MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-16167

MONSANTO COMPANY

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		43-1878297 (I.R.S. Employer Identification No.)
800 North Lindbergh Blvd., St. Louis, MO (Address of principal executive offices)		63167 (Zip Code)

(314) 694-1000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 536,700,563 shares of Common Stock, $0.01 par value, outstanding as of Jan. 3, 2011.

 

 

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

In the interests of our investors, and in accordance with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, this section of our report explains some of the important reasons that actual results may be materially different from those that we anticipate. In this report, and from time to time throughout the year, we share our expectations for our company’s future performance. These forward-looking statements include statements about our business plans; the potential development, regulatory approval, and public acceptance of our products; our expected financial performance, including sales performance, and the anticipated effect of our strategic actions; the anticipated benefits of recent acquisitions; the outcome of contingencies, such as litigation; domestic or international economic, political and market conditions; and other factors that could affect our future results of operations or financial position, including, without limitation, statements under the captions “Overview — Executive Summary — Outlook,” “Seeds and Genomics Segment,” “Agricultural Productivity Segment,” “Financial Condition, Liquidity, and Capital Resources,” “Outlook,” “Critical Accounting Policies and Estimates” and “Legal Proceedings.” Any statements we make that are not matters of current reportage or historical fact should be considered forward-looking. Such statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “will,” and similar expressions. By their nature, these types of statements are uncertain and are not guarantees of our future performance.

Since these statements are based on factors that involve risks and uncertainties, our 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: 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 acceptance of biotechnology products; the success of the company’s research and development activities; the outcomes of major lawsuits; developments related to foreign currencies and economies; successful operation of recent acquisitions; fluctuations in commodity prices; compliance with regulations affecting our manufacturing; the accuracy of the company’s estimates related to distribution inventory levels; 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 and accidents on the agriculture business or the company’s facilities; and other risks and factors described or referenced in Part II — Item 1A — Risk Factors — below and Part I — Item 1A of our Report on Form 10-K for the fiscal year ended Aug. 31, 2010.

Our forward-looking statements represent our estimates and expectations and are based on currently available information at the time that we make those statements. However, circumstances change constantly, often unpredictably, and many events beyond our control will determine whether the expectations encompassed in our forward-looking statements will be realized. As a result, investors should not place undue reliance on these forward-looking statements. We disclaim any current intention or obligation to revise or update any forward-looking statements, or the factors that may affect their realization, whether in light of new information, future events or otherwise, and investors should not rely on us to do so.

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION				Page
Item 1.		Financial Statements			3
		Statements of Consolidated Operations			4
		Condensed Statements of Consolidated Financial Position			5
		Statements of Consolidated Cash Flows			6
		Statements of Consolidated Shareowners’ Equity and Comprehensive Income			7
		Notes to Consolidated Financial Statements			8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
		Overview			31
		Results of Operations — First Quarter Fiscal Year 2011			33
		Seeds and Genomics Segment			35
		Agricultural Productivity Segment			35
		Restructuring			36
		Financial Condition, Liquidity, and Capital Resources			38
		Outlook			42
		Critical Accounting Policies and Estimates			45
		New Accounting Standards			45
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			46
Item 4.		Controls and Procedures			46
PART II—OTHER INFORMATION
Item 1.		Legal Proceedings			47
Item 1A.		Risk Factors			49
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			49
Item 6.		Exhibits			49
SIGNATURE					50
EXHIBIT INDEX					51

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The Statements of Consolidated Operations of Monsanto Company and its consolidated subsidiaries for the three months ended Nov. 30, 2010, and Nov. 30, 2009, the Condensed Statements of Consolidated Financial Position as of Nov. 30, 2010, and Aug. 31, 2010, the Statements of Consolidated Cash Flows for the three months ended Nov. 30, 2010, and Nov. 30, 2009, the Statements of Consolidated Shareowners’ Equity and Comprehensive Income for the three months ended Nov. 30, 2010, and year ended Aug. 31, 2010, and related Notes to Consolidated Financial Statements follow. Unless otherwise indicated, “Monsanto” and the “company” are used interchangeably to refer to Monsanto Company or to Monsanto Company and its consolidated subsidiaries, as appropriate to the context. Unless otherwise indicated, “earnings (loss) per share” and “per share” mean diluted earnings (loss) per share. In the notes to the consolidated financial statements, all dollars are expressed in millions, except per share amounts. Unless otherwise indicated, trademarks owned or licensed by Monsanto or its subsidiaries are shown in all capital letters. Unless otherwise indicated, references to “ROUNDUP herbicides” mean ROUNDUP branded herbicides, excluding all lawn-and-garden herbicides, and references to “ROUNDUP and other glyphosate-based herbicides” exclude all lawn-and-garden herbicides.

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

Statements of Consolidated Operations

Unaudited		Three Months Ended Nov. 30,
(Dollars in millions, except per share amounts)		2010				2009
Net Sales		$	1,830			$	1,697
Cost of goods sold			1,012				958
Gross Profit			818				739
Operating Expenses:
Selling, general and administrative expenses			450				496
Research and development expenses			303				267
Restructuring charges, net			7				14
Total Operating Expenses			760				777
Income (Loss) from Operations			58				(38	)
Interest expense			43				39
Interest income			(15	)			(11	)
Other expense (income), net			12				(12	)
Income (Loss) from Continuing Operations Before Income Taxes			18				(54	)
Income tax provision (benefit)			6				(30	)
Income (Loss) from Continuing Operations Including Portion Attributable to Noncontrolling Interest		$	12			$	(24	)
Discontinued Operations:
Income from operations of discontinued businesses			—				5
Income tax provision			—				—
Income on Discontinued Operations			—				5
Net Income (Loss)		$	12			$	(19	)
Less: Net income attributable to noncontrolling interest			6				—
Net Income (Loss) Attributable to Monsanto Company		$	6			$	(19	)
Amounts Attributable to Monsanto Company:
Income (loss) from continuing operations		$	6			$	(24	)
Income on discontinued operations			—				5
Net Income (Loss) Attributable to Monsanto Company		$	6			$	(19	)
Basic Earnings (Loss) per Share Attributable to Monsanto Company:
Income (loss) from continuing operations		$	0.01			$	(0.04	)
Income on discontinued operations			—				0.01
Net Income (Loss) Attributable to Monsanto Company		$	0.01			$	(0.03	)
Diluted Earnings (Loss) per Share Attributable to Monsanto Company:
Income (loss) from continuing operations		$	0.01			$	(0.04	)
Income on discontinued operations			—				0.01
Net Income (Loss) Attributable to Monsanto Company		$	0.01			$	(0.03	)
Weighted Average Shares Outstanding:
Basic			538.6				545.6
Diluted			544.5				545.6
Dividends Declared per Share		$	—			$	—

The accompanying notes are an integral part of these consolidated financial statements.

