MONSANTO COMPANY		FIRST QUARTER 2010 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

For the quarterly period ended Nov. 30, 2009

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

For the transition period from                      to                     

MONSANTO COMPANY

(Exact name of registrant as specified in its charter)

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

(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. (Check one):

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: 545,673,732 shares of Common Stock, $0.01 par value, outstanding as of Jan. 5, 2010.

 

 

MONSANTO COMPANY		FIRST QUARTER 2010 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, 2009.

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 2010 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			29
		Overview			29
		Results of Operations — First Quarter Fiscal Year 2010			31
		Seeds and Genomics Segment			33
		Agricultural Productivity Segment			34
		Restructuring			34
		Financial Condition, Liquidity, and Capital Resources			36
		Outlook			40
		Critical Accounting Policies and Estimates			43
		New Accounting Standards			43
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			45
Item 4.		Controls and Procedures			45
PART II—OTHER INFORMATION
Item 1.		Legal Proceedings			46
Item 1A.		Risk Factors			47
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 6.		Exhibits			47
SIGNATURE					48
EXHIBIT INDEX					49

MONSANTO COMPANY		FIRST QUARTER 2010 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, 2009, and Nov. 30, 2008, the Condensed Statements of Consolidated Financial Position as of Nov. 30, 2009, and Aug. 31, 2009, the Statements of Consolidated Cash Flows for the three months ended Nov. 30, 2009, and Nov. 30, 2008, the Statements of Consolidated Shareowners’ Equity and Comprehensive Income for the three months ended Nov. 30, 2009, and year ended Aug. 31, 2009, 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 2010 FORM 10-Q

Statements of Consolidated Operations

Unaudited		Three Months Ended Nov. 30,
(Dollars in millions, except per share amounts)		2009				2008
Net Sales		$	1,697			$	2,649
Cost of goods sold			958				1,099
Gross Profit			739				1,550
Operating Expenses:
Selling, general and administrative expenses			496				550
Research and development expenses			267				252
Restructuring charges, net			14				—
Total Operating Expenses			777				802
(Loss) Income from Operations			(38	)			748
Interest expense			39				23
Interest income			(11	)			(25	)
Other (income) expense, net			(12	)			26
(Loss) Income from Continuing Operations Before Income Taxes			(54	)			724
Income tax (benefit) provision			(30	)			176
(Loss) Income from Continuing Operations Including Portion Attributable to Noncontrolling Interest		$	(24	)		$	548
Discontinued Operations:
Income from operations of discontinued businesses			5				18
Income tax provision			—				8
Income on Discontinued Operations			5				10
Net (Loss) Income		$	(19	)		$	558
Less: Net income attributable to noncontrolling interest			—				2
Net (Loss) Income Attributable to Monsanto Company		$	(19	)		$	556
Amounts Attributable to Monsanto Company:
(Loss) income from continuing operations		$	(24	)		$	546
Income on discontinued operations			5				10
Net (Loss) Income Attributable to Monsanto Company		$	(19	)		$	556
Basic (Loss) Earnings per Share Attributable to Monsanto Company:
(Loss) income from continuing operations		$	(0.04	)		$	0.99
Income on discontinued operations			0.01				0.02
Net (Loss) Income		$	(0.03	)		$	1.01
Diluted (Loss) Earnings per Share Attributable to Monsanto Company:
(Loss) Income from continuing operations		$	(0.04	)		$	0.98
Income on discontinued operations			0.01				0.02
Net (Loss) Income		$	(0.03	)		$	1.00
Weighted Average Shares Outstanding:
Basic			545.6				548.8
Diluted			545.6				557.6
Dividends Declared per Share		$	—			$	—

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

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

Condensed Statements of Consolidated Financial Position

Unaudited		As of Nov. 30,				As of Aug. 31,
(Dollars in millions, except share amounts)		2009				2009
Assets
Current Assets:
Cash and cash equivalents		$	471			$	1,956
Trade receivables, net			2,012				1,556
Miscellaneous receivables			716				654
Deferred tax assets			574				662
Inventory, net			3,560				2,934
Other current assets			98				121
Total Current Assets			7,431				7,883
Total property, plant and equipment			7,398				7,158
Less accumulated depreciation			3,678				3,549
Property, Plant and Equipment, Net			3,720				3,609
Goodwill			3,272				3,218
Other Intangible Assets, Net			1,370				1,371
Noncurrent Deferred Tax Assets			804				743
Long-Term Receivables, Net			488				557
Other Assets			521				496
Total Assets		$	17,606			$	17,877
Liabilities and Shareowners’ Equity
Current Liabilities:
Short-term debt, including current portion of long-term debt		$	281			$	79
Accounts payable			765				676
Income taxes payable			52				79
Accrued compensation and benefits			223				263
Accrued marketing programs			367				934
Deferred revenues			368				219
Grower production accruals			386				139
Dividends payable			—				145
Customer payable			—				307
Restructuring reserves			221				286
Miscellaneous short-term accruals			691				629
Total Current Liabilities			3,354				3,756
Long-Term Debt			1,724				1,724
Postretirement Liabilities			729				793
Long-Term Deferred Revenue			466				488
Noncurrent Deferred Tax Liabilities			159				153
Long-Term Portion of Environmental and Litigation Liabilities			203				197
Other Liabilities			628				641
Shareowners’ Equity:
Common stock (authorized: 1,500,000,000 shares, par value $0.01)
Issued 586,351,668 and 585,557,964 shares, respectively
Outstanding 545,354,848 and 545,407,427 shares, respectively			6				6
Treasury stock 40,996,820 and 40,150,537 shares, respectively, at cost			(1,641	)			(1,577	)
Additional contributed capital			9,749				9,695
Retained earnings			2,663				2,682
Accumulated other comprehensive loss			(485	)			(744	)
Reserve for ESOP debt retirement			(6	)			(6	)
Total Monsanto Company Shareowners’ Equity			10,286				10,056
Noncontrolling Interest			57				69
Total Shareowners’ Equity			10,343				10,125
Total Liabilities and Shareowners’ Equity		$	17,606			$	17,877

