e10vq
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MONSANTO COMPANY
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SECOND QUARTER 2011 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 Feb. 28, 2011
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
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43-1878297 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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800 North Lindbergh Blvd.,
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63167 |
St. Louis, MO
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(Zip Code) |
(Address of principal executive offices) |
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(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: 535,978,786 shares of Common Stock, $0.01 par value, outstanding as
of April 1, 2011.
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MONSANTO COMPANY
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SECOND QUARTER 2011 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, 2010.
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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SECOND QUARTER 2011 FORM 10-Q |
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TABLE OF CONTENTS
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PART IFINANCIAL INFORMATION |
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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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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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33 |
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Overview |
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33 |
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Results of Operations Second Quarter Fiscal Year 2011 |
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35 |
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Seeds and Genomics Segment |
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38 |
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Agricultural Productivity Segment |
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39 |
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Restructuring |
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40 |
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Financial Condition, Liquidity, and Capital Resources |
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42 |
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Outlook |
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46 |
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Critical Accounting Policies and Estimates |
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48 |
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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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50 |
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Item 4. |
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Controls and Procedures |
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50 |
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PART IIOTHER INFORMATION |
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Item 1. |
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Legal Proceedings |
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51 |
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Item 1A. |
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Risk Factors |
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52 |
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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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SECOND QUARTER 2011 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 six months ended Feb. 28, 2011, and Feb. 28, 2010, the Condensed Statements of
Consolidated Financial Position as of Feb. 28, 2011, and Aug. 31, 2010, the Statements of
Consolidated Cash Flows for the six months ended Feb. 28, 2011, and Feb. 28, 2010, the Statements of Consolidated Shareowners Equity and Comprehensive Income for the six months ended
Feb. 28, 2011, and year ended Aug. 31, 2010, 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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SECOND QUARTER 2011 FORM 10-Q |
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Statements of Consolidated Operations
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Unaudited |
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Three Months Ended Feb. 28, |
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Six Months Ended Feb. 28, |
(Dollars in millions, except per share amounts) |
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2011 |
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2010 |
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2011 |
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2010 |
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Net Sales |
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$ |
4,129 |
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$ |
3,890 |
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$ |
5,959 |
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$ |
5,587 |
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Cost of goods sold |
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1,821 |
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1,791 |
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2,833 |
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2,749 |
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Gross Profit |
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2,308 |
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2,099 |
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3,126 |
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2,838 |
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Operating Expenses: |
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Selling, general and administrative expenses |
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502 |
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512 |
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952 |
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1,008 |
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Research and development expenses |
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320 |
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279 |
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623 |
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546 |
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Restructuring charges, net |
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1 |
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30 |
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8 |
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44 |
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Total Operating Expenses |
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823 |
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821 |
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1,583 |
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1,598 |
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Income from Operations |
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1,485 |
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1,278 |
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1,543 |
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1,240 |
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Interest expense |
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39 |
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41 |
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82 |
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80 |
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Interest income |
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(19 |
) |
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(14 |
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(34 |
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(25 |
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Other expense (income), net |
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11 |
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2 |
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23 |
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(10 |
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Income from Continuing Operations Before Income Taxes |
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1,454 |
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1,249 |
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1,472 |
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1,195 |
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Income tax provision |
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428 |
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360 |
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434 |
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330 |
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Income from Continuing Operations Including Portion
Attributable to Noncontrolling Interest |
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$ |
1,026 |
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$ |
889 |
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$ |
1,038 |
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$ |
865 |
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Discontinued Operations: |
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Income from operations of discontinued businesses |
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4 |
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4 |
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5 |
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Income tax provision |
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1 |
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1 |
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Income on Discontinued Operations |
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3 |
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3 |
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5 |
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Net Income |
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$ |
1,029 |
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$ |
889 |
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$ |
1,041 |
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$ |
870 |
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Less: Net income attributable to noncontrolling interest |
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12 |
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2 |
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18 |
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2 |
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Net Income Attributable to Monsanto Company |
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$ |
1,017 |
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$ |
887 |
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$ |
1,023 |
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$ |
868 |
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Amounts Attributable to Monsanto Company: |
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Income from continuing operations |
|
$ |
1,014 |
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|
$ |
887 |
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$ |
1,020 |
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|
$ |
863 |
|
Income on discontinued operations |
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3 |
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|
|
|
3 |
|
|
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5 |
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|
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Net Income Attributable to Monsanto Company |
|
$ |
1,017 |
|
|
$ |
887 |
|
|
$ |
1,023 |
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|
$ |
868 |
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Basic Earnings per Share Attributable to Monsanto Company: |
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|
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|
|
|
|
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Income from continuing operations |
|
$ |
1.89 |
|
|
$ |
1.63 |
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|
$ |
1.90 |
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|
$ |
1.58 |
|
Income on discontinued operations |
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|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
0.01 |
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|
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Net Income Attributable to Monsanto Company |
|
$ |
1.90 |
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$ |
1.63 |
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$ |
1.90 |
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$ |
1.59 |
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Diluted Earnings per Share Attributable to Monsanto Company: |
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Income from continuing operations |
|
$ |
1.87 |
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$ |
1.60 |
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$ |
1.88 |
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$ |
1.56 |
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Income on discontinued operations |
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|
0.01 |
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|
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|
0.01 |
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Net Income Attributable to Monsanto Company |
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$ |
1.88 |
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$ |
1.60 |
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$ |
1.88 |
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$ |
1.57 |
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Weighted Average Shares Outstanding: |
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Basic |
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|
536.3 |
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545.8 |
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|
537.6 |
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|
545.7 |
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Diluted |
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|
542.4 |
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|
553.4 |
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|
543.7 |
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|
553.4 |
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Dividends Declared per Share |
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$ |
0.56 |
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$ |
0.53 |
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$ |
0.56 |
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$ |
0.53 |
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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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SECOND QUARTER 2011 FORM 10-Q |
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Condensed Statements of Consolidated Financial Position
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Unaudited |
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As of Feb. 28, |
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As of Aug. 31, |
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(Dollars in millions, except share amounts) |
|
2011 |
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2010 |
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Assets |
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Current Assets: |
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|
|
|
|
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Cash and cash equivalents (variable interest entities restricted - 2011: $13) |
|
$ |
1,837 |
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$ |
1,485 |
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Short-term investments |
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|
180 |
|
|
|
|
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Trade receivables, net (variable interest entities restricted - 2011: $101) |
|
|
2,377 |
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|
|
1,590 |
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Miscellaneous receivables |
|
|
620 |
|
|
|
717 |
|
Deferred tax assets |
|
|
451 |
|
|
|
511 |
|
Inventory, net |
|
|
3,090 |
|
|
|
2,739 |
|
Other current assets |
|
|
137 |
|
|
|
80 |
|
|
|
|
|
Total Current Assets |
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|
8,692 |
|
|
|
7,122 |
|
Total property, plant and equipment |
|
|
8,337 |
|
|
|
8,068 |
|
Less accumulated depreciation |
|
|
4,115 |
|
|
|
3,841 |
|
|
|
|
|
Property, Plant and Equipment, Net |
|
|
4,222 |
|
|
|
4,227 |
|
Goodwill |
|
|
3,320 |
|
|
|
3,204 |
|
Other Intangible Assets, Net |
|
|
1,353 |
|
|
|
1,263 |
|
Noncurrent Deferred Tax Assets |
|
|
1,038 |
|
|
|
1,014 |
|
Long-Term Receivables, Net |
|
|
459 |
|
|
|
513 |
|
Other Assets |
|
|
565 |
|
|
|
524 |
|
|
|
|
|
Total Assets |
|
$ |
19,649 |
|
|
$ |
17,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareowners Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Short-term debt, including current portion of long-term debt |
|
$ |
409 |
|
|
$ |
241 |
|
Accounts payable |
|
|
634 |
|
|
|
752 |
|
Income taxes payable |
|
|
284 |
|
|
|
66 |
|
Accrued compensation and benefits |
|
|
258 |
|
|
|
179 |
|
Accrued marketing programs |
|
|
881 |
|
|
|
839 |
|
Deferred revenues |
|
|
919 |
|
|
|
219 |
|
Grower production accruals |
|
|
256 |
|
|
|
130 |
|
Dividends payable |
|
|
150 |
|
|
|
151 |
|
Customer payable |
|
|
3 |
|
|
|
83 |
|
Restructuring reserves |
|
|
59 |
|
|
|
197 |
|
Miscellaneous short-term accruals |
|
|
668 |
|
|
|
684 |
|
|
|
|
|
Total Current Liabilities |
|
|
4,521 |
|
|
|
3,541 |
|
Long-Term Debt |
|
|
1,729 |
|
|
|
1,862 |
|
Postretirement Liabilities |
|
|
923 |
|
|
|
920 |
|
Long-Term Deferred Revenue |
|
|
375 |
|
|
|
395 |
|
Noncurrent Deferred Tax Liabilities |
|
|
143 |
|
|
|
137 |
|
Long-Term Portion of Environmental and Litigation Liabilities |
|
|
179 |
|
|
|
188 |
|
Other Liabilities |
|
|
645 |
|
|
|
681 |
|
Shareowners Equity: |
|
|
|
|
|
|
|
|
Common stock (authorized: 1,500,000,000 shares, par value $0.01) |
|
|
|
|
|
|
|
|
Issued 590,333,129 and 588,439,202 shares, respectively |
|
|
|
|
|
|
|
|
Outstanding 535,894,197 and 540,376,499 shares, respectively |
|
|
6 |
|
|
|
6 |
|
Treasury stock 54,438,932 and 48,062,703 shares, respectively, at cost |
|
|
(2,491 |
) |
|
|
(2,110 |
) |
Additional contributed capital |
|
|
10,001 |
|
|
|
9,896 |
|
Retained earnings |
|
|
3,929 |
|
|
|
3,208 |
|
Accumulated other comprehensive loss |
|
|
(441 |
) |
|
|
(897 |
) |
Reserve for ESOP debt retirement |
|
|
(3 |
) |
|
|
(4 |
) |
|
|
|
|
Total Monsanto Company Shareowners Equity |
|
|
11,001 |
|
|
|
10,099 |
|
|
|
|
|
Noncontrolling Interest |
|
|
133 |
|
|
|
44 |
|
|
|
|
|
Total Shareowners Equity |
|
|
11,134 |
|
|
|
10,143 |
|
|
|
|
|
Total Liabilities and Shareowners Equity |
|
$ |
19,649 |
|
|
$ |
17,867 |
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
Statements of Consolidated Cash Flows
|
|
|
|
|
|
|
|
|
|
Unaudited |
|
Six Months Ended Feb. 28, |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
1,041 |
|
|
$ |
870 |
|
Adjustments to reconcile cash provided (required) by operating activities: |
|
|
|
|
|
|
|
|
Items that did not require (provide) cash: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
310 |
|
|
|
294 |
|
Bad-debt expense |
|
|
(6 |
) |
|
|
26 |
|
Stock-based compensation expense |
|
|
55 |
|
|
|
52 |
|
Excess tax benefits from stock-based compensation |
|
|
(19 |
) |
|
|
(31 |
) |
Deferred income taxes |
|
|
(13 |
) |
|
|
(62 |
) |
Restructuring charges, net |
|
|
8 |
|
|
|
44 |
|
Equity affiliate income, net |
|
|
(8 |
) |
|
|
(18 |
) |
Net gain on sales of a business or other assets |
|
|
(4 |
) |
|
|
(2 |
) |
Other items |
|
|
59 |
|
|
|
38 |
|
Changes in assets and liabilities that provided (required) cash, net of acquisitions: |
|
|
|
|
|
|
|
|
Trade receivables, net |
|
|
(612 |
) |
|
|
(459 |
) |
Inventory, net |
|
|
(269 |
) |
|
|
(241 |
) |
Deferred revenues |
|
|
656 |
|
|
|
341 |
|
Accounts payable and other accrued liabilities |
|
|
507 |
|
|
|
(323 |
) |
Restructuring cash payments |
|
|
(152 |
) |
|
|
(124 |
) |
Pension contributions |
|
|
(44 |
) |
|
|
(86 |
) |
Net investment hedge settlement |
|
|
|
|
|
|
(4 |
) |
Other items |
|
|
(68 |
) |
|
|
(59 |
) |
|
Net Cash Provided by Operating Activities |
|
|
1,441 |
|
|
|
256 |
|
|
Cash Flows Required by Investing Activities: |
|
|
|
|
|
|
|
|
Purchases of short-term investments |
|
|
(180 |
) |
|
|
|
|
Capital expenditures |
|
|
(217 |
) |
|
|
(342 |
) |
Acquisition of businesses, net of cash acquired |
|
|
(99 |
) |
|
|
(23 |
) |
Purchases of long-term equity securities |
|
|
|
|
|
|
(8 |
) |
Technology and other investments |
|
|
(44 |
) |
|
|
(14 |
) |
Other investments and property disposal proceeds |
|
|
16 |
|
|
|
42 |
|
|
Net Cash Required by Investing Activities |
|
|
(524 |
) |
|
|
(345 |
) |
|
Cash Flows Required by Financing Activities: |
|
|
|
|
|
|
|
|
Net change in financing with less than 90-day maturities |
|
|
(12 |
) |
|
|
126 |
|
Short-term debt proceeds |
|
|
45 |
|
|
|
25 |
|
Short-term debt reductions |
|
|
(27 |
) |
|
|
(32 |
) |
Long-term debt reductions |
|
|
(2 |
) |
|
|
(1 |
) |
Payments on other financing |
|
|
(2 |
) |
|
|
(1 |
) |
Treasury stock purchases |
|
|
(381 |
) |
|
|
(124 |
) |
Stock option exercises |
|
|
37 |
|
|
|
38 |
|
Excess tax benefits from stock-based compensation |
|
|
19 |
|
|
|
31 |
|
Tax withholding on restricted stock and restricted stock units |
|
|
(4 |
) |
|
|
|
|
Dividend payments |
|
|
(302 |
) |
|
|
(290 |
) |
Proceeds from noncontrolling interest |
|
|
8 |
|
|
|
|
|
Dividend payments to noncontrolling interest |
|
|
(47 |
) |
|
|
(31 |
) |
|
Net Cash Required by Financing Activities |
|
|
(668 |
) |
|
|
(259 |
) |
|
Cash Assumed from Initial Consolidations of Variable Interest Entities |
|
|
77 |
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
26 |
|
|
|
(1 |
) |
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
352 |
|
|
|
(349 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
1,485 |
|
|
|
1,956 |
|
|
Cash and Cash Equivalents at End of Period |
|
$ |
1,837 |
|
|
$ |
1,607 |
|
|
See Note 20 Supplemental Cash Flow Information for further details.
The accompanying notes are an integral part of these consolidated financial statements.
6
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
Statements of Consolidated Shareowners Equity and Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monsanto Shareowners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Reserve |
|
|
Non- |
|
|
|
|
(Dollars in millions, |
|
Common |
|
|
Treasury |
|
|
Contributed |
|
|
Retained |
|
|
Comprehensive |
|
|
for ESOP |
|
|
Controlling |
|
|
|
|
except per share data) |
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
(Loss)(1) |
|
|
Debt |
|
|
Interest |
|
|
Total |
|
|
Balance as of Aug. 31, 2009 |
|
$ |
6 |
|
|
$ |
(1,577 |
) |
|
$ |
9,695 |
|
|
$ |
2,682 |
|
|
$ |
(744 |
) |
|
$ |
(6 |
) |
|
$ |
69 |
|
|
$ |
10,125 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,109 |
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
1,128 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99 |
) |
|
|
|
|
|
|
(1 |
) |
|
|
(100 |
) |
Postretirement benefit plan activity,
net of tax of $(75) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113 |
) |
|
|
|
|
|
|
|
|
|
|
(113 |
) |
Unrealized net losses on investment
holdings, net of tax of $(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
Realized net losses on investment
holdings, net of tax of $6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Unrealized net derivative gains,
net of tax of $(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Realized net derivative losses, net of tax of $39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income for 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
974 |
|
Treasury stock purchases |
|
|
|
|
|
|
(533 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(533 |
) |
Restricted stock withholding |
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6 |
) |
Issuance of shares under employee stock plans |
|
|
|
|
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
Excess tax benefits from stock-based compensation |
|
|
|
|
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108 |
|
Cash dividends of $1.08 per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(583 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(583 |
) |
Dividend payments to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45 |
) |
|
|
(45 |
) |
Allocation of ESOP shares,
net of dividends received |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Donation of noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
Balance as of Aug. 31, 2010 |
|
$ |
6 |
|
|
$ |
(2,110 |
) |
|
$ |
9,896 |
|
|
$ |
3,208 |
|
|
$ |
(897 |
) |
|
$ |
(4 |
) |
|
$ |
44 |
|
|
$ |
10,143 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,023 |
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
1,041 |
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326 |
|
|
|
|
|
|
|
3 |
|
|
|
329 |
|
Postretirement benefit plan activity,
net of tax of $13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
20 |
|
Unrealized net gains on investment
holdings, net of tax of $3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
Unrealized net derivative gains,
net of tax of $69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
105 |
|
Realized net derivative gains, net of tax of $4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income for 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
1,500 |
|
Treasury stock purchases |
|
|
|
|
|
|
(381 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(381 |
) |
Restricted stock withholding |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
Issuance of shares under
employee stock plans |
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37 |
|
Excess tax benefits from stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53 |
|
Cash dividends of $0.56 per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(302 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(302 |
) |
Dividend payments to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47 |
) |
|
|
(47 |
) |
Allocation of ESOP shares,
net of dividends received |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Proceeds from noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
8 |
|
Noncontrolling interest in consolidated
variable interest entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107 |
|
|
|
107 |
|
|
Balance as of Feb. 28, 2011 |
|
$ |
6 |
|
|
$ |
(2,491 |
) |
|
$ |
10,001 |
|
|
$ |
3,929 |
|
|
$ |
(441 |
) |
|
$ |
(3 |
) |
|
$ |
133 |
|
|
$ |
11,134 |
|
|
|
|
|
(1) |
|
See Note 18 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
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED
NOTE 1. BACKGROUND AND BASIS OF PRESENTATION
Monsanto Company (the 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 and HARNESS brand herbicides and other herbicides. See
Note 22 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 23
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, 2010. Financial information for the first six months of
fiscal year 2011 should not be annualized because of the seasonality of the companys business.