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

Condensed Statements of Consolidated Financial Position

Unaudited		As of Nov. 30,				As of Aug. 31,
(Dollars in millions, except share amounts)		2010				2010
Assets
Current Assets:
Cash and cash equivalents (variable interest entities restricted - 2011: $48)		$	1,732			$	1,485
Trade receivables, net (variable interest entities restricted - 2011: $82)			1,698				1,590
Miscellaneous receivables			739				717
Deferred tax assets			455				511
Inventory, net			3,331				2,739
Other current assets			101				80
Total Current Assets			8,056				7,122
Total property, plant and equipment			8,193				8,068
Less accumulated depreciation			3,971				3,841
Property, Plant and Equipment, Net			4,222				4,227
Goodwill			3,229				3,204
Other Intangible Assets, Net			1,241				1,263
Noncurrent Deferred Tax Assets			1,045				1,014
Long-Term Receivables, Net			479				513
Other Assets			542				524
Total Assets		$	18,814			$	17,867
Liabilities and Shareowners’ Equity
Current Liabilities:
Short-term debt, including current portion of long-term debt		$	394			$	241
Accounts payable			688				752
Income taxes payable			64				66
Accrued compensation and benefits			236				179
Accrued marketing programs			570				839
Deferred revenues			1,338				219
Grower production accruals			463				130
Dividends payable			—				151
Customer payable			2				83
Restructuring reserves			132				197
Miscellaneous short-term accruals			647				684
Total Current Liabilities			4,534				3,541
Long-Term Debt			1,728				1,862
Postretirement Liabilities			947				920
Long-Term Deferred Revenue			401				395
Noncurrent Deferred Tax Liabilities			144				137
Long-Term Portion of Environmental and Litigation Liabilities			185				188
Other Liabilities			652				681
Shareowners’ Equity:
Common stock (authorized: 1,500,000,000 shares, par value $0.01)
Issued 589,346,837 and 588,439,202 shares, respectively
Outstanding 536,459,651 and 540,376,499 shares, respectively			6				6
Treasury stock 52,887,186 and 48,062,703 shares, respectively, at cost			(2,378	)			(2,110	)
Additional contributed capital			9,946				9,896
Retained earnings			3,214				3,208
Accumulated other comprehensive loss			(707	)			(897	)
Reserve for ESOP debt retirement			(4	)			(4	)
Total Monsanto Company Shareowners’ Equity			10,077				10,099
Noncontrolling Interest			146				44
Total Shareowners’ Equity			10,223				10,143
Total Liabilities and Shareowners’ Equity		$	18,814			$	17,867

The accompanying notes are an integral part of these consolidated financial statements.

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

Statements of Consolidated Cash Flows

Unaudited		Three Months Ended Nov. 30,
(Dollars in millions)		2010				2009
Operating Activities:
Net Income (Loss)		$	12			$	(19	)
Adjustments to reconcile cash provided (required) by operating activities:
Items that did not require (provide) cash:
Depreciation and amortization			155				144
Bad-debt expense			(1	)			14
Stock-based compensation expense			27				24
Excess tax benefits from stock-based compensation			(9	)			(13	)
Deferred income taxes			24				(58	)
Restructuring charges, net			7				14
Equity affiliate income, net			(1	)			(14	)
Net gain on sales of a business or other assets			(1	)			(1	)
Other items			19				13
Changes in assets and liabilities that provided (required) cash, net of acquisitions:
Trade receivables, net			34				(343	)
Inventory, net			(559	)			(539	)
Deferred revenues			1,101				126
Accounts payable and other accrued liabilities			(130	)			(573	)
Restructuring cash payments			(76	)			(79	)
Pension contributions			—				(78	)
Net investment hedge settlement			—				(4	)
Other items			22				(17	)
Net Cash Provided (Required) by Operating Activities			624				(1,403	)
Cash Flows Required by Investing Activities:
Capital expenditures			(125	)			(192	)
Acquisition of businesses, net of cash acquired			—				(20	)
Purchases of long-term equity securities			—				(2	)
Technology and other investments			(2	)			(9	)
Other investments and property disposal proceeds			3				26
Net Cash Required by Investing Activities			(124	)			(197	)
Cash Flows (Required) Provided by Financing Activities:
Net change in financing with less than 90-day maturities			72				299
Short-term debt proceeds			15				25
Short-term debt reductions			(16	)			(29	)
Long-term debt reductions			(1	)			(1	)
Payments on other financing			(2	)			(1	)
Treasury stock purchases			(267	)			(64	)
Stock option exercises			16				16
Excess tax benefits from stock-based compensation			9				13
Dividend payments			(151	)			(145	)
Dividend payments to noncontrolling interests			(15	)			(11	)
Net Cash (Required) Provided by Financing Activities			(340	)			102
Cash Assumed from Initial Consolidations of Variable Interest Entities			77				—
Effect of Exchange Rate Changes on Cash and Cash Equivalents			10				13
Net Increase (Decrease) in Cash and Cash Equivalents			247				(1,485	)
Cash and Cash Equivalents at Beginning of Period			1,485				1,956
Cash and Cash Equivalents at End of Period		$	1,732			$	471

See Note 20 — Supplemental Cash Flow Information — for further details.

The accompanying notes are an integral part of these consolidated financial statements.

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

Statements of Consolidated Shareowners’ Equity and Comprehensive Income

		Monsanto Shareowners
																		Accumulated
										Additional								Other				Reserve				Non-
(Dollars in millions,		Common				Treasury				Contributed				Retained				Comprehensive				for ESOP				Controlling
except per share data)		Stock				Stock				Capital				Earnings				(Loss)(1)				Debt				Interest				Total
Balance as of Aug. 31, 2009		$	6			$	(1,577	)		$	9,695			$	2,682			$	(744	)		$	(6	)		$	69			$	10,125
Net income			—				—				—				1,109				—				—				19				1,128
Foreign currency translation			—				—				—				—				(99	)			—				(1	)			(100	)
Postretirement benefit plan activity, net of tax of $(75)			—				—				—				—				(113	)			—				—				(113	)
Unrealized net losses on investment holdings, net of tax of $(2)			—				—				—				—				(4	)			—				—				(4	)
Realized net losses on investment holdings, net of tax of $6			—				—				—				—				10				—				—				10
Unrealized net derivative gains, net of tax of $(7)			—				—				—				—				5				—				—				5
Realized net derivative losses, net of tax of $39			—				—				—				—				48				—				—				48
Comprehensive income for 2010																											18				974
Treasury stock purchases			—				(533	)			—				—				—				—				—				(533	)
Restricted stock withholding			—				—				(6	)			—				—				—				—				(6	)
Issuance of shares under employee stock plans			—				—				56				—				—				—				—				56
Excess tax benefits from stock-based compensation			—				—				43				—				—				—				—				43
Stock-based compensation expense			—				—				108				—				—				—				—				108
Cash dividends of $1.08 per common share			—				—				—				(583	)			—				—				—				(583	)
Dividend payments to noncontrolling interest			—				—				—				—				—				—				(45	)			(45	)
Allocation of ESOP shares, net of dividends received			—				—				—				—				—				2				—				2
Donation of noncontrolling interest			—				—				—				—				—				—				2				2
Balance as of Aug. 31, 2010		$	6			$	(2,110	)		$	9,896			$	3,208			$	(897	)		$	(4	)		$	44			$	10,143
Net income			—				—				—				6				—				—				6				12
Foreign currency translation			—				—				—				—				130				—				4				134
Postretirement benefit plan activity, net of tax of $6			—				—				—				—				9				—				—				9
Unrealized net gains on investment holdings, net of tax of $2			—				—				—				—				4				—				—				4
Unrealized net derivative gains, net of tax of $29			—				—				—				—				46				—				—				46
Realized net derivative losses, net of tax of $3			—				—				—				—				1				—				—				1
Comprehensive income for 2011																											10				206
Treasury stock purchases			—				(268	)			—				—				—				—				—				(268	)
Issuance of shares under employee stock plans			—				—				16				—				—				—				—				16
Excess tax benefits from stock-based compensation			—				—				9				—				—				—				—				9
Stock-based compensation expense			—				—				25				—				—				—				—				25
Dividend payments to noncontrolling interest			—				—				—				—				—				—				(15	)			(15	)
Noncontrolling interest in consolidated variable interest entities			—				—				—				—				—				—				107				107
Balance as of Nov. 30, 2010		$	6			$	(2,378	)		$	9,946			$	3,214			$	(707	)		$	(4	)		$	146			$	10,223

The accompanying notes are an integral part of these consolidated financial statements.

