Edgar Filing: MONSANTO CO /NEW/

MON-2014.11.30-10Q



MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended Nov. 30, 2014



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number 001-16167

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 483,285,896 shares of Common Stock, $0.01 par value, outstanding as of January 5, 2015.

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MONSANTO COMPANY		FIRST QUARTER 2015 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 and the previously announced SEC investigation; 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; recent increases in and expected higher levels of indebtedness; the company’s ability 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, 2014.

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.

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q

TABLE OF CONTENTS



PART I—FINANCIAL INFORMATION		Page
Item 1.	Financial Statements	3
	Statements of Consolidated Operations	4
	Statements of Consolidated Comprehensive Income (Loss)	5
	Statements of Consolidated Financial Position	6
	Statements of Consolidated Cash Flows	7
	Statements of Consolidated Shareowners’ Equity	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
	Overview	31
	Results of Operations	33
	Seeds and Genomics Segment	35
	Agricultural Productivity Segment	36
	Financial Condition, Liquidity and Capital Resources	37
	Outlook	41
	Critical Accounting Policies and Estimates	43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43

PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 6.	Exhibits	44
SIGNATURE		45
EXHIBIT INDEX		46

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MONSANTO COMPANY		FIRST QUARTER 2015 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, 2014, and Nov. 30, 2013, the Statements of Consolidated Comprehensive Income (Loss) for the three months ended Nov. 30, 2014, and Nov. 30, 2013, the Statements of Consolidated Financial Position as of Nov. 30, 2014, and Aug. 31, 2014, the Statements of Consolidated Cash Flows for the three months ended Nov. 30, 2014, and Nov. 30, 2013, the Statements of Consolidated Shareowners’ Equity for the three months ended Nov. 30, 2014, and year ended Aug. 31, 2014, and related Notes to the 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 per share” and “per share” mean diluted earnings 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 special type. 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.

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q

Statements of Consolidated Operations



Unaudited (Dollars in millions, except per share amounts)	Three Months Ended
Unaudited (Dollars in millions, except per share amounts)	Nov. 30, 2014			Nov. 30, 2013
Net Sales	$	2,870		$	3,143
Cost of goods sold	1,459			1,580
Gross Profit	1,411			1,563
Operating Expenses:
Selling, general and administrative expenses	580			589
Research and development expenses	412			409
Total Operating Expenses	992			998
Income from Operations	419			565
Interest expense	115			53
Interest income	(38		)	(24		)
Other expense, net	15			20
Income from Continuing Operations Before Income Taxes	327			516
Income tax provision	100			152
Income from Continuing Operations Including Portion Attributable to Noncontrolling Interest	$	227		$	364
Discontinued Operations:
Income from operations of discontinued businesses	26			14
Income tax provision	10			5
Income from Discontinued Operations	16			9
Net Income	$	243		$	373
Less: Net income attributable to noncontrolling interest	—			5
Net Income Attributable to Monsanto Company	$	243		$	368
Amounts Attributable to Monsanto Company:
Income from continuing operations	$	227		$	359
Income from discontinued operations	16			9
Net Income Attributable to Monsanto Company	$	243		$	368
Basic Earnings per Share Attributable to Monsanto Company:
Income from continuing operations	$	0.47		$	0.68
Income from discontinued operations	0.03			0.02
Net Income Attributable to Monsanto Company	$	0.50		$	0.70
Diluted Earnings per Share Attributable to Monsanto Company:
Income from continuing operations	$	0.47		$	0.67
Income from discontinued operations	0.03			0.02
Net Income Attributable to Monsanto Company	$	0.50		$	0.69
Weighted Average Shares Outstanding:
Basic	484.4			526.9
Diluted	489.4			532.6
Dividends Declared per Share	$	—		$	—

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

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q

Statements of Consolidated Comprehensive Income (Loss)



Unaudited (Dollars in millions)	Three Months Ended
	Nov. 30, 2014			Nov. 30, 2013
Comprehensive (Loss) Income Attributable to Monsanto Company
Net Income Attributable to Monsanto Company	$	243		$	368
Other Comprehensive (Loss) Income, Net of Tax:
Foreign currency translation, net of tax of $(6), and $(8), respectively	(484		)	127
Postretirement benefit plan activity, net of tax of $6, and $5, respectively	10			8
Unrealized net (losses) gains on investment holdings, net of tax of $(3), and $3, respectively	(5		)	5
Unrealized net derivative gains (losses), net of tax of $(2), and $(25), respectively	5			(43		)
Realized net derivative (gains) losses, net of tax of $0, and $3, respectively	(1		)	5
Total Other Comprehensive (Loss) Income, Net of Tax	(475		)	102
Comprehensive (Loss) Income Attributable to Monsanto Company	$	(232	)	$	470
Comprehensive (Loss) Income Attributable to Noncontrolling Interests
Net Income Attributable to Noncontrolling Interests	—			5
Other Comprehensive (Loss) Income
Foreign currency translation	(1		)	5
Total Other Comprehensive (Loss) Income	(1		)	5
Comprehensive (Loss) Income Attributable to Noncontrolling Interests	$	(1	)	$	10
Total Comprehensive (Loss) Income	$	(233	)	$	480

