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monsanto 12-07-05
 

monsanto 12-07-05

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    monsanto 12-07-05 monsanto 12-07-05 Presentation Transcript

    • BRETT BEGEMANN EXECUTIVE VICE PRESIDENT, INTERNATIONAL COMMERCIAL Citigroup Investment Research 16th Annual Investment Conference Dec. 7, 2005
    • Forward-Looking Statements Certain statements contained in this presentation, such as statements concerning the company's anticipated financial results, current and future product performance, regulatory approvals, currency impact, business and financial plans, the outcome of contingencies and other non-historical facts are quot;forward-looking statements.quot; 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: the company's exposure to various contingencies, including those related to Solutia Inc., litigation, intellectual property, regulatory compliance (including seed quality), environmental contamination and antitrust; successful completion and operation of recent and proposed acquisitions; fluctuations in exchange rates and other developments related to foreign currencies and economies; increased generic and branded competition for the company's Roundup herbicide; the accuracy of the company’s estimates and projections, for example, those with respect to product returns and grower use of our products and related distribution inventory levels; the effect of weather conditions and commodity markets on the agriculture business; the success of the company’s research and development activities and the speed with which regulatory authorizations and product launches may be achieved; domestic and foreign social, legal and political developments, especially those relating to agricultural products developed through biotechnology; the company’s ability to successfully market new and existing products in new and existing domestic and international markets; the company’s ability to obtain payment for the products that it sells; the company's ability to achieve and maintain protection for its intellectual property; the company's ability to fund its short-term financing needs; and other risks and factors detailed in the company's filings with the U.S. Securities and Exchange Commission. 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 revise or update any forward-looking statements or any of the factors that may affect actual results, whether as a result of new information, future events or otherwise.
    • Non-GAAP Financial Information This presentation may use the non-GAAP financial measures of “free cash flow,” earnings per share (EPS) on an ongoing basis, and Return on Capital (ROC). We define free cash flow as the total of cash flows from operating activities and investing activities. A non-GAAP EPS financial measure, which we refer to as on-going EPS excludes certain after-tax items that we do not consider part of ongoing operations, which are identified in the reconciliation. ROC means net income (without the effect of certain items) exclusive of after-tax interest expenses, divided by the average of the beginning year and ending year net capital employed, as defined in the reconciliation. Our presentation of non-GAAP financial measures is intended to supplement investors’ understanding of our operating performance. These non-GAAP financial measures are not intended to replace net income (loss), cash flows, financial position, or comprehensive income (loss), as determined in accordance with accounting principles generally accepted in the United States. Furthermore, these non-GAAP financial measures may not be comparable to similar measures used by other companies. The non-GAAP financial measures used in this presentation are reconciled to the most directly comparable financial measures calculated and presented in accordance with GAAP, which can be found at the end of this presentation. Fiscal Year In this presentation, unless otherwise specified, references to Monsanto’s fiscal years refer to the 12-month period ending August 31. Trademarks Roundup, Roundup Ready, Roundup RReady2Yield, Bollgard, Bollgard II, YieldGard, Monsanto Imagine, Vine Design, Asgrow, DEKALB, Monsanto Choice Genetics, Posilac, Processor Preferred, Vistive and Seminis, Seminis Vegetable Seeds, Royal Sluis, Petoseed, and Bruinsma are trademarks owned by Monsanto Company and its wholly-owned subsidiaries and are italicized the first time they appear in this presentation.