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

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

Statements of Consolidated Cash Flows

Unaudited		Three Months Ended Nov. 30,
(Dollars in millions)		2009				2008
Operating Activities:
Net (Loss) Income		$	(19	)		$	558
Adjustments to reconcile cash provided by operating activities:
Items that did not require (provide) cash:
Depreciation and amortization			144				135
Bad-debt expense			14				36
Stock-based compensation expense			24				26
Excess tax benefits from stock-based compensation			(13	)			(5	)
Deferred income taxes			(58	)			52
Restructuring charges, net			14				—
Equity affiliate income, net			(14	)			(6	)
Net gain on sales of a business or other assets			(1	)			(6	)
Other items			2				5
Changes in assets and liabilities that provided (required) cash, net of acquisitions:
Trade receivables, net			(343	)			165
Inventory, net			(539	)			(832	)
Deferred revenues			126				(238	)
Accounts payable and other accrued liabilities			(573	)			195
Restructuring cash payments			(79	)			—
Pension contributions			(78	)			(15	)
Net investment hedge settlement			(4	)			18
Other items			(17	)			26
Net Cash (Required) Provided by Operating Activities			(1,414	)			114
Cash Flows (Required) Provided by Investing Activities:
Capital expenditures			(192	)			(264	)
Acquisition of businesses, net of cash acquired			(20	)			(2	)
Purchases of long-term equity securities			(2	)			(7	)
Technology and other investments			(9	)			(18	)
Proceeds from divestiture of a business			—				300
Other investments and property disposal proceeds			26				1
Net Cash (Required) Provided by Investing Activities			(197	)			10
Cash Flows Provided (Required) by Financing Activities:
Net change in financing with less than 90-day maturities			299				(90	)
Short-term debt proceeds			25				31
Short-term debt reductions			(29	)			—
Long-term debt reductions			(1	)			(4	)
Payments on other financing			(1	)			—
Treasury stock purchases			(64	)			(75	)
Stock option exercises			16				7
Excess tax benefits from stock-based compensation			13				5
Dividend payments			(145	)			(132	)
Net Cash Provided (Required) by Financing Activities			113				(258	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents			13				(137	)
Net Decrease in Cash and Cash Equivalents			(1,485	)			(271	)
Cash and Cash Equivalents at Beginning of Period			1,956				1,613
Cash and Cash Equivalents at End of Period		$	471			$	1,342

See Note 19 — Supplemental Cash Flow Information — for further details.

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

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

Statements of Consolidated Shareowners’ Equity and Comprehensive Income

		Monsanto Shareowners
																		Accumulated
Unaudited										Additional								Other				Reserve				Non-
(Dollars in millions,		Common				Treasury				Contributed				Retained				Comprehensive				for ESOP				Controlling
except per share amounts)		Stock				Stock				Capital				Earnings				(Loss)(1)				Debt				Interests				Total
Balance as of Aug. 31, 2008		$	6			$	(1,177	)		$	9,495			$	1,138			$	(78	)		$	(10	)		$	37			$	9,411
Net income			—				—				—				2,109				—				—				24				2,133
Foreign currency translation			—				—				—				—				(333	)			—				(5	)			(338	)
Postretirement benefit plan activity, net of tax of $(119)			—				—				—				—				(189	)			—				—				(189	)
Accumulated derivative loss, net of tax of $(95)			—				—				—				—				(144	)			—				—				(144	)
Comprehensive income for 2009																											19				1,462
Treasury stock purchases			—				(400	)			—				—				—				—				—				(400	)
Restricted stock withholding			—				—				(7	)			—				—				—				—				(7	)
Issuance of shares under employee stock plans			—				—				39				—				—				—				—				39
Excess tax benefits from stock-based compensation			—				—				35				—				—				—				—				35
Stock-based compensation expense			—				—				133				—				—				—				—				133
Cash dividends of $1.04 per common share			—				—				—				(565	)			—				—				—				(565	)
Dividends to noncontrolling interest																											(10	)			(10	)
Allocation of ESOP shares, net of dividends received			—				—				—				—				—				4				—				4
Donation of noncontrolling interest			—				—				—				—				—				—				28				28
Purchase of noncontrolling interest			—				—				—				—				—				—				(5	)			(5	)
Balance as of Aug. 31, 2009		$	6			$	(1,577	)		$	9,695			$	2,682			$	(744	)		$	(6	)		$	69			$	10,125
Net loss			—				—				—				(19	)			—				—				—				(19	)
Foreign currency translation			—				—				—				—				219				—				—				219
Postretirement benefit plan activity, net of tax of $2			—				—				—				—				3				—				—				3
Realized and unrealized gain on investments, net of tax of $2			—				—				—				—				3				—				—				3
Accumulated derivative loss, net of tax of $29			—				—				—				—				34				—				—				34
Comprehensive income for three months ended Nov. 30, 2009																											—				240
Treasury stock purchases			—				(64	)			—				—				—				—				—				(64	)
Restricted stock withholding			—				—				(1	)			—				—				—				—				(1	)
Issuance of shares under employee stock plans			—				—				17				—				—				—				—				17
Excess tax benefits from stock-based compensation			—				—				13				—				—				—				—				13
Stock-based compensation expense			—				—				25				—				—				—				—				25
Dividends to noncontrolling interest			—				—				—				—				—				—				(12	)			(12	)
Balance as of Nov. 30, 2009		$	6			$	(1,641	)		$	9,749			$	2,663			$	(485	)		$	(6	)		$	57			$	10,343

⁽¹⁾ See Note 17 — Comprehensive Income (Loss) — for further details of the components of accumulated other comprehensive loss.

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

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED

NOTE 1. BACKGROUND AND BASIS OF PRESENTATION

Monsanto 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 21 — 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 22 — 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, 2009. Financial information for the first three months of fiscal year 2010 should not be annualized because of the seasonality of the company’s business.