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

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q

Statements of Consolidated Financial Position



Unaudited (Dollars in millions, except share amounts)	As of
	Nov. 30, 2014			Aug. 31, 2014
Assets
Current Assets:
Cash and cash equivalents (variable interest entity restricted - 2015: $24 and 2014: $118)	$	3,136		$	2,367
Short-term investments	40			40
Trade receivables, net (variable interest entity restricted - 2015: $117 and 2014: $39)	2,247			2,014
Miscellaneous receivables	870			817
Deferred tax assets	605			635
Inventory, net	4,300			3,597
Other current assets	200			205
Total Current Assets	11,398			9,675
Total property, plant and equipment	10,286			10,357
Less accumulated depreciation	5,301			5,275
Property, Plant and Equipment, Net (variable interest entity restricted - 2015: $2 and 2014: $2)	4,985			5,082
Goodwill	4,254			4,319
Other Intangible Assets, Net	1,506			1,554
Noncurrent Deferred Tax Assets	400			450
Long-Term Receivables, Net	19			92
Other Assets	812			809
Total Assets	$	23,374		$	21,981
Liabilities and Shareowners’ Equity
Current Liabilities:
Short-term debt, including current portion of long-term debt (variable interest entity restricted - 2015: $122 and 2014: $136)	$	636		$	233
Accounts payable (variable interest entity restricted - 2015: $27 and 2014: $25)	905			1,111
Income taxes payable	62			99
Accrued compensation and benefits (variable interest entity restricted - 2015: $1 and 2014: $1)	249			500
Accrued marketing programs	952			1,394
Deferred revenues	2,529			438
Grower production accruals	514			54
Dividends payable	1			239
Customer payable	28			82
Miscellaneous short-term accruals (variable interest entity restricted - 2015: $5 and 2014: $0)	1,123			962
Total Current Liabilities	6,999			5,112
Long-Term Debt	7,529			7,528
Postretirement Liabilities	339			345
Long-Term Deferred Revenue	45			47
Noncurrent Deferred Tax Liabilities	514			509
Long-Term Portion of Environmental and Litigation Liabilities	179			184
Other Liabilities	337			342
Shareowners’ Equity:
Common stock (authorized: 1,500,000,000 shares, par value $0.01)
Issued 607,363,499 and 606,457,369 shares, respectively
Outstanding 483,609,174 and 485,261,017 shares, respectively	6			6
Treasury stock 123,754,325 and 121,196,352 shares, respectively, at cost	(10,323		)	(10,032		)
Additional contributed capital	10,061			10,003
Retained earnings	9,255			9,012
Accumulated other comprehensive loss	(1,589		)	(1,114		)
Total Monsanto Company Shareowners’ Equity	7,410			7,875
Noncontrolling Interest	22			39
Total Shareowners’ Equity	7,432			7,914
Total Liabilities and Shareowners’ Equity	$	23,374		$	21,981

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

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q

Statements of Consolidated Cash Flows



Unaudited (Dollars in millions)	Three Months Ended
	Nov. 30, 2014			Nov. 30, 2013
Operating Activities:
Net Income	$	243		$	373
Adjustments to reconcile cash provided by operating activities:
Items that did not require (provide) cash:
Depreciation and amortization	182			162
Bad-debt expense	13			11
Stock-based compensation expense	31			27
Excess tax benefits from stock-based compensation	(16		)	(15		)
Deferred income taxes	42			(6		)
Equity affiliate expense, net	3			3
Net gain on sales of a business or other assets	(1		)	(1		)
Other items	6			20
Changes in assets and liabilities that provided (required) cash, net of acquisitions:
Trade receivables, net	(249		)	(478		)
Inventory, net	(827		)	(898		)
Deferred revenues	2,114			2,319
Accounts payable and other accrued liabilities	(111		)	332
Pension contributions	(6		)	(23		)
Other items	(75		)	(128		)
Net Cash Provided by Operating Activities	1,349			1,698
Cash Flows (Required) Provided by Investing Activities:
Purchases of short-term investments	—			(105		)
Maturities of short-term investments	—			110
Capital expenditures	(347		)	(303		)
Acquisition of businesses, net of cash acquired	—			(917		)
Purchases of long-term debt and equity securities	(30		)	(12		)
Technology and other investments	(5		)	(21		)
Other proceeds	2			7
Net Cash Required by Investing Activities	(380		)	(1,241		)
Cash Flows Provided (Required) by Financing Activities:
Net change in financing with less than 90-day maturities	410			117
Short-term debt proceeds	14			2
Long-term debt proceeds	3			999
Long-term debt reductions	(3		)	(1		)
Payments on other financing	—			(39		)
Debt issuance costs	—			(8		)
Treasury stock purchases	(296		)	(561		)
Stock option exercises	27			64
Excess tax benefits from stock-based compensation	16			15
Tax withholding on restricted stock and restricted stock units	(24		)	(2		)
Dividend payments	(238		)	(228		)
Dividend payments to noncontrolling interests	(16		)	(12		)
Net Cash (Required) Provided by Financing Activities	(107		)	346
Effect of Exchange Rate Changes on Cash and Cash Equivalents	(93		)	25
Net Increase in Cash and Cash Equivalents	769			828
Cash and Cash Equivalents at Beginning of Period	2,367			3,668
Cash and Cash Equivalents at End of Period	$	3,136		$	4,496

See Note 1 — Background and Basis of Presentation and Note 19 — Supplemental Cash Flow Information for further details.

