MONSANTO COMPANY		THIRD 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.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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: 534,735,073 shares of Common Stock, $0.01 par value, outstanding as of June 27, 2011.

 

 

MONSANTO COMPANY		THIRD 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		THIRD 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			34
		Overview			34
		Results of Operations — Third Quarter Fiscal Year 2011			36
		Seeds and Genomics Segment			39
		Agricultural Productivity Segment			40
		Restructuring			41
		Financial Condition, Liquidity, and Capital Resources			43
		Outlook			47
		Critical Accounting Policies and Estimates			49
		New Accounting Standards			51
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			51
Item 4.		Controls and Procedures			51

PART II—OTHER INFORMATION

Item 1.		Legal Proceedings			53
Item 1A.		Risk Factors			55
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			55
Item 6.		Exhibits			55
SIGNATURE					56
EXHIBIT INDEX					57

MONSANTO COMPANY		THIRD 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 and nine months ended May 31, 2011, and May 31, 2010, the Condensed Statements of Consolidated Financial Position as of May 31, 2011, and Aug. 31, 2010, the Statements of Consolidated Cash Flows for the nine months ended May 31, 2011, and May 31, 2010, the Statements of Consolidated Shareowners’ Equity and Comprehensive Income for the nine months ended May 31, 2011, 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		THIRD QUARTER 2011 FORM 10-Q

Statements of Consolidated Operations

Unaudited		Three Months Ended May 31,								Nine Months Ended May 31,
(Dollars in millions, except per share amounts)		2011				2010				2011				2010
Net Sales		$	3,590			$	2,962			$	9,549			$	8,549
Cost of goods sold			1,635				1,575				4,468				4,324
Gross Profit			1,955				1,387				5,081				4,225
Operating Expenses:
Selling, general and administrative expenses			591				492				1,543				1,500
Research and development expenses			360				302				983				848
Restructuring charges, net			1				34				9				78
Total Operating Expenses			952				828				2,535				2,426
Income from Operations			1,003				559				2,546				1,799
Interest expense			35				35				117				115
Interest income			(17	)			(18	)			(51	)			(43	)
Other expense (income), net			15				7				38				(3	)
Income from Continuing Operations Before Income Taxes			970				535				2,442				1,730
Income tax provision			270				138				704				468
Income from Continuing Operations Including Portion Attributable to Noncontrolling Interest		$	700			$	397			$	1,738			$	1,262
Discontinued Operations:
Income from operations of discontinued businesses			—				—				4				5
Income tax provision			—				—				1				—
Income on Discontinued Operations			—				—				3				5
Net Income		$	700			$	397			$	1,741			$	1,267
Less: Net income attributable to noncontrolling interest			20				13				38				15
Net Income Attributable to Monsanto Company		$	680			$	384			$	1,703			$	1,252
Amounts Attributable to Monsanto Company:
Income from continuing operations		$	680			$	384			$	1,700			$	1,247
Income on discontinued operations			—				—				3				5
Net Income Attributable to Monsanto Company		$	680			$	384			$	1,703			$	1,252
Basic Earnings per Share Attributable to Monsanto Company:
Income from continuing operations		$	1.27			$	0.71			$	3.17			$	2.29
Income on discontinued operations			—				—				—				0.01
Net Income Attributable to Monsanto Company		$	1.27			$	0.71			$	3.17			$	2.30
Diluted Earnings per Share Attributable to Monsanto Company:
Income from continuing operations		$	1.26			$	0.70			$	3.13			$	2.26
Income on discontinued operations			—				—				0.01				0.01
Net Income Attributable to Monsanto Company		$	1.26			$	0.70			$	3.14			$	2.27
Weighted Average Shares Outstanding:
Basic			535.5				543.2				536.9				544.7
Diluted			541.2				549.9				542.9				552.1
Dividends Declared per Share		$	—			$	—			$	0.56			$	0.53