NOTE 2. NEW ACCOUNTING STANDARDS

In June 2009, the FASB issued its ASC Topic 105, Generally Accepted Accounting Principles, which became the single source of authoritative U.S. generally accepted accounting principles (GAAP) (other than rules and interpretive releases of the U.S. Securities and Exchange Commission). The ASC is topically based with topics organized by ASC number and updated with Accounting Standards Updates (ASUs). ASUs will replace accounting guidance that historically was issued as FASB Statements of Financial Accounting Standards (SFAS), FASB Interpretations (FIN), FASB Staff Positions (FSP), Emerging Issues Task Force (EITF) Issues or other types of accounting standards. The ASC became effective Nov. 30, 2009, for Monsanto and disclosures within this Quarterly Report on Form 10-Q have been updated to reflect the change. The ASC does not change GAAP and did not impact the company’s consolidated financial statements.

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 will adopt this standard in fiscal year 2011. The company is currently evaluating the impact of adoption on the consolidated financial statements.

In June 2009, the FASB issued a standard that removes the concept of a qualifying special-purpose entity (QSPE) from 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

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

effective for fiscal years beginning after Nov. 15, 2009. Accordingly, Monsanto will adopt this standard in fiscal year 2011. The company is currently evaluating the impact of adoption on the consolidated financial statements.

In April 2009, the FASB issued a standard that extends the previous disclosure requirements about fair value of financial instruments to interim financial statements of publicly traded companies. This standard requires that disclosures provide quantitative and qualitative information on fair value estimates for all financial instruments not measured on the balance sheet at fair value, when practicable, with the exception of certain financial instruments. This standard is effective prospectively for interim reporting periods ending after June 15, 2009. Accordingly, Monsanto adopted this standard in first quarter fiscal year 2010. See Note 12 — Debt and Other Credit Arrangements, Note 13 — Fair Value Measurements and Note 14 — Financial Instruments — for the disclosures required by this standard.

In December 2008, the FASB issued a standard that provides additional guidance regarding disclosures about plan assets of defined benefit pension or other postretirement plans. This standard is effective for financial statements issued for fiscal years ending after Dec. 15, 2009. Accordingly, Monsanto will include the disclosure requirements of this standard in the Report on Form 10-K for the fiscal year ended Aug. 31, 2010. The company is currently evaluating the disclosure impact of adopting this standard on the consolidated financial statements.

In February 2008, the FASB issued a standard that delayed the effective date of the new guidance regarding fair value measurement and disclosure for nonfinancial assets and liabilities to fiscal years beginning after Nov. 15, 2008. Accordingly, Monsanto adopted the additional requirements of the Fair Value Measurements and Disclosures topic of the ASC that were deferred by this standard in first quarter fiscal year 2010. The adoption of this standard did not have an impact on the company’s consolidated financial statements. See Note 13 — Fair Value Measurements — for additional discussion regarding fair value measurements.

In December 2007, the FASB issued a standard that requires an entity to clearly identify and present its ownership interests in subsidiaries held by parties other than the entity in the consolidated financial statements within the equity section but separate from the entity’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the Statements of Consolidated Operations; changes in ownership interest be accounted for similarly, as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. This statement is effective for financial statements issued for fiscal years beginning after Dec. 15, 2008. The provisions of the standard related to accounting for changes in ownership are to be applied prospectively, except for the presentation and disclosure requirements, which are to be applied retrospectively. Monsanto adopted this standard on Sept. 1, 2009, and the presentation and disclosure requirements of this standard were applied retrospectively to all periods presented. The adoption of this standard did not have a material impact on the consolidated financial statements, other than the following changes in presentation of noncontrolling interests:

•

Consolidated net (loss) income was recast to include net (loss) income attributable to both the company and noncontrolling interests in the Statements of Consolidated Operations.

•

Noncontrolling interests were reclassified from other liabilities to equity, separate from the parent’s shareowners’ equity, in the Condensed Statements of Consolidated Financial Position.

•

The Statements of Consolidated Cash Flows now begin with net (loss) income (including noncontrolling interests) instead of net (loss) income attributable to Monsanto Company, with net (loss) income from noncontrolling interests (previously, minority interests) no longer a reconciling item in arriving at net cash provided by operating activities.

•

Interim Statements of Consolidated Shareowners’ Equity and Comprehensive Income have been added to fulfill the disclosure requirements.

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

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 Acquisition: 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 for the quarter ended Nov. 30, 2009, and 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. 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.

2009 Acquisitions: In July 2009, Monsanto acquired the assets of WestBred, LLC, a Montana-based company that specializes in wheat germplasm, for $49 million (net of cash acquired), inclusive of transaction costs of $4 million. The acquisition will bolster the future growth of Monsanto’s seeds and traits platform.

In December 2008, Monsanto acquired 100 percent of the outstanding stock of Aly Participacoes Ltda. (Aly), which operates the sugarcane breeding and technology companies, CanaVialis S.A. and Alellyx S.A., both of which are based in Brazil, for $264 million (net of cash acquired), inclusive of transaction costs of less than $1 million.

In 2009, Monsanto paid approximately $5 million of contingent consideration related to fiscal year 2007 regional U.S. seed company acquisitions.

For all fiscal year 2010 and 2009 acquisitions described above, the business operations and employees of the acquired entities were included within the Seeds and Genomics segment from their respective dates of acquisition. These acquisitions were accounted for as purchase transactions. Accordingly, the assets and liabilities of the acquired entities were recorded at their estimated fair values at the dates of the acquisitions. The purchase price allocations for the first quarter 2010 and the second, third and fourth quarter 2009 acquisitions are preliminary and are subject to adjustment pending further assessments, including the valuation of certain assets. 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.