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

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q

Statements of Consolidated Shareowners’ Equity



	Monsanto Shareowners
Unaudited (Dollars in millions, except per share data)	Common Stock		Treasury Stock			Additional Contributed Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss) ⁽¹⁾			Non-Controlling Interest			Total
Balance as of Aug. 31, 2013	$	6	$	(4,140	)	$	10,783		$	7,188		$	(1,278	)	$	169		$	12,728
Net income	—		—			—			2,740			—			22			2,762
Other comprehensive income	—		—			—			—			164			10			174
Treasury stock purchases	—		(5,892		)	(1,204		)	—			—			—			(7,096		)
Restricted stock withholding	—		—			(16		)	—			—			—			(16		)
Issuance of shares under employee stock plans	—		—			248			—			—			—			248
Net excess tax benefits from stock-based compensation	—		—			72			—			—			—			72
Stock-based compensation expense	—		—			120			—			—			—			120
Cash dividends of $1.78 per common share	—		—			—			(916		)	—			—			(916		)
Recognition of redeemable shares of VIE	—		—			—			—			—			(134		)	(134		)
Payments to noncontrolling interest	—		—			—			—			—			(28		)	(28		)
Balance as of Aug. 31, 2014	$	6	$	(10,032	)	$	10,003		$	9,012		$	(1,114	)	$	39		$	7,914
Net income	—		—			—			243			—			—			243
Other comprehensive loss	—		—			—			—			(475		)	(1		)	(476		)
Treasury stock purchases	—		(291		)	—			—			—			—			(291		)
Restricted stock withholding	—		—			(17		)	—			—			—			(17		)
Issuance of shares under employee stock plans	—		—			29			—			—			—			29
Net excess tax benefits from stock-based compensation	—		—			15			—			—			—			15
Stock-based compensation expense	—		—			31			—			—			—			31
Payments to noncontrolling interest	—		—			—			—			—			(16		)	(16		)
Balance as of Nov. 30, 2014	$	6	$	(10,323	)	$	10,061		$	9,255		$	(1,589	)	$	22		$	7,432


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

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

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MONSANTO COMPANY		FIRST QUARTER 2015 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, herbicides and precision agriculture tools provide farmers with solutions that help 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 and precision agriculture to assist farmers in decision making. 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 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) and was previously reported as part of the Agricultural Productivity segment. This transaction was consummated on Oct. 1, 2008, and included a 10-year earn-out with potential annual payments being earned by Monsanto if certain revenue levels are exceeded. As a result, financial data for this business has been presented as discontinued operations.

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, 2014. Financial information for the first three months of fiscal year 2015 should not be annualized because of the seasonality of the company’s business.


NOTE 2.	NEW ACCOUNTING STANDARDS

In June 2014, the FASB issued accounting guidance, "Compensation - Stock Compensation" which seeks to resolve the diversity in practice that exists when accounting for share-based payments. The new guidance requires a performance target that affects vesting and that could be achieved after the requisite service period to be treated as a performance condition. This standard is effective for fiscal years and interim periods within those years beginning after Dec. 15, 2015. Accordingly, Monsanto will adopt this standard in the first quarter of fiscal year 2017, with early adoption permitted. The guidance may be adopted either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The company is currently evaluating the impact this guidance will have on the consolidated financial statements.

In May 2014, the FASB issued accounting guidance, "Revenue from Contracts with Customers." The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and clarify guidance for multiple-element arrangements. Entities have the option to apply the new guidance under a retrospective approach to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application within the Statement of Consolidated Financial Position. This standard is effective for fiscal years and interim periods within those years beginning after Dec. 15, 2016. Accordingly, Monsanto will adopt this standard in the first quarter of fiscal year 2018, with early adoption prohibited. The company is currently evaluating the impact this guidance will have on the consolidated financial statements.

In April 2014, the FASB issued accounting guidance, "Presentation of Financial Statements and Property, Plant, and Equipment." The new standard raises the threshold for a disposal transaction to qualify as a discontinued operation and requires additional disclosures about discontinued operations and disposals of individually significant components that do not qualify as discontinued operations. This standard is effective prospectively for all disposals of components that occur within annual periods beginning on or after Dec. 15, 2014, and interim periods within those years. Accordingly, Monsanto will adopt this standard in the first quarter of fiscal year 2016. Early adoption is permitted for new disposals (or new classifications as held for

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

sale) that have not been reported in the financial statements previously. The company is currently evaluating the impact that this guidance will have on the consolidated financial statements.

In July 2013, the FASB issued accounting guidance requiring entities to present unrecognized tax benefits as a reduction to any related deferred tax assets for net operating losses, similar tax losses, or tax credit carryforwards if such settlement is required or expected in the event an uncertain tax position is disallowed. Currently, U.S. Generally Accepted Accounting Principles ("U.S. GAAP") does not provide explicit guidance on the topic. This new presentation guidance will become effective prospectively for fiscal years, and interim periods within those years, beginning after Dec. 15, 2013. Accordingly, Monsanto adopted this standard in the first quarter of fiscal year 2015.


