>
SALES ANALYSIS 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Selling prices (1)% (4)%
Sales volumes and mix 18 14
Acquisitions 1 14
Pharmaceutical licensing revenues 4 1
Exchange rates (3) --
- -----------------------------------------------------------------------------------
TOTAL CHANGE 19% 25%
===================================================================================
</TABLE>
5
<PAGE>
<PAGE>
EVENTS AFFECT COMPARABILITY
As part of the overall strategy to reduce costs and continue the
commitment to the core life sciences businesses, in December 1998, the
board of directors approved a plan to exit nonstrategic businesses,
close or rationalize certain facilities, and reduce the current work
force. Rationalization entails the consolidation, shutdown, or movement
of facilities to achieve more efficient operations. The activities
Monsanto plans to exit in connection with this plan principally comprise
a tomato business, in which Monsanto has been attempting to develop
tomatoes improved through genetic engineering techniques; and a business
involved in the operation of membership-based health and wellness
centers. This plan also contemplates exiting several small, embryonic
business activities, none of which had a significant impact on
restructuring reserve. The company recorded pretax restructuring
charges and other unusual items of $327 million ($226 million aftertax)
in continuing operations to cover the costs associated with these
actions, which were recorded in the Statement of Consolidated Income
(Loss) in the following categories:
<TABLE>
<CAPTION>
WORK FORCE FACILITY ASSET
REDUCTIONS CLOSURES IMPAIRMENTS OTHER TOTAL
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of Goods Sold $ 6 $ 48 $ 54
Amortization and
adjustment of
intangible assets $ 3 39 $ 42
Restructuring and
special charges $103 90 $(5) $188
Other expense
(income) - net 43 $ 43
- --------------------------------------------------------------------------------------------------
TOTAL INCREASE IN
LOSS FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES $103 $99 $130 $(5) $327
==================================================================================================
</TABLE>
Approximately 1,400 jobs are expected to be eliminated by these actions
by the end of 1999, primarily in manufacturing and administrative
functions. Included in these actions are approximately 190 positions
that had been part of the 1996 restructuring plan. The affected
employees are entitled to receive severance benefits based on
established severance policies or by governmentally mandated employment
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 have been classified as assets held for sale and are
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). These businesses are
expected to be sold by the end of 1999. They produced net income of $3
million in 1998, a net loss of $7 million in 1997, and a net loss of $31
million in 1996. The aftertax effect of suspending depreciation on
assets held for sale was not material.
Other impairment charges totaling $40 million were recorded because of
management's decision, driven by adverse business developments of the
investee, 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 at estimated sales proceeds, based on either
discounted cash flows or sales contracts. The December restructuring
amounts also included pretax charges of $99 million for the shutdown or
rationalization of certain production and administrative facilities.
Approximately 80 facilities, located primarily in the U.S., Europe and
Latin America, will be impacted 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
6
<PAGE>
<PAGE>
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, are also included in the shutdown charges. The
closure or rationalization of these facilities is expected to be
completed by the end of 1999. Cash payments to implement the plan are
expected to be approximately $220 million through March 2000. These
cash payments will be funded from operations and are not expected to
significantly impact Monsanto's liquidity. The restructuring actions
are expected to result in annual pre-tax cash savings of $150 million.
In May 1998, the board of directors approved a decision to exit
Monsanto's optical products business, which included the Orcolite(R) and
Diamonex(R) optical products businesses and the Diamonex(R) 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(R) business and recorded pretax charges of $68 million for the
rationalization of the Diamonex(R) business, primarily for severance
costs and the write-off of manufacturing facilities and intangible
assets. In connection with this rationalization, certain Diamonex(R)
product lines were sold, and others were shut down. In connection with
the shutdown of the Diamonex(R) business approximately 200 jobs,
primarily in manufacturing and administrative functions, were eliminated
at a total cost of $6 million. These actions, including work force
reductions and payment of severance, were substantially complete by Dec.
31, 1998. The sale of the remaining assets, which are classified as
assets held for sale and carried at their net realizable value of $7
million, is expected to be 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, or appraisals.
Net income generated by the optical products businesses in 1998, 1997
and 1996 totaled $2 million, $5 million and $2 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:
7
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
WORK FORCE 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
special charges (26) $ (9) (35)
Other expense
(income) - net (20) (20)
- -----------------------------------------------------------------------------------------------
TOTAL INCREASE IN
LOSS FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES $6 $(24) $60 $ (29) $ 13
===============================================================================================
</TABLE>
Also in 1998, Monsanto acquired several seed companies, including PBIC,
DEKALB, and certain international seed operations of 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, which took into account the stage of
completion and development cycle of each in-process R&D category. See
further discussion under Agricultural Products and in the Principal
Acquisitions and Divestitures footnote to the financial statements.
During 1997, Monsanto acquired several seed companies that
specialize in various stages of seed production. These acquisitions
included the Asgrow Agronomics seed business, a global leader in soybean
research and seeds; Holden's Foundation Seeds Inc., a global leader in
the development and growth of corn germplasm and a supplier of parent
seed to retail seed companies; Corn States Hybrid Service Inc., the
exclusive marketer and distributor for Holden's products; and Sementes
Agroceres S.A., the leading seed corn company in Brazil. Monsanto also
acquired the remaining interest in Calgene Inc., which has done
significant biotechnology research in cotton and produce. The company
recorded pretax charges of $633 million ($404 million aftertax)for the
write-off of acquired in-process R&D related to these acquisitions.
As part of restructuring actions approved prior to 1996, Monsanto
reorganized U.S. staff operations, closed 7 production and
administrative facilities in the U.S., 3 production facilities in
Europe, 2 administrative in Latin America and completed the exit of a
joint venture in Asia. During 1996, these actions eliminated
approximately 510 positions. During 1997, a production facility was
closed in Canada, a production facility was closed in Europe and a
research facility was closed in Japan. These actions eliminated
approximately 120 positions. During 1998, final payments were made to
complete contractual commitments as part of a U.S. production facility
shutdown.
8
<PAGE>
<PAGE>
COST SAVINGS CONTINUE
In prior years, Monsanto took steps to make its worldwide operations
more focused, productive and cost-effective. The effect of these actions
benefited EBIT by more than $380 million in 1998. The company invested
the savings in its core businesses, new product development, and
strategic acquisitions and investments to enhance its long-term
profitability. These savings are in line with management's original
expectations, and are expected to continue. These initiatives will
continue as Monsanto responds to increased global competition and higher
customer expectations.
ACQUISITIONS AND PRODUCT LAUNCH PREPARATIONS DRIVE EXPENSES HIGHER, EBIT
LOWER
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(R) stock options, as summarized in the following table:
<TABLE>
<CAPTION>
=============================================================================================================================
WRITE-OFFS FOR CANCELLATION
ACQUIRED IN- OF DEKALB
WORK FORCE FACILITY ASSET PROCESS R&D STOCK
REDUCTIONS CLOSURES IMPAIRMENTS OPTIONS OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<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) 43 $ 20 (20) 43
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN LOSS
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. Excluding these unusual charges, EBIT would have
been $887 million in 1998, vs. $895 million in 1997. The $8 million
decrease in EBIT excluding unusual items was caused by increased SG&A
expenses, technological costs, and amortization expense, partially
offset by the aforementioned growth in sales. EBITDA (excluding unusual
items) grew to $1.41 billion in 1998, a $132 million, or 10 percent,
increase from EBITDA (excluding unusual items) of $1.27 billion in 1997.
Total SG&A expenses increased $384 million, or 22 percent, in 1998
compared with expenses in 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, and
were partially offset by the effect of licensing fees for technical data
on glyphosate. SG&A expenses for Pharmaceuticals increased as Searle
expanded its sales infrastructure to accommodate the launch of
Arthrotec(R) in 1998 and 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
9
<PAGE>
<PAGE>
acquisitions made in 1998 and late 1997, and because of the write-offs
of goodwill related to the company's exit from noncore 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 over
prior year other income 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 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 non-deductible in-process R & D charges and $46 million
of non-deductible Goodwill charges principally related to the PBIC,
Cargill, 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.
DEVELOPMENT AND COMMERCIALIZATION OF NEW PRODUCTS REMAIN PRIORITIES
New product discovery, development and commercialization continue
to be strategic priorities for Monsanto. Recent efforts include insect-
protected and herbicide-tolerant crops; and Celebrex(R), a new arthritis
treatment; currently under development. Monsanto's R&D expenditures were
$1.24 billion in 1998, or 17 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 the focus of most of these
expenditures. Significant research and development activity in existing
product technologies and new product applications also continues across
all business sectors. Genomics is a critical enabling technology for
this effort, especially for agricultural and nutritional products.
Additionally, Monsanto's research program includes new technologies and
proprietary information obtained through licensing and strategic
acquisitions. As a result, Monsanto has more than four dozen products in
the R&D pipeline and expects many of them to be commercialized in the
next few years.
PRIOR YEAR REVIEW
Income from continuing operations in 1997 totaled $149 million, or
$0.24 per share, vs. $279 million, or $0.47 per share, in 1996. Both
years' results, however, were affected by unusual items. Results for
1997 included pretax charges of $633 million ($404 million aftertax, or
$0.66 per share) for the write-off of acquired in-process R&D related to
the acquisition of several seed companies, including Asgrow, Holden's,
Corn States, and Agroceres, and the remaining interest in Calgene. In
December 1996, Monsanto approved a restructuring plan and recorded
pretax charges associated with the closure or rationalization of certain
facilities and asset write-offs totaling $327 million ($226 million
aftertax or $0.38 per share).
The activities Monsanto planned to close or rationalize in
connection with this restructuring plan principally comprised production
at certain U.S. and European pharmaceutical facilities and the
consolidation of certain pharmaceutical and administrative facilities.
This plan also included several individually insignificant office and
plant consolidations.
10
<PAGE>
<PAGE>
The 1996 restructuring and unusual charges were recorded in the
Statement of Consolidated Income (Loss) in the following categories:
<TABLE>
<CAPTION>
===============================================================================================
WORK FORCE FACILITY ASSET
REDUCTIONS CLOSURES IMPAIRMENTS OTHER TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of goods sold $28 $ 28
Amortization and
adjustment of
intangible assets 23 23
Restructuring and
special charges $224 $88 312
Other expense
(income) $(36) (36)
- -----------------------------------------------------------------------------------------------
TOTAL $224 $88 $51 $(36) $327
===============================================================================================
</TABLE>
Approximately 1,400 jobs, primarily in manufacturing and
administrative functions, were expected to be eliminated by these
actions at a cost of $224 million. The affected employees were entitled
to receive severance benefits based on established severance policies or
by governmentally mandated employment regulations. As of June 30, 1998,
the company had eliminated approximately 900 jobs associated with these
actions. The original plan approved by senior management called for
completion of substantially all of the work force reductions by the
second quarter of 1998. However, implementation of the plan was delayed
in the second half of 1998 due to Monsanto's contemplated merger with
American Home Products Corp. (AHP), announced on June 1, 1998, and the
anticipated organizational changes required to integrate these two
companies. Following the termination of the proposed merger agreement
with AHP on Oct. 13, 1998, management reconsidered the remaining actions
originally contemplated in the December 1996 plan, and resumed
implementation of the plan with approximately 190 jobs to be eliminated
by the end of 1999. In addition, approximately 140 jobs to be eliminated
in the original plan were accomplished through attrition during 1997 and
1998. In the fourth quarter of 1998, $33 million of restructuring
reserves were reversed due to changes in estimates; principally
reflecting the decrease of approximately 120 positions from the original
1996 estimates in the number of jobs to be eliminated combined with a
decline in the expected costs of completing the job elimination actions.
Included in the facility closure charges for 1996 were charges of $42
million to property, plant and equipment, $20 million of costs
associated with the legal reorganization of ex-U.S. corporate entities,
$11 million in payments to discontinue a phantom stock program,
leasehold termination costs of $2 million, dismantling costs of $5
million, $4 million to exit a joint venture and other shutdown costs of
$4 million. Pretax charges for asset impairments of $51 million were
related to intangible assets for products to be discontinued and for
certain rights to production capacity to be eliminated. Assets were
adjusted to their estimated fair values, using appropriate discounted
cash flows and discount rates. Other income of $36 million relates to
$15 million of minority interest in the losses incurred by Calgene, and
a reduction of $21 million in the amount of costs expected to be
incurred in connection with the Company's decision to dispose of its
plastics business.
Without the unusual items in 1997 and 1996, income from continuing
operations would have been $553 million for 1997 compared with $505
million for the prior year, an increase of 10 percent. Earnings per
share from continuing operations would have been $0.91 in 1997, a 8
percent increase from comparable 1996 results of $0.84 per share. The
increases were driven by higher sales, which more than offset increased
expenses. Sales grew primarily because of higher sales volumes, and
licensing revenues. These increases were partially offset by increased
SG&A expenses, higher technological spending, additional intangible
amortization expense, and increased interest expense.
EBIT totaled $262 million in 1997, compared with $439 million in
1996. EBIT for 1997 included pretax unusual charges of $633 million for
in-process R&D write-offs. EBIT for 1996 included pretax unusual charges
of $327 million for restructuring and other unusual items.
EBITDA(excluding unusual items) totaled $1.27 billion in 1997 vs. $1.06
billion in 1996, an increase of 20 percent. Net sales were $6.06
billion in 1997, up $1.20 billion, or 25 percent, from sales in 1996.
The increase came primarily from continued strong performances by the
11
<PAGE>
<PAGE>
Agricultural Products and Pharmaceuticals segments. The $727 million
increase in net sales for the Agricultural Products segment was driven
by significant sales volume increases for the family of Roundup(R)
herbicides; the inclusion of sales from Asgrow; higher sales volumes of
Posilac(R) bovine somatotropin and Harness(R) herbicide; and increased
demand for crops developed through biotechnology -- including Roundup
Ready(R) soybeans, cotton and canola; Bollgard(R) insect-protected
cotton; and Yieldgard(R) insect-protected corn.
Net sales for the Pharmaceuticals segment in 1997 increased $369
million, or 19 percent, from 1996 net sales. The increase was
attributable primarily to higher sales volumes of Ambien (R) short-term
treatment for insomnia and Daypro(R) and Arthrotec(R) arthritis
treatments. Sales of these key growth products grew 26 percent from
sales in the prior year. Sales also benefited from licensing revenues of
$75 million related to a collaborative alliance, partially offset by
lower sales of verapamil calcium channel blockers.
Total SG&A expenses increased $205 million, or 13 percent, in 1997
compared with expenses in 1996, principally because of spending
increases in the Agricultural Products and Pharmaceuticals segments.
Total technological expenses increased $392 million, or 60 percent,
compared with those in 1996. Technological expenses increased in all
segments because of new product development.
Amortization and adjustment of intangible assets increased in 1997
compared with amortization in the prior year, principally because of the
increase in intangible assets related to seed company acquisitions. The
increase in interest expense from that in 1996 was caused by a greater
amount of debt outstanding during 1997. In 1997, other income of $89
million was relatively flat when compared with other income of $86
million in 1996. The slight increase of $3 million of other income was
primarily because of gains on the sale of product rights of $120 million
and $6 million of equity income in 1997 compared with gains from the
sale of product rights of $61 million and $22 million of loss from
equity affiliates in the prior year. This increase in other income of
$87 million was primarily offset by foreign currency losses of $52
million, largely in the Asia Pacific region, combined with $26 million
of minority interest expense compared with foreign currency losses of $2
million and minority interest expense of $6 million in the prior year.
In 1997, a tax benefit of $22 million was recorded compared with tax
expense of $77 million in 1996, primarily because of the decrease in
pretax income. If the unusual items in 1997 and 1996 were excluded, the
effective tax rate would have been 27 percent in 1997 vs. 26 percent in
1996.
