NM = Not Meaningful

* Monsanto recently changed its fiscal year-end from Dec. 31 to Aug. 31.  Because of this change, we will report the eight-month “transition period” results in accordance with U.S. Securities and Exchange Commission rules in our next annual report (see first table above).   We also are providing information reflecting the three-month and 12-month periods ended Aug. 31, 2003 and 2002 (see second table above).  We will refer to these three-month and 12-month periods as the fourth quarter and fiscal year, respectively.  Discussion in this news release will focus on the fourth quarter and fiscal year information.

Highlights:

·          Sales for the 2003 fourth quarter improved by 10 percent, primarily because of increased branded corn seed sales and higher trait revenues for corn and soybeans.

·          Fiscal-year sales were relatively flat, with higher sales in the seeds and traits businesses offset by lower sales in the Roundup herbicide and selective chemistry businesses.

·          Free cash flow (as defined below) for fiscal year 2003 was $646 million, compared with $581 million in 2002.  Components of free cash flow for 2003 and 2002, respectively, were:  Net cash provided by operations of $1,128 million versus $855 million, and net cash required by investing activities of $482 million versus $274 million.

·          Monsanto plans to implement strategic initiatives to improve earnings growth.

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

“This is the first time we’re reporting results based on a fiscal year that synchronizes our results with the natural flow of the agricultural cycle in our major markets.  Our fourth-quarter and fiscal-year 2003 results underscore the growth of our seeds and biotechnology traits businesses, while also demonstrating the strong cash-generating capabilities of our Roundup herbicide franchise.”

Fourth Quarter and Fiscal Year 2003 Performance Summary:

Net sales increased 10 percent to $1.3 billion in the fourth quarter primarily because of improved performance in our Latin American corn business and higher U.S. trait revenues for corn and soybeans.

For the fiscal year, net sales were relatively flat at $4.9 billion. Higher sales of corn seed and increased revenues from insect-protected and herbicide-tolerant corn traits were offset by lower sales of Roundup and selective chemistry in the United States.

Net income (loss) and per share results:  Monsanto recorded a fourth-quarter 2003 net loss of $188 million, or a loss of 72 cents per share, compared with last year’s fourth-quarter net loss of $27 million, or a loss of 10 cents per share.

Items affecting comparability in the fourth quarter of 2003 included:

·          A 96-cents-per-share charge associated with Monsanto’s contribution to the settlement of litigation in Anniston, Alabama

·          A 2-cents-per-share benefit from the reversal of restructuring charges

Items affecting comparability in the fourth quarter of 2002 included:

·          Establishment of an Argentine bad-debt reserve of 38 cents per share

·          Charges of 19 cents per share for restructuring

·          An 8-cents-per-share gain from an asset sale in Japan

For fiscal year 2003, Monsanto recorded net income $68 million, or 26 cents per share, compared to a net loss of $1.8 billion, or a loss of $6.67 per share, in fiscal year 2002.

Items affecting comparability for fiscal year 2003 included:

·          A 96-cents-per-share charge associated with Monsanto’s contribution to the settlement of litigation in Anniston, Alabama  

·          Net restructuring charges of 10 cents per share associated with the 2000 and 2002 plans

·          A 5-cents-per-share charge related to asset retirement

Items affecting comparability in fiscal year 2002 included:

·          A $6.92-per-share charge for goodwill impairment

·          Restructuring charges of 54 cents per share

·          Establishment of an Argentine bad-debt reserve of 38 cents per share

·          An 8-cents-per-share gain from an asset sale in Japan

Operating costs:  The company continued efforts to manage its research-and-development (R&D) and selling, general and administrative (SG&A) costs. For the year, R&D expenses declined by 7 percent, and SG&A expenses were relatively flat.

Cash flow:  Free cash flow represents the total of cash flows from operations and investing activities.  Net cash provided by operations was $1,128 million, compared with $855 million in 2002.  Net cash required by investing activities was $482 million, compared with $274 million in 2002.  As a result, free cash flow improved by $65 million, from $581 million in 2002 to $646 million in 2003.

