Financial Summary
($ in millions, except per share)
Second Second %chg Six Six %chg
Quarter Quarter Months Months
2003 2002 2003 2002
Net Sales $1,682 $1,553 8% $2,829 $2,774 2%
Net Income (Loss) $295 $147 101% $355 $(1,589) NM
Diluted Earnings
(Loss) per Share $1.12 $0.56 100% $1.35 $(6.02) NM
NM = Not Meaningful
-- Quarterly sales improved by 8 percent over 2002 second-quarter sales,
primarily because of increased corn seed sales and higher trait
revenues for soybeans, corn, cotton and canola.
-- Net income for the quarter was $295 million versus $147 million in the
second quarter of 2002, which included several factors that affected
comparability.
-- U.S. acreage for Monsanto's biotech traits in 2003 estimated to
increase 8 percent to 104.8 million acres.
Comment from
Monsanto President and Chief Executive Officer Hugh Grant:
"Our results in the second quarter were anchored by strong and steady
growth in our seeds and biotechnology traits businesses. We also continued to
effectively manage our Roundup herbicide franchise in a post-patent
environment."
Second-Quarter and First-Half 2003 Performance Summary:
Net sales increased 8 percent to $1.7 billion in the second quarter
primarily because of higher Latin American and U.S. corn seed sales and higher
trait revenues for corn, cotton, soybeans and canola in North America. These
improvements were somewhat offset by lower sales of Roundup and selective
herbicides in the United States.
For the first half, net sales were $2.8 billion, a 2 percent improvement
compared with net sales in the same period last year. Improved performance of
our corn seed business in Latin America, higher sales of corn seed in the
United States, and higher revenues for technology traits were largely offset
by lower U.S. sales of Roundup and selective herbicides.
Net income and earnings per share: On a reported basis, second-quarter
2003 net income was $295 million, or $1.12 cents per share, compared with last
year's second-quarter net income of $147 million, or $0.56 per share.
The company's first-half 2003 net income of $355 million, or $1.35 per
share, included a 5 cent-per share charge associated with an accounting change
related to asset retirement obligations that was taken in the first quarter.
For the first half of 2002, Monsanto reported a net loss of $1.6 billion, or a
loss of $6.02 per share. Several factors during the first half of 2002
affected comparability, including a charge for goodwill impairment ($6.90 per
share), establishment of an Argentine bad-debt reserve (38 cents per share),
restructuring charges (16 cents per share), and an 8 cent-per share gain from
an asset sale in Japan.
Operating costs: The company continued efforts to manage its costs in the
quarter, with research-and-development (R&D) expenses declining by 9 percent,
and the benefits of lower operational selling, general and administrative
(SG&A) expenses being more than offset by accruals for potential incentive
payments to employees.
Through the first half of the year, R&D expenses declined by 6 percent and
the benefits of lower operational SG&A expenses were somewhat offset by
accruals for potential incentive payments to employees, resulting in SG&A
expenses $18 million higher than SG&A costs in the same period last year.
Cash flow: Year-to-date net cash required by operations was $138 million
in 2003, compared with $347 million through the first six months of 2002. Net
cash required by investing activities was $85 million through the first half
of 2003, and $84 million for the same period last year. Thus, year-to-date
free cash flow improved by $208 million, from a negative $431 million in the
first half of 2002 to a negative $223 million in this year's first half. (For
reconciliation, see note 6.)
Seeds and Genomics Segment Detail
Product sales
($ in millions) Second Second Six Six
Quarter Quarter Months Months
2003 2002 % change 2003 2002 % change
TOTAL seeds and
genomics $488 $214 128% $1,038 $799 30%
The Seeds and Genomics segment consists of the global seeds and related
trait business, and genetic technology platforms.
Second-quarter net sales of $488 million for the Seeds and Genomics
segment more than doubled compared with sales recorded in last year's second
quarter. This improvement was driven by the actions taken last year in Latin
America by Monsanto management as well as improved economic conditions there.
Corn seed sales were up for the quarter and the first half. Branded soybean
seed sales were higher for the quarter; and as expected, were modestly lower
for the first half of 2003. Revenues were up for Monsanto's soybean, corn,
cotton and canola traits in the quarter-to-quarter comparison. For the six-
month calendar year comparison, the improvement was driven primarily by higher
revenues for the company's cotton and canola traits.
For the full 2003 crop year, Monsanto estimates that its insect-protected
and Roundup Ready technology traits were planted on approximately 104.8
million acres in the United States. This represents an increase of 8 percent
compared with 97.3 million U.S. acres planted with Monsanto's traits the
previous crop year.
