FORM 10-Q
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MONSANTO COMPANY | | THIRD QUARTER 2009 FORM 10-Q |
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 31, 2009
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from to
Commission file number 001-16167
MONSANTO COMPANY
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
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43-1878297
(I.R.S. Employer Identification No.) |
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800 North Lindbergh Blvd.,
St. Louis, MO
(Address of principal executive offices)
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63167
(Zip Code) |
(314) 694-1000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
o No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date: 545,914,315 shares of Common Stock, $0.01 par value, outstanding as
of June 23, 2009.
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MONSANTO COMPANY
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THIRD QUARTER 2009 FORM 10-Q |
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CAUTION REGARDING FORWARD-LOOKING STATEMENTS
In the interests of our investors, and in accordance with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, this section of our report explains some of the
important reasons that actual results may be materially different from those that we anticipate. In
this report, and from time to time throughout the year, we share our expectations for our companys
future performance. These forward-looking statements include statements about our business plans;
the potential development, regulatory approval, and public acceptance of our products; our expected
financial performance, including sales performance, and the anticipated effect of our strategic
actions; the anticipated benefits of recent acquisitions; the outcome of contingencies, such as
litigation; domestic or international economic, political and market conditions; and other factors
that could affect our future results of operations or financial position, including, without
limitation, statements under the captions Overview Executive Summary Outlook, Seeds and
Genomics Segment, Agricultural Productivity Segment, Financial Condition, Liquidity, and
Capital Resources, Outlook, Critical Accounting Policies and Estimates and Legal
Proceedings. Any statements we make that are not matters of current reportage or historical fact
should be considered forward-looking. Such statements often include words such as believe,
expect, anticipate, intend, plan, estimate, will, and similar expressions. By their
nature, these types of statements are uncertain and are not guarantees of our future performance.
Since these statements are based on factors that involve risks and uncertainties, our companys
actual performance and results may differ materially from those described or implied by such
forward-looking statements. Factors that could cause or contribute to such differences include,
among others: continued competition in seeds, traits and agricultural chemicals; the companys
exposure to various contingencies, including those related to intellectual property protection,
regulatory compliance and the speed with which approvals are received, and public acceptance of
biotechnology products; the success of the companys research and development activities; the
outcomes of major lawsuits; developments related to foreign currencies and economies; successful
operation of recent acquisitions; fluctuations in commodity prices; compliance with regulations
affecting our manufacturing; the accuracy of the companys estimates related to distribution
inventory levels; the companys ability to fund its short-term financing needs and to obtain
payment for the products that it sells; the effect of weather conditions, natural disasters and
accidents on the agriculture business or the companys facilities; and other risks and factors
described or referenced in Part II Item 1A Risk Factors below and Part I Item 1A of our
Report on Form 10-K for the fiscal year ended Aug. 31, 2008.
Our forward-looking statements represent our estimates and expectations and are based on currently
available information at the time that we make those statements. However, circumstances change
constantly, often unpredictably, and many events beyond our control will determine whether the
expectations encompassed in our forward-looking statements will be realized. As a result, investors
should not place undue reliance on these forward-looking statements. We disclaim any current
intention or obligation to revise or update any forward-looking statements, or the factors that may
affect their realization, whether in light of new information, future events or otherwise, and
investors should not rely on us to do so.
1
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MONSANTO COMPANY
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THIRD QUARTER 2009 FORM 10-Q |
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TABLE OF CONTENTS
2
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MONSANTO COMPANY
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THIRD QUARTER 2009 FORM 10-Q |
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PART IFINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Statements of Consolidated Operations of Monsanto Company and its consolidated subsidiaries for
the three months and nine months ended May 31, 2009, and May 31, 2008, the Condensed Statements of
Consolidated Financial Position as of May 31, 2009, and Aug. 31, 2008, the Statements of
Consolidated Cash Flows for the nine months ended May 31, 2009, and May 31, 2008, and related Notes
to Consolidated Financial Statements follow. Unless otherwise indicated, Monsanto and the
company are used interchangeably to refer to Monsanto Company or to Monsanto Company and its
consolidated subsidiaries, as appropriate to the context. Unless otherwise indicated, earnings
(loss) per share and per share mean diluted earnings (loss) per share. In the notes to the
consolidated financial statements, all dollars are expressed in millions, except per share amounts.
Unless otherwise indicated, trademarks owned or licensed by Monsanto or its subsidiaries are shown
in all capital letters. Unless otherwise indicated, references to ROUNDUP herbicides mean ROUNDUP
branded herbicides, excluding all lawn-and-garden herbicides, and references to ROUNDUP and other
glyphosate-based herbicides exclude all lawn-and-garden herbicides.
3
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MONSANTO COMPANY
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THIRD QUARTER 2009 FORM 10-Q |
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Statements of Consolidated Operations
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Unaudited |
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Three Months Ended May 31, |
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Nine Months Ended May 31, |
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(Dollars in millions, except per share amounts) |
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2009 |
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2008 |
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2009 |
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2008 |
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Net Sales |
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$ |
3,161 |
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$ |
3,538 |
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$ |
9,845 |
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$ |
9,314 |
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Cost of goods sold |
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1,327 |
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1,571 |
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3,940 |
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4,097 |
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Gross Profit |
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1,834 |
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|
1,967 |
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5,905 |
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5,217 |
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Operating Expenses: |
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Selling, general and administrative expenses |
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504 |
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616 |
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1,576 |
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1,601 |
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Research and development expenses |
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295 |
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248 |
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812 |
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666 |
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Acquired in-process research and development |
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2 |
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162 |
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3 |
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Total Operating Expenses |
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799 |
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866 |
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2,550 |
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2,270 |
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Income from Operations |
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1,035 |
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1,101 |
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3,355 |
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2,947 |
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Interest expense |
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32 |
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31 |
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81 |
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|
97 |
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Interest income |
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(14 |
) |
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(35 |
) |
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(57 |
) |
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(105 |
) |
Solutia-related income |
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(187 |
) |
Other expense (income) net |
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4 |
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(5 |
) |
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62 |
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(2 |
) |
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Income from Continuing Operations Before Income Taxes
and Minority Interest |
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1,013 |
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1,110 |
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3,269 |
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3,144 |
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Income tax provision |
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308 |
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288 |
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924 |
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|
945 |
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Minority interest expense |
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11 |
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7 |
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14 |
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13 |
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Income from Continuing Operations |
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$ |
694 |
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$ |
815 |
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$ |
2,331 |
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$ |
2,186 |
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Discontinued Operations: |
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(Loss) income from operations of discontinued businesses |
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(7 |
) |
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19 |
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12 |
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Income tax (benefit) provision |
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(3 |
) |
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8 |
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2 |
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(Loss) Income on Discontinued Operations |
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(4 |
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11 |
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10 |
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Net Income |
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$ |
694 |
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$ |
811 |
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$ |
2,342 |
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$ |
2,196 |
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Basic Earnings per Share: |
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Income from continuing operations |
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$ |
1.27 |
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$ |
1.48 |
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$ |
4.26 |
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$ |
3.99 |
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Income on discontinued operations |
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0.02 |
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|
0.02 |
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Net Income |
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$ |
1.27 |
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$ |
1.48 |
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$ |
4.28 |
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$ |
4.01 |
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Diluted Earnings (Loss) per Share: |
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Income from continuing operations |
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$ |
1.25 |
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$ |
1.46 |
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$ |
4.19 |
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$ |
3.91 |
|
(Loss) income on discontinued operations |
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(0.01 |
) |
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0.02 |
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|
0.02 |
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Net Income |
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$ |
1.25 |
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$ |
1.45 |
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$ |
4.21 |
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$ |
3.93 |
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Weighted Average Shares Outstanding: |
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Basic |
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545.7 |
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549.0 |
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546.9 |
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|
547.6 |
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Diluted |
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554.4 |
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560.0 |
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|
555.7 |
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|
558.9 |
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Dividends Declared per Share |
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$ |
|
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|
$ |
|
|
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$ |
0.51 |
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$ |
0.35 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
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MONSANTO COMPANY
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THIRD QUARTER 2009 FORM 10-Q |
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Condensed Statements of Consolidated Financial Position
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Unaudited |
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As of May 31, |
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As of Aug. 31, |
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(Dollars in millions, except share amounts) |
|
2009 |
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2008 |
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Assets |
|
|
|
|
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|
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|
Current Assets: |
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|
|
|
|
|
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Cash and cash equivalents |
|
$ |
579 |
|
|
$ |
1,613 |
|
Trade receivables, net |
|
|
3,017 |
|
|
|
2,067 |
|
Miscellaneous receivables |
|
|
692 |
|
|
|
742 |
|
Deferred tax assets |
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|
410 |
|
|
|
338 |
|
Inventory, net |
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|
3,169 |
|
|
|
2,453 |
|
Assets of discontinued operations |
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|
|
|
|
|
153 |
|
Other current assets |
|
|
132 |
|
|
|
243 |
|
|
|
|
Total Current Assets |
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|
7,999 |
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|
|
7,609 |
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Total property, plant and equipment |
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|
6,918 |
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|
6,725 |
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Less accumulated depreciation |
|
|
3,483 |
|
|
|
3,402 |
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Property, Plant and Equipment, Net |
|
|
3,435 |
|
|
|
3,323 |
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Goodwill |
|
|
3,137 |
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|
|
3,132 |
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Other Intangible Assets, Net |
|
|
1,436 |
|
|
|
1,531 |
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Noncurrent Deferred Tax Assets |
|
|
887 |
|
|
|
1,000 |
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Long-Term Receivables, Net |
|
|
558 |
|
|
|
636 |
|
Noncurrent Assets of Discontinued Operations |
|
|
|
|
|
|
236 |
|
Other Assets |
|
|
518 |
|
|
|
524 |
|
|
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Total Assets |
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$ |
17,970 |
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|
$ |
17,991 |
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|
|
|
|
|
|
|
|
|
|
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Liabilities and Shareowners Equity |
|
|
|
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Current Liabilities: |
|
|
|
|
|
|
|
|
Short-term debt, including current portion of long-term debt |
|
$ |
120 |
|
|
$ |
24 |
|
Accounts payable |
|
|
711 |
|
|
|
1,090 |
|
Income taxes payable |
|
|
480 |
|
|
|
161 |
|
Accrued compensation and benefits |
|
|
276 |
|
|
|
441 |
|
Accrued marketing programs |
|
|
676 |
|
|
|
754 |
|
Deferred revenues |
|
|
228 |
|
|
|
867 |
|
Grower production accruals |
|
|
122 |
|
|
|
172 |
|
Dividends payable |
|
|
|
|
|
|
132 |
|
Liabilities of discontinued operations |
|
|
8 |
|
|
|
26 |
|
Miscellaneous short-term accruals |
|
|
866 |
|
|
|
772 |
|
|
|
|
Total Current Liabilities |
|
|
3,487 |
|
|
|
4,439 |
|
Long-Term Debt |
|
|
1,705 |
|
|
|
1,792 |
|
Postretirement Liabilities |
|
|
565 |
|
|
|
590 |
|
Long-Term Deferred Revenue |
|
|
496 |
|
|
|
566 |
|
Noncurrent Deferred Tax Liabilities |
|
|
133 |
|
|
|
204 |
|
Long-Term Portion of Environmental and Litigation Liabilities |
|
|
203 |
|
|
|
226 |
|
Noncurrent Liabilities of Discontinued Operations |
|
|
|
|
|
|
52 |
|
Other Liabilities |
|
|
614 |
|
|
|
748 |
|
Shareowners Equity: |
|
|
|
|
|
|
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Common stock (authorized: 1,500,000,000 shares, par value $0.01) |
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Issued 585,003,967 and 583,581,984 shares, respectively; |
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|
|
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Outstanding 545,986,705 and 548,592,933 shares, respectively |
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|
6 |
|
|
|
6 |
|
Treasury stock 39,017,262 and 34,989,051 shares, respectively, at cost |
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|
(1,489 |
) |
|
|
(1,177 |
) |
Additional contributed capital |
|
|
9,638 |
|
|
|
9,495 |
|
Retained earnings |
|
|
3,204 |
|
|
|
1,138 |
|
Accumulated other comprehensive loss |
|
|
(586 |
) |
|
|
(78 |
) |
Reserve for ESOP debt retirement |
|
|
(6 |
) |
|
|
(10 |
) |
|
|
|
Total Shareowners Equity |
|
|
10,767 |
|
|
|
9,374 |
|
|
|
|
Total Liabilities and Shareowners Equity |
|
$ |
17,970 |
|
|
$ |
17,991 |
|
|
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|
The accompanying notes are an integral part of these consolidated financial statements.
5
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MONSANTO COMPANY
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THIRD QUARTER 2009 FORM 10-Q |
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Statements of Consolidated Cash Flows
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Unaudited |
|
Nine Months Ended May 31, |
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(Dollars in millions) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
2,342 |
|
|
$ |
2,196 |
|
Adjustments to reconcile cash provided by operating activities: |
|
|
|
|
|
|
|
|
Items that did not require (provide) cash: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
404 |
|
|
|
423 |
|
Bad-debt expense |
|
|
56 |
|
|
|
52 |
|
Receipt of securities from Solutia settlement |
|
|
|
|
|
|
(38 |
) |
Stock-based compensation expense |
|
|
86 |
|
|
|
64 |
|
Excess tax benefits from stock-based compensation |
|
|
(24 |
) |
|
|
(161 |
) |
Deferred income taxes |
|
|
12 |
|
|
|
126 |
|
Equity affiliate (income) expense, net |
|
|
(11 |
) |
|
|
2 |
|
Acquired in-process research and development |
|
|
162 |
|
|
|
3 |
|
Gain on sale of a business |
|
|
(6 |
) |
|
|
|
|
Other items |
|
|
(51 |
) |
|
|
(10 |
) |
Changes in assets and liabilities that provided (required) cash, net of acquisitions: |
|
|
|
|
|
|
|
|
Trade receivables, net |
|
|
(967 |
) |
|
|
(1,490 |
) |
Inventory, net |
|
|
(853 |
) |
|
|
(387 |
) |
Deferred revenues |
|
|
(666 |
) |
|
|
(1 |
) |
Accounts payable and other accrued liabilities |
|
|
(40 |
) |
|
|
746 |
|
Net investment hedge settlement |
|
|
36 |
|
|
|
(97 |
) |
Other items |
|
|
(44 |
) |
|
|
(103 |
) |
|
Net Cash Provided by Operating Activities |
|
|
436 |
|
|
|
1,325 |
|
|
Cash Flows Provided (Required) by Investing Activities: |
|
|
|
|
|
|
|
|
Maturities of short-term investments |
|
|
117 |
|
|
|
59 |
|
Capital expenditures |
|
|
(661 |
) |
|
|
(530 |
) |
Acquisition of businesses, net of cash acquired |
|
|
(280 |
) |
|
|
(113 |
) |
Purchases of long-term equity securities |
|
|
(7 |
) |
|
|
(78 |
) |
Technology and other investments |
|
|
(60 |
) |
|
|
(39 |
) |
Proceeds from divestiture of a business |
|
|
300 |
|
|
|
|
|
Other investments and property disposal proceeds |
|
|
3 |
|
|
|
51 |
|
|
Net Cash Required by Investing Activities |
|
|
(588 |
) |
|
|
(650 |
) |
|
Cash Flows Provided (Required) by Financing Activities: |
|
|
|
|
|
|
|
|
Net change in financing with less than 90-day maturities |
|
|
(44 |
) |
|
|
(28 |
) |
Short-term debt reductions |
|
|
(45 |
) |
|
|
(9 |
) |
Short-term debt proceeds |
|
|
55 |
|
|
|
|
|
Long-term debt reductions |
|
|
(70 |
) |
|
|
(238 |
) |
Long-term debt proceeds |
|
|
|
|
|
|
548 |
|
Payments on other financing |
|
|
|
|
|
|
(3 |
) |
Debt issuance costs |
|
|
|
|
|
|
(5 |
) |
Treasury stock purchases |
|
|
(310 |
) |
|
|
(145 |
) |
Stock option exercises |
|
|
30 |
|
|
|
100 |
|
Excess tax benefits from stock-based compensation |
|
|
24 |
|
|
|
161 |
|
Dividend payments |
|
|
(408 |
) |
|
|
(288 |
) |
|
Net Cash (Required) Provided by Financing Activities |
|
|
(768 |
) |
|
|
93 |
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
(114 |
) |
|
|
80 |
|
|
Net (Decrease) Increase in Cash and Cash Equivalents |
|
|
(1,034 |
) |
|
|
848 |
|
Cash and Cash Equivalents at Beginning of Period |
|
|
1,613 |
|
|
|
866 |
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
579 |
|
|
$ |
1,714 |
|
|
See Note 18 Supplemental Cash Flow Information for further details.
The accompanying notes are an integral part of these consolidated financial statements.
6
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED
NOTE 1. BACKGROUND, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Monsanto Company, along with its subsidiaries, is a leading global provider of agricultural
products for farmers. Monsantos seeds, biotechnology trait products, and herbicides provide
farmers with solutions that improve productivity, reduce the costs of farming, and produce better
foods for consumers and better feed for animals.
Monsanto manages its business in two segments: Seeds and Genomics and Agricultural Productivity.
Through the Seeds and Genomics segment, Monsanto produces leading seed brands, including DEKALB,
ASGROW, DELTAPINE, SEMINIS and DE RUITER, and Monsanto develops biotechnology traits that assist
farmers in controlling insects and weeds. Monsanto also provides other seed companies with genetic
material and biotechnology traits for their seed brands. Through the Agricultural Productivity
segment, the company manufactures ROUNDUP brand herbicides and other herbicides and provides
lawn-and-garden herbicide products for the residential market. See Note 20 Segment Information
for further details.
In the fourth quarter of 2008, the company announced plans to divest its animal agricultural
products business, which focused on dairy cow productivity (the Dairy business). This transaction
was consummated on Oct. 1, 2008. As a result, financial data for this business has been presented
as discontinued operations and has been recast and prepared in compliance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Accordingly, for all periods presented herein, the Statements of
Consolidated Operations have been conformed to this presentation. See Note 22 Discontinued
Operations for further details.
The accompanying consolidated financial statements have not been audited but have been prepared in
conformity with accounting principles generally accepted in the United States for interim financial
information and with instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of
management, these unaudited consolidated financial statements contain all adjustments necessary to
present fairly the financial position, results of operations and cash flows for the interim periods
reported. This Report on Form 10-Q should be read in conjunction with Monsantos Report on Form
10-K for the fiscal year ended Aug. 31, 2008. Financial information for the first nine months of
fiscal year 2009 should not be annualized because of the seasonality of the companys business.
Significant Accounting Policy Update
Marketing and Advertising Costs: Promotional and advertising costs are expensed as incurred and are
included in selling, general and administrative expenses in the Statements of Consolidated
Operations. Accrued marketing program costs are recorded in accordance with Emerging Issues Task
Force (EITF) Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer, based on
specific performance criteria met by our customers, such as purchase volumes, promptness of payment
and market share increases. The company introduced new marketing programs during 2009 providing
certain customers price protection consideration if standard published prices are lowered from the
price the distributor paid on eligible products. The associated cost of these marketing programs is
recorded in net sales in the Statements of Consolidated Operations. As actual expenses are not
known at the time of the sale, an estimate based on the best available information (such as
historical experience and market research) is used as a basis for the liability. Management
analyzes and reviews the marketing programs on a quarterly basis and adjustments are recorded as
appropriate. Under certain marketing programs, product performance and variations in weather can
result in free product to customers. The associated cost of this free product is recognized as cost
of goods sold in the Statements of Consolidated Operations.
NOTE 2. NEW ACCOUNTING STANDARDS
In June 2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 167, Amendments to
FASB Interpretation No. 46R (SFAS 167). SFAS 167 amends FASB Interpretation No. (FIN) 46 (revised
December 2003), Consolidation of Variable Interest Entities (FIN 46R) to require an analysis to
determine whether a variable interest gives the entity a controlling financial interest in a
variable interest entity. This statement requires an ongoing reassessment and eliminates the
quantitative approach previously required for determining whether an entity is the primary
beneficiary. This statement is
7
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
effective for fiscal years beginning after Nov. 15, 2009. Accordingly, Monsanto will adopt SFAS 167
in fiscal year 2011. The company is currently evaluating the impact of adopting this standard on
the consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets (SFAS
166). SFAS 166 removes the concept of a qualifying special-purpose entity (QSPE) from SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (SFAS
140) and removes the exception from applying FIN 46R. This statement also clarifies the
requirements for isolation and limitations on portions of financial assets that are eligible for
sale accounting. This statement is effective for fiscal years beginning after Nov. 15, 2009.
Accordingly, Monsanto will adopt SFAS 166 in fiscal year 2011. The company is currently evaluating
the impact of adopting this standard on the consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 establishes
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued. This statement is effective for interim and annual
periods ending after June 15, 2009. Accordingly, Monsanto will adopt SFAS 165 prospectively in
fourth quarter fiscal year 2009. The company does not expect the adoption of this standard to have
a material effect on the consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position (FSP) SFAS No. 157-4, Determining the Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (FSP SFAS 157-4). This FSP provides additional
guidance on estimating fair value when the volume and level of activity for an asset or liability
have significantly decreased in relation to normal market activity, as well as additional guidance
on circumstances which may indicate a transaction is not orderly. FSP SFAS 157-4 amends SFAS No.
157, Fair Value Measurements (SFAS 157) to require interim disclosures of the inputs and valuation
techniques used to measure fair value reflecting changes in the valuation techniques and related
inputs. FSP SFAS 157-4 is effective prospectively for interim and annual reporting periods ending
after June 15, 2009. Accordingly, Monsanto will adopt this FSP in fourth quarter fiscal year 2009.
The company is currently evaluating the impact of adopting this FSP on the consolidated financial
statements.
In April 2009, the FASB issued FSP SFAS No. 107-1 and Accounting Principles Board (APB) Opinion No.
28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP SFAS 107-1 and APB 28-1).
