e10vq
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MONSANTO COMPANY
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THIRD QUARTER 2010 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, 2010
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 þ 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.
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) |
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: 540,450,295 shares of Common Stock, $0.01 par value, outstanding as
of June 28, 2010.
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MONSANTO COMPANY
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THIRD QUARTER 2010 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, 2009.
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 2010 FORM 10-Q |
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TABLE OF CONTENTS
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PART IFINANCIAL INFORMATION |
Page |
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Item 1. |
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Financial Statements |
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3 |
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Statements of Consolidated Operations |
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4 |
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Condensed Statements of Consolidated Financial Position |
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5 |
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Statements of Consolidated Cash Flows |
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6 |
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Condensed Statements of Consolidated Shareowners Equity and Comprehensive Income |
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7 |
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Notes to Consolidated Financial Statements |
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8 |
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Item 2. |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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32 |
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Overview |
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32 |
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Results of Operations Third Quarter Fiscal Year 2010 |
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34 |
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Seeds and Genomics Segment |
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37 |
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Agricultural Productivity Segment |
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38 |
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Restructuring |
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39 |
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Financial Condition, Liquidity, and Capital Resources |
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41 |
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Outlook |
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46 |
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Critical Accounting Policies and Estimates |
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49 |
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New Accounting Standards |
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50 |
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Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk |
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51 |
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Item 4. |
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Controls and Procedures |
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51 |
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PART IIOTHER INFORMATION |
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Item 1. |
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Legal Proceedings |
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52 |
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Item 1A. |
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Risk Factors |
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53 |
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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53 |
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Item 6. |
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Exhibits |
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53 |
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SIGNATURE |
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54 |
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EXHIBIT INDEX |
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55 |
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2
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MONSANTO COMPANY
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THIRD QUARTER 2010 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, 2010, and May 31, 2009, the Condensed Statements of
Consolidated Financial Position as of May 31, 2010, and Aug. 31, 2009, the Statements of
Consolidated Cash Flows for the nine months ended May 31, 2010, and May 31, 2009, the Condensed
Statements of Consolidated Shareowners Equity and Comprehensive Income for the nine months ended
May 31, 2010, and year ended Aug. 31, 2009, 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 2010 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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2010 |
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2009 |
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2010 |
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2009 |
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Net Sales |
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$ |
2,962 |
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$ |
3,161 |
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$ |
8,549 |
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$ |
9,845 |
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Cost of goods sold |
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1,575 |
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1,327 |
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4,324 |
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3,940 |
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Gross Profit |
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1,387 |
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1,834 |
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4,225 |
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5,905 |
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Operating Expenses: |
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Selling, general and administrative expenses |
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492 |
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504 |
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1,500 |
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1,576 |
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Research and development expenses |
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302 |
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295 |
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848 |
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812 |
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Acquired in-process research and development |
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162 |
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Restructuring charges, net |
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34 |
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78 |
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Total Operating Expenses |
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828 |
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799 |
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2,426 |
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2,550 |
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Income from Operations |
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559 |
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1,035 |
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1,799 |
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3,355 |
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Interest expense |
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35 |
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32 |
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115 |
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81 |
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Interest income |
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(18 |
) |
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(14 |
) |
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(43 |
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(57 |
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Other expense (income), net |
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7 |
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4 |
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(3 |
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62 |
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Income from Continuing Operations Before Income Taxes |
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535 |
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1,013 |
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1,730 |
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3,269 |
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Income tax provision |
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138 |
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308 |
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468 |
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924 |
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Income from Continuing Operations Including Portion
Attributable to Noncontrolling Interest |
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$ |
397 |
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$ |
705 |
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$ |
1,262 |
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$ |
2,345 |
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Discontinued Operations: |
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Income from operations of discontinued businesses |
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5 |
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19 |
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Income tax provision |
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8 |
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Income on Discontinued Operations |
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5 |
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11 |
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Net Income |
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$ |
397 |
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$ |
705 |
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$ |
1,267 |
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$ |
2,356 |
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Less: Net income attributable to noncontrolling interest |
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13 |
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|
|
11 |
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|
15 |
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|
14 |
|
|
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|
Net Income Attributable to Monsanto Company |
|
$ |
384 |
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|
$ |
694 |
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$ |
1,252 |
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$ |
2,342 |
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Amounts Attributable to Monsanto Company: |
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|
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Income from continuing operations |
|
$ |
384 |
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|
$ |
694 |
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|
$ |
1,247 |
|
|
$ |
2,331 |
|
Income on discontinued operations |
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
11 |
|
|
|
|
Net Income Attributable to Monsanto Company |
|
$ |
384 |
|
|
$ |
694 |
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|
$ |
1,252 |
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|
$ |
2,342 |
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Basic Earnings per Share Attributable to Monsanto Company: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income from continuing operations |
|
$ |
0.71 |
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|
$ |
1.27 |
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|
$ |
2.29 |
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$ |
4.26 |
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Income on discontinued operations |
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|
|
|
|
|
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|
0.01 |
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|
0.02 |
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Net Income |
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$ |
0.71 |
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$ |
1.27 |
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$ |
2.30 |
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$ |
4.28 |
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Diluted Earnings per Share Attributable to Monsanto Company: |
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|
|
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|
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Income from continuing operations |
|
$ |
0.70 |
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|
$ |
1.25 |
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|
$ |
2.26 |
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$ |
4.19 |
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Income on discontinued operations |
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|
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|
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|
0.01 |
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|
0.02 |
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Net Income |
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$ |
0.70 |
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$ |
1.25 |
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$ |
2.27 |
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$ |
4.21 |
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Weighted Average Shares Outstanding: |
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Basic |
|
|
543.2 |
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546.4 |
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|
544.7 |
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|
547.5 |
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Diluted |
|
|
549.9 |
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|
|
554.6 |
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|
|
552.1 |
|
|
|
555.9 |
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|
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Dividends Declared per Share |
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$ |
|
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|
$ |
|
|
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$ |
0.53 |
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$ |
0.51 |
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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 2010 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) |
|
2010 |
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2009 |
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Assets |
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Current Assets: |
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|
|
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|
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Cash and cash equivalents |
|
$ |
475 |
|
|
$ |
1,956 |
|
Trade receivables, net |
|
|
3,233 |
|
|
|
1,556 |
|
Miscellaneous receivables |
|
|
710 |
|
|
|
654 |
|
Deferred tax assets |
|
|
552 |
|
|
|
662 |
|
Inventory, net |
|
|
2,847 |
|
|
|
2,934 |
|
Other current assets |
|
|
83 |
|
|
|
121 |
|
|
|
|
|
Total Current Assets |
|
|
7,900 |
|
|
|
7,883 |
|
Total property, plant and equipment |
|
|
7,833 |
|
|
|
7,158 |
|
Less accumulated depreciation |
|
|
3,730 |
|
|
|
3,549 |
|
|
|
|
|
Property, Plant and Equipment, Net |
|
|
4,103 |
|
|
|
3,609 |
|
Goodwill |
|
|
3,184 |
|
|
|
3,218 |
|
Other Intangible Assets, Net |
|
|
1,262 |
|
|
|
1,371 |
|
Noncurrent Deferred Tax Assets |
|
|
858 |
|
|
|
743 |
|
Long-Term Receivables, Net |
|
|
473 |
|
|
|
557 |
|
Other Assets |
|
|
558 |
|
|
|
496 |
|
|
|
|
|
Total Assets |
|
$ |
18,338 |
|
|
$ |
17,877 |
|
|
|
|
|
|
Liabilities and Shareowners Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Short-term debt, including current portion of long-term debt |
|
$ |
839 |
|
|
$ |
79 |
|
Accounts payable |
|
|
573 |
|
|
|
676 |
|
Income taxes payable |
|
|
147 |
|
|
|
79 |
|
Accrued compensation and benefits |
|
|
197 |
|
|
|
263 |
|
Accrued marketing programs |
|
|
708 |
|
|
|
934 |
|
Deferred revenues |
|
|
201 |
|
|
|
219 |
|
Grower production accruals |
|
|
146 |
|
|
|
139 |
|
Dividends payable |
|
|
|
|
|
|
145 |
|
Customer payable |
|
|
|
|
|
|
307 |
|
Restructuring reserves |
|
|
177 |
|
|
|
286 |
|
Miscellaneous short-term accruals |
|
|
717 |
|
|
|
629 |
|
|
|
|
|
Total Current Liabilities |
|
|
3,705 |
|
|
|
3,756 |
|
Long-Term Debt |
|
|
1,862 |
|
|
|
1,724 |
|
Postretirement Liabilities |
|
|
722 |
|
|
|
793 |
|
Long-Term Deferred Revenue |
|
|
422 |
|
|
|
488 |
|
Noncurrent Deferred Tax Liabilities |
|
|
134 |
|
|
|
153 |
|
Long-Term Portion of Environmental and Litigation Liabilities |
|
|
189 |
|
|
|
197 |
|
Other Liabilities |
|
|
687 |
|
|
|
641 |
|
Shareowners Equity: |
|
|
|
|
|
|
|
|
Common stock (authorized: 1,500,000,000 shares, par value $0.01) |
|
|
|
|
|
|
|
|
Issued 587,941,317 and 585,557,964 shares, respectively |
|
|
|
|
|
|
|
|
Outstanding 540,521,813 and 545,407,427 shares, respectively |
|
|
6 |
|
|
|
6 |
|
Treasury stock 47,419,504 and 40,150,537 shares, respectively, at cost |
|
|
(2,076 |
) |
|
|
(1,577 |
) |
Additional contributed capital |
|
|
9,856 |
|
|
|
9,695 |
|
Retained earnings |
|
|
3,644 |
|
|
|
2,682 |
|
Accumulated other comprehensive loss |
|
|
(851 |
) |
|
|
(744 |
) |
Reserve for ESOP debt retirement |
|
|
(5 |
) |
|
|
(6 |
) |
|
|
|
|
Total Monsanto Company Shareowners Equity |
|
|
10,574 |
|
|
|
10,056 |
|
|
|
|
|
Noncontrolling Interest |
|
|
43 |
|
|
|
69 |
|
|
|
|
|
Total Shareowners Equity |
|
|
10,617 |
|
|
|
10,125 |
|
|
|
|
|
Total Liabilities and Shareowners Equity |
|
$ |
18,338 |
|
|
$ |
17,877 |
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
Statements of Consolidated Cash Flows
|
|
|
|
|
|
|
|
|
|
Unaudited |
|
Nine Months Ended May 31, |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
1,267 |
|
|
$ |
2,356 |
|
Adjustments to reconcile cash provided by operating activities: |
|
|
|
|
|
|
|
|
Items that did not require (provide) cash: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
446 |
|
|
|
404 |
|
Bad-debt expense |
|
|
41 |
|
|
|
56 |
|
Stock-based compensation expense |
|
|
72 |
|
|
|
86 |
|
Excess tax benefits from stock-based compensation |
|
|
(40 |
) |
|
|
(24 |
) |
Deferred income taxes |
|
|
(98 |
) |
|
|
12 |
|
Restructuring charges, net |
|
|
78 |
|
|
|
|
|
Equity affiliate income, net |
|
|
(21 |
) |
|
|
(11 |
) |
Acquired in-process research and development |
|
|
|
|
|
|
162 |
|
Net gain on sales of a business or other assets |
|
|
(2 |
) |
|
|
(6 |
) |
Other items |
|
|
38 |
|
|
|
(58 |
) |
Changes in assets and liabilities that provided (required) cash, net of acquisitions: |
|
|
|
|
|
|
|
|
Trade receivables, net |
|
|
(1,648 |
) |
|
|
(967 |
) |
Inventory, net |
|
|
78 |
|
|
|
(853 |
) |
Deferred revenues |
|
|
(80 |
) |
|
|
(666 |
) |
Accounts payable and other accrued liabilities |
|
|
(324 |
) |
|
|
(40 |
) |
Restructuring cash payments |
|
|
(175 |
) |
|
|
|
|
Pension contributions |
|
|
(95 |
) |
|
|
(51 |
) |
Net investment hedge settlement |
|
|
(4 |
) |
|
|
36 |
|
Other items |
|
|
(71 |
) |
|
|
7 |
|
|
Net Cash (Required) Provided by Operating Activities |
|
|
(538 |
) |
|
|
443 |
|
|
Cash Flows Required by Investing Activities: |
|
|
|
|
|
|
|
|
Maturities of short-term investments |
|
|
|
|
|
|
117 |
|
Capital expenditures |
|
|
(560 |
) |
|
|
(661 |
) |
Acquisition of businesses, net of cash acquired |
|
|
(57 |
) |
|
|
(280 |
) |
Purchases of long-term debt and equity securities |
|
|
(14 |
) |
|
|
(7 |
) |
Technology and other investments |
|
|
(26 |
) |
|
|
(60 |
) |
Proceeds from divestiture of a business |
|
|
|
|
|
|
300 |
|
Other investments and property disposal proceeds |
|
|
43 |
|
|
|
3 |
|
|
Net Cash Required by Investing Activities |
|
|
(614 |
) |
|
|
(588 |
) |
|
Cash Flows Required by Financing Activities: |
|
|
|
|
|
|
|
|
Net change in financing with less than 90-day maturities |
|
|
596 |
|
|
|
(44 |
) |
Short-term debt proceeds |
|
|
26 |
|
|
|
55 |
|
Short-term debt reductions |
|
|
(54 |
) |
|
|
(45 |
) |
Long-term debt reductions |
|
|
(3 |
) |
|
|
(70 |
) |
Payments on other financing |
|
|
(3 |
) |
|
|
|
|
Treasury stock purchases |
|
|
(498 |
) |
|
|
(310 |
) |
Stock option exercises |
|
|
50 |
|
|
|
30 |
|
Excess tax benefits from stock-based compensation |
|
|
40 |
|
|
|
24 |
|
Dividend payments |
|
|
(434 |
) |
|
|
(408 |
) |
Dividend payments to noncontrolling interests |
|
|
(43 |
) |
|
|
(7 |
) |
|
Net Cash Required by Financing Activities |
|
|
(323 |
) |
|
|
(775 |
) |
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
(6 |
) |
|
|
(114 |
) |
|
Net Decrease in Cash and Cash Equivalents |
|
|
(1,481 |
) |
|
|
(1,034 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
1,956 |
|
|
|
1,613 |
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
475 |
|
|
$ |
579 |
|
|
See Note 19 Supplemental Cash Flow Information for further details.
The accompanying notes are an integral part of these consolidated financial statements.
6
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
Condensed Statements of Consolidated Shareowners Equity and Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monsanto Shareowners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Unaudited |
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Reserve |
|
|
Non- |
|
|
|
|
(Dollars in millions, |
|
Common |
|
|
Treasury |
|
|
Contributed |
|
|
Retained |
|
|
Comprehensive |
|
|
for ESOP |
|
|
Controlling |
|
|
|
|
except per share amounts) |
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
(Loss)(1) |
|
|
Debt |
|
|
Interests |
|
|
Total |
|
|
Balance as of Aug. 31, 2008 |
|
$ |
6 |
|
|
$ |
(1,177 |
) |
|
$ |
9,495 |
|
|
$ |
1,138 |
|
|
$ |
(78 |
) |
|
$ |
(10 |
) |
|
$ |
37 |
|
|
$ |
9,411 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,109 |
|
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
2,133 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(333 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
(338 |
) |
Postretirement benefit plan activity,
net of tax of $(119) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189 |
) |
|
|
|
|
|
|
|
|
|
|
(189 |
) |
Accumulated derivative activity,
net of tax of $(95) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(144 |
) |
|
|
|
|
|
|
|
|
|
|
(144 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income for 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
1,462 |
|
Treasury stock purchases |
|
|
|
|
|
|
(400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(400 |
) |
Restricted stock withholding |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7 |
) |
Issuance of shares under employee stock plans |
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
Excess tax benefits from stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133 |
|
Cash dividends of $1.04 per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(565 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(565 |
) |
Dividend payments to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
(10 |
) |
Allocation of ESOP shares,
net of dividends received |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
Donation of noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
28 |
|
Purchase of noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
(5 |
) |
|
Balance as of Aug. 31, 2009 |
|
$ |
6 |
|
|
$ |
(1,577 |
) |
|
$ |
9,695 |
|
|
$ |
2,682 |
|
|
$ |
(744 |
) |
|
$ |
(6 |
) |
|
$ |
69 |
|
|
$ |
10,125 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,252 |
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
1,267 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(201 |
) |
|
|
|
|
|
|
|
|
|
|
(201 |
) |
Postretirement benefit plan activity,
net of tax of $9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
31 |
|
Realized and unrealized gain on
investments, net of tax of ($1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Accumulated derivative activity,
net of tax of $35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income for nine
months ended May 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
1,160 |
|
Treasury stock purchases |
|
|
|
|
|
|
(499 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(499 |
) |
Restricted stock withholding |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
Issuance of shares under
employee stock plans |
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 |
|
Excess tax benefits from stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74 |
|
Cash dividends of $0.53 per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(290 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(290 |
) |
Dividend payments to
noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43 |
) |
|
|
(43 |
) |
Allocation of ESOP shares,
net of dividends received |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Donation of noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
Balance as of May 31, 2010 |
|
$ |
6 |
|
|
$ |
(2,076 |
) |
|
$ |
9,856 |
|
|
$ |
3,644 |
|
|
$ |
(851 |
) |
|
$ |
(5 |
) |
|
$ |
43 |
|
|
$ |
10,617 |
|
|
|
|
|
(1) |
|
See Note 17 Comprehensive Income (Loss) for further details of the components of accumulated other comprehensive loss. |
The accompanying notes are an integral part of these consolidated financial statements.
7
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED
NOTE 1. BACKGROUND AND BASIS OF PRESENTATION
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 21 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. The financial statements have been prepared in compliance with the
provisions of the Property, Plant and Equipment topic of the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC). 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, 2009. Financial information for the first nine months of
fiscal year 2010 should not be annualized because of the seasonality of the companys business.