For acquisitions prior to fiscal year 2010, as of the acquisition dates, management began to assess and formulate plans to restructure the acquired entities in accordance with business combination accounting guidance. These activities primarily include the potential closure of certain acquired subsidiaries. Through Nov. 30, 2009, estimated costs of $23 million have been recognized as short-term liabilities in the purchase price allocations above, and $5 million has been charged against those liabilities, primarily related to payments for employee terminations. As management finalizes plans to integrate or restructure certain activities of the acquired entities, further liabilities may be recorded as part of the purchase price allocation.

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

NOTE 4. CUSTOMER FINANCING PROGRAMS

Monsanto previously established a revolving financing program to provide financing of up to $250 million for selected customers in the United States through a third-party specialty lender. The program was terminated in the third quarter of fiscal year 2009. Under the financing program, Monsanto originated customer loans on behalf of the lender, which was a special purpose entity (SPE) that Monsanto consolidated, pursuant to Monsanto’s credit and other underwriting guidelines approved by the lender. Under the program, Monsanto serviced the loans and provided a first-loss guarantee of up to $130 million. Following origination, the lender transferred the loans to multi-seller commercial paper conduits through a nonconsolidated QSPE. Monsanto accounted for this transaction as a sale, in accordance with the Transfers and Servicing topic of the ASC.

Monsanto had no ownership interest in the lender, the QSPE, or the loans. However, because Monsanto substantively originated the loans through the SPE (which it consolidated) and partially guaranteed and serviced the loans, Monsanto accounted for the program as if it were the originator of the loans and the transferor selling the loans to the QSPE. Because QSPEs are excluded from the current guidance within the Consolidation topic of the ASC, and Monsanto did not have the unilateral right to liquidate the QSPE, the consolidation guidance did not have an effect on Monsanto’s accounting for the U.S. customer financing program.

Monsanto accounted for the guarantee in accordance with the Guarantees topic of the ASC, which requires that a guarantor recognize, at the inception of the guarantee, a liability for the fair value of the guarantee obligation undertaken. Monsanto recorded its guarantee liability at a value that approximates fair value (except that it did not discount credit losses because of the short-term nature of the loans), primarily driven by expected future credit losses. Monsanto did not recognize any servicing asset or liability because the servicing fee was considered adequate compensation for the servicing activities. Servicing activities including discounts on the sale of customer receivables resulted in income of $1 million for the three months ended Nov. 30, 2008.

Proceeds from customer loans sold through the financing program totaled $122 million for the first three months of fiscal year 2009. These proceeds are included in net cash provided by operating activities in the Statement of Consolidated Cash Flows. There were no loan balances outstanding as of Nov. 30, 2009, or Aug. 31, 2009.

Monsanto has agreements with lenders to establish programs that provide financing of up to 550 million Brazilian reais (approximately $315 million) for selected customers in Brazil. These agreements qualify for sales treatment under the Transfers and Servicing topic of the ASC. Proceeds from the transfer of receivables are included in net cash provided by operating activities in the Statements of Consolidated Cash Flows. Proceeds from the transfer of receivables through the program totaled $60 million and $36 million for the first three months of fiscal years 2010 and 2009, respectively. 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 and is 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 $8 million and $6 million as of Nov. 30, 2009, and Aug. 31, 2009, 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 $149 million as of Nov. 30, 2009. The loan balance outstanding for these programs was $149 million and $160 million as of Nov. 30, 2009, and Aug. 31, 2009, respectively. There were no delinquent loans as of Nov. 30, 2009, and there were delinquent loans of $2 million as of Aug. 31, 2009.

Monsanto also has similar agreements with banks that provide financing to its customers in Brazil through credit programs that are subsidized by the Brazilian government. In addition, there are similar financing programs with financial institutions in the United States, Europe and Argentina. Proceeds from the payment of receivables are included in net cash provided by operating activities in the Statements of Consolidated Cash Flows and totaled $66 million and $36 million for the first three months of fiscal years 2010 and 2009, respectively. Under most of 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 and is based on the company’s historical collection experience with

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

customers that participate in the program and a current assessment of credit exposure. The guarantee liability recorded by Monsanto was $3 million and $5 million as of Nov. 30, 2009, and Aug. 31, 2009, 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 $90 million as of Nov. 30, 2009. The loan balance outstanding for these programs was $96 million and $48 million as of Nov. 30, 2009, and Aug. 31, 2009, respectively.

In August 2009, Monsanto entered into an agreement in the United States to sell customer receivables up to a maximum of $500 million and to service such accounts. The program will terminate in August 2012. 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 Statement of Consolidated Cash Flows. The gross amount of receivables sold totaled $2 million for the first three months of fiscal year 2010. The agreement includes recourse provisions and thus a liability was established at the time of sale which 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, 2009, and Aug. 31, 2009. The maximum potential amount of future payments under the recourse provisions of the agreement was $8 million as of Nov. 30, 2009. The outstanding balance of the receivables sold was $131 million and $319 million as of Nov. 30, 2009, and Aug. 31, 2009, respectively. There were no delinquent accounts as of Nov. 30, 2009, or Aug. 31, 2009.

Monsanto also sells accounts receivable in European regions, 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 $13 million and $1 million for the first three months of fiscal years 2010 and 2009, respectively. The liability for the guarantees for sales with recourse is recorded at an amount that approximates fair value and is 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, 2009, and Aug. 31, 2009. The maximum potential amount of future payments under the recourse provisions of the agreements was $39 million as of Nov. 30, 2009. The outstanding balance of the receivables sold was $41 million and $57 million as of Nov. 30, 2009, and Aug. 31, 2009, respectively. There were no delinquent loans as of Nov. 30, 2009, or Aug. 31, 2009.

NOTE 5. RESTRUCTURING

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

		Three months ended
(Dollars in millions)		Nov. 30, 2009
Restructuring Charges, Net(1)(2)		$	(14	)
Loss from Continuing Operations Before Income Taxes			(14	)
Income Tax Benefit			1
Net Loss		$	(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. The company created a separate division for its ROUNDUP and other herbicides business, which is expected to better align spending and working capital needs. This action is 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. 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 our vegetables business. On Sept. 9, 2009, the company committed to take additional actions related to the previously announced restructuring plan. The plan is expected to be completed by the end of fiscal year 2010.

