Market Overview

South American Soy Technology Demand, Glyphosate Pricing Contribute to Solid First-Quarter Earnings for Monsanto Company

Share:
  • Delivers strong growth in quarterly earnings per share, with
    as-reported EPS of $0.38 and ongoing EPS of $0.41, compared to $0.07
    and $0.21, respectively, in the prior year
  • INTACTA RR2 PROTM soybean adoption in
    South America off to a good start in Q1; on pace to reach 60 million
    acres in FY18
  • Branded order mix supports expectations for 40 million acres of
    Roundup Ready 2 Xtend
    ® soybeans in FY18 in the U.S.
  • Quarterly results benefit from higher glyphosate pricing
  • Best-in-class R&D pipeline encompasses a record number of
    advancements; marks fifth year of more than 20 projects advancing
  • Continues progress towards closure of merger with Bayer in early
    part of 2018

As progress continues for the merger with Bayer, Monsanto Company (NYSE: MON) announced strong results for the first quarter of its fiscal year
2018, growing as-reported earnings per share (EPS) to $0.38. Early
indicators from the first three months, such as volume and pricing
growth for INTACTA RR2 PROTM soybeans in South America,
improved pricing in glyphosate and more than $85 million in gains from
asset sales, signal that the company is well positioned to deliver on
its business goals.

Likewise, in its annual Research & Development (R&D) pipeline showcase
today, Monsanto highlighted how new technologies will help growers
combat threats in the field and optimize opportunities with less land,
energy and water. This marks the fifth consecutive year of more than 20
research projects advancing. The company released information on the R&D
showcase in a separate announcement this morning.

     
First Quarter
($ in millions, except per share amounts)       2018     2017
Net Sales by Segment    
Corn seed and traits $ 787 $ 949
Soybean seed and traits 728 600
Cotton seed and traits 120 116
Vegetable seeds 114 131
All other crops seeds and traits   21         52  
TOTAL Seeds and Genomics $ 1,770 $ 1,848
 
Agricultural productivity $ 888       $ 802  
TOTAL Agricultural Productivity $ 888 $ 802
               
TOTAL Net Sales       $ 2,658       $ 2,650  
               
Gross Profit       $ 1,312       $ 1,259  
               
Operating Expenses       $ 1,070       $ 1,012  
Interest Expense – Net $ 109 $ 118
Other (Income) Expense– Net       $ (97 )     $ 43  
Net Income Attributable to Monsanto Company       $ 169       $ 29  
               
Diluted Earnings per Share       $ 0.38       $ 0.07  
Items Affecting Comparability – EPS Impact (For definitions of
adjustments to EPS, see note 1.)
Restructuring Charges 0.02 (0.06 )
Environmental and Litigation Matters 0.02 0.01
Pending Bayer Transaction Related Costs 0.03 0.19
Argentine-Related Tax Matters (0.04 ) 0.02
Income from Discontinued Operations                 (0.02 )
Diluted Earnings per Share from Ongoing Business (For the
definition of ongoing EPS, see note 1.)
      $ 0.41       $ 0.21  
Effective Tax Rate         26 %       71 %
 
 
      First Quarter
Comparison as a Percent of Net Sales:       2018     2017
Gross profit 49%     48%
Selling, general and administrative expenses 25% 22%
Research and development expenses 14% 14%
Income from continuing operations before income taxes 9% 3%
Net income attributable to Monsanto Company       6%     1%
 

"Even with the Bayer combination on the horizon, our teams have
maintained their focus on the business and our customers, and delivered
solid first-quarter results," said Hugh Grant, chairman and chief
executive officer for Monsanto. "As we look to the balance of the year,
we continue to expect strong adoption of our newest technologies and
improved pricing for glyphosate to be tempered by challenging global
corn and soybean prices, even as demand for both continues to grow."

"This year, we advanced a record number of projects in our research and
development pipeline, spanning all platforms and allowing us to continue
to fuel innovation for the industry through our broad licensing
approach," added Dr. Robb Fraley, Monsanto's executive vice president
and chief technology officer. "The combination with Bayer will allow our
two companies to accelerate the pace of innovation through our shared
vision. We're excited and energized about the new areas of scientific
advancement we expect to unlock by combining with Bayer, to allow us to
bring more products to farmers faster."

Results of Operations

For the fiscal year 2018 first quarter, net sales were nearly flat
compared to the prior year's first quarter at $2.7 billion. Gross profit
for the quarter grew slightly, to $1.3 billion. More than $85 million in
gains from asset sales were recorded in the first quarter, the most
significant being the sale of Precision Planting to AGCO.

Selling, general and administrative costs were $664 million, and
research and development expenses were $382 million for the first
quarter of fiscal year 2018. Total selling, general and administrative
costs and research and development expenses increased, mostly due to
higher commissions, point-of-delivery costs and bad debt expense
associated with the growth in South America, as well as from
inflationary increases and increased spend on R&D.

The company's fiscal year 2018 first quarter EPS on an as-reported basis
was $0.38, as compared to $0.07 in the prior year. EPS on an ongoing
basis was $0.41, well above the prior year's $0.21, driven by the strong
start to the business in South America. (For a reconciliation of
as-reported EPS to ongoing EPS, see note 1).