NOTE 2. NEW ACCOUNTING STANDARDS
In January 2010, the FASB issued an amendment to the Fair Value Measurements and Disclosures topic
of the ASC. This amendment requires disclosures about transfers into and out of Levels 1 and 2 and
separate disclosures about purchases, sales, issuances, and settlements relating to Level 3
measurements. It also clarifies existing fair value disclosures about the level of disaggregation
and about inputs and valuation techniques used to measure fair value. This amendment is effective
for periods beginning after Dec. 15, 2009, except for the requirement to provide the Level 3
activity of purchases, sales, issuances, and settlements, which will be effective for fiscal years
beginning after Dec. 15, 2010, and for interim periods within those fiscal years. Accordingly,
Monsanto prospectively adopted this amendment in third quarter 2010, except for the additional
Level 3 requirements which will be adopted in fiscal year 2011. See Note 13 Fair Value
Measurements for the new disclosures. The company is currently evaluating the disclosure impact of
adopting the additional Level 3 requirements of the standard on the consolidated financial
statements.
In June 2009, the FASB issued its ASC Topic 105, Generally Accepted Accounting Principles, which
became the single source of authoritative U.S. generally accepted accounting principles (GAAP)
(other than rules and interpretive releases of the U.S. Securities and Exchange Commission). The
ASC is topically based with topics organized by ASC number and updated with Accounting Standards
Updates (ASUs). ASUs replace accounting guidance that historically was issued as FASB Statements of
Financial Accounting Standards (SFAS), FASB Interpretations (FIN), FASB Staff Positions (FSP),
Emerging Issues Task Force (EITF) Issues or other types of accounting standards. The ASC became
effective Nov. 30, 2009, for Monsanto and disclosures within this Quarterly Report on Form 10-Q
have been updated to reflect the change. The ASC does not change GAAP and did not impact the
companys consolidated financial statements.
8
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED (continued)
In June 2009, the FASB issued a standard that requires 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 standard is effective
for fiscal years beginning after Nov. 15, 2009. Accordingly, Monsanto will adopt this standard in
fiscal year 2011. The company is currently evaluating the impact of adoption on the consolidated
financial statements.
In June 2009, the FASB issued a standard that removes the concept of a qualifying special-purpose
entity (QSPE) from GAAP and removes the exception from applying consolidation principles to a QSPE.
This standard also clarifies the requirements for isolation and limitations on portions of
financial assets that are eligible for sale accounting. This standard is effective for fiscal years
beginning after Nov. 15, 2009. Accordingly, Monsanto will adopt this standard in fiscal year 2011.
The company is currently evaluating the impact of adoption on its QSPE, other financing programs
and on the consolidated financial statements.
In April 2009, the FASB issued a standard that extends the previous disclosure requirements about
fair value of financial instruments to interim financial statements of publicly traded companies.
This standard 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. This standard is effective
prospectively for interim reporting periods ending after June 15, 2009. Accordingly, Monsanto
adopted this standard in first quarter fiscal year 2010. See Note 12 Debt and Other Credit
Arrangements, Note 13 Fair Value Measurements and Note 14 Financial Instruments for the
disclosures required by this standard.
In December 2008, the FASB issued a standard that provides additional guidance regarding
disclosures about plan assets of defined benefit pension or other postretirement plans. This
standard is effective for financial statements issued for fiscal years ending after Dec. 15, 2009.
Accordingly, Monsanto will include the disclosure requirements of this standard in the Report on
Form 10-K for the fiscal year ended Aug. 31, 2010. The company is currently evaluating the
disclosure impact of adopting this standard on the consolidated financial statements.
In February 2008, the FASB issued a standard that delayed the effective date of the new guidance
regarding fair value measurement and disclosure for nonfinancial assets and liabilities to fiscal
years beginning after Nov. 15, 2008. Accordingly, Monsanto adopted the additional requirements of
the Fair Value Measurements and Disclosures topic of the ASC that were deferred by this standard in
first quarter fiscal year 2010. The adoption of this standard did not have an impact on the
companys consolidated financial statements. See Note 13 Fair Value Measurements for
additional discussion regarding fair value measurements.
In December 2007, the FASB issued a standard that 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 Statements of
Consolidated Operations; 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. The provisions of the standard related to accounting for
changes in ownership are to be applied prospectively, except for the presentation and disclosure
requirements, which are to be applied retrospectively. Monsanto adopted this standard on Sept. 1,
2009, and the presentation and disclosure requirements of this standard were applied
retrospectively to all periods presented. The adoption of this standard did not have a material
impact on the consolidated financial statements, other than the following changes in presentation
of noncontrolling interests:
|
|
|
Consolidated net income was recast to include net income attributable to both the
company and noncontrolling interests in the Statements of Consolidated Operations. |
|
|
|
|
Noncontrolling interests were reclassified from other liabilities to equity, separate
from the parents shareowners equity, in the Condensed Statements of Consolidated
Financial Position. |
9
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|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED
(continued)
|
|
|
The Statements of Consolidated Cash Flows now begin with net income (including
noncontrolling interests) instead of net income attributable to Monsanto Company, with net
income from noncontrolling interests (previously, minority interests) no longer a
reconciling item in arriving at net cash provided by operating activities, and the
Statements of Consolidated Cash Flows were recast to include dividend payments to
noncontrolling interests. |
|
|
|
|
Interim Condensed Statements of Consolidated Shareowners Equity and Comprehensive
Income have been added to fulfill the disclosure requirements. |
NOTE 3. BUSINESS COMBINATIONS
Effective Sept. 1, 2009, Monsanto adopted the new guidance in the Business Combinations topic of
the ASC for acquisitions subsequent to that date.
2010 Acquisitions: In April 2010, Monsanto acquired a corn and soybean processing plant located in
Paine, Chile from Anasac, a Santiago-based company that provides seed processing services. The
acquisition of this plant, which qualifies as a business under the Business Combinations topic of
the ASC, allows Monsanto to reduce tolling in Chile, while increasing production supply.
Acquisition costs were less than $1 million for the nine months ended May 31, 2010, and classified
as selling, general, and administrative expenses. The total cash paid and the fair value of the
acquisition were $34 million, and it was primarily allocated to fixed assets, goodwill, and
intangibles. The primary items that generated goodwill were the premiums paid by the company for
the right to control the business acquired and the value of the acquired assembled workforce. The
goodwill is not deductible for tax purposes.
In October 2009, Monsanto acquired the remaining 51 percent equity interest in Seminium, S.A.
(Seminium), a leading Argentinean corn seed company. Acquisition costs were less than $1 million
for the nine months ended May 31, 2010, and classified as selling, general and administrative
expenses. The total fair value of Seminium was $36 million, and it was primarily allocated to
inventory, fixed assets, intangibles, and goodwill. This fair value includes $20 million of cash
paid (net of cash acquired) and $16 million for the fair value of Monsantos 49 percent equity
interest in Seminium held prior to the acquisition. The primary items that generated goodwill were
the premiums paid by the company for the right to control the business acquired and the value of
the acquired assembled workforce. The goodwill is not deductible for tax purposes. Income of
approximately $12 million was recognized from the re-measurement to fair value of Monsantos
previous equity interest in Seminium and is included in other expense (income), net in the
Statements of Consolidated Operations for the nine months ended May 31, 2010.
The measurement period for purchase price allocations ends as soon as information on the facts and
circumstances becomes available, but does not exceed twelve months. If new information is obtained
about facts and circumstances that existed as of the acquisition date that, if known, would have
affected the measurement of the amounts recognized for assets acquired and liabilities assumed,
Monsanto will retrospectively adjust the amounts recognized as of the acquisition date.
2009 Acquisitions: In July 2009, Monsanto acquired the assets of WestBred, LLC, a Montana-based
company that specializes in wheat germplasm, for $49 million (net of cash acquired), inclusive of
transaction costs of $4 million. The acquisition will bolster the future growth of Monsantos seeds
and traits platform.
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.
In 2009, Monsanto paid approximately $5 million of contingent consideration related to fiscal year
2007 regional U.S. seed company acquisitions.
For all fiscal year 2010 and 2009 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
10
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MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED
(continued)
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 first and
third quarter 2010 and the fourth quarter 2009 acquisitions 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.
For acquisitions prior to fiscal year 2010, as of the acquisition dates, management began to assess
and formulate plans to restructure the acquired entities in accordance with business combination
accounting guidance. These activities primarily include the potential closure of certain acquired
subsidiaries. Through May 31, 2010, estimated costs of $22 million have been recognized as
short-term liabilities in the purchase price allocations above and for fiscal year 2008
acquisitions, and $14 million has been charged against those liabilities, primarily related to
payments for employee terminations and entity consolidation. 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 previously 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 was a special purpose entity
(SPE) that Monsanto consolidated, pursuant to Monsantos credit and other underwriting guidelines
approved by the lender. Under the program, 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 the Transfers and Servicing topic of the ASC.
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 current
guidance within the Consolidation topic of the ASC, and Monsanto did not have the unilateral right
to liquidate the QSPE, the consolidation guidance did not have an effect on Monsantos accounting
for the U.S. customer financing program.
Monsanto accounted for the guarantee in accordance with the Guarantees topic of the ASC, 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 approximated fair value (except that it did 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 activities including discounts on the sale of
customer receivables resulted in income of $1 million for the nine months ended May 31, 2009.
Proceeds from customer loans sold through the financing program totaled $130 million for the first
nine months of fiscal year 2009. 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, 2010, or Aug. 31, 2009.
During the second quarter 2010, Monsanto began participating in a revolving financing program in
Brazil that allows Monsanto to transfer up to 1 billion Brazilian reais (approximately $550
million) in customer receivables to a QSPE. Third parties, primarily investment funds, hold an 88
percent senior interest in the QSPE, and Monsanto holds the remaining 12 percent subordinate
interest. Because QSPEs are excluded from the scope of the current guidance within the
Consolidation
topic of the ASC, and Monsanto does not have the unilateral right to liquidate the QSPE, the
consolidation guidance does not have an effect on Monsantos accounting for this customer financing
program.
11
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|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED
(continued)
Monsantos investment in the QSPE was $10 million as of May 31, 2010, and is included in other
assets in the Condensed Statements of Consolidated Financial Position and is classified as a debt
security. Interest earned on Monsantos investment in the QSPE was less than $1 million for the
three months and nine months ended May 31, 2010, and is included in interest income on the
Statements of Consolidated Operations.
Under the financing program, Monsantos transfer of select customer receivables to the QSPE is
accounted for as a sale, in accordance with the Transfers and Servicing topic of the ASC. Monsanto
does not service the receivables; however, under the QSPE a recourse provision requires Monsanto to
cover the first 12 percent of credit losses within the program.
Proceeds from customer receivables sold through the financing program and derecognized from the
Condensed Statements of Consolidated Financial Position totaled $70 million for the first nine
months of fiscal year 2010. These proceeds are included in net cash provided by operating
activities in the Statements of Consolidated Cash Flows and are net of a loss on sale of
receivables of $4 million for the nine months ended May 31, 2010. The remaining receivable balance
in the QSPE outstanding as of May 31, 2010, was $36 million. Receivables are considered delinquent
when payments are one day past due, but the provisions on the financing program for non-performance
start on the 15th day past due. If a customer fails to pay an obligation when due, the provisions
for bad debt on the program will be accounted for as an expense by the QSPE and the investment on
Monsantos Condensed Statements of Consolidated Financial Position will be decreased. As of May 31,
2010, there were $2 million of receivables sold through this financing program that were
delinquent. Based on the companys historical collection experience with these customers and a
current assessment of credit exposure, Monsanto recorded its recourse provision at $3 million as of
May 31, 2010. Adverse changes in the actual loss rate would decrease Monsantos investment asset.
The maximum potential amount of future payments under the recourse provision was $13 million as of
May 31, 2010. If Monsanto is called upon to make payments under the recourse provision, it would
have the benefit under the financing program of any amounts subsequently collected from the
customer.
Monsanto has additional agreements with lenders to establish programs that provide financing of up
to 550 million Brazilian reais (approximately $300 million) for selected customers in Brazil. These
agreements qualify for sales treatment under the Transfers and Servicing topic of the ASC. 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 $136 million and $119 million for the first nine months of fiscal years 2010 and
2009, 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 $17 million and $6 million as of
May 31, 2010, and Aug. 31, 2009, 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 guarantee was $125 million as of May 31, 2010. The loan balance
outstanding for these programs was $125 million and $160 million as of May 31, 2010, and Aug. 31,
2009, respectively. There were delinquent loans of $5 million and $2 million as of May 31, 2010,
and Aug. 31, 2009, respectively.
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, there are
similar financing programs with financial institutions in the United States, Europe and Argentina.
Proceeds from the payment of receivables are included in net cash provided by operating activities
in the Statements of Consolidated Cash Flows and totaled $112 million and $59 million for the first
nine months of fiscal years 2010 and 2009, 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 $5 million as of May 31, 2010, and Aug.
31, 2009. 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 $26 million as of May 31, 2010. The
loan balance outstanding for these programs was $27 million and $48 million as of May 31, 2010, and
Aug. 31, 2009, respectively.
12
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|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED
(continued)
In August 2009, Monsanto entered into an agreement in the United States to sell customer
receivables up to a maximum of $500 million and to service such accounts. The program will
terminate in August 2012. These receivables qualify for sales treatment under the Transfers and
Servicing topic of the ASC and accordingly, the proceeds are included in net cash provided by
operating activities in the Statements of Consolidated Cash Flows. The gross amount of receivables
sold totaled $51 million for the first nine months of fiscal year 2010. The agreement includes
recourse provisions and thus a liability was established at the time of sale which approximates
fair value based upon the companys historical collection experience with such receivables and a
current assessment of credit exposure. The recourse liability recorded by Monsanto was $3 million
as of May 31, 2010, and $2 million as of Aug. 31, 2009. The maximum potential amount of future
payments under the recourse provisions of the agreement was $3 million as of May 31, 2010. The
outstanding balance of the receivables sold was $54 million and $319 million as of May 31, 2010,
and Aug. 31, 2009, respectively. There were delinquent accounts of $5 million as of May 31, 2010,
and there were no delinquent accounts as of Aug. 31, 2009.
Monsanto also sells accounts receivable in European regions and Argentina, both with and without
recourse. These sales qualify for sales treatment under the Transfers and Servicing topic of the
ASC 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 $12 million
and $11 million for the first nine months of fiscal years 2010 and 2009, 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, 2010, and Aug. 31, 2009. The
maximum potential amount of future payments under the recourse provisions of the agreements was $4
million as of May 31, 2010. The outstanding balance of the receivables sold was $8 million and $57
million as of May 31, 2010, and Aug. 31, 2009, respectively. There were no delinquent loans as of
May 31, 2010, or Aug. 31, 2009.
Restructuring charges were recorded in the Statements of Consolidated Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
(Dollars in millions) |
|
May 31, 2010 |
|
|
May 31, 2010 |
|
|
|
|
Costs of Goods Sold(1) |
|
$ |
(52 |
) |
|
$ |
(106 |
) |
Restructuring Charges, Net(1)(2) |
|
|
(34 |
) |
|
|
(78 |
) |
|
|
|
|
Loss from Continuing Operations Before Income Taxes |
|
|
(86 |
) |
|
|
(184 |
) |
Income Tax Benefit |
|
|
25 |
|
|
|
56 |
|
|
|
|
|
Net Loss |
|
$ |
(61 |
) |
|
$ |
(128 |
) |
|
|
|
|
|
|
|
(1) |
|
For the three months ended May 31, 2010, the $52 million of restructuring charges
recorded in costs of goods sold were split by segment as follows: $13 million in Agricultural
Productivity and $39 million in Seeds and Genomics. For the nine months ended May 31, 2010,
the $106 million of restructuring charges recorded in cost of goods sold were split by segment
as follows: $13 million in Agricultural Productivity and $93 million in Seeds and Genomics.
For the three months ended May 31, 2010, the $34 million of restructuring charges recorded in
restructuring charges, net were split by segment as follows: $5 million in Agricultural
Productivity and $29 million in Seeds and Genomics. For the nine months ended May 31, 2010,
the $78 million of restructuring charges were split by segment as follows: $41 million in
Agricultural Productivity and $37 million in Seeds and Genomics. |
|
(2) |
|
The restructuring charges for the three and nine months ended May 31, 2010, include
reversals of $15 million and $26 million, respectively, related to the 2009 Restructuring
Plan. The reversals are primarily related to severance as positions originally included in the
plan were eliminated through attrition. |
On June 23, 2009, the companys Board of Directors approved a restructuring plan (2009
Restructuring Plan) to take future actions to reduce costs in light of the changing market supply
environment for glyphosate. The company created a separate division for its ROUNDUP and other
herbicides business, which is expected to better align spending and working capital needs. This
action is designed to enable Monsanto to stabilize the ROUNDUP business and allow it to deliver
optimal gross profit and a sustainable level of operating cash in the coming years. The company
also announced that it will take steps to better align the resources of its global seeds and traits
business. These actions include certain product and brand
rationalization within the seed businesses. On Sept. 9, 2009, the company committed to take
additional actions related to the
13
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|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED
(continued)
previously announced restructuring plan. The plan is expected to
be completed by the end of the fiscal year, and all payments will be made by the end of the first
quarter in fiscal year 2011.