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

MONSANTO COMPANY		THIRD QUARTER 2011 FORM 10-Q

Condensed Statements of Consolidated Financial Position

Unaudited		As of May 31,				As of Aug. 31,
(Dollars in millions, except share amounts)		2011				2010
Assets
Current Assets:
Cash and cash equivalents (variable interest entities restricted - 2011: $103)		$	1,074			$	1,485
Short-term investments			250				—
Trade receivables, net (variable interest entities restricted - 2011: $88)			3,579				1,590
Miscellaneous receivables			740				717
Deferred tax assets			384				511
Inventory, net			2,826				2,739
Other current assets			134				80
Total Current Assets			8,987				7,122
Total property, plant and equipment			8,497				8,068
Less accumulated depreciation			4,227				3,841
Property, Plant and Equipment, Net			4,270				4,227
Goodwill			3,364				3,204
Other Intangible Assets, Net			1,335				1,263
Noncurrent Deferred Tax Assets			1,085				1,014
Long-Term Receivables, Net			474				513
Other Assets			571				524
Total Assets		$	20,086			$	17,867
Liabilities and Shareowners’ Equity
Current Liabilities:
Short-term debt, including current portion of long-term debt		$	216			$	241
Accounts payable			603				752
Income taxes payable			333				66
Accrued compensation and benefits			396				179
Accrued marketing programs			849				839
Deferred revenues			324				219
Grower production accruals			158				130
Dividends payable			—				151
Customer payable			27				83
Restructuring reserves			48				197
Miscellaneous short-term accruals			764				684
Total Current Liabilities			3,718				3,541
Long-Term Debt			2,027				1,862
Postretirement Liabilities			923				920
Long-Term Deferred Revenue			351				395
Noncurrent Deferred Tax Liabilities			145				137
Long-Term Portion of Environmental and Litigation Liabilities			183				188
Other Liabilities			669				681
Shareowners’ Equity:
Common stock (authorized: 1,500,000,000 shares, par value $0.01) Issued 590,762,383 and 588,439,202 shares, respectively Outstanding 534,771,481 and 540,376,499 shares, respectively			6				6
Treasury stock 55,990,902 and 48,062,703 shares, respectively, at cost			(2,596	)			(2,110	)
Additional contributed capital			10,042				9,896
Retained earnings			4,610				3,208
Accumulated other comprehensive loss			(200	)			(897	)
Reserve for ESOP debt retirement			(3	)			(4	)
Total Monsanto Company Shareowners’ Equity			11,859				10,099
Noncontrolling Interest			211				44
Total Shareowners’ Equity			12,070				10,143
Total Liabilities and Shareowners’ Equity		$	20,086			$	17,867

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

MONSANTO COMPANY		THIRD QUARTER 2011 FORM 10-Q

Statements of Consolidated Cash Flows

     

Unaudited		Nine Months Ended May 31,
(Dollars in millions)		2011				2010
Operating Activities:
Net Income		$	1,741			$	1,267
Adjustments to reconcile cash provided (required) by operating activities:
Items that did not require (provide) cash:
Depreciation and amortization			457				446
Bad-debt expense			(6	)			41
Stock-based compensation expense			83				72
Excess tax benefits from stock-based compensation			(24	)			(40	)
Deferred income taxes			(45	)			(98	)
Restructuring charges, net			9				78
Equity affiliate income, net			(12	)			(21	)
Net gain on sales of a business or other assets			(5	)			(2	)
Other items			46				38
Changes in assets and liabilities that provided (required) cash, net of acquisitions:
Trade receivables, net			(1,759	)			(1,648	)
Inventory, net			36				78
Deferred revenues			30				(80	)
Accounts payable and other accrued liabilities			757				(324	)
Restructuring cash payments			(164	)			(175	)
Pension contributions			(47	)			(95	)
Net investment hedge settlement			—				(4	)
Other items			(153	)			(71	)
Net Cash Provided (Required) by Operating Activities			944				(538	)
Cash Flows Required by Investing Activities:
Purchases of short-term investments			(430	)			—
Maturities of short-term investments			180				—
Capital expenditures			(326	)			(560	)
Acquisition of businesses, net of cash acquired			(99	)			(57	)
Purchases of long-term equity securities			—				(14	)
Technology and other investments			(51	)			(26	)
Other investments and property disposal proceeds			19				43
Net Cash Required by Investing Activities			(707	)			(614	)
Cash Flows Required by Financing Activities:
Net change in financing with less than 90-day maturities			(40	)			596
Short-term debt proceeds			59				26
Short-term debt reductions			(33	)			(54	)
Long-term debt proceeds			300				—
Long-term debt reductions			(192	)			(3	)
Payments on other financing			(3	)			(3	)
Debt issuance costs			(3	)			—
Treasury stock purchases			(486	)			(498	)
Stock option exercises			45				50
Excess tax benefits from stock-based compensation			24				40
Tax withholding on restricted stock and restricted stock units			(4	)			—
Dividend payments			(452	)			(434	)
Proceeds from noncontrolling interest			69				—
Dividend payments to noncontrolling interest			(50	)			(43	)
Net Cash Required by Financing Activities			(766	)			(323	)
Cash Assumed from Initial Consolidations of Variable Interest Entities			77				—
Effect of Exchange Rate Changes on Cash and Cash Equivalents			41				(6	)
Net Decrease in Cash and Cash Equivalents			(411	)			(1,481	)
Cash and Cash Equivalents at Beginning of Period			1,485				1,956
Cash and Cash Equivalents at End of Period		$	1,074			$	475