NOTE 2. NEW ACCOUNTING STANDARDS
In July 2010, the FASB issued a new update that requires enhanced disclosures regarding credit
quality and the related allowance for credit losses of financing receivables. The new disclosures
require additional information for nonaccrual and past due accounts, the allowance for credit
losses, impaired loans, credit quality, and account modifications. Accordingly, Monsanto adopted
the new disclosure requirements in second quarter 2011, and the disclosures related to activities
during the reporting period will begin in the third quarter 2011. See Note 7 Receivables for
the new disclosures.
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 was 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, and adopted the additional
Level 3 requirements in fiscal year 2011. See Note 14 Fair Value Measurements for the new
disclosures.
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 adopted this standard on
Sept. 1, 2010. See Note 5 Variable Interest Entities for the disclosures required by this
standard.
8
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
In June 2009, the FASB issued a standard that removes the concept of a qualifying special-purpose
entity (QSPE) from U.S. generally accepted accounting principles (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
adopted this standard in first quarter fiscal year 2011. See Note 4 Customer Financing Programs
for additional discussion regarding impact on its QSPE related to a Brazilian financing program
and other financing programs.
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.
2011 Acquisitions: In February 2011, Monsanto acquired 100 percent of the outstanding stock of
Divergence, Inc., a biotechnology research and development company located in St. Louis, Missouri.
Acquisition costs were less than $1 million and were classified as selling, general, and
administrative (SG&A) expenses. The total cash paid and the fair value of the acquisition were $71
million (net of cash acquired), and the purchase price was primarily allocated to intangibles and goodwill. The
primary items that generated the goodwill were the premiums paid by the company for the right to
control the business acquired and the value of the acquired assembled workforce. The goodwill is
not deductible for tax purposes.
In December 2010, Monsanto acquired 100 percent of the outstanding stock of Pannon Seeds, a seed
processing plant located in Hungary, from IKR Production Development and Commercial Corporation.
The acquisition of this plant, which qualifies as a business under the Business Combinations topic
of the ASC, allows Monsanto to reduce third party seed production in Hungary. Acquisition costs
were less than $1 million and were classified as SG&A. The total fair value of the acquisition was
$32 million, and the purchase price was primarily allocated to fixed assets and goodwill. This fair value includes
$28 million of cash paid (net of cash acquired) and $4 million related to assumed liabilities. The
primary items that generated the goodwill were the premiums paid by the company for the right to
control the business acquired and the value of the acquired assembled workforce. The goodwill is
not deductible for tax purposes.
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 third party seed production in Chile, while increasing
production supply. Acquisition costs were less than $1 million and were classified as SG&A. 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. The primary items that generated the goodwill
were the premiums paid by the company for the right to control the business acquired and the value
of the acquired assembled 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
and were classified as SG&A. 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 (income) expense, net in
the Statement of Consolidated Operations for the quarter ended Nov. 30, 2009.
For all fiscal year 2011 and 2010 acquisitions described above, the business operations and
employees of the acquired entities were included in the Seeds and Genomics segment results upon
acquisition. These acquisitions were accounted for as business combinations. Accordingly, the
assets and liabilities of the acquired entities were recorded at their estimated fair values at the
dates of the acquisitions. 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
9
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
recognized for assets acquired and liabilities assumed, Monsanto will retrospectively adjust the
amounts recognized as of the acquisition date. 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.
NOTE 4. CUSTOMER FINANCING PROGRAMS
Monsanto participates in a revolving financing program in Brazil that allows Monsanto to transfer
up to 1 billion Brazilian reais (approximately $600 million) for selected customers in Brazil to a
special purpose entity, formerly a qualified special purpose entity. Third parties, primarily
investment funds, hold an 88 percent senior interest in the entity, and Monsanto holds the
remaining 12 percent interest. Under the arrangement, a recourse provision requires Monsanto to
cover the first 12 percent of credit losses within the program. The company has evaluated its
relationship with the entity under updated guidance within the Consolidation topic of the ASC and,
as a result, the entity has been consolidated effective Sept. 1, 2010. For further information on
this topic, see Note 5 Variable Interest Entities.
In this program, receivables are considered delinquent when payments are one day past due, but the
provisions on the financing program for nonperformance start on the 15th day past due. If a
customer fails to pay an obligation when it is due, the provisions for bad debt on the program will
be recorded. As of Feb. 28, 2011, there were no receivables sold through this financing program
that were delinquent. There were $3 million of receivables sold through this financing program that
were delinquent as of Aug. 31, 2010. Based on the companys historical collection experience with
these customers and a current assessment of credit exposure, Monsanto recorded its recourse
provision at $5 million as of Aug. 31, 2010. Since the entity is now consolidated, Monsanto
recorded a bad debt allowance related to these receivables of $2 million as of Feb. 28, 2011. The
maximum potential amount of exposure under the program was $12 million as of Feb. 28, 2011. 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 an agreement with a special purpose entity in Argentina to transfer customer
receivables and to service such accounts. The company has evaluated its relationship with this
entity under updated guidance within the Consolidation topic of the ASC and, as a result, the
entity has been consolidated effective Sept. 1, 2010. For further information on this topic, see
Note 5 Variable Interest Entities. As of Feb. 28, 2011, and Aug. 31, 2010, there were no
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 a bad debt allowance related to these receivables of less than $1 million as of
Feb. 28, 2011. The maximum potential amount of exposure under the program was $1 million as of Feb.
28, 2011.
Monsanto has an agreement in the United States to sell customer receivables up to a maximum of $500
million and to service such accounts. 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 $3 million and $2 million for the first six months of fiscal years 2011
and 2010, respectively. The agreement includes recourse provisions and thus a liability was
established at the time of sale that 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 $2 million as of Feb. 28, 2011, and Aug. 31, 2010. The
maximum potential amount of future payments under the recourse provisions of the agreement was $2
million as of Feb. 28, 2011. The outstanding balance of the receivables sold was $5 million and
$223 million as of Feb. 28, 2011, and Aug. 31, 2010, respectively. There were delinquent accounts
of $5 million and $3 million as of Feb. 28, 2011, and Aug. 31, 2010, respectively.
Monsanto also sells accounts receivable in the United States and European regions, both with and
without recourse. The sales within these programs 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 $4 million and $7 million for the first six months of fiscal years 2011 and 2010,
respectively. The liability for the guarantees for sales with recourse is recorded at an amount
that approximates fair value, based on the companys historical collection experience for the
customers associated with the sale of the receivables and a
10
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
current assessment of credit exposure. There was no liability balance as of Feb. 28, 2011. The
liability recorded by Monsanto was less than $1 million as of Aug. 31, 2010. There were no
outstanding balances of the receivables sold as of Feb. 28, 2011, and, therefore, no potential
future payments under the recourse provisions of the agreements as of Feb. 28, 2011. The
outstanding balance of the receivables sold was $86 million as of Aug. 31, 2010. There were no
delinquent accounts as of Feb. 28, 2011, or Aug. 31, 2010.
Monsanto has additional agreements with lenders to establish programs that provide financing of up
to 550 million Brazilian reais (approximately $330 million) for selected customers in Brazil.
Monsanto provides a guarantee of the accounts 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, 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 $1 million and $3 million as of Feb. 28, 2011, and
Aug. 31, 2010, 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 $72 million as of Feb. 28, 2011. The account balance outstanding
for these programs was $72 million and $100 million as of Feb. 28, 2011, and Aug. 31, 2010,
respectively. There were no delinquent accounts as of Feb. 28, 2011, and delinquent accounts of $2
million as of Aug. 31, 2010.
Monsanto also has similar agreements with banks that provide financing to its customers in the
United States, Brazil, Europe and Argentina. Under these programs, Monsanto provides a guarantee of
the accounts 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, 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 $1 million and $2 million as of Feb. 28, 2011, and Aug. 31,
2010, respectively. If performance is required under the guarantee, Monsanto may retain amounts
that are subsequently collected from customers. The maximum potential amount of future payments
under the guarantees was $36 million as of Feb. 28, 2011. The account balance outstanding for these
programs was $46 million and $36 million as of Feb. 28, 2011, and Aug. 31, 2010, respectively.
NOTE 5. VARIABLE INTEREST ENTITIES
Effective Sept. 1, 2010, Monsanto prospectively adopted the accounting standard update regarding
improvements to financial reporting by enterprises involving variable interest entities (VIEs). A
VIE is a legal entity that lacks sufficient equity to finance its activities, or the equity
investors of the entity as a group lack any of the characteristics of a controlling interest.
Monsanto is involved with various special purpose entities and other entities that are deemed to be
VIEs. Monsanto has determined that the company holds variable interests in entities that are
established as revolving financing programs. These programs allow the company to transfer a limited
amount of customer receivables to a VIE. One program is in Brazil and the other is in Argentina. In
addition, Monsanto has various variable interests in biotechnology companies that focus on plant
gene research, development, and commercialization. These variable interests have also been
determined to be VIEs.
If a company is considered the primary beneficiary of a VIE, the company is required to consolidate
the entity. The primary beneficiary of a VIE is the enterprise that has both the power to direct
the activities most significant to the economic performance of the VIE and the obligation to absorb
losses or receive benefits that could potentially be significant to the VIE. For all VIEs in which
the company has a variable interest, the company performs ongoing qualitative assessments to
determine whether it is the primary beneficiary. In determining whether Monsanto is the primary
beneficiary, a number of factors are considered, including the structure of the entity, contractual
provisions that grant any additional rights to influence or control the economic performance of the
VIE, and the companys obligation to absorb significant losses. In addition, the company determines
which activities most significantly impact the economic performance of the VIE and whether the
company has any rights that would allow it to direct those activities. If Monsanto is determined to
be the primary beneficiary, the assets, liabilities and operations of the VIE are consolidated.
As a result of the adoption of the updated accounting guidance, Monsanto was required to
consolidate certain VIEs that are established as revolving financing programs including the special
purpose entity referred to in Note 4 Customer Financing Programs. As of the date of the initial
consolidation of these VIEs, the company measured the assets and liabilities of the
11
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
newly consolidated VIEs at their carrying value. The company was not required to deconsolidate any
VIEs as of Sept. 1, 2010. The cumulative effect of the adoption of this guidance was insignificant
to additional contributed capital, retained earnings and accumulated other comprehensive loss and,
therefore, not identified separately on the Statement of Consolidated Shareowners Equity and
Comprehensive Income but is recorded within the Statement of Consolidated Operations.
Consolidated VIEs
Under the accounting guidance effective prior to Sept. 1, 2010, none of the interests in VIEs held
were consolidated by Monsanto. For the most part, the VIEs involving the revolving financing
programs are funded by investments from the company and other third parties, primarily investment
funds, and have been established to service Monsantos customer receivables. Creditors have no
recourse against Monsanto in the event of default by these VIEs nor does the company have any
implied or unfunded commitments to these VIEs. The companys financial or other support provided to
these VIEs is limited to its original investment. Even though Monsanto holds a subordinate interest
in the VIEs, the VIEs were established to service transactions involving the company and the
company determines the receivables that are included in the revolving financing programs.
Therefore, the determination is that Monsanto has the power to direct the activities most
significant to the economic performance of the VIEs. As a result, the company is the primary
beneficiary of these VIEs and, effective Sept. 1, 2010, these VIEs have been consolidated in
Monsantos Consolidated Financial Statements. The assets of these VIEs may only be used to settle
the obligations of the respective entity. Third-party investors in the VIEs do not have recourse to
the general assets of Monsanto other than the maximum exposure to loss relating to the VIE. The
following table presents the carrying value of assets and liabilities, which are identified as
restricted assets and liabilities on the companys Condensed Statement of Consolidated Financial
Position, and the maximum exposure to loss relating to the VIEs for which Monsanto is the primary
beneficiary.
|
|
|
|
|
|
|
|
As of Feb. 28, 2011 |
(Dollars in millions) |
|
Financing Programs VIEs |
|
|
Cash and cash equivalents |
|
$ |
13 |
|
Trade receivables, net |
|
|
101 |
|
|
Total Assets |
|
|
114 |
|
Total Liabilities |
|
|
|
|
Maximum Exposure to Loss |
|
$ |
13 |
|
|
Non-Consolidated VIEs
Monsanto has variable interests through investments and arrangements with biotechnology companies
that focus on plant gene research, development, and commercialization. The company has not provided
financial or other support with respect to these investments or arrangements other than its
original interest. The company also has no implied or unfunded commitments to these VIEs. The
company determined that it was not the primary beneficiary due to the relative size of Monsantos
investment in comparison to the total equity of the VIEs, the level of the companys obligation to
absorb losses or right to receive benefits from the VIEs, and the companys inability to direct the
activities that most significantly impact the economic performance of the VIEs. Monsantos maximum
exposure to loss on these variable interests is limited to the amount of the companys investment
in the entity. The following table presents the carrying value of assets and liabilities, and the
maximum exposure to loss relating to VIEs that the company does not consolidate:
|
|
|
|
|
|
|
|
As of Feb. 28, 2011 |
(Dollars in millions) |
|
Biotechnology VIEs |
|
|
Property, plant, and equipment, net |
|
$ |
4 |
|
Other intangible assets, net |
|
|
5 |
|
Other assets |
|
|
15 |
|
|
Total Non-Current Assets |
|
|
24 |
|
Total Liabilities |
|
|
|
|
Maximum Exposure to Loss |
|
$ |
15 |
|
|
12
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
Restructuring charges were recorded in the Statements of Consolidated Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, |
|
Six Months Ended Feb. 28, |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Cost of Goods Sold(1) |
|
$ |
(2 |
) |
|
$ |
(54 |
) |
|
$ |
(2 |
) |
|
$ |
(54 |
) |
Restructuring Charges, Net(1)(2) |
|
|
(1 |
) |
|
|
(30 |
) |
|
|
(8 |
) |
|
|
(44 |
) |
|
Loss from Continuing Operations Before Income Taxes |
|
|
(3 |
) |
|
|
(84 |
) |
|
|
(10 |
) |
|
|
(98 |
) |
Income Tax Benefit |
|
|
1 |
|
|
|
30 |
|
|
|
4 |
|
|
|
31 |
|
|
Net Loss |
|
$ |
(2 |
) |
|
$ |
(54 |
) |
|
$ |
(6 |
) |
|
$ |
(67 |
) |
|
|
|
|
(1) |
|
For the three months and the six months ended Feb. 28, 2011, the $2 million of
restructuring charges recorded in cost of goods sold related to the Seeds and Genomics
segment. For the three months ended Feb. 28, 2011, the $1 million of restructuring charges
recorded in restructuring charges, net related to the Seeds and Genomics segment. For the six
months ended Feb. 28, 2011, the $8 million of restructuring charges recorded in restructuring
charges, net were split by segment as follows: $(4) million in Agricultural Productivity and
$12 million in Seeds and Genomics. For the three months and the six months ended Feb. 28,
2010, the $54 million of restructuring charges recorded in cost of goods sold related to the
Seeds and Genomics segment. For the three months ended Feb. 28, 2010, the $30 million of
restructuring charges, net were split by segment as follows: $25 million in Agricultural
Productivity and $5 million in Seeds and Genomics. For the six months ended Feb. 28, 2010, the
$44 million of restructuring charges, net were split by segment as follows: $36 million in
Agricultural Productivity and $8 million in Seeds and Genomics. |
|
(2) |
|
The restructuring charges for the three months and the six months ended Feb. 28,
2011, include reversals of $25 million related to the 2009 Restructuring Plan. The
restructuring charges for the three months and the six months ended Feb. 28, 2010, include
reversals of $9 million and $11 million, respectively, related to the 2009 Restructuring Plan.
The reversals are primarily related to severance. Although positions originally included in
the plan were eliminated, individuals found new roles within the company due to 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. These actions are designed to enable Monsanto to stabilize the
Agricultural Productivity business and allow it to deliver optimal gross profit and a sustainable
level of operating cash in the coming years, while better aligning spending and working capital
needs. 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 previously announced restructuring plan. Furthermore, while implementing the plan,
the company identified additional opportunities to better align the companys resources, and on
Aug. 26, 2010, committed to take additional actions. The plan was substantially completed in the
first quarter of fiscal year 2011, and the remaining payments are expected to be made by the end of
the fourth quarter in fiscal year 2011.