12
<PAGE>
<PAGE>
<TABLE>
ANALYSIS OF CHANGE IN EARNINGS (LOSS) PER SHARE FROM CONTINUING
OPERATIONS
<CAPTION>
BETTER (WORSE)
------------------------
1998 VS. 1997 VS.
1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
SALES-RELATED FACTORS:
Selling prices $(0.10) $(0.23)
Sales volumes and mix 0.88 0.77
Pharmaceutical licensing revenues 0.32 0.07
- -----------------------------------------------------------------------------------------------
TOTAL SALES-RELATED FACTORS 1.10 0.61
===============================================================================================
COST-RELATED FACTORS:
Raw material and manufacturing costs (0.05) (0.07)
Selling, general and administrative expenses (0.44) (0.09)
Technological expenses (0.28) (0.40)
Amortization of intangible assets (0.08) --
- -----------------------------------------------------------------------------------------------
TOTAL COST-RELATED FACTORS (0.85) (0.56)
===============================================================================================
OTHER FACTORS:
Change in shares outstanding, taxes (0.02) (0.04)
Exchange rates (0.17) --
Acquisitions and divestitures (0.14) --
Other expenses -- net (0.04) 0.05
- -----------------------------------------------------------------------------------------------
TOTAL OTHER FACTORS (0.37) 0.01
===============================================================================================
Change in earnings (loss) per share before unusual items (0.12) 0.06
UNUSUAL ITEMS:
Restructuring and special charges (0.45) 0.37
Acquired in-process research and development 0.14 (0.66)
Other unusual items (0.03) --
- -----------------------------------------------------------------------------------------------
TOTAL UNUSUAL ITEMS (0.34) (0.29)
===============================================================================================
- -----------------------------------------------------------------------------------------------
CHANGE IN EARNINGS (LOSS) PER SHARE
FROM CONTINUING OPERATIONS $(0.46) $(0.23)
===============================================================================================
</TABLE>
13
<PAGE>
<PAGE>
<TABLE>
GEOGRAPHIC DATA
<CAPTION>
NET SALES TO
UNAFFILIATED CUSTOMERS
(Excluding Interarea Sales) TOTAL ASSETS
---------------------------------------------------------------
1998 1997 1996 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States $4,020 $3,352 $2,545 $10,335 $ 7,093
Europe-Africa 1,371 1,185 1,116 2,725 1,781
Asia-Pacific 556 589 511 544 443
Canada 297 247 231 210 152
Latin America 993 685 459 2,571 1,048
- ------------------------------------------------------------------------------------------
TOTAL $7,237 $6,058 $4,862 $16,385 $10,517
==========================================================================================
</TABLE>
The data above are prepared on an "entity basis," which means that net
sales, 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 $245 million for 1998, $200 million for 1997, and
$177 million for 1996. Net sales and assets attributable to an
individual country, other than the United States, were not material for
disclosure.
The Brazilian economy continued to experience lower inflation
rates during 1997 and 1998. Monsanto designated the Brazilian economy as
non-hyperinflationary as of Jan. 1, 1998, and established the Brazilian
real as the functional currency for Monsanto's Brazilian operations. In
January 1999, Brazil devalued the real due to worsening economic
conditions. A continuing decline in value of the Brazilian real may
adversely affect future income. Monsanto could experience additional
foreign currency transactional losses from the area. Also, future sales
may decrease because the decline in the Brazilian economy could cause
customers to purchase fewer goods in general, and also because the
company's products may become more expensive for customers in that
region to purchase in their local currency. In addition, the economic
conditions could increase Monsanto's credit risk in Brazil.
14
<PAGE>
<PAGE>
<TABLE>
SEGMENT Data
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NET SALES EBIT <F2><F3> EBITDA <F2>
-----------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Agricultural Products $4,264 $3,470 $2,743 $ 868 $ 827 $ 786 $1,223 $1,035 $ 935
Pharmaceuticals 2,771 2,323 1,954 309 286 253 451 422 383
Corporate and Other 202 265 165 (290) (218) (273) (269) (184) (254)
Unusual Items (762) (633) (327)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $7,237 $6,058 $4,862 $ 125 $ 262 $ 439 $1,405 $1,273 $1,064
=============================================================================================================================
<CAPTION>
DEPRECIATION
TOTAL ASSETS CAPITAL EXPENDITURES AND AMORTIZATION
---------------------------------------------------------------------------------------
1998 1997 1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Agricultural Products $10,401 $ 4,433 $469 $316 $266 $355 $208 $149
Pharmaceuticals 2,778 2,668 236 175 81 142 136 130
Corporate and Other 1,282 1,311 154 92 65 21 34 19
Discontinued Operations (1) 1,924 2,105
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $16,385 $10,517 $859 $583 $412 $518 $378 $298
=============================================================================================================================
<FN>
<F1> Discontinued operations assets include net offset effect of
liabilities of $339 million for 1998 and $257 million for 1997.
<F2> Reconciliation of EBIT to income (loss) from continuing operations
follows:
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EBIT $ 125 $ 262 $ 439
Less: Interest expense (210) (135) (83)
Income taxes (46) 22 (77)
----------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations $(131) $ 149 $ 279
==============================================================================================
<FN>
<F3> The unusual charges in 1998, 1997 and 1996 included restructuring
and special charges, write-offs for acquired in-process research
and development, and charges for the cancellation of DEKALB(R)
stock options. The net total unusual items by segment were as
follows:
<CAPTION>
INCOME (EXPENSE)
---------------------------------------------
SEGMENT 1998 1997 1996
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Agricultural Products $(588) $(633) $(159)
Pharmaceuticals (29) (149)
Corporate and Other (145) (19)
----------------------------------------------------------------------------------------------
TOTAL $(762) $(633) $(327)
==============================================================================================
</TABLE>
In 1998, Monsanto changed its publicly reported measure of segment
profitability from operating income to EBIT (excluding unusual items) as
a result of adopting Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information." In addition, various smaller businesses were transferred
between segments. Segment information for 1997 and 1996 has been
restated to conform to the current presentation.
Although inflation is relatively low in most of Monsanto's major
markets, it continues to affect operating results. To mitigate the
effect of inflation, Monsanto has implemented measures to control costs,
to improve productivity, to manage new fixed and working capital, and to
raise selling prices when government regulations and competitive
conditions permit. In addition, the current costs of replacing certain
assets are estimated to be greater than the historical costs presented
in the financial statements. Accordingly, the depreciation expense
reported in the Statement of Consolidated Income (Loss) would be greater
if it were stated on a current-cost basis.
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 geographic areas. Corporate assets
are primarily investments in affiliates.
15
<PAGE>
<PAGE>
The principal factors that accounted for the segments' performances in
1998 and 1997, along with the factors that are expected to affect
operating results in the near term, are described on the following
pages.
<TABLE>
AGRICULTURAL Products
- ---------------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $4,264 $3,470 $2,743
EBIT (excluding unusual charges) 868 827 786
EBITDA (excluding unusual charges) 1,223 1,035 935
Capital Expenditures 469 316 266
Depreciation and Amortization 355 208 149
- ----------------------------------------------------------------------------
AGRICULTURAL Products
- ---------------------------------------------------------------------------
</TABLE>
THE AGRICULTURAL PRODUCTS SEGMENT IS A LEADING DEVELOPER, PRODUCER AND
MARKETER OF CROP PROTECTION PRODUCTS AND SEEDS. THIS GROUP ALSO DEVELOPS
AND MARKETS PRODUCTS ENHANCED BY BIOTECHNOLOGY. THESE PRODUCTS IMPROVE
THE EFFICIENCY OF FOOD PRODUCTION AND PRESERVE ENVIRONMENTAL QUALITY FOR
AGRICULTURAL AND INDUSTRIAL USES. MORE THAN HALF OF THE UNIT'S HERBICIDE
NET SALES ARE MADE OUTSIDE THE UNITED STATES. WEATHER CONDITIONS IN
AGRICULTURAL MARKETS WORLDWIDE AFFECT SALES VOLUMES.
Net sales for Agricultural Products set a record at $4.26 billion, an
increase of 23 percent vs. the previous sales record set in 1997. The
increase in net sales was led by the family of Roundup(R) herbicides, which
delivered volume growth in 1998 above the historical 20 percent trendline.
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 (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) canola,
corn, cotton and soybeans. 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, primarily in the Agricultural Products segment.
Poor economic conditions in Asia limited liquidity and 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, dampened selling prices modestly.
However, the effect of lower selling prices was more than offset by the
increased sales volumes.
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 Sementes Agroceres S.A. and Holden's Foundation Seeds Inc., which
both were 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 18 percent
to $232 million in 1998 compared with revenues of $197 million in 1997.
The increase in revenues is primarily because of $32 million in payments
associated with an agreement signed with The Scotts Company to be the
marketing partner for
16
<PAGE>
<PAGE>
Roundup(R) herbicide. (See Notes to Financial Statements, SUBSEQUENT EVENTS
disclosure for further details.) In 1999, Roundup(R) for residential use
will be marketed through Scotts along with its broad line of residential
lawn-and-garden products. Under the 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
business. Scotts is also responsible for contributing annually towards the
expenses of the Roundup(R) lawn and garden business. Monsanto plans to
recognize the amounts due to and from Scotts within marketing expense when
incurred.
EBIT (excluding unusual items) for the Agricultural Products segment
in 1998 increased $41 million compared with 1997 EBIT (excluding unusual
items), while EBITDA (excluding unusual items) increased $188 million, or
18 percent, from EBITDA (excluding unusual items) in 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
primarily because of a full-year of 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.
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 Genetics Corp.; 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, Plant Breeding International Cambridge (PBIC) and certain
international seed operations of Cargill Inc. 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. In-process R&D projects for the 1997 acquisition of
Calgene Inc. included a project to develop naturally colored cotton
fiber. The in-process R&D projects were valued using a discounted cash flow
method with risk-adjusted discount rates generally ranging from 12 to 20
percent, which took into account the stage of completion and the
appropriate development cycle 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. Revenues from the
cotton fiber project related to the Calgene acquisition are expected to
begin in 2001. While 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" below),
the failure of any one project would not materially affect the total value
of the overall research programs. The in-process projects were at various
stages of completion at the dates of acquisition. During the next nine
years, management expects to spend approximately $333 million on
biotechnology-related activities and $220 million on conventional breeding
activities to complete these in-process R&D projects; $124 million in 1999,
$118 million in 2000, $100 million in 2001, $80 million in 2002, $60
million in 2003 and $71 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 1997 acquisitions began in 1998.
Revenues from the in-process R&D projects
17
<PAGE>
<PAGE>
related to the 1998 acquisitions are expected to begin in 1999. In-process
projects acquired in connection with the 1997 purchases of Asgrow
Agronomics, Holden's, Calgene, and Agroceres have been progressing in line
with original expectations.
PRIOR YEAR REVIEW
Net sales were 27 percent higher in 1997 vs. 1996 net sales. The sales
increase in 1997 was the result of higher worldwide sales volumes for the
family of Roundup(R) herbicides, led by strong sales in Brazil, Argentina,
and the United States. Sales volumes of Roundup(R) herbicide were driven to
a new high by increases in the use of conservation tillage, increases in
planted acres and applications of Roundup(R) on Roundup Ready(R) crops.
Selling price reductions, principally in markets outside the United States,
made Roundup(R) more cost effective for weed control in a broader range of
uses. The effect of generic competition, especially in certain markets
outside the United States, dampened selling prices modestly. However, the
effect of increased sales volumes more than offset the effect of lower
selling prices. Sales from seed companies acquired in 1997, particularly
Asgrow, also added to segment sales. Also contributing to sales increases
were record sales of Posilac(R) bovine somatotropin; increased demand for
crop biotechnology traits, including Roundup Ready(R) soybeans, canola and
cotton, Bollgard(R) insect-protected cotton, and Yieldgard(R) insect-
protected corn; and higher sales volumes of certain acetanilide-based
herbicides, particularly Harness(R).
EBIT (excluding unusual items) for the Agricultural Products segment
increased by $41 million from 1996 to 1997, and EBITDA (excluding unusual
items) grew $100 million in the same period. The effect of sales volumes
increases on 1997 EBIT (excluding unusual items) and EBITDA (excluding
unusual items) was partially offset by higher technology costs for crop
biotechnology initiatives, and by the inclusion of seed company SG&A
expenses for the full year. EBIT (excluding unusual items) was also
negatively affected by higher amortization costs in 1997, principally from
the acquisition of Holden's.
In 1997, the unusual charges included $633 million of pretax
charges for the write-offs for in-process R&D associated with the
acquisition of various seed companies. In 1996, the net unusual items
included $159 million of pretax charges for restructuring and other
actions, principally related to the cost of work force reductions ($115
million) and asset impairments ($44 million).
OUTLOOK
AGRICULTURAL PRODUCTS as of March 25, 1999
Monsanto's family of Roundup(R) herbicides continues to face competition
from generic producers in certain markets outside the United States.
Patents protecting Roundup(R) expired in several countries in 1991.
Compound per se patent protection for the active ingredient in Roundup(R)
herbicide continues in the United States through September 2000. During
1998, Monsanto further strengthened its branding strategy for Roundup(R)
with new service and formulation offerings. The company also amended, or
entered into, several agreements to supply the active ingredient in
Roundup(R) to third parties. Several manufacturing process enhancements
were implemented in 1998 to further lower Monsanto's cost position, and
to increase its capacity. In the future, management expects rapidly
expanding production capacity and additional technological enhancements
in manufacturing and formulations, will continue to improve Monsanto's
cost structure and help maintain its leadership position.
Significant growth potential remains for Roundup(R) in conservation
tillage applications worldwide and in applications over-the-top of crops
designed to tolerate Roundup(R). A planned price reduction for Roundup(R)
in the United States was implemented in the fall of 1998 to accelerate
18
<PAGE>
<PAGE>
volume growth, and to competitively position Roundup(R) long term. 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.
As discussed in the Principal Acquisitions and Divestitures note
in the Notes to Financial Statements, Monsanto made several strategic
acquisitions of agricultural seed companies during the past two years.
In 1997, Monsanto acquired the Asgrow Agronomics seed business, Holden's
and Agroceres. In 1998, the company acquired PBIC, DEKALB and certain
international seed operations of Cargill. In addition, Monsanto
announced an agreement to merge Delta and Pine Land Company (D&PL) with
Monsanto in a stock swap transaction. This transaction, already approved
by D&PL shareowners, is subject to regulatory approvals and other
customary conditions. These acquisitions are expected to result in
earnings dilution over the next few years. Monsanto announced in January
1999 its intent to sell its Stoneville Pedigreed Seed Company. These
transactions will essentially complete the network Monsanto management
believes it needs in major crops to compete successfully in the global
agricultural marketplace. No additional major seed company acquisitions
are planned. The acquisition and successful integration of these seed
companies as members of Monsanto's life sciences business, and partnerships
such as the Monsanto/Cargill(R) joint venture -- Renessen LLC -- are
expected to enhance the company's ability to bring new products to market
by helping Monsanto commercialize and distribute its own agronomic traits,
and traits designed to improve the quality of food or feed, as well as
traits licensed from other companies.
The company marketed more than 10 biotechnology-related plant
sciences products during 1998 with its licensing partners, including:
Roundup Ready(R) corn, canola, cotton and soybeans; corn, cotton and
potatoes protected from certain insects; and cotton that is both insect-
protected and Roundup Ready(R). These products were developed by Monsanto
either alone or in partnership with biotechnology and seed production
companies. Although demand for biotechnology-related plant sciences
products remains strong among growers, Monsanto continues to address
concerns of consumers, public interest groups, and government
regulators, particularly outside the United States. Such concerns are
not uncommon as new technologies are commercialized. The company also is
involved in intellectual property disputes with several parties.
Management expects that such disputes will continue to occur as the
agricultural biotechnology industry evolves.
19
<PAGE>
<PAGE>
<TABLE>
PHARMACEUTICAL Products
- -----------------------------------------------------------------------
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $2,771 $2,323 $1,954
EBIT (excluding unusual charges) 309 286 253
EBITDA (excluding unusual charges) 451 422 383
Capital Expenditures 236 175 81
Depreciation and Amortization 142 136 130
- -----------------------------------------------------------------------
</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, TO
PREVENT THE FORMATION OF ULCERS, AND TO PROVIDE BETTER HEALTH CARE FOR
WOMEN.
In 1998, net sales for Pharmaceuticals grew to a record $2.77 billion,
$448 million, or 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 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.
Ambien(R) short-term treatment for insomnia grew in market share; by year-
end it held 52 percent share of total U.S. prescriptions. Sales increased
by 16 percent, to a record $458 million. Segment net sales also benefited
from licensing revenues totaling $335 million associated with several
collaborative alliances compared with $75 million of licensing revenues 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 vs. 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 selling, general and
administrative (SG&A) and technological expenses. SG&A expenses rose
primarily because of the launches of Arthrotec(R) and the preparations for
the launch of Celebrex(R) arthritis treatment. Other income of $85 million
remained relatively unchanged when 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 work force reductions ($22 million).
PRIOR YEAR REVIEW
Net sales for the Pharmaceuticals segment in 1997 totaled $2.32 billion,
a $369 million, or 19 percent, increase vs. 1996 net sales. The sales
growth was fueled by higher sales volumes, led by strong performances
from Daypro(R), Arthrotec(R) and Ambien(R). In 1997, sales of these
products increased 26 percent from sales in the prior year. Segment sales
also benefited
20
<PAGE>
<PAGE>
from $75 million of licensing revenues associated with a collaborative
alliance partially offset by lower sales of verapamil calcium channel
blockers.
EBIT (excluding unusual items) for the Pharmaceuticals segment in
1997 increased $33 million, or 13 percent, compared with EBIT (excluding
unusual items) in 1996. EBITDA (excluding unusual items) totaled $422
million in 1997, an increase of $39 million, or 10 percent, from EBITDA
(excluding unusual items) of $383 million in 1996. The improvements in EBIT
(excluding unusual items) and EBITDA (excluding unusual items) resulted
primarily from the sales increases in key products, which was partially
offset by increased technological and selling expenses. Technological
expenses increased as new product candidates advanced to later, more
expensive phases of development. Selling expenses rose because of
expansions in Searle's sales force and new product launch preparations.
Other income increased to $81 million in 1997 from $69 million in 1996.
The increase in other income is primarily due to $120 million of product
right sales in 1997 compared with $61 million in 1996 partially offset by
higher foreign currency losses in 1997.