    • OVERVIEW Two-Step, Two-Horizon Strategy Creates a Line of Sight for Success through 2010 2006 2007 2008 2009 2010 GROW Grow Current Portfolio Grow Globally LEAD Grow the Pipeline Translate Growth to Value Lead through Innovation Lead in an Increasingly Competitive Market Lead in New Market Opportunities Translate Leadership to Value
    • OVERVIEW U.S., Argentina and Brazil Supply World’s Corn and Soy Needs WORLD AREA GRAIN PRODUCTION EUROPE ASIA UNITED STATES 2005 2010 2005 2010 2005 2010 Corn 52M MT 55M MT Corn 122M MT 132M MT Corn 278M MT 297M MT Soy 1M MT 3M MT Soy 86M MT 81M MT Soy 22M MT 23 MT ARGENTINA BRAZIL 2005 2010 2005 2010 Corn 44M MT 53M MT Corn 23M MT 27M MT Soy 60M MT 81M MT Soy 38M MT 40M MT Production = Consumption Net Importer Net Exporter Source: U.S.D.A. Foreign Agricultural Service, ABIOVE, Independent Economists & Monsanto Estimates
    • OVERVIEW Acceleration In Seeds and Traits Drives Commercial Gross Profit Evolution MONSANTO GROSS PROFIT GROWTH 2003 2005 2007F TOTAL GROSS TOTAL GROSS TOTAL GROSS PROFIT = $2.3M PROFIT = $3.0M PROFIT = $3.6M ALL OTHER AGRICULTURAL SEEDS & GENOMICS ROUNDUP AND OTHER PRODUCTIVITY GLYPHOSATE-BASED HERBICIDES
    • OVERVIEW Breeding and Biotech Provide Parallel R&D Paths to Commercial Products BREEDING and BIOTECHNOLOGY form two R&D pathways Separate, but parallel, the BREEDING and BIOTECHNOLOGY pathways are linked by shared tools. DISCOVERY PHASE I PHASE II R&D PHASE: PHASE III PHASE IV LAUNCH BREEDING COMMERCIAL IT PLATFORM GERMPLASM ANALYTICS MARKERS GENOMICS SEED ELITE Germplasm SOLD TO FARMERS R BIOTECHNOLOGY
    • GROW Breeding Platform Powers Corn Franchise to Strong Growth SCORECARD U.S. MARKETS 2005 COMPETITIVE BRANDED MARKET SHARE GROWTH WORLDWIDE 2004 TO 20051 CORN YIELD COMPARISON +2.9% ALL WORLD AREAS +2.2% 200 NORTH AMERICAN REGION +2.0% UNITED STATES 190 +2.2% EUROPE-AFRICA REGION BUSHELS/ACRE +2.5% FRANCE 180 +1.7% ITALY +1.2% HUNGARY 170 +5.2% TURKEY 160 +5.7% SOUTH AFRICA +1.9% ASIA PACIFIC REGION 150 +5.1% INDIA 95 100 105 110 115 FLAT LATIN AMERICA REGION RELATIVE MATURITIES (DAYS) +1% MEXICO COMPETITORS MONSANTO BRANDS FLAT BRAZIL FLAT ARGENTINA 1 - Market share is for hybrid corn seed market only
    • GROW Global Breeding Capabilities Create Full Product Pipeline for Three Channels in U.S. TARGET: GROW U.S. Corn Monsanto’s global “genetic footprint” Channel Strategy has expanded U.S. CORN MARKET SHARE 1 Channel: Owned Outlet: Retail Monsanto branded seed gained 6 share Target reach: National points in the last 4 years 60% 50% 40% 2 Channel: Owned SUSTAINABLE 1-2 POINT 30% Outlet: Regional, high-touch SHARE GAINS Target reach: Local 20% 10% 0% 2001 2002 2003 2004 2005 2006 2007 HOLDENS/ AMERICAN SEEDS, DEKALB AND LICENSEES INC. BRANDS ASGROW BRANDS 3 Channel: Licensed, non-exclusive Outlet: Regional, high-touch Target reach: Local
    • GROW Breeding Gains Expand Global Genetic Footprint Worldwide Europe-Africa Channel Strategy EUROPE-AFRICA 2005 COMPETITIVE CORN YIELD 1 COMPARISON Channel: Owned 160 Outlet: Retail Target reach: National 150 BUSHELS/ACRE 140 130 120 2 110 Channel: Licensed, non-exclusive 100 Outlet: Retail, Regional 85 90 95 100 105 110 115 Target reach: Europe-Africa RELATIVE MATURITIES (DAYS) COMPETITORS MONSANTO BRANDS
