St. Louis, MO, December 22--Monsanto Co. said it would set aside $285 million to cover liabilities tied to its former affiliate Solutia Inc. in an initial move to define the cost of a tangle of legal problems stemming from the bankrupt chemical company.
Monsanto said it was reducing its first-quarter and 2005 net earnings outlook because of the reserve, but said its operating profits should be better because of strength in its biotech seeds businesses.
Investors have nervously awaited indications from Monsanto on how much the bankruptcy of former affiliate Solutia might cost the company, but the news of the reserve, combined with the talk of strength in Monsanto's seeds businesses, helped push shares up more than 1 percent.
Monsanto Chief Financial Officer Terry Crews said that there were still other potential liabilities related to the Solutia bankruptcy that Monsanto could be forced to pay for, but the company thought it was important to begin to reserve for the problems.
"It's possible the reserve may have to be adjusted in the future," Crews said. "While we're not done, we're on the way to bringing resolution to an issue that has been an overhang for us for some time."
Because of the reserve, Monsanto said it now expects to post a first-quarter net loss of 16 cents per share, compared with its previous outlook for a profit 43 cents a share.
On an ongoing basis, which excludes the reserve, the first-quarter outlook is now a profit of 13 cents a share, up from the company's previous forecast for a profit of 4 cents a share.
For the fiscal year 2005, Monsanto pegged its net earnings at $1.56 to $1.71 a share, down from its previous outlook for $2.16 to $2.29 a share. On an ongoing basis, Monsanto's full-year forecast was $1.85 to $2.00 a share, up from its previous estimate $1.77 to $1.90 a share.
Monsanto had steadfastly refused to reserve for Solutia's problems since Solutia filed for bankruptcy a year ago, and asserted it did not think it was obligated to take on any Solutia liabilities. Monday's news marks a shift in the company's position.
Chemical maker Solutia, which was spun off from Monsanto in 1997, filed for bankruptcy protection a year ago, overwhelmed by huge liabilities related to environmental lawsuits and employee benefits it said were forced upon it by Monsanto.
Solutia has alleged that Monsanto is obligated to cover the liabilities that include certain employee benefits, asbestos and PCB contamination clean-up costs, and expenses for some 600 lawsuits.
Crews said it was possible that Monsanto might receive some equity in Solutia in exchange for taking on some of the costs, but that will be dealt with through the bankruptcy process.
"It is something still to be worked out," he said.