NOTE 3.	BUSINESS COMBINATIONS AND COLLABORATIVE ARRANGEMENTS

Business Combinations

2014 Acquisition: In November 2013, Monsanto acquired 100 percent of the outstanding stock of The Climate Corporation, a San Francisco, California-based company. The Climate Corporation is a leading data analytics company with core capabilities around hyperlocal weather monitoring, weather simulation and agronomic modeling which has allowed them to develop risk management tools and agronomic decision support tools for growers. The acquisition will combine The Climate Corporation's expertise in agriculture risk-management with Monsanto’s research and development ("R&D") capabilities, and is expected to further enable farmers to significantly improve productivity and better manage risk from variables that could limit agriculture production. The acquisition of the company qualifies as a business under the Business Combinations topic of the Accounting Standards Codification ("ASC"). The total fair value of the acquisition was $932 million and the total cash paid for the acquisition was $917 million (net of cash acquired). The fair value was primarily allocated to goodwill and intangibles. The primary item that generated goodwill was the premium paid by the company for the right to control the acquired business and technology. The goodwill is not deductible for tax purposes.

For the 2014 acquisition described above, the business operations and employees of the acquired entity were included in the Seeds and Genomics reportable segment results upon acquisition. There have been no significant changes to the purchase price allocation. Pro forma information related to the 2014 acquisition is not presented because the impact of the acquisition on Monsanto's consolidated results of operations is not significant.

Collaborative Arrangements

In the normal course of business, Monsanto enters into collaborative arrangements for the research, development, manufacture and/or commercialization of agricultural products. Collaborative arrangements are contractual agreements with third parties that involve a joint operating activity, such as research and development and commercialization of a collaboration product, where both Monsanto and the third party are active participants in the activities of the collaboration and are exposed to significant risks and rewards of the collaboration. These collaborations generally include cost sharing and profit sharing. Monsanto's collaboration agreements are performed with no guarantee of either technological or commercial success. The company's significant arrangements are discussed below.

Monsanto has entered into various multiyear research, development, manufacturing and commercialization collaborations related to various activities including plant biotechnology and microbial solutions. Under these collaborations, Monsanto and the third parties participate in the R&D and/or manufacturing activities and Monsanto has the primary responsibility for the commercialization of the collaboration products. The collaborations are accounted for in accordance with the Collaborative Arrangements topic of the ASC.

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)


NOTE 4.	CUSTOMER-FINANCING PROGRAMS

Monsanto participates in customer-financing programs as follows:



	As of
(Dollars in millions)	Nov. 30, 2014		Aug. 31, 2014
Transactions that Qualify for Sales Treatment
U.S. agreement to sell trade receivables⁽¹⁾
Outstanding balance	$	214	$	436
Maximum future payout under recourse provisions	89		21
European and Latin American agreements to sell trade receivables⁽²⁾
Outstanding balance	$	48	$	67
Maximum future payout under recourse provisions	14		34
Agreements with Lenders⁽³⁾
Outstanding balance	$	81	$	71
Maximum future payout under the guarantee	67		51

The gross amounts of receivables sold under transactions that qualify for sales treatment were:



	Gross Amounts of Receivables Sold
	Three Months Ended
(Dollars in millions)	Nov. 30, 2014		Nov. 30, 2013
Transactions that Qualify for Sales Treatment
U.S. agreement to sell trade receivables⁽¹⁾	$	4	$	23
European and Latin American agreements to sell trade receivables⁽²⁾	23		7

(1)

Monsanto has an agreement in the United States to sell trade receivables up to a maximum outstanding balance 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 agreement includes recourse provisions and thus a liability is established at the time of sale that approximates fair value, based upon the company’s historical collection experience and a current assessment of credit exposure.

(2)

Monsanto has various agreements in European and Latin American countries to sell trade receivables, 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 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.

(3)

Monsanto has additional agreements with lenders to establish programs that provide financing for select customers in the United States, Brazil, Latin America and Europe. Monsanto provides various levels of recourse through guarantees of the accounts in the event of customer default. The term of the guarantee is equivalent to the term of the customer 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. If performance is required under the guarantee, Monsanto may retain amounts that are subsequently collected from customers.

In addition to the arrangements in the above table, Monsanto also participates in a financing program in Brazil that allowed Monsanto to transfer up to 1 billion Brazilian reais (approximately $390 million) for select customers in Brazil to a revolving financing program. Under the arrangement, a recourse provision requires Monsanto to cover the first credit losses within the program up to the amount of the Company's investment. Credit losses above Monsanto's investment would be covered by senior interests in the entity by a reduction in the fair value of their mandatorily redeemable shares. The company evaluated its relationship with the entity under the guidance within the Consolidation topic of the ASC and, as a result, the entity has been consolidated. For further information on this topic, see Note 5 — Variable Interest Entities.

There were no significant recourse or non-recourse liabilities for all programs as of Nov. 30, 2014, and Aug. 31, 2014. There were no significant delinquent loans for all programs as of Nov. 30, 2014, and Aug. 31, 2014.

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)


NOTE 5.	VARIABLE INTEREST ENTITIES

Monsanto has a financing program in Brazil that is recorded as a consolidated variable interest entity ("VIE"). For the most part, the VIE consists of a revolving financing program that is funded by investments from the company and other third parties, primarily investment funds, and has been established to service Monsanto’s customer receivables. A 91 percent senior interest in the entity is held by third parties, primarily investment funds, as of Nov. 30, 2014, and Aug. 31, 2014, and Monsanto holds the remaining nine percent interest. The senior interests held by third parties are mandatorily redeemable shares and are included in short-term debt in the Statements of Consolidated Financial Position.