This FSP extends the requirements of SFAS No. 107, Disclosures about Fair Value of Financial
Instruments (SFAS 107) to interim financial statements of publicly-traded companies. FSP SFAS 107-1
and APB 28-1 requires that disclosures provide quantitative and qualitative information on fair
value estimates for all financial instruments not measured on the balance sheet at fair value, when
practicable, with the exception of certain financial instruments listed in SFAS 107. This FSP is
effective prospectively for interim reporting periods ending after June 15, 2009. Accordingly,
Monsanto will adopt this FSP in first quarter fiscal year 2010. The company is currently evaluating
the disclosure impact of adopting FSP SFAS 107-1 and APB 28-1 on the consolidated financial
statements.
In April 2009, the FASB issued FSP SFAS No. 115-2 and SFAS No. 124-2, Recognition and Presentation
of Other-Than-Temporary Impairments (FSP SFAS 115-2 and SFAS 124-2). This FSP provides guidance on
the recognition and presentation of other-than-temporary impairments of debt securities classified
as available-for-sale and held-to-maturity. It also expands and increases the frequency of
disclosures about other-than-temporary impairments in both debt and equity securities. FSP SFAS
115-2 and SFAS 124-2 is effective prospectively for interim and annual reporting periods ending
after June 15, 2009. Accordingly, Monsanto will adopt this FSP in fourth quarter fiscal year 2009.
The company is currently evaluating the disclosure impact of adopting this FSP on the consolidated
financial statements.
In
April 2009, the FASB issued FSP SFAS No. 141R-1, Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies, (FSP SFAS 141R-1). This FSP amends
and clarifies SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R), to require that an
acquirer recognize at fair value, at the acquisition date, an asset acquired or a liability assumed
in a business combination that arises from a contingency if the acquisition-date fair value of that
asset or liability can be determined during the measurement period. If the acquisition-date fair
value of such an asset acquired or liability assumed cannot be determined, the acquirer should
apply the provisions of SFAS No. 5, Accounting for Contingencies, to determine whether the
contingency should be recognized at the acquisition date or after it. FSP SFAS 141R-1 is effective
for assets or liabilities arising from contingencies in business combinations for which the
8
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
acquisition date is after the beginning of the first annual reporting period beginning after Dec.
15, 2008. Accordingly, Monsanto will adopt FSP SFAS 141R-1 prospectively in fiscal year 2010.
In December 2008, the EITF issued EITF Issue No. 08-7, Accounting for Defensive Intangible Assets
(EITF 08-7). This issue clarifies the accounting for defensive assets, which are separately
identifiable intangible assets acquired in an acquisition which an entity does not intend to
actively use but does intend to prevent others from using. EITF 08-7 requires an acquirer to
account for these assets as a separate unit of accounting, which should be amortized to expense
over the period the asset diminishes in value. This issue is effective for intangible assets
acquired on or after the beginning of the first annual reporting period beginning on or after Dec.
15, 2008. Accordingly, Monsanto will adopt EITF 08-7 prospectively in fiscal year 2010.
In December 2008, the FASB issued FSP SFAS No. 132R-1, Employers Disclosures about Postretirement
Benefit Plan Assets (FSP SFAS 132R-1). This statement provides additional guidance regarding
disclosures about plan assets of defined benefit pension or other postretirement plans. This FSP is
effective for financial statements issued for fiscal years ending after Dec. 15, 2009. Accordingly,
Monsanto will adopt FSP SFAS 132R-1 in fiscal year 2010. The company is currently evaluating the
disclosure impact of adopting this FSP on the consolidated financial statements in Monsantos
Report on Form 10-K for the fiscal year ending Aug. 31, 2010.
In June 2008, the FASB issued FSP EITF Issue No. 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1
requires unvested share-based payment awards that contain rights to receive non-forfeitable
dividends or dividend equivalents to be included in the two-class method of computing earnings per
share as described in SFAS No. 128, Earnings per Share. This FSP is effective for financial
statements issued for fiscal years beginning after Dec. 15, 2008, and interim periods within those
years. Accordingly, Monsanto will adopt FSP EITF 03-6-1 in fiscal year 2010. The company is
currently evaluating the impact of FSP EITF 03-6-1 on the consolidated financial statements.
In April 2008, the FASB issued FSP SFAS No. 142-3, Determining the Useful Life of Intangible Assets
(FSP SFAS 142-3). FSP SFAS 142-3 amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized intangible asset under
SFAS 142. This FSP must be applied prospectively to intangible assets acquired after the effective
date. This FSP is effective for fiscal years beginning after Dec. 15, 2008, and
interim periods within those years. Accordingly, Monsanto will adopt FSP SFAS 142-3 prospectively
in fiscal year 2010.
In February 2008, the FASB issued FSP SFAS No. 157-2, Effective Date of SFAS No. 157 (FSP SFAS
157-2), which delays the effective date of SFAS 157 for nonfinancial assets and liabilities to
fiscal years beginning after Nov. 15, 2008. Accordingly, Monsanto will adopt the additional
requirements of SFAS 157 that were deferred by FSP SFAS 157-2 in fiscal year 2010. The company is
currently evaluating the impact on the consolidated financial statements of adopting the additional
requirements of SFAS 157.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51 (SFAS 160). SFAS 160 requires an entity to clearly
identify and present its ownership interests in subsidiaries held by parties other than the entity
in the consolidated financial statements within the equity section but separate from the entitys
equity. It also requires the amount of consolidated net income attributable to the parent and to
the noncontrolling interest be clearly identified and presented on the face of the consolidated
statement of income; changes in ownership interest be accounted for similarly, as equity
transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary
be measured at fair value. This statement is effective for financial statements issued for fiscal
years beginning after Dec. 15, 2008. Accordingly, Monsanto will adopt SFAS 160 in fiscal year 2010.
The company is currently evaluating the impact of SFAS 160 on the consolidated financial
statements.
In December 2007, the FASB issued SFAS 141R, which was subsequently amended by FSP SFAS 141R-1.
Under SFAS 141R, an entity is required to recognize the assets acquired, liabilities assumed,
contractual contingencies and contingent consideration measured at their fair value at the
acquisition date. It further requires that acquisition-related costs are to be recognized
separately from the acquisition and expensed as incurred. In addition, acquired in-process research
and development (IPR&D) is capitalized at fair value as an intangible asset and amortized over its
estimated useful life.
9
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
SFAS 141R is effective for business combinations for which the acquisition date is after the beginning
of the first annual reporting period beginning after Dec. 15, 2008. Accordingly, Monsanto will
adopt SFAS 141R in fiscal year 2010. The company is currently evaluating the impact of SFAS 141R on
the consolidated financial statements.
NOTE 3. BUSINESS COMBINATIONS
In the first nine months of 2009, Monsanto paid approximately $5 million of contingent
consideration related to fiscal year 2007 regional U.S. seed company acquisitions.
2009 Acquisition: In December 2008, Monsanto acquired 100 percent of the outstanding stock of Aly
Participacoes Ltda. (Aly), which operates the sugarcane breeding and technology companies,
CanaVialis S.A. and Alellyx S.A., both of which are based in Brazil, for $264 million (net of cash
acquired), inclusive of transaction costs of less than $1 million.
A charge of $162 million was recorded in research and development expenses in fiscal year 2009, for
the write-off of acquired IPR&D. The Income Approach valuation method was used to determine the
fair value of the research projects. In developing assumptions for the valuation model, Monsanto
used historical expense of Aly and other comparable data to estimate expected pricing, margins and
expense levels. Management believed that the technological feasibility of the IPR&D was not
established and that the research had no alternative future uses. Accordingly, the amount allocated
to IPR&D was expensed immediately, in accordance with generally accepted accounting principles. The
significant assumptions used to determine the fair value of IPR&D related to the Aly acquisition
were as follows:
| | | | |
|
(Dollars in millions) |
| | | |
|
Weighted Average Discount Rate | | | 17% |
|
Expected Costs to Complete (undiscounted) | | | $166 | |
Expected Years of Product Launches | | | 2010 - 2019 | |
|
The purchase price for this acquisition was primarily allocated to intangible assets, goodwill, and
fixed assets. The primary items that generated the goodwill were the premiums paid by the company
for the right to control the business acquired and the value of the acquired assembled workforces.
2008 Acquisitions: In June 2008, Monsanto acquired 100 percent of the outstanding stock of De
Ruiter Seeds Group, B.V., and a related company, a leading protected-culture vegetable seeds
company, for approximately $757 million (net of cash acquired), inclusive of transaction costs of
$3 million.
In July 2008, Monsanto acquired Marmot, S.A., which operates Semillas Cristiani Burkard, a
privately held seed company headquartered in Guatemala City, Guatemala, for $135 million (net of
cash acquired), inclusive of transaction costs of $3 million.
In September 2007, Monsanto acquired 100 percent of the outstanding stock of Agroeste Sementes, a
leading Brazilian corn seed company, for approximately $91 million (net of cash acquired),
inclusive of transaction costs of approximately $1 million.
In fiscal year 2008, Monsanto completed other acquisitions for approximately $18 million, inclusive
of transaction costs of $2 million. The financial results of these businesses were included in the
companys consolidated financial statements from the respective dates of acquisition.
For all fiscal year 2009 and 2008 acquisitions described above, the business operations and
employees of the acquired entities were included within the Seeds and Genomics segment from their
respective dates of acquisition. These acquisitions were accounted for as purchase transactions.
Accordingly, the assets and liabilities of the acquired entities were recorded at their estimated
fair values at the dates of the acquisitions. The purchase price allocations for the fourth quarter
2008 acquisitions and the fiscal year 2009 acquisition are preliminary and are subject to
adjustment pending further assessments, including the valuation of certain assets. Proforma
information related to acquisitions is not presented because the impact of the acquisitions on the
companys consolidated results of operations is not considered to be significant.
10
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
As of the acquisition dates, management began to assess and formulate plans to restructure the
acquired entities. These activities are accounted for in accordance with EITF Issue No. 95-3,
Recognition of Liabilities in Connection with a Purchase Business Combination, and primarily
include the potential closure of certain acquired subsidiaries. Through May 31, 2009, estimated
costs of $5 million have been recognized as short-term liabilities in the purchase price
allocations above, and $1 million has been charged against these liabilities, primarily related to
payments for employee terminations. As management finalizes plans to integrate or restructure
certain activities of the acquired entities, further liabilities may be recorded as part of the
purchase price allocation.
NOTE 4. CUSTOMER FINANCING PROGRAMS
Monsanto established a revolving financing program to provide financing of up to $250 million for
selected customers in the United States through a third-party specialty lender. The program was
terminated in the third quarter of fiscal year 2009. Under the financing program, Monsanto
originated customer loans on behalf of the lender, which is a special purpose entity (SPE) that
Monsanto consolidated, pursuant to Monsantos credit and other underwriting guidelines approved by
the lender. Under the program as amended in August 2006, Monsanto serviced the loans and provided a
first-loss guarantee of up to $130 million. Following origination, the lender transferred the loans
to multi-seller commercial paper conduits through a nonconsolidated QSPE. Monsanto accounted for
this transaction as a sale, in accordance with SFAS 140.
Monsanto had no ownership interest in the lender, the QSPE, or the loans. However, because Monsanto
substantively originated the loans through the SPE (which it consolidated) and partially guaranteed
and serviced the loans, Monsanto accounted for the program as if it were the originator of the
loans and the transferor selling the loans to the QSPE. Because QSPEs are excluded from the scope
of FIN 46R, and Monsanto did not have the unilateral right to liquidate the QSPE, FIN 46R did not
have an effect on Monsantos accounting for the U.S. customer financing program.
Monsanto accounted for the guarantee in accordance with FIN No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others,
an interpretation of SFAS No. 5, 57 and 107, and rescission of FIN No. 34, which requires that a
guarantor recognize, at the inception of the guarantee, a liability for the fair value of the
guarantee obligation undertaken. Monsanto recorded its guarantee liability at a value that
approximates fair value (except that it does not discount credit losses because of the short-term
nature of the loans), primarily driven by expected future credit losses. Monsanto did not recognize
any servicing asset or liability because the servicing fee was considered adequate compensation for
the servicing activities. Servicing revenues collected and earned net of discounts on the sale of
customer loans were $1 million during the nine months ended May 31, 2009. Servicing expenses and
discounts on the sale of customer loans were $2 million during
the nine months ended May 31, 2008.
Proceeds from customer loans sold through the financing program totaled $130 million and $3 million
for the first nine months of fiscal years 2009 and 2008, respectively. These proceeds are included
in net cash provided by operating activities in the Statement of Consolidated Cash Flows. There
were no loan balances outstanding as of May 31, 2009. As of Aug. 31, 2008, the loan balance
outstanding was $66 million. Loans are considered delinquent when payments are 31 days past due. If
a customer failed to pay an obligation when due, Monsanto would incur a liability to perform under
the first-loss guarantee. As of May 31, 2009, there were no delinquent loans nor guarantee
liabilities. Less than $1 million of loans sold through this financing program were delinquent as
of Aug. 31, 2008, and Monsanto recorded its guarantee liability at less than $1 million, based on
the companys historical collection experience with these customers and a current assessment of
credit exposure.
Monsanto has an agreement with a lender to establish a program that provides financing of up to
$250 million for selected customers in Brazil. The agreement qualifies for sales treatment under
SFAS 140. Proceeds from the transfer of receivables are included in net cash provided by operating
activities in the Statements of Consolidated Cash Flows. Proceeds from the transfer of receivables
through the program totaled $119 million and $107 million for the first nine months of fiscal years
2009 and 2008, respectively. Monsanto provides a guarantee of the loans in the event of customer
default. The term of the guarantee is equivalent to the term of the bank loans. The liability for
the guarantees is recorded at an amount that approximates fair value and is based on the companys
historical collection experience with customers that participate in the program and a current
assessment of credit exposure. The guarantee liability recorded by Monsanto was $11 million and $10
million as of May 31, 2009, and Aug. 31, 2008, respectively. If performance is required under the
guarantee, Monsanto may
11
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
retain amounts that are subsequently collected from customers. The maximum
potential amount of future payments under the guarantee was $99 million as of May 31, 2009. The
loan balance outstanding for these programs was $99 million and
$187 million as of May 31, 2009, and Aug. 31, 2008, respectively. As of May 31, 2009, $11 million
of loans sold through this financing program were delinquent and no loans were delinquent as of
Aug. 31, 2008.
Monsanto also has similar agreements with banks that provide financing to its customers in Brazil
through credit programs that are subsidized by the Brazilian government. In addition, Monsanto has
similar financing programs in Europe and Argentina. Proceeds from the transfer of receivables are
included in net cash provided by operating activities in the Statements of Consolidated Cash Flows
and totaled $59 million and $70 million for the first nine months of fiscal years 2009 and 2008,
respectively. Under most of these programs, Monsanto provides a guarantee of the loans in the event
of customer default. The terms of the guarantees are equivalent to the terms of the bank loans. The
liability for the guarantees is recorded at an amount that approximates fair value and is based on
the companys historical collection experience with customers that participate in the program and a
current assessment of credit exposure. The guarantee liability recorded by Monsanto was $4 million
and $11 million as of May 31, 2009, and Aug. 31, 2008, respectively. If performance is required
under the guarantee, Monsanto may retain amounts that are subsequently collected from customers.
The maximum potential amount of future payments under the guarantees was $51 million as of May 31,
2009. The loan balance outstanding for these programs was $51 million and $92 million as of May 31,
2009, and Aug. 31, 2008, respectively. As of May 31, 2009, $4 million of loans sold through these
financing programs were delinquent and no loans were delinquent as of Aug. 31, 2008.
Monsanto also sells accounts receivable, both with and without recourse. These sales qualify for
sales treatment under SFAS 140 and accordingly, the proceeds are included in net cash provided by
operating activities in the Statements of Consolidated Cash Flows. The gross amounts of receivables
sold totaled $11 million and $19 million for the first nine months of fiscal years 2009 and 2008,
respectively. The liability for the guarantees for sales with recourse is recorded at an amount
that approximates fair value and is based on the companys historical collection experience for the
customers associated with the sale of the receivables and a current assessment of credit exposure.
The liability recorded by Monsanto was less than $1 million as of May 31, 2009, and Aug. 31, 2008.
The maximum potential amount of future payments under the recourse provisions of the agreements was
$11 million as of May 31, 2009. The outstanding balance of the receivables sold was $11 million and
$33 million as of May 31, 2009, and Aug. 31, 2008, respectively. There were no delinquent loans as
of May 31, 2009, or Aug. 31, 2008.
NOTE 5. RECEIVABLES
Trade receivables on the Condensed Statements of Consolidated Financial Position are net of
allowances of $218 million as of May 31, 2009, and Aug. 31, 2008.
Long-term receivables on the Condensed Statements of Consolidated Financial Position are net of
allowances of $166 million and $179 million as of May 31, 2009, and Aug. 31, 2008, respectively.
NOTE 6. INVENTORY
Components of inventory are:
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, |
|
|
As of Aug. 31, |
|
(Dollars in millions) |
|
2009 |
|
|
2008 |
|
|
|
|
|
Finished Goods |
|
$ |
1,690 |
|
|
$ |
1,023 |
|
Goods In Process |
|
|
1,264 |
|
|
|
1,267 |
|
Raw Materials and Supplies |
|
|
399 |
|
|
|
358 |
|
|
|
|
|
Inventory at FIFO Cost |
|
|
3,353 |
|
|
|
2,648 |
|
Excess of FIFO over LIFO Cost |
|
|
(184 |
) |
|
|
(195 |
) |
|
|
|
|
Total |
|
$ |
3,169 |
|
|
$ |
2,453 |
|
|
|
|
|
12
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS
The fiscal year 2009 annual goodwill impairment test was performed as of March 1, 2009, and no
indications of goodwill impairment existed as of that date.
Changes in the net carrying amount of goodwill for the first nine months of fiscal year 2009, by
segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seeds and |
|
|
Agricultural |
|
|
|
|
(Dollars in millions) |
|
Genomics |
|
|
Productivity |
|
|
Total |
|
|
Balance as of Aug. 31, 2008 |
|
$ |
3,070 |
|
|
$ |
62 |
|
|
$ |
3,132 |
|
Acquisition Activity (see Note 3) |
|
|
52 |
|
|
|
|
|
|
|
52 |
|
Effect of Foreign Currency Translation Adjustments and Other |
|
|
(47 |
) |
|
|
|
|
|
|
(47 |
) |
|
Balance as of May 31, 2009 |
|
$ |
3,075 |
|
|
$ |
62 |
|
|
$ |
3,137 |
|
|
In the nine months ended May 31, 2009, preliminary purchase price allocations for several of the
2008 acquisitions were updated.
Information regarding the companys other intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, 2009 |
|
|
As of Aug. 31, 2008 |
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
(Dollars in millions) |
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
|
|
Acquired Germplasm |
|
$ |
1,157 |
|
|
$ |
(595 |
) |
|
$ |
562 |
|
|
$ |
1,174 |
|
|
$ |
(578 |
) |
|
$ |
596 |
|
Acquired Biotechnology Intellectual Property |
|
|
847 |
|
|
|
(572 |
) |
|
|
275 |
|
|
|
847 |
|
|
|
(519 |
) |
|
|
328 |
|
Trademarks |
|
|
388 |
|
|
|
(83 |
) |
|
|
305 |
|
|
|
398 |
|
|
|
(75 |
) |
|
|
323 |
|
Customer Relationships |
|
|
312 |
|
|
|
(81 |
) |
|
|
231 |
|
|
|
305 |
|
|
|
(62 |
) |
|
|
243 |
|
Other |
|
|
100 |
|
|
|
(37 |
) |
|
|
63 |
|
|
|
71 |
|
|
|
(30 |
) |
|
|
41 |
|
|
|
|
Total |
|
$ |
2,804 |
|
|
$ |
(1,368 |
) |
|
$ |
1,436 |
|
|
$ |
2,795 |
|
|
$ |
(1,264 |
) |
|
$ |
1,531 |
|
|
|
|
See Note 3 Business Combinations for additional information relating to other intangible
assets.
Total amortization expense of other intangible assets was $39 million in third quarter of fiscal
years 2009 and 2008. Total amortization expense of other intangible assets for the nine months
ended May 31, 2009, and May 31, 2008, was $111 million and $123 million, respectively. Estimated
intangible asset amortization expense for each of the five succeeding fiscal years for owned assets
as of May 31, 2009, has not changed significantly from the amounts disclosed in Monsantos Report
on Form 10-K for the fiscal year ended Aug. 31, 2008.
NOTE 8. INVESTMENTS AND EQUITY AFFILIATES
Investments
Other current assets as of May 31, 2009, and Aug. 31, 2008, included $15 million and $132 million,
respectively, of short-term investments of fixed-term deposits and commercial paper with original
maturities of one year or less, stated at fair value.
During first quarter 2008, Monsanto invested in available-for-sale equity securities. As of May 31,
2009, and Aug. 31, 2008, these long-term equity securities are recorded in other assets in the
Condensed Statements of Consolidated Financial Position at a fair value of $20 million and $23
million, respectively. Net unrealized losses (net of deferred taxes) of $8 million and $6 million
are included in accumulated other comprehensive loss in shareowners equity related to these
investments as of May 31, 2009, and Aug. 31, 2008, respectively.
During second quarter 2008, Monsanto received $38 million of Solutia common stock as part of the
settlement of its claims against Solutia. During fourth quarter 2008, Monsanto sold the Solutia
common stock and realized a loss of less than $1 million. See Note 21 Solutia-Related Income
for further information.
13
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
Equity Affiliates
During second quarter 2008, Monsanto purchased a 19 percent interest in a seed supplier that
produces, conditions, and distributes corn and soybean seeds. Monsanto is accounting for this
investment as an equity method investment as Monsanto has the ability to exercise significant
influence over the seed supplier. As of May 31, 2009, and Aug. 31, 2008, this investment is
recorded in other assets in the Condensed Statements of Consolidated Financial Position at $58
million and $50 million, respectively. Monsanto purchased $142 million and $282 million of
inventory from the seed supplier for the three and nine months ended May 31, 2009, respectively,
and $54 million and $78 million for the three and nine months
ended May 31, 2008, respectively. Sales of inventory to the seed supplier for the three and nine
months ended May 31, 2009, were $1 million. There were no sales of inventory to the seed supplier
in 2008. As of May 31, 2009, and Aug. 31, 2008, the amount payable to the seed supplier is
approximately $41 million and $1 million, respectively, and is recorded in accounts payable in the
Condensed Statements of Consolidated Financial Position.