The following table displays the pretax charges by segment under the 2009 Restructuring Plan of $3
million and $84 million incurred for the three months ended Feb. 28, 2011, and Feb. 28, 2010,
respectively, the pretax charges of $10 million and $98
13
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
million incurred for the six months ended Feb. 28, 2011, and Feb. 28, 2010, respectively, as well
as the cumulative pretax charges of $740 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, |
|
Six Months Ended Feb. 28, |
|
|
Seeds and |
|
Agricultural |
|
|
|
|
|
|
|
|
|
Seeds and |
|
Agricultural |
|
|
|
|
Genomics |
|
Productivity |
|
Total |
|
Genomics |
|
Productivity |
|
Total |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
Work Force Reductions |
|
$ |
|
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
4 |
|
|
$ |
(11 |
) |
|
$ |
4 |
|
|
$ |
(7 |
) |
|
$ |
11 |
|
|
$ |
(18 |
) |
|
$ |
15 |
|
Facility Closures / Exit Costs |
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
24 |
|
|
|
1 |
|
|
|
26 |
|
|
|
23 |
|
|
|
3 |
|
|
|
3 |
|
|
|
25 |
|
|
|
26 |
|
|
|
28 |
|
Asset Impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Inventory |
|
|
2 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
54 |
|
|
|
2 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
54 |
|
|
|
|
Total Restructuring Charges, Net |
|
$ |
3 |
|
|
$ |
59 |
|
|
$ |
|
|
|
$ |
25 |
|
|
$ |
3 |
|
|
$ |
84 |
|
|
$ |
14 |
|
|
$ |
62 |
|
|
$ |
(4 |
) |
|
$ |
36 |
|
|
$ |
10 |
|
|
$ |
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Amount through Feb. 28, 2011 |
|
|
Seeds and |
|
|
Agricultural |
|
|
|
|
(Dollars in millions) |
|
Genomics |
|
|
Productivity |
|
|
Total |
|
|
Work Force Reductions |
|
$ |
249 |
|
|
$ |
103 |
|
|
$ |
352 |
|
Facility Closures / Exit Costs |
|
|
72 |
|
|
|
81 |
|
|
|
153 |
|
Asset Impairments |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment |
|
|
39 |
|
|
|
5 |
|
|
|
44 |
|
Inventory |
|
|
119 |
|
|
|
13 |
|
|
|
132 |
|
Other intangible assets |
|
|
59 |
|
|
|
|
|
|
|
59 |
|
|
Total Restructuring Charges, Net |
|
$ |
538 |
|
|
$ |
202 |
|
|
$ |
740 |
|
|
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 addition, when the decision to commit to a restructuring plan requires an
asset impairment review, Monsanto evaluates such impairment issues under the Property, Plant and
Equipment topic of the ASC.
In the six months ended Feb. 28, 2011, pretax restructuring charges of $10 million were recorded.
The facility closures/exit costs of $26 million relate primarily to the finalization of the
termination of a corn toller contract in the United States. In workforce reductions, approximately
$7 million of additional charges were offset by $25 million of reversals. Although positions
originally included in the plan were eliminated, individuals found new roles within the company due
to attrition. In asset impairments, inventory impairments of $2 million recorded in cost of goods
sold related to discontinued corn and sorghum seed products in the United States. In the six months
ended Feb. 28, 2010, pretax restructuring charges of $98 million were recorded. The $15 million in
workforce reductions relate primarily to Europe. The facility closures/exit costs of $28 million
relate primarily to the finalization of the termination of a chemical supply contract in the United
States. In asset impairments, inventory impairments of $54 million recorded in cost of goods sold
related to discontinued corn seed products in the United States.
The following table summarizes the activities related to the companys 2009 Restructuring Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Work Force |
|
|
Facility Closures / |
|
|
Asset |
|
|
|
|
(Dollars in millions) |
|
Reductions |
|
|
Exit Costs |
|
|
Impairments |
|
|
Total |
|
|
Beginning Liability as of Aug. 31, 2010 |
|
$ |
153 |
|
|
$ |
44 |
|
|
$ |
|
|
|
$ |
197 |
|
Restructuring charges recognized in first six
months of fiscal year 2011 |
|
|
(18 |
) |
|
|
26 |
|
|
|
2 |
|
|
|
10 |
|
Cash payments |
|
|
(84 |
) |
|
|
(68 |
) |
|
|
|
|
|
|
(152 |
) |
Asset impairments and write-offs |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(2 |
) |
Foreign currency impact |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
Ending Liability as of Feb. 28, 2011 |
|
$ |
57 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
59 |
|
|
14
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
Trade receivables on the Condensed Statements of Consolidated Financial Position are net of
allowances of $111 million and $143 million as of Feb. 28, 2011, and Aug. 31, 2010, respectively.
Effective with the second quarter of 2011, the company adopted the amended guidance in the
Receivables topic of the ASC which requires greater transparency about a companys allowance for
credit losses and the credit quality of its financing receivables. The company has financing
receivables that represent long-term customer receivable balances related to past due accounts
which are not expected to be collected within the current year. The long-term customer receivables
were $265 million and $239 million with a corresponding allowance for credit losses on these
receivables of $253 million and $226 million, as of Feb. 28, 2011, and Aug. 31, 2010, respectively.
These long-term customer receivable balances and the corresponding allowance are included in
long-term receivables, net on the Condensed Statements of Consolidated Financial Position. For
these long-term customer receivables, interest is no longer accrued when the receivable is
determined to be delinquent and classified as long-term based on estimated timing of collection.
In addition, the company has long-term contractual receivables. These receivables are collected at
fixed and determinable dates in accordance with the customer long-term agreement. The long-term
contractual receivables were $447 million and $500 million, as of Feb. 28, 2011, and Aug. 31, 2010,
respectively, and did not have any allowance recorded related to these balances. These receivables
are included in long-term receivables, net on the Condensed Statements of Consolidated Financial
Position. There are no balances related to these long-term contractual receivables that are past
due. These receivables are outstanding with large, reputable companies who have been timely with
scheduled payments thus far and are considered to be fully collectible. Interest is accrued on
these receivables in accordance with the agreements and is included within interest income in the
Statements of Consolidated Operations. See Note 11 Deferred Revenue for more details on the
significant agreements related to these long-term contractual receivables.
On an ongoing basis, the company evaluates credit quality of its financing receivables utilizing
aging of receivables, collection experience and write-offs, as well as evaluating existing economic
conditions, to determine if an allowance is necessary. As of Feb. 28, 2011, no significant
long-term receivable balances are considered to be impaired.
Components of inventory are:
|
|
|
|
|
|
|
|
|
|
|
|
As of Feb. 28, |
|
As of Aug. 31, |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
Finished Goods |
|
$ |
1,355 |
|
|
$ |
1,134 |
|
Goods In Process |
|
|
1,437 |
|
|
|
1,333 |
|
Raw Materials and Supplies |
|
|
433 |
|
|
|
383 |
|
|
|
|
|
|
Inventory at FIFO Cost |
|
|
3,225 |
|
|
|
2,850 |
|
Excess of FIFO over LIFO Cost |
|
|
(135 |
) |
|
|
(111 |
) |
|
|
|
|
|
Total |
|
$ |
3,090 |
|
|
$ |
2,739 |
|
|
|
|
|
|
15
|
|
|
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the net carrying amount of goodwill for the first six months of fiscal year 2011, by
segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seeds and |
|
|
Agricultural |
|
|
|
|
(Dollars in millions) |
|
Genomics |
|
|
Productivity |
|
|
Total |
|
|
Balance as of Aug. 31, 2010 |
|
$ |
3,147 |
|
|
$ |
57 |
|
|
$ |
3,204 |
|
Acquisition activity (see Note 3) |
|
|
50 |
|
|
|
|
|
|
|
50 |
|
Effect of foreign currency translation adjustments |
|
|
66 |
|
|
|
|
|
|
|
66 |
|
|
Balance as of Feb. 28, 2011 |
|
$ |
3,263 |
|
|
$ |
57 |
|
|
$ |
3,320 |
|
|
In the six months ended Feb. 28, 2011, goodwill increased due to the 2011 acquisitions of
Divergence and Pannon Seeds and the effects of foreign currency translation adjustments. See Note 3
Business Combinations for further information. There were no events or circumstances
indicating that goodwill might be impaired as of Feb. 28, 2011. The 2011 annual goodwill impairment
test will be performed as of March 1, 2011.
Information regarding the companys other intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of Feb. 28, 2011 |
|
As of Aug. 31, 2010 |
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
|
|
(Dollars in millions) |
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
|
|
Intangible
Assets with Finite Lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired germplasm |
|
$ |
1,180 |
|
|
$ |
(668 |
) |
|
$ |
512 |
|
|
$ |
1,161 |
|
|
$ |
(640 |
) |
|
$ |
521 |
|
Acquired
intellectual property |
|
|
961 |
|
|
|
(681 |
) |
|
|
280 |
|
|
|
866 |
|
|
|
(649 |
) |
|
|
217 |
|
Trademarks |
|
|
349 |
|
|
|
(102 |
) |
|
|
247 |
|
|
|
344 |
|
|
|
(94 |
) |
|
|
250 |
|
Customer relationships |
|
|
327 |
|
|
|
(130 |
) |
|
|
197 |
|
|
|
317 |
|
|
|
(113 |
) |
|
|
204 |
|
Other |
|
|
128 |
|
|
|
(55 |
) |
|
|
73 |
|
|
|
121 |
|
|
|
(50 |
) |
|
|
71 |
|
|
|
|
Total Other Intangible Assets, Finite Lives |
|
$ |
2,945 |
|
|
$ |
(1,636 |
) |
|
$ |
1,309 |
|
|
$ |
2,809 |
|
|
$ |
(1,546 |
) |
|
$ |
1,263 |
|
|
|
|
In process research &
development, indefinite lives |
|
|
44 |
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Intangible Assets |
|
$ |
2,989 |
|
|
$ |
(1,636 |
) |
|
$ |
1,353 |
|
|
$ |
2,809 |
|
|
$ |
(1,546 |
) |
|
$ |
1,263 |
|
|
|
|
The increase in acquired intellectual property during the six months ended Feb. 28, 2011,
primarily resulted from the purchase of licenses that provide Monsanto the access to use technology
patents.
The in-process research and development was a result of the acquisition of Divergence described in
Note 3 Business Combinations. This asset is subject to an indefinite life until the research is
developed and commercialized.
Total amortization expense of other intangible assets was $37 million in second quarter of fiscal
year 2011 and $39 million in second quarter of fiscal year 2010. Total amortization expense of
other intangible assets was $75 million for the six months ended Feb. 28, 2011, and $79 million for
the six months ended Feb. 28, 2010. The estimated intangible asset amortization expense for fiscal
year 2011 through fiscal year 2015 is as follows:
|
|
|
|
|
|
(Dollars in millions) |
|
Amount |
|
|
2011 |
|
$ |
151 |
|
2012 |
|
|
139 |
|
2013 |
|
|
112 |
|
2014 |
|
|
117 |
|
2015 |
|
|
113 |
|
|
16
|
|
|
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 10. INVESTMENTS AND EQUITY AFFILIATES
Investments
As of Feb. 28, 2011, Monsanto has short-term investments outstanding of $180 million. See Note 14
Fair Value Measurements for further discussion related to these investments.
During fiscal year 2010, Monsanto invested in long-term debt securities with a cost of $15 million,
which were classified as available-for-sale as of Aug. 31, 2010. The investments were recorded in
other assets in the Condensed Statement of Consolidated Financial Position at their fair value of
$10 million as of Aug. 31, 2010. Net unrealized losses (net of deferred taxes) of $3 million were
included in accumulated other comprehensive loss in shareowners equity related to these
investments as of Aug. 31, 2010. As a result of the adoption of a new accounting standard within
the Consolidation topic of the ASC, the special purpose entity in which the company invested is now
consolidated and the investment is no longer included in other assets in the Condensed Statement of
Consolidated Financial Position. See Note 5 Variable Interest Entities for further discussion
related to these debt securities.
Monsanto has investments in long-term equity securities, which are considered available-for-sale.
As of Feb. 28, 2011, and Aug. 31, 2010, these long-term equity securities are recorded in other
assets in the Condensed Statements of Consolidated Financial Position at a fair value of $36
million and $23 million, respectively. Net unrealized gains (net of deferred taxes) of $6 million
and $3 million are included in accumulated other comprehensive loss in shareowners equity related
to these investments as of Feb. 28, 2011, and Aug. 31, 2010, 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 Feb.
28, 2011, and Aug. 31, 2010, this investment is recorded in other assets in the Condensed
Statements of Consolidated Financial Position at $68 million and $65 million, respectively.
Monsanto purchased $72 million and $141 million of inventory from the seed supplier for the three
and six months ended Feb. 28, 2011, respectively, and $101 million and $109 million for the three
and six months ended Feb. 28, 2010. There were no sales of inventory to the seed supplier in either
2011 or 2010. As of Feb. 28, 2011, and Aug. 31, 2010, the amount payable to the seed supplier was
$23 million and $5 million, respectively, and recorded in accounts payable in the Condensed
Statements of Consolidated Financial Position. As of Feb. 28, 2011, there were no prepayments,
while the prepayment as of Aug. 31, 2010, was $7 million, included in other current assets in the
Condensed Statements of Consolidated Financial Position related to inventory delivered in fiscal
year 2011.
NOTE 11. 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 Feb. 28, 2011, and Feb. 28, 2010, and revenue of $40 million was
recorded for the six months ended Feb. 28, 2011, and Feb. 28, 2010. As of Feb. 28, 2011, and Aug.
31, 2010, the remaining receivable balance is $386 million and $470 million, respectively. The
majority of this balance is included in long-term receivables, and the current portion is included
in trade receivables. As of Feb. 28, 2011, and Aug. 31, 2010, the remaining deferred revenue
balance is $357 million and $397 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 $3 million and $7 million for the three and six months
ended Feb. 28, 2011, respectively. Interest income for the three and six months ended Feb. 28,
2010, was $4 million and $8 million, respectively.
17
|
|
|
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
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. Revenue of $3 million related to this
agreement was recorded for the three and six months ended Feb. 28, 2011. As of Feb. 28, 2011, and
Aug. 31, 2010, the remaining receivable balance is $73 million 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 $1 million for
both the three and six months ended Feb. 28, 2011, and Feb. 28, 2010. As of Feb. 28, 2011, and Aug.
31, 2010, the remaining deferred revenue balance of $64 million and $67 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.
Management regularly assesses the tax risk of the companys tax return filing positions for all
open years and establishes reserves accordingly. During the first half of 2011, statutes expired in
several ex-US jurisdictions. Additionally, the company benefitted from the retroactive extension of
the research and development credit pursuant to the enactment of the Tax Relief, Unemployment
Insurance Reauthorization, and Job Creation Act of 2010. Primarily as a result of these items,
Monsanto recorded a tax benefit of $18 million in the first half of 2011.
During the first half 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 preparation of tax returns in several jurisdictions. Primarily as a result of these
items, Monsanto recorded a tax benefit of $32 million in the first half of 2010.
NOTE 13. DEBT AND OTHER CREDIT ARRANGEMENTS
In early April 2011, Monsanto finalized a new $2 billion credit facility agreement with a group of
banks. This agreement provides a four-year senior unsecured revolving credit facility, which
replaces the existing $2 billion credit facility established in 2007.
Monsanto plans to issue new fixed-rate debt on or before Aug. 15, 2012, to repay $486 million of
7 3/8% 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 and losses, net of tax, of $6 million and $8 million were recorded in accumulated
other comprehensive loss to reflect the aftertax change in the fair value of the forward-starting
interest rate swaps as of Feb. 28, 2011, and Aug. 31, 2010, respectively. In August 2010, the
company entered into forward-starting interest rate swaps with a total notional amount of $225
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. An unrealized gain and loss, net of tax, of $17 million and $9 million were
recorded in accumulated other comprehensive loss to reflect the aftertax change in the fair value
of the forward-starting interest rate swaps as of Feb. 28, 2011, and Aug. 31, 2010, respectively.
These swaps are accounted for under the Derivatives and Hedging topic of the ASC.
Monsanto plans to issue new fixed-rate debt on or before April 15, 2011. In July 2010, the company
entered into forward-starting interest rate swaps with a total notional amount of $300 million. The
purpose of the swaps was to hedge the
18
|
|
|
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
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 losses, net of tax, of
$5 million and $7 million were recorded in accumulated other comprehensive loss to reflect the
aftertax change in the fair value of the forward-starting interest rate swaps as of Feb. 28, 2011,
and Aug. 31, 2010, respectively.
The fair value of the total short-term debt was $409 million and $241 million as of Feb. 28, 2011,
and Aug. 31, 2010, respectively. The fair value of the total long-term debt was $1,864 million and
$2,094 million as of Feb. 28, 2011, and Aug. 31, 2010, respectively.
As of Feb. 28, 2011, Monsanto had no commercial paper borrowings outstanding.
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 which is included in
short-term debt on the Condensed Statements of Consolidated Financial Position as of Feb. 28, 2011.
NOTE 14. FAIR VALUE MEASUREMENTS
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.