In 1996, unusual charges included pretax restructuring charges
of $149 million, principally for the cost of work force reductions
($100 million) and facility rationalizations ($49 million).
OUTLOOK
PHARMACEUTICALS as of March 25, 1999
On Dec. 31, 1998, Searle received clearance from the FDA to market
Celebrex(R) for the signs and symptoms of osteoarthritis and adult
rheumatoid arthritis. Celebrex(R) was launched in the United States in
February 1999. It is expected to be launched in more than a dozen other
countries during 1999. In early 1999, Searle also received approval to
market the drug in Brazil and Mexico. Registration applications are
being submitted in various European and Asia-Pacific markets. Searle and
Pfizer Inc. will co-promote Celebrex(R) in all countries except Japan,
where Searle has formed an alliance with Yamanouchi Pharmaceutical Co.
Ltd. to develop and commercialize the drug. The addition of Celebrex(R)
further strengthens the company's presence in the arthritis market,
which was built on products such as Daypro(R), and Arthrotec(R) and
Condrotec-- two therapies that each combine a nonsteroidal anti-
inflammatory drug(NSAID) and an ulcer preventive drug.
Ambien(R) continues as the leader in the U.S. hypnotic market with a
52 percent share of total prescriptions. Ambien(R) is licensed to a joint
venture in which Searle is a general partner. Under the joint venture
agreement 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
is expected to purchase Searle's interest in the joint venture in April
2002.
Searle has Phase III product candidates in each of its four
therapeutic areas: arthritis/pain and inflammation, cardiovascular
disease, women's health care, and oncology. The Phase III arthritis/
pain and inflammation candidates are valdecoxib, which is being
developed for the management of pain and arthritis; and parecoxib, which
is an injectable COX-2 inhibitor for the management of acute pain. COX-2
is an enzyme which plays a role in pain and inflammation.
In cardiovascular Phase III trials, eplerenone is being developed
for the treatment of congestive heart failure and high blood pressure.
In women's health care, Searle is funding and participating in
research to develop hormone replacement therapy patches designed to
treat menopausal symptoms and to prevent osteoporosis. These multiple
product candidates are also in Phase III clinical trials.
Searle also has two compounds in its Phase III oncology pipeline.
21
<PAGE>
<PAGE>
Celecoxib, a COX-2 inhibitor, is in Phase III trials as a preventive
drug for certain types of cancer; and leridistim is being developed to
stimulate the replenishment of white blood cells and platelets in
chemotherapy patients.
Searle announced in January 1999 that it was no longer pursuing
development of two other cardiovascular candidates -- the anti-platelet
aggregation compounds orbofiban and xemilofiban -- because they were not
as efficacious in long-term therapy as expected. Searle discontinued
development of a second-generation blood cell growth factor,
promegapoietin, after a small number of patients on the drug developed
low platelet counts during clinical trials. Development of PluriStem
(formerly daniplestim), a blood cell growth factor, was discontinued to
focus on leridistim and progenipoietin, which are more promising
alternatives.
Searle's investment in R&D spending increased to 26 percent of
segment sales vs. 25 percent of sales in 1997. Management expects
technological expenses and selling expenses to increase in the next few
years as Searle continues to discover and develop new products and as it
commercializes products now in the pipeline. The company expects that
new alliances, similar to those forged with Pfizer and Yamanouchi, could
offset some of the costs associated with developing and marketing new
pharmaceuticals. Such alliances will accelerate development and broaden
the geographic reach of Searle products commercialized during the next
several years.
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.
This segment's 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(R)
opthalmics business in the second quarter of 1998 also contributed to
the sales decline. Monsanto shut down the Diamonex(R) optical products
division in 1998. It also expects to divest its interests in the health
and wellness area in the first half of 1999. Additionally, Monsanto
transferred the remaining nutrition research operations of the former
Nutrition and Consumer Products segment to the Corporate and Other segment.
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. The segment's
loss, on an EBIT (excluding unusual items) basis, decreased in 1997 from
that in 1996 primarily because of increased sales at Enviro-Chem and the
opthalmics business.
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). In 1996,
unusual items included pretax restructuring charges of $19 million,
primarily for the cost of work force reductions ($9 million) and asset
impairments ($7 million).
22
<PAGE>
<PAGE>
DISCONTINUED OPERATIONS
Subsequent to the date of these consolidated financial statements (December
31, 1998), 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
Notes to Financial Statements, DISCONTINUED OPERATION disclosure for
further details).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,288 $3,279 $ 4,339
Income (Loss)from Discontinued
Operations Before Income Tax (158) 506 184
Income Tax Expense (Benefit) (39) 185 78
Net Income (Loss) from Discontinued
Operations (119) 321 106
- ------------------------------------------------------------------------
</TABLE>
DISCONTINUED OPERATIONS IN 1998 INCLUDE THE ALGINATES, ARTIFICIAL SWEETENERS,
AND BIOGUMS BUSINESSES. THESE BUSINESSES MANUFACTURE AND MARKET SWEETENERS
(INCLUDING NUTRASWEET(R) BRAND SWEETENER AND EQUAL(R) AND CANDEREL(R) TABLETOP
SWEETENERS), ALGINS, BIOGUMS AND OTHER FOOD INGREDIENTS. DISCONTINUED
OPERATIONS FOR 1997 AND 1996 ALSO INCLUDES THE CHEMICALS BUSINESS WHICH WAS
SPUN OFF TO SHAREHOLDERS ON SEPTEMBER 1, 1997.
Net sales for discontinued operations decreased in 1998 vs. net sales
in 1997 primarily because of the spin off to shareholders of the chemicals
business. 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. In early 1999, the company sold its lawn-and-garden products
business, exclusive of Roundup(R), to The Scotts Company.
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 results of the chemical company are no longer
included in 1998 discontinued operations and unusual charges which included
pretax restructuring charges of $298 million, principally for the cost of
facility shutdowns ($187 million), workforce reductions ($27 million), and
asset impairments ($84 million). Unusual items in 1997 included $51 million
of pretax charges for in-process research and development (R&D) related to
the acquisition of the Calgene oils business.
PRIOR YEAR REVIEW
DISCONTINUED OPERATIONS
Discontinued operations sales declined 24 percent in 1997 compared with
sales in 1996, primarily because 1997 results include only eight months of
the chemicals business results which was spun off to shareholders on
September 1, 1997. In addition, lower sales volumes of Equal(R) and
Canderel(C) tabletop sweeteners, partially offset by higher sales volumes
of biogums contributed to
23
<PAGE>
<PAGE>
the decrease in sales. Sales of NutraSweet(R) aspartame product, were
essentially flat compared with sales in the prior year.
Income from discontinued operations increased by $215 million in 1997 when
compared with income from discontinued operations in 1996. However, both
years included unusual charge pretax of $51 million and $389 million in
1997 and 1996, respectively. The pretax charge of $51 million in 1997 was
for in-process R&D related to the acquisition of the Calgene oils business,
including a $15 million project to control fatty acids in oil seeds. In
1996, the unusual items included pretax restructuring charges of $389
million, principally for the cost of work force reductions ($191 million),
the rationalization or closure of facilities ($48 million), asset write-offs
($56 million) and exit cost to separate the chemical business ($84 million).
24
<PAGE>
<PAGE>
<TABLE>
Statement of Consolidated FINANCIAL POSITION
- ----------------------------------------------------------------------------------------------
<CAPTION>
(Dollars in millions, except share amounts) As of Dec. 31,
- ----------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ----------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 89 $ 134
Trade receivables, net of allowances of $87 in 1998 and
$53 in 1997 2,119 1,490
Miscellaneous receivables, prepaid expenses and other 777 661
Deferred income tax asset 488 245
Inventories 1,722 1,055
- ----------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 5,195 3,585
- ----------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 135 72
Buildings 1,133 815
Machinery and equipment 3,175 2,732
Construction in progress 742 266
- ----------------------------------------------------------------------------------------------
Total property, plant and equipment 5,185 3,885
Less accumulated depreciation 2,320 1,964
- ----------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 2,865 1,921
- ----------------------------------------------------------------------------------------------
INTANGIBLE ASSETS, net of accumulated amortization of $440
in 1998 and $568 in 1997 5,281 1,781
OTHER ASSETS 1,120 1,125
NET ASSETS FROM DISCONTINUED OPERATIONS 1,924 2,105
- ----------------------------------------------------------------------------------------------
TOTAL ASSETS $16,385 $10,517
==============================================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
- ----------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Account payable $ 823 $ 394
Wages and benefits 436 242
Restructuring reserves 222 150
Miscellaneous accruals 1,230 803
Short-term debt 1,069 1,726
- ----------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES $ 3,780 $ 3,315
- ----------------------------------------------------------------------------------------------
LONG-TERM DEBT $ 6,259 $ 1,979
POSTRETIREMENT LIABILITIES 848 735
OTHER LIABILITIES 512 384
SHAREOWNERS' EQUITY:
Common stock (authorized: 1,000,000,000 shares, par value $2)
Issued: 846,927,220 shares in 1998 and 821,970,970 shares
in 1997 1,694 1,644
Additional contributed capital 1,389 321
Treasury stock, at cost (217,632,240 shares in 1998 and
226,686,302 shares in 1997) (2,508) (2,570)
Reinvested earnings 4,652 4,973
Reserve for ESOP debt retirement<F1> (106) (123)
Accumulated other comprehensive loss (135) (141)
- ----------------------------------------------------------------------------------------------
TOTAL SHAREOWNERS' EQUITY 4,986 4,104
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $16,385 $10,517
==============================================================================================
<FN>
The above statement should be read in conjunction with Notes to Financial
Statements of this report.
<F1> ESOP stands for Employee Stock Ownership Plan.
</TABLE>
25
<PAGE>
<PAGE>
Review of Changes in FINANCIAL POSITION
- ------------------------------------------------------------------------
FINANCIAL POSITION REMAINS STRONG
During 1998, Monsanto acquired several seed companies at a cost of $4.2
billion. These acquisitions included DEKALB Genetics Corp., Plant
Breeding International Cambridge Limited, and certain international seed
operations of Cargill Inc. Monsanto issued $944 million of common stock,
net of issuance costs, and $3.3 billion of long-term debt in 1998, to
fund these acquisitions. Monsanto's financial position remained strong
following the debt and common stock issuances, as evidenced by the
company's "A" debt rating. The ratio of total debt to total
capitalization was 60 percent at year-end 1998, compared with 47 percent
at year-end 1997. Various alternatives that the company is considering
for several of its nonstrategic businesses may result in cash proceeds
to reduce the company's debt.
At the end of 1998, working capital was $1.14 billion higher than
at the end of 1997, primarily because of increases in inventories, trade
receivables, and other current assets, and decreases in short-term debt
levels. These were partially offset by increases in other short-term
liabilities, primarily accounts payable and miscellaneous accruals.
Inventories at year-end 1998 increased, principally in the Agricultural
Products segment because of seed company acquisitions. Trade receivables
at year-end 1998 increased compared with those at the prior year-end,
primarily because of seed company acquisitions, higher sales levels, and
changes in credit terms for the Agricultural Products segment.
Miscellaneous receivables, prepaid expenses, and other assets increased
because the net assets of businesses held for sale from continuing
operations at year-end 1998 were classified as a single amount in other
current assets rather than in various categories of assets and liabilities
at year-end 1997. During 1998, Monsanto refinanced a portion of its short-
term debt with long-term debt, which resulted in lower short-term debt
outstanding at year-end 1998 than at year-end 1997.
The amount of net property, plant and equipment at year-end 1998
was higher than the comparable 1997 amount, as $859 million in capital
additions and the effects of acquisitions exceeded 1998 depreciation
expense and divestitures. The increase in intangible assets was
attributable primarily to the seed acquisitions.
Total deferred tax assets, both current and noncurrent, of $818
million at year-end 1998 were related primarily to U.S. operations,
which generally have a strong earnings history.
Monsanto uses financial markets worldwide for its financing needs.
It has available various short- and medium-term bank credit facilities,
which are discussed in the Short-Term Debt and Credit Arrangements note
under the Notes to Financial Statements. These credit facilities give
Monsanto the financing flexibility it needs to satisfy future short- and
medium-term funding requirements. To maintain adequate financial
flexibility and access to debt markets worldwide, Monsanto management
intends to maintain an "A" debt rating.
Monsanto's commitments and contingencies are described in the
Commitments and Contingencies note under the Notes to Financial
Statements.
26
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
KEY FINANCIAL STATISTICS 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT RATIO (Current assets divided by current liabilities) 1.37 1.08
TRADE RECEIVABLES -- DAYS SALES OUTSTANDING 111 96
(Fourth-quarter trade receivables divided by fourth-quarter
net sales times 30 days)
INVENTORY TURNOVER RATIO (Cost of goods sold divided by
inventory) 1.69 2.26
INTEREST COVERAGE <F1> 0.60 1.94
(Income (Loss) from continuing operations before interest
expense and income taxes divided by total interest cost)
CASH PROVIDED BY CONTINUING OPERATIONS/TOTAL DEBT 4% 6%
TOTAL DEBT/TOTAL CAPITALIZATION <F2> 60% 47%
=========================================================================================
<FN>
<F1> If the effects of the restructuring, in-process research and
development (R&D) write-offs, and other unusual charges were excluded
in 1998, the interest coverage ratio would have been 4.2. If the
effects of the in-process R&D write-offs were excluded in 1997, the
interest coverage ratio would have been 6.6.
<F2> Total capitalization is the sum of short-term debt, long-term debt
and shareowners' equity.
</TABLE>
27
<PAGE>
<PAGE>
<TABLE>
Statement of Consolidated CASH FLOW
- ------------------------------------------------------------------------------------------------
<CAPTION>
(Dollars in millions) Year Ended Dec. 31,
- ------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
- ------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ (131) $ 149 $ 279
Add income taxes -- continuing operations 46 (22) 77
- ------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes (85) 127 356
Adjustments to reconcile to Cash Provided by Continuing
Operations:
Income tax refunds (payments) 44 (134) (308)
Items that did not use cash:
Depreciation and amortization 518 378 298
Acquired in-process research and development expenses 402 633
Restructuring and special charges 340 327
Other 49 (27) 87
Working capital changes that provided (used) cash:
Accounts receivable (700) (230) (289)
Inventories (223) (120) (86)
Accounts payable and accrued liabilities (280) (238) 280
Receivables from asset sales and licensing arrangements 180 (232) (9)
Other (55) (73) 26
Other items 44 (83) 20
- ------------------------------------------------------------------------------------------------
CASH PROVIDED BY CONTINUING OPERATIONS 234 1 702
CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 198 215 501
- ------------------------------------------------------------------------------------------------
TOTAL CASH PROVIDED BY OPERATIONS 432 216 1,203
- ------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Property, plant and equipment purchases (859) (583) (412)
Seed company acquisitions and investments (4,061) (1,325) (470)
Other acquisitions and investments (231) (358) 7
Investment and property disposal proceeds 199 88 127
Discontinued operations -- other (143) (365) (507)
- ------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (5,095) (2,543) (1,255)
- ------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net change in short-term financing (282) 2,372 297
Long-term debt proceeds 3,878 208 122
Long-term debt reductions (85) (142) (177)
Common stock issuance 944
Treasury stock purchases (253)
Dividend payments (73) (294) (343)
Common stock issued under employee stock plans 62 91 142
Cash transferred to Solutia Inc. (75)
Other financing activities 174 135 133
- ------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 4,618 2,295 (79)
- ------------------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (45) (32) (131)
CASH AND CASH EQUIVALENTS:
Beginning of year 134 166 297
- ------------------------------------------------------------------------------------------------
END OF YEAR $ 89 $ 134 $ 166
================================================================================================
</TABLE>
The above statement should be read in conjunction with Notes to Financial
Statements of this report.
The effect of exchange rate changes on cash and cash equivalents was not
material.
Cash payments for interest (net of amounts capitalized) were $331 million in
1998, $210 million in 1997, and $195 million in 1996.
28
<PAGE>
<PAGE>
Review of CASH FLOW
- -----------------------------------------------------------------------------
CASH FLOW REMAINS STRONG
Cash provided by continuing operations totaled $234 million in 1998,
compared with $1 million in 1997. EBITDA (excluding unusual items) was higher
by $132 million in 1998 than in 1997, and cash flow benefited from the
collection in 1998 of $180 million related to 1997 Pharmaceutical licensing
and product rights sales. Working capital needs were higher in 1998, primarily
because of seed company acquisitions, higher sales levels, and changes in
credit terms for the Agricultural Products segment. Working capital as a
percent of net sales was 20 percent in 1998, compared with 4 percent in 1997.
Higher interest payments in 1998 were partially offset by the collection of
income tax refunds. Cash provided by continuing operations in 1997 included
higher employee incentive payouts for the final payment of certain deferred
amounts in a three-year incentive plan.
Monsanto's operations have historically generated sufficient cash to
fund both its existing businesses and its research and development expenses.