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

The following table displays the pretax charges of $14 million incurred by segment under the 2009 Restructuring Plan for the first quarter ended Nov. 30, 2009, as well as the cumulative pretax charges of $420 million under the 2009 Restructuring Plan.

		Three Months Ended Nov. 30, 2009												Cumulative Amount through Nov. 30, 2009
		Seeds and				Agricultural								Seeds and				Agricultural
(Dollars in millions)		Genomics				Productivity				Total				Genomics				Productivity				Total
Work Force Reductions		$	1			$	10			$	11			$	176			$	73			$	249
Facility Closures / Exit Costs			1				1				2				4				48				52
Asset Impairments
Property, plant and equipment			1				—				1				32				4				36
Inventory			—				—				—				24				—				24
Other intangible assets			—				—				—				59				—				59
Total Restructuring Charges		$	3			$	11			$	14			$	295			$	125			$	420

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 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. See Note 3 — Business Combinations — for restructuring reserves related to acquisitions.

		Work Force				Facility Closures /				Asset
(Dollars in millions)		Reductions				Exit Costs				Impairments				Total
Beginning Liability as of Aug. 31, 2009		$	216			$	50			$	—			$	266
Restructuring charges recognized in first quarter 2010			11				2				1				14
Cash payments			(77	)			(2	)			—				(79	)
Asset impairments and write-offs			—				—				(1	)			(1	)
Foreign currency impact			3				—				—				3
Ending Liability as of Nov. 30, 2009		$	153			$	50			$	—			$	203

NOTE 6. RECEIVABLES

Trade receivables on the Condensed Statements of Consolidated Financial Position are net of allowances of $174 million and $162 million as of Nov. 30, 2009, and Aug. 31, 2009, respectively.

Long-term receivables on the Condensed Statements of Consolidated Financial Position are net of allowances of $185 million and $172 million as of Nov. 30, 2009, and Aug. 31, 2009, respectively.

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

NOTE 7. INVENTORY

Components of inventory are:

		As of Nov. 30,				As of Aug. 31,
(Dollars in millions)		2009				2009
Finished Goods		$	1,663			$	1,362
Goods In Process			1,562				1,340
Raw Materials and Supplies			500				417
Inventory at FIFO Cost			3,725				3,119
Excess of FIFO over LIFO Cost			(165	)			(185	)
Total		$	3,560			$	2,934

NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the net carrying amount of goodwill for the first quarter of fiscal year 2010, by segment, are as follows:

		Seeds and				Agricultural
(Dollars in millions)		Genomics				Productivity				Total
Balance as of Aug. 31, 2009		$	3,156			$	62			$	3,218
Acquisition Activity (see Note 3)			8				—				8
Effect of Foreign Currency Translation Adjustments and Other			46				—				46
Balance as of Nov. 30, 2009		$	3,210			$	62			$	3,272

In first quarter 2010, goodwill increased due to the 2010 acquisition and the updating of the preliminary purchase price allocations for some of the 2009 acquisitions.

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

		As of Nov. 30, 2009												As of Aug. 31, 2009
		Carrying				Accumulated								Carrying				Accumulated
(Dollars in millions)		Amount				Amortization				Net				Amount				Amortization				Net
Acquired Germplasm		$	1,186			$	(618	)		$	568			$	1,172			$	(604	)		$	568
Acquired Biotechnology Intellectual Property			835				(609	)			226				829				(589	)			240
Trademarks			352				(84	)			268				345				(81	)			264
Customer Relationships			332				(97	)			235				317				(88	)			229
Other			116				(43	)			73				110				(40	)			70
Total		$	2,821			$	(1,451	)		$	1,370			$	2,773			$	(1,402	)		$	1,371

The increases in other intangible assets during the three months ended Nov. 30, 2009, primarily resulted from the acquisition of Seminium described in Note 3 — Business Combinations.

Total amortization expense of other intangible assets was $40 million in first quarter of fiscal year 2010 and $33 million in first quarter of fiscal year 2009. Estimated intangible asset amortization expense for each of the five succeeding fiscal years for owned assets as of Nov. 30, 2009, has not changed significantly from the amounts disclosed in Monsanto’s Report on Form 10-K for the fiscal year ended Aug. 31, 2009.

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

NOTE 9. INVESTMENTS AND EQUITY AFFILIATES

Investments

Monsanto has investments in long-term equity securities, which are considered available-for-sale. As of Nov. 30, 2009, and Aug. 31, 2009, these long-term equity securities are recorded in other assets in the Condensed Statements of Consolidated Financial Position at a fair value of $30 million and $25 million, respectively. Net unrealized losses (net of deferred taxes) of $3 million and $6 million are included in accumulated other comprehensive loss in shareowners’ equity related to these investments as of Nov. 30, 2009, and Aug. 31, 2009, 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, 2009, and Aug. 31, 2009, this investment is recorded in other assets in the Condensed Statements of Consolidated Financial Position at $62 million and $60 million, respectively. In first quarter 2010, Monsanto purchased $19 million of inventory from the seed supplier and there were no sales of inventory to the seed supplier. As of Nov. 30, 2009, there was no payment due to the seed supplier while the amount payable as of Aug. 31, 2009, was $84 million, recorded in accounts payable in the Condensed Statement of Consolidated Financial Position. As of Nov. 30, 2009, and Aug. 31, 2009, prepayments of $4 million and $5 million, respectively, were included in other current assets in the Condensed Statements of Consolidated Financial Position related to inventory that will be delivered in fiscal year 2010.

NOTE 10. 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 2010 and 2009. As of Nov. 30, 2009, and Aug. 31, 2009, the remaining receivable balance is $480 million and $543 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, 2009, and Aug. 31, 2009, the remaining deferred revenue balance is $456 million and $476 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 $4 million and $5 million for the three months ended Nov. 30, 2009, and Nov. 30, 2008, respectively.