Under the arrangement, Monsanto is required to maintain an investment in the VIE of at least nine percent and could be required to provide additional contributions to the VIE. Monsanto currently has no unfunded commitments to the VIE. Creditors have no recourse against Monsanto in the event of default by the VIE. The company’s financial or other support provided to the VIE is limited to its investment. Even though Monsanto holds a subordinate interest in the VIE, the VIE was established to service transactions involving the company and the company determines the receivables that are included in the revolving financing program. Therefore, the determination is that Monsanto has the power to direct the activities most significant to the economic performance of the VIE. As a result, the company is the primary beneficiary of the VIE and the VIE has been consolidated in Monsanto’s consolidated financial statements. The assets of the VIE may only be used to settle the obligations of the respective entity. Third-party investors in the VIE do not have recourse to the general assets of Monsanto other than the maximum exposure to loss relating to the VIE. Monsanto's maximum exposure to loss was $12 million and $13 million as of Nov. 30, 2014, and Aug. 31, 2014, respectively. See Note 4 — Customer-Financing Programs — for additional information regarding the revolving financing arrangement.

Monsanto has entered into several agreements with third parties to establish entities to focus on research and development related to various activities including agricultural fungicides and biologicals for agricultural applications. All such entities are recorded as consolidated VIEs of Monsanto. Under each of the arrangements, Monsanto holds call options to acquire the majority of the equity interests in each VIE from the third-party owners. Monsanto will fund the operations of the VIEs in return for either additional equity interests or to retain the call options. The funding, which may total up to $108 million, will be provided in separate research phases if research milestones are met over the next several years. The VIEs were established to perform agricultural-based research and development activities for the benefit of Monsanto, and Monsanto provides all funding of the VIEs' activities. Further, Monsanto has the power to direct the activities most significant to the VIEs. As a result, Monsanto is the primary beneficiary of the VIEs and the VIEs have been consolidated in Monsanto's consolidated financial statements. Monsanto's maximum exposure to loss was $53 million and $43 million as of Nov. 30, 2014, and Aug. 31, 2014, respectively, which includes the Company's current investment in the VIEs, the funding required to be provided to the VIEs during the research phases and/or the initial consideration paid related to the call options. The third-party owners of the VIEs do not have recourse to the general assets of Monsanto beyond Monsanto's maximum exposure to loss at any given time relating to the VIEs.


NOTE 6.	RECEIVABLES

Trade receivables in the Statements of Consolidated Financial Position are net of allowances of $78 million and $72 million as of Nov. 30, 2014, and Aug. 31, 2014, respectively.

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 $135 million and $136 million with a corresponding allowance for credit losses on these receivables of $123 million and $125 million as of Nov. 30, 2014, and Aug. 31, 2014, respectively. These long-term customer receivable balances and the corresponding allowance are included in long-term receivables, net in the 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.

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

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



(Dollars in millions)
Balance as of Aug. 31, 2013	$	104
Incremental Provision	11
Recoveries	(4		)
Write-offs	(15		)
Other⁽¹⁾	29
Balance as of Aug. 31, 2014	$	125
Incremental Provision	1
Recoveries	(2		)
Write-offs	(3		)
Other⁽¹⁾	2
Balance as of Nov. 30, 2014	$	123

(1)Includes reclassifications from the allowance for current receivables and foreign currency translation adjustments.

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.


NOTE 7.	INVENTORY

Components of inventory are:



	As of
(Dollars in millions)	Nov. 30, 2014			Aug. 31, 2014
Finished Goods	$	2,100		$	1,591
Goods In Process	1,882			1,721
Raw Materials and Supplies	481			445
Inventory at FIFO Cost	4,463			3,757
Excess of FIFO over LIFO Cost	(163		)	(160		)
Total	$	4,300		$	3,597


NOTE 8.	GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the net carrying amount of goodwill for the first three months of fiscal year 2015, by segment, are as follows:



(Dollars in millions)	Seeds and Genomics			Agricultural Productivity		Total
Balance as of Aug. 31, 2014	$	4,262		$	57	$	4,319
Effect of foreign currency translation adjustments	(72		)	7		(65		)
Balance as of Nov. 30, 2014	$	4,190		$	64	$	4,254

There were no events or circumstances indicating that goodwill might be impaired as of Nov. 30, 2014. The fiscal year 2015 annual goodwill impairment test will be performed as of Mar. 1, 2015.

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

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



	As of Nov. 30, 2014							As of Aug. 31, 2014
(Dollars in millions)	Carrying Amount		Accumulated Amortization			Net		Carrying Amount		Accumulated Amortization			Net
Acquired Germplasm	$	1,103	$	(749	)	$	354	$	1,116	$	(751	)	$	365
Acquired Intellectual Property	1,159		(522		)	637		1,160		(507		)	653
Trademarks	362		(145		)	217		366		(142		)	224
Customer Relationships	331		(206		)	125		338		(204		)	134
Other	181		(109		)	72		181		(106		)	75
Total Other Intangible Assets, Finite Lives	$	3,136	$	(1,731	)	$	1,405	$	3,161	$	(1,710	)	$	1,451
In Process Research & Development, Indefinite Lives	101		—			101		103		—			103
Total Other Intangible Assets	$	3,237	$	(1,731	)	$	1,506	$	3,264	$	(1,710	)	$	1,554

Total amortization expense of total other intangible assets was $37 million and $27 million for the three months ended Nov. 30, 2014, and Nov. 30, 2013, respectively.