The following table displays the pretax charges of $86 million and $184 million incurred by segment
under the 2009 Restructuring Plan for the three and nine months ended May 31, 2010, respectively,
as well as the cumulative pretax charges of $590 million under the 2009 Restructuring Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, 2010 |
|
Nine Months Ended May 31, 2010 |
|
|
Seeds and |
|
|
Agricultural |
|
|
|
|
|
|
Seeds and |
|
|
Agricultural |
|
|
|
|
(Dollars in millions) |
|
Genomics |
|
|
Productivity |
|
|
Total |
|
|
Genomics |
|
|
Productivity |
|
|
Total |
|
|
|
|
Work Force Reductions |
|
$ |
13 |
|
|
$ |
4 |
|
|
$ |
17 |
|
|
$ |
17 |
|
|
$ |
15 |
|
|
$ |
32 |
|
Facility Closures / Exit Costs |
|
|
16 |
|
|
|
1 |
|
|
|
17 |
|
|
|
19 |
|
|
|
26 |
|
|
|
45 |
|
Asset Impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Inventory |
|
|
39 |
|
|
|
13 |
|
|
|
52 |
|
|
|
93 |
|
|
|
13 |
|
|
|
106 |
|
|
|
|
Total Restructuring Charges, Net |
|
$ |
68 |
|
|
$ |
18 |
|
|
$ |
86 |
|
|
$ |
130 |
|
|
$ |
54 |
|
|
$ |
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Amount through May 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seeds and |
|
|
Agricultural |
|
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Genomics |
|
|
Productivity |
|
|
Total |
|
|
|
Work Force Reductions |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
192 |
|
|
$ |
78 |
|
|
$ |
270 |
|
Facility Closures / Exit Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
73 |
|
|
|
95 |
|
Asset Impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
4 |
|
|
|
36 |
|
Inventory |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117 |
|
|
|
13 |
|
|
|
130 |
|
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59 |
|
|
|
|
|
|
|
59 |
|
|
|
Total Restructuring Charges, Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
422 |
|
|
$ |
168 |
|
|
$ |
590 |
|
|
|
The companys written human resource policies are indicative of an ongoing benefit arrangement
with respect to severance packages. Benefits paid pursuant to an ongoing benefit arrangement are
specifically excluded from the Exit or Disposal Cost Obligations topic of the ASC, therefore
severance charges incurred in connection with the 2009 Restructuring Plan are accounted for when
probable and estimable as required under the Compensation Nonretirement Postemployment Benefits
topic of the ASC.
In the nine months ended May 31, 2010, pretax restructuring charges of $184 million were recorded.
The $32 million in work force reductions relate primarily to Europe and the United States. The
facility closures/exit costs of $45 million relate primarily to the finalization of the termination
of a chemical supply contract in the United States. In asset impairments, inventory impairments of
$106 million recorded in cost of goods sold related to discontinued products worldwide.
The following table summarizes the activities related to the companys 2009 Restructuring Plan. See
Note 3 Business Combinations for restructuring reserves related to acquisitions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Work Force |
|
|
Facility Closures / |
|
|
Asset |
|
|
|
|
(Dollars in millions) |
|
Reductions |
|
|
Exit Costs |
|
|
Impairments |
|
|
Total |
|
|
Beginning Liability as of Aug. 31, 2009 |
|
$ |
216 |
|
|
$ |
50 |
|
|
$ |
|
|
|
$ |
266 |
|
Restructuring charges recognized in first nine
months of fiscal year 2010 |
|
|
32 |
|
|
|
45 |
|
|
|
107 |
|
|
|
184 |
|
Cash payments |
|
|
(136 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
(175 |
) |
Asset impairments and write-offs |
|
|
|
|
|
|
|
|
|
|
(107 |
) |
|
|
(107 |
) |
Foreign currency impact |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
Ending Liability as of May 31, 2010 |
|
$ |
113 |
|
|
$ |
56 |
|
|
$ |
|
|
|
$ |
169 |
|
|
14
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 6. RECEIVABLES
Trade receivables on the Condensed Statements of Consolidated Financial Position are net of
allowances of $177 million and $162 million as of May 31, 2010, and Aug. 31, 2009, respectively.
Long-term receivables on the Condensed Statements of Consolidated Financial Position are net of
allowances of $177 million and $172 million as of May 31, 2010, and Aug. 31, 2009, respectively.
NOTE 7. INVENTORY
Components of inventory are:
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, |
|
|
As of Aug. 31, |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
Finished Goods |
|
$ |
1,418 |
|
|
$ |
1,362 |
|
Goods In Process |
|
|
1,164 |
|
|
|
1,340 |
|
Raw Materials and Supplies |
|
|
408 |
|
|
|
417 |
|
|
|
|
|
|
Inventory at FIFO Cost |
|
|
2,990 |
|
|
|
3,119 |
|
Excess of FIFO over LIFO Cost |
|
|
(143 |
) |
|
|
(185 |
) |
|
|
|
|
|
Total |
|
$ |
2,847 |
|
|
$ |
2,934 |
|
|
|
|
|
|
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
The fiscal year 2010 annual goodwill impairment test was performed as of March 1, 2010, and no
goodwill impairment existed as of that date.
Changes in the net carrying amount of goodwill for the first nine months of fiscal year 2010, by
segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seeds and |
|
|
Agricultural |
|
|
|
|
(Dollars in millions) |
|
Genomics |
|
|
Productivity |
|
|
Total |
|
|
Balance as of Aug. 31, 2009 |
|
$ |
3,156 |
|
|
$ |
62 |
|
|
$ |
3,218 |
|
Acquisition activity (see Note 3) |
|
|
24 |
|
|
|
|
|
|
|
24 |
|
Effect of foreign currency translation adjustments and other |
|
|
(58 |
) |
|
|
|
|
|
|
(58 |
) |
|
Balance as of May 31, 2010 |
|
$ |
3,122 |
|
|
$ |
62 |
|
|
$ |
3,184 |
|
|
In the nine months ended May 31, 2010, goodwill decreased due to the effect of foreign
currency translation adjustments. This was offset by an increase due to the 2010 acquisitions of
Seminium and a seed processing business in Chile and the updating of the preliminary purchase price
allocations for some of the 2009 acquisitions. See Note 3 Business Combinations for further
information.
15
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
Information regarding the companys other intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, 2010 |
|
As of Aug. 31, 2009 |
|
|
Carrying |
|
Accumulated |
|
|
|
|
|
Carrying |
|
Accumulated |
|
|
(Dollars in millions) |
|
Amount |
|
Amortization |
|
Net |
|
Amount |
|
Amortization |
|
Net |
|
|
|
Acquired Germplasm
|
|
$ |
1,156 |
|
|
$ |
|
(628 |
) |
$ |
528 |
|
|
$ |
1,172 |
|
|
$ |
|
(604 |
) |
$ |
568 |
|
Acquired Biotechnology Intellectual Property
|
|
|
834 |
|
|
|
|
(639 |
) |
|
195 |
|
|
|
829 |
|
|
|
|
(589 |
) |
|
240 |
|
Trademarks
|
|
|
343 |
|
|
|
|
(90 |
) |
|
253 |
|
|
|
345 |
|
|
|
|
(81 |
) |
|
264 |
|
Customer Relationships
|
|
|
312 |
|
|
|
|
(104 |
) |
|
208 |
|
|
|
317 |
|
|
|
|
(88 |
) |
|
229 |
|
Other
|
|
|
125 |
|
|
|
|
(47 |
) |
|
78 |
|
|
|
110 |
|
|
|
|
(40 |
) |
|
70 |
|
|
|
|
Total
|
|
$ |
2,770 |
|
|
$ |
|
(1,508 |
) |
$ |
1,262 |
|
|
$ |
2,773 |
|
|
$ |
|
(1,402 |
) |
$ |
1,371 |
|
|
|
|
The decrease in other intangible assets during the nine months ended May 31, 2010, primarily
resulted from the effect of foreign currency translation adjustments. This was offset by an
increase resulting from the acquisition of Seminium described in Note 3 Business Combinations.
Total amortization expense of other intangible assets was $38 million in third quarter of fiscal
year 2010 and $39 million in third quarter of fiscal year 2009. Total amortization expense of other
intangible assets was $117 million for the nine months ended May 31, 2010, and $111 million for the
nine months ended May 31, 2009. Estimated intangible asset amortization expense for each of the
five succeeding fiscal years for owned assets as of May 31, 2010, has not changed significantly
from the amounts disclosed in Monsantos Report on Form 10-K for the fiscal year ended Aug. 31,
2009.
NOTE 9. INVESTMENTS AND EQUITY AFFILIATES
Investments
Monsanto has investments in long-term debt and equity securities, which are considered
available-for-sale. As of May 31, 2010, and Aug. 31, 2009, these long-term debt and equity
securities are recorded in other assets in the Condensed Statements of Consolidated Financial
Position at a fair value of $35 million and $25 million, respectively. Net unrealized losses (net
of deferred taxes) of $12 million and $6 million are included in accumulated other comprehensive
loss in shareowners equity related to these investments as of May 31, 2010, and Aug. 31, 2009,
respectively.
Equity Affiliates
Monsanto owns 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,
2010, and Aug. 31, 2009, this investment is recorded in other assets in the Condensed Statements of
Consolidated Financial Position at $62 million and $60 million, respectively. Monsanto purchased
$88 million and $197 million of inventory from the seed supplier for the three and nine months
ended May 31, 2010, respectively, and $142 million and $282 million for the three and nine months
ended May 31, 2009. Sales of inventory to the seed supplier were $5 million for the three and nine
months ended May 31, 2010, and $1 million for the three and nine months ended May 31, 2009. As of
May 31, 2010, and Aug. 31, 2009, the amount payable to the seed supplier was $1 million and $84
million, respectively, and recorded in accounts payable in the Condensed Statements of Consolidated
Financial Position. As of May 31, 2010, there were no prepayments, while the prepayment as of Aug.
31, 2009, was $5 million, included in other current assets in the Condensed Statements of Consolidated Financial
Position related to inventory delivered in fiscal year 2010.
16
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 10. 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. Among its provisions, the agreement modified certain existing corn
license agreements between the parties, included provisions under which the parties agreed not to
assert certain intellectual property rights against each other, and granted each party the right to
use certain regulatory data of the other in order to develop additional products. As a result of
the new 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 of $20 million related to this agreement was recorded
for the three months ended May 31, 2010, and May 31, 2009, and revenue of $60 million was recorded
for the nine months ended May 31, 2010, and May 31, 2009. As of May 31, 2010, and Aug. 31, 2009,
the remaining receivable balance is $466 million and $543 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, 2010, and Aug. 31, 2009, the remaining deferred revenue balance is $417
million and $476 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 $4 million and $12 million for the three and nine months ended May
31, 2010, respectively. Interest income for the three and nine months ended May 31, 2009, was $5
million and $15 million, respectively.
In third quarter 2008, Monsanto and Syngenta entered into a GENUITY ROUNDUP READY 2 YIELD Soybean
License Agreement. The agreement grants Syngenta access to Monsantos GENUITY 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, 2010, and Aug. 31, 2009,
the remaining receivable balance is $72 million and $70 million, respectively, related to the net
present value of expected payments under this agreement. The majority of this balance is included
in long-term receivables on the Condensed Statements of Consolidated Financial Position and the
current portion is included in trade receivables. The interest portion of this receivable is
reported in interest income in the Statements of Consolidated Operations and was less than $1
million and $2 million for the three and nine months ended May 31, 2010, respectively. There was $1
million and $2 million in interest income for the three and nine months ended May 31, 2009,
respectively. As of May 31, 2010, and Aug. 31, 2009, the remaining deferred revenue balance of $72
million and $70 million, respectively, is included in long-term deferred revenue in the Condensed
Statements of Consolidated Financial Position and the current portion is included in deferred
revenue.
NOTE 11. INCOME TAXES
Management regularly assesses the tax risk of the companys tax return filing positions for all
open years and establishes reserves accordingly. In the first nine months of 2010 statutes expired
in several jurisdictions and several domestic and ex-US tax matters were resolved favorably. In
addition, favorable adjustments were recorded as a result of the filing of tax returns in several
jurisdictions. The Patient Protection and Affordable Care Act was signed by President Obama on
March 23, 2010, and the Health Care and Education Act of 2010 was signed on March 30, 2010
(collectively the Acts). Monsanto recorded a tax charge of $8 million during third quarter 2010
due to the elimination of the tax benefit associated with the Medicare Part D subsidy included in
the Acts. Monsanto recorded a net tax benefit of $63 million in the first nine months of 2010
primarily driven by the cumulative effect of these items.
During the first nine months of 2009 several domestic and ex-US tax matters 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. During the first nine months
of 2009, Monsanto recorded an income tax benefit of $119 million primarily as a result of these
items.
17
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 12. DEBT AND OTHER CREDIT ARRANGEMENTS
Monsanto plans to issue new fixed-rate debt on or before Aug. 15, 2012, to repay $486 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 before the debt is issued.
Unrealized gains, net of tax, of $5 million and $9 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, 2010, and Aug. 31, 2009, respectively. These swaps are accounted
for under the Derivatives and Hedging topic of the ASC.
The fair value of the total short-term debt was $839 million and $79 million as of May 31, 2010,
and Aug. 31, 2009, respectively. The fair value of the total long-term debt was $2,021 million and
$1,863 million as of May 31, 2010, and Aug. 31, 2009, respectively.
As of May 31, 2010, Monsanto had commercial paper borrowings outstanding of $561 million which is
included in short-term debt on the Condensed Statements of Consolidated Financial Position.
In April 2010, Monsanto completed the purchase of the Chesterfield Village Research Center from
Pfizer. There is debt outstanding of $324 million on the purchase price of which $188 million is
included in short-term debt and $136 million is included in long-term debt on the Condensed
Statements of Consolidated Financial Position as of May 31, 2010. As of May 31, 2010, the interest
rate on the notes was 0.99%.
NOTE 13. FAIR VALUE MEASUREMENTS
Effective Sept. 1, 2008, Monsanto adopted a standard which provides a framework for measuring fair
value. The standard 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. The
standard 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 the standard.
Monsanto determines the fair market value of its financial assets and liabilities based on quoted
market prices, estimates from brokers, and other appropriate valuation techniques. The company uses
the fair value hierarchy established in the Fair Value Measurements and Disclosures topic of the
ASC, 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.
18
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
The following tables set forth by level Monsantos assets and liabilities that were accounted for
at fair value on a recurring basis as of May 31, 2010, and Aug. 31, 2009. As required by the Fair
Value Measurements and Disclosures topic of the ASC, 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, 2010 Using |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral |
|
|
Net |
|
(Dollars in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Offset(1) |
|
|
Balance |
|
|
Assets at Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
190 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
190 |
|
Debt and equity securities |
|
|
25 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
35 |
|
Derivative assets related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency |
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
39 |
|
Interest rates |
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Corn |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Soybeans |
|
|
5 |
|
|
|
2 |
|
|
|
|
|
|
|
(5 |
) |
|
|
2 |
|
|
Total Assets at Fair Value |
|
$ |
220 |
|
|
$ |
52 |
|
|
$ |
10 |
|
|
$ |
(5 |
) |
|
$ |
277 |
|
|
Liabilities at Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency |
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
Corn |
|
|
16 |
|
|
|
7 |
|
|
|
|
|
|
|
(16 |
) |
|
|
7 |
|
Soybeans |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
Energy and raw materials |
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
Total Liabilities at Fair Value |
|
$ |
21 |
|
|
$ |
46 |
|
|
$ |
|
|
|
$ |
(21 |
) |
|
$ |
46 |
|
|
|
|
|
|
Fair Value Measurements at Aug. 31, 2009 Using |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral |
|
|
Net |
|
(Dollars in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Offset(1) |
|
|
Balance |
|
|
Assets at Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
1,548 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,548 |
|
Equity securities |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
Derivative assets related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency |
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
34 |
|
Interest rates |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
14 |
|
Commodities |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
Total Assets at Fair Value |
|
$ |
1,575 |
|
|
$ |
48 |
|
|
$ |
|
|
|
$ |
(2 |
) |
|
$ |
1,621 |
|
|
Liabilities at Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency |
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
37 |
|
Commodities |
|
|
93 |
|
|
|
31 |
|
|
|
|
|
|
|
(93 |
) |
|
|
31 |
|
|
Total Liabilities at Fair Value |
|
$ |
93 |
|
|
$ |
68 |
|
|
$ |
|
|
|
$ |
(93 |
) |
|
$ |
68 |
|
|
|
|
|
(1) |
|
As allowed by the Derivatives and Hedging topic of the ASC, commodity derivative
assets and liabilities have been offset by cash collateral due and paid under a master netting
arrangement. |
As discussed in Note 4 Customer Financing Programs, Monsanto purchased available-for-sale
securities in the first nine months of fiscal year 2010, which are recorded in other assets in the
Condensed Statements of Consolidated Financial
19
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
Position. The initial investment is measured at fair
value using an independent pricing source and subsequently adjusted for expected future credit
losses. Because the credit losses are based on internal assumptions, these investments are
considered to be Level 3.
The following table summarizes the changes in fair value of the Level 3 asset as of May 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Nine Months |
|
|
|
Ended |
|
Ended |
(Dollars in millions) |
|
May 31, 2010 |
|
|
May 31, 2010 |
|
|
|
|
Beginning Balance |
|
$ |
4 |
|
|
$ |
|
|
Purchases, sales, issuances, settlements and payments received |
|
|
7 |
|
|
|
13 |
|
Unrealized loss in investments included in accumulated other comprehensive loss |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
|
Ending Balance |
|
$ |
10 |
|
|
$ |
10 |
|
|
|
|
Disclosures for nonfinancial assets and liabilities that are measured at fair value, but are
recognized and disclosed as fair value on a nonrecurring basis, were required prospectively
beginning Sept. 1, 2009. During the three and nine months ended May 31, 2010, there were no
significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent
to their initial recognition.
The recorded amounts of cash, trade receivables, miscellaneous receivables, third-party guarantees,
accounts payable, grower accruals, accrued marketing programs and miscellaneous short-term accruals
approximate their fair values as of May 31, 2010, and Aug. 31, 2009.
NOTE 14. 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 of
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 and raw
material risk management strategy is to use derivative instruments to minimize significant
unanticipated manufacturing cost fluctuations that may arise from volatility in natural gas, diesel
and ethylene 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
20
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
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 15 months for foreign-currency hedges, 46 months for commodity
hedges and 27 months for interest rate hedges. During the next 12 months, a pretax net loss of
approximately $24 million will be reclassified from other comprehensive income into earnings.