In third quarter 2008, Monsanto and Syngenta entered into a Roundup Ready 2 Yield Soybean License Agreement. The agreement grants Syngenta access to Monsanto’s 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, 2009, and Aug. 31, 2009, the remaining receivable and deferred revenue balance is $70 million related to the net present value of expected payments under this agreement. The majority of this balance is included in long-term receivables and long-term deferred revenue on the Condensed Statements of Consolidated Financial Position and the current portion is included in trade receivables and deferred revenue. 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, 2009 and Nov. 30, 2008.

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

NOTE 11. 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.

During first quarter 2009 several domestic tax matters were resolved favorably. On Oct. 3, 2008, the retroactive extension of the research and development credit was enacted as part of the Emergency Economic Stabilization Act of 2008. During first quarter 2009 Monsanto recorded a tax benefit of $44 million primarily as a result of these items.

NOTE 12. DEBT AND OTHER CREDIT ARRANGEMENTS

Monsanto plans to issue new fixed-rate debt on or before Aug. 15, 2012, to repay $485 million of 7³/₈% 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 gains net of tax of $7 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, 2009, and Aug. 31, 2009, respectively. These swaps are accounted for under the Derivatives and Hedging topic of the ASC.

As of first quarter 2010, Monsanto had commercial paper borrowings outstanding of $195 million which is included in short-term debt on the Condensed Statement of Consolidated Financial Position.

The fair value of the total short-term debt was $281 million and $79 million as of Nov. 30, 2009, and Aug. 31, 2009, respectively. The fair value of the total long-term debt was $1,878 million and $1,863 million as of Nov. 30, 2009, and Aug. 31, 2009, respectively.

NOTE 13. FAIR VALUE MEASUREMENTS

Effective Sept. 1, 2008, Monsanto adopted a standard which provides a framework for measuring fair value. The standard also eliminates the deferral of gains and losses at inception associated with certain derivative contracts whose fair value was not evidenced by observable market data. The standard requires that the impact of this change in accounting for derivative contracts be recorded as an adjustment to opening retained earnings in the period of adoption. Monsanto did not have any deferred gains or losses at inception of derivative contracts and therefore no adjustment to opening retained earnings was made upon adoption of the standard.

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		FIRST QUARTER 2010 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. 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, 2009, and Aug. 31, 2009. 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 Nov. 30, 2009 Using
										Cash Collateral				Net
(Dollars in millions)		Level 1				Level 2				Offset(1)				Balance
Assets at Fair Value:
Cash Equivalents		$	166			$	—			$	—			$	166
Equity Securities			30				—				—				30
Derivative Assets Related to:
Foreign Currency			—				17				—				17
Interest Rates			—				11				—				11
Commodities			39				—				(39	)			—
Total Assets at Fair Value		$	235			$	28			$	(39	)		$	224
Liabilities at Fair Value:
Derivative Liabilities Related to:
Foreign Currency			—				17				—				17
Commodities			12				21				(12	)			21
Total Liabilities at Fair Value		$	12			$	38			$	(12	)		$	38

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

		Fair Value Measurements at Aug. 31, 2009 Using
										Cash Collateral				Net
(Dollars in millions)		Level 1				Level 2				Offset(1)				Balance
Assets at Fair Value:
Cash Equivalents		$	1,548			$	—			$	—			$	1,548
Equity Securities			25				—				—				25
Derivative Assets Related to:
Foreign Currency			—				34				—				34
Interest Rates			—				14				—				14
Commodities			2				—				(2	)			—
Total Assets at Fair Value		$	1,575			$	48			$	(2	)		$	1,621
Liabilities at Fair Value:
Derivative Liabilities Related to:
Foreign Currency			—				37				—				37
Commodities			93				31				(93	)			31
Total Liabilities at Fair Value		$	93			$	68			$	(93	)		$	68

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. During the three months ended Nov. 30, 2009, there were no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

The recorded amounts of cash, trade receivables, miscellaneous receivables, third-party guarantees, accounts payable, grower accruals, accrued marketing programs, miscellaneous short-term accruals, and short-term debt approximate their fair values as of Nov. 30, 2009, and Aug. 31, 2009.

NOTE 14. FINANCIAL INSTRUMENTS

Monsanto’s business and activities expose it to a variety of market risks, including risks related to changes in commodity prices, foreign-currency exchange rates and interest rates. These financial exposures are monitored and managed by the company as an integral part of its market risk management program. This program recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effects that market volatility could have on operating results. As part of its market risk management strategy, Monsanto uses derivative instruments to protect fair values and cash flows from fluctuations caused by volatility in currency exchange rates, commodity prices and interest rates.

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 risk management strategy is to use derivative instruments to minimize significant unanticipated manufacturing cost fluctuations that may arise from volatility in natural gas prices and diesel prices.

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

Monsanto’s interest rate risk management strategy is to use derivative instruments 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 a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same 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, 52 months for commodity hedges and 33 months for interest rate hedges. During the next 12 months, a pretax net loss of approximately $64 million will be reclassified from other comprehensive income into earnings. During the three months ended Nov. 30, 2009, a 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. No cash flow hedges were discontinued during the three months ended Nov. 30, 2008.

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 a fair-value hedge, 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 difference between the carrying value and the fair value of hedged items classified as fair-value hedges was offset by the change in fair value of the related derivatives. Accordingly, hedge ineffectiveness for fair-value hedges, determined in accordance with the Derivatives and Hedging topic of the ASC, had an immaterial effect on earnings in the three months ended Nov. 30, 2009, and Nov. 30, 2008. No fair-value hedges were discontinued during the three months ended Nov. 30, 2009, or Nov. 30, 2008.

Net Investment Hedges

In order to protect itself against adverse changes in the Brazilian real, the company may, from time to time, hedge a portion of its net investment in Brazilian 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 Mexico and Brazil, which can fluctuate based on 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.