EBIT (net income before cumulative effect of accounting change, interest,
and income taxes) for the Seeds and Genomics segment improved by $255 million
in the second quarter, to a positive $59 million this year, from a loss of
$196 million in the second quarter of 2002. EBIT also improved for the first
six-month period, to a positive $154 million this year, from a loss of $80
million in 2002. The major factors for the improvement in both periods were
higher overall sales of seeds and traits, and lower corn seed returns in Latin
America. (For reconciliation, see note 5.)
Agricultural Productivity Segment Detail
Product sales
($ in millions) Second Second Six Six
Quarter Quarter Months Months
2003 2002 % Change 2003 2002 % Change
Roundup and other
glyphosate-based
agricultural
herbicides $739 $844 (12)% $1,060 $1,205 (12)%
All other
agricultural
productivity
products $455 $495 (8)% $731 $770 (5)%
TOTAL agricultural
productivity $1,194 $1,339 (11)% $1,791 $1,975 (9)%
The Agricultural Productivity segment consists primarily of crop
protection products, the lawn-and-garden herbicide business, and the company's
animal agricultural business.
Net sales in the Agricultural Productivity segment declined by $145
million in the quarter-to-quarter comparison and $184 million in the first-
half comparison, primarily as a result of lower sales of branded Roundup and
selective herbicides.
EBIT (net income before cumulative effect of accounting change, interest,
and income taxes) declined by 7 percent to $395 million for the second quarter
of 2003, from $426 million in the same period last year. For the first half,
EBIT for this segment is down 7 percent, to $424 million. The EBIT decline is
driven primarily by lower volumes of branded Roundup and a shift to lower-
priced brands of Roundup, as expected in the post-patent U.S. market. (For
reconciliation, see note 5.)
Other Items of Note:
On July 31, Monsanto announced a share repurchase program authorizing the
purchase of up to $500 million of the company's shares of common stock over a
three-year period.
In its second-quarter financial release on July 29, Solutia Inc. announced
reduced earnings and cash flow. Solutia also said that it is considering all
available alternatives to address liabilities it assumed from Pharmacia
Corporation (now a subsidiary of Pfizer Inc.) in its 1997 spinoff. As
Monsanto has previously disclosed, it has agreed to indemnify Pharmacia for
certain obligations if Solutia is unable to pay, perform or discharge those
liabilities. Obviously, these disclosures by Solutia suggest an increased
level of potential risk for Monsanto.
On July 23, the company announced a fiscal year-end change to August 31
from December 31 to align its business cycle more closely with those of its
customers, thereby improving the clarity of Monsanto's business cycle to
investors.
On June 27, Monsanto requested permission to file a counterclaim in the
lawsuit brought by Delta and Pine Land Company against Monsanto relating to
the failed merger. Monsanto's counterclaim would seek substantial damages and
recoupment of the $83 million breakup fee previously paid to Delta and Pine
Land. In addition, Delta and Pine Land has requested that this trial,
originally scheduled for January 2004, be postponed until July 2004. There
has been no ruling on either request by the court.
As noted in the Seeds and Genomics segment discussion, Monsanto's
preliminary data for the 2003 crop year indicates an 8 percent increase in the
number of U.S. acres planted with the company's technology traits. The
supplemental chart providing an estimate of this biotechnology acreage
information can be found on Monsanto's web site by selecting "1996 - 2003
Monsanto Biotechnology U.S. Trait Acreage" in the Financial Reports section
under the investor information page.
Other supplemental data to this news release, including slides that
accompany the company's financial results conference call, can also be found
in the Financial Reports section under the investor information page of the
company's web site at: www.monsanto.com .
Outlook Comment from President and Chief Executive Officer Hugh Grant:
"We're pleased with our results through the first six months of 2003, and
we're looking forward to providing a complete crop year picture of our
business as we switch to the new fiscal-year calendar. We're now focused on
the predominant Latin American planting season which begins as early as
September, and we're also making pricing decisions in anticipation of the 2004
North American crop year."
2003 Earnings and Free Cash Flow Outlook:
As noted above, Monsanto is changing its fiscal year-end to August 31.
The company plans to provide earnings and free cash flow guidance for this new
crop fiscal year in October. However, management also intends to report
earnings and cash flow information for the current calendar year so that the
company's progress on meeting its original 2003 financial commitments can be
tracked.
Monsanto management refined its current calendar full-year 2003 earnings
per share (EPS) guidance to the higher side of its earlier range. The revised
EPS range of $1.30 to $1.40 excludes the 5-cent cumulative effect of the new
accounting standard (see note 2).