During the nine months ended May 31, 2010, a loss of $29 million was reclassified into earnings as
a result of the discontinuance of cash flow hedges because it was probable that the original
forecasted transaction would not occur by the end of the originally specified time period. No cash
flow hedges were discontinued during the three months ended May 31, 2010, or during the three and
nine months ended May 31, 2009.
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, both the gain or loss on the derivative and 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 the Derivatives and
Hedging topic of the ASC, had an immaterial effect on earnings in the three and nine months ended
May 31, 2010, and May 31, 2009. No fair-value hedges were discontinued during the three and nine
months ended May 31, 2010, or May 31, 2009.
Net Investment Hedges
In order to protect the value of its investment from adverse changes in exchange rates, the company
may, from time to time, hedge a portion of its net investment in one or more of its foreign
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. Both the
gain or loss on the derivative and 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
the United States, Mexico and Brazil, which can fluctuate based on changes in corn price. Because
these option contracts do not meet the provisions specified by the Derivatives and Hedging topic of
the ASC, they do not qualify for hedge accounting treatment. Accordingly, the gain or loss on these
derivatives is recognized in current earnings.
To reduce credit exposure in Latin America, Monsanto collects payments on certain customer accounts
in grain. Such payments in grain are negotiated at or near the time Monsantos products are sold to
the customers and are valued at the prevailing grain commodity prices. By entering into forward
sales contracts related to grain, Monsanto may choose to mitigate the commodity price exposure from
the time a contract is signed with a customer until the time the grain is collected from the
customer by a grain merchant on Monsantos behalf. The forward sales contracts are not designated
as hedging instruments under the Derivatives and Hedging topic of the ASC. 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.
21
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
The notional amounts of the companys derivative instruments outstanding as of May 31, 2010, and
Aug. 31, 2009, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, |
|
As of Aug. 31, |
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
|
|
Derivatives Designated as Hedges: |
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
359 |
|
|
$ |
718 |
|
Commodity contracts |
|
|
579 |
|
|
|
716 |
|
Interest rate contracts |
|
|
250 |
|
|
|
250 |
|
|
|
|
Total Derivatives Designated as Hedges |
|
$ |
1,188 |
|
|
$ |
1,684 |
|
|
|
|
Derivatives Not Designated as Hedges: |
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
1,147 |
|
|
$ |
1,391 |
|
Commodity contracts |
|
|
270 |
|
|
|
1 |
|
|
|
|
Total Derivatives Not Designated as Hedges |
|
$ |
1,417 |
|
|
$ |
1,392 |
|
|
|
|
The fair values of the companys derivative instruments outstanding as of May 31, 2010, and
Aug. 31, 2009, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location |
|
Fair Value(1) |
|
|
|
|
As of May 31, |
|
As of Aug. 31, |
(Dollars in millions) |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
Asset Derivatives: |
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedges: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Miscellaneous receivables |
|
$ |
25 |
|
|
$ |
14 |
|
Foreign exchange contracts |
|
Other assets |
|
|
5 |
|
|
|
13 |
|
Commodity contracts |
|
Other current assets(2) |
|
|
5 |
|
|
|
1 |
|
Commodity contracts |
|
Other assets(2) |
|
|
|
|
|
|
1 |
|
Interest rate contracts |
|
Other assets |
|
|
9 |
|
|
|
14 |
|
|
|
|
Total derivatives designated as hedges |
|
|
|
|
44 |
|
|
|
43 |
|
|
|
|
Derivatives not designated as hedges: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Miscellaneous receivables |
|
|
9 |
|
|
|
7 |
|
Commodity contracts |
|
Trade receivables, net |
|
|
1 |
|
|
|
|
|
Commodity contracts |
|
Miscellaneous receivables |
|
|
3 |
|
|
|
|
|
|
|
|
Total derivatives not designated as hedges |
|
|
|
|
13 |
|
|
|
7 |
|
|
|
|
Total Asset Derivatives |
|
|
|
$ |
57 |
|
|
$ |
50 |
|
|
|
|
Liability Derivatives: |
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedges: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Miscellaneous short-term accruals |
|
$ |
2 |
|
|
$ |
10 |
|
Commodity contracts |
|
Other current assets(2) |
|
|
13 |
|
|
|
85 |
|
Commodity contracts |
|
Other assets(2) |
|
|
3 |
|
|
|
7 |
|
Commodity contracts |
|
Miscellaneous short-term accruals |
|
|
12 |
|
|
|
19 |
|
Commodity contracts |
|
Other liabilities |
|
|
9 |
|
|
|
12 |
|
|
|
|
Total derivatives designated as hedges |
|
|
|
|
39 |
|
|
|
133 |
|
|
|
|
Derivatives not designated as hedges: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Miscellaneous short-term accruals |
|
|
16 |
|
|
|
27 |
|
Commodity contracts |
|
Trade receivables, net |
|
|
6 |
|
|
|
|
|
Commodity contracts |
|
Other current assets(2) |
|
|
6 |
|
|
|
1 |
|
|
|
|
Total derivatives not designated as hedges |
|
|
|
|
28 |
|
|
|
28 |
|
|
|
|
Total Liability Derivatives |
|
|
|
$ |
67 |
|
|
$ |
161 |
|
|
|
|
|
|
|
(1) |
|
The carrying values of Monsantos derivative instruments approximate fair value. |
|
(2) |
|
As allowed by the Derivatives and Hedging topic of the ASC, 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 Statements of
Consolidated Financial Position. See Note 13 Fair Value Measurements for a
reconciliation to amounts reported in the Condensed Statements of Consolidated Financial
Position as of May 31, 2010, and Aug. 31, 2009. |
22
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
The gains and losses on the companys derivative instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
|
|
Recognized in AOCI(1) |
|
|
Amount of Gain (Loss) |
|
|
|
|
|
(Effective Portion) |
|
Recognized in Income(2)(3) |
|
|
|
|
Three Months Ended May 31, |
|
Three Months Ended May 31, |
|
Income Statement |
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Classification |
|
|
|
|
|
Derivatives Designated as Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair-value hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts(4) |
|
|
|
|
|
|
|
|
|
$ |
(4 |
) |
|
$ |
(38 |
) |
|
Cost of goods sold |
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
(6 |
) |
|
$ |
(40 |
) |
|
|
(5 |
) |
|
|
20 |
|
|
Net sales |
Foreign exchange contracts |
|
|
11 |
|
|
|
(17 |
) |
|
|
4 |
|
|
|
7 |
|
|
Cost of goods sold |
Commodity contracts |
|
|
(17 |
) |
|
|
91 |
|
|
|
(19 |
) |
|
|
|
|
|
Cost of goods sold |
Interest rate contracts |
|
|
(9 |
) |
|
|
16 |
|
|
|
(2 |
) |
|
|
(2 |
) |
|
Interest expense |
Net investment hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
|
|
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
N/A(5) |
|
|
|
|
|
|
|
Total Derivatives Designated as Hedges |
|
|
(21 |
) |
|
|
30 |
|
|
|
(26 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts(6) |
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
(115 |
) |
|
Other expense, net |
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
Net sales |
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
1 |
|
|
Cost of goods sold |
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
Other expense, net |
|
|
|
|
|
|
|
Total Derivatives Not Designated as Hedges |
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
(114 |
) |
|
|
|
|
|
|
|
|
|
Total Derivatives |
|
$ |
(21 |
) |
|
$ |
30 |
|
|
$ |
(47 |
) |
|
$ |
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
|
|
Recognized in AOCI(1) |
|
|
Amount of Gain (Loss) |
|
|
|
|
|
(Effective Portion) |
|
Recognized in Income(2)(3) |
|
|
|
|
Nine Months Ended May 31, |
|
Nine Months Ended May 31, |
|
Income Statement |
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
Classification |
|
|
|
|
Derivatives Designated as Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair-value hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts(4) |
|
|
|
|
|
|
|
|
|
$ |
4 |
|
|
$ |
(16 |
) |
|
Cost of goods sold |
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
(12 |
) |
|
$ |
44 |
|
|
|
(3 |
) |
|
|
31 |
|
|
Net sales |
Foreign exchange contracts |
|
|
22 |
|
|
|
48 |
|
|
|
12 |
|
|
|
19 |
|
|
Cost of goods sold |
Commodity contracts |
|
|
12 |
|
|
|
(153 |
) |
|
|
(87 |
) |
|
|
29 |
|
|
Cost of goods sold |
Interest rate contracts |
|
|
(5 |
) |
|
|
16 |
|
|
|
(5 |
) |
|
|
(5 |
) |
|
Interest expense |
Net investment hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
|
(3 |
) |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
N/A(5) |
|
|
|
|
|
|
|
Total Derivatives Designated as Hedges |
|
|
14 |
|
|
|
(21 |
) |
|
|
(79 |
) |
|
|
58 |
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts(6) |
|
|
|
|
|
|
|
|
|
|
(33 |
) |
|
|
(108 |
) |
|
Other expense, net |
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
Net sales |
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
Cost of goods sold |
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
Other expense, net |
|
|
|
|
|
|
|
Total Derivatives Not Designated as Hedges |
|
|
|
|
|
|
|
|
|
|
(41 |
) |
|
|
(108 |
) |
|
|
|
|
|
|
|
|
|
Total Derivatives |
|
$ |
14 |
|
|
$ |
(21 |
) |
|
$ |
(120 |
) |
|
$ |
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Accumulated other comprehensive income (loss) (AOCI) |
|
(2) |
|
For derivatives designated as cash flow and net investment hedges under the
Derivatives and Hedging topic of the ASC, this represents the effective portion of the gain
(loss) reclassified from AOCI into income during the period. |
23
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
|
|
|
(3) |
|
Gain or loss on commodity cash flow hedges includes a loss of $1 million and a gain
of $7 million from ineffectiveness for the three months ended May 31, 2010, and May 31, 2009,
respectively, and a gain of less than $1 million and $4 million from ineffectiveness for the
nine months ended May 31, 2010, and May 31, 2009, respectively. Additionally, the gain or loss
on commodity cash flow hedges includes a loss from discontinued hedges of $29 million for the
nine months ended May 31, 2010. There were no hedges discontinued in the three months ended
May 31, 2010. No gains or losses were excluded from the assessment of hedge effectiveness
during the three or nine months ended May 31, 2010, and May 31, 2009. |
|
(4) |
|
Gain or loss on commodity fair value hedges is offset by a gain of $1 million and
$38 million on the underlying hedged inventory for the three months ended May 31, 2010, and
May 31, 2009, respectively, and a loss of $6 million and a gain of $21 million on the
underlying hedged inventory for the nine months ended May 31, 2010, and May 31, 2009,
respectively. A loss of $3 million and less than $1 million during the three months ended May
31, 2010, and May 31, 2009, and a loss of $2 million and a gain of $5 million during the nine
months ended May 31, 2010, and May 31, 2009, respectively, was included in cost of goods sold
due to ineffectiveness. |
|
(5) |
|
Gain or loss would be reclassified into income only during the period in which the
hedged net investment was sold or liquidated. |
|
(6) |
|
Gain or loss on foreign exchange contracts not designated as hedges is offset by a
foreign currency transaction gain of $4 million and $108 million during the three months ended
May 31, 2010, and May 31, 2009, respectively, and a gain of $9 million and $32 million during
the nine months ended May 31, 2010, and May 31, 2009, respectively. |
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, as are the companys interest rate derivatives. The
aggregate fair value of all derivative instruments under ISDA Master Agreements that are in a
liability position on May 31, 2010, and Aug. 31, 2009, is $35 million and $43 million,
respectively, which is the amount that would be required for settlement if the credit-risk-related
contingent provisions underlying these agreements were triggered.
Credit Risk Management
Monsanto invests its excess cash in deposits with major banks or money market funds throughout the
world in high-quality short-term debt instruments. Such investments are made only in instruments
issued or enhanced by high-quality institutions. As of May 31, 2010, and Aug. 31, 2009, the company
had no financial instruments that represented a significant concentration of credit risk. Limited
amounts are invested in any single institution to minimize risk. The company has not incurred any
credit risk losses related to those investments.
The company sells a broad range of agricultural products to a diverse group of customers throughout
the world. In the United States, the company makes substantial sales to relatively few large
wholesale customers. The companys business is highly seasonal, and it is subject to weather
conditions that affect commodity prices and seed yields. Credit limits, ongoing credit evaluation,
and account monitoring procedures are used to minimize the risk of loss. Collateral is obtained
when it is deemed appropriate by the company.
Monsanto regularly evaluates its business practices to minimize its credit risk. During the nine
months ended May 31, 2010, and Aug. 31, 2009, the company engaged multiple banks primarily in the
United States, Argentina, Brazil and Europe in the development of customer financing programs. For
further information on these programs, see Note 4 Customer Financing Programs.
NOTE 15. 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 retired employees through insurance
24
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
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, 2010 |
|
|
Three Months Ended May 31, 2009 |
|
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 |
|
$ |
13 |
|
|
$ |
2 |
|
|
$ |
15 |
|
|
$ |
12 |
|
|
$ |
2 |
|
|
$ |
14 |
|
Interest Cost on Benefit Obligation |
|
|
23 |
|
|
|
3 |
|
|
|
26 |
|
|
|
26 |
|
|
|
4 |
|
|
|
30 |
|
Assumed Return on Plan Assets |
|
|
(30 |
) |
|
|
(4 |
) |
|
|
(34 |
) |
|
|
(29 |
) |
|
|
(5 |
) |
|
|
(34 |
) |
Amortization of Unrecognized Net Loss |
|
|
13 |
|
|
|
1 |
|
|
|
14 |
|
|
|
9 |
|
|
|
1 |
|
|
|
10 |
|
|
|
|
Total Net Periodic Benefit Cost |
|
$ |
19 |
|
|
$ |
2 |
|
|
$ |
21 |
|
|
$ |
18 |
|
|
$ |
2 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended May 31, 2010 |
|
|
Nine Months Ended May 31, 2009 |
|
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 |
|
$ |
38 |
|
|
$ |
5 |
|
|
$ |
43 |
|
|
$ |
36 |
|
|
$ |
5 |
|
|
$ |
41 |
|
Interest Cost on Benefit Obligation |
|
|
70 |
|
|
|
11 |
|
|
|
81 |
|
|
|
79 |
|
|
|
12 |
|
|
|
91 |
|
Assumed Return on Plan Assets |
|
|
(91 |
) |
|
|
(12 |
) |
|
|
(103 |
) |
|
|
(87 |
) |
|
|
(14 |
) |
|
|
(101 |
) |
Amortization of Unrecognized Net Loss |
|
|
40 |
|
|
|
3 |
|
|
|
43 |
|
|
|
28 |
|
|
|
3 |
|
|
|
31 |
|
Curtailment and Settlement Charge (Gain) |
|
|
2 |
|
|
|
(7 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Periodic Benefit Cost |
|
$ |
59 |
|
|
$ |
|
|
|
$ |
59 |
|
|
$ |
56 |
|
|
$ |
6 |
|
|
$ |
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Care and Other Postretirement Benefits |
|
Three Months Ended May 31, |
|
|
Nine Months Ended May 31, |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
Service Cost for Benefits Earned During the Period |
|
$ |
2 |
|
|
$ |
3 |
|
|
$ |
7 |
|
|
$ |
9 |
|
Interest Cost on Benefit Obligation |
|
|
3 |
|
|
|
4 |
|
|
|
9 |
|
|
|
13 |
|
Amortization of Unrecognized Net Gain |
|
|
(2 |
) |
|
|
(3 |
) |
|
|
(8 |
) |
|
|
(11 |
) |
|
|
|
Total Net Periodic Benefit Cost |
|
$ |
3 |
|
|
$ |
4 |
|
|
$ |
8 |
|
|
$ |
11 |
|
|
|
|
Monsanto contributed $75 million and $45 million to its U.S. qualified plan and $20 million
and $6 million to plans outside the United States in each of the nine month periods ended May 31,
2010, and May 31, 2009, respectively. As of May 31, 2010, management does not expect to make
additional contributions to the companys U.S. qualified plan in fiscal 2010. Pension plan funding
regulations include conditions that allow a plans credit balance created as a result of prior
years contributions in excess of the required minimum to be used to satisfy current year
contributions. Discretionary contributions made by the company previously have created a credit
balance and the company expects to use a portion of it in lieu of making additional fiscal year
2010 contributions. As of May 31, 2010, management expects to make additional contributions of
approximately $2 million to the companys pension plans outside the United States in fiscal year
2010.
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. A liability of $54 million and $52
million is due to
the Monsanto ESOP from the company and is included in other liabilities on the Condensed Statements
of Financial Position as of May 31, 2010, and Aug. 31, 2009, respectively, related to this
restructuring and the 2004 ESOP enhancement.
25
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 16. 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, 2010, and May 31, 2009.
Stock-based compensation cost capitalized in inventory was $8 million and $7 million as of May 31,
2010, and Aug. 31, 2009, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
Nine Months Ended May 31, |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
Cost of Goods Sold |
|
$ |
3 |
|
|
$ |
7 |
|
|
$ |
11 |
|
|
$ |
15 |
|
Selling, General and Administrative Expenses |
|
|
12 |
|
|
|
18 |
|
|
|
44 |
|
|
|
53 |
|
Research and Development Expenses |
|
|
5 |
|
|
|
6 |
|
|
|
17 |
|
|
|
18 |
|
|
|
|
Pre-Tax Stock-Based Compensation Expense |
|
|
20 |
|
|
|
31 |
|
|
|
72 |
|
|
|
86 |
|
Income Tax Benefit |
|
|
(7 |
) |
|
|
(11 |
) |
|
|
(25 |
) |
|
|
(30 |
) |
|
|
|
Net Stock-Based Compensation Expense |
|
$ |
13 |
|
|
$ |
20 |
|
|
$ |
47 |
|
|
$ |
56 |
|
|
|
|
During the nine months ended May 31, 2010, Monsanto granted 3,324,820 stock options and
491,675 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). No
restricted stock awards were granted under the LTIP or the 2005 LTIP during the nine months ended
May 31, 2010. In addition, during the nine months ended May 31, 2010, 17,970 shares of deferred
stock and 1,190 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, 2010, was $24.05 per share. Pre-tax unrecognized compensation expense for
stock options, net of estimated forfeitures, was $89 million as of May 31, 2010, and will be
recognized as expense over a weighted-average period of 2.0 years.