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

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

The notional amounts of the company’s derivative instruments outstanding as of Nov. 30, 2009, and Aug. 31, 2009, were as follows:

		As of Nov. 30,				As of Aug. 31,
(Dollars in millions)		2009				2009
Derivatives Designated as Hedges:
Foreign Exchange Contracts		$	620			$	718
Commodity Contracts			653				716
Interest Rate Contracts			250				250
Total Derivatives Designated as Hedges		$	1,523			$	1,684
Derivatives Not Designated as Hedges:
Foreign Exchange Contracts		$	1,169			$	1,391
Commodity Contracts			1				1
Total Derivatives Not Designated as Hedges		$	1,170			$	1,392

The fair values of the company’s derivative instruments outstanding as of Nov. 30, 2009, and Aug. 31, 2009, were as follows:

		Balance Sheet Location				Fair Value(1)
						As of Nov. 30,				As of Aug. 31,
(Dollars in millions)						2009				2009
Asset Derivatives:
Derivatives Designated as Hedges:
Foreign Exchange Contracts		Miscellaneous receivables				$	7			$	14
Foreign Exchange Contracts		Other assets					6				13
Commodity Contracts		Other current assets(2)					27				1
Commodity Contracts		Other assets(2)					12				1
Interest Rate Contracts		Other assets					11				14
Total Derivatives Designated as Hedges							63				43
Derivatives Not Designated as Hedges:
Foreign Exchange Contracts		Miscellaneous receivables					4				7
Total Derivatives Not Designated as Hedges							4				7
Total Asset Derivatives						$	67			$	50
Liability Derivatives:
Derivatives Designated as Hedges:
Foreign Exchange Contracts		Miscellaneous short-term accruals				$	10			$	10
Commodity Contracts		Other current assets(2)					12				85
Commodity Contracts		Other assets(2)					—				7
Commodity Contracts		Miscellaneous short-term accruals					12				19
Commodity Contracts		Other liabilities					9				12
Total Derivatives Designated as Hedges							43				133
Derivatives Not Designated as Hedges:
Foreign Exchange Contracts		Miscellaneous short-term accruals					7				27
Commodity Contracts		Other current assets(2)					—				1
Total Derivatives Not Designated as Hedges							7				28
Total Liability Derivatives						$	50			$	161

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

The gains and losses on the company’s derivative instruments for the three months ended Nov. 30, 2009, were as follows:

		Amount of Gain (Loss)
		Recognized in AOCI (1)				Amount of Gain (Loss)				Income Statement
(Dollars in millions)		(Effective Portion)				Recognized in Income(2)(3)				Classification
Derivatives Designated as Hedges:
Fair-Value Hedges:
Commodity Contracts(4)						$	(5	)		Cost of goods sold
Cash Flow Hedges:
Foreign Exchange Contracts		$	(5	)			1			Net sales
Foreign Exchange Contracts			(9	)			7			Cost of goods sold
Commodity Contracts			73				(14	)		Cost of goods sold
Interest Rate Contracts			(4	)			(2	)		Interest expense
Net Investment Hedges:
Foreign Exchange Contracts			(3	)			—			N/A(5)
Total Derivatives Designated as Hedges			52				(13	)
Derivatives Not Designated as Hedges:
Foreign Exchange Contracts(6)							(8	)		Other expense, net
Commodity Contracts							—			Cost of goods sold
Total Derivatives Not Designated as Hedges							(8	)
Total Derivatives		$	52			$	(21	)

Most of the company’s outstanding foreign-currency derivatives are covered by International Swap Dealers’ Association (ISDA) Master Agreements with the counterparties. There are no requirements to post collateral under these agreements; however, should the company’s credit rating fall below a specified rating immediately following the merger of the company with another entity, the counterparty may require all outstanding derivatives under the ISDA Master Agreement to be settled immediately at current market value, which equals carrying value. Any foreign-currency derivatives that are not covered by ISDA Master Agreements do not have credit-risk-related contingent provisions. Most of the company’s outstanding commodity derivatives are listed commodity futures, and the company is required by the relevant commodity exchange to post collateral each day to cover the change in the fair value of these futures. Any non-exchange traded commodity derivatives are covered by the aforementioned ISDA Master Agreements and are subject to the same credit-risk-related contingent provisions, as are the company’s interest rate derivatives. The aggregate fair value of all derivative instruments under ISDA Master Agreements that are in a liability position on Nov. 30, 2009, is $34 million, which is the amount that would be required for settlement if the credit-risk-related contingent provisions underlying these agreements were triggered.

Credit Risk Management

Monsanto invests its excess cash in deposits with major banks or money market funds throughout the world in high-quality short-term debt instruments. Such investments are made only in instruments issued or enhanced by high-quality institutions. As of Nov. 30, 2009, the company had no financial instruments that represented a significant concentration of credit risk. Limited amounts are invested in any single institution to minimize risk. The company has not incurred any credit risk losses related to those investments.

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

The company sells a broad range of agricultural products to a diverse group of customers throughout the world. In the United States, the company makes substantial sales to relatively few large wholesale customers. The company’s agricultural products business is highly seasonal, and it is subject to weather conditions that affect commodity prices and seed yields. Credit limits, ongoing credit evaluation, and account monitoring procedures are used to minimize the risk of loss. Collateral is secured when it is deemed appropriate by the company. For example, in Latin America, the company collects payments on certain customer accounts in grain.

Monsanto regularly evaluates its business practices to minimize its credit risk. During the three months ended Nov. 30, 2009, and Nov. 30, 2008, the company engaged multiple banks in the United States, Argentina, Brazil and Europe in the development of customer financing options that involve direct bank financing of customer purchases. For further information on these programs, see Note 4 — Customer Financing Programs.