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

MONSANTO COMPANY		THIRD QUARTER 2011 FORM 10-Q

Statements of Consolidated Shareowners’ Equity and Comprehensive Income

     

		Monsanto Shareowners
										Additional								Accumulated Other				Reserve				Non-
		Common				Treasury				Contributed				Retained				Comprehensive				for ESOP				Controlling
(Dollars in millions, except per share data)		Stock				Stock				Capital				Earings				(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			—				—				—				1,703				—				—				38				1,741
Foreign currency translation			—				—				—				—				541				—				3				544
Postretirement benefit plan activity, net of tax of $20			—				—				—				—				31				—				—				31
Unrealized net gains on investment holdings, net of tax of $3			—				—				—				—				5				—				—				5
Unrealized net derivative gains, net of tax of $81			—				—				—				—				119				—				—				119
Realized net derivative losses, net of tax of $6			—				—				—				—				1				—				—				1
Comprehensive income for 2011																											41				2,441
Treasury stock purchases			—				(486	)			—				—				—				—				—				(486	)
Restricted stock withholding			—				—				(4	)			—				—				—				—				(4	)
Issuance of shares under employee stock plans			—				—				45				—				—				—				—				45
Excess tax benefits from stock-based compensation			—				—				24				—				—				—				—				24
Stock-based compensation expense			—				—				81				—				—				—				—				81
Cash dividends of $0.56 per common share			—				—				—				(301	)			—				—				—				(301	)
Dividend payments to noncontrolling interest			—				—				—				—				—				—				(50	)			(50	)
Allocation of ESOP shares, net of dividends received			—				—				—				—				—				1				—				1
Proceeds from noncontrolling interest			—				—				—				—				—				—				69				69
Noncontrolling interest in consolidated variable interest entities			—				—				—				—				—				—				107				107
Balance as of May 31, 2011		$	6			$	(2,596	)		$	10,042			$	4,610			$	(200	)		$	(3	)		$	211			$	12,070

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

MONSANTO COMPANY		THIRD 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 and HARNESS brand herbicides and other herbicides. 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, and current report on Form 8-K dated April 8, 2011. Financial information for the first nine months of fiscal year 2011 should not be annualized because of the seasonality of the company’s business.

NOTE 2. NEW ACCOUNTING STANDARDS

In June 2011, the FASB issued an amendment to the Comprehensive Income topic of the ASC. This amendment eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, items of other comprehensive income that may be reclassified to profit or loss in the future are required to be presented separately from those that would never be reclassified. The amendment is effective for fiscal years beginning after Dec. 15, 2011, and interim periods within that year. Accordingly, Monsanto will adopt this amendment in fiscal year 2013. The company is currently evaluating the impact of adoption on the consolidated financial statements.