In 1998, 1997 and 1996, investment and property disposal proceeds came
primarily from sales of nonstrategic properties and investments. Major uses of
cash in 1998, 1997 and 1996 included investments, capital expenditures and
dividends. Major investments in 1998 included the acquisitions of DEKALB
Genetics Corp., Plant Breeding International Cambridge Limited, and certain
international seed operations of Cargill Inc. Major investments in 1997 were
the acquisitions of the Asgrow Agronomics seed business, Holden's Foundation
Seeds Inc., Corn States Hybrid Service Inc., and Sementes Agroceres S.A. seed
companies. Major investments in 1996 were an equity investment in DEKALB, and
the acquisition of the plant biotechnology assets of Agracetus. Monsanto's
capital expenditures, which focused on improved technology and capacity
expansions, totaled $859 million in 1998.
To the extent the company's cash provided by operations was not
sufficient to fund its cash needs during 1998, debt and common stock were
issued to finance these requirements. Significant debt issuances included $2.5
billion of long-term debt with various maturities issued in December 1998, and
17,500,000 units of 6.5 percent Adjustable Conversion-rate Equity Security
(ACES) units with a public offering price of $40 per unit (stated value), or
$700 million total, issued in November 1998. The company issued 25 million
shares of common stock for $944 million in November 1998.
DIVIDEND POLICY IS UNCHANGED
Monsanto has paid quarterly dividends on its common shares without
interruption since 1928. Throughout 1998, the quarterly dividend paid was
$0.03 per share. The dividend rate reflects a policy set by the board of
directors following the spinoff of the company's chemical businesses in 1997.
That policy was adopted in order to fund appropriately the company's growth
opportunities and to create long-term economic value for shareowners.
Monsanto's dividend policy also reflects the company's expectations of future
growth, profitability, financial position, the need to finance acquisitions,
working and fixed capital needs, scheduled debt repayments, and economic
conditions, including inflation.
Monsanto's common stock is traded principally on the New York Stock
Exchange. The number of shareowners of record as of Feb. 12, 1999, was 63,013.
The high and low common stock prices on that date were 48 7/8 and 46 15/16,
respectively.
29
<PAGE>
<PAGE>
<TABLE>
Statement of Consolidated COMPREHENSIVE INCOME (LOSS)
- -----------------------------------------------------------------------------------------------
<CAPTION>
(Dollars in millions) Year Ended Dec. 31,
- -----------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME (LOSS) $(250) $ 470 $ 385
- -----------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss):
Foreign currency translation adjustments 12 (138) (91)
Unrealized net gains (losses) on investments:
Unrealized net holding gains (losses) arising during
period, before tax (1) (12) (37)
Related income tax benefit 2 4 14
Reclassification adjustments for losses included in
net income 16
Related income tax expense (6)
Additional minimum pension liability adjustment, before tax (24) (27)
Related income tax benefit 7 11
- -----------------------------------------------------------------------------------------------
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) 6 (162) (114)
- -----------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $(244) $ 308 $ 271
===============================================================================================
</TABLE>
The above statement should be read in conjunction with Notes to Financial
Statements of this report.
Additional FINANCIAL INFORMATION
- ------------------------------------------------------------------------
RISK MANAGEMENT
Monsanto continually evaluates risk retention and insurance levels for
product liability, property damage and other potential risk areas. The
company devotes significant efforts to maintaining and improving safety
and internal control programs, which reduce its exposure to certain
risks. Management's decision about the amount of insurance coverage to
purchase from unaffiliated companies and the appropriate amount of risk
to retain is based on the cost and availability of insurance and the
likelihood of a loss. Since 1986, Monsanto's liability insurance has
been a "claims made" policy form. Management believes that the current
levels of risk retention are consistent with those of comparable
companies in the various industries in which Monsanto operates, and are
reasonable for Monsanto. There can be no assurance that the company 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 materially affected by the levels of risk
retention that the company accepts.
COMPANY PREPARES FOR YEAR 2000
Beginning in 1996, the company initiated the Global Year 2000 program
(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 more than 100
company sites in 33 countries.
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 equipment. 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 work required,
prioritization of the work, and successful completion of the required
remediation activity. The target date for completion of all remediation
work for internal systems is the third quarter of 1999.
30
<PAGE>
<PAGE>
The following list summarizes the status of the Y2K program with respect
to internal systems:
<TABLE>
IT APPLICATIONS PORTFOLIO:
- --------------------------------------------------------------------------------------------
<CAPTION>
AS OF DEC. 31, AS OF SEPT. 30,
1998 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Number of applications identified 1,280 1,260
Applications assessed for
Y2K compliance 100% 100%
Applications compliant 55% 43%
Applications to be remediated
through replacements and upgrades 23% 27%
Anticipated retirements 3% 3%
Applications at various stages of
renovation, redevelopment or testing 19% 27%
<CAPTION>
IT INFRASTRUCTURE PRODUCTS:
- --------------------------------------------------------------------------------------------
AS OF DEC. 31, AS OF SEPT. 30,
1998 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Number of products identified 530 530
Products researched for compliance 93% 43%
Products compliant 56% 18%
Products to be remediated with
minor upgrades 10% 1%
Noncompliant products to be
remediated or retired 27% 24%
<CAPTION>
EMBEDDED SYSTEMS:
- --------------------------------------------------------------------------------------------
AS OF DEC. 31, AS OF SEPT. 30,
1998 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Number of process control
products identified 7,600 4,600
Products researched for compliance 66% 31%
Products compliant 54% 24%
Products application dependent 4% 4%
Noncompliant products to be
remediated or retired 8% 3%
Number of laboratory automation
products identified 5,000 3,900
Products researched for compliance 75% 0%
Products compliant 52%
Products application dependent 10%
Noncompliant products to be
remediated or retired 13%
Number of site facilities products identified 700 300
Products researched for compliance 69% 9%
Products compliant 56% 7%
Products application dependent 7% 2%
Noncompliant products to be
remediated or retired 6%
- --------------------------------------------------------------------------------------------
</TABLE>
SUPPLIERS: Monsanto 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 50 percent of the
company's key corporate suppliers have been identified as likely to be
Y2K compliant. The status of another 24 percent of these key suppliers
is of concern and further action is being taken by managers responsible
for these suppliers or supplier contracts. Approximately 26 percent of
the key suppliers have not informed the company of their compliance
status or plans. Where appropriate, Monsanto representatives will
conduct in-depth investigations or make on-site visits to determine the
ability of certain suppliers to be Y2K compliant.
CONTINGENCY PLANS: The company's contingency plans are evolving as it
proceeds with the Y2K program. Monsanto began a major initiative in
November 1998 with the establishment of the Y2K business continuity
team. The team's assignment is to clearly define critical, global
infrastructure components and failure modes; to assume Y2K related
31
<PAGE>
<PAGE>
failure or a high risk of critical failure; and to draft appropriate
contingency plans. The team will expand existing contingency plans as
appropriate. Its goal is to have all plans in place no later than the
third quarter of 1999. Where a supplier's performance is in doubt,
Monsanto's contingency plans may include the stockpiling of raw
materials or obtaining supplies from a different vendor. The company
will increase the number of tests for pharmaceutical and nutrition
products as the year 2000 nears, and it also may increase production of
critical product inventory.
COSTS
The costs associated with Y2K compliance for Monsanto are currently
projected at approximately $30.5 million. Through Dec. 31, 1998, the
company spent $15.3 million. The remaining estimated costs are expected
to be funded from ongoing operations. These 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
that may be incurred upon implementation of the company's contingency
plans. Monsanto 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
Monsanto believes that the Y2K program follows both prudent and best
demonstrated practices (including contingency planning) and makes use of
appropriate internal and external skills to minimize the effect of any
failures. However, because the year 2000 problem is unprecedented in
scope and complexity, no complete assurance of risk avoidance can be
given. Failure to correct a material year 2000 problem could result in
lost profits or breach of contract claims if the company is unable to
deliver its products pursuant to the terms of its agreements, or if such
products fail to meet contract specifications, or if claims for personal
injury or property damage at its facilities are made and upheld.
Monsanto also may experience lost revenues if any of its customers
experience Y2K problems which cause them to order less product, or
otherwise causes them financial difficulties that result in a breach of
their payment obligations.
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, 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 prepare for the 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 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.
32
<PAGE>
<PAGE>
FINANCIAL INSTRUMENTS
- ------------------------------------------------------------------------
MARKET RISK MANAGEMENT
Monsanto is exposed to market risk, including changes in interest rates,
currency exchange rates, and commodity prices. To manage the volatility
relating to these exposures, the company enters into various derivative
transactions. Monsanto does not hold or issue derivative financial
instruments for trading purposes. For more information about how Monsanto
manages specific risk exposures, see the Currency Translation note, 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 by its equivalent in U.S. dollars, the company's reporting
currency.
Significant interest rate risk sensitive instruments as of Dec. 31, 1998,
were:
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
--------------------------------------------------------------------------------------------
(Dollars in millions,
except average interest rate) 1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT:
Fixed rate ($US)
Principal amount $164 $ 543 $ 33 $797 $2,813 $4,350 $4,632
Average interest rate 6.1% 5.6% 7.5% 6.1% 6.6% 6.5%
Fixed rate (Japanese yen)
Principal amount $ 86 $ 86 $ 125
Average interest rate 5.6% 5.6%
Variable rate ($US)
Principal amount <F1> $ 8 $1,009 $ 16 $575 $ 208 $1,816 $1,816
Average interest rate <F2> 4.3% 5.3% 4.2% 4.3% 4.4% 4.8%
SHORT-TERM DEBT:
Fixed rate ($US)
Principal amount $276 $ 276 $ 277
Average interest rate 7.5% 7.5%
Variable rate ($US)
Principal amount $542 $ 542 $ 542
Average interest rate <F2> 5.3% 5.3%
- ---------------------------------------------------------------------------------------------------------------------------------
<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 1998 year-end variable rates. Actual
rates may be higher or lower.
</TABLE>
- ------------------------------------------------------------------------------
Significant currency exchange rate risk sensitive instruments as of Dec. 31,
1998 (dollars in millions, except average exchange rate):
<TABLE>
<CAPTION>
AVERAGE
NOTIONAL EXCHANGE FAIR
EXPECTED MATURITY 1999 AMOUNT RATE VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
FORWARD CONTRACTS:
Sale of British pound $381 0.600 $379
Sale of Brazilian real 128 1.254 125
Sale of Canadian dollar 64 1.542 64
Sale of Australian dollar 42 1.562 40
Sale of South African rand 30 5.900 29
Sale of Mexican peso 15 10.430 15
Sale of Polish zloty 21 3.532 21
Sale of Czech crown 11 30.130 11
Sale of Philippine peso 4 46.880 5
Purchase of Japanese yen 26 117.560 27
- --------------------------------------------------------------------------------
<FN>
<F1> Average contract exchange rates are stated in currency units per U.S.
dollar.
</TABLE>
33
<PAGE>
<PAGE>
Significant commodity price risk sensitive instruments as of Dec. 31, 1998:
<TABLE>
<CAPTION>
EXPECTED
MATURITY FAIR
1999 VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
CORN FUTURES CONTRACTS:
Contract volumes (million bushels) 16.4
Weighted average price (per bushel) $ 2.31
Contract amount ($US in millions) $ 38 $ 35
SOYBEAN FUTURES CONTRACTS:
Contract volumes (million bushels) 24.0
Weighted average price (per bushel) $ 5.64
Contract amount ($US in millions) $135 $132
- --------------------------------------------------------------------------------
</TABLE>
Contract amounts are used to calculate the contractual payments
and quantity of the commodity to be exchanged.
34
<PAGE>
<PAGE>
<TABLE>
Statement of Consolidated SHAREOWNERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(Dollars in millions) Year Ended Dec. 31,
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Balance, Jan. 1 $ 1,644 $ 1,644 $ 329
Issuance of shares (24,956,250 shares in 1998) 50
Par value of stock issued in five-for-one stock split 1,315
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 $ 1,694 $ 1,644 $ 1,644
- -----------------------------------------------------------------------------------------------------------------------------
ADDITIONAL CONTRIBUTED CAPITAL:
Balance, Jan. 1 $ 321 $ 65 $ 902
Employee stock plans and ESOP <F1> 174 135 133
Issuance of shares 894
Par value of stock issued in five-for-one stock split (970)
Spinoff of chemical businesses 121
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 $ 1,389 $ 321 $ 65
- -----------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK:
Balance, Jan. 1 $(2,570) $(2,661) $(2,550)
Shares purchased (8,244,500 shares in 1996) (253)
Net shares issued under employee stock plans (9,054,062 shares in 1998;
10,908,529 shares in 1997; and 15,269,164 shares in 1996) 62 91 142
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 $(2,508) $(2,570) $(2,661)
- -----------------------------------------------------------------------------------------------------------------------------
REINVESTED EARNINGS:
Balance, Jan. 1 $ 4,973 $ 4,795 $ 5,097
Net income (loss) (250) 470 385
Dividends (net of ESOP (1) tax benefits) (71) (292) (342)
Par value of stock issued in five-for-one stock split (345)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 $ 4,652 $ 4,973 $ 4,795
- -----------------------------------------------------------------------------------------------------------------------------
RESERVE FOR ESOP DEBT RETIREMENT:
Balance, Jan. 1 $ (123) $ (174) $ (181)
Allocation of ESOP shares 17 20 7
Spinoff of chemical businesses 31
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 $ (106) $ (123) $ (174)
=============================================================================================================================
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
- -----------------------------------------------------------------------------------------------------------------------------
ACCUMULATED CURRENCY ADJUSTMENT:
Balance, Jan. 1 $ (128) $ 10 $ 101
Translation adjustments 12 (127) (91)
Spinoff of chemical businesses (11)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 (116) (128) 10
- -----------------------------------------------------------------------------------------------------------------------------
UNREALIZED NET GAINS ON INVESTMENTS:
Balance, Jan. 1 3 11 34
Unrealized net gains (losses) on investments, net of reclassification adjustment 11 (8) (23)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 14 3 11
- -----------------------------------------------------------------------------------------------------------------------------
ADDITIONAL MINIMUM PENSION LIABILITY:
Balance, Jan. 1 (16)
Additional minimum pension liability adjustment (17) (16)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 (33) (16)
TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DEC. 31 $ (135) $ (141) $ 21
=============================================================================================================================
The above statement should be read in conjunction with Notes to Financial
Statements of this report.
<FN>
<F1> ESOP stands for Employee Stock Ownership Plan.
</TABLE>
35
<PAGE>
<PAGE>
<TABLE>
QUARTERLY Data (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
(Dollars in millions, except share amounts)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES
==============================================================================================================================
1998 $1,719 $2,079 $1,706 $1,733 7,237
1997 1,542 1,736 1,369 1,411 6,058
1996 1,281 1,388 1,122 1,071 4,862
INCOME (LOSS) FROM CONTINUING OPERATIONS
==============================================================================================================================
1998 166 223 (111) (409) (131)
1997 164 208 (198) (27) 149
1996 195 268 69 (253) 279
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)
==============================================================================================================================
1998 196 257 (100) (603) (250)
1997 274 324 (133) 5 470
1996 260 365 170 (410) 385
- ------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE -- CONTINUING OPERATIONS <F1>
==============================================================================================================================
1998 0.27 0.36 (0.18) (0.67) (0.22)
1997 0.27 0.34 (0.33) (0.04) 0.24
1996 0.33 0.45 0.12 (0.42) 0.47
- ------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS (LOSS) PER SHARE <F1>
==============================================================================================================================
1998 0.32 0.41 (0.17) (1.00) (0.41)
1997 0.45 0.54 (0.23) 0.01 0.77
1996 0.43 0.62 0.28 (0.69) 0.64
- ------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER SHARE
==============================================================================================================================
1998 0.030 0.030 0.030 0.030 0.120
1997 0.150 0.160 0.160 0.030 0.500
1996 0.138 0.150 0.150 0.150 0.588
- ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK PRICE <F2>
==============================================================================================================================
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
- ------------------------------------------------------------------------------------------------------------------------------
1996
High 31 3/4 34 1/2 37 7/8 43 1/4 43 1/4
Low 23 28 1/8 26 1/8 36 1/2 23
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Because Monsanto reported a loss from continuing operations for the
fourth quarter and the 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>
Historically, Monsanto's income from continuing operations has been higher
during the first half of the year, primarily because of the concentration
of generally more profitable sales by the Agricultural Products segment
during that part of the year.
<PAGE>
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 research and development (R&D)
for the acquisition of Plant Breeding International Cambridge Limited
(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 Genetics Corp. and certain international seed operations of Cargill
Inc., 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) recently clarified guidance on in-process R&D. This revision was made
as an adjustment to the initial purchase price allocation, which was
36
<PAGE>
<PAGE>
not yet finalized because of outstanding information, primarily related to
intangible asset valuations and liabilities assumed.
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.
Net income for the fourth quarter of 1996 included an aftertax charge
of $500 million, or $0.84 per share, associated with the company's spinoff
of the chemical businesses and other unusual items. The aftertax expense
related to continuing operations for these actions was $226 million, or
$0.38 per share.
37
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------
SUBSEQUENT EVENTS
Subsequent to the date of these consolidated financial statements (December
31, 1998), 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).