The weighted-average grant-date fair value of restricted stock units granted during the nine months
ended May 31, 2010, was $72.34 per share. Pre-tax unrecognized compensation expense, net of
estimated forfeitures, for nonvested restricted stock and restricted stock units was less than $1
million and $64 million, respectively, as of May 31, 2010, 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 1.4 years and 2.4
years, respectively, as of May 31, 2010. The weighted-average grant-date fair value of directors
deferred stock and directors restricted stock granted during the nine months ended May 31, 2010,
was $81.94 per share. Pre-tax unrecognized compensation expense for awards granted under the
Director Plan was less than $1 million as of May 31, 2010, and will be recognized as expense over a
weighted-average period of three months.
NOTE 17. 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) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
Comprehensive Income |
|
$ |
220 |
|
|
$ |
1,144 |
|
|
$ |
1,160 |
|
|
$ |
1,834 |
|
|
|
|
26
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
The components of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, |
|
As of Aug. 31, |
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
|
|
Accumulated Foreign Currency Translation Adjustments |
|
$ |
(342 |
) |
|
$ |
(141 |
) |
Net Unrealized Loss on Investments, Net of Tax |
|
|
(7 |
) |
|
|
(6 |
) |
Net Accumulated Derivative Loss, Net of Tax |
|
|
(37 |
) |
|
|
(101 |
) |
Postretirement Benefit Plan Activity, Net of Tax |
|
|
(465 |
) |
|
|
(496 |
) |
|
|
|
Accumulated Other Comprehensive Loss |
|
$ |
(851 |
) |
|
$ |
(744 |
) |
|
|
|
NOTE 18. 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, 2010, and May 31, 2009, 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, restricted stock, restricted stock units and directors deferred shares calculated
using the treasury stock method and are excluded if their effect is antidilutive. Approximately 8
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, 2010. 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. Of those antidilutive options,
approximately 8 million stock options were excluded from the computations of dilutive potential
common shares for the three months ended May 31, 2010, as their exercise prices were greater than
the average market price of common shares for the period. For the nine months ended May 31, 2010,
and the three and nine months ended May 31, 2009, approximately 5 million stock options were
excluded as their exercise prices were greater than the average market price of common shares for
the period.
Effective Sept. 1, 2009, the company retrospectively adopted a FASB-issued standard that 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 the Earnings Per Share topic of the ASC. The adoption of this standard increased the
weighted average number of basic and diluted shares by 0.7 million and 0.2 million, respectively,
for the three months ended May 31, 2009, and by 0.6 million and 0.2 million, respectively, for the
nine months ended May 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
Nine Months Ended May 31, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
Weighted-Average Number of Common Shares |
|
|
543.2 |
|
|
|
546.4 |
|
|
|
544.7 |
|
|
|
547.5 |
|
Dilutive Potential Common Shares |
|
|
6.7 |
|
|
|
8.2 |
|
|
|
7.4 |
|
|
|
8.4 |
|
|
|
|
NOTE 19. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended May 31, |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
Interest |
|
$ |
106 |
|
|
$ |
82 |
|
Taxes |
|
|
436 |
|
|
|
458 |
|
|
27
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
In third quarter 2010, Monsanto acquired the Chesterfield Village Research Center from Pfizer
for $435 million. The seller financed $324 million of this purchase. As of May 31, 2010, $188
million is included within short-term debt and $136 million is included within long-term debt on
the Condensed Statements of Consolidated Financial Position.
NOTE 20. 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. With respect to certain of these proceedings,
Monsanto has a liability recorded of $288 million and $262 million as of May 31, 2010, and Aug. 31,
2009, 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, 2009.
Litigation: The above liability 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. Additional matters that are not reflected in the
liability may arise in the future, and Monsanto may manage, settle, or pay judgments or damages
with respect thereto in order to mitigate contesting potential liability. 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, 2009, and
Monsantos Report on Form 10-Q for the quarterly periods ended Nov. 30, 2009, and Feb. 28,
2010, 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. Monsanto is named as the successor in interest
to the liabilities of Pharmacia. 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 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. The class action
certification hearing was held on Oct. 29, 2007. On Jan. 8, 2008, the trial court issued an
order certifying the Allen (now Zina G. Bibb et al. v. Monsanto et al., because Bibb replaced
Allen as class representative) case as a class action. The court has set a trial date of April
4, 2011, for the Bibb class action. |
|
|
|
In October 2007 and November 2009, a total of approximately 200 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. These cases allege personal injury occasioned by exposure to dioxin
generated by the Nitro Plant during production of 2,4,5 T (1949-1969) and thereafter. Monsanto
has agreed to accept the tenders of defense in the matters by Pharmacia, Solutia, Akzo Nobel,
Flexsys America, and Apogee Coal under a reservation of rights. |
Including litigation reflected in the 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
28
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
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, 2009, and
Monsantos Report on Form 10-Q for the quarterly periods ended Nov. 30, 2009, and Feb. 28,
2010, 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. The court conducted a class certification hearing on
Sept. 12, 2007. Prior to the hearing, all parties 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 dispositive motions on the
issue of liability, which motions were heard by the court on May 6, 2009. On June 11, 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, which was subsequently settled for an
immaterial amount. The Court entered judgment on the entire case on Sept. 29, 2009. On Oct.
27, 2009, the plaintiffs filed a notice of appeal of the summary judgment order on the age
discrimination claims. The Seventh Circuit Court of Appeals heard oral argument in the case on
April 20, 2010; a decision is expected by the fall of 2010. |
Guarantees: Disclosures 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, 2009. Disclosures regarding these guarantees
made by Monsanto can be found in Note 25 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, 2009.
NOTE 21. 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 wheat
and sugarcane businesses acquired in fourth and second quarter 2009, respectively, are 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
allocated between segments based on activity. Based on the Agricultural Productivity segments
29
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
decreasing contribution to total Monsanto operations, the allocation percentages were changed at
the beginning of fiscal year 2010.
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) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
Net Sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn seed and traits |
|
$ |
1,020 |
|
|
$ |
1,020 |
|
|
$ |
3,836 |
|
|
$ |
3,726 |
|
Soybean seed and traits |
|
|
549 |
|
|
|
540 |
|
|
|
1,383 |
|
|
|
1,367 |
|
Cotton seed and traits |
|
|
420 |
|
|
|
333 |
|
|
|
513 |
|
|
|
413 |
|
Vegetable seeds |
|
|
204 |
|
|
|
206 |
|
|
|
600 |
|
|
|
572 |
|
All other crops seeds and traits |
|
|
169 |
|
|
|
149 |
|
|
|
309 |
|
|
|
311 |
|
|
|
|
Total seeds and genomics |
|
$ |
2,362 |
|
|
$ |
2,248 |
|
|
$ |
6,641 |
|
|
$ |
6,389 |
|
|
|
|
ROUNDUP and other glyphosate-based
herbicides |
|
$ |
269 |
|
|
$ |
614 |
|
|
$ |
1,243 |
|
|
$ |
2,749 |
|
All other agricultural products |
|
|
331 |
|
|
|
299 |
|
|
|
665 |
|
|
|
707 |
|
|
|
|
Total agricultural productivity |
|
$ |
600 |
|
|
$ |
913 |
|
|
$ |
1,908 |
|
|
$ |
3,456 |
|
|
|
|
Total |
|
$ |
2,962 |
|
|
$ |
3,161 |
|
|
$ |
8,549 |
|
|
$ |
9,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT(2)(3)(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seeds and genomics |
|
$ |
704 |
|
|
$ |
804 |
|
|
$ |
2,009 |
|
|
$ |
2,081 |
|
Agricultural productivity |
|
|
(175 |
) |
|
|
211 |
|
|
|
(228 |
) |
|
|
1,210 |
|
|
|
|
Total |
|
$ |
529 |
|
|
$ |
1,015 |
|
|
$ |
1,781 |
|
|
$ |
3,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seeds and genomics |
|
$ |
113 |
|
|
$ |
108 |
|
|
$ |
338 |
|
|
$ |
316 |
|
Agricultural productivity |
|
|
39 |
|
|
|
26 |
|
|
|
108 |
|
|
|
88 |
|
|
|
|
Total |
|
$ |
152 |
|
|
$ |
134 |
|
|
$ |
446 |
|
|
$ |
404 |
|
|
|
|
|
|
|
(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 income from discontinued operations of $5
million and $19 million for the nine months ended May 31, 2010, and May 31, 2009,
respectively. |
|
(4) |
|
EBIT includes restructuring charges for three and nine months ended May 31, 2010.
See Note 5 Restructuring for additional information. |
A reconciliation of EBIT to net income for each period follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
Nine Months Ended May 31, |
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
EBIT(1) |
|
$ |
529 |
|
|
$ |
1,015 |
|
|
$ |
1,781 |
|
|
$ |
3,291 |
|
Interest Expense Net |
|
|
17 |
|
|
|
18 |
|
|
|
72 |
|
|
|
24 |
|
Income Tax Provision(2) |
|
|
128 |
|
|
|
303 |
|
|
|
457 |
|
|
|
925 |
|
|
|
|
Net Income Attributable to
Monsanto Company |
|
$ |
384 |
|
|
$ |
694 |
|
|
$ |
1,252 |
|
|
$ |
2,342 |
|
|
|
|
|
|
|
(1) |
|
Includes the income from operations of discontinued businesses and pre-tax
noncontrolling interest. |
|
(2) |
|
Includes the income tax provision from continuing operations,
the income tax benefit on noncontrolling interest and the income tax
(benefit) provision on discontinued operations. |
30
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
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, 2010, income from
operations of discontinued businesses included a $5 million pre-tax gain related to the sale of
assets. 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
On June 9, 2010, the board of directors declared a quarterly dividend on its common shares of 26.5
cents per share. The dividend is payable on July 30, 2010, to shareholders of record on July 9,
2010.
31
|
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|
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|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 statements have been prepared
in compliance with the provisions of the Property, Plant and Equipment topic of the Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC). 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, 2009. Financial information for the first nine months of
fiscal year 2010 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 21 Segment Information for a reconciliation of EBIT
to net income for the three and nine months ended May 31, 2010, and May 31, 2009.
32
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 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 (required) 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 $199 million, or six percent, in the
three-month comparison and $1,296 million, or 13 percent, in the nine-month comparison. This
decline was primarily a result of decreased sales of ROUNDUP and other glyphosate-based herbicides
in the United States and Europe. Net income in the first nine months of 2010 was $2.27 per share,
compared with $4.21 per share in the prior-year comparable period.
Financial Condition, Liquidity, and Capital Resources In the first nine months of 2010, net cash
required by operating activities was $538 million, compared with a source of cash of $443 million
in the prior-year period. Net cash required by investing activities was $614 million in the first
nine months of 2010 compared with $588 million in the first nine months of 2009. Free cash flow was
a use of $1,152 million for the nine months ended May 31, 2010, compared with a use of $145 million
for the nine months ended May 31, 2009. This decrease is primarily because of lower glyphosate
sales reducing net income in 2010 compared to 2009.
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 even more choices of seed offerings through second-generation traits that
deliver 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 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 this business and executing our business plans.
ROUNDUP herbicides remain the largest crop protection brand globally. Previous periods had seen
increasing global demand and higher raw material costs 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 a decline in the business due
to our previously announced price reduction. We are focused on managing the costs associated with
our agricultural chemistry business as that sector matures globally.
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, 2009.
33
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
Nine Months Ended May 31, |
(Dollars in millions, except per share amounts) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
|
Net Sales |
|
$ |
2,962 |
|
|
$ |
3,161 |
|
|
|
(6 |
)% |
|
$ |
8,549 |
|
|
$ |
9,845 |
|
|
|
(13 |
)% |
Gross Profit |
|
|
1,387 |
|
|
|
1,834 |
|
|
|
(24 |
)% |
|
|
4,225 |
|
|
|
5,905 |
|
|
|
(28 |
)% |
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
492 |
|
|
|
504 |
|
|
|
(2 |
)% |
|
|
1,500 |
|
|
|
1,576 |
|
|
|
(5 |
)% |
Research and development expenses |
|
|
302 |
|
|
|
295 |
|
|
|
2 |
% |
|
|
848 |
|
|
|
812 |
|
|
|
4 |
% |
Acquired in-process research and development |
|
|
|
|
|
|
|
|
|
NM | |
|
|
|
|
|
|
162 |
|
|
|
(100 |
)% |
Restructuring charges, net |
|
|
34 |
|
|
|
|
|
|
NM | |
|
|
78 |
|
|
|
|
|
|
NM | |
|
|
|
Total Operating Expenses |
|
|
828 |
|
|
|
799 |
|
|
|
4 |
% |
|
|
2,426 |
|
|
|
2,550 |
|
|
|
(5 |
)% |
|
|
|
Income from Operations |
|
|
559 |
|
|
|
1,035 |
|
|
|
(46 |
)% |
|
|
1,799 |
|
|
|
3,355 |
|
|
|
(46 |
)% |
Interest expense |
|
|
35 |
|
|
|
32 |
|
|
|
9 |
% |
|
|
115 |
|
|
|
81 |
|
|
|
42 |
% |
Interest income |
|
|
(18 |
) |
|
|
(14 |
) |
|
|
29 |
% |
|
|
(43 |
) |
|
|
(57 |
) |
|
|
(25 |
)% |
Other expense (income) net |
|
|
7 |
|
|
|
4 |
|
|
|
75 |
% |
|
|
(3 |
) |
|
|
62 |
|
|
|
(105 |
)% |
|
|
|
Income from Continuing Operations Before Income Taxes |
|
|
535 |
|
|
|
1,013 |
|
|
|
(47 |
)% |
|
|
1,730 |
|
|
|
3,269 |
|
|
|
(47 |
)% |
Income tax provision |
|
|
138 |
|
|
|
308 |
|
|
|
(55 |
)% |
|
|
468 |
|
|
|
924 |
|
|
|
(49 |
)% |
|
|
|
Income from Continuing Operations Including Portion
Attributable to Noncontrolling Interest |
|
|
397 |
|
|
|
705 |
|
|
|
(44 |
)% |
|
|
1,262 |
|
|
|
2,345 |
|
|
|
(46 |
)% |
|
|
|
Discontinued Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of discontinued businesses |
|
|
|
|
|
|
|
|
|
NM | |
|
|
5 |
|
|
|
19 |
|
|
|
(74 |
)% |
Income tax provision |
|
|
|
|
|
|
|
|
|
NM | |
|
|
|
|
|
|
8 |
|
|
|
(100 |
)% |
|
|
|
Income on Discontinued Operations |
|
|
|
|
|
|
|
|
|
NM | |
|
|
5 |
|
|
|
11 |
|
|
|
(55 |
)% |
|
|
|
Net Income |
|
$ |
397 |
|
|
$ |
705 |
|
|
|
(44 |
)% |
|
$ |
1,267 |
|
|
$ |
2,356 |
|
|
|
(46 |
)% |
|
|
|
Less: Net income attributable to noncontrolling interest |
|
|
13 |
|
|
|
11 |
|
|
|
18 |
% |
|
|
15 |
|
|
|
14 |
|
|
|
7 |
% |
|
|
|
Net Income Attributable to Monsanto Company |
|
$ |
384 |
|
|
$ |
694 |
|
|
|
(45 |
)% |
|
$ |
1,252 |
|
|
$ |
2,342 |
|
|
|
(47 |
)% |
|
|
|
Diluted Earnings per Share Attributable to Monsanto Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.70 |
|
|
$ |
1.25 |
|
|
|
(44 |
)% |
|
$ |
2.26 |
|
|
$ |
4.19 |
|
|
|
(46 |
)% |
Income on discontinued operations |
|
|
|
|
|
|
|
|
|
NM | |
|
|
0.01 |
|
|
|
0.02 |
|
|
|
(50 |
)% |
|
|
|
Net Income |
|
$ |
0.70 |
|
|
$ |
1.25 |
|
|
|
(44 |
)% |
|
$ |
2.27 |
|
|
$ |
4.21 |
|
|
|
(46 |
)% |
|
|
|
NM = Not Meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate |
|
|
26 |
% |
|
|
30 |
% |
|
|
|
|
|
|
27 |
% |
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison as a Percent of Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
47 |
% |
|
|
58 |
% |
|
|
|
|
|
|
49 |
% |
|
|
60 |
% |
|
|
|
|
Selling, general and administrative expenses |
|
|
17 |
% |
|
|
16 |
% |
|
|
|
|
|
|
18 |
% |
|
|
16 |
% |
|
|
|
|
Research and development expenses (excluding acquired
IPR&D) |
|
|
10 |
% |
|
|
9 |
% |
|
|
|
|
|
|
10 |
% |
|
|
8 |
% |
|
|
|
|
Total operating expenses |
|
|
28 |
% |
|
|
25 |
% |
|
|
|
|
|
|
28 |
% |
|
|
26 |
% |
|
|
|
|
Income from continuing operations before income taxes |
|
|
18 |
% |
|
|
32 |
% |
|
|
|
|
|
|
20 |
% |
|
|
33 |
% |
|
|
|
|
Net income attributable to Monsanto Company |
|
|
13 |
% |
|
|
22 |
% |
|
|
|
|
|
|
15 |
% |
|
|
24 |
% |
|
|
|
|
Third Quarter Fiscal Year 2010
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 six percent in third quarter 2010 from the same quarter a year ago.