NOTE 9. DEFERRED REVENUE
In first quarter 2008, Monsanto entered into a corn herbicide tolerance and insect control trait
technologies agreement with Pioneer Hi-Bred International, Inc., a wholly-owned subsidiary of E. I.
du Pont de Nemours and Company. As a result of the agreement which requires fixed annual payments,
the company recorded a receivable and deferred revenue of $635 million in first quarter 2008.
Cumulative cash receipts will be $725 million over an eight-year period. Revenue related to this
agreement of $20 million was recorded for the three months ended May 31, 2009, and May 31, 2008,
and revenue of $60 million was recorded for the nine months ended May 31, 2009, and May 31, 2008.
As of May 31, 2009, and Aug. 31, 2008, the remaining receivable balance is $538 million and $629
million, respectively. The majority of this balance is included in long-term receivables, and the
current portion is included in trade receivables. As of May 31, 2009, and Aug. 31, 2008, the
remaining deferred revenue balance is $496 million and $555 million, respectively. The majority of
this balance is included in long-term deferred revenue, and the current portion is included in
deferred revenue in the Condensed Statements of Consolidated Financial Position. The interest
portion of this receivable is reported in interest income and totaled $5 million for the three
months ended May 31, 2009, and May 31, 2008. Interest income for the nine months ended May 31,
2009, and May 31, 2008, is $15 million and $16 million, respectively.
In third quarter 2008, Monsanto and Syngenta entered into a Roundup Ready 2 Yield Soybean License
Agreement. The agreement grants Syngenta access to Monsantos Roundup Ready 2 Yield Soybean
technology in consideration of royalty payments from Syngenta, based on sales. Under this agreement
Syngenta will fulfill the contractual sales volumes over a nine-year period. The minimum obligation
from Syngenta over this period is $81 million. As of May 31, 2009, and Aug. 31, 2008, $69 million
and $67 million, respectively, is included in long-term receivables on the Condensed Statements of
Consolidated Financial Position related to the net present value of expected payments under this
agreement. The interest portion of this receivable is reported in interest income in the Statement
of Consolidated Operations and is $1 million and $2 million for the three and nine months ended May
31, 2009, respectively. There was less than $1 million in interest income for the three and nine
months ended May 31, 2008. As of May 31, 2009, and Aug. 31, 2008, the remaining deferred revenue
balance of $67 million is included in long-term deferred revenue in the Condensed Statements of
Consolidated Financial Position.
NOTE 10. INCOME TAXES
Management regularly assesses the tax risk of the companys tax return filing positions for all
open years and establishes reserves accordingly. During the first nine months of 2009 several
domestic and ex-US tax audits were resolved favorably. On Oct. 3, 2008, the retroactive extension
of the research and development credit was enacted as part of the Emergency Economic Stabilization
Act of 2008. Monsanto recorded an income tax benefit of $119 million primarily as a result of these
items. Monsanto had total unrecognized tax benefits of $329 million as of May 31, 2009, of which
$209 million would favorably impact the tax rate if recognized.
14
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 11. DEBT AND OTHER CREDIT ARRANGEMENTS
Monsanto
plans to issue new fixed-rate debt on or before Aug. 15, 2012, to repay $484 million of
73/8% Senior Notes that are due on Aug. 15, 2012. In March 2009, the company entered into forward
starting interest rate swaps with a total notional amount of $250 million. The purpose of the swaps
was to hedge the variability of the forecasted interest payments on this expected debt issuance
that may result from changes in the benchmark interest rate until the debt is issued. Unrealized
gains net of tax of $10 million were recorded in accumulated other comprehensive loss to reflect
the after-tax change in the fair value of the forward starting interest rate swaps as of May 31,
2009. These swaps are accounted for under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS 133).
NOTE 12. FAIR VALUE MEASUREMENTS
Effective Sept. 1, 2008, Monsanto adopted SFAS 157, FSP SFAS 157-2 and FSP SFAS 157-3, Determining
Fair Value of a Financial Asset in a Market That Is Not Active. SFAS 157 provides a framework for
measuring fair value. SFAS 157 also eliminates the deferral of gains and losses at inception
associated with certain derivative contracts whose fair value was not evidenced by observable
market data. SFAS 157 requires that the impact of this change in accounting for derivative
contracts be recorded as an adjustment to opening retained earnings in the period of adoption.
Monsanto did not have any deferred gains or losses at inception of derivative contracts and
therefore no adjustment to opening retained earnings was made upon adoption of SFAS 157.
Monsanto determines the fair market values of its derivative contracts and certain other assets
based on the fair value hierarchy established in SFAS 157, which requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The
hierarchy contains three levels as follows, with Level 3 representing the lowest level of input:
Level 1 Values based on unadjusted quoted prices in active markets that are accessible at
the measurement date for identical assets or liabilities.
Level 2 Values based on quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not active, or model-based
valuation techniques for which all significant assumptions are observable in the market.
Level 3 Values generated from model-based techniques that use significant assumptions not
observable in the market. These unobservable assumptions would reflect our own estimates of
assumptions that market participants would use in pricing the asset or liability. Valuation
techniques could include use of option pricing models, discounted cash flow models and similar
techniques. Monsanto does not currently have any instruments with fair value determined using Level
3 inputs.
15
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
The following table sets forth by level Monsantos assets and liabilities that were accounted for
at fair value on a recurring basis as of May 31, 2009. As required by SFAS 157, assets and
liabilities are classified in their entirety based on the lowest level of input that is a
significant component of the fair value measurement. Monsantos assessment of the significance of a
particular input to the fair value measurement requires judgment and may affect the classification
of fair value assets and liabilities within the fair value hierarchy levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at May 31, 2009, Using |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Reported in |
|
|
Quoted Prices in Active |
|
|
|
|
|
|
|
|
|
Condensed Statement |
|
|
Markets for Identical |
|
Significant Other |
|
|
|
|
|
of Consolidated |
|
|
Items |
|
Observable Inputs |
|
Cash Collateral |
|
Financial Position as of |
(Dollars in millions) |
|
(Level 1) |
|
(Level 2) |
|
Offset(1) |
|
May 31, 2009 |
|
Assets at Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Equivalents |
|
$ |
312 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
312 |
|
Short-Term Investments |
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
15 |
|
Equity Securities |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
20 |
|
Derivative Assets Related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency |
|
|
|
|
|
|
70 |
|
|
|
|
|
|
|
70 |
|
Interest Rates |
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
16 |
|
Commodities |
|
|
19 |
|
|
|
|
|
|
|
(19 |
) |
|
|
|
|
|
Total Assets at Fair Value |
|
$ |
366 |
|
|
$ |
86 |
|
|
$ |
(19 |
) |
|
$ |
433 |
|
|
Liabilities at Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities Related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency |
|
|
|
|
|
|
142 |
|
|
|
|
|
|
|
142 |
|
Commodities |
|
|
60 |
|
|
|
32 |
|
|
|
(60 |
) |
|
|
32 |
|
|
Total Liabilities at Fair Value |
|
$ |
60 |
|
|
$ |
174 |
|
|
$ |
(60 |
) |
|
$ |
174 |
|
|
|
|
|
(1) |
|
As allowed by FSP FIN No. 39-1, Amendment of FASB Interpretation No. 39 (FSP FIN
39-1), commodity derivative assets and liabilities have been offset by cash collateral due and
paid under a master netting arrangement. |
For assets that are measured using quoted prices in active markets, the total fair value is the
published market price per unit multiplied by the number of units held without consideration of
transaction costs. Assets and liabilities that are measured using significant other observable
inputs are primarily valued by reference to quoted prices of markets that are not active. The
following methods and assumptions were used to estimate the fair value of each class of financial
instrument:
Cash equivalents: The carrying value of cash equivalents approximates fair value as maturities are
less than three months. Monsantos cash equivalents are primarily money market funds that trade on
a regular basis in active markets and are therefore classified as Level 1.
Short-term investments: Monsantos short-term investments primarily consist of fixed-term deposits
and commercial paper, and are included in other current assets on the Condensed Statements of
Consolidated Financial Position. These investments are measured at fair value using quoted market
prices in an active market and are classified as Level 1.
Equity securities: Monsantos equity securities are classified as available-for-sale and are
included in other assets on the Condensed Statements of Consolidated Financial Position. They are
measured at fair value using quoted market prices and are classified as Level 1 as they are traded
in an active market for which closing stock prices are readily available.
Foreign currency hedges: Monsanto manages its foreign currency risk with foreign currency
derivatives, primarily forward foreign exchange contracts and foreign currency options. Foreign
currency derivative values are classified as Level 2, and are calculated using pricing components
(e.g., exchange rates, forward rates, interest rates and options volatilities) obtained from third
party pricing sources which report the trading of these components in active markets. The
calculated valuations are adjusted for credit risk. The foreign currency derivative assets are
included in miscellaneous receivables or other assets, and foreign currency derivative liabilities
are included in miscellaneous short-term accruals on the Condensed Statements of Consolidated
Financial Position.
Interest rate swaps: In third quarter 2009, Monsanto entered into forward starting interest rate
swaps to hedge the variability of the forecasted interest payments on an expected debt issuance.
These swaps are held with banks and will be settled based on broker-quoted prices based on
observable market data, adjusted for credit risk, and therefore are classified as Level 2 fair
16
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
value measurements. The interest rate derivative assets are included in other assets on the
Condensed Statements of Consolidated Financial Position.
Commodity hedges: Monsantos commodity contracts relate to corn, soybeans, natural gas and diesel.
The commodity derivative instruments that the company currently uses are futures and swaps. The
corn and soybean instruments are traded on the Chicago Board of Trade (CBOT). The CBOT is an active
market with quoted prices, and therefore these instruments are classified as Level 1. The natural
gas and diesel contracts settle based on quoted prices from the New York Mercantile Exchange and
Energy Information Administration, respectively, but are held with various banks, not directly with
the exchanges. As a result, the natural gas and diesel swaps are classified as Level 2 fair value
measurements and the fair values are adjusted for credit risk.
As discussed above, Monsanto utilizes information from third parties, such as pricing services and
brokers, to assist in determining fair values for certain assets and liabilities; however,
management is ultimately responsible for all fair values presented in the companys consolidated
financial statements. The company performs analysis and review of the information and prices
received from third parties to ensure that the prices represent a reasonable estimate of fair
value. This process involves quantitative and qualitative analysis. As a result of the analysis, if
the company determines there is a more appropriate fair value based upon the available market data,
the price received from the third party is adjusted accordingly.
NOTE 13. FINANCIAL INSTRUMENTS
Monsantos business and activities expose it to a variety of market risks, including risks related
to changes in commodity prices, foreign-currency exchange rates and interest rates. These financial
exposures are monitored and managed by the company as an integral part of its market risk
management program. This program recognizes the unpredictability of financial markets and seeks to
reduce the potentially adverse effects that market volatility could have on operating results. As
part of its market risk management strategy, Monsanto uses derivative instruments to protect fair
values and cash flows from fluctuations caused by volatility in currency exchange rates, commodity
prices and interest rates.
Cash Flow Hedges
The company uses foreign-currency options and foreign-currency forward contracts as hedges against
anticipated sales or purchases denominated in foreign currencies. The company enters into these
contracts to protect itself against the risk that the eventual net cash flows will be adversely
affected by changes in exchange rates.
Monsantos commodity price risk management strategy is to use derivative instruments to minimize
significant unanticipated earnings fluctuations that may arise from volatility in commodity prices.
Price fluctuations in commodities, mainly in corn and soybeans, can cause the actual prices paid to
production growers for corn and soybean seeds to differ from anticipated cash outlays. Monsanto
uses commodity futures and options contracts to manage these risks. Monsantos energy risk
management strategy is to use derivative instruments to minimize significant unanticipated
manufacturing cost fluctuations that may arise from volatility in natural gas prices and diesel
prices.
Monsantos interest rate risk management strategy is to use derivative instruments to minimize
significant unanticipated earnings fluctuations that may arise from volatility in interest rates of
the companys borrowings and to manage the interest rate sensitivity of its debt.
For derivative instruments that are designated and qualify as a cash flow hedge, the effective
portion of the gain or loss on the derivative is reported as a component of other comprehensive
income and reclassified into earnings in the same period or periods during which the hedged
transaction affects earnings. Gains and losses on the derivative representing either hedge
ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in
current earnings.
The maximum term over which the company is hedging exposures to the variability of cash flow (for
all forecasted transactions) is 27 months for
foreign-currency, 58 months for commodity hedges and 39 months for interest rate hedges. During the
next 12 months, a pre-tax net gain of approximately $12 million will be reclassified from other
comprehensive income into earnings. No cash flow hedges were discontinued during the nine months
ended May 31, 2009.
17
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
Fair-Value Hedges
The company uses commodity futures and options contracts as fair-value hedges to manage the value
of its soybean inventory. For derivative instruments that are designated and qualify as a
fair-value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the
hedged item attributable to the hedged risk are recognized in current earnings.
The difference between the carrying value and the fair value of hedged items classified as
fair-value hedges was offset by the change in fair value of the related derivatives. Accordingly,
hedge ineffectiveness for fair-value hedges, determined in accordance with SFAS 133 and SFAS No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, had an immaterial
effect on earnings in the nine months ended May 31, 2009. No fair-value hedges were discontinued
during the nine months ended May 31, 2009.
Net Investment Hedges
In order to protect itself against adverse changes in the Brazilian real, the company hedges a
portion of its net investment in Brazilian subsidiaries. Gains or losses on derivative instruments
that are designated as a net investment hedge are included in accumulated foreign currency
translation adjustment and reclassified into earnings in the period during which the hedged net
investment is sold or liquidated.
Derivatives Not Designated as Hedging Instruments
The company uses foreign-currency contracts to hedge the effects of fluctuations in exchange rates
on foreign-currency-denominated third-party and intercompany receivables and payables. The gain or
loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to
the hedged risk are recognized in current earnings.
The company uses commodity option contracts to hedge anticipated cash payments to corn growers in
Mexico and Brazil, which can fluctuate based on changes in corn price. Since these option contracts
do not meet the provisions specified by SFAS 133, they do not qualify for hedge accounting
treatment. Accordingly, the gain or loss on these derivatives is recognized in current earnings.
Financial instruments are neither held nor issued by the company for trading purposes.
The notional amounts of the companys derivative instruments outstanding as of May 31, 2009, were
as follows:
|
|
|
|
|
|
(Dollars in millions) |
|
Notional Amount |
|
|
Derivatives Designated as Hedges: |
|
|
|
|
Foreign Exchange Contracts |
|
$ |
1,004 |
|
Commodity Contracts |
|
|
500 |
|
Interest Rate Contracts |
|
|
250 |
|
|
Total Derivatives Designated as Hedges |
|
$ |
1,754 |
|
|
Derivatives Not Designated as Hedges: |
|
|
|
|
Foreign Exchange Contracts |
|
$ |
1,478 |
|
Commodity Contracts |
|
|
4 |
|
|
Total Derivatives Not Designated as Hedges |
|
$ |
1,482 |
|
|
18
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
The fair values of the companys derivative instruments outstanding as of May 31, 2009, were as
follows:
|
|
|
|
|
|
|
|
(Dollars in millions) |
|
Balance Sheet Location |
|
Fair Value |
|
|
Asset Derivatives: |
|
|
|
|
|
|
Derivatives Designated as Hedges: |
|
|
|
|
|
|
Foreign Exchange Contracts |
|
Miscellaneous receivables |
|
$ |
37 |
|
Foreign Exchange Contracts |
|
Other assets |
|
|
22 |
|
Commodity Contracts |
|
Other current assets(1) |
|
|
11 |
|
Commodity Contracts |
|
Other assets(1) |
|
|
7 |
|
Interest Rate Contracts |
|
Other assets |
|
|
16 |
|
|
Total Derivatives Designated as Hedges |
|
|
|
|
93 |
|
|
Derivatives Not Designated as Hedges: |
|
|
|
|
|
|
Foreign Exchange Contracts |
|
Miscellaneous receivables |
|
|
11 |
|
Commodity Contracts |
|
Other assets(1) |
|
|
1 |
|
|
Total Derivatives Not Designated as Hedges |
|
|
|
|
12 |
|
|
Total Asset Derivatives |
|
|
|
$ |
105 |
|
|
Liability Derivatives: |
|
|
|
|
|
|
Derivatives Designated as Hedges: |
|
|
|
|
|
|
Foreign Exchange Contracts |
|
Miscellaneous short-term accruals |
|
$ |
25 |
|
Foreign Exchange Contracts |
|
Other liabilities |
|
|
1 |
|
Commodity Contracts |
|
Other current assets(1) |
|
|
58 |
|
Commodity Contracts |
|
Miscellaneous short-term accruals |
|
|
21 |
|
Commodity Contracts |
|
Other liabilities |
|
|
11 |
|
|
Total Derivatives Designated as Hedges |
|
|
|
|
116 |
|
|
Derivatives Not Designated as Hedges: |
|
|
|
|
|
|
Foreign Exchange Contracts |
|
Miscellaneous short-term accruals |
|
|
116 |
|
Commodity Contracts |
|
Other current assets(1) |
|
|
2 |
|
|
Total Derivatives Not Designated as Hedges |
|
|
|
|
118 |
|
|
Total Liability Derivatives |
|
|
|
$ |
234 |
|
|
|
|
|
(1) |
|
As allowed by FSP FIN 39-1, corn and soybean commodity derivative assets and
liabilities have been offset by cash collateral due and paid under a master netting
arrangement. Therefore, all commodity contracts that are in an asset or liability position are
included in asset accounts within the Condensed Statement of Consolidated Financial Position.
See Note 12 Fair Value Measurements for a reconciliation to amounts reported in the
Condensed Statement of Consolidated Financial Position as of May 31, 2009. |
19
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
The gains and losses on the companys derivative instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss) Recognized in |
|
|
|
|
|
|
AOCI(1) (Effective Portion) |
|
|
Amount of Gain or (Loss) Recognized in Income(2)(3) |
|
|
Three Months |
|
|
Nine Months |
|
|
Three Months |
|
|
Nine Months |
|
|
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
Income Statement |
(Dollars in millions) |
|
May 31, 2009 |
|
|
May 31, 2009 |
|
|
May 31, 2009 |
|
|
May 31, 2009 |
|
|
Classification |
|
|
|
Derivatives Designated as Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair-Value Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Contracts(4) |
|
|
|
|
|
|
|
|
|
$ |
(38 |
) |
|
$ |
(16 |
) |
|
Cost of goods sold |
Cash Flow Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts |
|
$ |
(40 |
) |
|
$ |
44 |
|
|
|
20 |
|
|
|
31 |
|
|
Net sales |
Foreign Exchange Contracts |
|
|
(17 |
) |
|
|
48 |
|
|
|
7 |
|
|
|
19 |
|
|
Cost of goods sold |
Commodity Contracts |
|
|
91 |
|
|
|
(153 |
) |
|
|
|
|
|
|
29 |
|
|
Cost of goods sold |
Interest Rate Contracts |
|
|
16 |
|
|
|
16 |
|
|
|
(2 |
) |
|
|
(5 |
) |
|
Interest expense |
Net Investment Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts |
|
|
(20 |
) |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
N/A(5) |
|
|
|
Total Derivatives Designated as Hedges |
|
|
30 |
|
|
|
(21 |
) |
|
|
(13 |
) |
|
|
58 |
|
|
|
|
|
|
Derivatives Not Designated as Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts |
|
|
|
|
|
|
|
|
|
|
(115 |
) |
|
|
(108 |
) |
|
Other expense, net |
Commodity Contracts |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
Cost of goods sold |
|
|
|
Total Derivatives Not Designated as Hedges |
|
|
|
|
|
|
|
|
|
|
(114 |
) |
|
|
(108 |
) |
|
|
|
|
|
Total Derivatives |
|
$ |
30 |
|
|
$ |
(21 |
) |
|
$ |
(127 |
) |
|
$ |
(50 |
) |
|
|
|
|
|
|
|
|
(1) |
|
Accumulated other comprehensive income (loss) (AOCI) |
|
(2) |
|
For derivatives designated as cash flow and net investment hedges under SFAS 133,
this represents the effective portion of the gain (loss) reclassified from AOCI into income
during the period. |
|
(3) |
|
Gain on commodity cash flow hedges includes a gain from ineffectiveness of $7
million and $4 million for the three and nine months ended May 31, 2009, respectively. No
gains or losses were excluded from the assessment of hedge effectiveness during the nine
months ended May 31, 2009. |
|
(4) |
|
Loss on commodity fair value hedges is offset by a gain on the underlying hedged
inventory of $38 million and $21 million for the three and nine months ended May 31, 2009,
respectively.
There was no ineffectiveness included in cost of goods sold during
the three months end May 31, 2009. During the nine months ended May
31, 2009, a gain from ineffectiveness
of $5 million was included in cost of goods sold. |
|
(5) |
|
Gain or loss would only be reclassified into income during the period in which the
hedged net investment was sold or liquidated. |
Most of the companys outstanding foreign-currency derivatives are covered by International Swap
Dealers Association (ISDA) Master Agreements with the counterparties. There are no requirements to
post collateral under these agreements; however, should the companys credit rating fall below a
specified rating immediately following the merger of the company with another entity, the
counterparty may require all outstanding derivatives under the ISDA Master Agreement to be settled
immediately at current market value, which equals carrying value. Any foreign-currency derivatives
that are not covered by ISDA Master Agreements do not have credit-risk-related contingent
provisions. Most of the companys outstanding commodity derivatives are listed commodity futures,
and the company is required by the relevant commodity exchange to post collateral each day to cover
the change in the fair value of these futures. Any non-exchange traded commodity derivatives are
covered by the aforementioned ISDA Master Agreements and are subject to the same
credit-risk-related contingent provisions. The aggregate fair value of all derivative instruments
under ISDA Master Agreements that are in a liability position on May 31, 2009, is $72 million,
which is the amount that would be required for settlement if the credit-risk-related contingent
provisions underlying these agreements were triggered.