    • GROW Cotton States Will Launch New Source of Cotton Seed KEY MARKET AREAS U.S. TARGET MARKET 7M-8M Cotton States CREATING VALUE PERCENT PENETRATED 0% Germplasm licensed from third parties and developed through molecular • Licensing fee breeding by Monsanto reflects value of top quality germplasm, Taking preliminary orders from licensees; Enough seed for approximately separate from value 1 million acres available for licensing in 2006 of trait All varieties offered in 2006 will be on a second-generation trait platform • Cotton seed currently sells for 2005 UNIVERSITY COTTON VARIETY TESTS average of $20 per 1,350 acre retail 1,200 1,050 UP NEXT 900 LBS LINT/ACRE 750 • 4+ licensees will sell seed sourced 600 from Cotton States 450 in 2006, located 300 broadly throughout 150 Cotton Belt 0 COTTON STATES COMPETITIVE VARIETIES VARIETIES DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch
    • GROW Conversion from Open-Pollinated to Hybrid Offers Opportunity in Mexican Market KEY CROP PENETRATION MARKET (Acres) SQUASH Mexican OP Conversion 100K 5% CREATING VALUE CARROTS 67K 10% ONIONS 2005 FIELD REPORT 76K 40% HOT PEPPERS 298K 40% Mexican OP Conversion MULTI-STAGE: PHASE II THROUGH LAUNCH NEW MARKET OPPORTUNITY $70 CURRENT MARKET Not as well as Better than As expected $60 expected expected POTENTIAL MARKET $50 $ MILLIONS Quality $40 $30 Horticultural Performance $20 $10 New Hybrids $0 HOT SQUASH ONION CA RROT OBSERVATIONS PEPPER • Able to achieve increased uniformity, earlier maturity, higher produce quality • Higher market yield and profitability • Better disease resistance • Value of hybrids already being recognized in the market DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch
    • GROW Global Expansion, Trait Product Introductions Offer More Growth Potential Going Forward GLOBAL PENETRATION OF MONSANTO BIOTECH TRAITS 200 180 160 140 ACRES (IN MILLIONS) CONTINUED 120 TRAIT PENETRATION, 100 WITH HIGHER CONCENTRATION 80 OF STACKED TRAITS 60 40 20 0 6 7 8 9 0 1 2 3 4 5 6 7 99 99 99 99 00 00 00 00 00 00 00 00 1 1 1 1 2 2 2 2 2 2 2 2 SOYBEANS CORN COTTON CANOLA
    • GROW Biotechnology Adoption Reflects Trait Value, Independent of Commodity Prices MONSANTO U.S. BIOTECH ACRES VS. AVERAGE MARKET PRICE CORN SOYBEANS ACRES ACRES $/BU (IN MILLIONS) $/BU (IN MILLIONS) 70 50 $8.00 $3.00 R2 = .58 R2 = .38 45 60 $7.00 $2.50 40 $6.00 50 35 $2.00 $5.00 30 40 25 $4.00 $1.50 30 20 $3.00 $1.00 15 20 $2.00 10 $0.50 10 $1.00 5 0 0 $0.00 $0.00 2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005 SOYBEAN SOYBEAN COMMODITY CORN BIOTECH CORN COMMODITY BITOECH ACRES PRICES ACRES PRICES Source: USDA and Monsanto estimates
    • GROW Market Potential for Biotech Traits Highlights Continued Growth Opportunity TARGET: GROW Market Opportunity Monsanto’s combination of germplasm and stacked traits is platform of choice SOYBEANS COTTON CORN Roundup Roundup Bollgard I Roundup YieldGard YieldGard KEY Ready Ready and II Ready Corn Borer Rootworm MARKETS Flex UNITED 70M 10 – 15M 6 – 8M 60M 50-60M 25-30M STATES 50M 3M 2M 20M 15M 5M BRAZIL 35M - - 5M 4M 1M ARGENTINA - 10-15M 10-15M - - - INDIA 1M - - 24M 8M 5M EUROPE 0.2M 11M 10M 6M 4M - AFRICA - 0.5-0.8M 0.5-0.8M - - - AUSTRALIA 28.5 - 34.5 - TOTAL KEY 156.2M 115M 81 - 91M 36-41M 44.8M MARKETS 35.8M