In April 1999, a jury verdict was returned against DEKALB Genetics
Corporation (which became a wholly-owned subsidiary of Monsanto during
December 1998), in a lawsuit filed in U.S. District Court in North
Carolina. The lawsuit was brought by Rhone Poulenc Agrochimie S.A.,
claiming that a 1994 license agreement was induced by fraud stemming from
DEKALB's nondisclosure of relevant information and that DEKALB did not have
the right to license, make or sell products using Rhone Poulenc's
technology for glyphosate resistance under this agreement. The jury awarded
$15 million in actual damages for unjust enrichment and $50 million in
punitive damages. DEKALB has filed a motion to have the damage award set
aside and has filed a Motion for Judgment as a Matter of Law to overturn
the verdict. DEKALB has meritorious grounds to overturn the verdict and
intends to vigorously pursue all available means to have the verdict
overturned. No provision has been made in Monsanto's consolidated financial
statements with respect to the award for punitive damages.
On October 20, 1999, Monsanto and Cargill, Incorporated (Cargill)
announced that they had 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. Additionally, Monsanto and Pioneer Hi-Bred International, Inc.
(Pioneer) announced a resolution of the litigation between them stemming
from Monsanto's purchase of these Cargill international seed operations.
Under terms of this agreement, Monsanto is required to destroy genetic
material derived from Pioneer's seed lines and pay damages to Pioneer of
$42 million. As a result, the purchase price for certain international
seed operations of Cargill have been reduced by $261 million in 1999. Any
other adjustments to purchase price allocations for businesses acquired in
1998 are not expected to materially impact Monsanto's financial position,
results of operations, or cash flows.
On December 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, holders of PNU common stock will receive 1.19 shares
of the combined enterprise 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 the newly combined
enterprise. 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 on a pooling of interest basis.
38
<PAGE>
<PAGE>
On December 20, 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 January 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.
On December 29, 1999, Monsanto completed the sale of Stoneville
Pedigreed Seed Company. Proceeds were $92 million resulting in a gain of
approximately $25 million and were primarily used to pay down debt.
In December 1999, the Securities and Exchange Commission (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 requires companies to report any changes in revenue recognition as
an accounting change at the time of implementation in accordance with APB
opinion No. 20, "Accounting Changes". Monsanto will record 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 will be an aftertax loss of
$20 million, net of taxes of $12 million.
As a result of discussions with the staff of the SEC and
clarification of its interpretation regarding the classification of certain
transaction, Monsanto agreed to reclassify certain revenues in the
Statement of Consolidated Income. 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, $120 million and $61 million in 1998, 1997 and 1996, respectively.
SIGNIFICANT ACCOUNTING POLICIES
Monsanto's significant accounting policies are italicized in the following
Notes to Financial Statements.
BASIS OF PRESENTATION
Previously reported amounts have been reclassified to make them consistent
with the current presentation.
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 which are estimated based on historical experience.
License revenues are recognized when the rights have been contractually
conferred to the licensee. 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.
BASIS OF CONSOLIDATION
The consolidated financial statements include the company and its majority-
owned subsidiaries. Intercompany transactions have been eliminated in
consolidation. Other companies in which Monsanto has a significant
ownership interest generally greater than 20 percent) are included in other
assets in the Statement of Consolidated Financial Position. Monsanto's
share of these companies' net
39
<PAGE>
<PAGE>
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 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 research and development (R&D), business
acquisitions, and contingencies.
NEW ACCOUNTING STANDARDS
Effective Jan. 1, 1998, Monsanto adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130
establishes standards for the reporting and display of comprehensive income
and its components in financial statements. Comprehensive income includes
all nonshareowner changes in equity, and consists of net income, foreign
currency translation adjustments, unrealized gains and losses on available-
for-sale securities, and additional minimum pension liability adjustments.
Effective Jan. 1, 1998, Monsanto adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (FAS 131). FAS 131 establishes standards for
defining operating segments and for reporting information about operating
segments in financial statements. It also establishes standards for related
disclosures about products, geographic areas, and major customers.
Monsanto's reportable operating segments did not change as a result of
adopting FAS 131. However, Monsanto changed its publicly reported measure
of segment profitability from operating income to EBIT excluding unusual
items to make it consistent with its internally reported measure of segment
profitability.
Effective Jan. 1, 1998, Monsanto adopted the American Institute of
Certified Public Accountants' Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1). SOP 98-1 provides guidance about when to capitalize costs incurred
for internal-use computer software. Monsanto's previous accounting policies
were essentially in compliance with the provisions of this statement,
therefore adoption of SOP 98-1 did not have a material effect on the
company's results of operations.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 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. Because of the effect of recent
acquisitions, Monsanto is reassessing its position and has not yet
determined the effect this statement will have on its consolidated
financial position or results of operations.
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 entities outside the United States 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. For
the year ended December 31, 1998, Monsanto's subsidiaries in Romania,
Russia, and Venezuela operated in highly inflationary economies, and
related currency adjustments were not material.
40
<PAGE>
<PAGE>
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), Japanese yen and U.K.
pound sterling. Other currency exposures include the Argentine peso,
Brazilian real, and 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 vs. the
entities' functional currencies.
As of Dec. 31, 1998, Monsanto had currency forward contracts to
purchase $26 million and to sell $697 million of other currencies, and
purchased currency option contracts to sell $85 million of other
currencies. Gains and losses on contracts that are designated and effective
as hedges are deferred and are included in the recorded value of the
transaction being hedged. Net deferred hedging losses as of Dec. 31, 1998,
were not material. Gains and losses on other currency forward and option
contracts are included in net income immediately. Monsanto is subject to
loss if the counterparties to these contracts do not perform.
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 which are included in goodwill 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.
PRINCIPAL ACQUISITIONS AND DIVESTITURES
In 1998, the company made strategic acquisitions of several seed companies.
In July 1998, Monsanto acquired Plant Breeding International Cambridge
Limited (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
Genetics Corp. 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 and approximately
$190 million for certain Cargill 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.
These 1998 acquisitions were accounted for as purchases. Accordingly,
the results of operations for these companies were included in the
Statement of Consolidated Income (Loss) from the dates of acquisition. The
excess of the purchase price over the estimated fair value of net assets
acquired was recorded as goodwill and is being amortized over periods
ranging from 20 to 30 years. The purchase price allocations are based on
preliminary assumptions and are subject
41
<PAGE>
<PAGE>
to revision, pending final appraisal and valuation studies. Significant
components of our preliminary purchase price allocations for the principal
acquisitions made during 1998 were to goodwill, $3,149 million, germplasm
and core technology, $324 million, trademarks, $206 million, in-process
research and development, $402 million, exit cost and employee termination
liabilities, $(78) million, inventories, and other individually
insignificant tangible assets and liabilities, $222 million. The Company
is continuing to obtain additional information related to intangible
assets, primarily germplasm and trademarks, litigation, costs to complete
the exit plans for certain activities of the acquired businesses, and
inventories. The information necessary to complete the allocation of
purchase price is expected to be obtained by the end of the third quarter
1999. Any adjustment to the purchase price allocation for the businesses
acquired is not expected to materially impact Monsanto's financial
position, results of operations, cash flows or comprehensive income, with
the exception of purchase price allocation for Cargill (see Notes to
Financial Statements, SUBSEQUENT EVENTS disclosure for further details).
Monsanto financed these acquisitions by issuing debt, common stock, and
hybrid securities.
At the time of and in connection with the 1998 acquisitions, Monsanto
established a plan in 1998 to integrate the acquired businesses as members
of the company's life sciences business. Monsanto plans to close or
rationalize (consolidate, shut down or move facilities to achieve more
efficient operations) certain assets or facilities and eliminate
approximately 1,300 jobs, primarily in manufacturing and administrative
functions, as part of the integration plan. Approximately 300 of the
positions are expected to be eliminated from Monsanto's existing seed
operations and were therefore included in the December 1998 restructuring
plan. The costs related to the 1,000 positions and the other actions,
estimated to be $78 million, were recognized as liabilities in connection
with the business combinations. This plan is expected to be completed by
the second quarter of 2000. As this integration plan is completed,
additional liabilities may be recognized. Any such liabilities would be
recognized as additional liabilities assumed in the acquisitions.
Unresolved issues that could result in adjustments to the purchase price
allocation include final determinations of inventory obsolescence,
litigation and facility closure and severance costs.
In 1997, Monsanto also acquired several other seed companies. In
February 1997, the company completed its acquisition of the Asgrow
Agronomics seed business for approximately $250 million. In May 1997, the
company completed its acquisition of the remaining shares of Calgene Inc.
that the company did not already own for approximately $270 million. In
September 1997, Monsanto completed the acquisitions of Holden's Foundation
Seeds Inc. and Corn States Hybrid Service Inc. for approximately $1.0
billion. In December 1997, the company acquired controlling interest in
Sementes Agroceres S.A., a Brazilian seed company, for approximately $160
million.
Significant components of purchase price allocations for the
principal acquisitions made during 1997 were to goodwill, $568 million;
germplasm and core technology, $176 million; in-process research and
development, $684 million; exit costs and employee termination liabilities
($10 million); inventories and other individually insignificant tangible
assets and liabilities, $262 million. These purchase price allocations were
finalized and the exit activities and employee terminations were completed
during 1998, with no significant adjustments of the cost of the acquired
companies required. Monsanto recorded the following pretax charges in 1997
for the write-off of acquired in-process R&D related to these acquisitions:
approximately $102 million for Asgrow, approximately $72 million for
Calgene of which $21 million included in continuing operations and $51
million included in discontinued operations, approximately $435 million for
Holden's and Corn States, and approximately $75 million for Agroceres.
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. In-process R&D charges for the Calgene acquisition
included a project to develop
42
<PAGE>
<PAGE>
naturally colored cotton fiber ($25 million). 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
are expected to begin in 1999. During the next nine years, management
expects to spend approximately $333 million on biotechnology-related
activities and $220 million on conventional breeding activities to complete
these in-process R&D projects.
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.
The following unaudited pro forma information combines the
consolidated results of operations of Monsanto with those of PBIC, DEKALB,
and certain Cargill operations as if these acquisitions had occurred at the
beginning of each period presented:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Sales $7,935 $6,752
Income (loss) from continuing operations 41 (103)
Earnings (loss) per share -- continuing operations 0.07 (.17)
- --------------------------------------------------------------------------------
</TABLE>
The pro forma results give effect to certain purchase accounting
adjustments, including additional amortization expense from goodwill and
other identified intangible assets, and increased interest expense and
additional shares outstanding related to debt and common stock issued to
finance the acquisitions. Pro forma income from continuing operations for
1998 excludes unusual aftertax charges of $371 million, primarily for the
write-offs of in-process R&D related to these acquisitions of $351 million,
and $20 million for the cancellation of stock options in exchange for cash
related to the DEKALB acquisition. These charges were excluded because of
their nonrecurring nature.
This pro forma financial information is presented for comparative
purposes only. It is not necessarily indicative of the operating results
that actually would have occurred had the acquisitions occurred on the
earliest day of the periods presented. In addition, these results are not
intended to be a projection of future results. Pro forma income from
continuing operations for 1998 includes aftertax restructuring and special
charges of $239 million. Pro forma loss from continuing operations for 1997
includes aftertax unusual charges of $404 million related to in-process
R&D.
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.
In September 1997, the company spun off its chemical businesses to
43
<PAGE>
<PAGE>
shareowners by distributing shares of a newly formed company called Solutia
Inc. Monsanto's financial statements present the results of operations and
cash flow of the chemical businesses as discontinued operations.
In March 1996, Monsanto acquired significant equity positions in
Calgene and DEKALB(R). In November 1996, Monsanto acquired a controlling
interest in Calgene. In May 1996, Monsanto acquired the plant biotechnology
assets of Agracetus.
RESTRUCTURING AND SPECIAL CHARGES
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 life sciences. The
1998 net restructuring and unusual charges were recorded in the Statement
of Consolidated Income (Loss) in the following categories:
<TABLE>
<CAPTION>
===============================================================================================
OTHER
WORK FORCE FACILITY ASSET EXPENSE
REDUCTIONS CLOSURES IMPAIRMENTS INCOME TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of goods sold $ 6 $ 8 $ 84 $ 98
Amortization 3 63 66
Restructuring 103 64 $(14) 153
Other expense
(income) 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 work force and exit nonstrategic
businesses. The activities Monsanto plans to exit in connection with this
plan principally comprise a tomato business, in which Monsanto has been
attempting to develop tomatoes improved through genetic engineering
techniques, and a business involved in the operation of membership-based
health and wellness centers. This plan also contemplates exiting several
small, embryonic business activities, none of which had a significant
impact 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. Approximately
1,400 jobs are expected to be eliminated by these actions by the end of
1999,primarily in manufacturing and administrative functions. Included in
these actions are approximately 190 positions that had been part of the
1996 restructuring plan. The affected employees are entitled to receive
severance benefits based on established severance policies or by
governmentally mandated employment 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 have been classified as assets held for
sale and are 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). These
businesses are expected to be sold by the end of 1999. They produced net
income of $3 million in 1998, a net loss of $7 million in 1997, and a net
loss of $31 million in 1996. The aftertax effect of suspending depreciation
on assets held for sale was not material.
Other impairment charges totaling $40 million were recorded 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
rationalization of certain production and administrative facilities.
Rationalization entails the
44
<PAGE>
<PAGE>
consolidation, shutdown or movement of facilities to achieve more efficient
operations. Approximately 80 facilities, located primarily in the U.S.,
Europe and Latin America, will be impacted 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, are also included in the shutdown charges. The closure or
rationalization of these facilities is expected to be completed by the end
of 1999. Cash payments to implement the plan are expected to be
approximately $220 million through March 2000. These cash payments will be
funded from operations and are not expected to significantly impact
Monsanto's liquidity. The restructuring actions are expected to result in
annual pre-tax cash savings of $150 million.
In May 1998, the board of directors approved a decision 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 work force reductions and payment of severance, were
substantially complete by Dec. 31, 1998. The sale of the remaining assets,
which are classified as assets held for sale and carried at their net
realizable value of $7 million, is expected to be 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, 1997 and 1996 totaled $2 million, $5 million
and $2 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>
===============================================================================================
OTHER
WORK FORCE FACILITY ASSET EXPENSE
REDUCTIONS CLOSURES IMPAIRMENTS INCOME 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
special charges (26) (9) (35)
Other expense (income)
- - net (20) (20)
- -----------------------------------------------------------------------------------------------
TOTAL INCREASE IN LOSS
FROM OPERATIONS BEFORE
INCOME TAXES $ 6 $(24) $ 60 $(29) $ 13
===============================================================================================
</TABLE>
45
<PAGE>
<PAGE>
Restructuring and unusual charges were partially offset by $68
million from the reversal of prior year restructuring reserves that were no
longer needed ($35 million in May 1998 and $33 million in December 1998)
and the $20 million gain of the sale of the Orcolite(R) business, resulting
in a net charge to earnings of $340 million. Certain 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 (AHP)
Monsanto remains committed to accomplishing these workforce reductions and,
accordingly, the accrual has been included in the 1998 Plan.
46
<PAGE>
<PAGE>
Activity related to the 1998 restructuring plans and special charges
balances was as follows:
<TABLE>
<CAPTION>
==================================================================================================
1998 Plans WORK FORCE FACILITY ASSET
REDUCTIONS CLOSURES IMPAIRMENTS OTHER TOTAL
---------- -------- ----------- ----- -----
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Restructuring & Unusual
Charges:
May 1998 $ 6 $ 2 $ 60 $ 68
Dec. 1998 103 99 130 $ 28 360
---- ---- ---- ---- ----
Total Restructuring &
Unusual Charges 109 101 190 28 428 <Fa>
Transfer from 1996 Plan 85 85 <Fb>
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)
Costs charged against
reserves: May 1998 (6) (2) (8)
- --------------------------------------------------------------------------------------------------
RESERVE BALANCE
AS OF DEC. 31, 1998 $188 $ 32 $ 0 $ 0 $220
==================================================================================================
<FN>
<Fa> Restructuring and unusual charges were partially offset by $68
million from the reversal of prior year restructuring reserves that
were no longer needed ($35 million in May 1998 and $33 million in
December 1998) and the $20 million gain of the sale of the
Orcolite(R) business, resulting in a net charge to earnings of $340
million.
<Fb> Certain workforce reduction costs originally accrued as part of the
1996 plan were delayed, principally as a result of the failed merger
with (AHP). Monsanto remains committed to accomplishing these
workforce reductions and, accordingly, the accrual has been included
in the 1998 plan.