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 require additional information for nonaccrual and past due accounts, the allowance for credit losses, impaired loans, credit quality, and account modifications. Accordingly, Monsanto adopted the new disclosure requirements in second quarter 2011, and the disclosures related to activities during the reporting period have been incorporated in the third quarter 2011. See Note 7 — Receivables — for the new disclosures.

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.

MONSANTO COMPANY		THIRD QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

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 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.

2011 Acquisitions: In February 2011, Monsanto acquired 100 percent of the outstanding stock of Divergence, Inc., a biotechnology research and development company located in St. Louis, Missouri. Acquisition costs were less than $1 million and were classified as selling, general, and administrative (SG&A) expenses. The total cash paid and the fair value of the acquisition were $71 million (net of cash acquired), and the purchase price was primarily allocated to intangibles and goodwill. 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 December 2010, Monsanto acquired 100 percent of the outstanding stock of Pannon Seeds, a seed processing plant located in Hungary, from IKR Production Development and Commercial Corporation. 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 Hungary. Acquisition costs were less than $1 million and were classified as SG&A. The total fair value of the acquisition was $32 million, and the purchase price was primarily allocated to fixed assets and goodwill. This fair value includes $28 million of cash paid (net of cash acquired) and $4 million related to assumed liabilities. 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.

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 SG&A. The total cash paid and the fair value of the acquisition were $34 million, and the purchase price 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 SG&A. 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

MONSANTO COMPANY		THIRD QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

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 2011 and 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 $630 million) for selected customers in Brazil to a special purpose entity, formerly a qualified special 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 in 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 May 31, 2011, there were $2 million of receivables sold through this financing program that were delinquent. There were $3 million of receivables sold through this financing program that were delinquent as of Aug. 31, 2010. 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. Since the entity is now consolidated, Monsanto recorded a bad debt allowance related to these receivables of $2 million as of May 31, 2011. The maximum potential amount of exposure under the program was $17 million as of May 31, 2011. 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 with a special purpose entity in Argentina to transfer customer receivables and to service such accounts. The company has evaluated its relationship with this 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. As of May 31, 2011, and Aug. 31, 2010, there were no 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 a bad debt allowance related to these receivables of less than $1 million as of May 31, 2011. The maximum potential amount of exposure under the program was $1 million as of May 31, 2011.

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 $51 million for the first nine 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 less than $1 million as of May 31, 2011, and $2 million as of Aug. 31, 2010. The maximum potential amount of future payments under the recourse provisions of the agreement was less than $1 million as of May 31, 2011. The outstanding balance of the receivables sold was $3 million and

MONSANTO COMPANY		THIRD QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

$223 million as of May 31, 2011, and Aug. 31, 2010, respectively. There were delinquent accounts of $3 million as of May 31, 2011, and Aug. 31, 2010.

Monsanto also sells accounts receivable in the United States and European regions, both with and without recourse. The sales within these programs 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 $5 million and $7 million for the first nine 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. There was no liability balance as of May 31, 2011. The liability recorded by Monsanto was less than $1 million as of Aug. 31, 2010. The maximum potential amount of future payments under the recourse provisions of the agreements was $1 million as of May 31, 2011. The outstanding balances of the receivables sold was $1 million and $86 million as of May 31, 2011, and Aug. 31, 2010, respectively. There were no delinquent accounts as of May 31, 2011, or Aug. 31, 2010.

Monsanto has additional agreements with lenders to establish programs that provide financing of up to 550 million Brazilian reais (approximately $350 million) for selected customers in Brazil. Monsanto provides a guarantee of the accounts 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 May 31, 2011, 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 $42 million as of May 31, 2011. The account balance outstanding for these programs was $42 million and $100 million as of May 31, 2011, and Aug. 31, 2010, respectively. There were delinquent accounts of $1 million and $2 million as of May 31, 2011, and Aug. 31, 2010, respectively.