Our Seeds and Genomics segment net sales increased five percent, and our Agricultural Productivity
segment net sales declined 34 percent. The following table
34
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
presents the percentage changes in third quarter 2010 worldwide net sales by segment compared
with net sales in the prior-year quarter, including the effect volume, price, currency and
acquisitions had on these percentage changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2010 Percentage Change in Net Sales vs. Third Quarter 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of |
|
|
|
|
|
|
Volume |
|
|
Price |
|
|
Currency |
|
|
Subtotal |
|
|
Acquisitions(1) |
|
|
Net Change |
|
|
|
|
Seeds and Genomics Segment |
|
|
(7 |
)% |
|
|
10 |
% |
|
|
2 |
% |
|
|
5 |
% |
|
|
|
|
|
|
5 |
% |
Agricultural Productivity Segment |
|
|
60 |
% |
|
|
(100 |
)% |
|
|
6 |
% |
|
|
(34 |
)% |
|
|
|
|
|
|
(34 |
)% |
Total Monsanto Company |
|
|
12 |
% |
|
|
(21 |
)% |
|
|
3 |
% |
|
|
(6 |
)% |
|
|
|
|
|
|
(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 2010 and 2009.
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 24 percent in the three-month comparison. Gross profit as a
percent of net sales (gross profit percentage) for the total company decreased 11 percentage points
to 47 percent in third quarter 2010 primarily driven by the decrease in ROUNDUP herbicides average
net selling prices. Gross profit percentage in the Seed and Genomics Segment decreased three
percentage points to 60 percent in third quarter 2010. This decline was primarily driven by higher
manufacturing costs for corn and soybeans and seed restructuring. See the Seeds and Genomics
Segment section of MD&A for further details. Gross profit percentage for the Agricultural
Productivity segment decreased 48 percentage points to a loss of three percent in third quarter
2010. This decline was due to lower average selling prices for ROUNDUP and other glyphosate-based
herbicides. See the Agricultural Productivity Segment section of MD&A for further details
regarding the Agricultural Productivity gross profit.
Operating expenses increased four percent, or $29 million, in third quarter 2010 from the
prior-year comparable quarter. In the three-month comparison, selling, general and administrative
(SG&A) expenses decreased two percent primarily because of lower spending for administrative
functions and incentives as well as savings from restructuring actions. R&D expenses increased two
percent related to the increase in activity of our expanded product pipeline. Restructuring charges
were $34 million due to the 2009 Restructuring Plan. As a percent of net sales, SG&A and R&D
expenses increased one percentage point to 17 percent and 10 percent, respectively.
Interest expense increased $3 million in the three-month comparison as a result of increased
customer financing activity during third quarter 2010 compared to the prior-year third quarter.
Interest income increased $4 million in the quarter-over-quarter comparison because of the interest
income related to a U.S. income tax refund partially offset by lower average cash balances in the
United States and lower interest rates in third quarter 2010.
Income tax provision was $138 million in third quarter 2010, a decrease of $170 million
over the prior-year quarter primarily as a result of the decrease in pretax income from continuing
operations. The effective tax rate decreased to 26 percent from 30 percent in third quarter
2009. Third quarter 2010 included several discrete tax adjustments resulting in a tax
benefit of $31 million. The majority of this benefit resulted from favorable adjustments from the
filing of tax returns in several jurisdictions. These benefits were partially offset by a tax
charge of $8 million as a result of the elimination of the tax benefit associated with the Medicare
Part D subsidy as a result of President Obama signing the Patient Protection and Affordable Care
Act on March 23, 2010, and the Health Care and Education Act of 2010 signed on March 30, 2010
(collectively the Healthcare Acts). 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 2010 would still have been lower than the 2009 rate, primarily driven by a shift in our
projected earnings mix to lower tax rate jurisdictions.
35
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
First Nine Months of Fiscal Year 2010
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 2010 and 2009
income from continuing operations:
Net sales decreased 13 percent in first nine months of 2010 from the same period a year
ago. Our Seeds and Genomics segment net sales increased four percent, and our Agricultural
Productivity segment net sales declined 45 percent. The following table presents the percentage
changes in first nine months of 2010 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months of 2010 Percentage Change in Net Sales vs. First Nine Months of 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of |
|
|
|
|
|
|
Volume |
|
|
Price |
|
|
Currency |
|
|
Subtotal |
|
|
Acquisitions(1) |
|
|
Net Change |
|
|
|
|
Seeds and Genomics Segment |
|
|
(3) |
% |
|
|
5 |
% |
|
|
2 |
% |
|
|
4 |
% |
|
|
|
|
|
|
4 |
% |
Agricultural Productivity
Segment |
|
|
13 |
% |
|
|
(60) |
% |
|
|
2 |
% |
|
|
(45) |
% |
|
|
|
|
|
|
(45) |
% |
Total Monsanto Company |
|
|
3 |
% |
|
|
(18) |
% |
|
|
2 |
% |
|
|
(13) |
% |
|
|
|
|
|
|
(13) |
% |
|
|
|
|
(1) |
|
See Note 3 Business Combinations and Financial Condition, Liquidity, and
Capital Resources in MD&A for details of our acquisitions in fiscal years 2010 and 2009.
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 28 percent in the nine-month comparison. Gross profit percentage for the
total company decreased 11 percentage points to 49 percent in the first nine months of 2010 driven
by decreases in average net selling prices of ROUNDUP herbicides. Gross profit percentage in the
Seed and Genomics segment decreased four percentage points to 60 percent in the first nine months
of 2010. This decline was primarily because of higher U.S. hedged commodity prices, manufacturing
costs for corn and soybeans, and seed restructuring. See the Seeds and Genomics Segment section
of MD&A for further details. Gross profit percentage for the Agricultural Productivity segment
decreased 42 percentage points to 11 percent in the first nine months of 2010 because of lower
average selling prices for ROUNDUP and other glyphosate-based herbicides. See the Agricultural
Productivity Segment section of MD&A for the further information regarding the Agricultural
Productivity gross profit.
Operating expenses decreased 5 percent, or $124 million, in the first nine months of 2010 from the
prior-year comparable period. In the nine-month comparison, SG&A expenses decreased five percent
primarily because of lower spending for marketing, administrative functions and incentives and
savings from restructuring actions, and R&D expenses increased four percent related to the increase
in activity of our expanded product pipeline. As a percent of net sales, SG&A expenses increased
two percentage points to 18 percent, and R&D expenses increased two percentage points to 10 percent
in the nine-month comparison.
Interest expense increased $34 million in the nine-month comparison because of the increased
customer financing activity and programs during the first nine months of 2010 compared to the first
nine months of 2009.
Interest income decreased $14 million in the nine-month comparison because of less interest earned
on lower average cash balances in the United States and Brazil in the first nine months of 2010.
Other (income) expense net was a gain of $3 million in the first nine months of 2010, compared
with a loss of $62 million in the prior-year comparable period. The change occurred due to the gain
recorded on the Seminium acquisition as well as a decline in foreign currency losses in the first
nine months of 2010.
36
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
Income tax provision was $468 million in the first nine months of 2010, a decrease of
$456 million from the prior-year comparable period primarily as a result of the decrease in pretax
income from continuing operations. The effective tax rate decreased to 27 percent from 28 percent
in the prior period.
|
|
|
The first nine months of 2010 included several discrete tax adjustments resulting in a
tax benefit of $63 million. The majority of this benefit resulted from favorable
adjustments from the filing of tax returns in several jurisdictions. In addition, statutes
expired in several jurisdictions and several domestic and ex-U.S. tax matters were resolved
favorably. These benefits were partially offset by a tax charge of $8 million as a result
of the elimination of the tax benefit associated with the Medicare Part D subsidy as a
result of the Healthcare Acts signed by President Obama in March 2010. |
|
|
|
|
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. |
Without these items, our effective tax rate for the first nine months of 2010 would still have been
lower than the 2009 rate, primarily driven by a shift in our projected earnings mix to lower tax
rate jurisdictions.
SEEDS AND GENOMICS SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
Nine Months Ended May 31, |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn seed and traits |
|
$ |
1,020 |
|
|
$ |
1,020 |
|
|
NM |
|
|
$ |
3,836 |
|
|
$ |
3,726 |
|
|
|
3 |
% |
Soybean seed and traits |
|
|
549 |
|
|
|
540 |
|
|
|
2 |
% |
|
|
1,383 |
|
|
|
1,367 |
|
|
|
1 |
% |
Cotton seed and traits |
|
|
420 |
|
|
|
333 |
|
|
|
26 |
% |
|
|
513 |
|
|
|
413 |
|
|
|
24 |
% |
Vegetable seeds |
|
|
204 |
|
|
|
206 |
|
|
|
(1) |
% |
|
|
600 |
|
|
|
572 |
|
|
|
5 |
% |
All other crops seeds and traits |
|
|
169 |
|
|
|
149 |
|
|
|
13 |
% |
|
|
309 |
|
|
|
311 |
|
|
|
(1) |
% |
|
|
|
Total Net Sales |
|
$ |
2,362 |
|
|
$ |
2,248 |
|
|
|
5 |
% |
|
$ |
6,641 |
|
|
$ |
6,389 |
|
|
|
4 |
% |
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn seed and traits |
|
$ |
570 |
|
|
$ |
630 |
|
|
|
(10) |
% |
|
$ |
2,294 |
|
|
$ |
2,445 |
|
|
|
(6) |
% |
Soybean seed and traits |
|
|
292 |
|
|
|
338 |
|
|
|
(14) |
% |
|
|
817 |
|
|
|
856 |
|
|
|
(5) |
% |
Cotton seed and traits |
|
|
328 |
|
|
|
249 |
|
|
|
32 |
% |
|
|
376 |
|
|
|
296 |
|
|
|
27 |
% |
Vegetable seeds |
|
|
112 |
|
|
|
113 |
|
|
|
(1) |
% |
|
|
362 |
|
|
|
308 |
|
|
|
18 |
% |
All other crops seeds and traits |
|
|
104 |
|
|
|
97 |
|
|
|
7 |
% |
|
|
166 |
|
|
|
177 |
|
|
|
(6) |
% |
|
|
|
Total Gross Profit |
|
$ |
1,406 |
|
|
$ |
1,427 |
|
|
|
(1) |
% |
|
$ |
4,015 |
|
|
$ |
4,082 |
|
|
|
(2) |
% |
|
|
|
EBIT(1) |
|
$ |
704 |
|
|
$ |
804 |
|
|
|
(12) |
% |
|
$ |
2,009 |
|
|
$ |
2,081 |
|
|
|
(3) |
% |
|
|
|
|
|
|
|
|
NM = Not Meaningful |
|
(1) |
|
EBIT is defined as earnings (loss) 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 21 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 2010
Net sales of corn seed and traits remained flat in the three-month comparison.
Net sales of cotton seed and traits increased 26 percent or $87 million in the three month
comparison primarily in the United States and India due to an increase in planted acres.
In third quarter 2010, gross profit declined $21 million to $1,406 million. Gross profit as a
percent of sales for this segment decreased three percentage points in the quarter-over-quarter
comparison to 60 percent. This decline was primarily driven by higher manufacturing costs for corn
and soybeans. In addition, we recorded inventory impairments of $39 million related to discontinued
seed products worldwide in the three months ended May 31, 2010, as part of our 2009 Restructuring
Plan. See Note 5 Restructuring for further information.
37
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
EBIT for the Seeds and Genomics segment decreased $100 million to $704 million in third quarter
2010 primarily because of restructuring charges due to the 2009 Restructuring Plan and increased
R&D expense as projects have advanced to later stages in the development cycle.
Seeds and Genomics Financial Performance First Nine Months of Fiscal Year 2010
Net sales
of corn seed and traits increased three percent, or $110 million, in the nine-month
comparison, primarily because of higher sales in the United States due to an increase in the
average net selling price. Offsetting this increase, net sales of corn seed and traits decreased in
Mexico primarily due to earlier demand in the selling season.
Net sales of cotton seed and traits increased 24 percent, or $100 million, in the nine-month
comparison, primarily because of higher sales in the United States and India due to an increase in
planted acres.
All other
crops seeds and traits net sales decreased one percent, or $2 million, in the first nine
months of 2010 primarily because of the divestiture of our global sunflower assets in August 2009.
Gross profit decreased $67 million in the first nine months of 2010. Gross profit as a percent of
sales for this segment decreased four percentage points in the period-over-period comparison to 60
percent. This decline was primarily because of higher U.S. hedged commodity prices and
manufacturing costs for corn and soybeans. In addition, we recorded inventory impairments of $93
million related to discontinued seed products worldwide in the nine months ended May 31, 2010, as
part of our 2009 Restructuring Plan. See Note 5 Restructuring for further information.
EBIT for the Seeds and Genomics segment decreased $72 million to $2,009 million in the first nine
months of 2010.
AGRICULTURAL PRODUCTIVITY SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, |
|
|
Nine Months Ended May 31, |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROUNDUP and other glyphosate-based herbicides |
|
$ |
269 |
|
|
$ |
614 |
|
|
|
(56) |
% |
|
$ |
1,243 |
|
|
$ |
2,749 |
|
|
|
(55) |
% |
All other agricultural productivity products |
|
|
331 |
|
|
|
299 |
|
|
|
11 |
% |
|
|
665 |
|
|
|
707 |
|
|
|
(6) |
% |
|
|
|
Total Net Sales |
|
$ |
600 |
|
|
$ |
913 |
|
|
|
(34) |
% |
|
$ |
1,908 |
|
|
$ |
3,456 |
|
|
|
(45) |
% |
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROUNDUP and other glyphosate-based herbicides |
|
$ |
(189 |
) |
|
$ |
273 |
|
|
|
(169) |
% |
|
$ |
(103 |
) |
|
$ |
1,514 |
|
|
|
(107) |
% |
All other agricultural productivity products |
|
|
170 |
|
|
|
134 |
|
|
|
27 |
% |
|
|
313 |
|
|
|
309 |
|
|
|
1 |
% |
|
|
|
Total Gross Profit |
|
$ |
(19 |
) |
|
$ |
407 |
|
|
|
(105) |
% |
|
$ |
210 |
|
|
$ |
1,823 |
|
|
|
(88) |
% |
|
|
|
EBIT(1) |
|
$ |
(175 |
) |
|
$ |
211 |
|
|
|
(183) |
% |
|
$ |
(228 |
) |
|
$ |
1,210 |
|
|
|
(119) |
% |
|
|
|
|
|
|
(1) |
|
EBIT is defined as earnings (loss) 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 21 Segment Information and the Overview Non-GAAP Financial Measures section of
MD&A for further details. |
Agricultural Productivity Financial Performance Third Quarter Fiscal Year 2010
Net sales of ROUNDUP and other glyphosate-based herbicides decreased 56 percent, or $345 million,
in the three-month comparison, primarily in the United States, Canada and Europe. The average net
selling price decreased in all regions in third quarter 2010 compared to third quarter 2009 due to
a previously announced price decrease on our products and increased marketing programs over the
prior year period. Partially offsetting this decline is an increase in sales volumes of ROUNDUP and
other glyphosate-based herbicides of 76 percent in third quarter 2010 from third quarter 2009,
primarily in Brazil, Canada and the United States.
The net sales decreases discussed throughout this section resulted in $426 million lower gross
profit in third quarter 2010. Gross profit as a percent of sales for the Agricultural Productivity
segment decreased 48 percentage points to a negative three percent in third quarter 2010 because of
lower average selling prices for ROUNDUP and other glyphosate-based herbicides.
38
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
EBIT for the Agricultural Productivity segment decreased $386 million to a loss of $175 million in
third quarter 2010 due to lower net selling prices.
Agricultural Productivity Financial Performance First Nine Months of Fiscal Year 2010
Net sales of ROUNDUP and other glyphosate-based herbicides decreased 55 percent, or $1,506 million,
in the nine-month comparison, especially in the United States, Brazil and Europe. The average net
selling price decreased in all regions in the first nine months of 2010 compared to the first nine
months of 2009 due to a previously announced price decrease on our products and increased marketing
programs over the prior year period. Offsetting this decline is an increase in sales volumes of
ROUNDUP and other glyphosate-based herbicides of 22 percent in the period-over-period comparison,
primarily in Argentina, Mexico and the United States.
The net sales decreases discussed throughout this section resulted in $1,613 million lower gross
profit in the first nine months of 2010. Gross profit as a percent of sales for the Agricultural
Productivity segment decreased 42 percentage points to 11 percent in the period-over-period
comparison because of lower average selling prices for ROUNDUP and other glyphosate-based
herbicides. EBIT for the Agricultural Productivity segment decreased $1,438 million to a loss of
$228 million in the first nine months of 2010 due to lower net selling prices partially offset by
savings in SG&A.
Restructuring charges were recorded in the Statements of Consolidated Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
(Dollars in millions) |
|
May 31, 2010 |
|
|
May 31, 2010 |
|
|
|
|
Costs of Goods Sold(1) |
|
$ |
(52 |
) |
|
$ |
(106 |
) |
Restructuring Charges, Net(1)(2) |
|
|
(34 |
) |
|
|
(78 |
) |
|
|
|
Loss from Continuing Operations Before Income Taxes |
|
|
(86 |
) |
|
|
(184 |
) |
Income Tax Benefit |
|
|
25 |
|
|
|
56 |
|
|
|
|
Net Loss |
|
$ |
(61 |
) |
|
$ |
(128 |
) |
|
|
|
|
|
|
(1) |
|
For the three months ended May 31, 2010, the $52 million of restructuring charges
recorded in costs of goods sold were split by segment as follows: $13 million in Agricultural
Productivity and $39 million in Seeds and Genomics. For the nine months ended May 31, 2010,
the $106 million of restructuring charges recorded in cost of goods sold were split by segment
as follows: $13 million in Agricultural Productivity and $93 million in Seeds and Genomics.