The following tables set forth by level Monsantos assets and liabilities that were accounted for
at fair value on a recurring basis as of Feb. 28, 2011, and Aug. 31, 2010. 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
19
|
|
|
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
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 Feb. 28, 2011, Using |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral |
|
|
Net |
|
(Dollars in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Offset(1) |
|
|
Balance |
|
|
Assets at Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
1,525 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,525 |
|
Short-term investments |
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180 |
|
Equity securities |
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36 |
|
Derivative assets related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Interest rates |
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
40 |
|
Corn |
|
|
44 |
|
|
|
4 |
|
|
|
|
|
|
|
(43 |
) |
|
|
5 |
|
Soybeans |
|
|
38 |
|
|
|
6 |
|
|
|
|
|
|
|
(38 |
) |
|
|
6 |
|
Energy and raw materials |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
Total Assets at Fair Value |
|
$ |
1,823 |
|
|
$ |
65 |
|
|
$ |
|
|
|
$ |
(81 |
) |
|
$ |
1,807 |
|
|
Liabilities at Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency |
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
Interest rates |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Corn |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Soybeans |
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
Energy and raw materials |
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
Total Liabilities at Fair Value |
|
$ |
3 |
|
|
$ |
41 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Aug. 31, 2010, Using |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral |
|
|
Net |
|
(Dollars in millions) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Offset(1) |
|
|
Balance |
|
|
Assets at Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
1,078 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,078 |
|
Debt and equity securities |
|
|
23 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
33 |
|
Derivative assets related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency |
|
|
|
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
26 |
|
Corn |
|
|
10 |
|
|
|
2 |
|
|
|
|
|
|
|
(9 |
) |
|
|
3 |
|
Soybeans |
|
|
6 |
|
|
|
3 |
|
|
|
|
|
|
|
(6 |
) |
|
|
3 |
|
|
Total Assets at Fair Value |
|
$ |
1,117 |
|
|
$ |
31 |
|
|
$ |
10 |
|
|
$ |
(15 |
) |
|
$ |
1,143 |
|
|
Liabilities at Fair Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency |
|
$ |
|
|
|
$ |
5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5 |
|
Interest rates |
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
39 |
|
Corn |
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Soybeans |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Energy and raw materials |
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
22 |
|
|
Total Liabilities at Fair Value |
|
$ |
|
|
|
$ |
79 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
79 |
|
|
|
|
|
(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. |
20
|
|
|
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
The following table summarizes the changes in fair value of the Level 3 asset as of Feb. 28,
2011.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
|
Six Months
Ended |
|
(Dollars in millions) |
|
Feb. 28, 2011 |
|
|
Feb. 28, 2011 |
|
|
|
|
Beginning Balance |
|
$ |
10 |
|
|
$ |
10 |
|
Elimination due to consolidation of variable interest entities |
|
|
(10 |
) |
|
|
(10 |
) |
|
|
|
Ending Balance |
|
$ |
|
|
|
$ |
|
|
|
|
|
Short-term investments of treasury bills and commercial paper with original maturities of one
year or less are stated at fair value. Because these investments are valued at purchase price and
are traded in an active market these investments are considered to be Level 1.
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 six months ended Feb. 28, 2011, 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, miscellaneous short-term accruals,
and short-term debt approximate their fair values as of Feb. 28, 2011, and Aug. 31, 2010.
NOTE 15. FINANCIAL INSTRUMENTS
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, such as
forward-starting interest rate swaps, 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 cash flow hedges, the effective
portion of the gain or loss on the derivative is reported as a component of accumulated other
comprehensive loss and reclassified into earnings in the period or periods during which the hedged
transaction affects earnings. Gains and losses on the derivative representing either hedge
ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in
current earnings.
The maximum term over which the company is hedging exposures to the variability of cash flow (for
all forecasted transactions) is 18 months for foreign currency hedges, 37 months for commodity
hedges and 18 months for interest rate hedges. During the next 12 months, a pretax net gain of
approximately $81 million will be reclassified from other comprehensive loss into earnings. During
the three and six months ended Feb. 28, 2011, no cash flow hedges were discontinued. During the
three and six months ended Feb. 28, 2010, a loss of $25 million and $29 million, respectively, was
21
|
|
|
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
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.
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 fair value
hedges, 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. No fair-value hedges were
discontinued during the three and six months ended Feb. 28, 2011, or Feb. 28, 2010.
Net Investment Hedges
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 with 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 mitigates the commodity price exposure from the time a
contract is signed with a customer until the time a grain merchant collects the grain from the
customer on Monsantos behalf. The forward sales contracts do not qualify for hedge accounting
treatment 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.
The notional amounts of the companys derivative instruments outstanding as of Feb. 28, 2011, and
Aug. 31, 2010, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of Feb. 28, |
|
|
As of Aug. 31, |
|
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
|
|
Derivatives Designated as Hedges: |
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
336 |
|
|
$ |
383 |
|
Commodity contracts |
|
|
473 |
|
|
|
387 |
|
Interest rate contracts |
|
|
775 |
|
|
|
775 |
|
|
|
|
Total Derivatives Designated as Hedges |
|
$ |
1,584 |
|
|
$ |
1,545 |
|
|
|
|
Derivatives Not Designated as Hedges: |
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
1,196 |
|
|
$ |
862 |
|
Commodity contracts |
|
|
138 |
|
|
|
123 |
|
|
|
|
Total Derivatives Not Designated as Hedges |
|
$ |
1,334 |
|
|
$ |
985 |
|
|
|
|
22
|
|
|
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
The fair values of the companys derivative instruments outstanding as of Feb. 28, 2011, and
Aug. 31, 2010, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Location |
|
Fair Value(1) |
|
|
|
|
As of Feb. 28, |
|
As of Aug. 31, |
(Dollars in millions) |
|
|
|
2011 |
|
2010 |
|
|
|
Asset Derivatives: |
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedges: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Miscellaneous receivables |
|
$ |
6 |
|
|
$ |
23 |
|
Foreign exchange contracts |
|
Other assets |
|
|
1 |
|
|
|
|
|
Commodity contracts |
|
Other current assets(1) |
|
|
74 |
|
|
|
12 |
|
Commodity contracts |
|
Other assets(1) |
|
|
12 |
|
|
|
4 |
|
Interest rate contracts |
|
Other assets |
|
|
40 |
|
|
|
|
|
|
|
|
Total derivatives designated as hedges |
|
|
|
|
133 |
|
|
|
39 |
|
|
|
|
Derivatives not designated as hedges: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Miscellaneous receivables |
|
|
4 |
|
|
|
3 |
|
Commodity contracts |
|
Trade receivables, net |
|
|
10 |
|
|
|
5 |
|
|
|
|
Total derivatives not designated as hedges |
|
|
|
|
14 |
|
|
|
8 |
|
|
|
|
Total Asset Derivatives |
|
|
|
$ |
147 |
|
|
$ |
47 |
|
|
|
|
Liability Derivatives: |
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedges: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Miscellaneous short-term accruals |
|
$ |
9 |
|
|
$ |
|
|
Foreign exchange contracts |
|
Other liabilities |
|
|
2 |
|
|
|
|
|
Commodity contracts |
|
Other current assets(1) |
|
|
3 |
|
|
|
|
|
Commodity contracts |
|
Miscellaneous short-term accruals |
|
|
7 |
|
|
|
14 |
|
Commodity contracts |
|
Other liabilities |
|
|
6 |
|
|
|
8 |
|
Interest rate contracts |
|
Miscellaneous short-term accruals |
|
|
4 |
|
|
|
11 |
|
Interest rate contracts |
|
Other liabilities |
|
|
|
|
|
|
28 |
|
|
|
|
Total derivatives designated as hedges |
|
|
|
|
31 |
|
|
|
61 |
|
|
|
|
Derivatives not designated as hedges: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Miscellaneous short-term accruals |
|
|
6 |
|
|
|
5 |
|
Commodity contracts |
|
Trade receivables, net |
|
|
1 |
|
|
|
4 |
|
Commodity contracts |
|
Miscellaneous short-term accruals |
|
|
6 |
|
|
|
9 |
|
|
|
|
Total derivatives not designated as hedges |
|
|
|
|
13 |
|
|
|
18 |
|
|
|
|
Total Liability Derivatives |
|
|
|
$ |
44 |
|
|
$ |
79 |
|
|
|
|
|
|
|
(1) |
|
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 14 Fair Value Measurements for a
reconciliation to amounts reported in the Condensed Statements of Consolidated Financial
Position as of Feb. 28, 2011, and Aug. 31, 2010. |
23
|
|
|
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 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 Feb. 28, |
|
|
Three Months Ended Feb. 28, |
|
|
Income Statement |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Classification |
|
|
|
|
|
Derivatives Designated as Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts(4) |
|
|
|
|
|
|
|
|
|
$ |
(12 |
) |
|
$ |
13 |
|
|
Cost of goods sold |
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
(8 |
) |
|
$ |
(1 |
) |
|
|
(1 |
) |
|
|
1 |
|
|
Net sales |
Foreign exchange contracts |
|
|
(7 |
) |
|
|
20 |
|
|
|
4 |
|
|
|
1 |
|
|
Cost of goods sold |
Commodity contracts |
|
|
80 |
|
|
|
(44 |
) |
|
|
1 |
|
|
|
(54 |
) |
|
Cost of goods sold |
Interest rate contracts |
|
|
34 |
|
|
|
8 |
|
|
|
(1 |
) |
|
|
(1 |
) |
|
Interest expense |
|
|
|
|
|
Total Derivatives Designated as Hedges |
|
|
99 |
|
|
|
(17 |
) |
|
|
(9 |
) |
|
|
(40 |
) |
|
|
|
|
|
|
|
Derivatives Not Designated as Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts(6) |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
(12 |
) |
|
Other expense, net |
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
Net sales |
|
|
|
|
|
Total Derivatives Not Designated as Hedges |
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
Total Derivatives |
|
$ |
99 |
|
|
$ |
(17 |
) |
|
$ |
(3 |
) |
|
$ |
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
|
|
Recognized in AOCI(1) |
|
|
Amount of Gain (Loss) |
|
|
|
|
|
(Effective Portion) |
|
|
Recognized in Income(2)(3) |
|
|
|
|
|
Six Months Ended Feb. 28, |
|
|
Six Months Ended Feb. 28, |
|
|
Income Statement |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
Classification |
|
|
|
|
|
Derivatives Designated as Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts(4) |
|
|
|
|
|
|
|
|
|
$ |
(20 |
) |
|
$ |
8 |
|
|
Cost of goods sold |
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
(13 |
) |
|
$ |
(6 |
) |
|
|
(3 |
) |
|
|
2 |
|
|
Net sales |
Foreign exchange contracts |
|
|
(9 |
) |
|
|
11 |
|
|
|
8 |
|
|
|
8 |
|
|
Cost of goods sold |
Commodity contracts |
|
|
121 |
|
|
|
29 |
|
|
|
(4 |
) |
|
|
(68 |
) |
|
Cost of goods sold |
Interest rate contracts |
|
|
75 |
|
|
|
4 |
|
|
|
(3 |
) |
|
|
(3 |
) |
|
Interest expense |
Net investment hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
N/A(5) |
|
|
|
|
|
Total Derivatives Designated as Hedges |
|
|
174 |
|
|
|
35 |
|
|
|
(22 |
) |
|
|
(53 |
) |
|
|
|
|
|
|
|
Derivatives Not Designated as Hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts(6) |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
(20 |
) |
|
Other expense, net |
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
Net sales |
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
Cost of goods sold |
|
|
|
|
|
Total Derivatives Not Designated as Hedges |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
Total Derivatives |
|
$ |
174 |
|
|
$ |
35 |
|
|
$ |
(18 |
) |
|
$ |
(73 |
) |
|
|
|
|
|
|
|
|
|
|
(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. |
|
(3) |
|
Gain or loss on commodity cash flow hedges includes a gain of less than $1 million
and loss of less than $(1) million from ineffectiveness for the three months ended Feb. 28,
2011, and Feb. 28, 2010, respectively, and a gain of less than $1 million and $1 million from
ineffectiveness for the six months ended Feb. 28, 2011, and Feb. 28, 2010, respectively. There
were no hedges discontinued for the three or six months ended Feb. 28, 2011. Additionally, the
gain or loss on commodity cash flow hedges includes a loss from discontinued hedges of $25
million and $29 million for the three and six months ended Feb. 28, 2010, respectively. |
|
(4) |
|
Loss and gain on commodity fair value hedges is offset by a gain of $8 million and a
loss of $(12) million on the underlying hedged inventory for the three months ended Feb. 28,
2011, and Feb. 28, 2010, respectively, and a gain of $15 million and a loss of $(7) million on
the underlying hedged inventory for the six months ended Feb. 28, 2011, and Feb. 28, 2010,
respectively. A loss and gain from ineffectiveness of $(4) million and $1 million,
respectively, during the three months ended Feb. 28, |
24
|
|
|
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
|
|
|
|
|
|
2011, and Feb. 28, 2010, and a loss and gain from ineffectiveness of $(5) million and $1
million, respectively, during the six months ended Feb. 28, 2011, and Feb. 28, 2010,
respectively, was included in cost of goods sold. |
|
(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 loss of $24 million and less than $1 million during the three
months ended Feb. 28, 2011, and Feb. 28, 2010, respectively, and a loss of $(38) million and a
gain of $5 million during the six months ended Feb. 28, 2011, and Feb. 28, 2010, 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 is $32 million as of Feb. 28, 2011, and Feb. 28, 2010, 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 Feb. 28, 2011, and Aug. 31, 2010, 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 agricultural products 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 secured when it is deemed appropriate by the company.
Monsanto regularly evaluates its business practices to minimize its credit risk. During the six
months ended Feb. 28, 2011, and Aug. 31, 2010, the company engaged multiple banks in the United
States, Argentina, Brazil and Europe in the development of customer financing options that involve
direct bank financing of customer purchases. For further information on these programs, see Note 4
Customer Financing Programs.
25
|
|
|
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 16. 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 contracts. The companys net periodic benefit cost for
pension benefits, and health care and other postretirement benefits include the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, 2011 |
|
Three Months Ended Feb. 28, 2010 |
|
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 |
|
$ |
14 |
|
|
$ |
1 |
|
|
$ |
15 |
|
|
$ |
12 |
|
|
$ |
1 |
|
|
$ |
13 |
|
Interest Cost on Benefit Obligation |
|
|
20 |
|
|
|
3 |
|
|
|
23 |
|
|
|
22 |
|
|
|
4 |
|
|
|
26 |
|
Assumed Return on Plan Assets |
|
|
(26 |
) |
|
|
(4 |
) |
|
|
(30 |
) |
|
|
(29 |
) |
|
|
(4 |
) |
|
|
(33 |
) |
Amortization of Unrecognized Net Loss |
|
|
17 |
|
|
|
2 |
|
|
|
19 |
|
|
|
13 |
|
|
|
1 |
|
|
|
14 |
|
Curtailment and Settlement Charge (Gain) |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
(7 |
) |
|
|
(5 |
) |
|
|
|
Total Net Periodic Benefit Cost (Gain) |
|
$ |
25 |
|
|
$ |
4 |
|
|
$ |
29 |
|
|
$ |
20 |
|
|
$ |
(5 |
) |
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended Feb. 28, 2011 |
|
Six Months Ended Feb. 28, 2010 |
|
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 |
|
$ |
30 |
|
|
$ |
4 |
|
|
$ |
34 |
|
|
$ |
25 |
|
|
$ |
3 |
|
|
$ |
28 |
|
Interest Cost on Benefit Obligation |
|
|
43 |
|
|
|
6 |
|
|
|
49 |
|
|
|
47 |
|
|
|
8 |
|
|
|
55 |
|
Assumed Return on Plan Assets |
|
|
(55 |
) |
|
|
(8 |
) |
|
|
(63 |
) |
|
|
(61 |
) |
|
|
(8 |
) |
|
|
(69 |
) |
Amortization of Unrecognized Net Loss |
|
|
36 |
|
|
|
3 |
|
|
|
39 |
|
|
|
27 |
|
|
|
2 |
|
|
|
29 |
|
Curtailment and Settlement Charge (Gain) |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
(7 |
) |
|
|
(5 |
) |
|
|
|
Total Net Periodic Benefit Cost (Gain) |
|
$ |
54 |
|
|
$ |
7 |
|
|
$ |
61 |
|
|
$ |
40 |
|
|
$ |
(2 |
) |
|
$ |
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Care and Other Postretirement Benefits |
|
Three Months Ended Feb. 28, |
|
Six Months Ended Feb. 28, |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
Service Cost for Benefits Earned During the Period |
|
$ |
3 |
|
|
$ |
2 |
|
|
$ |
5 |
|
|
$ |
5 |
|
Interest Cost on Benefit Obligation |
|
|
3 |
|
|
|
2 |
|
|
|
5 |
|
|
|
6 |
|
Amortization of Unrecognized Net Gain |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
(6 |
) |
|
|
|
Total Net Periodic Benefit Cost |
|
$ |
5 |
|
|
$ |
2 |
|
|
$ |
9 |
|
|
$ |
5 |
|
|
|
|
Monsanto contributed $30 million and $75 million to its U.S. qualified plan in the six month
period ended Feb. 28, 2011, and Feb. 28, 2010, respectively. Monsanto contributed $8 million and
$11 million to plans outside the United States in the six month period ended Feb. 28, 2011, and
Feb. 28, 2010, respectively. Management is currently evaluating the initial results of the funded
status of its U.S. qualified plan. Pending a final determination, additional plan contributions
exceeding the amount already contributed in the six month period ended Feb. 28, 2011, are
reasonably possible during the remainder of the fiscal year. As of Feb. 28, 2011, management
expects to make additional contributions of approximately $2 million to the companys pension plans
outside the United States during the remainder of fiscal year 2011.
Employee Savings Plan
The Monsanto leveraged employee stock ownership plan debt was restructured in December 2004 and
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 $57 million
26
|
|
|
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
and $56 million is due to the Monsanto Savings and Investment Plan from the company and is included
in other liabilities on the Condensed Statements of Financial Position as of Feb. 28, 2011, and
Aug. 31, 2010, respectively, related to these restructurings.
NOTE 17. STOCK-BASED COMPENSATION PLANS
The following table shows total stock-based compensation expense included in the Statements of
Consolidated Operations for the three and six months ended Feb. 28, 2011, and Feb. 28, 2010.
