• Quarterly sales increased 7 percent, primarily because of increased corn seed sales in Europe and Brazil, higher corn and soybean trait revenues in the United States, and higher revenues for Monsanto’s cotton traits in Australia.

• Reported net loss for the quarter was $40 million, including a pretax charge of $284 million ($181 million after tax) to establish a reserve associated with the Solutia Inc. bankruptcy proceedings and a tax benefit of $106 million ($86 million in discontinued operations and $20 million in continuing operations) as a result of the loss incurred on the European wheat and barley business.

• Monsanto confirmed the company’s earnings per share (EPS) guidance for fiscal year 2005, which was updated in December. The company expects EPS to be in the range of $1.85 to $2.00 per share on an ongoing basis and in the range of $1.56 to $1.71 per share on a reported basis. The company also reiterated its free cash flow guidance, which is expected to be in the range of $600 million. (For reconciliations of ongoing EPS and free cash flow, see note 1.)

Comment from Monsanto Chairman, President and Chief Executive Officer Hugh Grant:

“The value of our seeds and traits business is growing globally, as we saw good early performance in the first quarter not only in the United States but also in Brazil, Europe and Australia for this segment. The first quarter was a good start to the fiscal year, yet the most significant part of our annual business cycle is still to come. We’re committed to delivering on our revised earnings guidance for the ongoing business, and on our free cash flow guidance, while returning cash to shareowners through vehicles like our recent dividend increase, share repurchases and investments that grow and expand the business.”

First-Quarter 2005 Performance Summary:

Net sales increased 7 percent to $1.1 billion in the first quarter primarily because of continued strong sales of branded corn seed in Europe and Brazil, higher corn and soybean trait revenues in the United States, and higher cotton trait revenues in Australia. Sales in the Seeds and Genomics segment increased by 20 percent for the quarter. The higher revenues from seeds and traits were offset by a slight decline in the Agricultural Productivity segment as sales of Roundup and nonbranded glyphosate herbicides were flat for the quarter, and there was a decrease in revenues from the company’s other Agricultural Productivity products.

Net loss and earnings (loss) per share: Monsanto recorded a first-quarter fiscal year 2005 net loss of $40 million, or $(0.15) per share, compared with a net loss of $97 million, or $(0.37) per share, in the first quarter of fiscal year 2004.

Items affecting comparability for first quarter of 2005 included:

• A $0.40 per share tax benefit ($0.33 in discontinued operations and $0.07 in continuing operations) as a result of the loss incurred on the European wheat and barley business.
• A $(0.68) per share charge associated with certain liabilities in connection with the Solutia bankruptcy.

Items affecting comparability for first quarter of 2004 included:

• A $(0.26) per share charge for the write-off of goodwill associated with the global wheat and barley business.
• Net restructuring charges of $(0.07) per share.
• Discontinued businesses and related restructuring charges of $(0.08) per share.

Operating costs: Research-and-development (R&D) expenses increased 14 percent to $132 million for the first quarter of fiscal year 2005, compared to R&D expenses of $116 million for first-quarter fiscal year 2004. The increase in R&D expenses was driven by in-process R&D costs associated with the acquisition of the North American canola seed assets of Advanta Seeds, as well as the acquisition of Channel Bio Corp. by Monsanto’s American Seeds, Inc. subsidiary. In the first quarter of fiscal year 2005, selling, general and administrative (SG&A) expenses decreased 6 percent to $260 million compared with the same period last year. The decrease was driven primarily by lower sales-and-marketing expenses in the United States and Argentina.

For the first quarter of fiscal year 2005, bad-debt expense decreased 44 percent to $10 million for the quarter compared to the first quarter of fiscal year 2004 when the bad-debt expense reflected higher estimated uncollectible accounts receivable in Argentina.