Mid-Term Strategic Actions:

In addition to announcing its fourth quarter and fiscal year results today, Monsanto also outlined plans to continue to reduce the costs associated with its agricultural chemistry business as that sector matures globally.  Concurrently, the company will further concentrate its resources on its seeds and biotechnology traits businesses.

Specifically, these plans include:  (1) Reducing costs associated with its Roundup herbicide business, (2) Exiting the European breeding and seed business for wheat and barley; and (3) Discontinuing our plant-made pharmaceuticals program.  

These plans are expected to produce aftertax savings of approximately $80 million to $95 million in fiscal year 2005, and approximately $90 million to $105 million in fiscal year 2006, with continuing savings going forward. The actions will require charges of up to $155 million aftertax, or 59 cents per share in fiscal year 2004. Decisions surrounding the European wheat and barley business will also require a re-evaluation for potential impairment of goodwill related to our global wheat business.  Goodwill for this business is currently recorded at roughly $80 million pretax.  The company also expects these actions will lower its SG&A costs as a percent of sales to the high teens by the end of fiscal year 2006.

As a result of these actions, management expects the growth rate for reported earnings to increase at a compounded annual growth rate of approximately 10 percent in fiscal years 2005 and 2006.  Monsanto’s current global work force of 13,200 is expected to be reduced in the range of 7 percent to 9 percent by the end of fiscal year 2004.  

Comment from Hugh Grant:

“Following on our solid results for fiscal year 2003, we are announcing today plans designed to accelerate earnings growth during the next several years. We plan to reduce costs, sharpen our focus on the growth segment of agriculture, and accelerate Monsanto’s strategic evolution to a company led by its strengths in seeds and traits.

“By aligning our costs with our expectations for the glyphosate herbicide market, we believe the Roundup franchise can continue to be a significant and sustainable source of cash generation for Monsanto.

“The progress in our R&D pipeline also gives us the flexibility to scale back on certain projects in order to focus on those that have the best commercial potential.  Because we have a robust pipeline, we can make these tradeoffs and maintain our overall R&D leadership position and our first-mover advantage.”

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

Fourth-quarter net sales of $258 million for the Seeds and Genomics segment increased substantially compared with sales in the fourth quarter of fiscal year 2002.  This improvement was driven by the actions taken last year in Latin America by Monsanto management as well as improved economic conditions there.  Higher revenues from the company’s YieldGard insect-protected corn and Roundup Ready herbicide-tolerant corn and soybean traits in the United States also contributed to the quarter-over-quarter improvement.  For the 12-month comparison, the improvement was driven primarily by the same factors mentioned above, and by higher revenues for stacked Roundup Ready and Bollgard insect-protected cotton traits.

EBIT (earnings (loss) before cumulative effect of accounting change, interest, and income taxes) for the Seeds and Genomics segment improved by $183 million in the fourth quarter, to a loss of $145 million from a loss of $328 million in the comparable 2002 period.  On a fiscal year basis, the Seeds and Genomics segment was EBIT-positive for the first time.  In fiscal year 2003, EBIT improved to $183 million, from a loss of $302 million in 2002.  The major factors for the improvement in both periods were higher overall sales of seeds and traits, and lower corn seed returns in Latin America.  (For reconciliation of EBIT, see note 5.)

Seeds and Genomics Segment Detail

Agricultural Productivity Segment Detail

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

Net sales in the Agricultural Productivity segment declined by $69 million in the quarter and $349 million for the year, primarily as a result of lower sales of branded Roundup and selective herbicides, particularly in the United States.  

EBIT (earnings before cumulative effect of accounting change, interest and income taxes) declined by $429 million for the fourth quarter of 2003, to a loss of $137 million from $292 million in the same period last year.  The primary reason for the decline in the quarter was Monsanto’s contribution to the litigation settlement, which was charged to this business segment.  For the year, EBIT for this segment declined $439 million, driven primarily by the contribution to the litigation settlement, and by lower volumes and prices of branded Roundup in the post-patent U.S. market.  (For reconciliation of EBIT, see note 5.)