Monsanto also has similar agreements with banks that provide financing to its customers in the United States, Brazil, Europe and Latin America. Under these programs, Monsanto provides a guarantee of the accounts 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 May 31, 2011, 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 $28 million as of May 31, 2011. The account balance outstanding for these programs was $31 million and $36 million as of May 31, 2011, 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

MONSANTO COMPANY		THIRD QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

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 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 May 31, 2011
(Dollars in millions)		Financing Programs VIEs
Cash and cash equivalents		$	103
Trade receivables, net			88
Total Assets			191
Total Liabilities			—
Maximum Exposure to Loss		$	18

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

MONSANTO COMPANY		THIRD QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

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 May 31, 2011
(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

NOTE 6. RESTRUCTURING

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

		Three Months Ended May 31,								Nine Months Ended May 31,
(Dollars in millions)		2011				2010				2011				2010
Cost of Goods Sold(1)		$	—			$	(52	)		$	(2	)		$	(106	)
Restructuring Charges, Net(1)(2)			(1	)			(34	)			(9	)			(78	)
Loss from Continuing Operations Before Income Taxes			(1	)			(86	)			(11	)			(184	)
Income Tax Benefit			1				25				5				56
Net Loss		$	—			$	(61	)		$	(6	)		$	(128	)

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 Agricultural Productivity 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 majority of the remaining payments are expected to be made by the end of the first quarter in fiscal year 2012.

The following table displays the pretax charges by segment under the 2009 Restructuring Plan of $1 million and $86 million incurred for the three months ended May 31, 2011, and May 31, 2010, respectively, the pretax charges of $11 million and

MONSANTO COMPANY		THIRD QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

$184 million incurred for the nine months ended May 31, 2011, and May 31, 2010, respectively, as well as the cumulative pretax charges of $741 million.

		Three Months Ended May. 31,																								Nine Months Ended May. 31,
		Seeds and								Agricultural																Seeds and								Agricultural
		Genomics								Productivity								Total								Genomics								Productivity								Total
(Dollars in millions)		2011				2010				2011				2010				2011				2010				2011				2010				2011				2010				2011				2010
Work Force Reductions		$	—			$	13			$	—			$	4			$	—			$	17			$	(11	)		$	17			$	(7	)		$	15			$	(18	)		$	32
Facility Closures / Exit Costs			1				16				—				1				1				17				24				19				3				26				27				45
Asset Impairments
Property, plant and equipment			—				—				—				—				—				—				—				1				—				—				—				1
Inventory			—				39				—				13				—				52				2				93				—				13				2				106
Total Restructuring Charges, Net		$	1			$	68			$	—			$	18			$	1			$	86			$	15			$	130			$	(4	)		$	54			$	11			$	184

		Cumulative Amount through May 31, 2011
		Seeds and				Agricultural
(Dollars in millions)		Genomics				Productivity				Total
Work Force Reductions		$	249			$	103			$	352
Facility Closures / Exit Costs			73				81				154
Asset Impairments
Property, plant and equipment			39				5				44
Inventory			119				13				132
Other intangible assets			59				—				59
Total Restructuring Charges, Net		$	539			$	202			$	741

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 the nine months ended May 31, 2011, pretax restructuring charges of $11 million were recorded. The facility closures/exit costs of $27 million relate primarily to the finalization of the termination of a corn toller contract in the United States. In workforce reductions, approximately $13 million of additional charges were offset by $31 million of reversals. Although positions originally included in the plan were eliminated, individuals found new roles within the company due to attrition. In asset impairments, inventory impairments of $2 million recorded in cost of goods sold related to discontinued corn and sorghum seed products in the United States. In the nine months ended May 31, 2010, pretax restructuring charges of $184 million were recorded. The $32 million in workforce reductions relate primarily to Europe and the United States. The facility closures/exit costs of $45 million relate primarily to the finalization of the termination of a chemical supply contract in the United States. In asset impairments, inventory impairments of $106 million recorded in cost of goods sold related to discontinued corn seed products in the United States.