Cash Flow

For the first three months of fiscal year 2018, net cash provided by
operating activities was $1.3 billion, compared with net cash provided
by operating activities of $1.5 billion in the first three months of
last year. Net cash required by investing activities for the first three
months of fiscal year 2018 was $210 million, compared to $327 million
for the same period of fiscal year 2017. Net cash provided by financing
activities for the first three months of fiscal year 2018 was $178
million, compared to net cash required of $655 million for the same
period of fiscal year 2017. Free cash flow was down for the first
quarter of fiscal year 2018, at $874 million compared to $1.1 billion in
the first three months of the prior year. (NOTE: free cash flow metric
reflects the company's definition of free cash flow, which is operating
cash flows less capital expenditures. For a reconciliation of free cash
flow, see note 1.)

Fiscal Year 2018 Outlook

The company expects growth in its pretax income for fiscal year 2018,
but did not provide specific financial guidance in light of the pending
combination with Bayer. The expected growth drivers for Monsanto's
business are continued improvements in pricing for glyphosate, plus the
adoption of new technologies in Seeds and Genomics such as INTACTA RR2
PROTM soybeans, Roundup Ready 2 Xtend® soybeans,
Bollgard® II XtendFlex® cotton, and new corn
hybrids around the world. Gains from recent asset sales are also
contributing to growth. The company will remain disciplined as it
monitors the evolution of U.S. corn and soybean plantings through the
spring.

For Agricultural Productivity, volumes of XtendiMax®
Herbicide with VaporGrip® Technology are expected to expand
as acreage grows. The company continues to invest in the construction of
its dicamba manufacturing plant in Luling, La., slated for completion in
2020.

As communicated previously, the company expects to complete its
restructuring and cost savings initiative that began in fiscal year
2015, with the expectation that selling, general and administrative
costs and research and development expenses in fiscal year 2018 will be
down slightly year over year. Once the initiative is completed, the
company expects to realize annual savings of $500 million in fiscal year
2018 as compared to its fiscal year 2015 baseline.

The company noted that benefits related to strategic asset sales and
licensing contributions are expected to be about 30 percent below the
roughly $350 million pre-tax average annual contribution for the last
three years.

In regards to the recent passage of the U.S. tax reform legislation, the
company expects it to have a positive impact on the company's effective
tax rate, beginning in fiscal year 2019. For the current fiscal year,
the company is still completing a full assessment; early estimates
indicate that the effective tax rate should not exceed 30 percent, and
has the potential to be materially lower.

 

Seeds and Genomics Segment Detail

 
($ in millions)       Net Sales     Gross Profit(A)
      First Quarter     First Quarter
Seeds and Genomics       2018     2017     2018     2017
Corn seed and traits       $ 787     $ 949     $ 415       $ 535
Soybean seed and traits         728       600       588         451
Cotton seed and traits         120       116       73         73
Vegetable seeds         114       131       58         69
All other crops seeds and traits         21       52       (2 )       12
TOTAL Seeds and Genomics       $ 1,770     $ 1,848     $ 1,132       $ 1,140

(A) Fiscal first quarter 2018 and 2017 seeds and genomics gross profit
includes a pretax restructuring charge totaling $10 million and $1
million, respectively, related to certain asset impairment charges,
primarily in the soy and corn business, respectively, which is included
in cost of goods sold.

 
 
($ in millions)       Earnings Before Interest & Taxes (EBIT)

 

      First Quarter
Seeds and Genomics       2018     2017
EBIT (For a reconciliation of EBIT, see note 1.)(A)       $ 302       $ 199  
Unusual Items Affecting EBIT: Income (Expense)    
EBIT from Restructuring Charges (13 ) 33
EBIT from Pending Bayer Transaction Related Costs (17 ) (111 )
EBIT from Argentine-Related Tax Matters                 15  

(A) EBIT is defined as earnings before interest and taxes. Interest and
taxes are recorded on a total company basis. We do not record these
items at the segment level.

The Seeds and Genomics segment consists of the global seeds and
related traits business, biotechnology platforms and digital agriculture.

Sales for Monsanto's Seeds and Genomics segment were $1.8 billion for
the first quarter of fiscal year 2018, down slightly compared to the
same period last year. Gross profit in the segment was $1.1 billion for
the quarter, similar to the same period last year.

In soybeans, global demand for the newest technologies fueled first
quarter sales and a 30 percent jump in global soybean gross profit year
over year, along with margin improvement. In South America, growers
continue to adopt INTACTA RR2 PROTM soybeans at an
unprecedented pace, and the company expects to reach 60 million acres in
fiscal year 2018. In addition, the company delivered price improvement
in local currency in the first quarter, helping to recover some value
lost to currency in recent years. Moving to Roundup Ready 2 Xtend® soybeans,
the weed control, performance and adoption of this technology has been
outstanding. Monsanto's 2017 system yield results from its trials showed
that Roundup Ready 2 Xtend® soybeans demonstrate a 5.7
bushels per acre average yield advantage compared to the Liberty Link
system. This past season, 97 percent of surveyed soybean growers who
used XtendiMax® Herbicide with VaporGrip®
Technology reported weed control satisfaction. The company continues to
expect 40 million acres of Roundup Ready 2 Xtend® soybeans to
be planted in fiscal year 2018.