Other Items of Note:

On Oct. 14, the company’s Board of Directors unanimously elected Hugh Grant as the company’s chairman of the board.  Grant will retain his responsibilities as president and chief executive officer of Monsanto.  Former board chairman Frank V. AtLee will continue to serve as a member of the board.  In addition, the chairman of the board’s nominating and corporate governance committee, Robert J. Stevens, will serve in the new capacity of presiding director and will preside at non-management executive sessions of the board.  The executive committee of the board is comprised of Grant, Stevens, and William U. Parfet, who serves as the chairman of the board’s audit and finance committee.

Also on Oct. 14, Monsanto and Bayer announced the resolution of issues between them regarding several biotechnology patent disputes.  The resolution included cross licensing of enabling technologies for herbicide-tolerant crops, and the granting of royalty-bearing licenses for one another’s technologies for insect-protected crops.

Other supplemental data to this news release, including slides that accompany the company’s financial results conference call, can also be found in the Financial Reports section under the investor information page of the company’s web site at:    www.monsanto.com.  

Outlook Comment from Hugh Grant:

“In fiscal year 2004, we’ll continue to focus on the growth prospects available in the seeds and technology traits sector of the agricultural industry. We’ll also strike a balance between streamlining the infrastructure for our Roundup business while maintaining a high level of customer service as we intend to sustain this franchise as a significant cash generator for some time.”

2004 Earnings and Free Cash Flow Guidance:

The company’s EPS guidance for fiscal year 2004 is in the range of $1.40 to $1.50, excluding the effect of the restructuring actions announced today (estimated at 59 cents per share).  On a reported basis and including the estimated restructuring charge, EPS guidance is in the range of 81 cents to 91 cents.  Both EPS guidance ranges exclude any potential goodwill writeoff related to the decision to exit the European wheat and barley business.

On an ongoing business basis, roughly 30 percent of the fiscal year earnings are expected in the first half of the year, with 50 percent in the third quarter, and 20 percent in the fourth quarter.  

Free cash flow generation for fiscal year 2004 is expected to be in the range of $350 million to $400 million.  The company expects net cash provided by operations to be in the range of $540 million to $570 million, and net cash required by investing activities to be in the range of $170 million to $190 million.

2003 Calendar Year Earnings and Free Cash Flow Outlook:

Management intends to report summary earnings and cash flow information for the current calendar year so that the company’s progress toward meeting its original 2003 financial commitments can be tracked.  The company intends to announce this 2003 calendar-year information on Feb. 4, 2004.   

The 2003 calendar-year guidance remains in the range of $1.30 to $1.40 per share, and excludes the following:

·          A 96-cents-per-share charge associated with Monsanto’s contribution to the settlement of litigation in Anniston, Alabama

·          Restructuring charges estimated at 11 cents per share associated with the strategic actions announced today

·          A 5-cents-per-share charge related to asset retirement obligations

·          A 2-cents-per-share benefit from the reversal of prior restructuring charges

Including these items, the company’s reported 2003 calendar year EPS guidance is expected to be in the range of 20 cents to 30 cents.  This guidance excludes any potential goodwill writeoff related to the decision to exit the European wheat and barley business.

Management also reiterated that it expects to generate free cash flow in the 2003 calendar year in the range of $50 million to $100 million.  Net cash provided by operations is expected to be in the range of $230 million to $260 million, and net cash required by investing activities is expected to be in the range of $160 million to $180 million.

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

Roundup, YieldGard, Roundup Ready and Bollgard are trademarks owned by Monsanto Company and its wholly owned subsidiaries.

References to Roundup products in this release mean Roundup branded and other glyphosate-based herbicides, excluding lawn-and-garden products.

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