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
Restructuring charges recognized in first nine months of fiscal year 2011			(18	)			27				2				11
Cash payments			(93	)			(71	)			—				(164	)
Asset impairments and write-offs			—				—				(2	)			(2	)
Foreign currency impact			6				—				—				6
Ending Liability as of May 31, 2011		$	48			$	—			$	—			$	48

MONSANTO COMPANY		THIRD 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 $97 million and $143 million as of May 31, 2011, and Aug. 31, 2010, respectively.

Effective with the second quarter of 2011, the company adopted the amended guidance in the Receivables topic of the ASC which requires greater transparency about a company’s allowance for credit losses and the credit quality of its financing receivables. The company has financing receivables that represent long-term customer receivable balances related to past due accounts which are not expected to be collected within the current year. The long-term customer receivables were $266 million and $239 million with a corresponding allowance for credit losses on these receivables of $256 million and $226 million, as of May 31, 2011, and Aug. 31, 2010, respectively. These long-term customer receivable balances and the corresponding allowance are included in long-term receivables, net on the Condensed Statements of Consolidated Financial Position. For these long-term customer receivables, interest is no longer accrued when the receivable is determined to be delinquent and classified as long-term based on estimated timing of collection.

The following table displays a roll forward of the allowance for credit losses related to long-term customer receivables.

(Dollars in millions)		Three Months Ended May 31, 2011
Balance at Beginning of Period		$	253
Incremental Provision			17
Recoveries			(21	)
Other(1)			7
Balance at End of Period		$	256

In addition, the company has long-term contractual receivables. These receivables are collected at fixed and determinable dates in accordance with the customer long-term agreement. The long-term contractual receivables were $464 million and $500 million, as of May 31, 2011, and Aug. 31, 2010, respectively, and did not have any allowance recorded related to these balances. These receivables are included in long-term receivables, net on the Condensed Statements of Consolidated Financial Position. There are no balances related to these long-term contractual receivables that are past due. These receivables are outstanding with large, reputable companies who have been timely with scheduled payments thus far and are considered to be fully collectible. Interest is accrued on these receivables in accordance with the agreements and is included within interest income in the Statements of Consolidated Operations. See Note 11 — Deferred Revenue — for more details on the significant agreements related to these long-term contractual receivables.

On an ongoing basis, the company evaluates credit quality of its financing receivables utilizing aging of receivables, collection experience and write-offs, as well as evaluating existing economic conditions, to determine if an allowance is necessary. As of May 31, 2011, no significant long-term receivable balances are considered to be impaired.

MONSANTO COMPANY		THIRD QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

NOTE 8. INVENTORY

Components of inventory are:

		As of May 31,				As of Aug. 31,
(Dollars in millions)		2011				2010
Finished Goods		$	1,227			$	1,134
Goods In Process			1,347				1,333
Raw Materials and Supplies			407				383
Inventory at FIFO Cost			2,981				2,850
Excess of FIFO over LIFO Cost			(155	)			(111	)
Total		$	2,826			$	2,739

NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the net carrying amount of goodwill for the first nine months 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)			53				—				53
Effect of foreign currency translation adjustments			107				—				107
Balance as of May 31, 2011		$	3,307			$	57			$	3,364

In the nine months ended May 31, 2011, goodwill increased due to the 2011 acquisitions of Divergence and Pannon Seeds and the effects of foreign currency translation adjustments. See Note 3 — Business Combinations — for further information. The fiscal year 2011 annual goodwill impairment test was performed as of March 1, 2011, and no goodwill impairment existed as of that date. There were no events or circumstances indicating that goodwill might be impaired as of May 31, 2011.