20
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 14. POSTRETIREMENT BENEFITS PENSIONS, HEALTH CARE AND OTHER
The majority of Monsantos employees are covered by noncontributory pension plans sponsored by the
company. The company also provides certain postretirement health care and life insurance benefits
for eligible retired employees, the latter through insurance contracts. The companys net periodic
benefit cost for pension benefits, and health care and other postretirement benefits include the
following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, 2009 |
|
|
Three
Months Ended May 31, 2008 |
|
Pension Benefits |
|
|
|
|
|
Outside the |
|
|
|
|
|
|
|
|
|
|
Outside the |
|
|
|
|
(Dollars in millions) |
|
U.S. |
|
|
U.S. |
|
|
Total |
|
|
U.S. |
|
|
U.S. |
|
|
Total |
|
|
|
|
Service Cost for Benefits Earned During the Period |
|
$ |
12 |
|
|
$ |
2 |
|
|
$ |
14 |
|
|
$ |
9 |
|
|
$ |
1 |
|
|
$ |
10 |
|
Interest Cost on Benefit Obligation |
|
|
26 |
|
|
|
4 |
|
|
|
30 |
|
|
|
23 |
|
|
|
3 |
|
|
|
26 |
|
Assumed Return on Plan Assets |
|
|
(29 |
) |
|
|
(5 |
) |
|
|
(34 |
) |
|
|
(26 |
) |
|
|
(4 |
) |
|
|
(30 |
) |
Amortization of Unrecognized Net Loss |
|
|
9 |
|
|
|
1 |
|
|
|
10 |
|
|
|
9 |
|
|
|
1 |
|
|
|
10 |
|
|
|
|
Total Net Periodic Benefit Cost |
|
$ |
18 |
|
|
$ |
2 |
|
|
$ |
20 |
|
|
$ |
15 |
|
|
$ |
1 |
|
|
$ |
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended May 31, 2009 |
|
|
Nine
Months Ended May 31, 2008 |
|
Pension Benefits |
|
|
|
|
|
Outside the |
|
|
|
|
|
|
|
|
|
|
Outside the |
|
|
|
|
(Dollars in millions) |
|
U.S. |
|
|
U.S. |
|
|
Total |
|
|
U.S. |
|
|
U.S. |
|
|
Total |
|
|
|
|
Service Cost for Benefits Earned During the Period |
|
$ |
36 |
|
|
$ |
5 |
|
|
$ |
41 |
|
|
$ |
29 |
|
|
$ |
4 |
|
|
$ |
33 |
|
Interest Cost on Benefit Obligation |
|
|
79 |
|
|
|
12 |
|
|
|
91 |
|
|
|
71 |
|
|
|
9 |
|
|
|
80 |
|
Assumed Return on Plan Assets |
|
|
(87 |
) |
|
|
(14 |
) |
|
|
(101 |
) |
|
|
(81 |
) |
|
|
(12 |
) |
|
|
(93 |
) |
Amortization of Unrecognized Net Loss |
|
|
28 |
|
|
|
3 |
|
|
|
31 |
|
|
|
28 |
|
|
|
2 |
|
|
|
30 |
|
|
|
|
Total Net Periodic Benefit Cost |
|
$ |
56 |
|
|
$ |
6 |
|
|
$ |
62 |
|
|
$ |
47 |
|
|
$ |
3 |
|
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Care and Other Postretirement Benefits |
|
Three Months Ended May 31, |
|
|
Nine Months Ended May 31, |
|
(Dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
Service Cost for Benefits Earned During the Period |
|
$ |
3 |
|
|
$ |
3 |
|
|
$ |
9 |
|
|
$ |
9 |
|
Interest Cost on Benefit Obligation |
|
|
4 |
|
|
|
4 |
|
|
|
13 |
|
|
|
12 |
|
Amortization of Unrecognized Net Gain |
|
|
(3 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
(1 |
) |
|
|
|
Total Net Periodic Benefit Cost |
|
$ |
4 |
|
|
$ |
7 |
|
|
$ |
11 |
|
|
$ |
20 |
|
|
|
|
In the first nine months of 2009 and 2008, Monsanto contributed $45 million and $60 million,
respectively, to its U.S. qualified plan and $6 million and $4 million, respectively, to plans
outside the United States. As of May 31, 2009, management expects to make additional contributions
of approximately $15 million and $2 million to the companys pension plans in the United States and
outside the United States, respectively, in fiscal year 2009. However, as a result of the recent
global financial market downturn and decline in plan asset values, Monsanto is currently assessing
the impact on its benefit plans funded status. Pending a final determination, significant
additional plan contributions exceeding these amounts are expected on or before Sept. 15, 2009,
some of which could occur in fiscal year 2009.
In December 2008, the assets of the Seminis Vegetable Seeds Retirement Plan were transferred into
the Monsanto Savings and Investment Plan.
Employee Savings Plan
The Monsanto leveraged employee stock ownership plan (Monsanto ESOP) debt was restructured in
November 2008 to level out the future allocation of stock thereunder in an impartial manner
intended to ensure equitable treatment for and generally to be in the best interests of current and
future plan participants consistent with the level of benefits that Monsanto intended for the plan
to provide to participants. To that end, the terms of the restructuring were determined pursuant to
an arms length negotiation between Monsanto and an independent trust company serving as fiduciary
for the plan for this restructuring. In this role, the independent fiduciary determined that the
restructuring, including certain financial commitments and enhancements that were made or will be
made in the future by Monsanto to benefit participants and beneficiaries of the plan, was completed
in accordance with the best interests of plan participants. As a result of these commitments and
enhancements
21
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
related to this restructuring, an additional liability of $8 million due to the Monsanto ESOP from
the company was recorded in first quarter 2009. The remaining liability from the November 2008
restructuring of $4 million is included in other liabilities on the Condensed Statement of
Consolidated Financial Position as of May 31, 2009.
NOTE 15. STOCK-BASED COMPENSATION PLANS
The following table shows total stock-based compensation expense included in the Statements of
Consolidated Operations for the three and nine months ended May 31, 2009, and May 31, 2008.
Stock-based compensation cost capitalized in inventory was $7 million and $5 million as of May 31,
2009, and Aug. 31, 2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
Nine Months Ended May 31, |
|
(Dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
Cost of Goods Sold |
|
$ |
7 |
|
|
$ |
2 |
|
|
$ |
15 |
|
|
$ |
6 |
|
Selling, General and Administrative Expenses |
|
|
18 |
|
|
|
16 |
|
|
|
53 |
|
|
|
46 |
|
Research and Development Expenses |
|
|
6 |
|
|
|
5 |
|
|
|
18 |
|
|
|
12 |
|
|
|
|
Pre-Tax Stock-Based Compensation Expense |
|
|
31 |
|
|
|
23 |
|
|
|
86 |
|
|
|
64 |
|
Income Tax Benefit |
|
|
(11 |
) |
|
|
(8 |
) |
|
|
(30 |
) |
|
|
(23 |
) |
|
|
|
Net Stock-Based Compensation Expense |
|
$ |
20 |
|
|
$ |
15 |
|
|
$ |
56 |
|
|
$ |
41 |
|
|
|
|
During the nine months ended May 31, 2009, Monsanto granted 2,846,300 stock options, 2,391 shares
of restricted stock and 177,380 restricted stock units to employees under the Monsanto Company
Long-Term Incentive Plan (LTIP), as amended, and the Monsanto Company 2005 Long-Term Incentive Plan
(2005 LTIP). In addition, during the nine months ended May 31, 2009, 12,514 shares of deferred
stock and 853 shares of restricted stock were granted to directors under the Monsanto Non-Employee
Director Equity Incentive Compensation Plan (Director Plan).
The weighted-average grant-date fair value of non-qualified stock options granted during the nine
months ended May 31, 2009, was $37.41 per share. Pre-tax unrecognized compensation expense for
stock options, net of estimated forfeitures, was $90 million as of May 31, 2009, and will be
recognized as expense over a weighted-average period of 2.2 years.
The weighted-average grant-date fair value of restricted stock and restricted stock units granted
during the nine months ended May 31, 2009, was $81.55 and $81.86, respectively, per share. Pre-tax
unrecognized compensation expense, net of estimated forfeitures, for nonvested restricted stock and
restricted stock units was $1 million and $83 million, respectively, as of May 31, 2009, which will
be recognized as expense over the weighted-average remaining requisite service periods. The
weighted-average remaining requisite service periods for nonvested restricted stock and restricted
stock units were 1.9 years and 2.7 years, respectively, as of May 31, 2009. The weighted-average
grant-date fair value of directors deferred stock and directors restricted stock granted during
the nine months ended May 31, 2009, was $113.13 and $114.25, respectively, per share. Pre-tax
unrecognized compensation expense for awards granted under the Director Plan was less than $1
million as of May 31, 2009, and will be recognized as expense over a weighted-average period of
three months.
22
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 16. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes all nonshareowner changes in equity and consists of net
income, foreign currency translation adjustments, net unrealized losses on available-for-sale
securities, postretirement benefit plan activity, and net accumulated derivative gains and losses
on cash flow hedges not yet realized. Information regarding comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
Nine Months Ended May 31, |
|
(Dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
Comprehensive Income |
|
$ |
1,144 |
|
|
$ |
854 |
|
|
$ |
1,834 |
|
|
$ |
2,747 |
|
|
|
|
The components of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, |
|
|
As of Aug. 31, |
|
(Dollars in millions) |
|
2009 |
|
|
2008 |
|
|
|
|
Accumulated Foreign Currency Translation Adjustments |
|
$ |
(256 |
) |
|
$ |
192 |
|
Net Unrealized Loss on Investments, Net of Tax |
|
|
(8 |
) |
|
|
(5 |
) |
Net Accumulated Derivative (Loss) Income, Net of Tax |
|
|
(26 |
) |
|
|
43 |
|
Postretirement Benefit Plan Activity, Net of Tax |
|
|
(296 |
) |
|
|
(308 |
) |
|
|
|
Accumulated Other Comprehensive Loss |
|
$ |
(586 |
) |
|
$ |
(78 |
) |
|
|
|
The significant decreases in comprehensive income and accumulated foreign currency translation
adjustments are primarily related to fluctuations in the currency translation rates of the
Brazilian real and European euro.
NOTE 17. EARNINGS PER SHARE
Basic earnings per share (EPS) was computed using the weighted-average number of common shares
outstanding during the period shown in the table below. For the three months and nine months ended
May 31, 2009, and May 31, 2008, diluted EPS was computed taking into account the effect of dilutive
potential common shares, as shown in the table below. Potential common shares consist primarily of
stock options using the treasury stock method and are excluded if their effect is antidilutive.
Approximately 5 million stock options were excluded from the computations of dilutive potential
common shares as they were antidilutive for the three and nine months ended May 31, 2009. Less than
0.1 million and approximately 0.1 million stock options were excluded from the computations of
dilutive potential common shares as they were antidilutive for the three and nine months ended May
31, 2008, respectively. Of those antidilutive options, approximately 5 million and less than 0.1
million stock options were excluded from the computations of dilutive potential common shares for
the three and nine months ended May 31, 2009, and May 31, 2008, respectively, as their exercise
prices were greater than the average market price of common shares for the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
Nine Months Ended May 31, |
|
(Shares in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
Weighted-Average Number of Common Shares |
|
|
545.7 |
|
|
|
549.0 |
|
|
|
546.9 |
|
|
|
547.6 |
|
Dilutive Potential Common Shares |
|
|
8.7 |
|
|
|
11.0 |
|
|
|
8.8 |
|
|
|
11.3 |
|
|
|
|
23
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 18. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended May 31, |
(Dollars in millions) |
|
2009 |
|
|
2008 |
|
|
Interest |
|
$ |
82 |
|
|
$ |
65 |
|
Taxes |
|
|
458 |
|
|
|
522 |
|
|
NOTE 19. COMMITMENTS AND CONTINGENCIES
Environmental and Litigation Liabilities: Monsanto is involved in environmental remediation and
legal proceedings related to its current business and, pursuant to its indemnification obligations,
related to Pharmacias former chemical and agricultural businesses. In addition, Monsanto has
liabilities established for various product claims, including claims related to pollination
variations in South Africa. With respect to certain of these proceedings and claims, Monsanto has a
liability recorded of $301 million and $272 million as of May 31, 2009, and Aug. 31, 2008,
respectively, for the estimated contingent liabilities. Information regarding the environmental
liabilities appears in Monsantos Report on Form 10-K for the fiscal year ended Aug. 31, 2008.
Litigation: The above liability also includes amounts related to certain third-party litigation
with respect to Monsantos business, as well as tort litigation related to Pharmacias former
chemical business, including lawsuits involving polychlorinated biphenyls (PCBs), dioxins, and
other chemical and premises liability litigation. Following is a description of one of the more
significant litigation matters reflected in the liability.
|
|
As described in Monsantos Report on Form 10-K for the fiscal year ended Aug. 31, 2008, and
Monsantos Reports on Form 10-Q for the quarterly periods ended
Nov. 30, 2008, and Feb. 28,
2009, on Dec. 17, 2004, 15 plaintiffs filed a purported class action lawsuit, styled Virdie
Allen, et al. v. Monsanto, et al., in the Putnam County, West Virginia, state court against
Monsanto, Pharmacia and seven other defendants. This is a companion case to Carter, et al. v.
Monsanto, et al., that was filed in the same state court Aug. 4, 2000, and alleges property
damage due to dioxin contamination. Monsanto is named as the successor in interest to the
liabilities of Pharmacia in both cases. The alleged class consists of all current and former
residents, workers, and students who, between 1949 and the present, were allegedly exposed to
dioxins/furans contamination in counties surrounding Nitro, West Virginia. The complaint
alleges that the source of the contamination is a chemical plant in Nitro, formerly owned and
operated by Pharmacia and later by Flexsys, a joint venture between Solutia Inc. and Akzo
Nobel Chemicals, Inc. (Akzo Nobel). Akzo Nobel and Flexsys were named defendants in the case
but Solutia was not, due to its then pending bankruptcy proceeding. The suit seeks damages for
property cleanup costs, loss of real estate value, funds to test property for contamination
levels, funds to test for human exposure, and future medical monitoring costs. The complaint
also seeks an injunction against further contamination and punitive damages. Monsanto has
agreed to indemnify and defend Akzo Nobel and the Flexsys defendant group. On Jan. 8, 2008,
the trial court issued an order certifying the Carter and Allen (now Zina G. Bibb et al. v.
Monsanto et al., because Bibb replaced Allen as class representative) cases as class actions
matters. The court has not set a trial date for these cases. On Oct. 1, 2007, 78 separate,
single plaintiff civil actions were filed in Putnam County, West Virginia, against Monsanto,
Pharmacia, Akzo Nobel (and several of its affiliates), Flexsys America Co. (and several of its
affiliates), Solutia, and Apogee Coal Company, LLC. Except for the name of the plaintiff, each
complaint is identical and each alleges personal injury occasioned by exposure to dioxin
generated by the Nitro Plant during production of 2,4,5 T (1949-1969) and thereafter. These
cases are related to, and were filed in the same court as, the Allen and Carter actions
described above. Monsanto has agreed to accept the tenders of defense in the matters by Akzo
Nobel and Flexsys America. These 78 personal injury cases have not been certified for class
action status. On Nov. 21, 2008, Monsanto removed all cases, including the personal injury
matters, to federal court based on recent revelations from plaintiffs that afford the
opportunity to assert Federal Officers defense to the litigation. Plaintiffs filed a motion
to remand the cases to West Virginia state court and the federal court granted that motion, in
part, on Dec. 19, 2008. The personal injury cases and the Bibb case were remanded to the state
court but the federal court retained jurisdiction in the Carter case. |
24
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MONSANTO COMPANY
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|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
Including litigation reflected in the above liability, Monsanto is involved in various legal
proceedings that arise in the ordinary course of its business or pursuant to Monsantos
indemnification obligations to Pharmacia, as well as proceedings that management has considered to
be material under SEC regulations. Some of the lawsuits seek damages in very large amounts or seek
to restrict the companys business activities. Monsanto believes that it has meritorious legal
arguments and will continue to represent its interests vigorously in all of the proceedings that it
is defending or prosecuting. Although the ultimate liabilities resulting from such proceedings, or
the proceedings reflected in the above liability, may be significant to profitability in the period
recognized, management does not anticipate they will have a material adverse effect on Monsantos
consolidated financial position or liquidity. A description of one of these proceedings appears
below.
|
|
As described in Monsantos Report on Form 10-K for the fiscal year ended Aug. 31, 2008, and
Monsantos Reports on Form 10-Q for the quarterly periods ended
Nov. 30, 2008, and Feb. 28,
2009, on June 23, 2004, two former employees of Monsanto and Pharmacia filed a purported class
action lawsuit in the U.S. District Court for the Southern District of Illinois against
Monsanto and the Monsanto Company Pension Plan, which is referred to as the Pension Plan.
The suit claims that the Pension Plan has violated the age discrimination and other rules
under the Employee Retirement Income Security Act of 1974 from Jan. 1, 1997 (when the Pension
Plan was sponsored by Pharmacia, then known as Monsanto Company) and continuing to the
present. In January 2006, a separate group of former employees of Pharmacia filed a similar
purported class action lawsuit in the U.S. District Court for the Southern District of
Illinois against Pharmacia, the Pharmacia Cash Balance Plan, and other defendants. On July 7,
2006, the plaintiffs amended their lawsuit to add Monsanto and the Pension Plan as additional
defendants. On Sept. 1, 2006, the Court consolidated these lawsuits with two purported class
action lawsuits also pending in the same Court against the Solutia Company Pension Plan, under
Walker v. Monsanto, the first filed case. All parties have agreed the case should proceed as a
class action and also agreed on a definition of the respective classes. The classes were
certified by Court Order on May 22, 2008. On July 11, 2008, all parties filed motions for
summary judgment on the issue of liability, which motions were heard by the court on May 6,
2009. On June 10, 2009, the Court granted summary judgment in favor of Monsanto and the other
defendants on the age discrimination claims. The Court granted summary judgment in favor of
the plaintiffs on a separate claim regarding post-termination interest. On that claim, the
Court ordered that a status conference be held on Aug. 13, 2009, to schedule remaining
proceedings, including discovery, with respect to remedies. We do not expect the amount of the
post-termination interest claim to be material. |
Guarantees: Disclosure regarding the guarantees Monsanto provides for certain customer loans in the
United States, Brazil, Europe and Argentina can be found in Note 4 Customer Financing Programs
of this Form 10-Q. Except as described in that note, there have been no significant changes to
guarantees made by Monsanto since Aug. 31, 2008. Disclosures regarding these guarantees made by
Monsanto can be found in Note 23 Commitments and Contingencies of the notes to the consolidated
financial statements contained in Monsantos Report on Form 10-K for the fiscal year ended
Aug. 31, 2008.
NOTE 20. SEGMENT INFORMATION
Monsanto conducts its worldwide operations through global businesses, which are aggregated into
reportable segments based on similarity of products, production processes, customers, distribution
methods and economic characteristics. The operating segments are aggregated into two reportable
segments: Seeds and Genomics and Agricultural Productivity. The Seeds and Genomics segment consists
of the global seeds and related traits businesses and biotechnology platforms. Within the Seeds and
Genomics segment, Monsantos significant operating segments are corn seed and traits, soybean seed
and traits, cotton seed and traits, vegetable seeds and all other crops seeds and traits. The
sugarcane business acquired in second quarter 2009 is included in the all other crops seeds and
traits operating segment. The Agricultural Productivity segment consists of the crop protection
products and lawn-and-garden herbicide products. The Dairy business, which was previously included
in the Agricultural Productivity segment, was divested in fiscal year 2009 and is included in
discontinued operations. Within the Agricultural Productivity segment, the significant operating
segments are ROUNDUP and other glyphosate-based products and all other agricultural products. EBIT
is defined as earnings (loss) before interest and taxes and is the primary operating performance
measure for the two business segments. EBIT is useful to management in demonstrating the
operational profitability of the segments by excluding interest and taxes, which are generally
accounted for across the entire company on a consolidated basis. Sales between segments were not
significant. Certain selling, general and administrative expenses are
25
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MONSANTO COMPANY
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|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
allocated between segments primarily by the ratio of segment sales to total Monsanto sales,
consistent with the companys historical practice. Based on the Agricultural Productivity segments
increasing contribution to total Monsanto operations, the allocation percentages were changed at
the beginning of fiscal year 2009.
Data for the Seeds and Genomics and Agricultural Productivity reportable segments, as well as for
Monsantos significant operating segments, is presented in the table that follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
Nine Months Ended May 31, |
(Dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
Net Sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn seed and traits |
|
$ |
1,020 |
|
|
$ |
975 |
|
|
$ |
3,726 |
|
|
$ |
3,189 |
|
Soybean seed and traits |
|
|
540 |
|
|
|
447 |
|
|
|
1,367 |
|
|
|
1,064 |
|
Cotton seed and traits |
|
|
333 |
|
|
|
279 |
|
|
|
413 |
|
|
|
361 |
|
Vegetable seeds |
|
|
206 |
|
|
|
185 |
|
|
|
572 |
|
|
|
521 |
|
All other crops seeds and traits |
|
|
149 |
|
|
|
161 |
|
|
|
311 |
|
|
|
293 |
|
|
|
|
Total Seeds and Genomics |
|
$ |
2,248 |
|
|
$ |
2,047 |
|
|
$ |
6,389 |
|
|
$ |
5,428 |
|
|
|
|
ROUNDUP and other glyphosate-based herbicides |
|
$ |
614 |
|
|
$ |
1,168 |
|
|
$ |
2,749 |
|
|
$ |
3,158 |
|
All other agricultural productivity products |
|
|
299 |
|
|
|
323 |
|
|
|
707 |
|
|
|
728 |
|
|
|
|
Total Agricultural Productivity |
|
$ |
913 |
|
|
$ |
1,491 |
|
|
$ |
3,456 |
|
|
$ |
3,886 |
|
|
|
|
Total |
|
$ |
3,161 |
|
|
$ |
3,538 |
|
|
$ |
9,845 |
|
|
$ |
9,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT(2)(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seeds and Genomics |
|
$ |
804 |
|
|
$ |
586 |
|
|
$ |
2,081 |
|
|
$ |
1,643 |
|
Agricultural Productivity |
|
|
211 |
|
|
|
501 |
|
|
|
1,210 |
|
|
|
1,486 |
|
|
|
|
Total |
|
$ |
1,015 |
|
|
$ |
1,087 |
|
|
$ |
3,291 |
|
|
$ |
3,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization Expense(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seeds and Genomics |
|
$ |
108 |
|
|
$ |
99 |
|
|
$ |
316 |
|
|
$ |
292 |
|
Agricultural Productivity |
|
|
26 |
|
|
|
43 |
|
|
|
88 |
|
|
|
131 |
|
|
|
|
Total |
|
$ |
134 |
|
|
$ |
142 |
|
|
$ |
404 |
|
|
$ |
423 |
|
|
|
|
|
|
|
(1) |
|
Represents net sales from continuing operations. |
|
(2) |
|
EBIT is defined as earnings (loss) before interest and taxes; see the following
table for reconciliation. Earnings (loss) is intended to mean net income (loss) as presented
in the Statements of Consolidated Operations under generally accepted accounting principles.