Monsanto's corn business saw gross profit decline 22 percent in the
first quarter, mostly due to lower volumes. A significant portion of
this was in the U.S. and is expected to be recovered later in the year.
Some was related to lower corn acres in Brazil, as expected. However,
the company expects the launch of new premium-priced hybrids globally to
drive genetic share gains, and to expand the footprint of its newest
offerings in the U.S., particularly DEKALB® DiseaseShieldTM
hybrids and TreceptaTM corn, which is launching in
select areas.

In cotton, gross profit for the first quarter was essentially flat
compared to the same period last year. Despite lower planted acres in
Australia, almost the entire market in the country transitioned to adopt
Bollgard® 3 cotton in just two seasons. In the U. S., the
company expects more than 6 million acres of Bollgard® II
XtendFlex® cotton, coupled with continued brand share gains.

Beyond seed technologies, the Climate FieldViewTM platform
for digital agriculture is expanding globally as planned. The company
recently announced a pre-launch in Germany, France and Ukraine, adding
to the existing business in Brazil, Canada and the U.S. At the same
time, four more partners were added to the platform, a digital imaging
partner in the U.S. and three new partners in Brazil. The addition of
these partners supports The Climate Corporation's commitment to deliver
a true digital agriculture ecosystem where growers can access a broad
and interconnected set of tools, services and data in a single,
easy-to-use interface to optimize all farm management decisions.

The target for paid acres for the year remains at more than 50 million
acres, more than a 40 percent increase over fiscal year 2017.

 

Agricultural Productivity Segment Detail

 

($ in millions)

      Net Sales     Gross Profit(A)

 

      First Quarter     First Quarter
        2018     2017     2018     2017
Agricultural productivity       $ 888     $ 802     $ 180     $ 119
TOTAL Agricultural Productivity       $ 888     $ 802     $ 180     $ 119

(A) Fiscal first quarter 2018 agricultural productivity gross profit
includes a pretax restructuring charge totaling $3 million related to
certain asset impairment charges, which is included in cost of goods
sold.

 
 
($ in millions)       Earnings Before Interest & Taxes (EBIT)

 

      First Quarter
Agricultural Productivity       2018     2017
EBIT (For a reconciliation of EBIT, see note 1.)(A)       $ 38       $ 13  
Unusual Items Affecting EBIT: Income (Expense)    
EBIT from Restructuring Charges (4 ) 2
EBIT from Environmental and Litigation Matters (16 ) (8 )
EBIT from Pending Bayer Transaction Related Costs (3 ) (20 )
EBIT from Argentine-Related Tax Matters 3
EBIT from Discontinued Operations         2         16  

(A) EBIT is defined as earnings before interest and taxes. Interest and
taxes are recorded on a total company basis. We do not record these
items at the segment level.

The Agricultural Productivity segment consists of the crop
protection products and lawn-and-garden herbicide products.

Sales for Monsanto's Agricultural Productivity segment were $888 million
for the first quarter of fiscal year 2018, up approximately 11 percent
compared to the same period last year. The primary contributor to the
segment's growth in the quarter was stronger pricing, as generic pricing
for glyphosate continues to improve.

The company expects price improvements to continue for the rest of the
fiscal year. In addition, volumes sold of XtendiMax®
Herbicide with VaporGrip® Technology are expected to continue
to grow with expanding acres of Roundup Ready 2 Xtend®
soybeans.

Webcast Information

In conjunction with this announcement, Monsanto will hold a conference
call at 8:30 a.m. Central Time (9:30 a.m. Eastern Time) today. The call
will focus on these results, future expectations, research and
development pipeline highlights, and product performance. The call also
will include a discussion of other matters related to the company's
business, including the pending merger with Bayer.

Presentation slides and a simultaneous audio webcast of the conference
call may be accessed by visiting the company's website at https://monsanto.com/investors/reports
or https://services.choruscall.com/links/mon180104B4Fan3Fi.html.
Visitors may need to download Windows Media PlayerTM prior
to listening to the webcast. Following the live broadcast, a replay of
the webcast will be available on the Monsanto website for three weeks.
Monsanto publishes details on upcoming webcasts on this website in both
the Presentation and Financial Reports section and the Investor Events
section. The site includes a calendar of upcoming investor events,
details on accessing scheduled webcasts and information from previous
investor events.

About Monsanto Company

Monsanto is committed to bringing a broad range of solutions to help
nourish our growing world. We produce seeds for fruits, vegetables and
key crops - such as corn, soybeans, and cotton - that help farmers have
better harvests while using water and other important resources more
efficiently. We work to find sustainable solutions for soil health, help
farmers use data to improve farming practices and conserve natural
resources, and provide crop protection products to minimize damage from
pests and disease. Through programs and partnerships, we collaborate
with farmers, researchers, nonprofit organizations, universities and
others to help tackle some of the world's biggest challenges. To learn
more about Monsanto, our commitments and our more than 20,000 dedicated
employees, please visit monsanto.com.
Follow our business on Twitter® at twitter.com/MonsantoCo.