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

		As of May 31, 2011												As of Aug. 31, 2010
		Carrying				Accumulated								Carrying				Accumulated
(Dollars in millions)		Amount				Amortization				Net				Amount				Amortization				Net
Intangible Assets with Finite Lives:
Acquired germplasm		$	1,188			$	(682	)		$	506			$	1,161			$	(640	)		$	521
Acquired intellectual property			968				(696	)			272				` 866				(649	)			217
Trademarks			352				(106	)			246				344				(94	)			250
Customer relationships			334				(139	)			195				317				(113	)			204
Other			131				(59	)			72				121				(50	)			71
Total Other Intangible Assets, Finite Lives		$	2,973			$	(1,682	)		$	1,291			$	2,809			$	(1,546	)		$	1,263
In process research & development, indefinite lives			44				—				44				—				—				—
Total Other Intangible Assets		$	3,017			$	(1,682	)		$	1,335			$	2,809			$	(1,546	)		$	1,263

The increase in acquired intellectual property during the nine months ended May 31, 2011, primarily resulted from the purchase of licenses that provide Monsanto the access to use technology patents.

MONSANTO COMPANY		THIRD QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

The in-process research and development was a result of the acquisition of Divergence described in Note 3 — Business Combinations. This asset is subject to an indefinite life until the research is developed and commercialized.

Total amortization expense of other intangible assets was $38 million in third quarter of fiscal year 2011 and $38 million in third quarter of fiscal year 2010. Total amortization expense of other intangible assets was $113 million for the nine months ended May 31, 2011, and $117 million for the nine months ended May 31, 2010. The estimated intangible asset amortization expense for fiscal year 2011 through fiscal year 2015 is as follows:

(Dollars in millions)		Amount
2011		$	153
2012			141
2013			114
2014			119
2015			115

NOTE 10. INVESTMENTS AND EQUITY AFFILIATES

Investments

As of May 31, 2011, Monsanto has short-term investments outstanding of $250 million. See Note 14 — Fair Value Measurements — for further discussion related to these 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 May 31, 2011, 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 $35 million and $23 million, respectively. Net unrealized gains (net of deferred taxes) of $5 million and $3 million are included in accumulated other comprehensive loss in shareowners’ equity related to these investments as of May 31, 2011, 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 May 31, 2011, 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 $57 million and $197 million of inventory from the seed supplier for the three and nine months ended May 31, 2011, respectively, and $88 million and $197 million for the three and nine months ended May 31, 2010. There were no sales of inventory to the seed supplier in 2011, and sales of $5 million for the three and nine months ended May 31, 2010. As of May 31, 2011, there were no amounts payable to the seed supplier, while the payable as of Aug. 31, 2010, was $5 million, and recorded in accounts payable in the Condensed Statements of Consolidated Financial Position. There were prepayments of $2 million and $7 million as of May 31, 2011, and Aug. 31, 2010, respectively, included in other current assets in the Condensed Statements of Consolidated Financial Position related to inventory delivered in fiscal year 2011.

MONSANTO COMPANY		THIRD 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 for the three months ended May 31, 2011, and May 31, 2010, and revenue of $60 million was recorded for the nine months ended May 31, 2011, and May 31, 2010. As of May 31, 2011, and Aug. 31, 2010, the remaining receivable balance is $390 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 May 31, 2011, and Aug. 31, 2010, the remaining deferred revenue balance is $337 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 revenue in the Condensed Statements of Consolidated Financial Position. The interest portion of this receivable is reported in interest income and totaled $3 million and $10 million for the three and nine months ended May 31, 2011, respectively. Interest income for the three and nine months ended May 31, 2010, was $4 million and $12 million, respectively.

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. Revenue of $1 million and $4 million related to this agreement was recorded for the three and nine months ended May 31, 2011, respectively. As of May 31, 2011, and Aug. 31, 2010, the remaining receivable balance is $74 million and $73 million, respectively, related to the net present value of expected payments under this agreement. The majority of this balance is included in long-term receivables on 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 and $2 million for both the three and nine months ended May 31, 2011, and May 31, 2010. As of May 31, 2011, and Aug. 31, 2010, the remaining deferred revenue balance of $62 million and $67 million, respectively, is included in long-term deferred revenue in the Condensed Statements of Consolidated Financial Position and the current portion is included in deferred revenue.

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 the first nine months of 2011 statutes expired in several jurisdictions. The company benefited from the retroactive extension of the research and development credit pursuant to the enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Additionally, the company recorded favorable return-to-provision true-up adjustments, which were partially offset by deferred tax adjustments. Primarily as a result of these items, Monsanto recorded a tax benefit of $21 million in the first nine months of 2011.