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

NOTE 1. BACKGROUND AND BASIS OF PRESENTATION

Monsanto Company (the “company”), along with its subsidiaries, is a leading global provider of agricultural products for farmers. Monsanto’s seeds, biotechnology trait products, and herbicides provide farmers with solutions that improve productivity, reduce the costs of farming and produce better foods for consumers and better feed for animals.

Monsanto manages its business in two segments: Seeds and Genomics and Agricultural Productivity. Through the Seeds and Genomics segment, Monsanto produces leading seed brands, including DEKALB, ASGROW, DELTAPINE, SEMINIS and DE RUITER, and Monsanto develops biotechnology traits that assist farmers in controlling insects and weeds. Monsanto also provides other seed companies with genetic material and biotechnology traits for their seed brands. Through the Agricultural Productivity segment, the company manufactures ROUNDUP brand herbicides and other herbicides and provides lawn-and-garden herbicide products for the residential market. See Note 22 — Segment Information — for further details.

In the fourth quarter of 2008, the company announced plans to divest its animal agricultural products business, which focused on dairy cow productivity (the Dairy business). This transaction was consummated on Oct. 1, 2008. As a result, financial data for this business has been presented as discontinued operations. The financial statements have been prepared in compliance with the provisions of the Property, Plant and Equipment topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). Accordingly, for all periods presented herein, the Statements of Consolidated Operations have been conformed to this presentation. See Note 23 — Discontinued Operations — for further details.

The accompanying consolidated financial statements have not been audited but have been prepared in conformity with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, these unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. This Report on Form 10-Q should be read in conjunction with Monsanto’s Report on Form 10-K for the fiscal year ended Aug. 31, 2010. Financial information for the first three months of fiscal year 2011 should not be annualized because of the seasonality of the company’s business.

NOTE 2. NEW ACCOUNTING STANDARDS

In July 2010, the FASB issued a new update that requires enhanced disclosures regarding credit quality and the related allowance for credit losses of financing receivables. The new disclosures will require additional information for nonaccrual and past due accounts, the allowance for credit losses, impaired loans, credit quality, and account modifications. Accordingly, Monsanto will include the new disclosure requirements as of the end of the reporting period beginning in second quarter 2011, and the disclosures related to activities during the reporting period beginning in the third quarter 2011. The company is currently evaluating the disclosure impact of including this update on the consolidated financial statements.

In January 2010, the FASB issued an amendment to the Fair Value Measurements and Disclosures topic of the ASC. This amendment requires disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. This amendment was effective for periods beginning after Dec. 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements, which will be effective for fiscal years beginning after Dec. 15, 2010, and for interim periods within those fiscal years. Accordingly, Monsanto prospectively adopted this amendment in third quarter 2010, and adopted the additional Level 3 requirements in fiscal year 2011. See Note 14 — Fair Value Measurements — for the new disclosures.

In June 2009, the FASB issued a standard that requires an analysis to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity. This statement requires an ongoing reassessment and eliminates the quantitative approach previously required for determining whether an entity is the primary beneficiary. This standard is

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

effective for fiscal years beginning after Nov. 15, 2009. Accordingly, Monsanto adopted this standard on Sept. 1, 2010. See Note 5 — Variable Interest Entities — for the disclosures required by this standard.

In June 2009, the FASB issued a standard that removes the concept of a qualifying special-purpose entity (QSPE) from U.S. generally accepted accounting principles (GAAP) and removes the exception from applying consolidation principles to a QSPE. This standard also clarifies the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. This standard is effective for fiscal years beginning after Nov. 15, 2009. Accordingly, Monsanto adopted this standard in first quarter fiscal year 2011. See Note 4 — Customer Financing Programs — for additional discussion regarding impact on its QSPE related to a Brazilian financing program and other financing programs.

NOTE 3. BUSINESS COMBINATIONS

Effective Sept. 1, 2009, Monsanto adopted the new guidance in the Business Combinations topic of the ASC for acquisitions subsequent to that date.

2010 Acquisitions: In April 2010, Monsanto acquired a corn and soybean processing plant located in Paine, Chile from Anasac, a Santiago-based company that provides seed processing services. The acquisition of this plant, which qualifies as a business under the Business Combinations topic of the ASC, allows Monsanto to reduce third party seed production in Chile, while increasing production supply. Acquisition costs were less than $1 million and were classified as selling, general, and administrative expenses. The total cash paid and the fair value of the acquisition were $34 million, and it was primarily allocated to fixed assets, goodwill, and intangibles. The primary items that generated the goodwill were the premiums paid by the company for the right to control the business acquired and the value of the acquired assembled workforce. The goodwill is not deductible for tax purposes.

In October 2009, Monsanto acquired the remaining 51 percent equity interest in Seminium, S.A. (Seminium), a leading Argentinean corn seed company. Acquisition costs were less than $1 million and were classified as selling, general and administrative expenses. The total fair value of Seminium was $36 million, and it was primarily allocated to inventory, fixed assets, intangibles, and goodwill. This fair value includes $20 million of cash paid (net of cash acquired) and $16 million for the fair value of Monsanto’s 49 percent equity interest in Seminium held prior to the acquisition. The primary items that generated goodwill were the premiums paid by the company for the right to control the business acquired and the value of the acquired assembled workforce. The goodwill is not deductible for tax purposes. Income of approximately $12 million was recognized from the re-measurement to fair value of Monsanto’s previous equity interest in Seminium and is included in other (income) expense, net in the Statement of Consolidated Operations for the quarter ended Nov. 30, 2009.

For all fiscal year 2010 acquisitions described above, the business operations and employees of the acquired entities were included in the Seeds and Genomics segment results upon acquisition. These acquisitions were accounted for as business combinations. Accordingly, the assets and liabilities of the acquired entities were recorded at their estimated fair values at the dates of the acquisitions. The measurement period for purchase price allocations ends as soon as information on the facts and circumstances becomes available, but does not exceed twelve months. If new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized for assets acquired and liabilities assumed, Monsanto will retrospectively adjust the amounts recognized as of the acquisition date. Proforma information related to acquisitions is not presented because the impact of the acquisitions on the company’s consolidated results of operations is not considered to be significant.