</TABLE>
47
<PAGE>
<PAGE>
In December 1996, Monsanto approved a restructuring plan and recorded
pretax charges associated with the closure or rationalization of certain
facilities and asset write-offs totaling $327 million ($226 million
aftertax or $0.38 per share). The activities Monsanto planned to close
or rationalize in connection with this restructuring plan principally
comprised production at certain U.S. and European pharmaceutical facilities
and the consolidation of certain pharmaceutical & administrative
facilities. This plan also included several individually insignificant
office and plant consolidations. The 1996 restructuring and unusual charges
were recorded in the Statement of Consolidated Income (Loss) in the
following categories:
<TABLE>
<CAPTION>
==================================================================================================
WORK FORCE FACILITY ASSET
REDUCTIONS CLOSURES IMPAIRMENTS OTHER TOTAL
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of goods sold $28 $ 28
Amortization and
Adjustment of
Intangibles Assets 23 23
Restructuring and
Special Charges $224 $88 312
Other expense
(income) (36) (36)
- --------------------------------------------------------------------------------------------------
TOTAL $224 $88 $51 ($36) $327
==================================================================================================
</TABLE>
Approximately 1,400 jobs, primarily in manufacturing and administrative
functions, were expected to be eliminated by these actions at a cost of
$224 million. The affected employees were entitled to receive severance
benefits based on established severance policies or by governmentally
mandated employment regulations. As of June 30, 1998, the company had
eliminated approximately 900 jobs associated with these actions. The
original plan approved by the Board of Directors called for completion of
substantially all of the work force reductions by the second quarter of
1998. However, implementation of the plan was delayed in the second half of
1998 due to Monsanto's contemplated merger with American Home Products
Corp. (AHP), announced on June 1, 1998, and the anticipated organizational
changes required to integrate these two companies. Following the
termination of the proposed merger agreement with AHP on Oct. 13, 1998,
management reconsidered the remaining actions originally contemplated in
the December 1996 plan, and resumed implementation of the plan with
approximately 190 jobs to be eliminated by the end of 1999. In addition,
approximately 140 jobs to be eliminated in the original plan were
accomplished through attrition during 1997 and 1998.
In the fourth quarter of 1998, $33 million of restructuring reserves
were reversed due to changes in estimates; principally reflecting the
decrease of approximately 120 positions from the original 1996 estimates in
the number of jobs to be eliminated combined with a decline in the expected
costs of completing the job elimination actions. Included in the facility
closure charges for 1996 were charges of $42 million to property, plant and
equipment, $20 million of costs associated with the legal reorganization of
ex-U.S. corporate entities, $11 million in payments to discontinue a
phantom stock program, leasehold termination costs of $2 million,
dismantling costs of $5 million, $4 million to exit a joint venture and
other shutdown costs of $4 million. Pretax charges for asset impairments of
$51 million were related to intangible assets for products to be
discontinued and for certain rights to production capacity to be
eliminated. Assets were adjusted to their estimated fair values, using
appropriate discounted cash flows and discount rates. Other income of $36
million relates to $15 million of minority interest in the losses incurred
by Calgene, and a reduction of $21 million in the amount of costs expected
to be incurred in connection with the Company's decision to dispose of its
plastics business.
48
<PAGE>
<PAGE>
Activity related to the 1996 restructuring plan and special charges
balances was as follows:
<TABLE>
<CAPTION>
========================================================================================
1996 Plan WORK FORCE FACILITY ASSET
REDUCTIONS CLOSURES IMPAIRMENTS TOTAL
---------- -------- ----------- -----
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Restructuring & Unusual
Charges $224 $ 88 $ 51 $ 363 <Fa>
Reclassification of
reserves to other balance
sheet accounts:
Property (42) (7) (49)
Investments (4) (4)
Intangible Assets (24) (24)
Other Assets (1) (20) (21)
Reserve balance
as of Dec. 31, 1996 224 41 265
Costs charged against
reserves (76) (39) (115)
Reserve balance
as of Dec. 31, 1997 148 2 150
Reversal of reserves:
May 1998 (15) (15)
December 1998 (33) (33)
Transfer to 1998 Plan (85) (85)<Fb>
Costs charged against reserves (15) (15)
- ----------------------------------------------------------------------------------------
RESERVE BALANCE
AS OF DEC. 31, 1998 $ 0 $ 2 $ 0 $ 2
========================================================================================
<FN>
<Fa> Restructuring and unusual charges were partially offset by $15
million of minority interest in the losses incurred by Calgene and
$21 million for the reversal of prior year restructuring reserves
that were no longer needed, resulting in a net charge to earnings of
$327 million.
<Fb> Certain 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 remains committed to
accomplishing these workforce reductions and, accordingly, the
accrual has been included in the 1998 Plan.
</TABLE>
The restructuring and special charges established in 1998 and 1996
were based on estimates prepared at the time the actions were approved by
the board of directors. Management believes that the balance of these
reserves as of Dec. 31, 1998, is adequate for completion of the actions. In
December 1996, $21 million of restructuring reserves were reversed due to
the successful completion of actions at costs less than originally
estimated. In May 1998, $35 million of restructuring reserves were reversed
because of a decision not to rationalize a European pharmaceutical
production facility. In December 1998, $33 million of reserves were
reversed due to a reduction of approximately 120 job eliminations which had
been part of the December 1996 plan and lower average severance payments
estimated for approximately 190 job eliminations from the December 1996
plan which were continued as part of the December 1998 plan. These
reversals, including the $33 million of restructuring reserves that were
reversed in December 1998, have been reported as a reduction to the new
reserves established in each year.
49
<PAGE>
<PAGE>
During 1996, workforce reductions of approximately 510 jobs and other
facility closures occurred relative to restructuring plans approved prior
to 1996. These actions were substantially completed by the end of 1997.
DEPRECIATION AND AMORTIZATION
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation $269 $242 $205
Amortization of intangible assets 220 121 74
Obsolescence 29 15 19
- ---------------------------------------------------------------------------
TOTAL $518 $378 $298
===========================================================================
</TABLE>
Property, plant and equipment is recorded at cost. The cost of plant
and equipment is depreciated over weighted average periods of 18 years for
buildings and 10 years for machinery and equipment, by the straight-line
method. Intangible assets are recorded at cost less accumulated
amortization.
Total amortization and adjustment of intangible assets reflected in
the Statement of Consolidated Income (Loss) includes $66 million of charges
for asset impairments in 1998 and $23 million of charges for asset
impairments in 1996.
The components of intangible assets were:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Goodwill $4,496 $ 997
Patents and other intangible assets 785 784
- ----------------------------------------------------------------------
TOTAL $5,281 $1,781
======================================================================
</TABLE>
Goodwill is the cost of acquired businesses in excess of the fair
value of their identifiable net assets and is amortized over the estimated
periods of benefit (five to 40 years). Patents obtained in a business
acquisition are recorded at the present value of estimated future cash
flows resulting from patent ownership. The cost of patents is amortized
over their legal lives. The cost of other intangible assets (principally
seed germplasm, product rights and trademarks) is amortized over their
estimated useful lives.
Impairment tests of long-lived assets are made periodically and when
conditions indicate a possible loss. Such impairment tests are based on a
comparison of undiscounted cash flows over the remaining useful life . If
an impairment is indicated, the asset value is written down to its
discounted cash value, using an appropriate discount rate.
INVESTMENTS
Certain investments in equity securities, other than investments in equity
affiliates, are classified as available-for-sale securities, and are
recorded at their market values. When a decline in market value is deemed
other than temporary, the reduction to the investment in a security is
charged to expense. As of Dec. 31, these equity securities were detailed as
follows:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Aggregate fair value $75 $72
Gross unrealized holding:
Gains 36 27
Losses 14 20
- -----------------------------------------------------------------
</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, 1998 and 1997,
50
<PAGE>
<PAGE>
the total amortized cost of these securities was $90 million and $116
million, respectively.
INVENTORIES
Inventories are stated at 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 (26 percent as of
Dec. 31, 1998) 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.
The components of inventories were:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Finished goods $1,064 546
Goods in process 469 230
Raw materials and supplies 224 324
- ----------------------------------------------------------------
Inventories, at FIFO cost 1,757 1,100
Excess of FIFO over LIFO cost (35) (45)
- ----------------------------------------------------------------
TOTAL $1,722 $1,055
================================================================
</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 and are included in cost of
goods sold when the underlying seeds are sold. As of Dec. 31, 1998,
Monsanto had futures contracts to purchase $173 million of corn and
soybeans.
INCOME TAXES
The components of income (loss) from continuing operations before income
taxes were:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 51 $ (91) $254
Outside United States (136) 280 102
- -------------------------------------------------------------------------------
TOTAL $ (85) $127 $356
===============================================================================
</TABLE>
51
<PAGE>
<PAGE>
The components of income tax expense charged to operations were:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. federal $ 290 $ 84 $ 43
U.S. state 22 13 13
Outside United States (10) 59 47
- -------------------------------------------------------------------------------
302 156 103
- -------------------------------------------------------------------------------
Deferred:
U.S. federal (245) (165) (7)
U.S. state (4) (14) (8)
Outside United States (7) 1 (11)
- -------------------------------------------------------------------------------
(256) (178) (26)
- -------------------------------------------------------------------------------
TOTAL $ 46 $ (22) $ 77
===============================================================================
</TABLE>
Factors causing Monsanto's income taxes to differ from the U.S.
federal statutory rate were:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory rate $(30) $ 45 $125
U.S. export earnings (25) (22) (29)
Puerto Rican operations (16) (14) (20)
U.S. R&D tax credit (34) (23) (7)
Higher (lower) rates outside the United States 31 ( 6) (2)
Nondeductible goodwill 30 6 9
Other nondeductible expenses 4 4 6
Valuation allowances (15) (8)
Acquired in-process R&D 71 7
Equity income 9 (3) 16
Other 6 (1) (13)
- -------------------------------------------------------------------------------------------
INCOME TAXES $46 $(22) $77
===========================================================================================
</TABLE>
Deferred income tax balances were related to:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Property $(213) $(149)
Pension and postretirement benefits 267 231
Restructuring reserves 186 67
Inventories 85
Net operating tax loss and tax credit carryforwards 282 138
Acquired in-process R&D 233 207
Other (13) (13)
Valuation allowances (13) (22)
- -------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 814 $ 459
===========================================================================================
</TABLE>
Deferred tax balances were:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets $818 $485
Deferred tax liabilities 4 26
- --------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $814 $459
============================================================================================
</TABLE>
The change in valuation allowances in 1998 was primarily related to
the utilization of the state net operating loss carryforwards. As of Dec.
31, 1998, Monsanto had available approximately $400 million in remaining
net operating loss carryforwards in the United States. These expire from
1999 through 2012. As of Dec. 31, 1998, Monsanto also had available roughly
$110 million in remaining net operating loss carry-forwards outside the
United States, which do not expire.
Income taxes and remittance taxes have not been recorded on $1.4
billion in undistributed earnings of subsidiaries, either because any taxes
on dividends would be offset substantially by foreign tax credits or
because Monsanto intends
52
<PAGE>
<PAGE>
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.
SHORT-TERM DEBT AND CREDIT ARRANGEMENTS
Short-term debt was:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to banks $ 328 $ 312
Commercial paper 541 1,200
Bank overdrafts 134 126
Current portion of long-term debt 66 88
- --------------------------------------------------------------------------------
TOTAL $1,069 $1,726
================================================================================
Weighted average interest rates of notes payable
as of Dec. 31:
Banks 9.5% 8.5%
Commercial paper 5.3% 5.9%
- --------------------------------------------------------------------------------
<FN>
<F1> Includes the effect of notes in certain countries that have interest
rates higher than those in the United States.
</TABLE>
Monsanto had aggregate short-term loan facilities of $533 million, under
which loans totaling $328 million were outstanding as of Dec. 31, 1998.
Interest on these loans is related to various bank rates. Monsanto has a
$1.0 billion credit facility, expiring in 2001, that allows the company to
request that lenders increase their commitments up to an aggregate of $1.6
billion. In November 1998, Monsanto entered into a $2.0 billion, 364-day
credit facility. There were no borrowings under these credit facilities as
of Dec. 31, 1998. 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.
53
<PAGE>
<PAGE>
LONG-TERM DEBT
Long-term debt (exclusive of current maturities) was:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Industrial revenue bond obligations,
5.5% average rate at Dec. 31, 1998,
due 1999 to 2028 $ 337 $ 338
Medium-term notes, 7.5% average rate
at Dec. 31, 1998, due 2000 to 2005 165 90
Commercial paper 1,000 625
6% notes due 2000 150 150
7.09% and 8.13% amortizing ESOP
notes and debentures due 2000 and
2006, guaranteed by the company 91 101
5 3/8% notes due 2001 498
Adjustable conversion-rate equity security units due 2003 700
Variable-rate notes due 2003 575
5.75% notes due 2005 596
5 7/8% notes due 2008 199
8 7/8% debentures due 2009 99 99
5.6% yen note due 2016 86 77
6.5% debentures due 2018 496
8.7% debentures due 2021 100 100
8.2% debentures due 2025 150 150
6.75% debentures due 2027 198 198
6.6% debentures due 2028 694
Other 125 51
- -------------------------------------------------------------------------------------------
TOTAL $6,259 $1,979
===========================================================================================
<FN>
<F1> ESOP stands for employee stock ownership plan.
</TABLE>
Maturities and sinking-fund requirements on long-term debt, excluding
commercial paper, are $66 million in 1999, $208 million in 2000, $561
million in 2001, $92 million in 2002, and $1.3 billion in 2003. The
weighted average maturity of long-term debt as of Dec. 31, 1998, was
approximately 11 years.
Commercial paper balances of $1.0 billion and $625 million as of Dec.
31, 1998 and 1997, respectively, were classified as long-term debt.
Monsanto has the ability and intent to renew these obligations beyond
1999.
In November 1998, the company issued 17,500,000 units of 6.5 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 November 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 November 2001. In addition, the company
pays quarterly deferrable contract fees to the unit holders at 0.55 percent
of the stated amount, and such payments are charged to equity as paid. The
junior subordinated deferrable debentures have a principal amount equal to
the stated amount of the units and an interest rate of 5.95 percent. They
mature in 2003.
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, 1998, Monsanto was party to interest-rate swap agreements
with an aggregate notional principal amount of $145 million related to
existing debt. The agreements effectively convert floating-rate debt into
fixed-rate debt. This reduces the company's risk of incurring higher
interest costs in periods of rising interest rates. Monsanto is subject to
loss if the counter parties 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.
54
<PAGE>
<PAGE>
FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of Monsanto's financial instruments were:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------
Recorded Fair Recorded Fair
Amount Value Amount Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt $6,259 $6,579 $1,979 $2,053
- ----------------------------------------------------------------------------------------------
</TABLE>
The recorded amounts of cash, trade receivables, investments in
securities, discounted receivables, third-party guarantees, commodity
futures contracts, currency forward contracts and swaps, accounts payable,
interest-rate swaps, and short-term debt approximate their fair values.
Fair values are estimated by the use of quoted market prices,
estimates obtained from brokers, and other appropriate valuation techniques
based on information available as of year-end. The fair-value estimates do
not necessarily reflect the values Monsanto could realize in the current
market.
POSTRETIREMENT BENEFITS - PENSIONS
Most Monsanto employees are covered by noncontributory pension plans.
The components of pension cost were:
<TABLE>
<CAPTION>
1998<F1> 1997<F1> 1996<F1>
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the year $ 58 $ 61 $ 83
Interest cost on benefit obligation 170 148 287
Assumed return on plan assets (156) (167) (322)
Amortization of unrecognized net loss 22 13 9
- -----------------------------------------------------------------------------------------------
TOTAL $ 94 $ 55 $ 57
===============================================================================================
Continuing operations $ 94 $ 55 $ 54
Discontinued operations 3
- -----------------------------------------------------------------------------------------------
TOTAL $ 94 $ 55 $ 57
===============================================================================================
<FN>
<F1> In connection with the classification of the former Nutrition and
Consumer Products segment as discontinued operations (see Notes to
Financial Statements, SUBSEQUENT EVENTS disclosure for further
details), no pension liabilities or related assets were allocated or
assumed by the discontinued business 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. The components of pension cost
for 1996 have not been restated for amounts related to continuing and
discontinued operations as no detailed information was available.
</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.
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>
1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 6.75% 7.00% 7.50%
Assumed long-term rate of
return on plan assets 9.50% 9.50% 9.50%
Annual rates of salary increase (for plans that
base benefits on final compensation level) 4.00% 4.00% 4.50%
- ----------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
<PAGE>
The funded status of Monsanto's pension plans at year-end was:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 2,483 $ 4,026
Service cost 58 61
Interest cost 170 148
Amendments 11 77
Actuarial loss 146 376
Acquisitions/divestitures 9 (1,759)
Benefits paid (222) (446)
- ----------------------------------------------------------------------------------
Benefit obligation at end of year 2,655 2,483
- ----------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 2,029 3,817
Actual return on plan assets 310 350
Employer contributions 17 (3)
Plan participants' contributions 3 3
Acquisitions/divestitures 9 (1,603)
Fair value of benefits paid (222) (535)
- ----------------------------------------------------------------------------------
Plan assets at end of year 2,146 2,029
- ----------------------------------------------------------------------------------
Unfunded status 509 454
Unrecognized initial net gain 15 27
Unrecognized prior service cost (94) (106)
Unrecognized subsequent loss (22) (70)
- ----------------------------------------------------------------------------------
ACCRUED NET PENSION LIABILITY $ 408 $ 305
==================================================================================
</TABLE>
Amounts recognized in the Statement of Consolidated Financial Position were:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
Postretirement liabilities:
Accrued pension liability $433 $357
Additional minimum pension liability 61 33
Other assets (25) (52)
Intangible asset (10) (6)
Accumulated other comprehensive loss (51) (27)
- ----------------------------------------------------------------------------------
ACCRUED NET PENSION LIABILITY $408 $305
==================================================================================
</TABLE>
As a result of employment reductions from the 1996 restructuring
program, $36 million of restructuring reserves was transferred to accrued
net pension liability during 1997.