Stock-based compensation cost capitalized in inventory was $7 million and $8 million as of Feb. 28,
2011, and Aug. 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, |
|
Six Months Ended Feb. 28, |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
Cost of Goods Sold |
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
9 |
|
|
$ |
8 |
|
Selling, General and Administrative Expenses |
|
|
17 |
|
|
|
17 |
|
|
|
33 |
|
|
|
32 |
|
Research and Development Expenses |
|
|
7 |
|
|
|
7 |
|
|
|
13 |
|
|
|
12 |
|
|
|
|
Pre-Tax Stock-Based Compensation Expense |
|
|
28 |
|
|
|
28 |
|
|
|
55 |
|
|
|
52 |
|
Income Tax Benefit |
|
|
(10 |
) |
|
|
(10 |
) |
|
|
(19 |
) |
|
|
(18 |
) |
|
|
|
Net Stock-Based Compensation Expense |
|
$ |
18 |
|
|
$ |
18 |
|
|
$ |
36 |
|
|
$ |
34 |
|
|
|
|
The following table summarizes stock-based compensation activity for the six months ended Feb.
28, 2011, for employees under the Monsanto Company Long-Term Incentive Plan (LTIP), as amended, and
the Monsanto Company 2005 Long-Term Incentive Plan (2005 LTIP), and for directors under the
Monsanto Non-Employee Director Incentive Compensation Plan (Director Plan):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LTIP and 2005 LTIP |
|
Director Plan |
|
|
Stock |
|
|
Restricted |
|
|
Restricted |
|
|
Deferred |
|
|
Restricted |
|
|
|
Options |
|
|
Stock Units |
|
|
Stock |
|
|
Stock |
|
|
Stock |
|
|
|
|
Granted |
|
|
3,964,630 |
|
|
|
252,410 |
|
|
|
3,120 |
|
|
|
24,387 |
|
|
|
6,279 |
|
Weighted-average grant date fair value |
|
$ |
19.60 |
|
|
$ |
56.73 |
|
|
$ |
62.50 |
|
|
$ |
54.66 |
|
|
$ |
55.56 |
|
|
|
|
Pre-tax unrecognized compensation expense for stock options, net of estimated forfeitures, was
$100 million as of Feb. 28, 2011, and will be recognized as expense over a weighted-average period
of 2.1 years. Pre-tax unrecognized compensation expense, net of estimated forfeitures, for
nonvested restricted stock units and restricted stock was $53 million and less than $1 million,
respectively, as of Feb. 28, 2011, 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 units and restricted stock were 2.0 years and 1.8 years, respectively,
as of Feb. 28, 2011. Pre-tax unrecognized compensation expense for awards granted under the
Director Plan was $1 million as of Feb. 28, 2011, and will be recognized as expense over a
weighted-average period of one year.
27
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 18. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes all nonshareowner changes in equity. It 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 (loss) is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
Feb. 28, |
|
Six Months Ended Feb. 28, |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
Comprehensive Income |
|
$ |
1,294 |
|
|
$ |
700 |
|
|
$ |
1,500 |
|
|
$ |
940 |
|
|
|
|
The components of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of Feb. 28, |
|
|
As of Aug. 31, |
|
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
|
|
|
|
Accumulated Foreign Currency Translation Adjustments |
|
$ |
86 |
|
|
$ |
(240 |
) |
Net Unrealized Gain on Investments, Net of Tax |
|
|
6 |
|
|
|
|
|
Net Accumulated Derivative Loss (Income), Net of Tax |
|
|
56 |
|
|
|
(48 |
) |
Postretirement Benefit Plan Activity, Net of Tax |
|
|
(589 |
) |
|
|
(609 |
) |
|
|
|
|
|
Accumulated Other Comprehensive Loss |
|
$ |
(441 |
) |
|
$ |
(897 |
) |
|
|
|
|
|
NOTE 19. 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 six months ended
Feb. 28, 2011, and Feb. 28, 2010, 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 12 million and 8 million stock options were excluded from the computations of
dilutive potential common shares as they were antidilutive for the three and six months ended Feb.
28, 2011, and Feb. 28, 2010, respectively. Of those antidilutive options, approximately 8 million
and 5 million stock options were excluded from the computations of dilutive potential common shares
for the three and six months ended Feb. 28, 2011, and Feb. 28, 2010, as their exercise prices were
greater than the average market price of common shares for the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, |
|
Six Months Ended Feb. 28, |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
Weighted-Average Number of Common Shares |
|
|
536.3 |
|
|
|
545.8 |
|
|
|
537.6 |
|
|
|
545.7 |
|
Dilutive Potential Common Shares |
|
|
6.1 |
|
|
|
7.6 |
|
|
|
6.1 |
|
|
|
7.7 |
|
|
|
|
28
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
NOTE 20. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended Feb. 28, |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
Interest |
|
$ |
83 |
|
|
$ |
81 |
|
Taxes |
|
|
66 |
|
|
|
160 |
|
|
During the first half of fiscal 2011 and 2010, the company recorded the following noncash
investing and financing transaction: In second quarter 2011 and 2010, the board of directors
declared a dividend which was payable in third quarter 2011 and 2010, respectively. As of Feb. 28,
2011, and Feb. 28, 2010, a dividend payable of $150 million and $145 million, respectively, was
recorded.
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 Feb. 28, 2011, $324 million
is included in short-term debt on the Condensed Statement of Consolidated Financial Position. See
Note 13 Debt and Other Credit Arrangements for further details.
NOTE 21. 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 $241 million and $255 million as of Feb. 28, 2011, and Aug.
31, 2010, 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, 2010.
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 our Report on Form 10-K for the fiscal year ended Aug. 31, 2010, and
Monsantos Report on Form 10-Q for the quarterly period ended Nov. 30, 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 Sept.
6, 2011, for the Bibb class action. |
29
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MONSANTO COMPANY
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SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
|
|
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 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 our Report on Form 10-K for the fiscal year ended Aug. 31, 2010, and
Monsantos Report on Form 10-Q for the quarterly period ended Nov. 30, 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, and on July 30,
2010, the Court issued its decision affirming the decision of the District Court in all
respects. The plaintiffs subsequent petition for rehearing and petition for rehearing en banc
was denied in an order of the Court of Appeals issued on Sept. 14, 2010. On Dec. 13, 2010, the
plaintiffs filed a petition for a writ of certiorari with the United States Supreme Court,
which was denied by the Court on March 21, 2011. |
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, 2010. 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, 2010.
NOTE 22. 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
30
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MONSANTO COMPANY
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|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
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 quarters of 2009, respectively, are included in the all other crops
seeds and traits operating segment. In February 2011, the company reorganized the operating
segments within our Agricultural Productivity reportable segment as a result of a change in the way
the Chief Executive Officer, who is the chief operating decision maker, evaluates the performance
of operations, develops strategy and allocates capital resources. The ROUNDUP and other
glyphosate-based herbicides operating segment and the all other agricultural products operating
segments within Agricultural Productivity were combined into one operating segment titled
Agricultural Productivity which is now managed as one business representing our weed management
platform and supporting our Seeds and Genomics business. The change in operating segments had no
impact on the companys reportable segments. The historical segment disclosures have been recast to
be consistent with the current presentation. The Dairy business, which was previously included in
the Agricultural Productivity segment, was divested in fiscal year 2009 and is included in
discontinued operations. EBIT is defined as earnings (loss) before interest and taxes. 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 SG&A expenses are allocated between
segments based on activity. Based on the Agricultural Productivity segments decreasing
contribution to total Monsanto operations, the allocation percentages were changed at the beginning
of fiscal year 2011.
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 Feb. 28, |
|
Six Months Ended Feb. 28, |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
Net Sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn seed and traits |
|
$ |
2,397 |
|
|
$ |
2,247 |
|
|
$ |
3,011 |
|
|
$ |
2,816 |
|
Soybean seed and traits |
|
|
615 |
|
|
|
633 |
|
|
|
841 |
|
|
|
834 |
|
Cotton seed and traits |
|
|
67 |
|
|
|
34 |
|
|
|
179 |
|
|
|
93 |
|
Vegetable seeds |
|
|
229 |
|
|
|
223 |
|
|
|
412 |
|
|
|
396 |
|
All other crops seeds and traits |
|
|
113 |
|
|
|
111 |
|
|
|
141 |
|
|
|
140 |
|
|
|
|
Total seeds and genomics |
|
$ |
3,421 |
|
|
$ |
3,248 |
|
|
$ |
4,584 |
|
|
$ |
4,279 |
|
|
|
|
Agricultural productivity |
|
|
708 |
|
|
|
642 |
|
|
|
1,375 |
|
|
|
1,308 |
|
|
|
|
Total agricultural productivity |
|
$ |
708 |
|
|
$ |
642 |
|
|
$ |
1,375 |
|
|
$ |
1,308 |
|
|
|
|
Total |
|
$ |
4,129 |
|
|
$ |
3,890 |
|
|
$ |
5,959 |
|
|
$ |
5,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn seed and traits |
|
$ |
1,506 |
|
|
$ |
1,420 |
|
|
$ |
1,845 |
|
|
$ |
1,724 |
|
Soybean seed and traits |
|
|
414 |
|
|
|
386 |
|
|
|
567 |
|
|
|
525 |
|
Cotton seed and traits |
|
|
42 |
|
|
|
15 |
|
|
|
116 |
|
|
|
48 |
|
Vegetable seeds |
|
|
125 |
|
|
|
138 |
|
|
|
238 |
|
|
|
250 |
|
All other crops seeds and traits |
|
|
44 |
|
|
|
53 |
|
|
|
44 |
|
|
|
62 |
|
|
|
|
Total seeds and genomics |
|
$ |
2,131 |
|
|
$ |
2,012 |
|
|
$ |
2,810 |
|
|
$ |
2,609 |
|
|
|
|
Agricultural productivity |
|
|
177 |
|
|
|
87 |
|
|
|
316 |
|
|
|
229 |
|
|
|
|
Total agricultural productivity |
|
$ |
177 |
|
|
$ |
87 |
|
|
$ |
316 |
|
|
$ |
229 |
|
|
|
|
Total |
|
$ |
2,308 |
|
|
$ |
2,099 |
|
|
$ |
3,126 |
|
|
$ |
2,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT(2)(3)(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seeds and genomics |
|
$ |
1,403 |
|
|
$ |
1,362 |
|
|
$ |
1,383 |
|
|
$ |
1,305 |
|
Agricultural productivity |
|
|
60 |
|
|
|
(87 |
) |
|
|
120 |
|
|
|
(53 |
) |
|
|
|
Total |
|
$ |
1,463 |
|
|
$ |
1,275 |
|
|
$ |
1,503 |
|
|
$ |
1,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seeds and genomics |
|
$ |
124 |
|
|
$ |
114 |
|
|
$ |
246 |
|
|
$ |
224 |
|
Agricultural productivity |
|
|
31 |
|
|
|
36 |
|
|
|
64 |
|
|
|
70 |
|
|
|
|
Total |
|
$ |
155 |
|
|
$ |
150 |
|
|
$ |
310 |
|
|
$ |
294 |
|
|
|
|
|
|
|
(1) |
|
Represents net sales from continuing operations. |
31
|
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MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED (continued)
|
|
|
(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. |
|
(3) |
|
Agricultural Productivity EBIT includes income from operations of discontinued
businesses of $4 million for the three months ended Feb. 28, 2011, and $4 million and $5
million for the six months ended Feb. 28, 2011, and Feb. 28, 2010, respectively. |
|
(4) |
|
EBIT includes restructuring charges for three and six months ended Feb. 28, 2011.
See Note 6 Restructuring for additional information. |
A reconciliation of EBIT to net income for each period follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, |
|
Six Months Ended Feb. 28, |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
EBIT(1) |
|
$ |
1,463 |
|
|
$ |
1,275 |
|
|
$ |
1,503 |
|
|
$ |
1,252 |
|
Interest Expense Net |
|
|
20 |
|
|
|
27 |
|
|
|
48 |
|
|
|
55 |
|
Income Tax Provision(2) |
|
|
426 |
|
|
|
361 |
|
|
|
432 |
|
|
|
329 |
|
|
|
|
Net Income Attributable to Monsanto Company |
|
$ |
1,017 |
|
|
$ |
887 |
|
|
$ |
1,023 |
|
|
$ |
868 |
|
|
|
|
|
|
|
(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 provision on discontinued operations. |
NOTE 23. 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. During the three and six months
ended Feb. 28, 2011, income from operations of discontinued business included a $2 million pre-tax
gain related to the contingency. 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
three and six months ended Feb. 28, 2011, income from operations of discontinued businesses
included a $2 million pre-tax gain related to the sale of assets. During the six months ended Feb.
28, 2010, income from operations of discontinued businesses included a $5 million pre-tax gain
related to the sale of assets.
32
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MONSANTO COMPANY
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SECOND QUARTER 2011 FORM 10-Q |
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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 and HARNESS brand herbicides and other herbicides.
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 23
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, 2010. Financial information for the first six months of
fiscal year 2011 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 GAAP.
EBIT is defined as earnings (loss) before interest and taxes. Earnings is intended to mean net
income (loss) attributable to Monsanto Company as presented in the Statements of Consolidated
Operations under GAAP. 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 22
Segment Information for a reconciliation of EBIT to net income attributable to Monsanto Company
for the three and six months ended Feb. 28, 2011, and Feb. 28, 2010.
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
33
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MONSANTO COMPANY
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|
SECOND QUARTER 2011 FORM 10-Q |
|
believe that free cash flow is useful to investors and management as a measure of the ability of
our business to generate cash. This cash can be used to meet business needs and obligations, to
reinvest in the company for future growth, or to return to our shareowners through dividend
payments or share repurchases. Free cash flow is also used by management as one of the performance
measures in determining incentive compensation. See the Financial Condition, Liquidity, and
Capital Resources Cash Flow section of MD&A for a reconciliation of free cash flow to net cash
provided (required) by operating activities and net cash required by investing activities on the
Statements of Consolidated Cash Flows.
Executive Summary
Consolidated Operating Results Net sales increased $239 million, or six percent, in the
three-month comparison and $372 million, or seven percent, in the six-month comparison. This
increase was primarily a result of increased sales of corn and cotton seed and traits as well as
increased sales in Agricultural Productivity. Net income in first half 2011 was $1.88 per share,
compared with $1.57 per share in first half 2010.
Financial Condition, Liquidity, and Capital Resources In first half 2011, net cash provided by
operating activities was $1,441 million, compared with $256 million in the prior-year period. This
increase was primarily due to improved earnings and a favorable change in accounts payable and
other accrued liabilities and deferred revenue. Net cash required by investing activities was $524
million in first half of 2011 compared with $345 million in first half of 2010, primarily due to
purchases of short-term investments. As a result, free cash flow improved to $917 million for the
six months ended Feb. 28, 2011, compared with a negative $89 million for the six months ended Feb.
28, 2010. For a more detailed discussion of the factors affecting the free cash flow comparison,
see the Cash Flow section of the Financial Condition, Liquidity, and Capital Resources section
in this MD&A.
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 help produce healthier foods for consumers. Our
current research and development (R&D) strategy and commercial priorities are focused on bringing
our farmer customers second- and third-generation traits, on delivering multiple solutions in one
seed (stacking), and on developing new pipeline products. Our capabilities in biotechnology and
breeding research are generating a rich product pipeline that is expected to drive long-term
growth. The viability of our product pipeline depends in part on the speed of regulatory approvals
globally, and on continued patent and legal rights to offer our products.
ROUNDUP herbicides remain the largest crop protection brand globally. Following a period of
increasing inventories within the global glyphosate market and expansion of global glyphosate
production capacity, the market moved to an overcapacity position. As a result, the significant
supply of lower-priced generics caused increased competitive pressure in the market. 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, 2010.