Cautionary Statements Regarding
Forward-Looking Information:

Certain statements contained in this release are "forward-looking
statements," such as statements concerning the company's anticipated
financial results, current and future product performance, regulatory
approvals, business and financial plans and other non-historical facts,
as well as the pending transaction with Bayer Aktiengesellschaft
("Bayer"). These statements are based on current expectations and
currently available information. However, since these statements are
based on factors that involve risks and uncertainties, the company's
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:
risks
related to the pending transaction between the company and Bayer,
including the risk that the regulatory approvals required for the
transaction may not be obtained on the anticipated terms or time frame
or at all, the risk that the other conditions to the completion of the
transaction may not be satisfied, the risk that disruptions or
uncertainties related to the pending transaction could adversely affect
the company's business, financial performance and/or relationships with
third parties, and the risk that certain contractual restrictions during
the pendency of the transaction could adversely affect the company's
ability to pursue business opportunities or strategic transactions;
continued competition in seeds, traits and agricultural chemicals; the
company's exposure to various contingencies, including those related to
intellectual property protection, regulatory compliance and the speed
with which approvals are received, and public understanding and
acceptance of our biotechnology and other agricultural products; the
success of the company's research and development activities; the
outcomes of major lawsuits, including potential litigation related to
the pending transaction with Bayer; developments related to foreign
currencies and economies; fluctuations in commodity prices; compliance
with regulations affecting our manufacturing; the accuracy of the
company's estimates related to distribution inventory levels; the levels
of indebtedness, continued availability of capital and financing and
rating agency actions; the company's 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, accidents, and
security breaches, including cybersecurity incidents, on the agriculture
business or the company's facilities; and other risks and factors
detailed in the company's most recent periodic report to the SEC. Undue
reliance should not be placed on these forward-looking statements, which
are current only as of the date of this release. The company disclaims
any current intention or obligation to update any forward-looking
statements or any of the factors that may affect actual results.

Notes to editors: Monsanto and the Vine Design, INTACTA RR2 PRO,
Roundup Ready 2 Xtend, Bollgard, XtendFlex, XtendiMax, VaporGrip,
DEKALB, DiseaseShield, Trecepta, and FieldView are trademarks of
Monsanto Company and its wholly-owned subsidiaries. All other trademarks
are the property of their respective owners.

 
Monsanto Company

Selected Financial Information

(Dollars in millions, except per share amounts)

Unaudited

         
Statements of Consolidated Operations       Three Months Ended
        Nov. 30, 2017     Nov. 30, 2016
Net Sales $ 2,658     $ 2,650
Cost of goods sold   1,346         1,391  
Gross Profit 1,312 1,259
Operating Expenses:
Selling, general and administrative expenses 664 585
Research and development expenses 382 370
Restructuring charges 4 (36 )
Pending Bayer transaction related costs   20         93  
Total Operating Expenses 1,070 1,012
Income from Operations 242 247
Interest expense 124 136
Interest income (15 ) (18 )
Other (income) expense, net   (97 )       43  
Income from Continuing Operations Before Income Taxes 230 86
Income tax provision   60         61  
Income from Continuing Operations Including Portion Attributable
to Noncontrolling Interest
$ 170       $ 25  
Discontinued Operations:
Income from operations of discontinued business 2 16
Income tax provision   1         6  
Income from Discontinued Operations   1         10  
Net Income $ 171       $ 35  
Less: Net income attributable to noncontrolling interest   2         6  
Net Income Attributable to Monsanto Company $ 169       $ 29  
 
Basic Earnings per Share Attributable to Monsanto Company:
Income from continuing operations $ 0.38 $ 0.05
Income from discontinued operations           0.02  
Net Income Attributable to Monsanto Company $ 0.38       $ 0.07  
 
Diluted Earnings per Share Attributable to Monsanto Company:
Income from continuing operations $ 0.38 $ 0.05
Income from discontinued operations           0.02  
Net Income Attributable to Monsanto Company $ 0.38       $ 0.07  
 
Weighted Average Shares Outstanding:
Basic 440.2 438.1
Diluted         445.3         441.7  
 
 
Monsanto Company

Selected Financial Information

(Dollars in millions)

Unaudited

 
Statements of Consolidated Financial Position       As of
        Nov. 30, 2017     Aug. 31, 2017
Assets    
Current Assets:
Cash and cash equivalents (variable interest entity restricted -
2018: $52 and 2017: $94)
$ 3,102 $ 1,856

Trade receivables, net (variable interest entity restricted -
2018: $91 and 2017: $74)