    • GROW Market Opportunity for Roundup Ready Corn on Track for 60M Acres Longer Term TARGET: GROW Roundup Ready Grow the value of the corn franchise Corn Early order patterns for seeds INFLECTION and traits indicate POINT: EU IMPORT 30 a strong season APPROVALS INFLECTION ahead in the U.S. POINT: 25 DOMESTIC CHANNELING PROGRAM U.S. ACRES 20 Roundup Ready 15 corn is on pace for SUSTAINABLE 50M acres in 2008 ACREAGE 10 GROWTH in the U.S. 5 Longer term 0 market potential of 1998 1999 2000 2001 2002 2003 2004 2005 2006F 2007F 60M acres
    • GROW Zone-Based Royalties Leverage Roundup Ready Corn Base and Expand Market for YieldGard Family TARGET: GROW Zone-Based Grow the value of the corn franchise Royalty System SEGMENTED VALUE OPPORTUNITY STATES WITH WEED CONTROL NEEDS STATES WITH CONSISTENT NEED FOR WEED CONTROL, CORN-BORER CONTROL AND ROOTWORM CONTROL STATES WITH CONSISTENT NEED FOR WEED CONTROL, CORN-BORER CONTROL AND SPORADIC ROOTWORM CONTROL Source: 2004 Farm Progress Grower Survey and Monsanto Estimates
    • LEAD Drought-Tolerant Corn Is Lead Crop of Yield Family of Traits KEY MARKET ACRES U.S. BRAZIL ARGENTINA 80M 30M 6M AVAILABLE MARKET Drought-Tolerant Corn CREATING VALUE 0% 0% 0% PERCENT PENETRATED CONSISTENT RESULTS FROM EARLY 2005 FIELD REPORT LEADS AND MORE LEADS EMERGING FROM PIPELINE Drought-Tolerant Corn PHASE II WITH TRAIT WITHOUT TRAIT WITH TRAIT WITHOUT TRAIT Early Development Not as well as Better than As expected expected expected Trait Performance Agronomic Performance o C 32 34 40 LEAD GENE: COMPLETED Lead Selection LEAD EVENT: IN PROGRESS OBSERVATIONS • Lead genes show consistent drought stress performance across years • Mid-season drought performance results in more, bigger ears • Up Next: Advance into early development WITHOUT TRAIT WITH TRAIT DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch
    • LEAD Roundup RReady2Yield Soybeans Expand Weed Control Window KEY MARKET ACRES U.S. BRAZIL ARGENTINA Roundup RReady2Yield 50M 35M 70M AVAILABLE MARKET Soybeans CREATING VALUE 0% 0% 0% PERCENT PENETRATED US HISTORICAL SOY YIELD GAINS Return value to farmer by bringing new technology 45 y = 0.4246x - 811.11 BUSHELS/ACRE 40 Yield improvement of 3 - 4+ 35 bushels per acre in 2004 field 30 trials 25 Flexibility by providing wider 20 1970 1980 1990 2000 window of application BRAZILIAN HISTORICAL SOY YIELD Research under way on 45 GAINS y = 0.9043x - 1772.2 potential for additional BUSHELS/ACRE 40 insurance for Asian soybean 35 rust 30 25 Provides the platform for future 20 soy technologies 1991 1996 2001 2006 DISCOVERY PHASE I PHASE III PHASE II PHASE IV LAUNCH Proof of Concept Adv. Development Early Development Pre-Launch
    • GROW Brazil Offers Largest Global Opportunity to Create Value From New Trait Penetration TARGET: GROW Brazilian Value Drive additional trait penetration • Capture System globally Situation Update: Seed Monsanto Planted soybean Multiplier acres: 50M Dual value-capture 4-5M acres for sale systems Royalty received Retail price suggested at from seed $9 per acre Anticipating royalty Soybean supplier on 4 - 5M acres of Farmer fresh new Roundup Ready seed Grain Monsanto Saved seed paid Delivery upon delivery of grain Grain delivery system Royalty received 15–20M to be expanded in from grain company, acres saved seed shared generously Brazil Fee of $4.50 per acre