34
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|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, |
|
Six Months Ended Feb. 28, |
(Dollars in millions, except per share amounts) |
|
2011 |
|
|
2010 |
|
|
Change |
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
|
Net Sales |
|
$ |
4,129 |
|
|
$ |
3,890 |
|
|
|
6 |
% |
|
$ |
5,959 |
|
|
$ |
5,587 |
|
|
|
7 |
% |
Gross Profit |
|
|
2,308 |
|
|
|
2,099 |
|
|
|
10 |
% |
|
|
3,126 |
|
|
|
2,838 |
|
|
|
10 |
% |
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
502 |
|
|
|
512 |
|
|
|
(2 |
)% |
|
|
952 |
|
|
|
1,008 |
|
|
|
(6 |
)% |
Research and development expenses |
|
|
320 |
|
|
|
279 |
|
|
|
15 |
% |
|
|
623 |
|
|
|
546 |
|
|
|
14 |
% |
Restructuring charges, net |
|
|
1 |
|
|
|
30 |
|
|
|
(97 |
)% |
|
|
8 |
|
|
|
44 |
|
|
|
(82 |
)% |
|
|
|
Total Operating Expenses |
|
|
823 |
|
|
|
821 |
|
|
|
NM |
|
|
|
1,583 |
|
|
|
1,598 |
|
|
|
(1 |
)% |
|
|
|
Income from Operations |
|
|
1,485 |
|
|
|
1,278 |
|
|
|
16 |
% |
|
|
1,543 |
|
|
|
1,240 |
|
|
|
24 |
% |
Interest expense |
|
|
39 |
|
|
|
41 |
|
|
|
(5 |
)% |
|
|
82 |
|
|
|
80 |
|
|
|
3 |
% |
Interest income |
|
|
(19 |
) |
|
|
(14 |
) |
|
|
36 |
% |
|
|
(34 |
) |
|
|
(25 |
) |
|
|
36 |
% |
Other expense (income) net |
|
|
11 |
|
|
|
2 |
|
|
|
450 |
% |
|
|
23 |
|
|
|
(10 |
) |
|
|
(330 |
)% |
|
|
|
Income from Continuing Operations Before Income Taxes |
|
|
1,454 |
|
|
|
1,249 |
|
|
|
16 |
% |
|
|
1,472 |
|
|
|
1,195 |
|
|
|
23 |
% |
Income tax provision |
|
|
428 |
|
|
|
360 |
|
|
|
19 |
% |
|
|
434 |
|
|
|
330 |
|
|
|
32 |
% |
|
|
|
Income
from Continuing Operations Including Portion Attributable to Noncontrolling Interest |
|
|
1,026 |
|
|
|
889 |
|
|
|
15 |
% |
|
|
1,038 |
|
|
|
865 |
|
|
|
20 |
% |
|
|
|
Discontinued Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of discontinued businesses |
|
|
4 |
|
|
|
|
|
|
|
NM |
|
|
|
4 |
|
|
|
5 |
|
|
|
(20 |
)% |
Income tax provision |
|
|
1 |
|
|
|
|
|
|
|
NM |
|
|
|
1 |
|
|
|
|
|
|
|
NM |
|
|
|
|
Income on Discontinued Operations |
|
|
3 |
|
|
|
|
|
|
|
NM |
|
|
|
3 |
|
|
|
5 |
|
|
|
(40 |
)% |
|
|
|
Net Income |
|
$ |
1,029 |
|
|
$ |
889 |
|
|
|
16 |
% |
|
$ |
1,041 |
|
|
$ |
870 |
|
|
|
20 |
% |
|
|
|
Less: Net income attributable to noncontrolling interest |
|
|
12 |
|
|
|
2 |
|
|
|
500 |
% |
|
|
18 |
|
|
|
2 |
|
|
|
800 |
% |
|
|
|
Net Income Attributable to Monsanto Company |
|
$ |
1,017 |
|
|
$ |
887 |
|
|
|
15 |
% |
|
$ |
1,023 |
|
|
$ |
868 |
|
|
|
18 |
% |
|
|
|
Diluted Earnings per Share Attributable to Monsanto Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.87 |
|
|
$ |
1.60 |
|
|
|
17 |
% |
|
$ |
1.88 |
|
|
$ |
1.56 |
|
|
|
21 |
% |
Income on discontinued operations |
|
|
0.01 |
|
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
0.01 |
|
|
|
(100 |
)% |
|
|
|
Net Income |
|
$ |
1.88 |
|
|
$ |
1.60 |
|
|
|
18 |
% |
|
$ |
1.88 |
|
|
$ |
1.57 |
|
|
|
20 |
% |
|
|
|
NM = Not Meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate |
|
|
29 |
% |
|
|
29 |
% |
|
|
|
|
|
|
29 |
% |
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison as a Percent of Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
56 |
% |
|
|
54 |
% |
|
|
|
|
|
|
52 |
% |
|
|
51 |
% |
|
|
|
|
Selling, general and administrative expenses |
|
|
12 |
% |
|
|
13 |
% |
|
|
|
|
|
|
16 |
% |
|
|
18 |
% |
|
|
|
|
Research and development expenses |
|
|
8 |
% |
|
|
7 |
% |
|
|
|
|
|
|
10 |
% |
|
|
10 |
% |
|
|
|
|
Total operating expenses |
|
|
20 |
% |
|
|
21 |
% |
|
|
|
|
|
|
27 |
% |
|
|
29 |
% |
|
|
|
|
Income from continuing operations before income taxes |
|
|
35 |
% |
|
|
32 |
% |
|
|
|
|
|
|
25 |
% |
|
|
21 |
% |
|
|
|
|
Net income attributable to Monsanto Company |
|
|
25 |
% |
|
|
23 |
% |
|
|
|
|
|
|
17 |
% |
|
|
16 |
% |
|
|
|
|
Second Quarter Fiscal Year 2011
The following explanations discuss the significant components of our results of operations
that affected the quarter-to-quarter comparison of our second quarter income from continuing
operations:
Net sales increased six percent in second quarter 2011 from the same quarter a year ago.
Our Seeds and Genomics segment net sales increased five percent, and our Agricultural Productivity
segment net sales increased 10 percent. The following table
35
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
presents the percentage changes in second quarter 2011 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2011 Percentage Change in Net Sales vs. Second Quarter 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of |
|
|
|
|
|
|
Volume |
|
|
Price |
|
|
Currency |
|
|
Subtotal |
|
|
Acquisitions(1) |
|
|
Net Change |
|
|
|
|
Seeds and Genomics Segment |
|
|
3 |
% |
|
|
2 |
% |
|
|
|
|
|
|
5 |
% |
|
|
|
|
|
|
5 |
% |
Agricultural Productivity
Segment |
|
|
9 |
% |
|
|
1 |
% |
|
|
|
|
|
|
10 |
% |
|
|
|
|
|
|
10 |
% |
Total Monsanto Company |
|
|
4 |
% |
|
|
2 |
% |
|
|
|
|
|
|
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 2011 and 2010.
Acquisitions are segregated in this presentation for one year from the acquisition date. |
For a more detailed discussion of the factors affecting the net sales comparison, see the
Seeds and Genomics Segment and the Agricultural Productivity Segment sections.
Gross profit increased 10 percent in the three-month comparison. Gross profit as a
percent of net sales (gross profit percentage) for the total company increased two percentage
points to 56 percent in second quarter 2011 primarily driven by the increase in Agricultural
Productivity, cotton and soy margins. Gross profit percentage in the
Seeds and Genomics Segment
remained flat at 62 percent in second quarter 2011. See the Seeds and Genomics Segment section of
MD&A for further details. Gross profit percentage for the Agricultural Productivity segment
increased 11 percentage points to 25 percent in second quarter 2011. This increase was due to cost
improvements. See the Agricultural Productivity Segment section of the MD&A for further details
regarding the Agricultural Productivity gross profit.
Operating expenses increased $2 million, in second quarter 2011 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 as well as
savings from restructuring actions. R&D expenses increased 15 percent related to the increase in
our expanded product pipeline. As a percent of net sales, SG&A decreased one percentage point to 12
percent, and R&D expenses increased one percentage point to eight percent.
Interest income increased $5 million in the quarter-over-quarter comparison because of increased
income earned on our investments in second quarter 2011.
Other expense net was expense of $11 million in second quarter 2011, compared with expense of $2
million in the prior-year quarter. The increase occurred due to an increase in foreign currency
losses in the current year primarily related to the Venezuela currency devaluation.
Income tax provision was $428 million in second quarter 2011, an increase of $68
million over the prior-year quarter primarily as a result of the increase in pretax income from
continuing operations. The effective tax rate of 29 percent in second quarter 2011 was the same as
the prior-year quarter. Second quarter 2011 included several discrete tax adjustments
resulting in a tax benefit of $18 million. The majority of this benefit resulted from the enactment
of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 which led
to the retroactive extension of the research and development credit (R&D credit) and the expiration
of statutes in several ex-U.S. jurisdictions. Second quarter 2010 included several discrete tax
adjustments resulting in a tax benefit of $16 million. This mainly resulted from the resolution of
domestic tax matters, the expiration of statutes in several ex-U.S. jurisdictions, and favorable
adjustments from the preparation of tax returns in several jurisdictions. Without the discrete
items, our effective tax rate for second quarter 2011 would still have been comparable to the 2010
rate.
First Half of Fiscal Year 2011
The following explanations discuss the significant components of our results of operations
that affected the six-month comparison of our first half of fiscal years 2011 and 2010 income from
continuing operations:
Net sales increased seven percent in first half 2011 from the same period a year ago. Our
Seeds and Genomics segment net sales increased seven percent, and our Agricultural Productivity
segment net sales increased five percent. The following table
36
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
presents the percentage changes in first half 2011 worldwide net sales by segment compared with net
sales in the prior-year first half, including the effect volume, price, currency and acquisitions
had on these percentage changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half 2011 Percentage Change in Net Sales vs. First Half 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of |
|
|
|
|
|
|
Volume |
|
|
Price |
|
|
Currency |
|
|
Subtotal |
|
|
Acquisitions(1) |
|
|
Net Change |
|
|
|
|
Seeds and Genomics Segment |
|
|
5 |
% |
|
|
2 |
% |
|
|
|
|
|
|
7 |
% |
|
|
|
|
|
|
7 |
% |
Agricultural Productivity
Segment |
|
|
9 |
% |
|
|
(5 |
)% |
|
|
1 |
% |
|
|
5 |
% |
|
|
|
|
|
|
5 |
% |
Total Monsanto Company |
|
|
6 |
% |
|
|
|
|
|
|
1 |
% |
|
|
7 |
% |
|
|
|
|
|
|
7 |
% |
|
|
|
|
(1) |
|
See Note 3 Business Combinations and Financial Condition, Liquidity, and
Capital Resources in MD&A for details of our acquisitions in fiscal years 2011 and 2010.
Acquisitions are segregated in this presentation for one year from the acquisition date. |
For a more detailed discussion of the factors affecting the net sales comparison, see the
Seeds and Genomics Segment and the Agricultural Productivity Segment sections.
Gross profit increased 10 percent in the six-month comparison. Gross profit percentage for the
total company increased one percentage point to 52 percent in first half 2011. Gross profit
percentage in the Seeds and Genomics segment remained flat at 61 percent in first half 2011. See the
Seeds and Genomics Segment section of MD&A for further details. Gross profit percentage for the
Agricultural Productivity segment increased five percentage points to 23 percent in the first six
months of 2011 because of cost improvements. See the Agricultural Productivity Segment section of
the MD&A for the further information regarding the Agricultural Productivity gross profit.
Operating expenses decreased one percent, or $15 million, in first half 2011 from the prior-year
comparable half. In the six-month comparison, SG&A expenses decreased six percent primarily because
of lower spending for marketing, administrative functions and savings from restructuring actions,
and R&D expenses increased 14 percent related to the increase in our expanded product pipeline. As
a percent of net sales, SG&A expenses decreased two percentage points to 16 percent, and R&D
expenses remained flat at 10 percent in the six-month comparison.
Interest income increased $9 million in the six-month comparison because of more interest earned on
our investments in first half 2011.
Other expense (income) net was expense of $23 million in the first half of 2011, compared with
income of $10 million in the prior-year first half. The change occurred due to increased foreign
currency losses in the current year and the gain recorded on the Seminium acquisition in the prior
year.
Income tax provision was $434 million in first half 2011, an increase of $104 million
from the prior-year comparable period primarily as a result of the increase in pretax income from
continuing operations. The effective tax rate increased slightly to 29 percent from 28 percent in
the prior period. First half 2011 included several discrete tax adjustments resulting in a tax
benefit of $18 million. The majority of this benefit resulted from the retroactive extension of the
R&D credit discussed above and the expiration of statutes in several jurisdictions. First half 2010
included several discrete tax adjustments resulting in a tax benefit of $32 million. The majority
of this benefit was a result of the expiration of statutes in several jurisdictions and the
resolution of domestic and ex-U.S. tax matters. In addition, favorable adjustments were recorded as
a result of the preparation of tax returns in several jurisdictions. Without the discrete items,
our effective tax rate for first half 2011 would have been comparable to the 2010 rate.
37
|
|
|
|
|
|
MONSANTO COMPANY
|
|
SECOND QUARTER 2011 FORM 10-Q |
|
SEEDS AND GENOMICS SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, |
|
Six Months Ended Feb. 28, |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
Change |
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn seed and traits |
|
$ |
2,397 |
|
|
$ |
2,247 |
|
|
|
7 |
% |
|
$ |
3,011 |
|
|
$ |
2,816 |
|
|
|
7 |
% |
Soybean seed and traits |
|
|
615 |
|
|
|
633 |
|
|
|
(3 |
)% |
|
|
841 |
|
|
|
834 |
|
|
|
1 |
% |
Cotton seed and traits |
|
|
67 |
|
|
|
34 |
|
|
|
97 |
% |
|
|
179 |
|
|
|
93 |
|
|
|
92 |
% |
Vegetable seeds |
|
|
229 |
|
|
|
223 |
|
|
|
3 |
% |
|
|
412 |
|
|
|
396 |
|
|
|
4 |
% |
All other crops seeds and traits |
|
|
113 |
|
|
|
111 |
|
|
|
2 |
% |
|
|
141 |
|
|
|
140 |
|
|
|
1 |
% |
|
|
|
Total Net Sales |
|
$ |
3,421 |
|
|
$ |
3,248 |
|
|
|
5 |
% |
|
$ |
4,584 |
|
|
$ |
4,279 |
|
|
|
7 |
% |
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corn seed and traits |
|
$ |
1,506 |
|
|
$ |
1,420 |
|
|
|
6 |
% |
|
$ |
1,845 |
|
|
$ |
1,724 |
|
|
|
7 |
% |
Soybean seed and traits |
|
|
414 |
|
|
|
386 |
|
|
|
7 |
% |
|
|
567 |
|
|
|
525 |
|
|
|
8 |
% |
Cotton seed and traits |
|
|
42 |
|
|
|
15 |
|
|
|
180 |
% |
|
|
116 |
|
|
|
48 |
|
|
|
142 |
% |
Vegetable seeds |
|
|
125 |
|
|
|
138 |
|
|
|
(9 |
)% |
|
|
238 |
|
|
|
250 |
|
|
|
(5 |
)% |
All other crops seeds and traits |
|
|
44 |
|
|
|
53 |
|
|
|
(17 |
)% |
|
|
44 |
|
|
|
62 |
|
|
|
(29 |
)% |
|
|
|
Total Gross Profit |
|
$ |
2,131 |
|
|
$ |
2,012 |
|
|
|
6 |
% |
|
$ |
2,810 |
|
|
$ |
2,609 |
|
|
|
8 |
% |
|
|
|
EBIT(1) |
|
$ |
1,403 |
|
|
$ |
1,362 |
|
|
|
3 |
% |
|
$ |
1,383 |
|
|
$ |
1,305 |
|
|
|
6 |
% |
|
|
|
|
|
|
(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 22 Segment Information and the Overview Non-GAAP Financial Measures section of
MD&A for further details. |
Seeds and Genomics Financial Performance Second Quarter Fiscal Year 2011
Net sales of corn seed and traits increased seven percent, or $150 million, in the three-month
comparison, primarily because of higher sales in the United States and Brazil. These increases were
driven by increased volumes due to higher planted acres in Brazil, increased volumes shipped in the
United States and a shift to higher margin corn trait products.
Cotton seed and traits net sales increased 97 percent, or $33 million, in the three-month
comparison. Current year sales improved as we are experiencing lower sales deductions for grower
programs. Prior year growers experienced a drought in Texas that resulted in increased
participation in our crop loss and drought programs.
The net sales increases discussed throughout this section resulted in $119 million higher gross
profit in second quarter 2011. Gross profit as a percent of sales for this segment remained flat in
the quarter-over-quarter comparison at 62 percent. This gross profit increase was primarily driven
by increased sales for cotton seed and trait sales as we experienced lower sales deductions for
grower programs as well as increased penetration of higher margin soybean traits.
EBIT for the Seeds and Genomics segment increased $41 million to $1,403 million in second quarter
2011.
Seeds and Genomics Financial Performance First Half of Fiscal Year 2011
Net sales of corn seed and traits increased seven percent, or $195 million, in the six-month
comparison, primarily in Brazil, the United States and Europe. The increase in these regions was
primarily driven by higher volumes due to improved acres in Brazil and Europe, an increase in
higher margin traits, as well as an increase in volumes shipped in the United States.
Cotton seed and traits net sales increased 92 percent, or $86 million, in the six-month comparison,
primarily because of increased acres, higher cotton commodity prices and favorable weather
conditions in Australia and an increase in volumes shipped in the United States.
Gross profit increased $201 million in the first half of 2011. Gross profit as a percent of sales
for this segment remained flat in the period-over-period comparison at 61 percent. The net sales
increases discussed throughout this section resulted in increased gross profit. In addition, in the
prior year we recorded inventory impairments of $54 million related to discontinued corn seed
products in the United States as part of our 2009 Restructuring Plan which did not reoccur in the
current year. See Note 6 Restructuring for further information. Partially offsetting these
increases, the average net selling price of corn seed and traits in the United States declined
compared to the prior six-month comparison as we focus on mix for our GENUITY SMARTSTAX family of
products.
38
|
|
|
MONSANTO COMPANY |
|
SECOND QUARTER 2011 FORM 10-Q |
|
EBIT for the Seeds and Genomics segment increased $78 million to $1,383 million in the first half
of 2011.