2,115 2,161
Miscellaneous receivables (variable interest entity restricted -
2018: $7 and 2017: $5)
987 827
Inventory, net 4,033 3,340
Assets held for sale 44 199
Other current assets (variable interest entity restricted - 2018: $0
and 2017: $1)
  279       268
Total Current Assets 10,560 8,651
Total property, plant and equipment 12,383 12,231
Less accumulated depreciation   6,424       6,301
Property, Plant and Equipment, net 5,959 5,930
Goodwill 4,082 4,088
Other Intangible Assets, Net 999 1,024
Deferred Tax Assets (variable interest entity restricted - 2018: $11
and 2017: $11)
534 564
Long-Term Receivables, Net 56 121
Other Assets (variable interest entity restricted - 2018: $4 and
2017: $4)
  946       955
Total Assets $ 23,136     $ 21,333

Liabilities and Shareowners' Equity

Current Liabilities:
Short-term debt, including current portion of long-term debt $ 1,168 $ 870
Accounts payable (variable interest entity restricted - 2018: $2 and
2017: $9)
1,194 1,068
Income taxes payable 42 58
Accrued compensation and benefits 268 578
Accrued marketing programs 1,193 1,918
Deferred revenues (variable interest entity restricted - 2018: $2
and 2017: $0)
3,119 727
Grower production accruals 430 59
Dividends payable 237
Customer payable 75 106
Restructuring reserves 38 37
Miscellaneous short-term accruals (variable interest entity
restricted - 2018: $2 and 2017: $2)
  731       740
Total Current Liabilities 8,258 6,398
Long-Term Debt (variable interest entity restricted - 2018: $97 and
2017: $104)
6,949 7,254
Postretirement Liabilities 306 313
Long-Term Deferred Revenue 111 114
Noncurrent Deferred Tax Liabilities 290 192
Long-Term Portion of Environmental and Litigation Liabilities 222 218
Other Liabilities 385 386
Monsanto Shareowners' Equity 6,601 6,438
Noncontrolling Interest   14       20
Total Shareowners' Equity   6,615       6,458
Total Liabilities and Shareowners' Equity       $ 23,136     $ 21,333
 
 
Monsanto Company

Selected Financial Information

(Dollars in millions)

Unaudited

 
Statements of Consolidated Cash Flows       Three Months Ended
        Nov. 30, 2017     Nov. 30, 2016
Operating Activities:    
Net Income $ 171 $ 35
Adjustments to reconcile cash provided (required) by operating
activities:
Items that did not require (provide) cash:
Depreciation and amortization 188 189
Bad-debt expense 31 7
Stock-based compensation expense 34 36
Excess tax benefits from stock-based compensation (4 )
Deferred income taxes 106 94
Restructuring impairments 2 1
Equity affiliate expense, net 2 2
Net gain on sale of a business or other assets (56 )
Other items 15 12
Changes in assets and liabilities that provided (required) cash, net
of acquisitions:
Trade receivables, net 40 (271 )
Inventory, net (742 ) (681 )
Deferred revenue 2,407 2,344
Accounts payable and other accrued liabilities (768 ) (54 )
Restructuring, net (8 ) (89 )
Pension contributions (6 ) (19 )
Other items, net         (124 )       (139 )
Net Cash Provided by Operating Activities         1,292         1,463  
Cash Flows Provided (Required) by Investing Activities:
Maturities of short-term investments 7
Capital expenditures (418 ) (317 )
Acquisition of businesses, net of cash acquired (7 )
Technology and other investments (8 ) (5 )
Other investments and property disposal proceeds         209         2  
Net Cash Required by Investing Activities         (210 )       (327 )
Cash Flows Provided (Required) by Financing Activities:
Net change in financing with less than 90-day maturities 392 (511 )
Short-term debt proceeds 5 3
Short-term debt reductions (3 ) (8 )
Long-term debt proceeds 599
Long-term debt reductions (1 ) (509 )
Debt issuance costs (2 )
Stock option exercises 56 21
Excess tax benefits from stock-based compensation 4
Tax withholding on restricted stock and restricted stock units (25 ) (14 )
Dividend payments (238 ) (237 )
Payments to noncontrolling interests         (8 )       (1 )
Net Cash Provided (Required) by Financing Activities         178         (655 )
Effect of Exchange Rate Changes on Cash and Cash Equivalents (14 ) (28 )
Net Increase in Cash and Cash Equivalents 1,246 453
Cash and Cash Equivalents at Beginning of Period         1,856         1,676  
Cash and Cash Equivalents at End of Period       $ 3,102       $ 2,129  
 

Monsanto Company
Non-GAAP Financial Information
(Dollars
in millions, except per share amounts)
Unaudited

1. This press release uses the non-GAAP financial measures of gross
profit, operating expenses, net income (loss) attributable to Monsanto
Company and diluted earnings per share (EPS), each on an ongoing basis
(collectively, "Ongoing Financial Measures"), and EBIT and free cash
flow. The Ongoing Financial Measures and EBIT are intended to supplement
investor's understanding of our operating performance. The free cash
flow measure is intended to supplement investor's understanding of our
liquidity. They are different from and not intended to replace gross
profit, operating expenses, net income (loss) attributable to Monsanto
Company, diluted EPS, cash flows, financial position or comprehensive
income (loss), and they are not measures of financial performance as
determined in accordance with U.S. generally accepted accounting
principles (GAAP). These non-GAAP financial measures may not be
comparable to similar measures used by other companies.