EBIT is the primary operating performance measure for the two business segments. |
|
(3) |
|
Agricultural Productivity EBIT includes loss from discontinued operations of $6
million for the three months ended May 31, 2008, and income from discontinued operations of $19 million and $14 million for
the nine months ended May 31, 2009, and May 31, 2008, respectively. |
|
(4) |
|
Agricultural Productivity depreciation and amortization expense includes $8 million
and $28 million from discontinued operations for the three and nine months ended May 31, 2008,
respectively. |
A reconciliation of EBIT to net income for each period follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
Nine Months Ended May 31, |
(Dollars in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
EBIT(1) |
|
$ |
1,015 |
|
|
$ |
1,087 |
|
|
$ |
3,291 |
|
|
$ |
3,129 |
|
Interest Expense (Income) Net |
|
|
18 |
|
|
|
(4 |
) |
|
|
24 |
|
|
|
(8 |
) |
Income Tax Provision(2) |
|
|
303 |
|
|
|
280 |
|
|
|
925 |
|
|
|
941 |
|
|
|
|
Net Income |
|
$ |
694 |
|
|
$ |
811 |
|
|
$ |
2,342 |
|
|
$ |
2,196 |
|
|
|
|
|
|
|
(1) |
|
Includes the income (loss) from operations of discontinued businesses and pre-tax
minority interest. |
|
(2) |
|
Includes the income tax provision from continuing operations, the income tax benefit
on minority interest and the income tax provision (benefit) from discontinued operations. |
26
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 21. SOLUTIA-RELATED INCOME
On Dec. 17, 2003, Solutia Inc. (Solutia) and 14 of its U.S. subsidiaries filed voluntary petitions
for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for
the Southern District of New York. In accordance with a plan of reorganization approved by the
Bankruptcy Court on Nov. 29, 2007, Solutia emerged from bankruptcy protection on Feb. 28, 2008.
Upon Solutias emergence from bankruptcy, in satisfaction of Monsantos claims against Solutia,
Monsanto received from Solutia: (1) approximately $163 million in cash (which represents proceeds
from a rights offering from Solutias equity holders, third-party reimbursements and Monsantos
administrative claim for environmental remediation payments it made in Anniston and Sauget during
Solutias Chapter 11 proceeding in excess of $50 million); (2) approximately 2.5 million shares of
common stock of Solutia, representing that portion of the equity of reorganized Solutia allocated
to Monsanto under the plan which was not purchased by Solutias equity holders; (3) a credit in an
amount in excess of $30 million against certain future payments by Monsanto to Solutia under supply
contracts used in the production of an intermediate for glyphosate at Monsantos facility at
Chocolate Bayou, Texas; (4) a release for Monsanto and Pharmacia from certain legacy liabilities
associated with Pharmacias chemical business that arose prior to Sept. 1, 1997, including
liabilities related to retiree medical, retiree life insurance, and disability benefits for
individuals who retired or became disabled prior to Sept. 1, 1997; and (5) a release for Monsanto
and Pharmacia for the litigation filed by Solutia, the Official Committee of Retirees, and the
Official Committee of Equity Holders of Solutia against Monsanto and Pharmacia. Since Monsanto had
previously recognized the expenses for the amounts incurred, the settlement amounts resulted in an
after-tax gain of approximately $130 million ($210 million pretax), or $0.23 per share. Also,
included in the Statement of Consolidated Operations for 2008 are expenses of $23 million related
to Solutia-related environmental and legal matters prior to Solutias emergence from bankruptcy.
NOTE 22. DISCONTINUED OPERATIONS
Dairy Business Divestiture: During fourth quarter 2008, the company determined that the Dairy
business was no longer consistent with its strategic business objectives, and thus entered into an
agreement to sell the majority of the Dairy business assets (excluding cash, trade receivables and
certain property) to Eli Lilly and Company for $300 million, plus additional contingent
consideration. The contingent consideration is a 10 year earn-out with potential annual payments
being earned by Monsanto if certain revenue levels are exceeded. On Oct. 1, 2008, Monsanto
consummated the sale to Eli Lilly after receiving approval from the appropriate regulatory
agencies. As a result, the Dairy business has been segregated from continuing operations and
presented as discontinued operations. The Dairy business was previously reported as a part of the
Agricultural Productivity segment. During the nine months ended May 31, 2009, income from
operations of discontinued businesses included an $11 million pre-tax gain related to the sale.
NOTE 23. SUBSEQUENT EVENTS
In June 2009, Monsanto announced plans to take future actions to reduce costs associated with its
agricultural businesses. The company will further concentrate its resources on its seeds and traits
businesses by creating a separate division for its ROUNDUP and other herbicides business. There
are no current plans to impact the previously reported segment structure. This step will allow Monsanto to
more closely align its businesses with current market conditions as well as enable it to
align the spending and working capital needs associated with each business to its longer-term
earnings potential. These actions are expected to require charges of $350 million to $400 million pretax in
the fourth quarter of fiscal year 2009.
On June 9, 2009, the board of directors declared a quarterly dividend on its common shares of 26.5
cents per share. The dividend is payable on July 24, 2009, to shareholders of record on July 2,
2009.
27
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|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Background
Monsanto Company, along with its subsidiaries, is a leading global provider of agricultural
products for farmers. Our seeds, biotechnology trait products, and herbicides provide farmers with
solutions that improve productivity, reduce the costs of farming, and produce better foods for
consumers and better feed for animals.
We manage our business in two segments: Seeds and Genomics and Agricultural Productivity. Through
our Seeds and Genomics segment, we produce leading seed brands, including DEKALB, ASGROW,
DELTAPINE, SEMINIS and DE RUITER, and we develop biotechnology traits that assist farmers in
controlling insects and weeds. We also provide other seed companies with genetic material and
biotechnology traits for their seed brands. Through our Agricultural Productivity segment, we
manufacture ROUNDUP brand herbicides and other herbicides and provide lawn-and-garden herbicide
products for the residential market.
In the fourth quarter of 2008, we entered into an agreement to divest the Dairy business. This
transaction was consummated on Oct. 1, 2008. As a result, financial data for this business has been
presented as discontinued operations and has been recast and prepared in compliance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Accordingly, the Statements of Consolidated Operations
have been conformed to this presentation. The Dairy business was previously reported as part of the
Agricultural Productivity segment. See Note 22 Discontinued Operations for further details.
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should
be read in conjunction with Monsantos consolidated financial statements and the accompanying
notes. This Report on Form 10-Q should also be read in conjunction with Monsantos Report on Form
10-K for the fiscal year ended Aug. 31, 2008. Financial information for the first nine months of
fiscal year 2009 should not be annualized because of the seasonality of our business. The notes to
the consolidated financial statements referred to throughout this MD&A are included in Part I
Item 1 Financial Statements of this Report on Form 10-Q. Unless otherwise indicated,
Monsanto, the company, we, our and us are used interchangeably to refer to Monsanto
Company or to Monsanto Company and its consolidated subsidiaries, as appropriate to the context.
Unless otherwise indicated, earnings (loss) per share and per share mean diluted earnings
(loss) per share. Unless otherwise noted, all amounts and analyses are based on continuing
operations. Unless otherwise indicated, trademarks owned or licensed by Monsanto or its
subsidiaries are shown in all capital letters. Unless otherwise indicated, references to ROUNDUP
herbicides mean ROUNDUP branded herbicides, excluding all lawn-and-garden herbicides, and
references to ROUNDUP and other glyphosate-based herbicides exclude all lawn-and-garden
herbicides.
Non-GAAP Financial Measures
MD&A includes financial information prepared in accordance with U.S. generally accepted accounting
principles (GAAP), as well as two other financial measures, EBIT and free cash flow, that are
considered non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical
measure of a companys financial performance, financial position or cash flows that exclude (or
include) amounts that are included in (or excluded from) the most directly comparable measure
calculated and presented in accordance with GAAP. The presentation of EBIT and free cash flow
information is intended to supplement investors understanding of our operating performance and
liquidity. Our EBIT and free cash flow measures may not be comparable to other companies EBIT and
free cash flow measures. Furthermore, these measures are not intended to replace net income, cash
flows, financial position, or comprehensive income, as determined in accordance with U.S. GAAP.
EBIT is defined as earnings (loss) before interest and taxes. Earnings is intended to mean net
income as presented in the Statements of Consolidated Operations under GAAP. EBIT is the primary
operating performance measure for our two business segments. We believe that EBIT is useful to
investors and management to demonstrate the operational profitability of our segments by excluding
interest and taxes, which are generally accounted for across the entire company on a consolidated
basis. EBIT is also one of the measures used by Monsanto management to determine resource
allocations within the company. See Note 20 Segment Information for a reconciliation of EBIT to
net income for the three and nine months ended May 31, 2009, and May 31, 2008.
28
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MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
We also provide information regarding free cash flow, an important liquidity measure for Monsanto.
We define free cash flow as the total of net cash provided or required by operating activities and
provided or required by investing activities. We believe that free cash flow is useful to investors
and management as a measure of the ability of our business to generate cash. This cash can be used
to meet business needs and obligations, to reinvest in the company for future growth, or to return
to our shareowners through dividend payments or share repurchases. Free cash flow is also used by
management as one of the performance measures in determining incentive compensation. See the
Financial Condition, Liquidity, and Capital Resources Cash Flow section of MD&A for a
reconciliation of free cash flow to net cash provided by operating activities and net cash required
by investing activities on the Statements of Consolidated Cash Flows.
Executive Summary
Consolidated Operating Results Net sales decreased $377 million in the three-month comparison and
increased $531 million in the nine month comparison. In third quarter 2009, net sales declined due
to a decrease in sales of ROUNDUP and other glyphosate-based herbicides in most regions partially
offset by an increase in sales of corn, soybean, and cotton seed and traits in the United States
and cotton seed and traits in India. In the first nine months of 2009, net sales increased
primarily as a result of increased sales of corn and soybean seed and traits in the United States
combined with higher sales of ROUNDUP and other glyphosate-based herbicides in Brazil. Net income
in the first nine months of 2009 was $4.21 per share, compared with $3.93 per share in the
prior-year comparable period.
Financial Condition, Liquidity, and Capital Resources In the first nine months of 2009, net cash
provided by operating activities was $436 million, compared with $1,325 million in the prior-year
first nine months. This decrease is primarily due to the increase in inventory, primarily seed,
during the first nine months of 2009 which was partially offset by higher net income. Net cash
required by investing activities was $588 million in the first nine months of 2009 compared to $650
million in the first nine months of 2008 as higher spending on capital and acquisitions was more than
offset by proceeds from the sale of the Dairy business. Free cash flow was a use of $152 million in
the first nine months of 2009 compared with a source of $675 million in the prior-year first nine
months.
Outlook We plan to continue to improve our products in order to maintain market leadership and to
support near-term performance. We are focused on applying innovation and technology to make our
farmer customers more productive and profitable by protecting yields and improving the ways they
can produce food, fiber and feed. We use the tools of modern biology to make seeds easier to grow,
to allow farmers to do more with fewer resources, and to produce healthier foods for consumers. Our
current research and development (R&D) strategy and commercial priorities are focused on bringing
our farmer customers second-generation traits, on delivering multiple solutions in one seed
(stacking), and on developing new pipeline products. Our capabilities in biotechnology and
breeding research are generating a rich product pipeline that is expected to drive long-term
growth. The viability of our product pipeline depends in part on the speed of regulatory approvals
globally, and on continued patent and legal rights to offer our products.
We plan to improve and to grow our vegetable seeds business. We have applied our molecular breeding
and marker capabilities to our library of vegetable germplasm. In the future, we will continue to
focus on accelerating the potential growth of these new businesses and executing our business
plans.
ROUNDUP herbicides remain the largest crop protection brand globally. The previous two year period
has seen increasing demand in the glyphosate market in a time of tight supply, causing a period of
higher prices. More recently the significant supply of lower priced generics has caused increased
competitive pressure in the market and an anticipated decline in the business. We are focused on
managing the costs associated with our agricultural chemistry business as that sector matures
globally. Our selective acetochlor herbicide products face increasing competitive pressures and a
declining market, in part because of the rapid penetration of ROUNDUP READY corn in the United
States.
See the Outlook section of MD&A for a more detailed discussion of some of the opportunities and
risks we have identified for our business. For additional information related to the outlook for
Monsanto, see Caution Regarding Forward-Looking Statements at the beginning of this Report on
Form 10-Q, Part II Item 1A Risk Factors below and Part I Item 1A of our Report on Form 10-K
for the fiscal year ended Aug. 31, 2008.
29
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
Nine Months Ended May 31, |
|
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
|
Net Sales |
|
$ |
3,161 |
|
|
$ |
3,538 |
|
|
|
(11 |
)% |
|
$ |
9,845 |
|
|
$ |
9,314 |
|
|
|
6 |
% |
Gross Profit |
|
|
1,834 |
|
|
|
1,967 |
|
|
|
(7 |
)% |
|
|
5,905 |
|
|
|
5,217 |
|
|
|
13 |
% |
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
504 |
|
|
|
616 |
|
|
|
(18 |
)% |
|
|
1,576 |
|
|
|
1,601 |
|
|
|
(2 |
)% |
Research and development expenses |
|
|
295 |
|
|
|
248 |
|
|
|
19 |
% |
|
|
812 |
|
|
|
666 |
|
|
|
22 |
% |
Acquired in-process research and development |
|
|
|
|
|
|
2 |
|
|
|
(100 |
)% |
|
|
162 |
|
|
|
3 |
|
|
NM |
|
|
|
|
Total Operating Expenses |
|
|
799 |
|
|
|
866 |
|
|
|
(8 |
)% |
|
|
2,550 |
|
|
|
2,270 |
|
|
|
12 |
% |
|
|
|
Income from Operations |
|
|
1,035 |
|
|
|
1,101 |
|
|
|
(6 |
)% |
|
|
3,355 |
|
|
|
2,947 |
|
|
|
14 |
% |
Interest expense |
|
|
32 |
|
|
|
31 |
|
|
|
3 |
% |
|
|
81 |
|
|
|
97 |
|
|
|
(16 |
)% |
Interest income |
|
|
(14 |
) |
|
|
(35 |
) |
|
|
(60 |
)% |
|
|
(57 |
) |
|
|
(105 |
) |
|
|
(46 |
)% |
Solutia-related income |
|
|
|
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
(187 |
) |
|
|
100 |
% |
Other expense (income) net |
|
|
4 |
|
|
|
(5 |
) |
|
|
(180 |
)% |
|
|
62 |
|
|
|
(2 |
) |
|
NM |
|
|
|
|
Income from
Continuing Operations Before Income Taxes and Minority interest |
|
|
1,013 |
|
|
|
1,110 |
|
|
|
(9 |
)% |
|
|
3,269 |
|
|
|
3,144 |
|
|
|
4 |
% |
Income tax provision |
|
|
308 |
|
|
|
288 |
|
|
|
7 |
% |
|
|
924 |
|
|
|
945 |
|
|
|
(2 |
)% |
Minority interest expense |
|
|
11 |
|
|
|
7 |
|
|
|
57 |
% |
|
|
14 |
|
|
|
13 |
|
|
|
8 |
% |
|
|
|
Income from Continuing Operations |
|
|
694 |
|
|
|
815 |
|
|
|
(15 |
)% |
|
|
2,331 |
|
|
|
2,186 |
|
|
|
7 |
% |
Discontinued Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from operations of discontinued businesses |
|
|
|
|
|
|
(7 |
) |
|
|
(100 |
)% |
|
|
19 |
|
|
|
12 |
|
|
|
58 |
% |
Income tax (benefit) provision |
|
|
|
|
|
|
(3 |
) |
|
|
(100 |
)% |
|
|
8 |
|
|
|
2 |
|
|
|
300 |
% |
|
|
|
(Loss) Income on Discontinued Operations |
|
|
|
|
|
|
(4 |
) |
|
|
(100 |
)% |
|
|
11 |
|
|
|
10 |
|
|
|
10 |
% |
|
|
|
Net Income |
|
$ |
694 |
|
|
$ |
811 |
|
|
|
(14 |
)% |
|
$ |
2,342 |
|
|
$ |
2,196 |
|
|
|
7 |
% |
|
|
|
Diluted Earnings (Loss) per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.25 |
|
|
$ |
1.46 |
|
|
|
(14 |
)% |
|
$ |
4.19 |
|
|
$ |
3.91 |
|
|
|
7 |
% |
Income (loss) on discontinued operations |
|
|
|
|
|
|
(0.01 |
) |
|
|
(100 |
)% |
|
|
0.02 |
|
|
|
0.02 |
|
|
NM |
|
|
|
|
Net Income |
|
$ |
1.25 |
|
|
$ |
1.45 |
|
|
|
(14 |
)% |
|
$ |
4.21 |
|
|
$ |
3.93 |
|
|
|
7 |
% |
|
|
|
NM = Not Meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate (continuing operations) |
|
|
30 |
% |
|
|
26 |
% |
|
|
|
|
|
|
28 |
% |
|
|
30 |
% |
|
|
|
|
Comparison as a Percent of Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
58 |
% |
|
|
56 |
% |
|
|
|
|
|
|
60 |
% |
|
|
56 |
% |
|
|
|
|
Selling, general and administrative expenses |
|
|
16 |
% |
|
|
17 |
% |
|
|
|
|
|
|
16 |
% |
|
|
17 |
% |
|
|
|
|
Research and development expenses (excluding acquired IPR&D) |
|
|
9 |
% |
|
|
7 |
% |
|
|
|
|
|
|
8 |
% |
|
|
7 |
% |
|
|
|
|
Total operating expenses |
|
|
25 |
% |
|
|
24 |
% |
|
|
|
|
|
|
26 |
% |
|
|
24 |
% |
|
|
|
|
Income from continuing operations before income taxes
and minority interest |
|
|
32 |
% |
|
|
31 |
% |
|
|
|
|
|
|
33 |
% |
|
|
34 |
% |
|
|
|
|
Net income |
|
|
22 |
% |
|
|
23 |
% |
|
|
|
|
|
|
24 |
% |
|
|
24 |
% |
|
|
|
|
Third Quarter Fiscal Year 2009
The following explanations discuss the significant components of our results of operations that
affected the quarter-to-quarter comparison of our third quarter income from continuing operations:
Net sales decreased 11 percent in third quarter 2009 from the same quarter a year ago. Our Seeds
and Genomics segment net sales improved 10 percent, and our Agricultural Productivity segment net
sales declined 39 percent. The following table presents the percentage changes in third quarter
2009 worldwide net sales by segment compared with net sales in the
30
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
prior-year quarter, including the effect volume, price, currency and acquisitions had on these
percentage changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2009 Percentage Change in Net Sales vs. Third Quarter 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of |
|
|
|
|
|
|
Volume |
|
|
Price |
|
|
Currency |
|
|
Subtotal |
|
|
Acquisitions(1) |
|
|
Net Change |
|
|
|
|
Seeds and Genomics Segment |
|
|
1 |
% |
|
|
11 |
% |
|
|
(4 |
)% |
|
|
8 |
% |
|
|
2 |
% |
|
|
10 |
% |
Agricultural Productivity
Segment |
|
|
(36 |
)% |
|
|
2 |
% |
|
|
(5 |
)% |
|
|
(39 |
)% |
|
|
|
|
|
|
(39 |
)% |
Total Monsanto Company |
|
|
(15 |
)% |
|
|
8 |
% |
|
|
(5 |
)% |
|
|
(12 |
)% |
|
|
1 |
% |
|
|
(11 |
)% |
|
|
|
|
(1) |
|
See Note 3 Business Combinations and Financial Condition, Liquidity, and
Capital Resources in MD&A for details of our acquisitions in fiscal years 2009 and 2008.
Acquisitions are segregated in this presentation for one year from the acquisition date. |
For a more detailed discussion of the factors affecting the net sales comparison, see the Seeds
and Genomics Segment and the Agricultural Productivity Segment sections.
Gross profit decreased 7 percent in the three-month comparison. Gross profit as a percent of net
sales (gross profit percentage) for the total company increased 2 percentage points to 58 percent
in third quarter 2009 primarily driven by the increase in soybean and corn seed and traits average
net selling prices and the increase in sales in the Seeds and Genomics segment. Gross profit
percentage in the Seed and Genomics segment increased 3 percentage points to 63 percent in third
quarter 2009. See the Seeds and Genomics Segment section of MD&A for details. Gross profit
percentage for the Agricultural Productivity segment decreased 5 percentage points to 45 percent in
third quarter 2009. See the Agricultural Productivity Segment section of the MD&A for the factors
affecting the Agricultural Productivity gross profit.
Operating expenses decreased 8 percent, or $67 million, in third quarter 2009 from the prior-year
comparable quarter. In the three-month comparison, selling, general and administrative (SG&A)
expenses decreased 18 percent because of lower spending for marketing, administrative functions and
incentives. R&D expenses increased 19 percent related to the increase in our investment in our
product pipeline. As a percent of net sales, SG&A expenses decreased 1 percentage point to 16
percent, and R&D expenses increased 2 percentage points to 9 percent in the three-month comparison.