For the three months ended May 31, 2010, the $34 million of restructuring charges recorded in
restructuring charges, net were split by segment as follows: $5 million in Agricultural
Productivity and $29 million in Seeds and Genomics. For the nine months ended May 31, 2010,
the $78 million of restructuring charges were split by segment as follows: $41 million in
Agricultural Productivity and $37 million in Seeds and Genomics. |
|
(2) |
|
The restructuring charges for the three and nine months ended May 31, 2010, include
reversals of $15 million and $26 million, respectively, related to the 2009 Restructuring
Plan. The reversals are primarily related to severance as positions originally included in the
plan were eliminated through attrition. |
On June 23, 2009, our Board of Directors approved a restructuring plan (2009 Restructuring
Plan) to take future actions to reduce costs in light of the changing market supply environment for
glyphosate. We created a separate division for our ROUNDUP and other herbicides business, which is
expected to better align spending and working capital needs. This action is designed to enable
Monsanto to stabilize the ROUNDUP business and allow it to deliver optimal gross profit and a
sustainable level of operating cash in the coming years. We also announced that we will take steps
to better align the resources of our global seeds and traits business. These actions include
certain product and brand rationalization within our seed businesses. On Sept. 9, 2009, we
committed to take additional actions related to the previously announced restructuring plan. The
plan is expected to be completed by the end of the fiscal year, and all payments will be made by
the end of the first quarter in fiscal year 2011.
The total restructuring costs are expected to be in the range of $590 million to $600 million and
will be completed by the end of the first quarter of 2011. The charges are expected to be comprised
of approximately $270 million to $280 million in severance and related benefits, $240 million of
costs related to site closures and product rationalization and $80 million of contract termination
costs. Payments related to the 2009 Restructuring Plan will be generated from cash from operations.
39
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
The following table displays the pretax charges of $86 million and $184 million incurred by
segment under the 2009 Restructuring Plan for the three and nine months ended May 31, 2010,
respectively, as well as the cumulative pretax charges of $590 million under the 2009 Restructuring
Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, 2010 |
|
Nine Months Ended May 31, 2010 |
|
|
Seeds and |
|
|
Agricultural |
|
|
|
|
|
|
Seeds and |
|
|
Agricultural |
|
|
|
|
(Dollars in millions) |
|
Genomics |
|
|
Productivity |
|
|
Total |
|
|
Genomics |
|
|
Productivity |
|
|
Total |
|
|
|
|
Work Force Reductions |
|
$ |
13 |
|
|
$ |
4 |
|
|
$ |
17 |
|
|
$ |
17 |
|
|
$ |
15 |
|
|
$ |
32 |
|
Facility Closures / Exit Costs |
|
|
16 |
|
|
|
1 |
|
|
|
17 |
|
|
|
19 |
|
|
|
26 |
|
|
|
45 |
|
Asset Impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Inventory |
|
|
39 |
|
|
|
13 |
|
|
|
52 |
|
|
|
93 |
|
|
|
13 |
|
|
|
106 |
|
|
|
|
Total Restructuring Charges, Net |
|
$ |
68 |
|
|
$ |
18 |
|
|
$ |
86 |
|
|
$ |
130 |
|
|
$ |
54 |
|
|
$ |
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Amount through May 31, 2010 |
|
|
Seeds and |
|
|
Agricultural |
|
|
|
|
(Dollars in millions) |
|
Genomics |
|
|
Productivity |
|
|
Total |
|
|
Work Force Reductions |
|
$ |
192 |
|
|
$ |
78 |
|
|
$ |
270 |
|
Facility Closures / Exit Costs |
|
|
22 |
|
|
|
73 |
|
|
|
95 |
|
Asset Impairments |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment |
|
|
32 |
|
|
|
4 |
|
|
|
36 |
|
Inventory |
|
|
117 |
|
|
|
13 |
|
|
|
130 |
|
Other intangible assets |
|
|
59 |
|
|
|
|
|
|
|
59 |
|
|
Total Restructuring Charges, Net |
|
$ |
422 |
|
|
$ |
168 |
|
|
$ |
590 |
|
|
Our written human resource policies are indicative of an ongoing benefit arrangement with
respect to severance packages. Benefits paid pursuant to an ongoing benefit arrangement are
specifically excluded from the Exit or Disposal Cost Obligations topic of the ASC, therefore
severance charges incurred in connection with the 2009 Restructuring Plan are accounted for when
probable and estimable as required under the Compensation Nonretirement Postemployment Benefits
topic of the ASC.
In the nine months ended May 31, 2010, pretax restructuring charges of $184 million were recorded.
The $32 million in work force reductions relate primarily to Europe and the United States. The
facility closures/exit costs of $45 million relate primarily to the finalization of the termination
of a chemical supply contract in the United States. In asset impairments, inventory impairments of
$106 million recorded in cost of goods sold related to discontinued products worldwide.
The actions related to this restructuring plan are expected to produce annual cost savings of $220
million to $250 million, primarily in cost of goods sold and SG&A. Approximately one-third of these
savings is expected to be recognized in fiscal year 2010, with the full benefit realized in 2011.
40
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Working Capital and Financial Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, |
|
As of Aug. 31, |
(Dollars in millions, except current ratio) |
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
|
|
Cash and Cash Equivalents |
|
$ |
475 |
|
|
$ |
579 |
|
|
$ |
1,956 |
|
Trade Receivables, Net |
|
|
3,233 |
|
|
|
3,017 |
|
|
|
1,556 |
|
Inventory, Net |
|
|
2,847 |
|
|
|
3,169 |
|
|
|
2,934 |
|
Other Current Assets(1) |
|
|
1,345 |
|
|
|
1,234 |
|
|
|
1,437 |
|
|
|
|
|
Total Current Assets |
|
$ |
7,900 |
|
|
$ |
7,999 |
|
|
$ |
7,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term Debt |
|
$ |
839 |
|
|
$ |
120 |
|
|
$ |
79 |
|
Accounts Payable |
|
|
573 |
|
|
|
711 |
|
|
|
676 |
|
Accrued Liabilities(2) |
|
|
2,293 |
|
|
|
2,656 |
|
|
|
3,001 |
|
|
|
|
|
Total Current Liabilities |
|
$ |
3,705 |
|
|
$ |
3,487 |
|
|
$ |
3,756 |
|
|
|
|
|
Working Capital(3) |
|
$ |
4,195 |
|
|
$ |
4,512 |
|
|
$ |
4,127 |
|
Current Ratio(3) |
|
|
2.13:1 |
|
|
|
2.29:1 |
|
|
|
2.10:1 |
|
|
|
|
|
|
|
|
(1) |
|
Includes miscellaneous receivables, deferred tax assets and other current assets. |
|
(2) |
|
Includes income taxes payable, accrued compensation and benefits, accrued marketing
programs, deferred revenues, grower production accruals, dividends payable, customer payable,
restructuring reserves 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, 2010, compared with Aug. 31, 2009: Working capital increased $68 million between Aug.
31, 2009, and May 31, 2010, because of the following factors:
|
|
|
Trade receivables increased $1,677 million in the first nine months of 2010 primarily
because of the seasonality of our sales and collections as of May 31, 2010. |
|
|
|
|
Accrued marketing programs decreased $226 million due to a decrease in current year
Agricultural Productivity segment sales. |
|
|
|
|
Dividends payable decreased $145 million driven by the declaration of dividends in
August 2009 and the payment to shareowners in October 2009. There were no dividends payable
as of May 31, 2010. |
|
|
|
|
Customer payable decreased $307 million during the first nine months of 2010 due to
payments to our customers for prior season overpayments. |
These increases to working capital between Aug. 31, 2009, and May 31, 2010, were significantly
offset by the following factors:
|
|
|
Cash and cash equivalents decreased $1,481 million between the respective periods. See
the Cash Flow section in this section of MD&A for further details of this decrease. |
|
|
|
|
Short-term debt increased $760 million because we had commercial paper borrowings
outstanding due to the decline in our ROUNDUP and other glyphosate-based herbicides sales
which caused a decrease in current year collections. In addition, during the third quarter
we recorded $188 million of short-term debt related to our purchase of the Chesterfield
Village Research Center in April 2010. |
May 31, 2010, compared with May 31, 2009: Working capital decreased $317 million between May 31,
2010, and May 31, 2009. The following factors decreased working capital as of May 31, 2010,
compared with May 31, 2009:
|
|
|
Cash and cash equivalents decreased $104 million between the respective periods. See the
Cash Flow section in this section of MD&A and the Cash Flow section of Monsantos
Report on Form 10-K for the fiscal year ended Aug. 31, 2009, for further details of this
decrease. |
41
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
|
|
|
Inventory decreased $322 million primarily because of lower corn production in
fiscal year 2010 and higher obsolescence reserves due to inventory impairments related to
discontinued seed products which was part of our 2009 Restructuring Plan. |
|
|
|
|
Short-term debt increased $719 million because we had commercial paper borrowings
outstanding due to the reduction in our ROUNDUP and other glyphosate-based herbicides sales
which caused a decrease in current year collections. In addition, during the third quarter
we recorded $188 million of short-term debt related to our purchase of the Chesterfield
Village Research Center in April 2010. |
|
|
|
|
Restructuring reserves increased $177 million due to the 2009 Restructuring Plan. |
These working capital decreases were partially offset by the following factors:
|
|
|
Trade receivables increased $216 million primarily because of a change in the timing of
our collections. |
|
|
|
|
Income taxes payable decreased $333 million primarily due to a decrease in U.S. pretax
income. |
Customer Financing Programs: We previously established a revolving financing program of up to $250
million, which allowed certain U.S. customers to finance their product purchases, royalties and
licensing fee obligations. We received $130 million in first nine months of 2009 from the proceeds
of loans made to our customers through this financing program. 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 the Transfers and Servicing topic of the ASC. There were no loan balances
outstanding as of May 31, 2010, and Aug. 31, 2009. The program was terminated in the third quarter
of fiscal year 2009.
During the second quarter 2010, we began participating in a revolving financing program in Brazil
that allows us to transfer up to 1 billion Brazilian reais (approximately $550 million) in customer
receivables to a QSPE. Third parties, primarily investment funds, hold an 88 percent senior
interest in the QSPE, and we hold the remaining 12 percent subordinate interest. Because QSPEs are
excluded from the scope of the current guidance within the Consolidation topic of the ASC, and we
do not have the unilateral right to liquidate the QSPE, the consolidation guidance does not have an
effect on our accounting for this customer financing program.
Our investment in the QSPE was $10 million as of May 31, 2010, and is included in other assets in
the Condensed Statements of Consolidated Financial Position and is classified as a debt security.
Interest earned on our investment in the QSPE was less than $1 million for the three and nine
months ended May 31, 2010, and is included in interest income on the Statements of Consolidated
Operations.
Under the financing program, our transfer of select customer receivables to the QSPE is accounted
for as a sale in accordance with the Transfers and Servicing topic of the ASC. We do not service
the receivables; however, under the QSPE a recourse provision requires us to cover the first 12
percent of credit losses within the program.
Proceeds from customer receivables sold through the financing program and derecognized from the
Condensed Statements of Consolidated Financial Position totaled $70 million for the first nine
months of fiscal year 2010. These proceeds are included in net cash provided by operating
activities in the Statements of Consolidated Cash Flows and are net of a loss on sale of
receivables of $4 million for the nine months ended May 31, 2010. The remaining receivable balance
in the QSPE outstanding as of May 31, 2010, was $36 million. As of May 31, 2010, there were $2
million of receivables sold through this financing program that were delinquent. Based on our
historical collection experience with these customers and a current assessment of credit exposure,
we recorded our recourse provision at $3 million as of May 31, 2010. Adverse changes in the actual
loss rate would decrease our investment asset. The maximum potential amount of future payments
under the recourse
42
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
provision was $13 million as of May 31, 2010. If we are called upon to make payments under the
recourse provision, we would have the benefit under the financing program of any amounts
subsequently collected from the customer.
We also have agreements with lenders to establish programs to provide financing of up to 550
million Brazilian reais (approximately $300 million) for selected customers in Brazil. These
agreements qualify for sales treatment under the Transfers and Servicing topic of the ASC. 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 $136 million and $119 million of proceeds
through these customer financing programs in the first nine months of 2010 and 2009, respectively.
The amount of loans outstanding was $125 million and $160 million as of May 31, 2010, and Aug. 31,
2009, 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 $125
million as of May 31, 2010. 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 $17 million and $6 million as of May 31, 2010, and
Aug. 31, 2009, respectively. If performance is
required under the guarantee, we may retain amounts that are subsequently collected from customers.
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 with financial institutions in the United States, Europe and Argentina.
Proceeds from the payment 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
$112 million and $59 million of proceeds through these customer financing programs in the first
nine months of 2010 and 2009, respectively. The amount of loans outstanding was $27 million and $48
million as of May 31, 2010, and Aug. 31, 2009, respectively. For most programs, we provide 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 maximum potential amount of future payments under the
guarantees was $26 million as of May 31, 2010. 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 $5 million as of May 31, 2010, and Aug. 31, 2009. If performance is
required under the guarantee, we may retain amounts that are subsequently collected from customers.
In August 2009, we entered into an agreement in the United States to sell customer receivables up
to a maximum of $500 million and to service such accounts. The program will terminate in August
2012. These receivables qualify for sales treatment under the Transfers and Servicing topic of the
ASC and, accordingly, the proceeds are included in net cash provided by operating activities in the
Statements of Consolidated Cash Flows. The gross amount of receivables sold totaled $51 million for
the first nine months of fiscal year 2010. The agreement includes recourse provisions and thus a
liability was established at the time of sale which approximates fair value based upon our
historical collection experience with such receivables and a current assessment of credit exposure.
The recourse liability recorded by us was $3 million and $2 million as of May 31, 2010, and Aug.
31, 2009, respectively. The maximum potential amount of future payments under the recourse
provisions of the agreement was $3 million as of May 31, 2010. The outstanding balance of the
receivables sold was $54 million and $319 million as of May 31, 2010, and Aug. 31, 2009,
respectively. There were delinquent accounts of $5 million as of May 31, 2010, and there were no
delinquent accounts as of Aug. 31, 2009.
We sell accounts receivable in European regions and Argentina both with and without recourse. These
sales qualify for sales treatment under the Transfers and Servicing topic of the ASC 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 $12 million and $11 million for the first nine months of 2010 and
2009, respectively. The liability for the guarantees for sales with recourse is recorded at an
amount that approximates fair value and is based on our historical collection experience for the
customers associated with the sales of the accounts receivable and a current assessment of credit
exposure. Our guarantee liability was less than $1 million as of May 31, 2010, and Aug. 31, 2009.
The maximum potential amount of future payments under the recourse provisions of the agreements was
$4 million as of May 31, 2010. The outstanding balance of the receivables sold was $8 million and
$57 million as of May 31, 2010, and Aug. 31, 2009, respectively.
43
|
|
|
|
|
|
MONSANTO COMPANY
|
|
THIRD QUARTER 2010 FORM 10-Q |
|
Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended May 31, |
|
(Dollars in millions) |
|
2010 |
|
|
2009 |
|
|
Net Cash (Required) Provided by Operating Activities |
|
$ |
(538 |
) |
|
$ |
443 |
|
Net Cash Required by Investing Activities |
|
|
(614 |
) |
|
|
(588 |
) |
|
Free Cash Flow(1) |
|
|
(1,152 |
) |
|
|
(145 |
) |
|
Net Cash Required by Financing Activities |
|
|
(323 |
) |
|
|
(775 |
) |
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
(6 |
) |
|
|
(114 |
) |
|
Net Decrease in Cash and Cash Equivalents |
|
|
(1,481 |
) |
|
|
(1,034 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
1,956 |
|
|
|
1,613 |
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
475 |
|
|
$ |
579 |
|
|
|
|
|
(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 required by operating activities was $538 million in the first nine months of 2010
compared with cash provided by operating activities of $443 million in the first nine months of
2009. The decrease of $981 million was driven by the decline in net income of $1,089 million in the
nine month comparison from $2,356 million to $1,267 million. Further, the change in accounts
receivable of $681 million provided less cash from lower collections during the current year. In
addition, the change in accounts payable and other accrued
liabilities of $284 million in the
nine-month comparison occurred because of lower commodity prices and reduced market funding. These
decreases were partially offset by a change in cash provided by inventory of $931 million which
occurred primarily because of a decline in inventory production.
Cash required by investing activities was $614 million in the first nine months of 2010 compared to
$588 million in the first nine months of 2009. In third quarter 2009, we received proceeds of $300
million related to the sale of the Dairy business. Offsetting this increase in the prior year we
acquired the sugarcane business for $264 million, and there was no similar sized acquisition in the
current year. Further, our capital expenditures decreased $101 million in the nine-month comparison
due to less spending in the first nine months of the current year.
The amount of cash required by financing activities was $323 million in the first nine months of
2010 compared with $775 million in the first nine months of 2009. The net change in short-term
financing was a source of cash of $568 million in the first nine months of 2010 compared with a use
of cash of $34 million in the prior-year comparable period primarily due to an increase in
short-term borrowings due to the decline in sales and collections from the ROUNDUP business.
Further, treasury stock purchases increased $188 million as we accelerated our repurchase of shares
in the third quarter of 2010 compared to the same prior-year period.
Capital Resources and Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, |
|
|
As of Aug. 31, |
|
(Dollars in millions, except debt-to-capital ratio) |
|
2010 |
|
|
2009 |
|
|
2009 |
|
|
|
|
|
Short-Term Debt |
|
$ |
839 |
|
|
$ |
120 |
|
|
$ |
79 |
|
Long-Term Debt |
|
|
1,862 |
|
|
|
1,705 |
|
|
|
1,724 |
|
Total Shareowners Equity |
|
|
10,574 |
|
|
|
10,767 |
|
|
|
10,056 |
|
Debt-to-Capital Ratio |
|
|
20 |
% |
|
|
14 |
% |
|
|
15 |
% |
|
|
|
|
A major source of our liquidity is operating cash flows, which are derived from net income.
This cash-generating capability provides us with the financial flexibility we need to meet
operating, investing and financing needs. To the extent that cash provided by operating activities
is not sufficient to fund our cash needs, which generally occurs during the first and third
quarters of the fiscal year because of the seasonal nature of our business, short-term commercial
paper borrowings are used to finance these requirements. Although the commercial paper market has
not fully returned to historical levels, the market is available to those companies with high
short-term credit ratings such as Monsantos. We accessed the commercial paper markets in 2010 for
periods of time to finance working capital needs and our options have not been limited. We had $561
million of commercial paper borrowings outstanding at May 31, 2010.