Our Ongoing Financial Measures exclude certain items that we do not
consider part of ongoing operations. We believe that our Ongoing
Financial Measures presented with these adjustments are useful to
investors as they best reflect our ongoing performance and business
operations during the periods presented and are also useful to investors
for comparative purposes. In addition, management uses the Ongoing
Financial Measures as a guide in its budgeting and long-range planning
processes, and the ongoing EPS financial measure is used as a guide in
determining incentive compensation.

EBIT is defined as earnings (loss) before interest and taxes. Earnings
(loss) is intended to mean net income (loss) attributable to Monsanto
Company as presented in the Statements of Consolidated Operations under
GAAP. EBIT is an operating performance measure for our two business
segments. We believe that EBIT is useful to investors and management to
demonstrate the operational profitability of our segments by excluding
interest and taxes, which are generally accounted for across the entire
company on a consolidated basis. EBIT is also one of the measures used
by management to determine resource allocations within the company.

We define free cash flow as the total of net cash provided or required
by operating activities less capital expenditures. Prior to the second
quarter of fiscal year 2017, we defined free cash flow as the total of
net cash provided or required by operating activities and net cash
provided or required by investing activities. As this definition varies
from other more common definitions of free cash flow, we determined it
was appropriate to redefine free cash flow to conform to one of the more
typical definitions beginning with the second quarter for fiscal year
2017.The prior period calculations of free cash flow have been restated
to conform to the new presentation. Free cash flow does not represent
the residual cash flow available for discretionary expenditures. We
believe that free cash flow is an important liquidity measure for the
company and that it is useful to investors and management as a measure
of the ability of our business to generate cash. Once business needs and
obligations are met, this cash can be used 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 as one of the
performance measures in determining incentive compensation.

The following tables reconcile GAAP as-reported financial measures to
Non-GAAP financial measures.

 

Reconciliation of GAAP As-Reported to
Selected Non-GAAP Financial Measures:

 
      Three Months Ended
Nov. 30, 2017
(in millions) GAAP As Reported     Adjustments(A)     Ongoing Basis
Net Sales $ 2,658 $ $ 2,658
Gross Profit 1,312 13 1,325
Operating Expenses(B) 1,070 (40 ) 1,030
Net Income Attributable to Monsanto Company 169 14 183
Diluted Earnings per Share         0.38       0.03         0.41
 

(A) In the three months ended Nov. 30,
2017, select GAAP measures have been adjusted to an ongoing basis by
eliminating the impact of restructuring charges, environmental and
litigation matters, pending Bayer transaction related costs,
Argentine-related tax matters and income from discontinued operations.
See separate reconciliations of each measure below.

  • Fiscal first quarter 2018 included a pretax net restructuring charge
    totaling $17 million ($0.04 a share), or after-tax $9 million ($0.02 a
    share), of which $2 million related to certain asset impairment
    charges and a $15 million net expense related to various other
    operating activities. For the three months ended Nov. 30, 2017, $13
    million and $4 million of expense are included in cost of goods sold
    and restructuring charges, respectively. The restructuring charges
    relate to the 2015 Restructuring Plan. Implementation of the 2015
    Restructuring Plan is expected to be completed by the end of fiscal
    year 2018.
  • Fiscal first quarter 2018 included pretax charges of $16 million
    ($0.04 a share), or after-tax $10 million ($0.02 a share) for legacy
    litigation matters arising under indemnities from the 2000 Pharmacia
    Separation Agreement that are not considered a part of ongoing
    operations. The pretax charges were recorded in selling, general and
    administrative expenses.
  • The three months ended Nov. 30, 2017, included pretax charges of $20
    million ($0.05 a share), or after-tax $13 million ($0.03 a share) for
    expenses incurred associated with the merger agreement for the
    acquisition of Monsanto by Bayer Aktiengesellschaft entered into on
    Sep. 14, 2016. The pretax charges in the three months ended Nov. 30,
    2017, were recorded in operating expenses.
  • The three months ended Nov. 30, 2017, included a net reversal of
    charges related to Argentine-related tax matters of $17 million, or
    $0.04 a share. Due to losses generated in Argentina in recent years as
    well as recent uncertainties around the Argentina business, the
    company evaluated the recoverability of various items on the Statement
    of Consolidated Financial Position related to the Argentina business
    and determined an allowance against certain assets was necessary. This
    resulted in a translation loss recorded in other (income) expense, net
    of less than $1 million and a net reversal of previously recognized
    charges against tax expense of $17 million for the three months ended
    Nov. 30, 2017.
  • The company reports annual earn-out payments received as a result of
    the 2008 divestment of the Dairy Business as discontinued operations.
    The three months ended Nov. 30, 2017, included pretax income from
    discontinued operations of $2 million ($0.01 a share), or after-tax $1
    million (less than $0.01 a share).

(B) Operating expenses include selling, general and
administrative expenses, research and development expenses,
restructuring charges and pending Bayer transaction related costs.