Cash flow: For first-quarter fiscal year 2005, net cash provided by operations was $769 million, compared with $661 million in first-quarter fiscal year 2004. Net cash provided by investing activities was $1 million for first-quarter fiscal year 2005, compared to $175 million for the same 2004 quarter. As a result, free cash flow for first-quarter fiscal year 2005 was $770 million, compared to $836 million in the first quarter of fiscal year 2004. The decrease in free cash flow was driven by the Advanta Seeds and Channel Bio Corp. acquisitions, with employee incentives and more normalized levels of receivables compared to the prior year also factoring into the results. In
the first quarter of fiscal year 2004, free cash flow was also affected by payments related to the Solutia-Anniston, Alabama, litigation settlement. (For a reconciliation of free cash flow, see note 1.)

Seeds and Genomics Segment Detail
 

The Seeds and Genomics segment consists of the global seeds and related trait business, and genetic technology platforms.

First-quarter 2005 net sales of $461 million for the Seeds and Genomics segment were $76 million higher than sales of $385 million recorded in the first quarter of fiscal year 2004. This improvement was largely driven by the performance of the Brazilian branded corn seed business and stronger corn seed sales in Europe. Higher revenues from corn and soybean traits in the United States and cotton traits in Australia also contributed to the increase. Corn seeds and traits benefited from earlier-than-expected shipments of our products.

EBIT (earnings (loss) from continuing operations before interest and income taxes) for the Seeds and Genomics segment was $15 million in the first quarter of fiscal year 2005, compared with EBIT of $(96) million in the first quarter of 2004. The improvement in EBIT for the quarter was driven by increased revenue for higher-margin traits and lower operating expenses. (For a reconciliation of EBIT, see note 1.)

Agricultural Productivity Segment Detail
 

The Agricultural Productivity segment consists primarily of crop protection products, the lawn-andgarden herbicide business, and the company’s animal agricultural business.

Net sales in the Agricultural Productivity segment decreased slightly to $637 million for the quarter from $643 million in the first quarter of fiscal year 2004. Sales of Roundup and other glyphosate-based herbicides were flat for the quarter, while revenues from all other Agricultural Productivity products decreased 3 percent.

EBIT (earnings (loss) from continuing operations before interest and income taxes) for this segment was $(225) million in the first quarter of 2005, compared with $30 million in the first quarter of fiscal year 2004. EBIT for this segment was affected by the Solutia-related charge, which drove the significant decrease for the quarter. (For a reconciliation of EBIT, see note 1.)

Outlook Comment from Monsanto Chairman, President and Chief Executive Officer Hugh Grant:

“I believe that the momentum created by our research and our first-mover advantage, coupled with our market leadership, puts us in a unique position. We’re managing for momentum and acceleration. We’re not taking anything for granted. We’re focused on delivering on our commitments, driving seed and trait growth and returning value to our shareowners.”

2005 Earnings and Free Cash Flow Outlook:

On Dec. 20, 2004, Monsanto increased the company’s EPS guidance for fiscal year 2005, expected to be in the range of $1.85 to $2.00 on an ongoing basis. The ongoing EPS guidance excludes both a 68 cent-per-share charge associated with the establishment of the Solutia-related reserve and a tax benefit of approximately 39 cents per share as a result of the loss incurred on the European wheat and barley business. On a reported basis, EPS is in the range of $1.56 to $1.71 per share for the full fiscal year. (For a reconciliation of ongoing EPS, see note 1.)

Management reiterated its expectation for free cash flow generation for fiscal year 2005, expected to be in the range of $600 million. The company expects net cash provided by operations to be approximately $1 billion, and net cash required by investing activities to be approximately $400 million. (For a reconciliation of free cash flow, see note 1.)

Other Items of Note:

On Dec. 20, 2004, Monsanto announced plans to establish a reserve associated with the Solutia Inc. bankruptcy proceedings. The charge is $284 million pretax and anticipates certain litigation and environmental liabilities reverting to Pharmacia, and by extension, to Monsanto. Monsanto believes that this charge, based on what is known today, represents the cost that it would expect to incur for various litigation and environmental liabilities. However, given the current status of Solutia’s bankruptcy proceedings, actual costs to Monsanto may be materially different than this estimate.