NOTE 15. POSTRETIREMENT BENEFITS — PENSIONS, HEALTH CARE AND OTHER

The majority of Monsanto’s employees are covered by noncontributory pension plans sponsored by the company. The company also provides certain postretirement health care and life insurance benefits for retired employees through insurance contracts. The company’s net periodic benefit cost for pension benefits, and health care and other postretirement benefits include the following components:

		Three Months Ended Nov. 30, 2009												Three Months Ended Nov. 30, 2008
Pension Benefits		Outside the												Outside the
(Dollars in millions)		U.S.				U.S.				Total				U.S.				U.S.				Total
Service Cost for Benefits Earned During the Period		$	13			$	2			$	15			$	12			$	2			$	14
Interest Cost on Benefit Obligation			25				4				29				27				4				31
Assumed Return on Plan Assets			(32	)			(4	)			(36	)			(30	)			(4	)			(34	)
Amortization of Unrecognized Net Loss			14				1				15				10				—				10
Total Net Periodic Benefit Cost		$	20			$	3			$	23			$	19			$	2			$	21

Health Care and Other Postretirement Benefits		Three Months Ended Nov. 30,
(Dollars in millions)		2009				2008
Service Cost for Benefits Earned During the Period		$	3			$	3
Interest Cost on Benefit Obligation			4				5
Amortization of Unrecognized Net Gain			(4	)			(4	)
Total Net Periodic Benefit Cost		$	3			$	4

Monsanto contributed $75 million and $15 million to its U.S. qualified plan and $3 million and $2 million to plans outside the United States in each of the three month periods ended Nov. 30, 2009, and Nov. 30, 2008, respectively. As of Nov. 30, 2009, management expects to make additional contributions of approximately $35 million and $19 million to the company’s pension plans in the United States and outside the United States, respectively, in fiscal year 2010.

Employee Savings Plan

The Monsanto leveraged employee stock ownership plan (Monsanto ESOP) debt was restructured in November 2008 to level out the future allocation of stock thereunder in an impartial manner intended to ensure equitable treatment for and generally to be in the best interests of current and future plan participants consistent with the level of benefits that Monsanto intended for the plan to provide to participants. To that end, the terms of the restructuring were determined pursuant to an arm’s length negotiation between Monsanto and an independent trust company serving as fiduciary for the plan for this restructuring. In this role, the independent fiduciary determined that the restructuring, including certain financial commitments and enhancements that were made or will be made in the future by Monsanto to benefit participants and beneficiaries of the plan,

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

was completed in accordance with the best interests of plan participants. A liability of $53 million and $52 million is due to the Monsanto ESOP from the company and is included in other liabilities on the Condensed Statements of Financial Position as of Nov. 30, 2009, and Aug. 31, 2009, respectively, related to this restructuring and the 2004 ESOP enhancement.

NOTE 16. STOCK-BASED COMPENSATION PLANS

The following table shows total stock-based compensation expense included in the Statements of Consolidated Operations for the three months ended Nov. 30, 2009, and Nov. 30, 2008. Stock-based compensation cost capitalized in inventory was $7 million as of Nov. 30, 2009, and Aug. 31, 2009.

		Three Months Ended Nov. 30,
(Dollars in millions)		2009				2008
Cost of Goods Sold		$	4			$	4
Selling, General and Administrative Expenses			15				16
Research and Development Expenses			5				6
Pre-Tax Stock-Based Compensation Expense			24				26
Income Tax Benefit			(8	)			(9	)
Net Stock-Based Compensation Expense		$	16			$	17

During the three months ended Nov. 30, 2009, Monsanto granted 3,249,030 stock options and 260,525 restricted stock units to employees under the Monsanto Company Long-Term Incentive Plan (LTIP), as amended, and the Monsanto Company 2005 Long-Term Incentive Plan (2005 LTIP). No restricted stock awards were granted under the LTIP or the 2005 LTIP during the first quarter of fiscal year 2010. In addition, during the three months ended Nov. 30, 2009, 17,970 shares of deferred stock and 1,190 shares of restricted stock were granted to directors under the Monsanto Non-Employee Director Equity Incentive Compensation Plan (Director Plan).

The weighted-average grant-date fair value of non-qualified stock options granted during the three months ended Nov. 30, 2009, was $24.05 per share. Pre-tax unrecognized compensation expense for stock options, net of estimated forfeitures, was $120 million as of Nov. 30, 2009, and will be recognized as expense over a weighted-average period of 2.4 years.

The weighted-average grant-date fair value of restricted stock units granted during the first quarter of fiscal year 2010 was $70.61 per share. Pre-tax unrecognized compensation expense, net of estimated forfeitures, for nonvested restricted stock and restricted stock units was $1 million and $85 million, respectively, as of Nov. 30, 2009, which will be recognized as expense over the weighted-average remaining requisite service periods. The weighted-average remaining requisite service periods for nonvested restricted stock and restricted stock units were 1.7 years and 2.8 years, respectively, as of Nov. 30, 2009. The weighted-average grant-date fair value of directors’ deferred stock and directors’ restricted stock granted during the three months ended Nov. 30, 2009 was $81.94, per share. Pre-tax unrecognized compensation expense for awards granted under the Director Plan was $1 million as of Nov. 30, 2009, and will be recognized as expense over a weighted-average period of one year.

MONSANTO COMPANY		FIRST QUARTER 2010 FORM 10-Q

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED (continued)

NOTE 17. COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes all nonshareowner changes in equity and consists of net income, foreign currency translation adjustments, net unrealized losses on available-for-sale securities, postretirement benefit plan activity, and net accumulated derivative gains and losses on cash flow hedges not yet realized.

		As of Nov. 30,				As of Aug. 31,
(Dollars in millions)		2009				2009
Accumulated Foreign Currency Translation Adjustments		$	78			$	(141	)
Net Unrealized Loss on Investments, Net of Tax			(3	)			(6	)
Net Accumulated Derivative Loss, Net of Tax			(67	)			(101	)
Postretirement Benefit Plan Activity, Net of Tax			(493	)			(496	)
Accumulated Other Comprehensive Loss		$	(485	)		$	(744	)