NOTE 4. CUSTOMER FINANCING PROGRAMS

Monsanto participates in a revolving financing program in Brazil that allows Monsanto to transfer up to 1 billion Brazilian reais (approximately $585 million) for selected customers in Brazil to a special purpose entity, formerly a qualified special

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

purpose entity. Third parties, primarily investment funds, hold an 88 percent senior interest in the entity, and Monsanto holds the remaining 12 percent interest. Under the arrangement, a recourse provision requires Monsanto to cover the first 12 percent of credit losses within the program. The company has evaluated its relationship with the entity under updated guidance within the Consolidation topic of the ASC and, as a result, the entity has been consolidated effective Sept. 1, 2010. For further information on this topic, see Note 5 — Variable Interest Entities.

In this program, receivables are considered delinquent when payments are one day past due, but the provisions on the financing program for nonperformance start on the 15th day past due. If a customer fails to pay an obligation when it is due, the provisions for bad debt on the program will be recorded. As of Nov. 30, 2010, and Aug. 31, 2010, respectively, there were $1 million and $3 million of receivables sold through this financing program that were delinquent. Based on the company’s historical collection experience with these customers and a current assessment of credit exposure, Monsanto recorded its recourse provision at $5 million as of Aug. 31, 2010, and Monsanto recorded a bad debt allowance related to these receivables of $2 million as of Nov. 30, 2010. The maximum potential amount of exposure under the program was $13 million and $15 million as of Nov. 30, 2010, and Aug. 31, 2010, respectively. If Monsanto is called upon to make payments under the recourse provision, it would have the benefit under the financing program of any amounts subsequently collected from the customer.

Monsanto has an agreement in the United States to sell customer receivables up to a maximum of $500 million and to service such accounts. These receivables qualify for sales treatment under the Transfers and Servicing topic of the ASC and accordingly, the proceeds are included in net cash provided by operating activities in the Statements of Consolidated Cash Flows. The gross amount of receivables sold totaled $3 million and $2 million for the first three months of fiscal years 2011 and 2010, respectively. The agreement includes recourse provisions and thus a liability was established at the time of sale that approximates fair value based upon the company’s historical collection experience with such receivables and a current assessment of credit exposure. The recourse liability recorded by Monsanto was $2 million as of Nov. 30, 2010, and Aug. 31, 2010. The maximum potential amount of future payments under the recourse provisions of the agreement was $7 million as of Nov. 30, 2010. The outstanding balance of the receivables sold was $138 million and $223 million as of Nov. 30, 2010, and Aug. 31, 2010, respectively. There were delinquent loans of $2 million and $3 million as of Nov. 30, 2010, and Aug. 31, 2010, respectively.

Monsanto also sells accounts receivable in the United States, European regions and Argentina, both with and without recourse. These sales qualify for sales treatment under the Transfers and Servicing topic of the ASC and accordingly, the proceeds are included in net cash provided by operating activities in the Statements of Consolidated Cash Flows. The gross amounts of receivables sold totaled $1 million and $13 million for the first three months of fiscal years 2011 and 2010, respectively. The liability for the guarantees for sales with recourse is recorded at an amount that approximates fair value, based on the company’s historical collection experience for the customers associated with the sale of the receivables and a current assessment of credit exposure. The liability recorded by Monsanto was less than $1 million as of Nov. 30, 2010, and Aug. 31, 2010. The maximum potential amount of future payments under the recourse provisions of the agreements was $42 million as of Nov. 30, 2010. The outstanding balance of the receivables sold was $64 million and $91 million as of Nov. 30, 2010, and Aug. 31, 2010, respectively. There were no delinquent loans as of Nov. 30, 2010, or Aug. 31, 2010.

Monsanto has additional agreements with lenders to establish programs that provide financing of up to 550 million Brazilian reais (approximately $320 million) for selected customers in Brazil. Monsanto provides a guarantee of the loans in the event of customer default. The term of the guarantee is equivalent to the term of the bank loans. The liability for the guarantees is recorded at an amount that approximates fair value, based on the company’s historical collection experience with customers that participate in the program and a current assessment of credit exposure. The guarantee liability recorded by Monsanto was $1 million and $3 million as of Nov. 30, 2010, and Aug. 31, 2010, respectively. If performance is required under the guarantee, Monsanto may retain amounts that are subsequently collected from customers. The maximum potential amount of future payments under the guarantee was $60 million as of Nov. 30, 2010. The loan balance outstanding for these programs was $60 million and $100 million as of Nov. 30, 2010, and Aug. 31, 2010, respectively. There were no delinquent loans as of Nov. 30, 2010, and delinquent loans of $2 million as of Aug. 31, 2010.

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

Monsanto also has similar agreements with banks that provide financing to its customers in the United States, Brazil, Europe and Argentina. Under these programs, Monsanto provides a guarantee of the loans in the event of customer default. The terms of the guarantees are equivalent to the terms of the bank loans. The liability for the guarantees is recorded at an amount that approximates fair value, based on the company’s historical collection experience with customers that participate in the program and a current assessment of credit exposure. The guarantee liability recorded by Monsanto was $1 million and $2 million as of Nov. 30, 2010, and Aug. 31, 2010, respectively. If performance is required under the guarantee, Monsanto may retain amounts that are subsequently collected from customers. The maximum potential amount of future payments under the guarantees was $76 million as of Nov. 30, 2010. The loan balance outstanding for these programs was $78 million and $36 million as of Nov. 30, 2010, and Aug. 31, 2010, respectively.

NOTE 5. VARIABLE INTEREST ENTITIES

Effective Sept. 1, 2010, Monsanto prospectively adopted the accounting standard update regarding improvements to financial reporting by enterprises involving variable interest entities (VIEs). A VIE is a legal entity that lacks sufficient equity to finance its activities, or the equity investors of the entity as a group lack any of the characteristics of a controlling interest. Monsanto is involved with various special purpose entities and other entities that are deemed to be VIEs. Monsanto has determined that the company holds variable interests in entities that are established as revolving financing programs. These programs allow the company to transfer a limited amount of customer receivables to a VIE. One program is in Brazil and the other is in Argentina. In addition, Monsanto has various variable interests in biotechnology companies that focus on plant gene research, development, and commercialization. These variable interests have also been determined to be VIEs.

If a company is considered the primary beneficiary of a VIE, the company is required to consolidate the entity. The primary beneficiary of a VIE is the enterprise that has both the power to direct the activities most significant to the economic performance of the VIE and the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. For all VIEs in which the company has a variable interest, the company performs ongoing qualitative assessments to determine whether it is the primary beneficiary. In determining whether Monsanto is the primary beneficiary, a number of factors are considered, including the structure of the entity, contractual provisions that grant any additional rights to influence or control the economic performance of the VIE, and the company’s obligation to absorb significant losses. In addition, the company determines which activities most significantly impact the economic performance of the VIE and whether the company has any rights that would allow it to direct those activities. If Monsanto is determined to be the primary beneficiary, the assets, liabilities and operations of the VIE are consolidated.

As a result of the adoption of the updated accounting guidance, Monsanto was required to consolidate certain VIEs that are established as revolving financing programs including the special purpose entity referred to in Note 4 — Customer Financing Programs. As of the date of the initial consolidation of these VIEs, the company measured the assets and liabilities of the newly consolidated VIEs at their carrying value. The company was not required to deconsolidate any VIEs as of Sept. 1, 2010. The cumulative effect of the adoption of this guidance was insignificant to additional contributed capital, retained earnings and accumulated other comprehensive loss and, therefore, not identified separately on the Statement of Consolidated Shareowners’ Equity and Comprehensive Income but is recorded within the Statement of Consolidated Operations.