The accumulated benefit obligation (ABO) and fair value of plan
assets for pension plans with ABOs in excess of plan assets were $1.9
billion and $1.6 billion, respectively, as of Dec. 31, 1998; and $1.8
billion and $1.6 billion, respectively, as of Dec. 31, 1997. Plan assets
consist principally of common stocks and U.S. government and corporate
obligations. Contributions to qualified plans were neither required nor
made in 1998, 1997 and 1996 because the company's principal pension plans
are adequately funded, based on the indicated assumed returns.
POSTRETIREMENT BENEFITS -- HEALTH CARE AND OTHER
Monsanto provides certain health care and life insurance benefits for
retired employees. Substantially all of Monsanto's regular, full-time U.S.
employees and certain employees in other countries may become eligible for
these benefits if they reach retirement age while employed by Monsanto.
These postretirement benefits are unfunded and 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.
56
<PAGE>
<PAGE>
The components of the cost of these postretirement benefits, principally
health care and life insurance, were:
<TABLE>
<CAPTION>
1998<F1> 1997<F1> 1996<F1>
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the year $ 13 $ 10 $ 25
Interest cost on benefit obligation 27 27 88
Amortization of unrecognized net (gain) loss (1) (3) 2
- -----------------------------------------------------------------------------------------------
TOTAL $ 39 $ 34 $115
===============================================================================================
Continuing operations $ 39 $ 34 $ 33
Discontinued operations 82
- -----------------------------------------------------------------------------------------------
TOTAL $ 39 $ 34 $115
===============================================================================================
<FN>
<F1> In connection with the classification of the former Nutrition and
Consumer Products segment as discontinued operations (see Notes to
Financial Statements, SUBSEQUENT EVENTS 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. The components of the cost of
postretirement benefits for 1996 have not been restated for amounts
related to continuing and discontinued operations as no detailed
information was available.
</TABLE>
Postretirement costs were determined by using the preceding year-end rate
assumptions. Assumptions used as of Dec. 31 for the principal plans were:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 6.75% 7.00% 7.50%
Initial trend rate for health care costs <F1> 5.75% 7.00% 8.00%
Ultimate trend rate for health care costs 4.75% 5.00% 5.00%
- -------------------------------------------------------------------------------------------
<FN>
<F1> The initial trend rate for health care costs declines by 1 percent
per year, to 4.75 percent for years after the year 1999.
</TABLE>
A 1 percent increase in the assumed trend rate for health care costs
would have increased the cost of 1998 postretirement health care benefits
by $1 million and the accumulated postretirement benefit obligation by $15
million as of Dec. 31, 1998. A 1 percent decrease in the assumed trend rate
for health care costs would have decreased the cost of 1998 postretirement
health care benefits by $1 million and the accumulated postretirement
benefit obligation by $16 million as of Dec. 31, 1998.
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>
1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $383 $1,249
Service cost 13 10
Interest cost 27 27
Actuarial (gain)/loss 6 (1)
Acquisitions/divestitures (830)
Benefits paid (26) (72)
- -----------------------------------------------------------------------------------------
Benefit obligation at end of year 403 383
- -----------------------------------------------------------------------------------------
Unfunded status 403 383
Unrecognized prior service cost 10 12
Unrecognized subsequent loss (31) (26)
- -----------------------------------------------------------------------------------------
ACCRUED POSTRETIREMENT LIABILITY $382 $ 369
=========================================================================================
</TABLE>
57
<PAGE>
<PAGE>
Amounts recognized in the Statement of Consolidated Financial Position were:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Miscellaneous accruals $ 28 $ 24
Postretirement liabilities 354 345
- ----------------------------------------------------------------------------------------
Accrued postretirement liability $382 $369
========================================================================================
</TABLE>
The assumptions used to compute the accumulated benefit obligation of
the principal plans were changed as of Dec. 31, 1997. That resulted in a
decrease of approximately $26 million in the accrued postretirement
liability.
EMPLOYEE SAVINGS PLANS
For some company employee savings plans, employee contributions are matched
in part by Monsanto. The value of the company's contributions to such plans
was $45 million in 1998, $39 million in 1997, and $30 million in 1996.
Monsanto has established an Employee Stock Ownership Plan (ESOP),
which held 14.7 million shares of Monsanto common stock as of Dec. 31,
1998. 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
are allocated each year to employee savings accounts as matching
contributions. Also, in 1998, a portion of the ESOP shares were allocated
to employees in connection with a change in vacation policy. In 1998,
944,215 shares were allocated to participants under the plan, leaving 9.2
million unallocated shares as of Dec. 31, 1998. Unallocated shares held by
the ESOP are considered outstanding for earnings-per-share calculations.
Compensation expense is equal to the cost of the shares allocated to
participants, less cash dividends paid on the shares held by the ESOP.
Dividends on the common stock owned by the ESOP are used to repay
the ESOP borrowings, which were $129 million as of Dec. 31, 1998.
In September 1997, the ESOP received Solutia shares in connection
with the spinoff of the company's chemical businesses. These shares were
exchanged for Monsanto shares.
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total ESOP expense $21 $18 $14
Interest portion of total ESOP expense 10 12 12
Cash contribution 14 6 16
Dividends paid on ESOP shares held 2 8 11
</TABLE>
STOCK OPTION PLANS
- ---------------------------------------------------------------------------
The company grants stock options under two fixed plans. Under the company's
Management Incentive Plan of 1996, the company may grant key officers and
management employees stock-based awards, including stock options, of up to
71.6 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 or
its delegate. Options generally vest upon the achievement of business
performance targets or the ninth anniversary of the option grant date,
whichever comes first. Certain options granted to senior management vest
upon the attainment of pre-established prices within specified time periods.
Under the company's Shared Success Stock Option Plan, most regular full-time
and regular part-time employees of the company were granted options on 200
shares of common stock in 1996, 330 shares in 1997, and 500 shares in 1998.
The maximum number of shares for which stock options may be granted under
this plan is 26.8 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 Standards No. 123,
"Accounting for Stock-Based Compensation," (FAS 123), the company has
elected to
58
<PAGE>
<PAGE>
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. Accordingly, no
compensation cost has been recognized for the company's option plans. Had
the determination of compensation cost for these plans been based on the
fair value at the grant dates for awards under these plans, consistent with
the method of FAS 123, the company's income (loss) from continuing
operations and earnings (loss) per share from continuing operations would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing operations:
As reported $ (131) $149 $279
Pro forma (339) 61 197
Earnings (loss) per share --
continuing operations:
As reported $(0.22) $0.24 $0.47
Pro forma (0.56) 0.10 0.33
- ----------------------------------------------------------------------------------------
</TABLE>
The pro forma compensation expense may not be representative of pro
forma compensation expense that would be incurred in future years. In
computing the pro forma compensation expense, the fair value of each option
grant was estimated on the date of grant by using the Black-Scholes option-
pricing model. The following weighted-average assumptions were used for
grants:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 0.25% 0.29% 1.5%
Expected volatility 30.0 % 27.0 % 25.0%
Risk-free interest rates 5.6 % 6.4 % 6.0%
Expected option lives (years) 4.0 4.3 4.0
- ---------------------------------------------------------------------------
</TABLE>
A summary of the status of the company's stock option plans for the three-
year period ended Dec. 31, 1998, follows:
<TABLE>
<CAPTION>
OUTSTANDING
--------------------------------------
EXERCISABLE WEIGHTED-AVERAGE
SHARES SHARES EXERCISE PRICE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEC. 31, 1995 45,383,790 55,269,310 $12.63
- ------------------------------------------------------------------------------------------------
1996:
Granted 25,004,150 33.38
Exercised (16,327,617) 11.93
Expired (801,605) 22.59
- ------------------------------------------------------------------------------------------------
DEC. 31, 1996 38,362,943 63,144,238 $20.90
- ------------------------------------------------------------------------------------------------
1997:
Granted 27,740,275 37.98
Exercised (12,002,286) 13.64
Expired (3,476,815) 34.71
- ------------------------------------------------------------------------------------------------
DEC. 31, 1997 45,257,512 75,405,412 $25.22
- ------------------------------------------------------------------------------------------------
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
================================================================================================
</TABLE>
The weighted-average fair values of options granted during 1998,
1997 and 1996, were $16.51, $10.01 and $8.86, respectively.
The following table summarizes information about stock options
outstanding as of Dec. 31, 1998:
59
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
WEIGHTED-AVERAGE
REMAINING WEIGHTED-
RANGE OF CONTRACTUAL LIFE AVERAGE
EXERCISE PRICES SHARES (IN YEARS) EXERCISE PRICE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 7.00 to 9.99 6,206,664 4.0 $ 9.31
10.00 to 14.99 40,260,354 7.5 12.32
15.00 to 19.99 329,343 6.5 16.78
20.00 to 29.99 8,773,867 7.2 26.24
30.00 to 39.99 31,182,304 7.9 34.18
40.00 to 54.99 13,544,604 9.0 49.01
55.00 to 80.00 3,538,095 9.5 57.26
- ---------------------------------------------------------------------------------------
$ 7.00 to 80.00 103,835,231 8.1 $26.21
=======================================================================================
<CAPTION>
OPTIONS EXERCISABLE
WEIGHTED-
RANGE OF AVERAGE
EXERCISE PRICES SHARES EXERCISE PRICE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
$ 7.00 to 9.99 6,206,664 $ 9.31
10.00 to 14.99 14,253,619 13.32
15.00 to 19.99 319,343 16.72
20.00 to 29.99 4,442,467 24.90
30.00 to 39.99 22,975,859 34.32
40.00 to 55.00 2,857,064 43.66
- ---------------------------------------------------------------------------------------
$ 7.00 to 55.00 51,055,016 $25.01
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
OTHER EXPENSE (INCOME)
=======================================================================
Significant components of Other
Expense (Income) were: 1998 1997 1996
---- ---- ----
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Equity expense (income) 35 (6) 22
Minority interest expense 32 26 6
Royalty income (7) (4) (32)
Foreign currency loss 22 52 2
Gain on sale of pharmaceutical
product rights (124) (120) (61)
Gain on sale of assets (19) (25) (9)
Gain on sale of plastics business - - (21)
Losses on common stock investments 40 - -
Other miscellaneous expense (income) (11) (12) 7
- -----------------------------------------------------------------------
Other expense (income) (31) (89) (86)
=======================================================================
</TABLE>
60
<PAGE>
<PAGE>
EARNINGS PER SHARE
Basic earnings (loss) per share from continuing operations were computed
using the weighted average number of common shares outstanding each year
(603.5 million in 1998, 590.2 million in 1997, and 581.2 million in 1996).
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. The computation of diluted earnings per
share from continuing operations in 1997 and 1996 took into account the
effect of dilutive common share equivalents totaling 20.3 million in 1997
and 17.7 million in 1996. Dilutive common share equivalents consisted of
outstanding stock options. Other common share equivalents also were not
included in the computation of 1998 diluted loss per share because the
effect of their exercise or conversion is not dilutive, when based on the
average market price of Monsanto common stock for the period. These
included approximately 103.8 million of outstanding stock options and 17.5
million shares of common stock to be issued under the ACES described in the
Long-Term Debt note. These options and ACES units expire from 2002 through
2008.
CAPITAL STOCK
In January 1990, the company's board of directors declared a dividend of
one preferred stock purchase right on each then-outstanding share of the
company's common stock. If a person or group acquires beneficial ownership
of 20 percent or more, or announces a tender offer that would result in
beneficial ownership of 20 percent or more of the company's outstanding
common stock, the rights become exercisable. As a result of two subsequent
stock splits, for every 10 rights held, the owner will be entitled to
purchase one one-hundredth of a share of a new series of preferred stock
for $450. If Monsanto is acquired in a business combination transaction
while the rights are outstanding, for every 10
rights held, the holder will be entitled to purchase, for $450, common
shares of the acquiring company having a market value of $900. In addition,
if a person or group acquires beneficial ownership of 20 percent or more of
the company's outstanding common stock, for every 10 rights held, the
holder (other than such person or members of such group) will be entitled
to purchase, for $450, a number of shares of the company's common stock
having a market value of $900. Furthermore, at any time after a person or
group acquires beneficial ownership of 20 percent or more (but less than 50
percent) of the company's outstanding common stock, the board of directors
may, at its option, exchange part or all of the rights (other than rights
held by the acquiring person or group) for shares of the company's common
stock on a one-share-for-every-10-rights basis. At any time prior to the
acquisition of such a 20 percent position, the company can redeem each
right for $0.001. The board of directors also is authorized to reduce the
aforementioned 20 percent thresholds to not less than 10 percent. The
rights expire in the year 2000.
As of Dec. 31, 1998, 120.7 million common shares were reserved for
employee stock options. In November 1998, the company issued 17,500,000
units of 6.5 percent ACES at a stated value of $40 per unit. For further
information, see the Long-Term Debt note.
COMMITMENTS AND CONTINGENCIES
Commitments, principally in connection with uncompleted additions to
property, were approximately $51 million as of Dec. 31, 1998. Excluding the
ESOP notes and debentures, Monsanto was contingently liable as a guarantor
for bank loans and for discounted customers' receivables totaling
approximately $158 million as of Dec. 31, 1998, and $123 million as of Dec.
31, 1997. Future minimum payments under noncancelable operating leases,
unconditional inventory purchases, and R&D alliances are $116 million for
1999, $75 million for 2000, $53 million for 2001, $41 million for 2002,
$15 million for 2003, and $51 million thereafter.
61
<PAGE>
<PAGE>
The more significant concentrations in Monsanto's trade receivables at
year-end were:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
U.S. agricultural product distributors $388 $359
European agricultural product distributors 284 203
Pharmaceutical distributors worldwide 351 435
Customers in the former Soviet Union 99 75
Customers in Southeast Asia 60 25
Customers in Latin American southern cone countries 560 331
===============================================================================
</TABLE>
Management does not anticipate losses on its trade receivables in
excess of established allowances.
Costs for remediation of waste disposal sites are accrued in the
accounting period in which the responsibility is established and when the
cost is estimable. Postclosure and remediation costs for hazardous and
other waste facilities at operating locations are accrued over the
estimated life of the facility as part of its anticipated closure cost.
Monsanto's Statement of Consolidated Financial Position included accrued
liabilities of $21 million as of Dec. 31, 1998, and $19 million as of Dec.
31, 1997, 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.
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
Appeals 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 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 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.
62
<PAGE>
<PAGE>
SUPPLEMENTAL DATA
Supplemental income statement data were:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rent expense $ 102 $ 117 $100
========================================================================================
Technological expenses:
Research and development $1,238 $ 944 $623
Engineering, commercial development
and patent 70 105 34
- ----------------------------------------------------------------------------------------
Total technological expenses $1,308 $1,049 $657
========================================================================================
Interest expense:
Total interest cost $ 224 $ 148 $ 92
Less capitalized interest (14) (13) (9)
- ----------------------------------------------------------------------------------------
Net interest expense $ 210 $ 135 $ 83
========================================================================================
Currency losses including equity in affiliates'
currency gains and losses $ 22 $ 52 $ 2
========================================================================================
</TABLE>
SEGMENT INFORMATION
Certain segment data and geographic data for 1998, 1997 and 1996 that
appear in the "REVIEW OF CONSOLIDATED RESULTS OF OPERATIONS - SEGMENT DATA"
are integral parts of the accompanying financial statements. The company's
principal product lines are discussed in the segment data.
DISCONTINUED OPERATIONS
Subsequent to the date of these consolidated financial statements
(December 31, 1998), 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.
Net sales, income and net assets from discontinued operations include
the alginates, Ortho(R) lawn-and-garden products, artificial sweeteners,
and biogums businesses for 1998. Net sales and income from discontinued
operations in 1997 also includes eight months of the chemicals business
which was spun off to shareholders September 1, 1997. Net sale, income and
net assets for 1996 includes alginates, artificial sweeteners, biogums and
chemicals business.
63
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,288 $3,279 $4,339
Income (Loss)from Discontinued
Operations Before Income Tax (158) 506 184
Income Tax Expense (Benefit) (39) 185 78
Net Income (Loss) from Discontinued
Operations (119) 321 106
Net Assets of Discontinued Operations:
Current Assets $ 994 $ 681
Non-Current Assets 1,269 1,681
Total Assets $2,263 $2,362
Current Liabilities $ 272 $ 224
Non-Current Liabilities 67 33
Total Liabilities $ 339 $ 257
Net Assets of Discontinued Operations $1,924 $2,105
- ------------------------------------------------------------------------
</TABLE>
Income tax expense for discontinued operations for 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 1996 exceeded the U.S.
federal statutory amount primarily because of nondeductible exit costs
incurred to separate the chemicals business.