 
 
      Three Months Ended
Nov. 30, 2016
(in millions) GAAP As Reported     Adjustments(A)     Ongoing Basis
Net Sales $ 2,650 $ $ 2,650
Gross Profit 1,259 1 1,260
Operating Expenses(B) 1,012 (65 ) 947
Net Income Attributable to Monsanto Company 29 62 91
Diluted Earnings per Share         0.07       0.14         0.21
 

(A) In the three months ended Nov. 30,
2016, select GAAP measures have been adjusted to an ongoing basis by
eliminating the impact of restructuring charges, environmental and
litigation matters, pending Bayer transaction related costs,
Argentine-related tax matters and income from discontinued operations.
See separate reconciliations of each measure below.

  • Fiscal first quarter 2017 included a pretax net reversal of previously
    recognized restructuring charges totaling $35 million ($0.08 a share),
    or after-tax $25 million ($0.06 a share), of which $1 million related
    to certain asset impairment charges and a $36 million net reversal of
    previously recognized expense related to various other operating
    charges. For the three months ended Nov. 30, 2016, $1 million of
    expense and $36 million of a net reversal of previously recognized
    expense were included in cost of goods sold and restructuring charges,
    respectively. The restructuring charges relate to the 2015
    Restructuring Plan. Implementation of the 2015 Restructuring Plan is
    expected to be completed by the end of fiscal year 2018.
  • The three months ended Nov. 30, 2016, included pretax charges of $8
    million ($0.02 a share), or after-tax $5 million ($0.01 a share) for
    legacy litigation matters arising under indemnities from the 2000
    Pharmacia Separation Agreement that are not considered a part of
    ongoing operations. The pretax charges were recorded in selling,
    general and administrative expenses.
  • The three months ended Nov. 30, 2016, included pretax charges of $131
    million ($0.30 a share), or after-tax $82 million ($0.19 a share) for
    expenses incurred associated with the merger agreement for the
    acquisition of Monsanto by Bayer Aktiengesellschaft entered into on
    Sep. 14, 2016. The pretax charges in the three months ended Nov. 30,
    2016, were recorded in operating expenses of $93 million and other
    (income) expense, net of $38 million.
  • Fiscal first quarter 2017 included charges related to
    Argentine-related tax matters of $10 million, or $0.02 a share. Due to
    losses generated in Argentina in recent years as well as recent
    uncertainties around the Argentina business, the company evaluated the
    recoverability of various items on the Statement of Consolidated
    Financial Position related to the Argentina business and determined an
    allowance against certain assets was necessary, which resulted in a
    translation gain recorded in other (income) expense, net of $18
    million and a net charge against tax expense of $28 million.
  • The company reports annual earn-out payments received as a result of
    the 2008 divestment of the Dairy Business as discontinued operations.
    The three months ended Nov. 30, 2016, included pretax income from
    discontinued operations of $16 million ($0.04 a share), or after-tax
    $10 million ($0.02 a share).

(B) Operating expenses include selling, general and
administrative expenses, research and development expenses,
restructuring charges and pending Bayer transaction related costs.

Reconciliation of EBIT to Net Income
Attributable to Monsanto Company:
 EBIT is defined as earnings
before interest and taxes. Earnings is intended to mean net income
attributable to Monsanto Company as presented in the Statements of
Consolidated Operations under GAAP. The following table reconciles EBIT
to the most directly comparable financial measure, which is net income
attributable to Monsanto Company.

 
      Three Months Ended
(in millions) Nov. 30, 2017     Nov. 30, 2016
EBIT – Seeds and Genomics Segment $ 302     $ 199
EBIT – Agricultural Productivity Segment   38       13
EBIT– Total 340 212
Interest Expense – Net 109 118
Income Tax Provision(A)   62       65
Net Income Attributable to Monsanto Company       $ 169     $ 29

(A) Includes the income tax provision from continuing
operations, the income tax provision on noncontrolling interest, and the
income tax provision on discontinued operations.

Reconciliation of EPS to Ongoing EPS:
Ongoing EPS is calculated excluding certain after-tax items which
Monsanto does not consider part of ongoing operations.

 
      Three Months Ended
Nov. 30, 2017     Nov. 30, 2016
Diluted Earnings per Share $ 0.38     $ 0.07
Restructuring Charges(A) 0.02 (0.06 )
Environmental and Litigation Matters(B) 0.02 0.01
Pending Bayer Transaction Related Costs(C) 0.03 0.19
Argentine-Related Tax Matters(D) (0.04 ) 0.02
Income from Discontinued Operations(E)           (0.02 )
Diluted Earnings per Share from Ongoing Business       $ 0.41       $ 0.21  

(A) The three months ended Nov. 30, 2017, and 2016,
above represent pretax restructuring charges and pretax net reversals of
previously recognized restructuring charges per share totaling $0.04 a
share and $0.08 a share, respectively. The restructuring charges relate
to the 2015 Restructuring Plan. Implementation of the 2015 Restructuring
Plan is expected to be completed by the end of fiscal year 2018.