The estimated intangible asset amortization expense for fiscal year 2015 through fiscal year 2019 is as follows:



(Dollars in millions)	Amount
2015	$	158
2016	181
2017	173
2018	143
2019	132


NOTE 9.	INVESTMENTS

As of both Nov. 30, 2014, and Aug. 31, 2014, Monsanto had short-term investments outstanding of $40 million. The investments consist of commercial paper with original maturities of one year or less. See Note 12 — Fair Value Measurements.

Monsanto has investments in long-term equity and debt securities, which are considered available for sale. As of Nov. 30, 2014, and Aug. 31, 2014, these long-term equity and debt securities are recorded in other assets in the Statements of Consolidated Financial Position at a fair value of $44 million and $22 million, respectively. See Note 17 — Accumulated Other Comprehensive Loss.

Monsanto has cost basis investments recorded in other assets in the Statements of Consolidated Financial Position. As of Nov. 30, 2014, and Aug. 31, 2014, these investments were recorded at $93 million and $91 million, respectively. Due to the nature of these investments, the fair market value is not readily determinable. These investments are reviewed for impairment indicators.

No significant impairments were recorded on any investments for each of the three-month periods ended Nov. 30, 2014, and Nov. 30, 2013.


NOTE 10.	DEFERRED REVENUE

As of Nov. 30, 2014, and Aug. 31, 2014, short-term deferred revenue was $2,529 million and $438 million, respectively. This balance primarily consists of cash received related to Monsanto's prepayment programs in the United States and Brazil. These programs allow Monsanto's customers to receive a discount if they prepay by a certain date, and the short-term deferred revenue balance is consistent with the seasonality of Monsanto's business. Prepayment options are attractive to customers given the discounted pricing and the ability to utilize cash flow from the current year grain harvest to pay for the next season seed purchases. The deferred revenue balance related to these prepayment programs is considered short-term in nature and thus classified in current liabilities as the prepayments are for products to be shipped within the next 12 months.

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)


NOTE 11.	DEBT AND OTHER CREDIT ARRANGEMENTS

In June 2014, Monsanto filed a new shelf registration with the SEC (2014 shelf registration) that allows the company to issue an unlimited capacity of debt, equity and hybrid offerings. The 2014 shelf registration expires in June 2017.

In July 2014, Monsanto issued $500 million of 1.15% Senior Notes due in 2017, $500 million of 2.125% Senior Notes due in 2019, $500 million of 2.75% Senior Notes due in 2021, $750 million of 3.375% Senior Notes due in 2024, $500 million of 4.20% Senior Notes due in 2034, $1 billion of 4.40% Senior Notes due in 2044 and $750 million of 4.70% Senior Notes due in 2064. All notes were issued under the 2014 shelf registration. The net proceeds from the July 2014 issuance were used to purchase treasury shares pursuant to the accelerated share repurchase agreements disclosed in Note 16 — Capital Stock.

In November 2013, Monsanto issued $400 million of Floating Rate Senior Notes which are due in 2016, $300 million of 1.85% Senior Notes due 2018 and $300 million of 4.65% Senior Notes due in 2043. All notes were issued under the 2011 shelf registration. The net proceeds from the sale of the November 2013 issuances were used for the acquisition of The Climate Corporation and general corporate purposes.

Monsanto has a credit facility agreement with a group of banks that provides a senior unsecured revolving credit facility through Apr. 1, 2016. During the first quarter of fiscal year 2015, Monsanto requested an increase in the overall borrowing limit pursuant to a provision in the credit agreement that allowed Monsanto to do so, and effective Sept. 30, 2014, the limit was increased from $2 billion to $2.5 billion. As of Nov. 30, 2014, Monsanto was in compliance with all debt covenants, and there were no outstanding borrowings under this credit facility.

Monsanto's short-term debt instruments include commercial paper, the current portion of long-term debt, mandatorily redeemable shares of a VIE, and notes payable to banks. As of Nov. 30, 2014, Monsanto had commercial paper borrowings outstanding of $395 million which is included in short-term debt on the Statements of Consolidated Financial Position. As of Aug. 31, 2014, there were no commercial paper borrowings outstanding.

The fair value of total short-term debt was $636 million and $233 million as of Nov. 30, 2014, and Aug. 31, 2014, respectively. The fair value of the total long-term debt was $7,879 million and $7,928 million as of Nov. 30, 2014, and Aug. 31, 2014, respectively. See Note 12 — Fair Value Measurements — for additional information.


NOTE 12.	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 market prices in active markets that are accessible at the measurement date for identical assets and liabilities.

Level 2 — Values based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, discounted cash flow models, or other model-based valuation techniques adjusted, as necessary, for credit risk.

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 disclosed at fair value on a recurring basis as of Nov. 30, 2014, and Aug. 31, 2014. 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.

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)



	Fair Value Measurements at Nov. 30, 2014, Using
(Dollars in millions)	Level 1		Level 2		Level 3		Net Balance
Assets at Fair Value:
Cash equivalents	$	2,638	$	—	$	—	$	2,638
Short-term investments	40		—		—		40
Available-for-sale securities	16		28		—		44
Derivative assets related to:
Foreign currency contracts	—		33		—		33
Commodity contracts	6		9		—		15
Total Assets at Fair Value	$	2,700	$	70	$	—	$	2,770
Liabilities at Fair Value:
Short-term debt instruments	$	—	$	514	$	122	$	636
Long-term debt instruments⁽¹⁾	—		7,879		—		7,879
Derivative liabilities related to:
Foreign currency contracts	—		11		—		11
Commodity contracts	54		29		—		83
Interest rate contracts	—		14		—		14
Total Liabilities at Fair Value	$	54	$	8,447	$	122	$	8,623


(1)	Long-term debt instruments are not recorded at fair value on a recurring basis; however, they are measured at fair value for disclosure purposes, as required by the Fair Value Measurements and Disclosures topic of the ASC.



