Monsanto's losses continue - massaged by tax benefit (6/1/2005)

Monsanto have been talking themselves up throughout 2004 but they still managed to make a net loss of GBP21m ($40m) for the fiscal first quarter ended Nov. 30. Although they're flagging this up as a big improvement on the GBP51m ($97 million) loss they reported a year ago, their shares fell 3 percent.

However, the actual loss would have been far greater than last year if Monsanto hadn't been able to offset a tax benefit of GBP56m. That tax benefit was itself triggered by the losses Monsanto has been making.

Without the tax benefit, instead of "pruning" its losses in the last quarter to GBP21m, they would have been a record GBP77m, ie 26 million pounds higher than even a year before.

Meanwhile, looming in the background is the news that the company quietly released during the Xmas holiday. Monsanto has been forced to set up a liability fund following the bankruptcy of its chemicals division, Solutia (part of the old Monsanto).

The point to note is that this reserve fund does *NOT* cover most of the liabilities that drove Solutia into bankruptcy, which have yet to be quantified! These include the cost of dealing with hazardous polychlorinated biphenyls, or PCBs, that spread from former Monsanto plants. (see item 2)

In these circumstances, it's hardly surprising that a number of financial analysts warn that Wall Street has been seriously overvaluing the company.

1.Monsanto prunes losses to GBP21m

1.Monsanto prunes losses to GBP21m

AGROCHEMICAL company Monsanto posted a narrower net loss for its first quarter even as a decision to reserve around GBP150 million for legal problems partly offset a boost in the company’s key seed business.

Monsanto said its first-quarter net loss totalled GBP21m, compared with a loss of GBP51m a year earlier.

And the latest results, up to November 30, included a GBP150m reserve for liabilities tied to Monsanto’s former affiliate Solutia, now mired in bankruptcy.

A tax benefit of GBP56m from losses incurred in a European wheat and barley business that the company has been winding down was also included.

Officials said net sales increased seven per cent to GBP578m in the first quarter due to strong sales of branded corn seed in Europe and Brazil and stronger sales of genetically modified corn and soybean seeds in the United States and biotech cotton in Australia.


(excerpts only)

Monsanto has set aside a reserve of $285 million and began to quantify its liabilities in the year-old bankruptcy of corporate cousin Solutia Inc., which it set up to enable it to spin off its chemicals business.

The reserve will fund liabilities directly related to the chemical business of the old Monsanto - those incurred before that business was spun off as Solutia. It will pay for environmental cleanups as well as tort litigation aimed at old Monsanto operations.

However, ***the reserve won't cover liabilities that have yet to be quantified, but which make up a lion's share of the $1 billion in obligations that drove Solutia into [bankruptcy]***. Those include the cost of dealing with hazardous polychlorinated biphenyls, or PCBs, that spread from former Monsanto plants into the communities of Sauget as well as Anniston, Ala.

Monsanto Chief Financial Officer Terry Crews told analysts, "Some things remain unclear. ... The ultimate resolution still lies with the (Bankruptcy) Court. It's possible that the reserve could have to be revised in the future."

Expenses from involvement in Solutia's bankruptcy will continue to be charged to each quarter's operations, Monsanto said.

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