Interest income decreased $21 million in the quarter-over-quarter comparison because of lower
average cash balances primarily in Brazil and the United States in third quarter 2009.
Other Expense net was expense of $4 million in third quarter 2009, compared with income of $5
million in the prior-year quarter. The change is primarily due to foreign currency losses in
Brazil.
Income tax provision was $308 million in third quarter 2009, an increase of $20 million from the
prior-year quarter. The effective tax rate increased to 30 percent from 26 percent in third quarter
2008. The effective rate for third quarter 2008 was affected by a tax benefit of $43 million for
the reversal of our remaining net operating loss valuation allowance in Argentina and additional
tax expense for a transfer pricing item. Third quarter 2009 included several discrete tax
adjustments resulting in a tax benefit of $24 million. The majority of this benefit was the result
of tax adjustments related to prior tax years. Without these items, our effective tax rate for
third quarter 2009 would have been even higher than the 2008 rate, primarily driven by a shift in
our projected earnings mix to higher tax rate jurisdictions.
First Nine Months of Fiscal Year 2009
The following explanations discuss the significant components of our results of operations that
affected the nine-month comparison of our first nine months of fiscal years 2009 and 2008 income
from continuing operations:
Net
sales increased 6 percent in the first nine months of 2009 from the same period a year ago. Our
Seeds and Genomics segment net sales improved 18 percent and our Agricultural Productivity segment
net sales declined 11 percent. The following table presents the
percentage changes in the first nine months of 2009 worldwide net sales by segment compared with net sales in the prior-year first nine
months, including the effect volume, price, currency and acquisitions had on these percentage
changes:
31
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months of 2009 Percentage Change in Net Sales vs. First Nine Months of 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of |
|
|
|
|
|
|
Volume |
|
|
Price |
|
|
Currency |
|
|
Subtotal |
|
|
Acquisitions(1) |
|
|
Net Change |
|
|
|
|
Seeds and Genomics Segment |
|
|
2 |
% |
|
|
17 |
% |
|
|
(4 |
)% |
|
|
15 |
% |
|
|
3 |
% |
|
|
18 |
% |
Agricultural Productivity
Segment |
|
|
(28 |
)% |
|
|
20 |
% |
|
|
(3 |
)% |
|
|
(11 |
)% |
|
|
|
|
|
|
(11 |
)% |
Total Monsanto Company |
|
|
(11 |
)% |
|
|
19 |
% |
|
|
(3 |
)% |
|
|
5 |
% |
|
|
1 |
% |
|
|
6 |
% |
|
|
|
|
(1) |
|
See Note 3 Business Combinations and Financial Condition, Liquidity, and
Capital Resources in MD&A for details of our acquisitions in fiscal years 2009 and 2008.
Acquisitions are segregated in this presentation for one year from the acquisition date. |
For a more detailed discussion of the factors affecting the net sales comparison, see the Seeds
and Genomics Segment and the Agricultural Productivity Segment sections.
Gross profit increased 13 percent in the nine-month comparison. Gross profit percentage for the
total company increased 4 percentage points to 60 percent
in the first nine months of 2009 driven by
increases in average net selling prices of corn and soybean seed and traits and ROUNDUP and other
glyphosate-based herbicides. Gross profit percentage in the Seed and Genomics segment increased 2
percentage points to 64 percent in the first nine months of 2009. See the Seeds and Genomics Segment
section of MD&A for details. Gross profit percentage for the Agricultural Productivity segment
increased 5 percentage points to 53 percent in the first nine months of 2009. See the Agricultural
Productivity Segment section of the MD&A for the factors affecting the Agricultural Productivity
gross profit.
Operating
expenses increased 12 percent, or $280 million, in the first nine months of 2009 from the
prior-year comparable period, primarily because of the $162 million pre-tax acquired in-process
research and development (IPR&D) charge in 2009 related to the Aly Participacoes Ltda. (Aly)
acquisition. In the nine-month comparison, SG&A expenses decreased 2 percent primarily because of
lower spending for marketing, administrative functions and incentives. R&D expenses increased 22
percent in the nine-month period due to an increase in our investment in our product pipeline. As a
percent of net sales, SG&A expenses decreased 1 percentage point to 16 percent, and R&D expenses
increased 1 percentage point to 8 percent in the nine-month comparison.
Interest expense decreased $16 million in the nine-month comparison primarily because we had higher
interest capitalized on construction during the first nine months of 2009 and due to lower average
commercial paper borrowings outstanding during the first nine months of 2009.
Interest income decreased $48 million in the nine-month comparison because of less interest earned
on lower average cash balances primarily in Brazil and United States
in the first nine months of 2009.
Solutia-related
income was $187 million in the first nine months of 2008. We recorded a gain of $210
million pretax (Solutia-related gain), associated with the settlement of our claim on Feb. 28,
2008, in connection with Solutias emergence from bankruptcy. Since Solutia has emerged from
bankruptcy, any related expenses for these assumed liabilities are now included within operating
expenses.
Other Expense net was expense of $62 million in the first nine months of 2009, compared with
income of $2 million in the prior-year nine months. The change is primarily due to foreign currency
losses in Brazil and Europe.
Income
tax provision was $924 million in the first nine months of 2009, a decrease of $21 million from
the prior-year comparable period. The effective tax rate decreased to 28 percent from 30 percent in
the prior period.
|
|
|
The first nine months of 2009 included several discrete tax adjustments resulting in a
tax benefit of $119 million. The majority of this benefit was the result of the resolution
of several domestic and ex-US tax audits and the retroactive extension of the R&D credit
that was enacted on Oct. 3, 2008, as part of the Emergency Economic Stabilization Act of
2008. |
|
|
|
|
The effective rate for the first nine months of 2008 was affected by our Solutia-related
gain for which taxes were provided at a higher U.S.-based rate, a tax benefit of $43
million for the reversal of our remaining net operating loss valuation allowance in
Argentina and additional tax expense for a transfer pricing item. |
Without these items, our effective tax rate for the first nine months of 2009 would have been
higher than the 2008 rate, primarily driven by a shift in our projected earnings mix to higher tax
rate jurisdictions.
32
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
SEEDS AND GENOMICS SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
Nine Months Ended May 31, |
|
(Dollars in millions) |
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn seed and traits |
|
$ |
1,020 |
|
|
$ |
975 |
|
|
|
5 |
% |
|
$ |
3,726 |
|
|
$ |
3,189 |
|
|
|
17 |
% |
Soybean seed and traits |
|
|
540 |
|
|
|
447 |
|
|
|
21 |
% |
|
|
1,367 |
|
|
|
1,064 |
|
|
|
28 |
% |
Cotton seed and traits |
|
|
333 |
|
|
|
279 |
|
|
|
19 |
% |
|
|
413 |
|
|
|
361 |
|
|
|
14 |
% |
Vegetable seeds |
|
|
206 |
|
|
|
185 |
|
|
|
11 |
% |
|
|
572 |
|
|
|
521 |
|
|
|
10 |
% |
All other crops seeds and traits |
|
|
149 |
|
|
|
161 |
|
|
|
(7 |
)% |
|
|
311 |
|
|
|
293 |
|
|
|
6 |
% |
|
|
|
Total Net Sales |
|
$ |
2,248 |
|
|
$ |
2,047 |
|
|
|
10 |
% |
|
$ |
6,389 |
|
|
$ |
5,428 |
|
|
|
18 |
% |
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn seed and traits |
|
$ |
630 |
|
|
$ |
565 |
|
|
|
12 |
% |
|
$ |
2,445 |
|
|
$ |
2,023 |
|
|
|
21 |
% |
Soybean seed and traits |
|
|
338 |
|
|
|
269 |
|
|
|
26 |
% |
|
|
856 |
|
|
|
649 |
|
|
|
32 |
% |
Cotton seed and traits |
|
|
249 |
|
|
|
195 |
|
|
|
28 |
% |
|
|
296 |
|
|
|
252 |
|
|
|
17 |
% |
Vegetable seeds |
|
|
113 |
|
|
|
93 |
|
|
|
22 |
% |
|
|
308 |
|
|
|
270 |
|
|
|
14 |
% |
All other crops seeds and traits |
|
|
97 |
|
|
|
97 |
|
|
|
|
|
|
|
177 |
|
|
|
154 |
|
|
|
15 |
% |
|
|
|
Total Gross Profit |
|
$ |
1,427 |
|
|
$ |
1,219 |
|
|
|
17 |
% |
|
$ |
4,082 |
|
|
$ |
3,348 |
|
|
|
22 |
% |
|
|
|
EBIT(1) |
|
$ |
804 |
|
|
$ |
586 |
|
|
|
37 |
% |
|
$ |
2,081 |
|
|
$ |
1,643 |
|
|
|
27 |
% |
|
|
|
|
|
|
(1) |
|
EBIT is defined as earnings before interest and taxes. Interest and taxes are
recorded on a total company basis. We do not record these items at the segment level. See Note
20 Segment Information and the Overview Non-GAAP Financial Measures section of MD&A
for further details. |
Seeds and Genomics Financial Performance Third Quarter Fiscal Year 2009
Net sales of corn seed and traits increased 5 percent, or $45 million, in the three-month
comparison, primarily because of increased sales of U.S. corn seed and traits, mostly due to an
increase in the average net selling price.
In third quarter 2009, net sales of soybean seed and traits increased 21 percent, or $93 million,
in the three-month comparison primarily because of an increase in the average net selling price in
the United States.
Net sales of cotton seed and traits increased 19 percent, or $54 million, in the three-month
comparison primarily because of an increase in the average net selling price and a shift to second
generation products in the United States and increased volumes and planting rates in India.
The net sales increases discussed above resulted in $208 million higher gross profit in third
quarter 2009. Gross profit as a percent of sales for this segment increased 3 percentage points in
the quarter-over-quarter comparison to 63 percent. This improvement was primarily driven by
increased prices in U.S. corn seed and traits, U.S. soybean seed and traits and a demand shift to
higher margin triple trait corn products. These positive factors were partially offset by higher
costs in the United States resulting from higher commodity prices paid for our seed production.
EBIT for the Seeds and Genomics segment increased $218 million to $804 million in third quarter
2009.
Seeds and Genomics Financial Performance First Nine Months of Fiscal Year 2009
Net sales of corn seed and traits increased 17 percent, or $537 million, in the nine-month
comparison, primarily because of increased sales of U.S. corn seed and traits, mostly due to an
increase in the average net selling price and a demand shift to higher margin triple trait corn
product.
Net sales
of soybean seed and traits increased 28 percent, or
$303 million, in the first nine months of
2009, when compared to the prior year first nine months primarily because of increased sales of
soybean seed and traits in the United States driven by higher average net selling prices. Further,
net sales volumes of U.S. soybean seed and traits improved in the nine-month comparison driven by
stronger customer demand and an anticipated increase in soybean acres.
33
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
In the first nine months of 2009, net sales of cotton seed and traits increased 14 percent, or $52
million, primarily due to an increase in net sales in India due to increased volume and an increase
in the average net selling price and a shift to second generation products in the United States.
Gross profit percentage for this segment increased 2 percentage points in the period-over-period
comparison to 64 percent. This increase was primarily driven by increased prices in U.S. corn and
U.S. soybeans and a demand shift to higher margin triple trait corn products. These positive
factors were partially offset by higher costs in the United States resulting primarily from higher
commodity prices paid for our seed production and increased costs from product claims related to
pollination variations with three hybrids of white corn grown solely in South Africa.
EBIT for the Seeds and Genomics segment increased $438 million to $2,081 million in the first nine
months of 2009. The sales increases discussed in this section resulted in $734 million higher gross
profit in the first nine months of 2009. In the nine-month comparison, increased SG&A and R&D
expenses related to the acquired IPR&D charge of $162 million pretax and the growth in the business
partially offset the gross profit improvement.
AGRICULTURAL PRODUCTIVITY SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
Nine Months Ended May 31, |
|
(Dollars in millions) |
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
2009 |
|
|
2008 |
|
|
% Change |
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROUNDUP and other glyphosate-based herbicides |
|
$ |
614 |
|
|
$ |
1,168 |
|
|
|
(47 |
)% |
|
$ |
2,749 |
|
|
$ |
3,158 |
|
|
|
(13 |
)% |
All other agricultural productivity products |
|
|
299 |
|
|
|
323 |
|
|
|
(7 |
)% |
|
|
707 |
|
|
|
728 |
|
|
|
(3 |
)% |
|
|
|
Total Net Sales |
|
$ |
913 |
|
|
$ |
1,491 |
|
|
|
(39 |
)% |
|
$ |
3,456 |
|
|
$ |
3,886 |
|
|
|
(11 |
)% |
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROUNDUP and other glyphosate-based herbicides |
|
$ |
273 |
|
|
$ |
594 |
|
|
|
(54 |
)% |
|
$ |
1,514 |
|
|
$ |
1,559 |
|
|
|
(3 |
)% |
All other agricultural productivity products |
|
|
134 |
|
|
|
154 |
|
|
|
(13 |
)% |
|
|
309 |
|
|
|
310 |
|
|
|
|
|
|
|
|
Total Gross Profit |
|
$ |
407 |
|
|
$ |
748 |
|
|
|
(46 |
)% |
|
$ |
1,823 |
|
|
$ |
1,869 |
|
|
|
(2 |
)% |
|
|
|
EBIT(1) |
|
$ |
211 |
|
|
$ |
501 |
|
|
|
(58 |
)% |
|
$ |
1,210 |
|
|
$ |
1,486 |
|
|
|
(19 |
)% |
|
|
|
|
|
|
(1) |
|
EBIT is defined as earnings before interest and taxes. Interest and taxes are
recorded on a total company basis. We do not record these items at the segment level. See Note
20 Segment Information and the Overview Non-GAAP Financial Measures section of MD&A
for further details. |
Agricultural Productivity Financial Performance Third Quarter Fiscal Year 2009
Net sales of ROUNDUP and other glyphosate-based herbicides decreased 47 percent, or $554 million,
in the three-month comparison. In third quarter 2009, net sales of ROUNDUP and other
glyphosate-based herbicides decreased in all regions after price increases in 2008. Sales volumes
in the U. S. decreased primarily due to a softening of customer demand compared to third quarter
2008, driven by increased pressure from generic competition. Sales volumes of ROUNDUP and other
glyphosate-based herbicides decreased 44 percent in third quarter 2009 from third quarter 2008.
The net sales decreases discussed throughout this section resulted in $341 million less gross
profit in third quarter 2009. Gross profit as a percent of sales for the Agricultural Productivity
segment decreased 5 percentage points to 45 percent in third quarter 2009 because of a shift to
less profitable glyphosate products and higher costs. EBIT for the Agricultural Productivity
segment decreased $290 million to $211 million in third quarter 2009.
Agricultural Productivity Financial Performance First Nine Months of Fiscal Year 2009
Net sales of ROUNDUP and other glyphosate-based herbicides decreased 13 percent, or $409 million,
in the nine-month comparison. Net sales of ROUNDUP and other glyphosate-based herbicides increased
primarily in Brazil. The average net selling price increased in most regions in the first nine
months of 2009 compared to the first nine months of 2008. Sales volumes of ROUNDUP and other
glyphosate-based herbicides decreased 33 percent in the first nine months of 2009 from the first
nine months of 2008. Demand was greater during the first nine months of 2008 in the U.S. as
customers ordered and
34
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
took volumes earlier in the season in anticipation of future price increases. In 2009 demand has
fallen due to the increased price and shift to the generic competition.
Gross profit percentage for the Agricultural Productivity segment increased 5 percentage points to
53 percent in the first nine months of 2009. This improvement was primarily because of an increase
in the average net selling prices of ROUNDUP and other glyphosate-based herbicides in the first
nine months of 2009, when compared to the first nine months of 2008.
Gross profit decreased $46 million because of decreased sales volume of ROUNDUP and other
glyphosate-based herbicides in the first nine months of 2009. EBIT for the Agricultural Productivity
segment decreased $276 million to $1,210 million in the first nine months of 2009. A key factor in this
decrease was our Solutia-related gain of $210 million which occurred in second quarter 2008.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Working Capital and Financial Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
As of May 31, |
|
|
Aug. 31, |
|
(Dollars in millions, except current ratio) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
579 |
|
|
$ |
1,714 |
|
|
$ |
1,613 |
|
Trade receivables, net |
|
|
3,017 |
|
|
|
3,258 |
|
|
|
2,067 |
|
Inventory, net |
|
|
3,169 |
|
|
|
2,206 |
|
|
|
2,453 |
|
Other current assets(1) |
|
|
1,234 |
|
|
|
949 |
|
|
|
1,476 |
|
|
|
|
|
Total Current Assets |
|
$ |
7,999 |
|
|
$ |
8,127 |
|
|
$ |
7,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
120 |
|
|
$ |
10 |
|
|
$ |
24 |
|
Accounts payable |
|
|
711 |
|
|
|
788 |
|
|
|
1,090 |
|
Accrued liabilities(2) |
|
|
2,656 |
|
|
|
2,490 |
|
|
|
3,325 |
|
|
|
|
|
Total Current Liabilities |
|
$ |
3,487 |
|
|
$ |
3,288 |
|
|
$ |
4,439 |
|
|
|
|
|
Working Capital(3) |
|
$ |
4,512 |
|
|
$ |
4,839 |
|
|
$ |
3,170 |
|
Current Ratio(3) |
|
|
2.29:1 |
|
|
|
2.47:1 |
|
|
|
1.71:1 |
|
|
|
|
|
|
|
|
(1) |
|
Includes miscellaneous receivables, deferred tax assets, assets of discontinued
operations and other current assets. |
|
(2) |
|
Includes income taxes payable, accrued compensation and benefits, accrued marketing
programs, deferred revenues, grower production accruals, dividends payable, liabilities of
discontinued operations and miscellaneous short-term accruals. |
|
(3) |
|
Working capital is total current assets less total current liabilities; current
ratio represents total current assets divided by total current liabilities. |
May 31, 2009, compared with Aug. 31, 2008: Working capital increased $1,342 million between Aug.
31, 2008, and May 31, 2009, because of the following factors:
|
|
|
Trade receivables increased $950 million in the first nine months of 2009 primarily
because of the seasonality of our sales and collections as of May 31, 2009. |
|
|
|
|
Inventory, primarily seed inventory, increased $716 million, between the respective
periods because of North Americas higher corn production and decreased sales of ROUNDUP in
the first nine-months of the fiscal year resulting in a higher inventory balance as of May
31, 2009. |
|
|
|
|
Accrued liabilities decreased $669 million, primarily due to a decrease in deferred
revenue driven by a decrease in certain customer prepayments, primarily in South America,
and a decrease in accrued compensation and benefits due to the payment of employee
incentives related to fiscal year 2008 but paid in first quarter 2009. In addition,
dividends payable decreased $132 million driven by the declaration of dividends in August
2008 and the payment to shareowners in October 2008. These decreases were offset by an
increase of $319 million in income taxes payable due to strong U.S. results coupled with
the timing of U.S. income tax payments. |
|
|
|
|
Accounts payable decreased $379 million due to higher capital expenditures outstanding
and timing of payments at Aug. 31, 2008, compared to May 31, 2009. |
35
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
These increases to working capital between Aug. 31, 2008, and May 31, 2009, were partially offset
primarily by the following factors:
|
|
|
Cash and cash equivalents decreased $1,034 million between the respective periods. See
the Cash Flow section in this section of MD&A for further details of this decrease. |
|
|
|
|
Other current assets decreased $242 million primarily
due to the sale of the Dairy business
during first quarter 2009. |
May 31, 2009, compared with May 31, 2008: Working capital decreased $327 million between May 31,
2009, and May 31, 2008. The following factors decreased working capital as of May 31, 2009,
compared with May 31, 2008:
|
|
|
Cash and cash equivalents decreased $1,135 million between the respective periods. See
the Cash Flow section in this section of MD&A for further details of this decrease. |
|
|
|
|
Accrued liabilities increased $166 million. Income taxes payable increased $346 million
primarily due to an increase in U.S. pre-tax income and a decrease in stock option
exercises during the current year. Further, deferred revenue decreased $141 million due to
a decrease in certain customer prepayments, primarily in South America. |
|
|
|
|
Short-term debt increased $110 million primarily because of various short-term debt
borrowings in Argentina to fund their working capital needs. |
These working capital decreases were partially offset by the following factor:
|
|
|
Inventory increased $963 million primarily because of increased corn production to
support our market share growth in our global corn business and due to acquisitions. Our
chemistry inventory increased due to reduced sales volume, planned inventory build, as well
as cost increases in certain raw materials required for herbicide production. |
Customer Financing Programs: We referred certain interested U.S. customers to a third-party
specialty lender that made loans directly to our customers. We established this revolving financing
program of up to $250 million, which allowed certain U.S. customers to finance their product
purchases, royalties and licensing fee obligations. The program was terminated in the third quarter
of fiscal year 2009. The funding availability could have been less than $250 million if certain
program requirements were not met. It also allowed us to reduce our reliance on commercial paper
borrowings. Proceeds from customer loans sold through the financing program totaled $130 million
and $3 million for the first nine months of fiscal years 2009 and 2008, respectively. These proceeds
are included in the net cash provided by operating activities in the Statements of Consolidated
Cash Flows. We originated these customer loans on behalf of the third-party specialty lender, a
special purpose entity (SPE) that we consolidated, using our credit and other underwriting
guidelines approved by the lender. We serviced the loans and provided a first-loss guarantee of up
to $130 million. Following origination, the lender transferred the loans to multi-seller commercial
paper conduits through a nonconsolidated qualifying special purpose entity (QSPE). We had no
ownership interest in the lender, in the QSPE, or in the loans. We accounted for this transaction
as a sale, in accordance with SFAS No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities (SFAS 140).
There were no loan balances outstanding as of May 31, 2009. As of Aug. 31, 2008, the customer loans
held by the QSPE and the QSPEs liability to the conduits was $66 million. Our servicing fee
revenues from the program were not significant. As of May 31, 2009, there were no delinquent loans
nor guarantee liabilities. Less than $1 million of the loans sold through this financing program
were delinquent as of Aug. 31, 2008, and our recorded guarantee liability was less than $1 million,
primarily based on our historical collection experience with these customers and a current
assessment of credit exposure. Adverse changes in the actual loss rate would increase the
liability.