    • GROW Experience Curve Allows Monsanto to Stage Largest Trait Launch in Biotech History TARGET: GROW Roundup Ready Grow the branded & licensed cotton seed Flex Cotton market share Value reflects greater U.S. MONSANTO COTTON TRAIT ACRES convenience and STACKED 15 PENETRATION enhanced weed control; TREND 12 lifts value of the 9 Roundup Ready trait 6 3 Anticipated largest trait launch ever with 2-3 0 1998 1999 2000 2001 2002 2003 2004 2005 million acres, pending BOLLGARD & STACKED ROUNDUP final approvals BOLLGARD IIREADY MONSANTO COTTON SHARE GROWTH 30% 80-90% of Roundup 25% Ready Flex to be stacked 20% SUSTAINABLE 15% with Bollgard II 1-2 POINT SHARE GAIN WITH 10% EMERGENT & COTTON STATES 5% Broad introduction led 0% by Emergent and Cotton 2004 2005 2006F 2007F States EMERGENT
    • LEAD Momentum in Cotton Trait Adoption Will Accelerate With Second-Generation Launches in India and Australia TARGET: LEAD Second-Generation International markets upgrade to stacked • Traits and next-generation trait products COTTON RETAIL VALUE IN AUSTRALIAN MARKET In India, biotech cotton adoption reflects economic and environmental benefits 150 Yield Increase 58% 125 Pesticide Reduction (50%) 100 Farmer Net Return 163% US $/ACRE 75 In India, Bollgard II will launch on small acres 50 in 2006 and Roundup Ready Flex in 2010 25 range In Australia, success of 0 ROUNDUP ROUNDUP STACK WITH CONVENTIONAL BOLLGARD II Bollgard II / Roundup READY READY BOLLGARD II & COTTON SEED FLEX COTTON ROUNDUP Ready sets stage for READY FLEX launch of Bollgard II/ Roundup Ready Flex starting in 2006
    • LEAD New Traits, Trait Upgrades and New Stacked Combinations Are Creating New Platforms for Farmers CORN 2005 2010F 2015F Preferred Trait Preferred Trait Preferred Trait Trait Offerings Trait Offerings Trait Offerings Combinations Combinations Combinations ROUNDUP READY ROUNDUP READY ROUNDUP READY STACKED – STACKED – STACKED – CORN 2 CORN 2 CORN 2 DOUBLE: TRIPLE: TRIPLE + YIELD YIELDGARD PLUS YIELDGARD YIELDGARD YIELDGARD TRAITS: YGCB + RR YGRW+YGCB+RR ROOTWORM ROOTWORM ROOTWORM YGRW + RR YIELDGARD CORN 2nd GENERATION 2nd GENERATION 2nd GEN YGCB + STACKED – STACKED – BORER YGRW YGRW 2nd GEN YGRW + 2nd GEN TRIPLE: TRIPLE: RR YIELDGARD CORN YIELDGARD CORN + DROUGHT BORER BORER 2nd GEN YGCB + YGRW+YGCB+RR + INTRINSIC HIGH-VALUE 2nd GEN YGRW + HIGH-VALUE + NITROGEN CORN W/ LYSINE RR CORN W/ LYSINE 2nd GEN HIGH- STACKED – TRIPLE STACKED – TRIPLE VALUE CORN W/ + FEED TRAITS + + FEED TRAITS: LYSINE YIELD TRAITS: FEED CORN WITH HIGH-VALUE BALANCED 2nd GEN HIGH- CORN W/ LYSINE + PROTEINS VALUE CORN W/ YGRW + YGCB + LYSINE + YGRW + RR YIELD: DROUGHT YGCB + RR FARMER BENEFITS YIELD: INTRINSIC PROCESSOR BENEFITS CONSUMER BENEFITS YIELD: NITROGEN
    • GROW Consistency and Discipline that Typified 2003-2005 Will Remain Cornerstone of Monsanto’s Strategy FY2006 TARGETS 2006 GROWTH FACTORS Toward Upper End Grow Current Portfolio of $2.35-$2.50 EARNINGS PER SHARE UP TO 20% Grow Globally GROWTH FROM 2005 Grow the Pipeline FREE CASH FLOW $825M - $900M Translate Growth to Value SG&A AS A % OF SALES ~22% R&D AS A % OF SALES ~10% CAPITAL EXPENDITURES ~$350M ROUNDUP GROSS PROFIT ~$600M ALL OTHER AG $400M PRODUCTIVITY GROSS PROFIT SEEDS & TRAITS GROSS ~$2.3B PROFIT