	Fair Value Measurements at Aug. 31, 2014, Using
(Dollars in millions)	Level 1		Level 2		Level 3		Net Balance
Assets at Fair Value:
Cash equivalents	$	1,664	$	—	$	—	$	1,664
Short-term investments	40		—		—		40
Equity securities	22		—		—		22
Derivative assets related to:
Foreign currency	—		11		—		11
Commodity contracts	20		16		—		36
Total Assets at Fair Value	$	1,746	$	27	$	—	$	1,773
Liabilities at Fair Value:
Short-term debt instruments	$	—	$	97	$	136	$	233
Long-term debt instruments⁽¹⁾	—		7,928		—		7,928
Derivative liabilities related to:
Foreign currency	—		19		—		19
Commodity contracts	76		15		—		91
Total Liabilities at Fair Value	$	76	$	8,059	$	136	$	8,271


(1)	Long-term debt instruments are not recorded at fair value on a recurring basis; however, they are measured at fair value for disclosure purposes, as required by the Fair Value Measurements and Disclosures topic of the ASC.

The company’s derivative contracts are measured at fair value, including forward commodity purchase and sale contracts, exchange-traded commodity futures and option contracts, and over-the-counter (OTC) instruments related primarily to agricultural commodities, energy and raw materials, interest rates, and foreign currencies. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified as Level 1. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted for differences in local markets. These differences are generally determined using inputs from broker or dealer quotations or market transactions in either the

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

listed or OTC markets. Interest rate contracts consist of interest rate swaps measured using broker or dealer quoted prices. When observable inputs are available for substantially the full term of the contract, it is classified as Level 2. Based on historical experience with the company’s suppliers and customers, the company’s own credit risk and knowledge of current market conditions, the company does not view nonperformance risk to be a significant input to the fair value for the majority of its forward commodity purchase and sale contracts. The effective portions of changes in the fair value of derivatives designated as cash flow hedges are recognized in the Statements of Consolidated Financial Position as a component of accumulated other comprehensive loss until the hedged items are recorded in earnings or it is probable the hedged transaction will no longer occur. Changes in the fair value of derivatives are recognized in the Statements of Consolidated Operations as a component of net sales, cost of goods sold and other expense, net.

The company’s short-term investments consist of commercial paper. The company’s available-for-sale securities consist of equity securities of publicly traded equity investments and debt security investments in Argentine sovereign bonds. Commercial paper and publicly traded equity investments are valued using quoted market prices and are classified as Level 1. The company's debt securities are classified as Level 2 and valued using broker or dealer quoted prices with a maturity greater than one year.

Short-term debt instruments consist of commercial paper, current portion of long-term debt, mandatorily redeemable shares, and notes payable to banks. Commercial paper, current portion of long-term debt and notes payables to banks are recorded at amortized cost in the Statements of Consolidated Financial Position, which approximates fair value. Mandatorily redeemable shares are recorded in the Statements of Consolidated Financial Position at fair value, which represents the amount of cash the consolidated variable interest entity would pay if settlement occurred as of the respective reporting date. Fair value of the mandatorily redeemable shares of the variable interest entity is calculated using observable and unobservable inputs from an interest rate market in Brazil and stated contractual terms (a Level 3 measurement). See Note 11 — Debt and Other Credit Arrangements — for additional disclosures. Accretion expense is included in the Statements of Consolidated Operations as interest expense.

Long-term debt fair value was determined based on current market yields for Monsanto's debt traded in the secondary market.

For the three months ended Nov. 30, 2014, and Nov. 30, 2013, the company had no transfers between Level 1, Level 2 and Level 3. Monsanto does not have any assets with fair value determined using Level 3 inputs as of Nov. 30, 2014, and Aug. 31, 2014. The following table summarizes the change in fair value of the Level 3 liability for the three months ended Nov. 30, 2014.



(Dollars in millions)
Balance Aug. 31, 2014⁽¹⁾	$	136
Accretion expense	4
Effect of foreign currency translation adjustments	(18		)
Balance Nov. 30, 2014⁽¹⁾	$	122


(1)	Includes 300,000 mandatorily redeemable shares outstanding with a par value of $391 and $447 as of Nov. 30, 2014, and Aug. 31, 2014, respectively.

There were no significant measurements of assets or liabilities to their implied fair value on a nonrecurring basis during the three months ended Nov. 30, 2014, and Nov. 30, 2013.

The recorded amounts of cash, trade receivables, miscellaneous receivables, third-party guarantees, accounts payable, grower production accruals, accrued marketing programs and miscellaneous short-term accruals approximate their fair values as of Nov. 30, 2014, and Aug. 31, 2014.

Management is ultimately responsible for all fair values presented in the company’s consolidated financial statements. The company performs analysis and review of the information and prices received from third parties to ensure that the prices represent a reasonable estimate of fair value. This process involves quantitative and qualitative analysis. As a result of the analysis, if the company determines there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly.