Consolidated VIEs

Under the accounting guidance effective prior to Sept. 1, 2010, none of the interests in VIEs held were consolidated by Monsanto. For the most part, the VIEs involving the revolving financing programs are funded by investments from the company and other third parties, primarily investment funds, and have been established to service Monsanto’s customer receivables. Creditors have no recourse against Monsanto in the event of default by these VIEs nor does the company have any implied or unfunded commitments to these VIEs. The company’s financial or other support provided to these VIEs is limited to its original investment. Even though Monsanto holds a subordinate interest in the VIEs, the VIEs were established to service transactions involving the company and the company determines the receivables that are included in the revolving financing programs. Therefore, the determination is that Monsanto has the power to direct the activities most significant to the economic performance of the VIEs. As a result, the company is the primary beneficiary of these VIEs and, effective Sept. 1, 2010, these VIEs have been consolidated in Monsanto’s Consolidated Financial Statements. The assets of these VIEs may

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

only be used to settle the obligations of the respective entity. Third-party investors in the VIEs do not have recourse to the general assets of Monsanto other than the maximum exposure to loss relating to the VIE. The following table presents the carrying value of assets and liabilities, which are identified as restricted assets and liabilities on the company’s Condensed Statement of Consolidated Financial Position, and the maximum exposure to loss relating to the VIEs for which Monsanto is the primary beneficiary.

		As of Nov. 30, 2010
(Dollars in millions)		Financing Programs VIEs
Cash and cash equivalents		$	48
Trade receivables, net			82
Total Assets			130
Total Liabilities			—
Maximum Exposure to Loss		$	13

Non-Consolidated VIEs

Monsanto has variable interests through investments and arrangements with biotechnology companies that focus on plant gene research, development, and commercialization. The company has not provided financial or other support with respect to these investments or arrangements other than its original interest. The company also has no implied or unfunded commitments to these VIEs. The company determined that it was not the primary beneficiary due to the relative size of Monsanto’s investment in comparison to the total equity of the VIEs, the level of the company’s obligation to absorb losses or right to receive benefits from the VIEs, and the company’s inability to direct the activities that most significantly impact the economic performance of the VIEs. Monsanto’s maximum exposure to loss on these variable interests is limited to the amount of the company’s investment in the entity. The following table presents the carrying value of assets and liabilities, and the maximum exposure to loss relating to VIEs that the company does not consolidate:

		As of Nov. 30, 2010
(Dollars in millions)		Biotechnology VIEs
Property, plant, and equipment, net		$	4
Other intangible assets, net			6
Other assets			15
Total Non-Current Assets			25
Total Liabilities			—
Maximum Exposure to Loss		$	15

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

NOTE 6. RESTRUCTURING

Restructuring charges were recorded in the Statements of Consolidated Operations as follows:

		Three Months Ended Nov. 30,
(Dollars in millions)		2010				2009
Costs of Goods Sold		$	—			$	—
Restructuring Charges, Net(1)(2)			(7	)			(14	)
Loss from Continuing Operations Before Income Taxes			(7	)			(14	)
Income Tax Benefit			3				1
Net Loss		$	(4	)		$	(13	)

On June 23, 2009, the company’s Board of Directors approved a restructuring plan (2009 Restructuring Plan) to take future actions to reduce costs in light of the changing market supply environment for glyphosate. These actions are designed to enable Monsanto to stabilize the ROUNDUP business and allow it to deliver optimal gross profit and a sustainable level of operating cash in the coming years, while better aligning spending and working capital needs. The company also announced that it will take steps to better align the resources of its global seeds and traits business. These actions include certain product and brand rationalization within the seed businesses. On Sept. 9, 2009, the company committed to take additional actions related to the previously announced restructuring plan. Furthermore, while implementing the plan, the company identified additional opportunities to better align the company’s resources, and on Aug. 26, 2010, committed to take additional actions. The plan was substantially completed in the first quarter of fiscal year 2011, and the remaining payments will be made by the end of the fourth quarter in fiscal year 2011.

The following table displays the pretax charges of $7 million and $14 million incurred by segment under the 2009 Restructuring Plan for the first quarters ended Nov. 30, 2010, and Nov. 30, 2009, respectively, as well as the cumulative

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

pretax charges of $737 million under the 2009 Restructuring Plan.

		Quarter Ended Nov. 30, 2010												Quarter Ended Nov. 30, 2009
		Seeds and				Agricultural								Seeds and				Agricultural
(Dollars in millions)		Genomics				Productivity				Total				Genomics				Productivity				Total
Work Force Reductions		$	(11	)		$	(7	)		$	(18	)		$	1			$	10			$	11
Facility Closures / Exit Costs			22				3				25				1				1				2
Asset Impairments
Property, plant and equipment			—				—				—				1				—				1
Inventory			—				—				—				—				—				—
Other intangible assets			—				—				—				—				—				—
Total Restructuring Charges, Net		$	11			$	(4	)		$	7			$	3			$	11			$	14

		Cumulative Amount through Nov. 30, 2010
		Seeds and				Agricultural
(Dollars in millions)		Genomics				Productivity				Total
Work Force Reductions		$	249			$	103			$	352
Facility Closures / Exit Costs			71				81				152
Asset Impairments
Property, plant and equipment			39				5				44
Inventory			117				13				130
Other intangible assets			59				—				59
Total Restructuring Charges, Net		$	535			$	202			$	737

The company’s written human resource policies are indicative of an ongoing benefit arrangement with respect to severance packages. Benefits paid pursuant to an ongoing benefit arrangement are specifically excluded from the Exit or Disposal Cost Obligations topic of the ASC, therefore severance charges incurred in connection with the 2009 Restructuring Plan are accounted for when probable and estimable as required under the Compensation — Nonretirement Postemployment Benefits topic of the ASC. In addition, when the decision to commit to a restructuring plan requires an asset impairment review, Monsanto evaluates such impairment issues under the Property, Plant and Equipment topic of the ASC.

In first quarter 2011, pretax restructuring charges of $7 million were recorded. The facility closures/ exit costs of $25 million relate primarily to the finalization of the termination of a corn toller contract in the United States. In workforce reductions, approximately $7 million of additional charges were offset by $25 million of reversals. Although positions originally included in the plan were eliminated, individuals found new roles within the company due to attrition. In first quarter 2010, pretax restructuring charges of $14 million were recorded, primarily relating to work force reductions in Europe.

The following table summarizes the activities related to the company’s 2009 Restructuring Plan.

		Work Force				Facility Closures /				Asset
(Dollars in millions)		Reductions				Exit Costs				Impairments				Total
Beginning Liability as of Aug. 31, 2010		$	153			$	44			$	—			$	197
Net restructuring charges recognized in first quarter 2011			(18	)			25				—				7
Cash payments			(66	)			(10	)			—				(76	)
Asset impairments and write-offs			—				—				—				—
Foreign currency impact			4				—				—				4
Ending Liability as of Nov. 30, 2010		$	73			$	59			$	—			$	132

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

NOTE 7. RECEIVABLES

Trade receivables on the Condensed Statements of Consolidated Financial Position are net of allowances of $126 million and $143 million as of Nov. 30, 2010, and Aug. 31, 2010, respectively.