    • SUMMARY Two-Step, Two-Horizon Strategy Creates a Line of Sight for Success through 2010 2006 2007 2008 2009 2010 GROW Grow Current Portfolio Grow Globally LEAD Grow the Pipeline Translate Growth to Value Lead through Innovation Lead in an Increasingly Competitive Market Lead in New Market Opportunities Translate Leadership to Value
    • Reconciliation of Non-GAAP Financial Measures Reconciliation of Free Cash Flow 12 Months Ended 12 Months Ended 12 Months Ended 12 Months Ended $ Millions Aug. 31, 2007 Aug. 31, 2006 Aug. 31, 2005 Aug. 31, 2004 Net Cash Provided by Operations $1,375 - $1,450 $1,175-$1,250 $1,737 $1,261 Net Cash Provided (Required) by Investing Activities $(500) $(350) $(1,667) $(262) Free Cash Flow $875-$950 $825 - $900 $70 $999 Net Cash Provided (Required) by Financing Activities N/A N/A $(582) $(243) Net Increase (Decrease) in Cash and Cash Equivalents N/A N/A $(512) $756 Reconciliation of Non-GAAP EPS 12 Months Ended 12 Months Ended 12 Months Ended 12 Months Ended $ per share Aug. 31, 2007 Aug. 31, 2006 Aug. 31, 2005 Aug. 31, 2004 Diluted Earnings per Share $2.82-$3.00 $2.35-$2.50 $0.94 $0.99 In-Process R&D Write-off Related to the Seminis and -- -- $0.91 -- Emergent Acquisitions Solutia-Related Charge -- -- $0.64 -- Tax Benefit on Loss from European Wheat and -- -- $(0.39) -- Barley Business Restructuring Charges -- Net -- -- $0.02 $0.36 (Income) Loss on Discontinued Operations and -- -- $(0.04) -- Related Restructuring Impairment of Goodwill -- -- -- $0.24 Diluted Earnings per Share from Ongoing Business $2.82-$3.00 $2.35-$2.50 $2.08 $1.59
    • Reconciliation of Non-GAAP Financial Measures Reconciliation of Return on Capital Total Monsanto Company and Subsidiaries: 12 Months 12 Months 12 Months Ended Ended Ended $ Millions Aug. 31, 2003 Aug. 31, 2005 Aug. 31, 2004 Operating Profit After-tax (excluding certain items) $612 $ 463 $ 413 Average Capital 6,404 6,191 6,846 Return on Capital 9.6% 7.5% 6.0% Operating Profit After-tax (excluding certain items): Net Income $255 $267 $68 Adjustment for certain items, after-tax: In-Process R&D Write-Off Related to the Seminis and 248 — — Emergent Acquisitions Solutia-Related Charge 175 — — Tax Benefit on Loss from European Wheat and Barley (106) — — Business Restructuring Charges – Net 6 98 24 (Income) Loss on Discontinued Operations and Related (12) (1) 18 Restructuring Impairment of Goodwill — 64 — Interest Expense – Net 75 57 63 Tax on Interest Expense – Net (at 38% tax rate) (29) (22) (24) Cumulative Effect of a Change in Accounting Principle — — 12 PCB Litigation Settlement Expense - Net — — 252 Operating Profit After-tax (excluding certain items) $612 $ 463 $ 413 As of Aug. 31, 2005 2004 2003 2002 Average Capital: Short-Term and Long-Term Debt $1,740 $1,508 $1,527 $1,919 Shareowners’ Equity 5,613 5,258 5,156 5,258 Cash and Cash Equivalents (525) (1,037) (281) (137) Cash for Operations 125 125 125 125 Total Capital 6,953 5,854 6,527 7,165 Prior Period Capital 5,854 6,527 7,165 Average Capital $6,404 $6,191 $6,846