(B) The three months ended Nov. 30, 2017, and 2016,
above represent pretax environmental and litigation matters charges per
share totaling $0.04 a share and $0.02 a share, respectively. The
charges relate to legacy litigation matters arising under indemnities
from the 2000 Pharmacia Separation Agreement that are not considered a
part of ongoing operations.

(C) The three months ended Nov. 30, 2017, and 2016,
above represent pretax pending Bayer transaction related costs per share
totaling $0.05 a share and $0.30 a share, respectively.

(D) Item includes a translation loss recorded in other
(income) expense, net of less than $1 million and a net reversal of
previously recognized charges against tax expense of $17 million for the
three months ended Nov. 30, 2017, and it includes a translation gain
recorded in other (income) expense, net of $18 million and a net charge
against tax expense of $28 million for the three months ended Nov. 30,
2016.

(E) The three months ended Nov. 30, 2017, and 2016,
above represent pretax income from discontinued operations per share
totaling $0.01 a share and $0.04, respectively.

Reconciliation of Gross Profit to Ongoing Gross
Profit:
Ongoing gross profit is calculated excluding certain
pre-tax items which Monsanto does not consider part of ongoing
operations.

 

 

      Three Months Ended
(in millions) Nov. 30, 2017     Nov. 30, 2016
Gross Profit – Seeds and Genomics Segment $ 1,132     $ 1,140
Gross Profit – Agricultural Productivity Segment   180       119
Gross Profit– Total 1,312 1,259
Restructuring Charges   13       1
Ongoing Gross Profit       $ 1,325     $ 1,260
 

Reconciliation of Operating Expenses to Ongoing
Operating Expenses:
Ongoing operating expenses are calculated
excluding certain pre-tax items which Monsanto does not consider part of
ongoing operations.

 

 

      Three Months Ended
(in millions) Nov. 30, 2017     Nov. 30, 2016
Operating Expenses $ 1,070     $ 1,012
Restructuring Charges (4 ) 36
Environmental and Litigation Matters (16 ) (8 )
Pending Bayer Transaction Related Costs   (20 )       (93 )
Ongoing Operating Expenses       $ 1,030       $ 947  
 

Reconciliation of Net Income Attributable to
Monsanto Company to Ongoing Net Income Attributable to Monsanto Company:

Ongoing net income attributable to Monsanto Company is defined as net
income attributable to Monsanto Company excluding the cumulative
after-tax impact of certain items we do not consider part of ongoing
operations.

 

 

      Three Months Ended
(in millions) Nov. 30, 2017     Nov. 30, 2016
Net Income Attributable to Monsanto Company $ 169     $ 29
Pretax Restructuring Charges 17 (35 )
Pretax Environmental and Litigation Matters 16 8
Pretax Pending Bayer Transaction Related Costs(A) 20 131
Income Tax Benefit(B) (21 ) (42 )
Argentine-Related Tax Matters(C) (17 ) 10
Income from Discontinued Operations, Net of Tax(D)   (1 )       (10 )
Ongoing Net Income Attributable to Monsanto Company       $ 183       $ 91  
 

(A) The pretax charges in the three months ended Nov.
30, 2017, and Nov. 30, 2016, were recorded in operating expenses of $20
million and $93 million, respectively, and other (income) expense, net
of $38 million for the three months ended Nov. 30, 2016.

(B) Income tax impact of non-GAAP adjustments is the
summation of the calculation of income tax (benefit) charge related to
each non-GAAP non-income tax adjustment. Income tax charge is calculated
using the actual tax rate in effect during the period for the locality
of the related non-GAAP adjustment. Item includes all non-GAAP
adjustments except for Argentine-Related Tax Matters and Income from
Discontinued Operations.

(C) Item includes a translation loss recorded in other
(income) expense, net of less than $1 million and a net reversal of
previously recognized charges against tax expense of $17 million for the
three months ended Nov. 30, 2017, and it includes a translation gain
recorded in other (income) expense, net of $18 million and a net charge
against tax expense of $28 million for the three months ended Nov. 30,
2016.

(D) The three months ended Nov. 30, 2017, and Nov. 30,
2016, included pretax income from discontinued operations of $2 million
and $16 million, respectively.

Reconciliation of Free Cash Flow: Free
cash flow represents the total of net cash provided or required by
operating activities less capital expenditures, as reflected in the
Statements of Consolidated Cash Flows presented in this release.

 

 

      Three Months Ended

 

      Nov. 30, 2017     Nov. 30, 2016
Net Cash Provided by Operating Activities $ 1,292     $ 1,463
Net Cash Required by Investing Activities (210 ) (327 )
Net Cash Provided (Required) by Financing Activities 178 (655 )
Effect of Exchange Rate Changes on Cash and Cash Equivalents   (14 )       (28 )
Net Increase in Cash and Cash Equivalents       $ 1,246       $ 453  
 
 

 

      Three Months Ended

 

      Nov. 30, 2017     Nov. 30, 2016
Net Cash Provided by Operating Activities $ 1,292     $ 1,463
Capital expenditures   (418 )       (317 )
Free Cash Flow       $ 874       $ 1,146  
 

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