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Total debt outstanding increased $876 million between May 31, 2009, and May 31, 2010,
primarily because we had commercial paper borrowings outstanding due to the decline in the ROUNDUP
business sales and collections this fiscal year. Further, debt increased $324 million due to our
purchase of the Chesterfield Village Research Center in April 2010.
We plan to issue new fixed-rate debt on or before Aug. 15, 2012, to repay $486 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 are currently evaluating the impact of the Healthcare Acts. We recorded a tax charge of $8
million during the third quarter due to the elimination of the tax benefit associated with the
Medicare Part D subsidy included in the Healthcare Acts. We are still evaluating the other impacts
from the Healthcare Acts, but we do not expect them to have a material impact on our consolidated
financial statements in the short term. The longer term potential impacts of the Healthcare Acts to
our consolidated financial statements are currently uncertain. We will continue to assess how the
Healthcare Acts apply to us and how best to meet the stated requirements.
Dividend: In June 2010, we declared a quarterly dividend of 26.5 cents payable on July 30, 2010,
to shareowners of record as of July 9, 2010.
Capital Expenditures: We expect 2010 capital expenditures to be in the range of $750 million to
$850 million compared with $916 million in 2009. The primary driver of this decrease is lower
spending on projects to expand corn seed production facilities compared to prior year.
Purchase of Chesterfield Village Research Center: In November 2009, we entered into an agreement to
acquire Pfizers Chesterfield Village Research Center located in Chesterfield, MO. We acquired the
property in April 2010 for $435 million which will be paid this year and over the next two fiscal
years.
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.
2010 Acquisition: In April 2010, we acquired a corn and soybean processing plant located in Paine,
Chile from Anasac, a Santiago-based company that provides seed processing services. Acquisition
costs were less than $1 million for the nine months ended May 31, 2010, and classified as selling,
general, and administrative expenses. The total cash paid and the fair value of the acquisition
were $34 million, and the purchase price was primarily allocated to fixed assets, goodwill, and
intangibles.
In October 2009, we acquired the remaining 51 percent equity interest in Seminium, S.A. (Seminium),
a leading Argentinean corn seed company. Acquisition costs were less than $1 million for the nine
months ended May 31, 2010, and classified as selling, general and administrative expenses. The
total fair value of Seminium was $36 million. This fair value includes $20 million of cash paid
(net of cash acquired) and $16 million for the fair value of Monsantos 49 percent equity interest
in Seminium held prior to the acquisition.
2009 Acquisitions: In December 2008, we 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 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.
In July 2009, we acquired the assets of WestBred, LLC, a Montana-based company that specializes in
wheat germplasm, for $49 million (net of cash acquired), inclusive of transaction costs of $4
million. The acquisition will bolster the future growth of Monsantos seeds and traits platform.
2010 Contractual Obligations: There have been no significant changes to the contractual obligations
table as disclosed in our Annual Report on Form 10-K for the year ended Aug. 31, 2009, except as
discussed above.
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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 20
Commitments and Contingencies and Part II Item 1 Legal Proceedings for further
information.
We have entered into various customer financing programs which are accounted for in accordance with
the Transfers and Servicing topic of the ASC. See Note 4 Customer Financing Programs 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 grew through increases in our average
net selling prices in 2008 and 2009, however prices have declined in fiscal year 2010 and are
expected to remain lower than in 2008 and 2009. In 2009, our glyphosate volumes 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 working to rebuild a competitive position in our chemistry business,
while we strive to expand our business in seeds and traits via our investment in new products.
We believe that our company is positioned to deliver value added products to growers enabling us to
grow our gross profit in the future. 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 in the
future, 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.
Economic activity in the United States and globally appears to be recovering from the slowdown seen
in fiscal year 2009, though credit availability is still restrained. 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 appropriate measures to
manage our credit exposure, which has the potential to affect sales negatively in the near term. In
addition, volatility in foreign-currency 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, which we expect will
lead to growth
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in that business. The integration of De Ruiter has improved our abilities to develop and deliver new,
innovative products to our broad customer base. 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 in our seed
businesses to grow our branded seed market share, 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 global breeding capabilities
and our multiple channel sales approach in the United States 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 2010, 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 2009. Acquisitions may also present near-term opportunities to increase
penetration of our traits. We expect the competition in biotechnology to increase, as more
competitors launch traits in the United States and internationally. 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.
Approvals have been obtained in the United States and Canada, and key import countries of Japan,
Korea, Taiwan, Philippines, Mexico, Australia and New Zealand for our next generation corn product.
GENUITY 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, uses multiple modes of action for insect control, the proven
means to enhance performance, reduce structured refuge and maintain long-term durability of corn
trait technology. GENUITY SMARTSTAX uniquely features a combination of weed and insect control
traits that significantly reduces the risk of resistance for both above and below ground pests. As
a result, the U.S. EPA and the Canadian Food Inspection Agency allowed reduction of the typical
structured farm refuge from 20 percent to 5 percent for GENUITY SMARTSTAX in the U.S. Corn Belt and
Canada and from 50 percent to 20 percent for the U.S. Cotton Belt. GENUITY SMARTSTAX corn was
launched in the United States in 2010. A full regulatory submission was completed for a 5 percent
refuge-in-a-bag (RIB) seed blend to the U.S. EPA and Canadian Feed Inspection Agency. GENUITY
SMARTSTAX RIB would enable farmers in the Corn Belt to plant one corn product across their entire
field without the need to plant a separate refuge. Global cultivation opportunities were expanded
for corn and cotton with approval of BOLLGARD II Cotton in Brazil and corn field trials in Mexico,
Indonesia, Vietnam and Pakistan.
During 2007, we announced a long-term joint R&D 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 North American and key import country
regulatory submissions for the first biotech drought-tolerant corn product. Pending necessary
approvals, the product is on track for an introduction 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.
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 potential in India.
In Brazil, notwithstanding continuing and varied legal challenges by private and governmental
parties, we expect to continue to operate our dual-track business model of certified seeds and our
point-of-delivery payment system (ROUNDUP READY soybeans) or our indemnification collection system
(BOLLGARD cotton) to ensure that we capture value on all of 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. Although Brazilian law clearly states that these products protected by pipeline
patents have the duration of the U.S. patent (2014 for ROUNDUP READY soybeans and 2011 for BOLLGARD
cotton), legal rulings have not consistently achieved that outcome. Continued commercial approval
of new products such as the recently approved YIELDGARD VT PRO, YIELDGARD ROUNDUP READY 2 and
YIELDGARD Corn Borer will provide the opportunity for a step change in contributions from seeds and
traits in Brazil. As noted above, YIELDGARD Corn Borer was approved recently, and was planted in
the past two growing seasons. The agricultural economy in Brazil could be impacted
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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.
Efforts to secure an orderly system in Argentina to support the introduction of new technology
products are underway. We do not plan to collect on ROUNDUP READY 1 soybeans and 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 providing the technology. A case in Holland
was referred to the
European Court of Justice (ECJ) for an interpretation of the EU patent law for biotech products.
Settlement in the case has been reached and we
have withdrawn our claims. The District Court of The Hague has
informed the ECJ that the proceedings have been withdrawn. Meanwhile,
we are continuing to discuss alternative arrangements with various Argentine stakeholders
pertaining to new soybean and cotton trait products. However, we have no certainty that any of
these discussions will lead to an income producing outcome.
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 European Food Safety Authority (EFSA) has issued an opinion that the French suspension
is not supported on a scientific basis. The case has now been referred to the European Court of
Justice (ECJ) 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. The court proceedings are postponed pending the
outcome of administrative proceedings. 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
Our ROUNDUP herbicide gross profit peaked in 2008 and declined in 2010. The structural changes that
have occurred in the global glyphosate market, including oversupply and overcapacity at the
manufacturing level, have created a significant compression in the manufacturers margin. We
believe this structural change is permanent and will therefore have a long term impact on the level
of profits and cash generated by this business. While we expect the business to continue to be cash
positive, we have oriented the focus of Monsantos crop protection business to strategically
support Monsantos ROUNDUP READY crops.
We have submitted a mine plan to the U.S. Bureau of Land Management (BLM) regarding a new phosphate
ore mine near Soda Springs, Idaho, that we intend to use to meet existing and future production
demands for our ROUNDUP herbicides and licensed glyphosate. BLM is in the process of considering
the public comments on its draft Environmental Impact Statement (EIS) for the mine. We anticipate
receiving regulatory approvals for our new mine in fiscal year 2011. However, we are aware that
certain environmental groups have initiated litigation against other phosphate producers to disrupt
and delay the permitting process.
We will continue 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 crops.
The lawn-and-garden business should continue benefiting from the ROUNDUP brand equity in the
marketplace and remain a strong cash generator for Monsanto.
Other Information
As discussed in Note 20 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, 2009.
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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, 2009. 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.
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, 2009. 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.
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NEW ACCOUNTING STANDARDS
In January 2010, the FASB issued an amendment to the Fair Value Measurements and Disclosures topic
of the ASC. This amendment requires disclosures about transfers into and out of Levels 1 and 2 and
separate disclosures about purchases, sales, issuances, and settlements relating to Level 3
measurements. It also clarifies existing fair value disclosures about the level of disaggregation
and about inputs and valuation techniques used to measure fair value. This amendment is effective
for periods beginning after Dec. 15, 2009, except for the requirement to provide the Level 3
activity of purchases, sales, issuances, and settlements, which will be effective for fiscal years
beginning after Dec. 15, 2010, and for interim periods within those fiscal years. Accordingly, we
prospectively adopted this amendment in third quarter 2010, except for the additional Level 3
requirements which will be adopted in fiscal year 2011. See Note 13 Fair Value Measurements for
the new disclosures. We are currently evaluating the disclosure impact of adopting the additional
Level 3 requirements of the standard on the consolidated financial statements.
In June 2009, the FASB issued its ASC Topic 105, Generally Accepted Accounting Principles, which
became the single source of authoritative GAAP (other than rules and interpretive releases of the
U.S. Securities and Exchange Commission). The ASC is topically based with topics organized by ASC
number and updated with Accounting Standards Updates (ASUs). ASUs replace accounting guidance that
historically was issued as FASB Statements of Financial Accounting Standards (SFAS), FASB
Interpretations (FIN), FASB Staff Positions (FSP), Emerging Issues Task Force (EITF) Issues or
other types of accounting standards. The ASC became effective Nov. 30, 2009, for Monsanto and
disclosures within this Quarterly Report on Form 10-Q have been updated to reflect the change. The
ASC does not change GAAP and did not impact our consolidated financial statements.
In June 2009, the FASB issued a standard that requires 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 standard is effective
for fiscal years beginning after Nov. 15, 2009. Accordingly, we will adopt this standard in fiscal
year 2011. We are currently evaluating the impact of adoption on the consolidated financial
statements.
In June 2009, the FASB issued a standard that removes the concept of a qualifying special-purpose
entity (QSPE) from GAAP and removes the exception from applying consolidation principles to a QSPE.
This standard also clarifies the requirements for isolation and limitations on portions of
financial assets that are eligible for sale accounting. This standard is effective for fiscal years
beginning after Nov. 15, 2009. Accordingly, we will adopt this standard in fiscal year 2011. We are
currently evaluating the impact of adoption on our QSPE, other financing programs and on the
consolidated financial statements.
In April 2009, the FASB issued a standard that extends the previous disclosure requirements about
fair value of financial instruments to interim financial statements of publicly traded companies.
This standard 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. This standard is effective
prospectively for interim reporting periods ending after June 15, 2009. Accordingly, we adopted
this standard in first quarter fiscal year 2010. See Note 12 Debt and Other Credit Arrangements,
Note 13 Fair Value Measurements and Note 14 Financial Instruments for the disclosures
required by this standard.
In December 2008, the FASB issued a standard that provides additional guidance regarding
disclosures about plan assets of defined benefit pension or other postretirement plans. This
standard is effective for financial statements issued for fiscal years ending after Dec. 15, 2009.
Accordingly, we will include the disclosure requirements of this standard in the Report on Form
10-K for the fiscal year ended Aug. 31, 2010. We are currently evaluating the disclosure impact of
adopting this standard on the consolidated financial statements.
In February 2008, the FASB issued a standard that delayed the effective date of the new guidance
regarding fair value measurement and disclosure for nonfinancial assets and liabilities to fiscal
years beginning after Nov. 15, 2008. Accordingly, we adopted the additional requirements of the
Fair Value Measurements and Disclosures topic of the ASC that were deferred
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by this standard in first quarter fiscal year 2010. The adoption of this standard did not have an impact on our
consolidated financial statements. See Note 12 Debt and Other Credit Arrangements and Note 13 Fair Value
Measurements for additional discussion regarding fair value measurements.
In December 2007, the FASB issued a standard that 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 Statements of
Consolidated Operations; 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. The provisions of the standard related to accounting for
changes in ownership are to be applied prospectively, except for the presentation and disclosure
requirements, which are to be applied retrospectively. We adopted this standard on Sept. 1, 2009,
and the presentation and disclosure requirements of this standard were applied retrospectively to
all periods presented. The adoption of this standard did not have a material impact on the
consolidated financial statements, other than the following changes in presentation of
noncontrolling interests:
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Consolidated net income was recast to include net income attributable to both the
company and noncontrolling interests in the Statements of Consolidated Operations. |
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Noncontrolling interests were reclassified from other liabilities to equity, separate
from the parents shareowners equity, in the Condensed Statements of Consolidated
Financial Position. |
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The Statements of Consolidated Cash Flows now begin with net income (including
noncontrolling interests) instead of net income attributable to Monsanto Company, with net
income from noncontrolling interests (previously, minority interests) no longer a
reconciling item in arriving at net cash provided by operating activities, and the
Statements of Consolidated Cash Flows were recast to include dividend payments to
noncontrolling interests. |
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Interim Condensed Statements of Consolidated Shareowners Equity and Comprehensive
Income have been added to fulfill the disclosure requirements. |
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, 2009.
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, 2010
(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 20 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, 2009.
Patent and Commercial Proceedings
As described in our Report on Form 10-K for the fiscal year ended Aug. 31, 2009, and Monsantos
report on Form 10-Q for the quarterly periods ended Nov. 30, 2009 and Feb. 28, 2010, starting the
week of March 7, 2004, a series of purported class action cases were filed in 14 different state
courts against Pioneer Hi-Bred International, Inc. (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. The
Court set a Nov. 15, 2010, date for hearing to determine class certification. Pioneer has entered a
stipulated settlement agreement with individual plaintiffs with no settlement class being
certified. In April 2010, we entered a stipulated settlement for an immaterial amount with
individual plaintiffs with no settlement class being certified.
Governmental Proceedings and Undertakings
As described in our Report on Form 10-K for the fiscal year ended Aug. 31, 2009, and Monsantos
report on Form 10-Q for the quarterly periods ended Nov. 30, 2009 and Feb. 28, 2010, 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 $1.1 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
$228 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 $1 billion
(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 $78 million to $39 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 1.8 Brazilian reais per U.S. dollar, and will fluctuate
with exchange rates in the future.
52
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MONSANTO COMPANY
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THIRD QUARTER 2010 FORM 10-Q |
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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, 2009, for
information regarding risk factors. There have been no material changes from the risk factors
previously disclosed in our Report on Form 10-K.
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 2010 by Monsanto and any affiliated purchasers, pursuant to SEC rules.
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(c) Total Number of Shares |
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(d) Approximate Dollar |
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(b) Average |
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Purchased as Part of |
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Value of Shares that May |
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(a) Total Number of |
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Price Paid |
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Publicly Announced Plans |
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Yet Be Purchased Under |
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Period |
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Shares Purchased |
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per Share (1) |
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or Programs |
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the Plans or Programs |
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March 2010: |
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March 1, 2010, through March 31, 2010 |
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147,563 |
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$72.16 |
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147,563 |
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$396,888,071 |
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April 2010: |
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April 1, 2010, through April 30, 2010 |
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5,381,352 |
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$66.12 |
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5,381,352 |
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$ 41,086,360 |
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May 2010: |
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May 1, 2010, through May 31, 2010 |
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137,600 |
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$57.06 |
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137,600 |
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$ 33,235,125 |
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Total |
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5,666,515 |
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$66.05 |
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5,666,515 |
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$ 33,235,125 |
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(1) |
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The average price paid per share is calculated on a trade date basis and excludes
commission. |
In April 2008, the board of directors authorized a repurchase program of up to $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. In June 2010, the board of directors authorized a new
repurchase program of up to an additional $1 billion of the companys common stock over a
three-year period beginning July 1, 2010. There were no other publicly announced plans outstanding
as of May 31, 2010.
ITEM 6. EXHIBITS
Exhibits: The list of exhibits in the Exhibit Index to this Report is incorporated herein by
reference.
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MONSANTO COMPANY
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THIRD QUARTER 2010 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/ NICOLE M. RINGENBERG
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Nicole M. Ringenberg |
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Vice President and Controller
(On behalf of the Registrant and as Principal Accounting Officer) |
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Date: July 2, 2010
54
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MONSANTO COMPANY
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THIRD QUARTER 2010 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.
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Exhibit |
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No. |
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Description |
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2
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Omitted |
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3
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Omitted |
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4
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Omitted |
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11
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Omitted see Note 18 of Notes to Consolidated Financial Statements Earnings Per Share. |
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12
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Computation of Ratio of Earnings to Fixed Charges. |
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15
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Omitted |
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18
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Omitted |
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19
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Omitted |
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22
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Omitted |
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23
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Omitted |
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24
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Omitted |
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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
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Rule 13a-14(a) Certifications (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
executed by the Chief Financial Officer). |
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|
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). |
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101.INS
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XBRL Instance Document. |
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101.SCH
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XBRL Taxonomy Extension Schema Document. |
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101.CAL
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|
XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
55