Management reiterated its expectation of generating free cash flow in the
2003 calendar year in the range of $350 million to $400 million. Management
anticipates cash from operating activities will be in the range of
$530 million to $560 million, and that cash used in investing activities will
be in the range of $160 million to $180 million. For a reconciliation of
projected free cash flow for 2003, see note 7.
Monsanto Company is a leading global provider of technology-
based solutions and agricultural products that improve farm productivity and
food quality.
Monsanto Company and Subsidiaries
Selected Financial Information
(Dollars in millions, except per share amounts)
Unaudited
Condensed Statement of
Consolidated Operations Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
Net Sales $1,682 $1,553 $2,829 $2,774
Cost of Goods Sold 788 735 1,402 1,352
Gross Profit 894 818 1,427 1,422
Operating Expenses:
Selling, General and
Administrative Expenses 276 237 550 532
Bad Debt Expense 13 164 15 167
Research and Development Expenses 125 137 241 256
Restructuring Charges - Net (1) 57 (1) 57
Total Operating Expenses 413 595 805 1,012
Income from Operations 481 223 622 410
Interest Expense - Net 17 15 34 29
Other Expense (Income) - Net 27 (7) 44 36
Income Before Taxes and Cumulative
Effect of Accounting Change 437 215 544 345
Income Tax Expense 142 68 177 112
Income Before Cumulative Effect of
Accounting Change 295 147 367 233
Cumulative Effect of Change in
Accounting Principle - Net of
Taxes of $7 and $162 (2,3) - - 12 (1,822)
Net Income (Loss) $295 $147 $355 $(1,589)
EBIT (1,5) $454 $230 $578 $374
Basic Earnings (Loss) per Share
Income Before Cumulative Effect
of Accounting Change $1.13 $0.56 $1.40 $0.90
Cumulative Effect of Accounting
Change - Net of Tax - - (0.05) (7.01)
Net Income (Loss) $1.13 $0.56 $1.35 $(6.11)
Diluted Earnings (Loss) per Share
Income Before Cumulative Effect
of Accounting Change $1.12 $0.56 $1.40 $0.88
Cumulative Effect of Accounting
Change - Net of Tax - - (0.05) (6.90)
Net Income (Loss) $1.12 $0.56 $1.35 $(6.02)
Shares Outstanding:
Basic Shares 261.5 261.2 261.5 260.0
Diluted Shares 262.4 264.3 261.9 263.8
Monsanto Company and Subsidiaries
Selected Financial Information
(Dollars in millions)
Unaudited
Condensed Statement of Consolidated
Financial Position
June 30, Dec. 31,
2003 2002
Assets
Current Assets:
Cash and Cash Equivalents $311 $428
Short-Term Investments 230 250
Trade Receivables - Net of Allowances of $247
in 2003 and 2002 2,709 1,752
Inventories 1,247 1,272
Other Current Assets 704 722
Total Current Assets 5,201 4,424
Property, Plant and Equipment - Net 2,322 2,339
Goodwill - Net 780 757
Other Intangible Assets - Net 593 643
Other Assets 817 727
Total Assets $9,713 $8,890
Liabilities and Shareowners' Equity
Current Liabilities:
Short-Term Debt $340 $393
Accounts Payable 312 275
Accrued Liabilities 1,249 1,142
Total Current Liabilities 1,901 1,810
Long-Term Debt 1,103 851
Postretirement and Other Liabilities 1,069 1,049
Shareowners' Equity 5,640 5,180
Total Liabilities and Shareowners' Equity $9,713 $8,890
Debt to Capital Ratio: 20% 19%
Monsanto Company and Subsidiaries
Selected Financial Information
(Dollars in millions)
Unaudited
Statement of Consolidated Cash Flows Six Months Six Months
Ended Ended
June 30, June 30,
2003 2002
Operating Activities:
Net Income (Loss) $355 $(1,589)
Adjustments to reconcile cash provided (required)
by operations:
Items that did not require (provide) cash:
Pretax cumulative effect of change in
accounting principle 19 1,984
Depreciation and amortization expense 225 229
Bad-debt expense 15 167
Noncash restructuring - 27
Deferred income taxes (8) (226)
Gain on disposal of investments and property
- net - (52)
Equity affiliate expense - net 19 20
Other items that did not require cash 18 17
Changes in assets and liabilities that provided
(required) cash:
Trade receivables (1,089) (1,072)
Inventories 87 121
Accounts payable and accrued liabilities 263 9
Related party transactions - (37)
Tax benefit on employee stock options - 11
Deferred revenue on supply agreements (5) 47
Net investment hedge loss (14) (6)
Other Items (23) 3
Net Cash Required by Operations (138) (347)
Cash Flows Provided (Required) by Investing
Activities:
Acquisitions and investments (259) (60)
Investment proceeds 250 -
Property, plant and equipment purchases (79) (101)
Property disposal proceeds 3 63
Loans with related party - 14
Net Cash Required by Investing Activities (85) (84)
Cash Flows Provided (Required) by Financing