Long-term receivables on the Condensed Statements of Consolidated Financial Position are net of allowances of $247 million and $226 million as of Nov. 30, 2010, and Aug. 31, 2010, respectively.

NOTE 8. INVENTORY

Components of inventory are:

		As of Nov. 30,				As of Aug. 31,
(Dollars in millions)		2010				2010
Finished Goods		$	1,596			$	1,134
Goods In Process			1,393				1,333
Raw Materials and Supplies			463				383
Inventory at FIFO Cost			3,452				2,850
Excess of FIFO over LIFO Cost			(121	)			(111	)
Total		$	3,331			$	2,739

NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the net carrying amount of goodwill for the first quarter of fiscal year 2011, by segment, are as follows:

		Seeds and				Agricultural
(Dollars in millions)		Genomics				Productivity				Total
Balance as of Aug. 31, 2010		$	3,147			$	57			$	3,204
Acquisition Activity (see Note 3)			—				—				—
Effect of Foreign Currency Translation Adjustments			25				—				25
Balance as of Nov. 30, 2010		$	3,172			$	57			$	3,229

In first quarter 2011, goodwill increased due to the effects of foreign currency translation adjustments. There were no events or circumstances indicating that goodwill might be impaired as of Nov. 30, 2010. The 2011 annual goodwill impairment test will be performed as of March 1, 2011.

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

Information regarding the company’s other intangible assets is as follows:

		As of Nov. 30, 2010												As of Aug. 31, 2010
		Carrying				Accumulated								Carrying				Accumulated
(Dollars in millions)		Amount				Amortization				Net				Amount				Amortization				Net
Acquired Germplasm		$	1,167			$	(652	)		$	515			$	1,161			$	(640	)		$	521
Acquired Intellectual Property			870				(665	)			205				866				(649	)			217
Trademarks			346				(98	)			248				344				(94	)			250
Customer Relationships			321				(121	)			200				317				(113	)			204
Other			126				(53	)			73				121				(50	)			71
Total		$	2,830			$	(1,589	)		$	1,241			$	2,809			$	(1,546	)		$	1,263

Total amortization expense of other intangible assets was $38 million in first quarter of fiscal year 2011 and $40 million in first quarter of fiscal year 2010. Estimated intangible asset amortization expense for each of the five succeeding fiscal years for owned assets as of Nov. 30, 2010, has not changed significantly from the amounts disclosed in Monsanto’s Report on Form 10-K for the fiscal year ended Aug. 31, 2010.

NOTE 10. INVESTMENTS AND EQUITY AFFILIATES

Investments

During fiscal year 2010, Monsanto invested in long-term debt securities with a cost of $15 million, which were classified as available-for-sale as of Aug. 31, 2010. The investments were recorded in other assets in the Condensed Statement of Consolidated Financial Position at their fair value of $10 million as of Aug. 31, 2010. Net unrealized losses (net of deferred taxes) of $3 million were included in accumulated other comprehensive loss in shareowners’ equity related to these investments as of Aug. 31, 2010. As a result of the adoption of a new accounting standard within the Consolidation topic of the ASC, the special purpose entity in which the company invested is now consolidated and the investment is no longer included in other assets in the Condensed Statement of Consolidated Financial Position. See Note 5 — Variable Interest Entities — for further discussion related to these debt securities.

Monsanto has investments in long-term equity securities, which are considered available-for-sale. As of Nov. 30, 2010, and Aug. 31, 2010, these long-term equity securities are recorded in other assets in the Condensed Statements of Consolidated Financial Position at a fair value of $32 million and $23 million, respectively. Net unrealized gains (net of deferred taxes) of $4 million and $3 million are included in accumulated other comprehensive loss in shareowners’ equity related to these investments as of Nov. 30, 2010, and Aug. 31, 2010, respectively.

Equity Affiliates

Monsanto owns a 19 percent interest in a seed supplier that produces, conditions, and distributes corn and soybean seeds. Monsanto is accounting for this investment as an equity method investment as Monsanto has the ability to exercise significant influence over the seed supplier. As of Nov. 30, 2010, and Aug. 31, 2010, this investment is recorded in other assets in the Condensed Statements of Consolidated Financial Position at $67 million and $65 million, respectively. Monsanto purchased $69 million and $19 million of inventory from the seed supplier for the three months ended Nov. 30, 2010, and Nov. 30, 2009, respectively. There were no sales of inventory to the seed supplier for both the three months ended Nov. 30, 2010, and Nov. 30, 2009. As of Nov. 30, 2010, and Aug. 31, 2010, the amount payable to the seed supplier was $33 million and $5 million, respectively, and is recorded in accounts payable in the Condensed Statements of Consolidated Financial Position. As of Nov. 30, 2010, there were no prepayments, while the prepayment as of Aug. 31, 2010, was $7 million, included in other current assets in the Condensed Statement of Consolidated Financial Position related to inventory delivered in fiscal year 2011.

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

NOTE 11. DEFERRED REVENUE

In first quarter 2008, Monsanto entered into a corn herbicide tolerance and insect control trait technologies agreement with Pioneer Hi-Bred International, Inc., a wholly-owned subsidiary of E. I. du Pont de Nemours and Company. Among its provisions, the agreement modified certain existing corn license agreements between the parties, included provisions under which the parties agreed not to assert certain intellectual property rights against each other, and granted each party the right to use certain regulatory data of the other in order to develop additional products. As a result of the new agreement which requires fixed annual payments, the company recorded a receivable and deferred revenue of $635 million in first quarter 2008. Cumulative cash receipts will be $725 million over an eight-year period. Revenue of $20 million related to this agreement was recorded in the first three months of fiscal years 2011 and 2010. As of Nov. 30, 2010, and Aug. 31, 2010, the remaining receivable balance is $406 million and $470 million, respectively. The majority of this balance is included in long-term receivables, and the current portion is included in trade receivables. As of Nov. 30, 2010, and Aug. 31, 2010, the remaining deferred revenue balance is $377 million and $397 million, respectively. The majority of this balance is included in long-term deferred revenue, and the current portion is included in deferred revenues in the Condensed Statements of Consolidated Financial Position. The interest portion of this receivable is reported in interest income and totaled $4 million for the three months ended Nov. 30, 2010, and Nov. 30, 2009.

In third quarter 2008, Monsanto and Syngenta entered into a GENUITY ROUNDUP READY 2 YIELD Soybean License Agreement. The agreement grants Syngenta access to Monsanto’s GENUITY ROUNDUP READY 2 YIELD Soybean technology in consideration of royalty payments from Syngenta, based on sales. Under this agreement Syngenta will fulfill the contractual sales volumes over a nine-year period. The minimum obligation from Syngenta over this period is $81 million. As of Nov. 30, 2010, and Aug. 31, 2010, the remaining receivable balance is $73 million related to the net present value of expected payments under this agreement. The majority of this balance is included in long-term receivables in the Condensed Statements of Consolidated Financial Position and the current portion is included in trade receivables. The interest portion of this receivable is reported in interest income in the Statements of Consolidated Operations and was less than $1 million for the three months ended Nov. 30, 2010, and Nov. 30, 2009. As of Nov. 30, 2010, and Aug. 31, 2010, the remaining deferred revenue balance was $66 million and $67 million, respectively. The majority of this balance is included in long-term deferred revenue, and the current portion is included in deferred revenues in the Condensed Statements of Consolidated Financial Position.