We have an agreement with a lender to establish a program to provide financing of up to $250
million for selected customers in Brazil. The agreement qualifies for sales treatment under SFAS
140. Proceeds from the transfer of the receivables are included in net cash provided by operating
activities in the Statements of Consolidated Cash Flows. We received $119 million and $107 million
of proceeds through these customer financing programs in the first nine months of 2009 and 2008,
respectively. The amount of loans outstanding was $99 million and $187 million as of May 31, 2009,
and Aug. 31, 2008, respectively. In this program, we provide a full guarantee of the loans in the
event of customer default. The maximum potential amount of future payments under the guarantees was
$99 million as of May 31, 2009. The liability for the guarantee
36
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
is recorded at an amount that approximates fair value and is primarily based on our historical
collection experience with customers that participate in the program and a current assessment of
credit exposure. Our guarantee liability was $11 million and $10 million as of May 31, 2009, and
Aug. 31, 2008, respectively. If performance is required under the guarantee, we may retain amounts
that are subsequently collected from customers. As of May 31, 2009, $11 million of loans sold
through this financing program were delinquent, and no loans were delinquent as of Aug. 31, 2008.
We also have similar agreements with banks that provide financing to our customers in Brazil
through credit programs that are subsidized by the Brazilian government. In addition, there are
similar financing programs in Europe and Argentina. Proceeds from the transfer of receivables
through the programs described above are included in net cash provided by operating activities in
the Statements of Consolidated Cash Flows. We received $59 million and $70 million of proceeds
through these customer financing programs in the first nine months of 2009 and 2008, respectively.
The amount of loans outstanding was $51 million and $92 million as of May 31, 2009, and Aug. 31,
2008, respectively. For most programs, we provide a full guarantee of the loans in the event of
customer default. The terms of guarantees are equivalent to the terms of the bank loans. The
maximum potential amount of future payments under the guarantees was $51 million as of May 31,
2009. The liability for the guarantee is recorded at an amount that approximates fair value and is
primarily based on our historical collection experience with customers that participate in the
program and a current assessment of credit exposure. Our guarantee liability was $4 million and $11
million as of May 31, 2009, and Aug. 31, 2008, respectively. If performance is required under the
guarantee, we may retain amounts that are subsequently collected from customers. As of May 31,
2009, $4 million of loans sold through these financing programs were delinquent, and no loans were
delinquent as of Aug. 31, 2008.
We also sell accounts receivable, both with and without recourse. These sales qualify for sales
treatment under SFAS 140 and, accordingly, the proceeds are included in net cash provided by
operating activities in the Statements of Consolidated Cash Flows. The gross amounts of accounts
receivable sold totaled $11 million and $19 million for the first nine months of 2009 and 2008,
respectively. The liability for the guarantees for sales with recourse is recorded at an amount
that approximates fair value and is based on the companys historical collection experience for the
customers associated with the sale of the accounts receivable and a current assessment of credit
exposure. Our guarantee liability was less than $1 million as of May 31, 2009, and Aug. 31, 2008.
The maximum potential amount of future payments under the recourse provisions of the agreements was
$11 million as of May 31, 2009. The outstanding balance of the receivables sold was $11 million and
$33 million as of May 31, 2009, and Aug. 31, 2008, respectively. There were no delinquent loans as
of May 31, 2009, or Aug. 31, 2008.
Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended May 31, |
|
(Dollars in millions) |
|
2009 |
|
|
2008 |
|
|
Net Cash Provided by Operating Activities |
|
$ |
436 |
|
|
$ |
1,325 |
|
Net Cash Required by Investing Activities |
|
|
(588 |
) |
|
|
(650 |
) |
|
Free Cash Flow(1) |
|
|
(152 |
) |
|
|
675 |
|
|
Net Cash (Required) Provided by Financing Activities |
|
|
(768 |
) |
|
|
93 |
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
(114 |
) |
|
|
80 |
|
|
Net (Decrease) Increase in Cash and Cash Equivalents |
|
|
(1,034 |
) |
|
|
848 |
|
Cash and Cash Equivalents at Beginning of Period |
|
|
1,613 |
|
|
|
866 |
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
579 |
|
|
$ |
1,714 |
|
|
|
|
|
(1) |
|
Free cash flow represents the total of net cash provided or required by operating
activities and provided or required by investing activities (see the Non-GAAP Financial
Measures section in MD&A for a further discussion). |
Cash
provided by operating activities was $436 million in the first nine months of 2009 compared with
$1,325 million in the first nine months of 2008. This decrease was driven by the cash required for the
increase in inventory and the change in accounts payable and other accrued liabilities. Further,
the change in deferred revenue of $665 million in the nine-month comparison occurred because of the
introduction of the prepay program for ROUNDUP in Brazil last year. The cash received in second
quarter 2008 of $163 million related to our Solutia-related gain also contributed to this decrease.
These decreases were offset by the higher earnings which included the non-cash acquired IPR&D
pre-tax charge of $162 million taken in second quarter 2009 related to the Aly acquisition and an
increase in cash provided by the change in accounts receivable.
Cash required by investing activities decreased $62 million in period-over-period comparison. In
2009, we received proceeds of $300 million related to the sale of the Dairy business. Offsetting
this receipt of cash, our capital expenditures increased
37
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
|
$131 million in the nine-month comparison,
to $661 million, primarily for the expansion of corn seed production facilities.
We also used $280 million of cash for acquisitions in the first nine months of 2009 compared to
$113 million in the first nine months of 2008.
The amount
of cash required by financing activities was $768 million in the first nine months of 2009
compared with a source of cash of $93 million in the first nine months of 2008. The net change in
long-term financing was a use of cash of $70 million in the first nine months of 2009 compared with a
source of $310 million in the prior-year first nine months. Dividend payments increased 42 percent,
or $120 million, because we paid dividends of 51 cents per share
in the first nine months of 2009
compared with 35 cents per share in the first nine months of 2008. During the first nine months of
2009, treasury stock purchases required cash of $310 million compared to $145 million during the
first nine months of 2008.
Capital Resources and Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
As of May 31, |
|
|
Aug. 31, |
|
(Dollars in millions, except debt-to-capital ratio) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
|
|
|
Short-Term Debt |
|
$ |
120 |
|
|
$ |
10 |
|
|
$ |
24 |
|
Long-Term Debt |
|
|
1,705 |
|
|
|
1,703 |
|
|
|
1,792 |
|
Total Shareowners Equity |
|
|
10,767 |
|
|
|
10,211 |
|
|
|
9,374 |
|
Debt-to-Capital Ratio |
|
|
14% |
|
|
|
14% |
|
|
|
16% |
|
|
|
|
|
Total debt outstanding increased $112 million between May 31, 2008, and May 31, 2009. As of May 31,
2009, we did not have any outstanding commercial paper, but there were several short-term debt
borrowings to support ex-U.S. operations. In addition, there were no outstanding borrowings under
the $2 billion credit facility agreement.
We plan to
issue new fixed-rate debt on or before Aug. 15, 2012, to repay $484 million of 73/8% Senior
Notes that are due on Aug. 15, 2012. In March 2009, we entered into forward starting interest rate
swaps with a total notional amount of $250 million. Our purpose was to hedge the variability of the
forecasted interest payments on this expected debt issuance that may result from changes in the
benchmark interest rate until the debt is issued.
We expect to make additional contributions of approximately $15 million and $2 million to the
companys pension plans in the United States and outside the United States, respectively, in fiscal
year 2009. However, as a result of the recent global financial market downturn and decline in plan
asset values, we are currently assessing the impact on our benefit plans funded status. Pending a
final determination, significant additional plan contributions exceeding these amounts are expected
on or before Sept. 15, 2009, some of which could occur in fiscal year 2009.
In June 2009, we announced plans to take future actions to reduce costs associated with our
agricultural businesses. We will further concentrate our resources on our ROUNDUP and other
herbicides business. There are no current plans to impact the previously reported segment structure. This
step will allow us to more closely align our businesses with current market conditions as
well as enable us to align the spending and working capital needs associated with each business to
our longer-term earnings potential. These actions are expected to require charges of $350 million to $400
million pretax in the fourth quarter of fiscal year 2009.
Dividend: In June 2009, we declared a quarterly dividend of 26.5 cents payable on July 24, 2009,
to shareowners of record as of July 2, 2009.
Capital Expenditures: We expect 2009 capital expenditures to be in the range of $950 million
compared with $918 million in 2008. The largest component is expected to be projects to expand corn
seed production facilities and the Luling glyphosate expansion project.
2009 Acquisition: In December 2008, we acquired Aly, which operates the sugarcane breeding and
technology companies, CanaVialis S.A. and Alellyx S.A., both of which are based in Brazil, for 616
million Brazilian reais or $264 million (net of cash acquired), inclusive of transaction costs of
less than $1 million. We consummated the transaction with existing cash.
Recent Divestiture: In October 2008, we sold the Dairy business after receiving approval from the
appropriate regulatory agencies. During the nine months ended May 31, 2009, income from operations
of discontinued businesses included an $11 million pre-tax gain related to the sale.
38
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2009 FORM 10-Q |
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2008 Acquisitions: In September 2007, we acquired 100 percent of the outstanding stock of Agroeste
Sementes, a leading Brazilian corn seed company, for approximately $91 million (net of cash
acquired), inclusive of transaction costs of $1 million. Agroeste focuses on hybrid corn seed
production and serves farmers throughout Brazil. We consummated the transaction with cash.
In June 2008, we acquired 100 percent of the outstanding stock of De Ruiter Seeds Group, B.V., and
a related company for approximately $757 million (net of cash acquired), inclusive of transaction
costs of $3 million. De Ruiter is a leading protected-culture vegetable seeds company based in the
Netherlands with operations worldwide. We consummated the transaction with existing cash after
receiving approvals from the appropriate regulatory authorities.
In July 2008, we acquired Marmot, S.A., which operates Semillas Cristiani Burkard, a privately held
seed company headquartered in Guatemala City, Guatemala, for $135 million (net of cash acquired),
inclusive of transaction costs of $3 million. We consummated the transaction with existing cash.
2009 Contractual Obligation: There have been no significant changes to the contractual obligations
table as disclosed in our Annual Report of Form 10-K for the year ended Aug. 31, 2008, except for a
decrease in our unrecognized tax benefits related to uncertain tax positions due primarily to the
resolution of several domestic and ex-US tax audits. As of May 31, 2009, this unrecognized tax
benefit amount was $234 million.
Off-Balance Sheet Arrangement
Under our Separation Agreement with Pharmacia, we are required to indemnify Pharmacia for certain
matters, such as environmental remediation obligations and litigation. To the extent we are
currently managing any such matters, we evaluate them in the course of managing our own potential
liabilities and establish reserves as appropriate. However, additional matters may arise in the
future, and we may manage, settle or pay judgments or damages with respect to those matters in
order to mitigate contingent liability and protect Pharmacia and Monsanto. See Note 19
Commitments and Contingencies and Part II Item 1 Legal Proceedings for further information.
OUTLOOK
We have achieved an industry-leading position in the areas in which we compete in both of our
business segments. However, the outlook for each part of our business is quite different. In the
Seeds and Genomics segment, our seeds and traits business is expected to expand. In the
Agricultural Productivity segment, our glyphosate business has grown through increases in our
average net selling prices; however, volumes have declined due to share loss resulting from
declining competitive prices and increasing competitive supply, as well as from the effect of the
drought in South America. Our selective chemistry business is expected to decline. As a result, we
are striving to expand our seeds and traits business and working to attain a competitive position
in our chemistry business.
We believe
that our company is positioned to meet our commitment to double the
gross profit by 2012. In
the short term we expect volatility in our ROUNDUP business as it moves to a sustainable level of
earnings. We expect to see strong cash flow as well over the period, and we remain committed to
returning value to shareowners through vehicles such as investments that expand the business,
dividends and share repurchases. We will remain focused on cost and cash management for each
segment, both to support the progress we have made in managing our investment in working capital
and to realize the full earnings potential of our businesses. We plan to continue to seek
additional external financing opportunities for our customers as a way to manage receivables for
each of our segments. In 2009, we also expect to see increased gross profit as our higher-margin
seeds and traits business grows.
Declining consumer confidence within the United States is now being seen in the global economy.
Turmoil in the financial markets is also straining the availability of credit. We expect to
continue to implement locally responsive business strategies for our businesses in each world area.
Outside of the United States, our businesses will continue to face additional challenges related to
the risks inherent in operating in emerging markets. We expect to continue to monitor these
developments and the challenges and issues they place on our business. We believe we have taken the
appropriate measures to reduce our credit exposure, which has the potential to affect sales
negatively in the near term. In addition, recent volatility in foreign-currency
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exchange rates may negatively affect our profitability, the book value of our assets outside the
United States, and our shareowners equity.
Seeds and Genomics
Our capabilities in plant breeding and biotechnology research are generating a rich and balanced
product pipeline that we expect will drive long-term growth. We plan to continue to invest in the
areas of seeds, genomics and biotechnology and to invest in technology arrangements that have the
potential to increase the efficiency and effectiveness of our R&D efforts. We believe that our
seeds and traits businesses will have significant near-term growth opportunities through a
combination of improved breeding and continued growth of stacked and second-generation biotech
traits.
We expect advanced breeding techniques combined with improved production practices and capital
investments to continue to contribute to improved germplasm quality and yields for our seed
offerings, leading to increased global demand for both our branded germplasm and our licensed
germplasm. Our vegetable portfolio will focus on 23 crops. We plan to continue to apply our
molecular breeding and marker capabilities to our vegetable seeds germplasm, and we expect that to
lead to growth in that business. The acquisition of De Ruiter has broadened our focus on the
protected-culture vegetable seed market, which is a faster growing sector of the vegetable
industry. The recent acquisition of Aly will enable us to combine our areas of breeding expertise
to enhance yields in sugarcane, a crop that is vital to addressing growing global food and fuel
demands. We also plan to continue making strategic acquisitions by our seed businesses to grow our
branded seed market share or expand our germplasm library and strengthen our global breeding
programs. We expect to see continued competition in seeds and genomics in the near term. We believe
we will have a competitive advantage because of our breeding capabilities and our three-channel
sales approach for corn and soybean seeds.
Commercialization of second-generation traits and the stacking of multiple traits in corn and
cotton are expected to increase penetration in approved markets, particularly as we continue to
price our traits in line with the value growers have experienced. In 2009, we expect that
higher-value, stacked-trait products will represent a larger share of our total U.S. corn seed
sales than they did in 2008. Acquisitions may also present near-term opportunities to increase
penetration of our traits. In particular, we expect that our acquisition of DPL will enable us to
accelerate penetration of our second-generation cotton traits in 2009 and later years. We expect
the competition in biotechnology to increase, as more competitors launch traits in the United
States and internationally by the end of the decade. However, we believe we will have a competitive
advantage because we will be poised to deliver second- and third-generation traits when our
competitors are delivering their first-generation traits.
Key regulatory approvals for the commercial launch in 2009 of ROUNDUP READY 2 YIELD soybeans, our
second-generation glyphosate-tolerant soybean product, have been obtained.
Our next generation corn product is SMARTSTAX, a product that contains five proteins that control
important above ground (corn borer, corn ear worm) and below ground (corn root worm) pests and
provides tolerance to the herbicides glyphosate and glufosinate. Because SMARTSTAX contains
multiple proteins that each control either above or below ground corn pests, SMARTSTAX has the
potential to significantly reduce the size of structured refuge in the corn belt, pending EPA
approval. EPA has already granted a reduced refuge for YIELDGARD VT PRO which contains two distinct
Bt proteins that control a broad spectrum of these above ground pests. Recently, the U.S. EPA and
the Canadian Food Inspection Agency have approved YIELDGARD VT PRO, including a 5 percent refuge in
the corn belt, for above ground pests only. Regulatory submissions have been initiated for
SMARTSTAX corn in the U.S., Canada, and various import countries such as Japan, Mexico, the EU and
Korea. Approvals have been obtained for food and feed import in Japan
and the environmental application also required for import is pending. SMARTSTAX corn
is anticipated to be launched in the United States in 2010, pending necessary regulatory approvals.
Global cultivation opportunities were expanded for corn and cotton with approval of BOLLGARD II
cotton in Brazil and field trials in Mexico and Pakistan.
During 2007, we announced a long-term joint research and development and commercialization
collaboration in plant biotechnology with BASF that will focus on high-yielding crops and crops
that are tolerant to adverse conditions such as drought. We have completed all U.S., Canada and
recently the EU, regulatory submissions for the first biotech drought-tolerant corn product.
Submission to other key import countries such as Japan, Mexico and Korea will be made in the months
to come. Pending necessary approvals, the product is on track for a launch around 2012. Over the
long-term life of the collaboration, we and BASF will dedicate a joint budget of potentially $1.5
billion to fund a dedicated pipeline of yield and stress tolerance traits for corn, soybeans,
cotton and canola.
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Our international traits businesses, in particular, will probably continue to face unpredictable
regulatory environments that may be highly politicized. We operate in volatile, and often
difficult, economic environments. Although we see growth potential in our India cotton business
with the ongoing conversion to higher planting rates with hybrids and BOLLGARD II, this business is
currently operating under state governmental pricing directives that we believe limit near-term
earnings growth from India.
In Brazil, we expect to continue to operate our dual-track business model of certified seeds and
our point-of-delivery payment system to ensure that we capture value on all our ROUNDUP READY
soybeans and BOLLGARD cotton crops grown there. Income is expected to grow as farmers choose to
plant more of these approved traits. Continued commercial approval of new traits such as the
recently approved YIELDGARD Corn Borer, along with timely approval of combined traits will provide
the opportunity for a step change in contributions from seed and traits. As noted above, YIELDGARD
Corn Borer was approved recently, and was planted in the past growing season. The agricultural
economy in Brazil could be impacted by global commodity prices, particularly for corn and soybeans.
We continue to maintain our strict credit policy, expand our grain-based collection system, and
focus on cash collection and sales, as part of a continuous effort to manage our Brazilian
risk against such volatility.
It is likely that rulings of patent infringement from ongoing court cases in Europe will be
required before we can engage in a process to capture value from ROUNDUP READY soybeans grown in
Argentina. Three Spanish cases, which we have appealed, and a U.K. case have had adverse early
results. We settled the U.K. case, and both we and the defendants have dismissed our appeals of
that matter. The first case in Holland has now been referred to the European Court of Justice
(ECJ) for an interpretation of the EU patent law for biotech products which is expected to take
up to two years. It is likely that all other cases will now be stayed pending the outcome of the
ECJ ruling in the Dutch case. Meanwhile, we are continuing to discuss alternative arrangements with
various stakeholders. However, we have no certainty that any of these discussions will lead to an
income producing outcome in the near term. We do not plan to commercialize new soybean or cotton
traits in Argentina until we can achieve more certainty that we will be compensated for the use of
the technology.
In March 2008, a judge of the French Supreme Administrative court (Conseil dEtat) rejected an
application for interim relief by French farmers, French grower associations and various companies,
including Monsanto, to overturn the French governments suspension of planting of YIELDGARD Corn
Borer pending review and completion under a new regulatory regime. The outcome means that there
will be no additional sales or planting of this product in France during the forthcoming growing
season. The legality of the suspension will be decided after a full hearing before the court later
this year. The European Food Safety Authority (EFSA) has issued an opinion that the French
suspension is not supported on a scientific basis. A hearing date has not been set and the ban
remains in place. On April 17, 2009, Germany invoked the safeguard clause and also banned the
planting of YIELDGARD Corn Borer. We sought interim relief to overturn the ban which the German
administrative courts denied. As a result, there will be no sales or planting of MON810 products in
Germany this growing season and most likely the next growing season. A hearing date has not been
set. Other European Union Member States (e.g., Austria, Luxembourg and Greece) have also invoked
safeguard measures but we have focused our legal challenges to those countries with significant
corn plantings.
Agricultural Productivity
We believe our ROUNDUP herbicide gross profit will peak in 2009 at levels similar to 2008, and
going forward, will decline. However, we believe the business
will continue to generate a strong source of cash and gross profit. Prices of generic formulations
of glyphosate herbicides increased during fiscal year 2008, but against a background of increased
global supply and softening raw material prices, generic prices are now trending quickly down. We
have experienced increased demand in recent years, and we are increasing production capacity at our
Luling, Louisiana plant to meet the anticipated future demand for ROUNDUP. We will continue to
actively manage our inventory and other costs.
We have submitted a mine plan to the U.S. Bureau of Land Management regarding a new phosphate ore
mine in Soda Springs, Idaho, that we intend to use to meet existing and future production demands
for our ROUNDUP herbicides and licensed glyphosate. We anticipate receiving regulatory approvals
for our new mine in 2010. However, we are aware that certain environmental groups have initiated
litigation against other phosphate producers to disrupt and delay the permitting process.
Like most other selective herbicides, our selective acetochlor herbicide products face increasing
competitive pressures and a declining market, in part because of the rapid penetration of ROUNDUP
READY corn in the United States. We will continue
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to seek ways to optimize our selective herbicides
business, as we believe it is important to offer fully integrated crop-protection solutions, particularly in ROUNDUP READY Corn 2. We anticipate a continued decline in
this business in the near term, but the gross profit from the ROUNDUP READY traits and from the
ROUNDUP herbicides used on these acres is significantly higher than the gross profit from the lost
selective herbicide sales.
The lawn-and-garden business should continue benefiting from the ROUNDUP brand equity in the
marketplace and remain a strong cash generator for Monsanto. Driving demand to more profitable
products will be used to offset higher production cost and increased commission expenses owed to
The Scotts Miracle-Gro Company.