During the first nine months of 2010, statutes expired in several jurisdictions and several domestic and ex-US tax matters were resolved favorably. In addition, favorable adjustments were recorded as a result of the filing of tax returns in several jurisdictions. The Patient Protection and Affordable Care Act was signed by President Obama on March 23, 2010, and the Health Care and Education Act of 2010 was signed on March 30, 2010 (collectively the “Acts”). Monsanto recorded a tax charge of $8 million during third quarter 2010 due to the elimination of the tax benefit associated with the Medicare Part D subsidy included in the Acts. Monsanto recorded a net tax benefit of $63 million in the first nine months of 2010 primarily driven by the cumulative effect of these items.

MONSANTO COMPANY		THIRD QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

NOTE 13. DEBT AND OTHER CREDIT ARRANGEMENTS

In October 2008, Monsanto filed a shelf registration with the Securities and Exchange Commission (SEC) (2008 shelf registration) that allows the company to issue an unlimited capacity of debt, equity, and hybrid offerings. The 2008 shelf registration will expire on Oct. 31, 2011. Monsanto expects to file a new shelf registration prior to the expiration of the existing shelf.

In April 2011, Monsanto issued $300 million of 2.75% Senior Notes under the 2008 shelf registration, which are due on April 15, 2016 (2.75% 2016 Senior Notes). The net proceeds from the sale of the 2.75% 2016 Senior Notes were used for general corporate purposes, including refinancing of the company’s indebtedness.

In April 2011, Monsanto finalized a new $2 billion credit facility agreement with a group of banks. This agreement provides a four-year senior unsecured revolving credit facility, which replaces the existing $2 billion credit facility established in 2007.

Monsanto plans to issue new fixed-rate debt on or before Aug. 15, 2012, to repay $486 million of 7⅜% 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 May 31, 2011, 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 result from changes in the benchmark interest rate before the debt is issued. An unrealized gain and loss, net of tax, of $11 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 May 31, 2011, and Aug. 31, 2010, respectively. These swaps are accounted for under the Derivatives and Hedging topic of the ASC.

The fair value of the total short-term debt was $216 million and $241 million as of May 31, 2011, and Aug. 31, 2010, respectively. The fair value of the total long-term debt was $2,224 million and $2,094 million as of May 31, 2011, and Aug. 31, 2010, respectively.

As of May 31, 2011, Monsanto had no commercial paper borrowings outstanding.

In April 2010, Monsanto completed the purchase of the Chesterfield Village Research Center from Pfizer. There is debt outstanding of $136 million on the purchase price which is included in short-term debt on the Condensed Statements of Consolidated Financial Position as of May 31, 2011.

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.

MONSANTO COMPANY		THIRD QUARTER 2011 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

     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.

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 May 31, 2011, 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 requires judgment and may affect the classification of fair value assets and liabilities within the fair value hierarchy levels.

		Fair Value Measurements at May 31, 2011, Using
														Cash
														Collateral				Net
(Dollars in millions)		Level 1				Level 2				Level 3				Offset(1)				Balance
Assets at Fair Value:
Cash equivalents		$	644			$	—			$	—			$	—			$	644
Short-term investments			250				—				—				—				250
Equity securities			35				—				—				—				35
Derivative assets related to:
Foreign currency			—				6				—				—				6
Interest rates			—				18				—				—				18
Corn			73				2				—				(71	)			4
Soybeans			27				3				—				(27	)			3
Energy and raw materials			—				4				—				—				4
Total Assets at Fair Value		$	1,029			$	33			$	—			$	(98	)		$	964
Liabilities at Fair Value:
Derivative liabilities related to:
Foreign currency		$	—			$	17			$	—			$	—			$	17
Interest rates			—				1				—				—				1
Corn			1				1				—				—				2
Soybeans			1				1				—				—				2
Energy and raw materials			—				10				—				—				10
Total Liabilities at Fair Value		$	2			$	30			$	—			$	—			$	32