AGRICULTURAL PRODUCTIVITY SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, |
|
Six Months Ended Feb. 28, |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
Change |
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural productivity |
|
$ |
708 |
|
|
$ |
642 |
|
|
|
10 |
% |
|
$ |
1,375 |
|
|
$ |
1,308 |
|
|
|
5 |
% |
|
|
|
Total Net Sales |
|
$ |
708 |
|
|
$ |
642 |
|
|
|
10 |
% |
|
$ |
1,375 |
|
|
$ |
1,308 |
|
|
|
5 |
% |
|
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural productivity |
|
$ |
177 |
|
|
$ |
87 |
|
|
|
103 |
% |
|
$ |
316 |
|
|
$ |
229 |
|
|
|
38 |
% |
|
|
|
Total Gross Profit |
|
$ |
177 |
|
|
$ |
87 |
|
|
|
103 |
% |
|
$ |
316 |
|
|
$ |
229 |
|
|
|
38 |
% |
|
|
|
EBIT(1) |
|
$ |
60 |
|
|
$ |
(87 |
) |
|
|
(169 |
)% |
|
$ |
120 |
|
|
$ |
(53 |
) |
|
|
(326 |
)% |
|
|
|
|
|
|
(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
22 Segment Information and the Overview Non-GAAP Financial Measures section of MD&A
for further details. |
Agricultural Productivity Financial Performance Second Quarter Fiscal Year 2011
Net sales for Agricultural Productivity increased 10 percent, or $66 million, in the three-month
comparison. Sales of ROUNDUP and other glyphosate-based herbicides was the largest contributor to
the increase. Sales volumes of ROUNDUP and other glyphosate-based herbicides increased 13 percent
in second quarter 2011 compared to second quarter 2010. Offsetting this increase, the average net
selling price for ROUNDUP and other glyphosate-based herbicides decreased in most regions in second
quarter 2011 due to previously announced price decreases.
The net sales increases discussed throughout this section resulted in $90 million higher gross
profit in second quarter 2011. Gross profit as a percent of sales for the Agricultural Productivity
segment increased 11 percentage points to 25 percent in second quarter 2011 because of cost
improvements primarily related to production efficiencies. EBIT for the Agricultural Productivity
segment increased $147 million to $60 million in second quarter 2011.
Agricultural Productivity Financial Performance First Half of Fiscal Year 2011
Net sales for Agricultural Productivity increased five percent, or $67 million, in the six-month
comparison, primarily due to increased sales for ROUNDUP and other glyphosate-based herbicides.
ROUNDUP and other glyphosate-based herbicides volume increased
13 percent in the period-over-period
comparison due to increased demand primarily in Argentina and Europe. Offsetting this increase, the
average net selling price of ROUNDUP and other glyphosate-based herbicides decreased in most
regions in the first six months of 2011 compared to the first six months of 2010 due to previously
announced price decreases.
The net sales increases and the cost improvements resulted in $87 million higher gross profit in
the first half of 2011. Gross profit as a percent of sales for the Agricultural Productivity
segment increased five percentage points to 23 percent in the period-over-period comparison. EBIT
for the Agricultural Productivity segment increased $173 million to $120 million in the first half
of 2011.
39
|
|
|
MONSANTO COMPANY |
|
SECOND QUARTER 2011 FORM 10-Q |
|
Restructuring charges were recorded in the Statements of Consolidated Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, |
|
Six Months Ended Feb. 28, |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Cost of Goods Sold(1) |
|
$ |
(2 |
) |
|
$ |
(54 |
) |
|
$ |
(2 |
) |
|
$ |
(54 |
) |
Restructuring Charges, Net(1)(2) |
|
|
(1 |
) |
|
|
(30 |
) |
|
|
(8 |
) |
|
|
(44 |
) |
|
|
|
Loss from Continuing Operations Before Income Taxes |
|
|
(3 |
) |
|
|
(84 |
) |
|
|
(10 |
) |
|
|
(98 |
) |
Income Tax Benefit |
|
|
1 |
|
|
|
30 |
|
|
|
4 |
|
|
|
31 |
|
|
|
|
Net Loss |
|
$ |
(2 |
) |
|
$ |
(54 |
) |
|
$ |
(6 |
) |
|
$ |
(67 |
) |
|
|
|
|
|
|
(1) |
|
For the three months and the six months ended Feb. 28, 2011, the $2 million of
restructuring charges recorded in cost of goods sold related to the Seeds and Genomics
segment. For the three months ended Feb. 28, 2011, the $1 million of restructuring charges
recorded in restructuring charges, net related to the Seeds and Genomics segment. For the six
months ended Feb. 28, 2011, the $8 million of restructuring charges recorded in restructuring
charges, net were split by segment as follows: $(4) million in Agricultural Productivity and
$12 million in Seeds and Genomics. For the three months and the six months ended Feb. 28,
2010, the $54 million of restructuring charges recorded in cost of goods sold related to the
Seeds and Genomics segment. For the three months ended Feb. 28, 2010, the $30 million of
restructuring charges, net were split by segment as follows: $25 million in Agricultural
Productivity and $5 million in Seeds and Genomics. For the six months ended Feb. 28, 2010, the
$44 million of restructuring charges, net were split by segment as follows: $36 million in
Agricultural Productivity and $8 million in Seeds and Genomics. |
|
(2) |
|
The restructuring charges for the three months and the six months ended Feb. 28,
2011, include reversals of $25 million related to the 2009 Restructuring Plan. The
restructuring charges for the three months and the six months ended Feb. 28, 2010, include
reversals of $9 million and $11 million, respectively, related to the 2009 Restructuring Plan.
The reversals are primarily related to severance. Although positions originally included in
the plan were eliminated, individuals found new roles within the company due to 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. These actions are designed to enable us to stabilize the Agricultural Productivity
business and allow it to deliver optimal gross profit and a sustainable level of operating cash in
the coming years, while better aligning spending and working capital needs. 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. Furthermore, while implementing the plan, we identified additional opportunities to better
align our resources, and on Aug. 26, 2010, committed to take additional actions. The plan was
substantially completed in the first quarter of fiscal year 2011, and the remaining payments are
expected to be made by the end of the fourth quarter in fiscal year 2011.
The total restructuring costs are now expected to be approximately $740 million to $780 million and
were substantially completed by the end of the first quarter of 2011. The charges are expected to
be comprised of approximately $350 million to $370 million
in severance and related benefits, $150 million to $170
million of costs related to facility closures and exit costs and $240 million of asset impairments.
Payments related to the 2009 Restructuring Plan will be generated from cash from operations.
The following table displays the pretax charges by segment under the 2009 Restructuring Plan of $3
million and $84 million incurred for the three months ended Feb. 28, 2011, and Feb. 28, 2010,
respectively, the pretax charges of $10 million and $98
40
|
|
|
MONSANTO COMPANY |
|
SECOND QUARTER 2011 FORM 10-Q |
|
million incurred for the six months ended Feb. 28, 2011, and Feb. 28, 2010, respectively, as well
as the cumulative pretax charges of $740 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended Feb. 28, |
|
Six Months Ended Feb. 28, |
|
|
Seeds and |
|
|
Agricultural |
|
|
|
|
|
|
|
|
|
|
Seeds and |
|
|
Agricultural |
|
|
|
|
|
|
Genomics |
|
|
Productivity |
|
|
Total |
|
|
Genomics |
|
|
Productivity |
|
|
Total |
|
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
Work Force Reductions |
|
$ |
|
|
|
$ |
3 |
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
4 |
|
|
$ |
(11 |
) |
|
$ |
4 |
|
|
$ |
(7 |
) |
|
$ |
11 |
|
|
$ |
(18 |
) |
|
$ |
15 |
|
Facility Closures / Exit Costs |
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
24 |
|
|
|
1 |
|
|
|
26 |
|
|
|
23 |
|
|
|
3 |
|
|
|
3 |
|
|
|
25 |
|
|
|
26 |
|
|
|
28 |
|
Asset Impairments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Inventory |
|
|
2 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
54 |
|
|
|
2 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
54 |
|
|
|
|
Total Restructuring Charges, Net |
|
$ |
3 |
|
|
$ |
59 |
|
|
$ |
|
|
|
$ |
25 |
|
|
$ |
3 |
|
|
$ |
84 |
|
|
$ |
14 |
|
|
$ |
62 |
|
|
$ |
(4 |
) |
|
$ |
36 |
|
|
$ |
10 |
|
|
$ |
98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Amount through Feb. 28, 2011 |
|
|
Seeds and |
|
|
Agricultural |
|
|
|
|
(Dollars in millions) |
|
Genomics |
|
|
Productivity |
|
|
Total |
|
|
Work Force Reductions |
|
$ |
249 |
|
|
$ |
103 |
|
|
$ |
352 |
|
Facility Closures / Exit Costs |
|
|
72 |
|
|
|
81 |
|
|
|
153 |
|
Asset Impairments |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment |
|
|
39 |
|
|
|
5 |
|
|
|
44 |
|
Inventory |
|
|
119 |
|
|
|
13 |
|
|
|
132 |
|
Other intangible assets |
|
|
59 |
|
|
|
|
|
|
|
59 |
|
|
Total Restructuring Charges, Net |
|
$ |
538 |
|
|
$ |
202 |
|
|
$ |
740 |
|
|
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 addition, when the decision to commit to a restructuring plan requires an
asset impairment review, Monsanto evaluates such impairment issues under the Property, Plant and
Equipment topic of the ASC.
In the six months ended Feb. 28, 2011, pretax restructuring charges of $10 million were recorded.
The facility closures/exit costs of $26 million relate primarily to the finalization of the
termination of a corn toller contract in the United States. In workforce reductions, approximately
$7 million of additional charges were offset by $25 million of reversals. Although positions
originally included in the plan were eliminated, individuals found new roles within the company due
to attrition. In asset impairments, inventory impairments of $2 million recorded in cost of goods
sold related to discontinued corn and sorghum seed products in the United States. In the six months
ended Feb. 28, 2010, pretax restructuring charges of $98 million were recorded. The $15 million in
workforce reductions relate primarily to Europe. The facility closures/exit costs of $28 million
relate primarily to the finalization of the termination of a chemical supply contract in the United
States. In asset impairments, inventory impairments of $54 million recorded in cost of goods sold
related to discontinued corn seed products in the United States.
The actions related to the overall restructuring plan are expected to produce annual cost savings
of $300 million to $340 million, primarily in cost of goods sold and SG&A. Approximately one-fourth
of these savings were recognized in fiscal year 2010, with the full benefit expected to be realized
in 2011.
41
|
|
|
MONSANTO COMPANY |
|
SECOND QUARTER 2011 FORM 10-Q |
|
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Working Capital and Financial Condition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of Feb. 28, |
|
As of Aug. 31, |
(Dollars in millions, except current ratio) |
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
|
Cash and Cash Equivalents (variable interest entities - 2011: $13) |
|
$ |
1,837 |
|
|
$ |
1,607 |
|
|
$ |
1,485 |
|
Trade Receivables, Net (variable interest entities - 2011: $101) |
|
|
2,377 |
|
|
|
2,093 |
|
|
|
1,590 |
|
Inventory, Net |
|
|
3,090 |
|
|
|
3,199 |
|
|
|
2,739 |
|
Other Current Assets(1) |
|
|
1,388 |
|
|
|
1,346 |
|
|
|
1,308 |
|
|
|
|
|
Total Current Assets |
|
$ |
8,692 |
|
|
$ |
8,245 |
|
|
$ |
7,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term Debt |
|
$ |
409 |
|
|
$ |
114 |
|
|
$ |
241 |
|
Accounts Payable |
|
|
634 |
|
|
|
673 |
|
|
|
752 |
|
Accrued Liabilities(2) |
|
|
3,478 |
|
|
|
2,892 |
|
|
|
2,548 |
|
|
|
|
|
Total Current Liabilities |
|
$ |
4,521 |
|
|
$ |
3,679 |
|
|
$ |
3,541 |
|
|
|
|
|
Working Capital(3) |
|
$ |
4,171 |
|
|
$ |
4,566 |
|
|
$ |
3,581 |
|
Current Ratio(3) |
|
|
1.92:1 |
|
|
|
2.24:1 |
|
|
|
2.01:1 |
|
|
|
|
|
|
|
|
(1) |
|
Includes short-term investments, 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. |
Feb. 28, 2011, compared with Aug. 31, 2010: Working capital increased $590 million between
Aug. 31, 2010, and Feb. 28, 2011, because of the following factors:
|
|
|
Cash and cash equivalents increased $352 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, 2010, for further details of this
increase. |
|
|
|
|
Trade receivables increased $787 million due to normal ongoing sales activity because of
the seasonality of our business. |
|
|
|
|
Inventory increased $351 million between the respective periods primarily because of the
seasonality of our U.S. corn and soybean seed business in which the fall harvest of seed
products occurs in the first half of the fiscal year resulting in a higher inventory
balance as of Feb. 28, 2011. |
These increases to working capital between Aug. 31, 2010, and Feb. 28, 2011, were offset by the
following factors:
|
|
|
Income taxes payable increased $218 million primarily due to the seasonality of U.S.
results coupled with the timing of U.S. income tax payments. |
|
|
|
|
Deferred revenue increased $700 million related to customer prepayments for product that
will be shipped in the current fiscal year. |
Feb. 28, 2011, compared with Feb. 28, 2010: Working capital decreased $395 million between Feb. 28,
2011, and Feb. 28, 2010. The following factors decreased working capital as of Feb. 28, 2011,
compared with Feb. 28, 2010:
|
|
|
Short-term debt increased $295 million primarily due to the acquisition of the
Chesterfield Village Research Center in the prior year. As of Feb. 28, 2011, $324 million
is included within short-term debt related to payments due on the acquisition. |
|
|
|
|
Accrued liabilities increased $586 million. Accrued marketing programs related to
current year sales increased $214 million due to the increase in sales and timing of
payments. Further, an increase of $318 million in deferred revenue is due to increased
customer prepayments in the United States compared to the prior six-month period. |
These working capital decreases were partially offset by the following factors:
42
|
|
|
MONSANTO COMPANY |
|
SECOND QUARTER 2011 FORM 10-Q |
|
|
|
|
Cash and cash equivalents increased $230 million between the respective periods. See the
Cash Flow section in this section of MD&A for further details of this increase. |
|
|
|
|
Trade receivables increased $284 million due to an increase in current year sales
compared to prior year. |
Customer Financing Programs: We participate in a revolving financing program in Brazil that allows
us to transfer up to 1 billion Brazilian reais (approximately $600 million) for selected customers
in Brazil to a special purpose entity, formerly a qualified special purpose entity. Third parties,
primarily investment funds, hold an 88 percent senior interest in the entity, and we hold the
remaining 12 percent interest. Under the arrangement, a recourse provision requires us to cover the
first 12 percent of credit losses within the program. We have evaluated our relationship with the
entity under updated guidance within the Consolidation topic of the ASC and, as a result, the
entity has been consolidated effective Sept. 1, 2010. For further information, see Note 5
Variable Interest Entities.
As of Feb. 28, 2011, there were no receivables sold through this financing program that were
delinquent. As of Aug. 31, 2010, there was $3 million of receivables sold through this financing
program that was delinquent. Based on our historical collection experience with these customers and
a current assessment of credit exposure, we recorded our recourse provision at $5 million as of
Aug. 31, 2010. Since the entity is now consolidated, we recorded a bad debt allowance related to
these receivables of $2 million as of Feb. 28, 2011. The maximum potential amount of exposure under
the program was $12 million as of Feb. 28, 2011. 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 have an agreement with a special purpose entity in Argentina to transfer customer receivables
and to service such accounts. We have evaluated our relationship with this entity under updated
guidance within the Consolidation topic of the ASC and, as a result, the entity has been
consolidated effective Sept. 1, 2010. For further information on this topic, see Note 5 Variable
Interest Entities. Based on our historical collection experience with these customers and a current
assessment of credit exposure, we recorded a bad debt allowance related to these receivables of
less than $1 million as of Feb. 28, 2011. The maximum potential amount of exposure under the
program was $1 million as of Feb. 28, 2011.
We have an agreement in the United States to sell customer receivables up to a maximum of $500
million and to service such accounts. 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 $3 million and $2 million for the first six months of fiscal year 2011 and
2010, respectively. The agreement includes recourse provisions and thus a liability was established
at the time of sale that 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 $2 million as of Feb. 28, 2011, and Aug. 31, 2010. The maximum potential amount of future
payments under the recourse provisions of the agreement was $2 million as of Feb. 28, 2011. The
outstanding balance of the receivables sold was $5 million and $223 million as of Feb. 28, 2011,
and Aug. 31, 2010, respectively. There were delinquent accounts of $5 million and $3 million as of
Feb. 28, 2011, and Aug. 31, 2010, respectively.
We sell accounts receivable in the United States and European regions, both with and without
recourse. The sales within these programs 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 $4 million and $7 million for the first six months of 2011 and 2010,
respectively. The liability for the guarantees for sales with recourse is recorded at an amount
that approximates fair value, based on our historical collection experience for the customers
associated with the sales of the accounts receivable and a current assessment of credit exposure.
There was no liability as of Feb. 28, 2011. Our guarantee liability was less than $1 million as of
Aug. 31, 2010. There were no outstanding balances of the receivables sold as of Feb. 28, 2011, and,
therefore, no potential future payments under the recourse provisions of the agreements as of Feb.
28, 2011. The outstanding balance of the receivables sold was $86 million as of Aug. 31, 2010.
We also have agreements with lenders to establish programs to provide financing of up to 550
million Brazilian reais (approximately $330 million) for selected customers in Brazil. The amount
of loans outstanding was $72 million and $100 million as of Feb. 28, 2011, and Aug. 31, 2010,
respectively. In this program, we provide a guarantee of the loans in the event of customer
default. The maximum potential amount of future payments under the guarantees was $72 million as of
Feb. 28,
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2011. The liability for the guarantee is recorded at an amount that approximates fair
value, 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 $1 million and $3 million as of Feb. 28, 2011, and
Aug. 31, 2010, 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 the United
States, Brazil, Europe and Argentina. The amount of loans outstanding was $46 million and $36
million as of Feb. 28, 2011, and Aug. 31, 2010, respectively. We provide a guarantee of the loans
in the event of customer default. The maximum potential amount of future payments under the
guarantees was $36 million as of Feb. 28, 2011. The liability for the guarantee is recorded at an
amount that approximates fair value, 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 $1 million and $2 million as of Feb. 28, 2011, and Aug. 31, 2010,
respectively.
Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended Feb. 28, |
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
Net Cash Provided by Operating Activities |
|
$ |
1,441 |
|
|
$ |
256 |
|
Net Cash Required by Investing Activities |
|
|
(524 |
) |
|
|
(345 |
) |
|
Free Cash Flow(1) |
|
|
917 |
|
|
|
(89 |
) |
|
Net Cash Required by Financing Activities |
|
|
(668 |
) |
|
|
(259 |
) |
Cash Assumed from Initial Consolidation of Variable Interest Entities |
|
|
77 |
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
26 |
|
|
|
(1 |
) |
|
Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
352 |
|
|
|
(349 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
1,485 |
|
|
|
1,956 |
|
|
Cash and
Cash Equivalents at End of Period |
|
$ |
1,837 |
|
|
$ |
1,607 |
|
|
|
|
|
(1) |
|
Free cash flow represents the total of net cash provided by operating activities and
required by investing activities (see the Non-GAAP Financial Measures section in MD&A for a
further discussion). |
Cash provided by operating activities was $1,441 million in first half 2011 compared with $256
million in first half 2010. The increase of $1,185 million was driven by the change in accounts
payable and other accrued liabilities of $830 million in the six-month comparison because of higher
accrued marketing programs, customer payables, and employee incentives. In addition, the increase
was also driven by higher net income of $171 million in the six-month comparison from $870 million
to $1,041 million. Further, the change in deferred revenue of $315 million provided increased cash
as customer prepayments in the United States increased in the first half 2011 over first half 2010.
Cash required by investing activities was $524 million in first half 2011 compared to $345 million
in first half 2010. We purchased short-term investments for $180 million in the current year.
Further we acquired businesses for $99 million in the current year. Partially offsetting these
uses, our capital expenditures decreased $125 million in the six-month comparison due to less
spending in the first half of the current year.
The amount of cash required by financing activities was $668 million in the first six months of
2011 compared with $259 million in the first six months of 2010. The net change in short-term
financing was a source of cash of $6 million in first half 2011 compared with a source of cash of
$119 million in the prior-year first half primarily due to increased short-term borrowings to
support ex-U.S. operations during the prior fiscal year. Further, treasury stock purchases
increased $257 million as we increased our repurchase of shares during the first six months of 2011
compared to the comparable prior-year period.
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Capital Resources and Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of Feb. 28, |
|
As of Aug. 31, |
(Dollars in millions, except debt-to-capital ratio) |
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
|
Short-Term Debt |
|
$ |
409 |
|
|
$ |
114 |
|
|
$ |
241 |
|
Long-Term Debt |
|
|
1,729 |
|
|
|
1,726 |
|
|
|
1,862 |
|
Total Shareowners Equity |
|
|
11,001 |
|
|
|
10,701 |
|
|
|
10,099 |
|
Debt-to-Capital Ratio |
|
|
16 |
% |
|
|
15 |
% |
|
|
17 |
% |
|
|
|
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 Monsanto. We accessed the commercial paper markets in 2011 for
short periods of time to finance working capital needs and do not believe our options will be
limited in the future. We had no commercial paper borrowings outstanding at Feb. 28, 2011.
Total debt outstanding increased $298 million between Feb. 28, 2010, and Feb. 28, 2011, primarily
because we acquired the Chesterfield Village Research Center in April 2010 for $435 million of
which $111 million was paid in fiscal year 2010 and $324 million is included within short-term debt
as of Feb. 28, 2011.
We plan to
issue new fixed-rate debt on or before Aug. 15, 2012, to repay
$486 million of 7 3/8%
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. In August 2010, we entered into
forward starting interest rate swaps with a total notional amount of $225 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 before the debt is issued.
We plan to issue additional fixed-rate debt on or before April 15, 2011. In July 2010, we entered
into forward starting interest rate swaps with a notional amount of $300 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 before the debt is issued.
Dividend: In January 2011, we declared a quarterly dividend of 28 cents payable on April 29, 2011,
to shareowners of record as of April 8, 2011.
Capital Expenditures: We expect 2011 capital expenditures to be in the range of $600 million to
$700 million compared with $755 million in 2010. The primary driver of this decrease is lower
spending on projects to expand corn seed production facilities and R&D facilities compared to prior
year.
Divestiture: In October 2008, we sold the Dairy business after receiving approval from the
appropriate regulatory agencies. During the six months ended Feb. 28, 2011, and Feb. 28, 2010,
income from operations of discontinued businesses included a pre-tax gain related to the sale of $4
million and $5 million, respectively.
2011 Acquisitions: In February 2011, we acquired 100 percent of the outstanding stock of
Divergence, Inc., a biotechnology research and development company located in St. Louis, Missouri.
The total cash paid and the fair value of the acquisition were $71 million, and the purchase price was primarily
allocated to intangibles and goodwill.
In December 2010, we acquired 100 percent of the outstanding stock of Pannon Seeds, a seed
processing plant located in Hungary, from IKR Production Development and Commercial Corporation.
The acquisition of this plant, which qualifies as a business under the Business Combinations topic
of the ASC, allows Monsanto to reduce third party seed production in Hungary. The total fair value
of the acquisition was $32 million, and the purchase price was primarily allocated to fixed assets and goodwill.
This fair value includes $28 million of cash paid (net of cash acquired) and $4 million related to
assumed liabilities.
2010 Acquisitions: 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. 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.
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In October 2009, we acquired the remaining 51 percent equity interest in Seminium, S.A. (Seminium),
a leading Argentinean corn seed company. 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.
2011 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, 2010, except as
discussed above.
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 21
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.
We believe 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 via our
investment in new products. In the Agricultural Productivity segment, we expect to deliver
competitive products in a more steady-state business.
We believe that our company is positioned to deliver value-added products to growers enabling us to
grow our gross profit in the future. 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 will 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. We plan to improve and grow our vegetable seeds business, which has
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a portfolio focused
on 23 crops. We continue to apply our molecular breeding and marker capabilities to our vegetable
seeds
germplasm, which we expect will lead to business growth. The business integration into a global
platform, along with a number of process improvements, has improved our ability to develop and
deliver new, innovative products to our broad customer base. The acquisition of Aly Participacoes
Ltda. 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. 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- and third-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 saw
higher-value, stacked-trait products representing a larger share of our total U.S. corn seed sales
than they did in 2009. We experienced an increase in competition in biotechnology as more
competitors launched traits in the United States and internationally. Acquisitions may also present
mid to longer term opportunities to increase penetration of our traits. We believe our competitive
position continues to enable us to deliver second- and third-generation traits when our competitors
are delivering their first-generation traits.
Key regulatory approvals were obtained for the 2010 commercial launch of 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.
Full regulatory submissions were completed for a five percent refuge-in-a-bag (RIB) seed blend to
the U.S. EPA for GENUITY SMARTSTAX and GENUITY VT DOUBLE PRO. GENUITY SMARTSTAX and VT DOUBLE PRO
RIB would provide a single bag solution to enable farmers in the Corn Belt to plant corn without a
separate refuge.
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, INTACTA ROUNDUP READY 2 PRO in the
future) 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 in Brazil 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. The agricultural economy in Brazil could be impacted by global
commodity prices, particularly for corn and soybeans. We continue to maintain our strict credit
policy, expand our grain-based collection system, and focus on cash collection and sales, as part
of a continuous effort to manage our Brazilian risk against such volatility.
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, we expect to move to on-farm testing plots with growers around 2012 to obtain on-farm
data. Over the long-term life of the collaboration, we and BASF will dedicate a joint budget of
potentially $2.5 billion to fund a dedicated pipeline of yield and stress tolerance traits for
corn, soybeans, cotton, canola and wheat.
Our international traits businesses, in particular, will 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.
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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 first generation ROUNDUP READY soybeans and we
do not plan to commercialize new soybean traits
in Argentina until we can achieve more certainty that we will be compensated for providing the
technology. Growers and grain handler agreements will be essential prior to a launch of INTACTA
ROUNDUP READY 2 PRO in Argentina.
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 was referred to the European Court of Justice
(ECJ) and on March 22, 2011, the Advocate General issued an opinion supporting the arguments
against the ban. The Courts judgment is expected later in 2011. On April 17, 2009, Germany
undertook a procedural action under European law and 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 procedural measures
but we have focused our legal challenges to those countries with significant corn plantings.
Agricultural Productivity
Our Agricultural Productivity gross profit peaked in 2008, declined slightly in 2009 and declined
significantly in 2010. The structural changes that have occurred in the global glyphosate market,
including 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 through our weed management
platform that delivers weed control offerings for farmers.
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 has prepared a final 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.
Other Information
As discussed in Note 21 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, 2010.
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, 2010. 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
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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, 2010. 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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In July 2010, the FASB issued a new update that requires enhanced disclosures regarding credit
quality and the related allowance for credit losses of financing receivables. The new disclosures
will require additional information for nonaccrual and past due accounts, the allowance for credit
losses, impaired loans, credit quality, and account modifications. Accordingly, we adopted the new
disclosure requirements in second quarter 2011, and the disclosures related to activities during
the reporting period will begin in the third quarter 2011. See Note 7 Receivables for the new
disclosures.
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 was 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, and adopted the additional Level 3
requirements in fiscal year 2011. See Note 14 Fair Value Measurements for the new
disclosures.
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 adopted this standard on Sept. 1,
2010. See Note 5 Variable Interest Entities for the disclosures required by this standard.
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 adopted this standard in first quarter fiscal year
2011. See Note 4 Customer Financing Programs for additional discussion regarding the impact
on our QSPE related to a Brazilian financing program and other financing programs.
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, 2010.
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 Feb. 28, 2011
(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. Information regarding certain material proceedings and the possible
effects on our business of proceedings we are defending is disclosed in Note 21 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, 2010.
Governmental Proceedings and Undertakings
As described in our Report of Form 10-K for the fiscal year ended Aug. 31, 2010, and Monsantos
Report on Form 10-Q for the quarterly period ended Nov. 30, 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 $1.2 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 $263 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 $86 million to $43
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. On Sept. 17, 2010, the
appeals were assigned to the Administrative Council of Tax Appeals. The court date is pending. 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 1.6
Brazilian reais per U.S. dollar, and will fluctuate with exchange rates in the future. We believe
we have meritorious legal positions and will continue to represent our interests vigorously in this
matter.
Securities and Derivative Proceedings
As described in Monsantos Report on Form 10-K for the fiscal year ended Aug. 31, 2010, and
Monsantos Report on Form 10-Q for the quarterly period ended Nov. 30, 2010, on July 29, 2010, a
purported class action suit, styled Rochester Laborers Pension Fund v. Monsanto Co., et al., was
filed against us and three of our past and present executive officers in the U.S. District Court
for the Eastern District of Missouri. The suit alleged that defendants violated the federal
securities laws by making false or misleading statements between Jan. 7, 2009, and May 27, 2010,
regarding our earnings guidance for fiscal 2009 and 2010 and the anticipated future performance of
our ROUNDUP business. On Nov. 1, 2010, the Court appointed the Arkansas Teacher Retirement System
as lead plaintiff in the action. On Jan. 31, 2011, lead plaintiff filed an amended complaint
against us and four of our past and present executive officers in the same action. The amended
complaint alleges that defendants violated the federal securities laws by making false and
misleading statements during the same time period, regarding our earnings guidance for fiscal 2009
and 2010 as well as the anticipated future performance of our ROUNDUP business and our Seeds and
Genomics business, lead plaintiff claims that these statements artificially inflated the price of
our stock and that purchasers of our stock during the relevant period were damaged when the stock
price later declined. Lead plaintiff seeks the award of unspecified amount of damages on behalf of
the alleged class, counsel fees and costs. We believe
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we have meritorious legal positions and will continue to represent our interests vigorously in this
matter. On Apr, 1, 2011, defendants moved to dismiss the amended complaint for failure to state a
claim upon which relief may be granted.
As described in Monsantos Report on Form 10-K for the fiscal year ended Aug. 31, 2010, and
Monsantos Report on Form 10-Q for the quarterly period ended Nov. 30, 2010, on Aug. 4 and 5, 2010,
two purported derivative suits styled Espinoza v. Grant, et al. and Clark v. Grant, et al., were
filed on our behalf against our directors and three of our past and present executive officers in
the Circuit Court of St. Louis County, Missouri. Asserting claims for breach of fiduciary duty,
corporate waste and unjust enrichment, plaintiffs allege that our directors themselves made or
allowed Monsanto to make the same allegedly false and misleading
statements pertaining to the anticipated future performance of our
ROUNDUP business that are at issue in the
purported class action. Plaintiffs also assert a claim arising out of the acceleration of certain
stock options held by one of our former executive officers upon his retirement, as well as a claim
based on one directors sale of Monsanto stock while allegedly in possession of material,
non-public information relating to our earnings guidance. Plaintiffs seek injunctive relief and the
award of unspecified amounts of damages and restitution for Monsanto, counsel fees and costs.
Plaintiffs have moved for an order consolidating the Espinoza and Clark actions and appointing lead
and liaison counsel. On Mar. 11, 2011, the Court approved the parties stipulation and consolidated
the two actions. Defendants have moved for a stay of these actions in favor of the proposed federal
securities class action (described above) and the federal derivative action (described below). On
Mar. 11, 2011, the Court approved the parties stipulation to a stay of these actions pending
resolution of motions to dismiss expected to be filed in the federal actions, subject to specified
exceptions.
As described in Monsantos Report on Form 10-K for the fiscal year ended Aug. 31, 2010, and
Monsantos Report on Form 10-Q for the quarterly period ended Nov. 30, 2010, another purported
derivative action styled Kurland v. AtLee, et al., was filed on our behalf against our directors in
the U.S. District Court for the Eastern District of Missouri. Asserting claims for breach of
fiduciary duty, abuse of control, gross mismanagement, corporate waste, unjust enrichment and
insider selling and misappropriation under Delaware law, the complaint contains allegations similar
to the two state court derivative actions described above relating to the same allegedly false and
misleading statements and a directors sale of shares, and adds allegations relating to a senior
executives sale of Monsanto stock while allegedly in possession of material, non-public
information. Plaintiff seeks injunctive relief and the award of unspecified amounts of compensatory
and exemplary damages, counsel fees and costs. On Sept. 3, 2010, defendants in the securities class
action described above moved for consolidation and coordination of that action with the Kurland
derivative action. On Sept. 28, 2010, the Court denied this motion, but stated that pretrial
coordination of the federal actions should occur. On Oct. 11, 2010, a second purported derivative
action styled Stone v. Bachmann, et al., was filed in the same federal district court on our behalf
against certain of our directors. The allegations made and relief sought in the action are
substantially similar to the allegations made and relief sought in the Kurland action. On Oct. 13,
2010, a third purported derivative action, styled Fagin v. AtLee, et al., was filed on our behalf
against our directors in the same federal district court. The allegations made and relief sought in
the Fagin action are substantially similar to the allegations made and relief sought in both the
Kurland and Stone actions. The parties in these three derivative actions stipulated to their
consolidation for all purposes and to the filing of a consolidated complaint, and the Court
approved their stipulation on Nov. 30, 2010. The parties thereafter filed an agreed motion for a
stay of the consolidated derivative action until thirty days after (a) the Court in the proposed
securities class action enters an order dismissing lead plaintiffs amended complaint in that
action without leave to amend or (b) defendants in the proposed securities class action answer lead
plaintiffs amended complaint. On Feb. 28, 2011, the Court granted the agreed motion for a stay.
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, 2010, for
information regarding risk factors. There have been no material changes from the risk factors
previously disclosed in our Report on Form 10-K.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table is a summary of any purchases of equity securities during the second quarter of
fiscal year 2011 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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December 2010: |
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Dec. 1, 2010, through Dec. 31, 2010 |
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70,510 |
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$61.77 |
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70,510 |
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$727,691,540 |
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January 2011: |
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Jan. 1, 2011, through Jan. 31, 2011 |
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1,407,181 |
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$73.85 |
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1,407,181 |
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$623,769,171 |
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February 2011: |
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Feb. 1, 2011, through Feb. 28, 2011 |
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72,791 |
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$74.07 |
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72,791 |
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$618,377,449 |
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Total |
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1,550,482 |
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$73.31 |
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1,550,482 |
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$618,377,449 |
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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 June 2010, the board of directors authorized a repurchase program of up to $1 billion of
the companys common stock over a three-year period beginning July 1, 2010. This repurchase program
commenced Aug. 24, 2010. There were no other publicly announced plans outstanding as of Feb. 28,
2011.
Exhibits: The list of exhibits in the Exhibit Index to this Report is incorporated herein by
reference.
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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
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(Registrant)
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By:
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/s/ NICOLE M. RINGENBERG
Nicole M. Ringenberg
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Vice President and Controller |
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(On behalf of the Registrant and as Principal |
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Accounting Officer) |
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Date: April 7, 2011
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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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10
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Form of Change of Control Employment Security Agreement for Mr. Courduroux, effective Feb. 4,
2011 (incorporated by reference to Exhibit 10 to Form 8-K, filed Feb. 10, 2011, File No.
1-16167). |
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11
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Omitted see Note 19 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) Certification (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) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
executed by the Chief Financial Officer). |
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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
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XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document. |
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