On Dec. 14, 2004, Monsanto announced that a jury has found in favor of Monsanto and codefendant Dow AgroSciences in a patent infringement case brought by Syngenta Seeds, Inc., in which Syngenta alleged infringement on three patents related to certain insect-protected corn traits.

On Dec. 7, 2004, Monsanto’s Board of Directors increased the quarterly dividend on its common shares from 14.5 cents per share to 17 cents per share, or an increase of 17 percent. Since Monsanto was spun off as an independent company in August 2002, its Board of Directors has raised the dividend three times by a cumulative total of 42 percent.

On Nov. 16, 2004, Monsanto announced the formation of American Seeds, Inc. (ASI), a new holding company established to support regional seed businesses with capital, genetics and technology investments. ASI also announced it acquired Channel Bio Corp., a leading U.S. seed company based in Kentland, Indiana.

On Oct. 26, 2004, the European Commission approved the use of Monsanto’s Roundup Ready Corn NK603 and its processed products as food and food ingredients under the Novel Foods Regulation. The decision authorized the use of NK603 for human consumption and completed the necessary steps for allowing the import, processing and use of NK603 grain in animal feed in the European Union.

On Oct. 13, 2004, a state circuit court in Mississippi granted Monsanto’s request for partial summary judgment in a lawsuit brought by Delta and Pine Land (D&PL) Company, thereby eliminating a key element of D&PL’s damage claim against Monsanto. D&PL had sought damages for lost stock market value of approximately $1 billion.

Monsanto Company is a leading global provider of technology-based solutions and agricultural products that improve farm productivity and food quality.

Roundup and Roundup Ready are registered trademarks owned by Monsanto Company and its wholly owned subsidiaries.

References to “Roundup” herbicides mean Roundup branded and other branded glyphosate-based herbicides, excluding all lawn-and-garden herbicides; references to “Roundup and other glyphosate-based agricultural herbicides” mean both branded and nonbranded glyphosate-based herbicides, excluding all lawn-and-garden herbicide products.

2.       Restructuring:  In October 2003, Monsanto announced plans to continue to reduce the costs associated with its agricultural chemistry business as that segment matures globally. The company has further concentrated its resources on its core seeds and traits businesses. These plans included: (1) reducing costs associated with the company’s Roundup herbicide business; (2) exiting the European breeding and seed business for wheat and barley; and (3) discontinuing the plant-made pharmaceuticals program. In fiscal year 2004, total charges related to these actions were $105 million aftertax. Additionally, the plans included the impairment of goodwill in the global wheat business of $69 million. In fiscal year 2005, the company incurred charges of $1 million pretax to complete the restructuring actions under this plan. No further actions are planned in 2005.

Activities related to the restructuring plan items were recorded in the Condensed Statement of Consolidated Operations in the following categories:

(1) The restructuring charges for the three months ended Nov. 30, 2003, included prior plan restructuring reversals of $1 million (recorded in the Agricultural Productivity segment). Restructuring charges of $1 million for the three months ended Nov. 30, 2004, were recorded in the Agricultural Productivity segment.

In first quarter 2005, Monsanto recorded a deferred tax benefit of $106 million, of which $20 million was recorded in continuing operations, and the remaining $86 million was recorded in discontinued operations. The $20 million tax benefit recorded in continuing operations is related to the impairment of goodwill in the global wheat business as part of the fiscal year 2004 restructuring plan and thus is included in the table above.  The tax benefit of $86 million recorded in discontinued operations was primarily related to the goodwill write-off at the date of adoption of SFAS 142, Goodwill and Other Intangible Assets (SFAS 142), on Jan. 1, 2002, and thus is not reflected in the table above. Upon adoption of SFAS 142, the goodwill impairment was recorded as a cumulative effect of a change in accounting principle, and the impairment for the wheat reporting unit was primarily related to the discontinued European wheat and barley business.

3.       Depreciation and Amortization:  The following table displays the depreciation and amortization expense by segment for the three months ended Nov. 30, 2004, and Nov. 30, 2003:

(1)  Does not include the $69 million adjustment of goodwill in fiscal year 2004.

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