Other Information
As discussed in Note 19 Commitments and Contingencies and Part II Item 1 Legal Proceedings,
Monsanto is involved in a number of lawsuits and claims relating to a variety of issues. Many of
these lawsuits relate to intellectual property disputes. We expect that such disputes will continue
to occur as the agricultural biotechnology industry evolves. Third parties, including
non-governmental organizations, have challenged the validity or enforceability of patents issued to
the company regarding our biotechnology products. For additional information related to the outlook
for Monsanto, see Caution Regarding Forward-Looking Statements at the beginning of this Report on
Form 10-Q, Part II Item 1A Risk Factors below and Part I Item 1A of our Report on Form 10-K
for the fiscal year ended Aug. 31, 2008.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing our financial statements, we must select and apply various accounting policies. Our
most significant policies are described in Part II Item 8 Note 2 Significant Accounting
Policies to the consolidated financial statements contained in our Report on Form 10-K for the
fiscal year ended Aug. 31, 2008. In order to apply our accounting policies, we often need to make
estimates based on judgments about future events. In making such estimates, we rely on historical
experience, market and other conditions, and on assumptions that we believe to be reasonable.
However, by its nature the estimation process is uncertain, given that estimates depend on events
over which we may not have control. If market and other conditions change from those that we
anticipate, our financial condition, results of operations, or liquidity may be affected
materially. In addition, if our assumptions change, we may need to revise our estimates or take
other corrective actions, either of which may have a material effect on our financial condition,
results of operations, or liquidity.
During second quarter 2009, we amended our accounting policy on marketing programs from our Report
on Form 10-K for the fiscal year ended Aug. 31, 2008. Accrued marketing program costs are recorded
in accordance with Emerging Issues Task Force (EITF) Issue No. 01-9, Accounting for Consideration
Given by a Vendor to a Customer, based upon specific performance criteria met by our customers,
such as purchase volumes, promptness of payment and market share increases. We introduced new
marketing programs during 2009 providing certain customers price protection consideration if
standard published prices are lowered from the price the distributor paid on eligible products. The
associated cost of marketing programs is recorded in net sales in the Statements of Consolidated
Operations. As actual expenses are not known at the time of the sale, an estimate based on the best
available information (such as historical experience) is used as a basis for the liability.
Management analyzes and reviews the marketing programs on a quarterly basis and adjustments are
recorded as appropriate.
The estimates that have a higher degree of inherent uncertainty and require our most significant
judgments are outlined in Managements Discussion and Analysis of Financial Condition and Results
of Operations contained in our Report on Form 10-K for fiscal year ended Aug. 31, 2008. Had we used
estimates different from any of those contained in such Report on Form 10-K, our financial
condition, profitability, or liquidity for the current period could have been materially different
from those presented in this Form 10-Q.
NEW ACCOUNTING STANDARDS
In June 2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 167, Amendments to
FASB Interpretation No. 46R (SFAS 167). SFAS 167 amends FASB Interpretation No. (FIN) 46 (revised
December 2003), Consolidation of Variable Interest Entities (FIN 46R) to require an analysis to
determine whether a variable interest gives the entity a controlling financial interest in a
variable interest entity. This statement requires an ongoing reassessment and eliminates the
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quantitative approach previously required for determining whether an entity is the primary
beneficiary. This statement is
effective for fiscal years beginning after Nov. 15, 2009. Accordingly, we will adopt SFAS 167 in
fiscal year 2011. We are currently evaluating the impact of adopting this standard on the
consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets (SFAS
166). SFAS 166 removes the concept of a QSPE from SFAS 140 and removes the exception from applying
FIN 46R. This statement also clarifies the requirements for isolation and limitations on portions
of financial assets that are eligible for sale accounting. This statement is effective for fiscal
years beginning after Nov. 15, 2009. Accordingly, we will adopt SFAS 166 in fiscal year 2011. We
are currently evaluating the impact of adopting this standard on the consolidated financial
statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 establishes
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued. This statement is effective for interim and annual
periods ending after June 15, 2009. Accordingly, we will adopt SFAS 165 prospectively in fourth
quarter fiscal year 2009. We do not expect the adoption of this standard to have a material effect
on the consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position (FSP) SFAS No. 157-4, Determining the Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (FSP SFAS 157-4). This FSP provides additional
guidance on estimating fair value when the volume and level of activity for an asset or liability
have significantly decreased in relation to normal market activity, as well as additional guidance
on circumstances which may indicate a transaction is not orderly. FSP SFAS 157-4 amends SFAS No.
157, Fair Value Measurements (SFAS 157) to require interim disclosures of the inputs and valuation
techniques used to measure fair value reflecting changes in the valuation techniques and related
inputs. FSP SFAS 157-4 is effective prospectively for interim and annual reporting periods ending
after June 15, 2009. Accordingly, we will adopt this FSP in fourth quarter fiscal year 2009. We are
currently evaluating the impact of adopting this FSP on the consolidated financial statements.
In April 2009, the FASB issued FSP SFAS No. 107-1 and Accounting Principles Board (APB) Opinion No.
28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP SFAS 107-1 and APB 28-1).
This FSP extends the requirements of SFAS No. 107, Disclosures about Fair Value of Financial
Instruments (SFAS 107) to interim financial statements of publicly-traded companies. FSP SFAS 107-1
and APB 28-1 requires that disclosures provide quantitative and qualitative information on fair
value estimates for all financial instruments not measured on the balance sheet at fair value, when
practicable, with the exception of certain financial instruments listed in SFAS 107. This FSP is
effective prospectively for interim reporting periods ending after June 15, 2009. Accordingly, we
will adopt this FSP in first quarter fiscal year 2010. We are currently evaluating the disclosure
impact of adopting FSP SFAS 107-1 and APB 28-1 on the consolidated financial statements.
In April 2009, the FASB issued FSP SFAS No. 115-2 and SFAS No. 124-2, Recognition and Presentation
of Other-Than-Temporary Impairments (FSP SFAS 115-2 and SFAS 124-2). This FSP provides guidance on
the recognition and presentation of other-than-temporary impairments of debt securities classified
as available-for-sale and held-to-maturity. It also expands and increases the frequency of
disclosures about other-than-temporary impairments in both debt and equity securities. FSP SFAS
115-2 and SFAS 124-2 is effective prospectively for interim and annual reporting periods ending
after June 15, 2009. Accordingly, we will adopt this FSP in fourth quarter fiscal year 2009. We are
currently evaluating the disclosure impact of adopting this FSP on the consolidated financial
statements.
In
April 2009, the FASB issued FSP SFAS No. 141R-1, Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies, (FSP SFAS 141R-1). This FSP amends
and clarifies SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R), to require that an
acquirer recognize at fair value, at the acquisition date, an asset acquired or a liability assumed
in a business combination that arises from a contingency if the acquisition-date fair value of that
asset or liability can be determined during the measurement period. If the acquisition-date fair
value of such an asset acquired or liability assumed cannot be determined, the acquirer should
apply the provisions of SFAS No. 5, Accounting for Contingencies, to determine whether the
contingency should be recognized at the acquisition date or after it. FSP SFAS 141R-1 is effective
for assets or liabilities arising from contingencies in business combinations for which the
acquisition date is after the beginning of the first annual reporting period beginning after Dec.
15, 2008. Accordingly, we will adopt FSP SFAS 141R-1 prospectively in fiscal year 2010.
In December 2008, the EITF issued EITF Issue No. 08-7, Accounting for Defensive Intangible Assets
(EITF 08-7). This issue clarifies the accounting for defensive assets, which are separately
identifiable intangible assets acquired in an acquisition
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which an entity does not intend to
actively use but does intend to prevent others from using. EITF 08-7 requires an acquirer
to account for these assets as a separate unit of accounting, which should be amortized to expense
over the period the asset diminishes in value. This issue is effective for intangible assets
acquired on or after the beginning of the first annual reporting period beginning on or after Dec.
15, 2008. Accordingly, we will adopt EITF 08-7 prospectively in fiscal year 2010.
In December 2008, the FASB issued FSP SFAS No. 132R-1, Employers Disclosures about Postretirement
Benefit Plan Assets (FSP SFAS 132R-1). This statement provides additional guidance regarding
disclosures about plan assets of defined benefit pension or other postretirement plans. This FSP is
effective for financial statements issued for fiscal years ending after Dec. 15, 2009. Accordingly,
we will adopt FSP SFAS 132R-1 in fiscal year 2010. We are currently evaluating the disclosure
impact of adopting this FSP on the consolidated financial statements in Monsantos Report on Form
10-K for the fiscal year ending Aug. 31, 2010.
In June 2008, the FASB issued FSP EITF Issue No. 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP EITF 03-6-1
requires unvested share-based payment awards that contain rights to receive non-forfeitable
dividends or dividend equivalents to be included in the two-class method of computing earnings per
share as described in SFAS No. 128, Earnings per Share. This FSP is effective for financial
statements issued for fiscal years beginning after Dec. 15, 2008, and interim periods within those
years. Accordingly, we will adopt FSP EITF 03-6-1 in fiscal year 2010. We are currently evaluating
the impact of FSP EITF 03-6-1 on the consolidated financial statements.
In April 2008, the FASB issued FSP SFAS No. 142-3, Determining the Useful Life of Intangible Assets
(FSP SFAS 142-3). FSP SFAS 142-3 amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized intangible asset under
SFAS 142. This FSP must be applied prospectively to intangible assets acquired after the effective
date. This FSP is effective for fiscal years beginning after Dec. 15, 2008, and
interim periods within those years. Accordingly, we will adopt FSP SFAS 142-3 prospectively in
fiscal year 2010.
In February 2008, the FASB issued FSP SFAS No. 157-2, Effective Date of SFAS No. 157 (FSP SFAS
157-2), which delays the effective date of SFAS 157 for nonfinancial assets and liabilities to
fiscal years beginning after Nov. 15, 2008. Accordingly, we will adopt the additional requirements
of SFAS 157 that were deferred by FSP SFAS 157-2 in fiscal year 2010. We are currently evaluating
the impact on the consolidated financial statements of adopting the additional requirements of SFAS
157.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51 (SFAS 160). SFAS 160 requires an entity to clearly identify
and present its ownership interests in subsidiaries held by parties other than the entity in the
consolidated financial statements within the equity section but separate from the entitys equity.
It also requires the amount of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the face of the consolidated
statement of income; changes in ownership interest be accounted for similarly, as equity
transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary
be measured at fair value. This statement is effective for financial statements issued for fiscal
years beginning after Dec. 15, 2008. Accordingly, we will adopt SFAS 160 in fiscal year 2010. We
are currently evaluating the impact of SFAS 160 on the consolidated financial statements.
In December 2007, the FASB issued SFAS 141R, which was subsequently amended by FSP SFAS 141R-1.
Under SFAS 141R, an entity is required to recognize the assets acquired, liabilities assumed,
contractual contingencies and contingent consideration measured at their fair value at the
acquisition date. It further requires that acquisition-related costs are to be recognized
separately from the acquisition and expensed as incurred. In addition, acquired IPR&D is
capitalized at fair value as an intangible asset and amortized over its estimated useful life. SFAS
141R is effective for business combinations for which the acquisition date is after the beginning
of the first annual reporting period beginning after Dec. 15, 2008. Accordingly, we will adopt SFAS
141R in fiscal year 2010. We are currently evaluating the impact of SFAS 141R on the consolidated
financial statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There are no material changes related to market risk from the disclosures in Monsantos Report on
Form 10-K for the fiscal year ended Aug. 31, 2008.
ITEM 4. CONTROLS AND PROCEDURES
We maintain a comprehensive set of disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be
disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported
accurately and within the time periods specified in the SECs rules and forms. As of May 31, 2009
(the Evaluation Date), an evaluation was carried out under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and procedures. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of
the Evaluation Date, the design and operation of these disclosure controls and procedures were
effective to provide reasonable assurance of the achievement of the objectives described above.
During the quarter that ended on the Evaluation Date, there was no change in internal control over
financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
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PART IIOTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various legal proceedings that arise in the ordinary course of our business, as
well as proceedings that we have considered to be material under SEC regulations. These include
proceedings to which we are party in our own name and proceedings to which our former parent
Pharmacia Corporation or its former subsidiary Solutia Inc. is a party but that we manage and for
which we are responsible. We believe we have meritorious legal arguments and will continue to
represent our interests vigorously in all of the proceedings that we are defending or prosecuting.
Information regarding certain material proceedings and the possible effects on our business of
proceedings we are defending is disclosed in Note 19
Commitments and Contingencies under the subheading Environmental and
Litigation Liabilities Litigation and is incorporated by reference herein. The following
discussion provides new and updated information regarding certain other proceedings for which we
are responsible. Other information with respect to legal proceedings appears in our Report on Form
10-K for the fiscal year ended Aug. 31, 2008, and our Reports on Form 10-Q for the quarterly
periods ended Nov. 30, 2008, and Feb. 28, 2009.
Patent and Commercial Proceedings
As described in our Report on Form 10-Q for the quarterly period ending Feb. 28, 2009, on Dec. 23,
2008, we entered into a dispute resolution process with Pioneer
Hi-Bred International, Inc. (Pioneer), a
wholly owned subsidiary of E. I. du Pont de Nemours and Company
(DuPont), to address issues regarding the
unauthorized use of our proprietary technology. Pioneer has announced plans to combine or stack
their Optimum® GAT® trait in soybeans with our patented first generation ROUNDUP READY
technology, contrary to their previously disclosed plans to discontinue use of soybean varieties
containing our technology and pursue the Optimum® GAT® trait alone. We believe that Pioneer is
not authorized to make this genetic combination, and we are seeking to prevent non-consensual use
of our proprietary technology. On May 4, 2009, following unsuccessful discussions, Monsanto filed
suit against DuPont and Pioneer in Federal District Court in St. Louis asserting patent
infringement and breach of contract claims to prevent the unauthorized use of our ROUNDUP READY
technology in corn and soybeans. On June 16, 2009, the defendants filed an answer and counterclaim
seeking injunctive relief, damages and specific performance asserting a claim of license as well as
the invalidity or unenforceability of the patent asserted by Monsanto, and also claiming alleged
anticompetitive behavior relating to traits for corn and soybeans.
As described in our Report on Form 10-K for the fiscal year ended Aug. 31, 2008, starting the week
of March 7, 2004, a series of purported class action cases were filed in 14 different state courts
against Pioneer and us. The suits allege that we conspired with Pioneer
to violate various state competition and consumer protection laws by fixing and artificially
inflating the prices and fees for our various biotechnology traits and seeds containing those
traits and imposing certain use restrictions. All of these cases have been transferred to the U.S.
District Court for the Eastern District of Missouri and consolidated, except for one case that was
pending in state court in Tennessee, which has been dismissed. On June 5, 2009, the Court entered a
revised scheduling order requiring the plaintiffs to file their motion for class certification by
Sept. 25, 2009. No date is set for the class certification hearing.
As described in our Report on Form 10-K for the fiscal year ended Aug. 31, 2008, and our Report on
Form 10-Q for the quarterly period ending Feb. 28, 2009, two purported class action suits were
filed against us on Sept. 26, 2006, supposedly on behalf of all farmers who purchased our ROUNDUP
brand herbicides in the United States for commercial agricultural purposes since Sept. 26, 2002.
Plaintiffs essentially allege that we have monopolized the market for glyphosate for commercial
agricultural purposes. Plaintiffs seek an unspecified amount of damages and injunctive relief. In
late February 2007, three additional suits were filed, alleging similar claims. All of these suits
were filed in the U.S. District Court for the District of Delaware. On July 18, 2007, the court
ruled that any such suit had to be filed in federal or state court in Missouri; the court granted
our motion to dismiss the two original cases. On Aug. 8, 2007, plaintiffs in the remaining three
cases voluntarily dismissed their complaints, which have not been re-filed. On Aug. 10, 2007, the
same set of counsel filed a parallel action in federal court in San Antonio, Texas, on behalf of a
retailer of glyphosate named Texas Grain. Plaintiffs seek to certify a national class of all
entities that purchased glyphosate directly from us since August 2003. In the most recent court
scheduling order, the court set a hearing on plaintiffs motion to certify a class for June 23-24,
2009.
Governmental Proceedings and Undertakings
As described in our Report on Form 10-Q for the quarterly period ended Nov. 30, 2008, we have
reported the accidental harvest of 0.22 acres of regulated Bt research cotton by a cooperator to
the FDA, EPA and USDA. The Bt protein present in this research cotton is nearly identical to the
protein in a corn product that has already obtained full approval in the United
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THIRD QUARTER 2009 FORM 10-Q |
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States and many
foreign markets. On May 20, 2009, the EPA granted a time-limited exemption from the requirement of a tolerance for
the protein in the research cotton, reaffirmed the safety of the protein in food and feed, and provided
notice to the USDA and FDA that the cottonseed may now enter U.S. domestic commerce. However, we
could be subject to civil penalties, which we would not expect to be material.
As described in our Report on Form 10-K for the fiscal year ended Aug. 31, 2008, and Monsantos
Reports on Form 10-Q for the quarterly periods ended Nov. 30, 2008, and Feb. 28, 2009, on Dec. 2,
2005, the Federal Revenue Service of the Ministry of Finance of Brazil issued a tax assessment
against our wholly owned subsidiary, Monsanto do Brasil Ltda., challenging the tax treatment of
$575 million of notes issued in 1998 on the basis that the transactions involving the notes
represented contributions to the capital of Monsanto do Brasil rather than funding through issuance
of notes. The assessment denies tax deductions for approximately
$1 billion (subject to currency
exchange rates) of interest expense and currency exchange losses that were claimed by Monsanto do
Brasil under the notes. The assessment seeks payment of approximately
$195 million (subject to
currency exchange rates) of tax, penalties and interest related to the notes, and would preclude
Monsanto do Brasil from using a net operating loss carryforward of
approximately $875 million
(subject to currency exchange rates). The issuance of the notes was properly registered with the
Central Bank of Brazil and we believe that there is no basis in law for this tax assessment. On
Dec. 29, 2005, Monsanto do Brasil filed an appeal of this assessment with the Federal Revenue
Service. On Oct. 28, 2008, the company received a partially favorable decision issued by the first
level of Administrative Court. The Court reduced the assessed penalty from 150% to 75%,
respectively, from $70 million to $35 million (each subject to currency exchange rates) and
maintained the tax and interest. On Nov. 26, 2008, we filed an appeal before the second level of
Administrative Court with regard to the adverse portion of the decision by the first level of
Administrative Court. The Federal Revenue Service also appealed the portion of the decision
favorable to Monsanto do Brasil. The company continues to believe that there is no basis in law for
this tax assessment. Under the terms of a tax sharing agreement concluded with Pharmacia at the
time of our separation from Pharmacia, Pharmacia would be responsible for a portion of any
liability incurred by virtue of the tax assessment. As noted, certain dollar amounts have been
calculated based on an exchange rate of 2.0 Brazilian Reais per U.S. dollar, and will fluctuate
with exchange rates in the future.
ITEM 1A. RISK FACTORS
Please see Caution Regarding Forward-Looking Statements, at the beginning of this Report on Form
10-Q and Part I Item 1A of our Report on Form 10-K for the fiscal year ended Aug. 31, 2008, for
information regarding risk factors. There have been no material changes from the risk factors
previously disclosed in our Report on Form 10-K.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table is a summary of any purchases of equity securities during the third quarter of
fiscal year 2009 by Monsanto and any affiliated purchasers, pursuant to SEC rules.
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(c) Total Number of |
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(d) Approximate Dollar |
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|
|
|
|
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|
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|
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Shares Purchased as |
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|
Value of Shares that |
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|
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Part of Publicly |
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May Yet Be Purchased |
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(a) Total Number of |
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(b) Average Price Paid |
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Announced Plans or |
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Under the Plans or |
|
Period |
|
Shares Purchased |
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|
per Share(1) |
|
|
Programs |
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Programs |
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March 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar. 1, 2009, through Mar. 31, 2009 |
|
|
191,875 |
|
|
$ |
79.39 |
|
|
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191,875 |
|
|
$ |
640,128,303 |
|
April 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apr. 1, 2009, through Apr. 30, 2009 |
|
|
111,255 |
|
|
$ |
80.84 |
|
|
|
111,255 |
|
|
$ |
631,134,959 |
|
May 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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May 1, 2009, through May 31, 2009 |
|
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133,210 |
|
|
$ |
88.41 |
|
|
|
133,210 |
|
|
$ |
619,357,925 |
|
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Total |
|
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436,340 |
|
|
$ |
82.51 |
|
|
|
436,340 |
|
|
$ |
619,357,925 |
|
|
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(1) |
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The average price paid per share is calculated on a settlement basis and excludes
commission. |
In April 2008, the board of directors authorized a new repurchase program of up to an additional
$800 million of the companys common stock over a three year period. This repurchase program
commenced Dec. 23, 2008 and will expire on Dec. 23, 2011. There were no other publicly announced
plans outstanding as of May 31, 2009.
ITEM 6. EXHIBITS
Exhibits: The list of exhibits in the Exhibit Index to this Report is incorporated herein by
reference.
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THIRD QUARTER 2009 FORM 10-Q |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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MONSANTO COMPANY
(Registrant)
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By: |
/s/ RICHARD B. CLARK
|
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Richard B. Clark |
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Vice President and Controller
(On behalf of the Registrant and as Principal Accounting Officer) |
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Date: June 26, 2009
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MONSANTO COMPANY
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THIRD QUARTER 2009 FORM 10-Q |
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EXHIBIT INDEX
These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.
|
|
|
Exhibit |
|
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No. |
|
Description |
|
2
|
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Omitted |
|
|
|
3
|
|
Omitted |
|
|
|
4
|
|
Omitted |
|
|
|
11
|
|
Omitted see Note 17 of Notes to Consolidated Financial Statements Earnings Per Share. |
|
|
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12
|
|
Computation of Ratio of Earnings to Fixed Charges. |
|
|
|
15
|
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Omitted |
|
|
|
18
|
|
Omitted |
|
|
|
19
|
|
Omitted |
|
|
|
22
|
|
Omitted |
|
|
|
23
|
|
Omitted |
|
|
|
24
|
|
Omitted |
|
|
|
31.1
|
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Rule 13a-14(a) Certifications (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
executed by the Chief Executive Officer). |
|
|
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31.2
|
|
Rule 13a-14(a) Certifications (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
executed by the Chief Financial Officer). |
|
|
|
32
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Rule 13a-14(b) Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
executed by the Chief Executive Officer and the Chief Financial Officer). |
50