NOTE 12. INCOME TAXES

Management regularly assesses the tax risk of the company’s tax return filing positions for all open years and establishes reserves accordingly. During first quarter 2010 statutes expired in several jurisdictions and an audit was completed in an ex-U.S. jurisdiction. Primarily as a result of these items, Monsanto recorded a tax benefit of $16 million in first quarter 2010.

NOTE 13. DEBT AND OTHER CREDIT ARRANGEMENTS

Monsanto plans to issue new fixed-rate debt on or before Aug. 15, 2012, to repay $486 million of 7 3/8% Senior Notes that are due on Aug. 15, 2012. In March 2009, the company entered into forward-starting interest rate swaps with a total notional amount of $250 million. The purpose of the swaps was to hedge the variability of the forecasted interest payments on this expected debt issuance that may result from changes in the benchmark interest rate before the debt is issued. Unrealized losses, net of tax, of $1 million and $8 million were recorded in accumulated other comprehensive loss to reflect the aftertax change in the fair value of the forward-starting interest rate swaps as of Nov. 30, 2010, and Aug. 31, 2010, respectively. In August 2010, the company entered into forward-starting interest rate swaps with a total notional amount of $225 million. The purpose of the swaps was to hedge the variability of the forecasted interest payments on this expected debt issuance that may

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

result from changes in the benchmark interest rate before the debt is issued. An unrealized gain and loss, net of tax, of $8 million and $9 million were recorded in accumulated other comprehensive loss to reflect the aftertax change in the fair value of the forward-starting interest rate swaps as of Nov. 30, 2010, and Aug. 31, 2010, respectively. These swaps are accounted for under the Derivatives and Hedging topic of the ASC.

Monsanto plans to issue new fixed-rate debt on or before April 15, 2011. In July 2010, the company entered into forward-starting interest rate swaps with a total notional amount of $300 million. The purpose of the swaps was to hedge the variability of the forecasted interest payments on this expected debt issuance that may result from changes in the benchmark interest rate before the debt is issued. Unrealized losses, net of tax, of $6 million and $7 million were recorded in accumulated other comprehensive loss to reflect the aftertax change in the fair value of the forward-starting interest rate swaps as of Nov. 30, 2010, and Aug. 31, 2010, respectively.

The fair value of the total short-term debt was $394 million and $241 million as of Nov. 30, 2010, and Aug. 31, 2010, respectively. The fair value of the total long-term debt was $1,904 million and $2,094 million as of Nov. 30, 2010, and Aug. 31, 2010, respectively.

As of Nov. 30, 2010, Monsanto had no commercial paper borrowings outstanding. As of Nov. 30, 2009, Monsanto had commercial paper borrowings outstanding of $195 million which was included in short-term debt on the Condensed Statement of Consolidated Financial Position.

In April 2010, Monsanto completed the purchase of the Chesterfield Village Research Center from Pfizer. There is debt outstanding of $324 million on the purchase price which is included in short-term debt on the Condensed Statements of Consolidated Financial Position as of Nov. 30, 2010.

NOTE 14. FAIR VALUE MEASUREMENTS

Monsanto determines the fair market value of its financial assets and liabilities based on quoted market prices, estimates from brokers, and other appropriate valuation techniques. The company uses the fair value hierarchy established in the Fair Value Measurements and Disclosures topic of the ASC, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy contains three levels as follows, with Level 3 representing the lowest level of input:

     Level 1 — Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

     Level 2 — Values based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in the market.

     Level 3 — Values generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions would reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques could include use of option pricing models, discounted cash flow models and similar techniques. Monsanto does not currently have any instruments with fair value determined using Level 3 inputs.

The following tables set forth by level Monsanto’s assets and liabilities that were accounted for at fair value on a recurring basis as of Nov. 30, 2010, and Aug. 31, 2010. As required by the Fair Value Measurements and Disclosures topic of the ASC, assets and liabilities are classified in their entirety based on the lowest level of input that is a significant component of the fair value measurement. Monsanto’s assessment of the significance of a particular input to the fair value measurement

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

requires judgment and may affect the classification of fair value assets and liabilities within the fair value hierarchy levels.

		Fair Value Measurements at Nov. 30, 2010, Using
														Cash
														Collateral				Net
		Level 1				Level 2				Level 3				Offset(1)				Balance
Assets at Fair Value:
Cash equivalents		$	1,347			$	—			$	—			$	—			$	1,347
Equity securities			32				—				—				—				32
Derivative assets related to:
Foreign currency			—				22				—				—				22
Interest rates			—				14				—				—				14
Corn			13				1				—				(12	)			2
Soybeans			17				4				—				(17	)			4
Raw materials			—				2				—				—				2
Total Assets at Fair Value		$	1,409			$	43			$	—			$	(29	)		$	1,423
Liabilities at Fair Value:
Derivative liabilities related to:
Foreign currency		$	—			$	26			$	—			$	—			$	26
Interest rates			—				12				—				—				12
Corn			1				1				—				—				2
Soybeans			6				5				—				—				11
Energy and raw materials			—				17				—				—				17
Total Liabilities at Fair Value		$	7			$	61			$	—			$	—			$	68

		Fair Value Measurements at Aug. 31, 2010, Using
														Cash
														Collateral				Net
(Dollars in millions)		Level 1				Level 2				Level 3				Offset(1)				Balance
Assets at Fair Value:
Cash equivalents		$	1,078			$	—			$	—			$	—			$	1,078
Debt and equity securities			23				—				10				—				33
Derivative assets related to:
Foreign currency			—				26				—				—				26
Corn			10				2				—				(9	)			3
Soybeans			6				3				—				(6	)			3
Total Assets at Fair Value		$	1,117			$	31			$	10			$	(15	)		$	1,143
Liabilities at Fair Value:
Derivative liabilities related to:
Foreign currency		$	—			$	5			$	—			$	—			$	5
Interest rates			—				39				—				—				39
Corn			—				9				—				—				9
Soybeans			—				4				—				—				4
Energy and raw materials			—				22				—				—				22
Total Liabilities at Fair Value		$	—			$	79			$	—			$	—			$	79

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

The following table summarizes the changes in fair value of the Level 3 asset for the three months ended Nov. 30, 2010.

(Dollars in millions)
Balance Sept. 1, 2010		$	10
Elimination due to consolidation of variable interest entities			(10	)
Balance Nov. 30, 2010		$	—

Disclosures for nonfinancial assets and liabilities that are measured at fair value, but are recognized and disclosed as fair value on a nonrecurring basis, were required prospectively beginning Sept. 1, 2009.

There were no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition during fiscal year 2011.

The recorded amounts of cash, trade receivables, miscellaneous receivables, third-party guarantees, accounts payable, grower accruals, accrued marketing programs and miscellaneous short-term accruals approximate their fair values as of Nov. 30, 2010, and Aug. 31, 2010.