Interest expense charged to discontinued operations was $103 million in
1998, $74 million in 1997, and $88 million in 1996 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.
On September 7, 1999, Monsanto announced the sale of the alginates
business to International Specialty Products (ISP). The closing of this
transaction occurred on October 15, 1999 and is recorded in results from
discontinued operations. Proceeds of $40 million from the sale were used
to pay down debt.
64
<PAGE>
<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's in the best interest of its shareowners to use these provisions in
discussing future events. Forward-looking statements include Monsanto's
plans for growth; the potential for the development, regulatory approval,
and public acceptance of new products; and other factors that could affect
Monsanto's future operations or financial position. Such statements often
include the words "believes," "expects," "anticipates," "intends," "plans,"
"estimates," or similar expressions.
Monsanto's ability to achieve its goals depends on many known and unknown
risks and uncertainties, including changes in general economic and business
conditions. These factors could cause the anticipated performance and
results of the company to differ materially from those described or implied
in forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed below.
Factors Affecting the Agricultural Products Segment
Roundup Generic Competition: The family of Roundup(R) herbicides is a
- ---------------------------
major product line for Monsanto's Agricultural Products segment. These
herbicides are likely to face increasing competition from generic products.
Patents protecting Roundup(R) in several countries expired in 1991.
Compound per se patent protection for the active ingredient in Roundup(R)
herbicide expires in the United States in Sept. 2000. Monsanto believes
that it can compensate for increased generic competition both within and
outside the United States and continue to increase revenues and profits
from Roundup(R) through a combination of (1) marketing strategy, (2)
pricing strategy, and (3) decreased production costs.
Marketing Strategy. Monsanto expects to increase Roundup(R) sales by
- ------------------
focusing on brand premiums, providing unique formulations and services,
offering integrated seed and biotech solutions through cross selling and
the growth and introduction of RoundupReady(R) crops, and continuing to
encourage the practice of conservation tillage. In addition, Monsanto
will seek to enter into strategic agreements to supply glyphosate to other
herbicide producers. The success of the company's Roundup(R) marketing
strategy will depend on the continued expansion of conservation tillage
practices and the company's ability to realize and promote cost and
production benefits of its product packages, introduce new RoundupReady(R)
crops and economically produce glyphosate in sufficient quantities to allow
it to market to such producers.
Pricing Strategy. Monsanto significantly reduced the sales price of
- ----------------
Roundup(R) in the United States. This price elasticity strategy is designed
to increase demand for Roundup(R) in the United States by making Roundup(R)
more economical, encouraging both new uses of the product and expansion of
the number of acres treated. Monsanto's experience in numerous markets
worldwide has been that price reductions have stimulated volume growth.
However, the volume increases in the other countries also may have been
influenced by a variety of other factors, such as weather; the increased
use of conservation tillage practices; development of other new markets or
applications for Roundup(R); launch of new products including Roundup
Ready(R) crops; competitive products and practices; and an increase in
agricultural acres planted. Conditions, and therefore volume trends in one
country may or may not be duplicated in other world areas. As a result,
Monsanto's experience with price elasticity in markets outside the United
States may or may not be replicated in the United States.
Production Cost Decreases. Monsanto also believes that increased volumes
- -------------------------
and technological innovations will lead to efficiencies that will reduce
the production cost of glyphosate. Such cost reductions will depend on
realizing such increased volumes and innovations, and securing the
resources required to expand production of Roundup(R).
Realization and Introduction of New Biotech Products: The company's
- ----------------------------------------------------
ability to develop and introduce to market new agricultural biotech
products, including new Roundup Ready(R) crops, will be dependent, among
other things, upon the
65
<PAGE>
<PAGE>
availability of sufficient financial resources to fund research and
development needs, demonstrated product effectiveness, the company's
ability to develop, purchase or license required technology, the existence
of sufficient distribution channels and the acceptance and competition
factors discussed below.
Governmental and Consumer Acceptance: The commercial success of
- ------------------------------------
agricultural and food products developed through biotechnology will depend
in part on government and public acceptance of their cultivation,
distribution and consumption. Monsanto continues to work with consumers,
customers and regulatory bodies to encourage understanding of nutritional
and agricultural biotechnology products. However, public attitudes may be
influenced by claims that genetically modified plant products are unsafe
for consumption or pose unknown risks to the environment or to traditional
social or economic practices. For instance, consumer groups have brought
lawsuits in various countries seeking to halt industry activities with
respect to products developed through biotechnology. Securing governmental
approvals for, and consumer confidence in, such products poses numerous
challenges, particularly outside the United States. Some countries also
have labeling requirements. In some markets, because these crops are not
yet approved for import, growers in other countries may be restricted from
introducing or selling their grain. In these cases, the grower may have to
arrange to sell the grain only in the domestic market or to use the grain
for feed on his or her farm. The market success of Monsanto's products
developed through biotechnology could be delayed or impaired in certain
geographical areas because of such factors.
Technological Change and Competition: A number of companies are engaged
- ------------------------------------
in plant biotechnology research. Technological advances by others could
render Monsanto's products less competitive. In addition, the ability to
be first to market a new product can result in a significant competitive
advantage. Monsanto believes that competition will intensify, not only
from agricultural biotechnology firms but from major agrichemical, seed and
food companies with biotechnology laboratories. Some of Monsanto's
agricultural competitors have substantially greater financial, technical
and marketing resources than Monsanto does.
Successful Integration of Recent Transactions: Monsanto has made
- ---------------------------------------------
significant acquisitions, mergers and joint ventures involving seed,
agricultural biotechnology and grain processing companies. These
transactions are designed to strengthen Monsanto's capability to bring
important new life sciences products to customers worldwide, and to
contribute to the company's long-term growth. The Delta and Pine Land Co.
(D&PL) transaction is subject to regulatory approval and other customary
conditions. It is anticipated that the pending D&PL transaction, when
final, and the recently completed acquisitions of DEKALB Genetics Corp.,
Plant Breeding International Cambridge, and certain international seed
operations of Cargill Inc., will significantly dilute Monsanto's financial
results for the next several years. Long term, Monsanto must integrate
these companies into its business to realize projected synergies and to
provide the distribution channels necessary to quickly and efficiently
launch new products. It must also fit such acquisitions, mergers and joint
ventures into its growth strategy to generate sufficient value to justify
their cost. Mergers, acquisitions, and joint ventures also present other
challenges, including 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.
66
<PAGE>
<PAGE>
Factors Affecting the Pharmaceuticals Segment
Ability to Realize Potential of Existing Pipeline Products:
- ----------------------------------------------------------
Pharmaceutical research and development (R&D) is subject to inherent
uncertainty, difficulties and delays. These include, but are not limited
to, successful completion of clinical trials and the ability to obtain
regulatory approval for the compounds worldwide. Failure to receive
government approvals as anticipated could preclude or substantially delay
commercialization of products in the company's R&D programs.
Development and Commercialization of New Products and Expansion of
- -------------------------------------------------------------------
Existing Product Uses: The Pharmaceuticals Segment's long-term success
- ---------------------
will depend in great part on its ability to commercialize new products
(including second generation products) and to expand the use of its
existing products by developing new indications for such products. Such
efforts require substantial funding of R&D and, in the case of new
products, launch expenses. If Monsanto is unable to earn or borrow
sufficient resources to fund such expenses, its ability to develop new
products and expand uses of existing products will suffer. Further, the
outcome of R&D is inherently difficult to predict. Anticipated results may
never materialize, or they may not be promising enough. Even when new
pharmaceutical products are marketed, there can be no guarantees of their
commercial success. Consumer demand and competitive factors, including the
availability and price of treatment alternatives influence sales. In
addition, timing is crucial. The results of R&D of new pharmaceutical
products are difficult to forecast, and new products must be carefully
deployed, with resources sufficient to realize the full value of the
products.
Product Liability and Consumer Acceptance: The sale of pharmaceutical
- -----------------------------------------
products always involves a risk of product liability claims and associated
adverse publicity. Substantial damage awards for injuries allegedly caused
by the use of pharmaceuticals have been made against certain companies in
past years. In addition, unexpected safety or efficacy concerns can arise
with respect to marketed products. Whether or not they are scientifically
justified, such concerns could lead to product recalls, withdrawals, or
declining sales.
Competition: Pharmaceutical research is intense and highly competitive.
- -----------
It is characterized by rapid technological change. Depending on the
product involved, competition may be encountered in price, delivery,
service, performance, innovation, brand recognition and quality. Many of
Monsanto's pharmaceutical competitors have greater research, financial,
marketing and other resources than Monsanto does. Some of Monsanto's
trademarked pharmaceutical products also face increasing pressures from
producers of lower-priced generic products and from new products entering
the marketplace. Finally, as the company introduces new products intended
for use in the treatment of the same conditions as existing Monsanto
products, sales of such existing products may suffer.
Pricing: Managed care groups, health care organizations and government
- -------
agencies worldwide actively seek discounts and lower prices on
pharmaceutical products. Monsanto's challenge is to provide overall
economic benefits to health care providers and negotiate prices for
specific products that will allow it to profit at acceptable levels.
Factors Affecting All Segments
Financial Requirements: Monsanto's recent acquisitions will require a
- ----------------------
significant commitment of the company's financial resources. In addition,
new technological innovations generally require a significant investment
for R&D and product launch. Lack of funds for investment in these areas
could hinder the company's ability to make technological innovations and to
introduce and distribute new products. Monsanto expects to generate the
required capital by increasing the revenues of its core businesses, by
seeking sufficient outside 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
67
<PAGE>
<PAGE>
rights of third parties. Monsanto's patents and trademarks are of material
importance in the operation of its business, particularly in the
Agricultural Products and Pharmaceuticals segments. Intellectual property
positions are becoming increasingly important within the agricultural
biotechnology and pharmaceutical industries, as products developed through
biotechnology become a larger part of the product landscape.
Monsanto generally relies upon patent and trademark laws worldwide to
establish and maintain its proprietary rights in its technology and
products. There is some uncertainty about the value of available patent
protection in certain countries outside the United States. Moreover, the
patent positions of biotechnology and pharmaceutical companies involve
complex legal and factual questions. Rapid technological advances and the
number of companies performing such research can create an uncertain
environment. Patent applications in the United States are kept secret:
outside the United States, patent applications are published 18 months
after filing. Accordingly, competitors may be issued patents from time to
time without any prior warning to the company. That could decrease the
value of similar technologies under development at Monsanto. Because of
this rapid pace of change, some of the company's products may unknowingly
rely on key technologies developed by others. If that occurs, the company
must obtain licenses to such technologies in order to continue to use them.
Certain of Monsanto's germplasm and other genetic material, patents, and
licenses are currently the subject of litigation and additional future
litigation is anticipated. Although the outcome of such litigation cannot
be predicted with certainty, Monsanto will continue to defend and litigate
its positions vigorously. The company believes it has meritorious defenses
and claims in the pending suits.
Markets Outside the United States: Sales outside the United States made up
- ---------------------------------
approximately 45 percent of the company's 1998 revenues and Monsanto
intends to continue to actively explore international sales opportunities.
Challenges the company may face in international markets include changes in
foreign currency exchange rates, changes in a specific country's or
region's political or economic conditions, trade protection measures,
import or export licensing requirements, and unexpected changes in
regulatory requirements. In particular, the decline in certain Latin
American economies may, if not reversed, adversely affect future income.
Also, future sales may decrease because the decline in such economies could
cause customers to purchase fewer goods in general, and also because
imported Monsanto products could become more expensive for customers to
purchase in their local currency.
Joint Ventures and Alliances: The company plans to continue to
- ----------------------------
frequently explore the potential benefits of possible strategic alliances
and joint ventures. Such arrangements can help speed the development and
commercialization of new products or assist in product distribution and
marketing. However, despite its efforts, the company may be unable to
reach agreement with third parties with whom it desires to enter into a
joint venture or other alliance.
Restructuring: Monsanto has announced an aggressive plan to
- -------------
restructure its business, including the elimination of a number of
employment positions and the divestiture of certain non-strategic assets.
The inherent uncertainty related to a restructuring, and the resulting
increased demands on certain employees, could cause a temporary
interruption of or loss of momentum in Monsanto's business. In addition,
the success of the company's divestiture plan will depend on its ability to
negotiate acceptable sales prices for such assets which is in turn largely
dependent on the long-term prospects and strategic value of the divested
businesses and the availability of a buyer with sufficient financial
resources.
Year 2000 Readiness: The dates on which Monsanto believes the Year 2000
- -------------------
(Y2K) Program will be completed are based on management's best estimates,
which include numerous assumptions about future events. There can be no
guarantee that these estimates will be achieved, or that there will not be
a delay in, or increased costs associated with, the implementation of the
Y2K Program. Factors that may cause delays in the Y2K Program or increased
costs in connection with it include, but are not limited to, the continued
availability and cost of experts trained in these areas, the ability to
locate and correct all relevant
68
<PAGE>
<PAGE>
computer code and embedded systems, and the success of similar programs
conducted by suppliers and other third parties.
69
<PAGE>
<PAGE>
<TABLE>
Financial Summary
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(Dollars in millions, except per share
and share amounts) 1998<F1> 1997<F2> 1996<F3> 1995<F4> 1994<F5>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net Sales $ 7,237 $ 6,058 $ 4,862 $ 4,165 $ 3,639
Income (Loss) from Continuing Operations (131) 149 279 386 350
As a Percent of Net Sales<F6> 2% 6% 9% 10%
Income (Loss) from
Discontinued Operations<F7> (119) 321 106 353 272
Net Income (Loss) (250) 470 385 739 622
- ------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE:
Income (Loss) from Continuing Operations $ (0.22) $ 0.24 $ 0.47 $ 0.67 $ 0.63
Net Income (Loss) (0.41) 0.77 0.64 1.27 1.06
- ------------------------------------------------------------------------------------------------------------------------------
YEAR-END FINANCIAL POSITION
Total Assets $16,385 $10,517 $ 8,619 $ 8,008 $ 6,537
Working Capital 1,415 270 446 896 1,074
- ------------------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment:
Gross<F10> $ 5,185 $ 3,885 $ 4,428 $ 4,111 $ 3,748
Net 2,865 1,921 1,629 1,413 1,405
- ------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt $ 6,259 $ 1,979 $ 1,608 $ 1,667 $ 1,405
Shareowners' Equity 4,986 4,104 3,690 3,732 2,948
- ------------------------------------------------------------------------------------------------------------------------------
Current Ratio 1.37 1.08 1.19 1.50 1.74
Percent of Total Debt to Total Capitalization 60% 47% 38% 35% 37%
- ------------------------------------------------------------------------------------------------------------------------------
OTHER DATA
Stock Price:
High $ 63 15/16 $ 52 15/16 $ 43 1/4 $ 25 $ 17 3/8
Low 33 3/4 34 3/4 23 13 3/4 13 3/8
Year-End 47 1/2 42 38 7/8 24 1/2 14 1/8
Price/Earnings Ratio on Year-End Stock Price<F6> 55 60 19 13
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE:
Dividends<F9> $ 0.120 $ 0.500 $ 0.588 $ 0.540 $ 0.494
Shareowners' Equity 7.93 6.89 6.31 6.46 5.29
- ------------------------------------------------------------------------------------------------------------------------------
Shareowners (year-end) 62,769 61,265 54,828 50,745 53,694
- ------------------------------------------------------------------------------------------------------------------------------
Shares Outstanding (year-end, in millions) 629 595 584 575 560
- ------------------------------------------------------------------------------------------------------------------------------
Employees (year-end)<F8> 31,800 21,900 28,000 28,500 29,400
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> 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 (R&D), and charges
for the cancellation of DEKALB(R) stock options.
<F2> Income from continuing operations for 1997 included $404 million, or
$0.66 per share, for the write-off of acquired in-process R&D.
<F3> 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 work force reductions.
<F4> Income from continuing operations for 1995 included restructuring
expenses and other unusual items of $63 million, or $0.11 per share.
<F5> Income from continuing operations for 1994 included a net aftertax
gain for restructuring and other unusual items of $20 million, or
$0.03 per share.
<F6> This financial statistic is not meaningful for 1998 because Monsanto
reported a loss from continuing operations.
<F7> Includes sale of styrenics plastics business in 1995, spinoff of the
chemicals businesses in 1997, and classification of the Alginates,
Artificial sweeteners, and biogums business as discontinued
operations.
<F8> Amounts not restated for the classification of Nutrition and Consumer
Products segment as discontinued operations. In addition, amounts
prior to 1997 were not restated to reflect the spinoff of the
chemical businesses.
<F9> The quarterly common stock dividend was reduced from $0.16 per share
to $0.03 per share in the fourth quarter of 1997.
<F10> Gross property, plant and equipment amounts prior to 1997 were not
restated to reflect the reclassification of the former Nutrition &
Consumer products businesses as discontinued operations.
</TABLE>
70
<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; whereas in the printed copy of the Form 10-K, all
registered trademarks are indicated by the letter "R" in a circle.
71