Activities:
Net change in short-term financing (5) 488
Loans from related party - (59)
Long-term debt proceeds 253 41
Long-term debt reductions (74) (70)
Debt issuance costs (2) -
Payments on other financing (6) -
Stock option exercises 3 63
Dividend payments (63) (62)
Net Cash Provided by Financing Activities 106 401
Net Decrease in Cash and Cash Equivalents (117) (30)
Cash and Cash Equivalents at Beginning of Year 428 307
Cash and Cash Equivalents at End of Period $311 $277
Monsanto Company and Subsidiaries
Selected Financial Information
(Dollars in millions)
Unaudited
1. EBIT and Free Cash Flow: As reflected in Monsanto's Condensed
Statement of Consolidated Operations presented in this release, EBIT is
earnings (loss) before cumulative effect of accounting change, interest
and income taxes. Free cash flow represents the total of cash flows
from operations and investing activities, as reflected in Monsanto's
Statement of Consolidated Cash Flows presented in this release. The
presentation of EBIT and free cash flow is not intended to replace net
income (loss), cash flows, financial position or comprehensive income
(loss), and they are not measures of financial performance as
determined in accordance with generally accepted accounting principles
in the United States.
2. Adjustment for New Accounting Standard No. 143: On Jan. 1, 2003,
Monsanto adopted Standard of Financial Accounting Standards (SFAS) No.
143, Accounting for Asset Retirement Obligations. SFAS No. 143
addresses financial accounting for and reporting of costs and
obligations associated with the retirement of tangible long-lived
assets. Upon adopting this standard, Monsanto recorded a pretax
cumulative effect of accounting change of $19 million ($12 million
aftertax, or $0.05 per share) effective Jan. 1, 2003. In addition to
this noncash charge, property, plant and equipment was increased
approximately $10 million, and asset retirement obligations were
increased approximately $30 million.
3. Adjustment for New Accounting Standard No. 142: On Jan. 1, 2002,
Monsanto adopted SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 142 changed the accounting for goodwill from an amortization
method to an impairment-only method and eliminated goodwill
amortization. As a result of the transitional goodwill impairment test
completed in 2002, goodwill was reduced by $2 billion and net deferred
tax assets increased by $162 million as a result of the related tax
effect. This resulted in a net loss and net reduction of $1.8 billion
to shareowners' equity for the year 2002.
4. Restructuring: In the second quarter of 2003, Monsanto reversed
$1 million of excess restructuring charges taken in prior years.
Restructuring items in 2002 were primarily associated with the 2002
plan related to facility rationalizations and work force reductions.
Income (loss) related to these items were recorded in the Condensed
Statement of Consolidated Operations in the following categories:
Three and Six Months Ended
June 30, 2002
Cost of Goods Sold $(9)
Restructuring Charges - Net (57)
Total Before Taxes and Cumulative Effect of
Accounting Change
(66)
Income Tax Benefit 23
Total Before Cumulative Effect of Accounting Change
$(43)
The pretax loss components of restructuring were as follows:
Three and Six Months Ended
June 30, 2002
Restructuring
Restructuring Charges $(39)
Write-off of Property, Plant and Equipment (27)
Total Pretax Restructuring $(66)
5. Reconciliation of EBIT(1) to Income Before Cumulative Effect of
Accounting Change:
Total Monsanto Company and Subsidiaries:
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
EBIT - Seeds and Genomics Segment $59 $(196) $154 $(80)
EBIT - Agricultural Productivity
Segment 395 426 424 454
EBIT - Total Company $454 $230 $578 $374
Interest Expense - Net 17 15 34 29
Income Tax Expense 142 68 177 112
Income Before Cumulative Effect
of Accounting Change $295 $147 $367 $233
6. Reconciliation of Free Cash Flow(1) to Statement of Consolidated Cash
Flows:
Total Monsanto Company and Subsidiaries:
Six Months Six Months
Ended Ended
June 30, June 30,
2003 2002
Net Cash Required by Operations $(138) $(347)
Net Cash Required by Investing Activities (85) (84)
Free Cash Flow $(223) $(431)
7. Reconciliation of Projected Free Cash Flow for 2003:
Total Monsanto Company and Subsidiaries:
Twelve Months
Ended
Dec. 31, 2003
Net Cash Provided by Operations $ 530 - $ 560
Net Cash Required by Investing Activities (180) - (160)
Projected Free Cash Flow for 2003 $ 350 - $ 400