NOTE 15. FINANCIAL INSTRUMENTS

Cash Flow Hedges

The company uses foreign currency options and foreign currency forward contracts as hedges of anticipated sales or purchases denominated in foreign currencies. The company enters into these contracts to protect itself against the risk that the eventual net cash flows will be adversely affected by changes in exchange rates.

Monsanto’s commodity price risk management strategy is to use derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from volatility in commodity prices. Price fluctuations in commodities, mainly in corn and soybeans, can cause the actual prices paid to production growers for corn and soybean seeds to differ from anticipated cash outlays. Monsanto uses commodity futures and options contracts to manage these risks. Monsanto’s energy and raw material risk management strategy is to use derivative instruments to minimize significant unanticipated manufacturing cost fluctuations that may arise from volatility in natural gas, diesel and ethylene prices.

Monsanto’s interest rate risk management strategy is to use derivative instruments, such as forward-starting interest rate swaps, to minimize significant unanticipated earnings fluctuations that may arise from volatility in interest rates of the company’s borrowings and to manage the interest rate sensitivity of its debt.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive loss and reclassified into earnings in the period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

The maximum term over which the company is hedging exposures to the variability of cash flow (for all forecasted transactions) is 21 months for foreign currency hedges, 40 months for commodity hedges and 21 months for interest rate hedges. During the next 12 months, a pretax net loss of approximately $4 million will be reclassified from accumulated other comprehensive loss into earnings. During the three months ended Nov. 30, 2010, no cash flow hedges were discontinued. During the three months ended Nov. 30, 2009, a pretax loss of $4 million was reclassified into earnings as a result of the discontinuance of cash flow hedges, because it was probable that the original forecasted transaction would not occur by the end of the originally specified time period.

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

Fair Value Hedges

The company uses commodity futures and options contracts as fair value hedges to manage the value of its soybean inventory. For derivative instruments that are designated and qualify as fair value hedges, both the gain or loss on the derivative and the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. No fair value hedges were discontinued during the three months ended Nov. 30, 2010, or Nov. 30, 2009.

Net Investment Hedges

To protect the value of its investment from adverse changes in exchange rates, the company may, from time to time, hedge a portion of its net investment in one or more of its foreign subsidiaries. Gains or losses on derivative instruments that are designated as a net investment hedge are included in accumulated foreign currency translation adjustment and reclassified into earnings in the period during which the hedged net investment is sold or liquidated.

Derivatives Not Designated as Hedging Instruments

The company uses foreign currency contracts to hedge the effects of fluctuations in exchange rates on foreign currency denominated third-party and intercompany receivables and payables. Both the gain or loss on the derivative and the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings.

The company uses commodity option contracts to hedge anticipated cash payments to corn growers in the United States, Mexico and Brazil, which can fluctuate with changes in corn price. Because these option contracts do not meet the provisions specified by the Derivatives and Hedging topic of the ASC, they do not qualify for hedge accounting treatment. Accordingly, the gain or loss on these derivatives is recognized in current earnings.

To reduce credit exposure in Latin America, Monsanto collects payments on certain customer accounts in grain. Such payments in grain are negotiated at or near the time Monsanto’s products are sold to the customers and are valued at the prevailing grain commodity prices. By entering into forward sales contracts related to grain, Monsanto mitigates the commodity price exposure from the time a contract is signed with a customer until the time a grain merchant collects the grain from the customer on Monsanto’s behalf. The forward sales contracts do not qualify for hedge accounting treatment under the Derivatives and Hedging topic of the ASC. Accordingly, the gain or loss on these derivatives is recognized in current earnings.

Financial instruments are neither held nor issued by the company for trading purposes.

The notional amounts of the company’s derivative instruments outstanding as of Nov. 30, 2010, and Aug. 31, 2010, were as follows:

		As of Nov. 30,				As of Aug. 31,
(Dollars in millions)		2010				2010
Derivatives Designated as Hedges:
Foreign exchange contracts		$	445			$	383
Commodity contracts			568				387
Interest rate contracts			775				775
Total Derivatives Designated as Hedges		$	1,788			$	1,545
Derivatives Not Designated as Hedges:
Foreign exchange contracts		$	1,266			$	862
Commodity contracts			69				123
Total Derivatives Not Designated as Hedges		$	1,335			$	985

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

The fair values of the company’s derivative instruments outstanding as of Nov. 30, 2010, and Aug. 31, 2010, were as follows:

		Balance Sheet Location				Fair Value
						As of Nov. 30,				As of Aug. 31,
(Dollars in millions)						2010				2010
Asset Derivatives:
Derivatives designated as hedges:
Foreign exchange contracts		Miscellaneous receivables				$	12			$	23
Foreign exchange contracts		Other assets					3				—
Commodity contracts		Other current assets(1)					26				12
Commodity contracts		Other assets(1)					7				4
Interest rate contracts		Other assets(1)					14				—
Total derivatives designated as hedges							62				39
Derivatives not designated as hedges:
Foreign exchange contracts		Miscellaneous receivables					7				3
Commodity contracts		Trade receivables, net					4				5
Total derivatives not designated as hedges							11				8
Total Asset Derivatives						$	73			$	47
Liability Derivatives:
Derivatives designated as hedges:
Foreign exchange contracts		Miscellaneous short-term accruals				$	3			$	—
Commodity contracts		Other current assets(1)					7				—
Commodity contracts		Miscellaneous short-term accruals					10				14
Commodity contracts		Other liabilities					6				8
Interest rate contracts		Miscellaneous short-term accruals					10				11
Interest rate contracts		Other liabilities					2				28
Total derivatives designated as hedges							38				61
Derivatives not designated as hedges:
Foreign exchange contracts		Miscellaneous short-term accruals					23				5
Commodity contracts		Trade receivables, net(1)					1				4
Commodity contracts		Miscellaneous short-term accruals					6				9
Total derivatives not designated as hedges							30				18
Total Liability Derivatives						$	68			$	79

MONSANTO COMPANY		FIRST QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

The gains and losses on the company’s derivative instruments were as follows:

		Amount of Gain (Loss)
		Recognized in AOCI(1)								Amount of Gain (Loss)
		(Effective Portion)								Recognized in Income(2)(3)
		Three Months Ended Nov. 30,								Three Months Ended Nov. 30,								Income Statement
(Dollars in millions)		2010				2009				2010				2009				Classification
Derivatives Designated as Hedges:
Fair value hedges:
Commodity contracts(4)										$	(8	)		$	(5	)		Cost of goods sold
Cash flow hedges:
Foreign exchange contracts		$	(5	)		$	(5	)			(2	)			1			Net sales
Foreign exchange contracts			(2	)			(9	)			4				7			Cost of goods sold
Commodity contracts			41				73				(5	)			(14	)		Cost of goods sold
Interest rate contracts			41				(4	)			(2	)			(2	)		Interest expense
Net investment hedges:
Foreign exchange contracts			—				(3	)			—				—			N/A(5)
Total Derivatives Designated as Hedges			75				52				(13	)			(13	)
Derivatives Not Designated as Hedges:
Foreign exchange contracts(6)											—				(8	)		Other expense, net
Commodity contracts											(1	)			—			Net sales
Commodity contracts											(1	)			—			Cost of goods sold
Total Derivatives Not Designated as Hedges											(2	)			(8	)
Total Derivatives		$	75			$	52			$	(15	)		$	(21	)