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)


NOTE 13.	FINANCIAL INSTRUMENTS

Cash Flow Hedges

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

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

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

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

The maximum term over which the company is hedging exposures to the variability of cash flow (for all forecasted transactions) is 15 months for foreign currency hedges and 37 months for commodity hedges. During the next 12 months, a pretax net loss of approximately $68 million is expected to be reclassified from accumulated other comprehensive loss into earnings. During the three months ended Nov. 30, 2014, and Nov. 30, 2013, no cash flow hedges were discontinued.

Fair Value Hedges

The company uses commodity futures, forwards and options contracts as fair value hedges to manage the value of its soybean inventory and other assets. For derivative instruments that are designated and qualify as fair value hedges, both the gain or loss on the derivative and the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. No fair value hedges were discontinued during the three months ended Nov. 30, 2014, and Nov. 30, 2013.

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

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

Monsanto uses interest rate contracts to minimize the variability of forecasted cash flows arising from the company’s VIE in Brazil. The interest rate contracts do not qualify for hedge accounting treatment under the Derivatives and Hedging Topic of the ASC. Accordingly, the gain or loss on these derivatives is recognized in current earnings.

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

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MONSANTO COMPANY		FIRST QUARTER 2015 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, 2014, and Aug. 31, 2014, were as follows:



	As of
(Dollars in millions)	Nov. 30, 2014		Aug. 31, 2014
Derivatives Designated as Hedges:
Foreign exchange contracts	$	428	$	585
Commodity contracts	860		626
Interest rate contracts	750		—
Total Derivatives Designated as Hedges	$	2,038	$	1,211
Derivatives Not Designated as Hedges:
Foreign exchange contracts	$	2,114	$	2,054
Commodity contracts	185		272
Interest rate contracts	139		160
Total Derivatives Not Designated as Hedges	$	2,438	$	2,486

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

The net presentation of the company’s derivative instruments outstanding was as follows:



			As of Nov. 30, 2014
(Dollars in millions)			Gross Amounts Recognized		Gross Amounts Offset in the Statement of Consolidated Financial Position			Net Amounts Included in the Statement of Consolidated Financial Position			Collateral Pledged		Net Amounts Reported in the Statement of Consolidated Financial Position		Other Items Included in the Statement of Consolidated Financial Position		Statement of Consolidated Financial Position Balance
Asset Derivatives:
Trade receivables, net
	Derivatives not designated as hedges:
		Commodity contracts⁽¹⁾	$	2	$	(2	)	$	—		$	—	$	—
Total trade receivables, net			2		(2		)	—			—		—		$	2,247	$	2,247
Miscellaneous receivables
	Derivatives designated as hedges:
		Foreign exchange contracts	18		—			18			—		18
	Derivatives not designated as hedges:
		Foreign exchange contracts	13		—			13			—		13
		Commodity contracts	7		—			7			—		7
Total miscellaneous receivables			38		—			38			—		38		832		870
Other current assets
	Derivatives designated as hedges:
		Commodity contracts⁽¹⁾	2		(37		)	(35		)	35		—
	Derivatives not designated as hedges:
		Commodity contracts⁽¹⁾	—		(1		)	(1		)	1		—
Total other current assets			2		(38		)	(36		)	36		—		200		200
Other assets
	Derivatives designated as hedges:
		Foreign exchange contracts	2		—			2			—		2
		Commodity contracts⁽¹⁾	4		(16		)	(12		)	12		—
Total other assets			6		(16		)	(10		)	12		2		810		812
Total Asset Derivatives			$	48	$	(56	)	$	(8	)	$	48	$	40
Liability Derivatives:
Trade receivables, net
Derivatives not designated as hedges:
		Commodity contracts⁽¹⁾	$	2	$	(2	)	$	—		$	—	$	—
Total trade receivables, net			2		(2		)	—			—		—
Other current assets
	Derivatives designated as hedges:
		Commodity contracts⁽¹⁾	37		(37		)	—			—		—
	Derivatives not designated as hedges:
		Commodity contracts⁽¹⁾	1		(1		)	—			—		—
Total other current assets			38		(38		)	—			—		—
Other assets
	Derivatives designated as hedges:
		Commodity contracts⁽¹⁾	16		(16		)	—			—		—
Total other assets			16		(16		)	—			—		—
Miscellaneous short-term accruals
	Derivatives designated as hedges:
		Foreign exchange contracts	1		—			1			—		1
		Commodity contracts	15		—			15			—		15
		Interest rate contracts	14		—			14			—		14
	Derivatives not designated as hedges:
		Foreign exchange contracts	10		—			10			—		10
		Commodity contracts	2		—			2			—		2
Total miscellaneous short-term accruals			42		—			42			—		42		$	1,081	$	1,123
Other liabilities
	Derivatives designated as hedges:
		Commodity contracts	10		—			10			—		10
Total other liabilities			10		—			10			—		10		327		337
Total Liability Derivatives			$	108	$	(56	)	$	52		$	—	$	52

Table of Contents



MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)


(1)	As allowed by the Derivatives and Hedging topic of the ASC, commodity derivative assets and liabilities have been offset by collateral subject to an enforceable master netting arrangement or similar arrangement. Therefore, these commodity contracts that are in an asset or liability position are included in asset accounts within the Statements of Consolidated Financial Position.



			As of Aug. 31, 2014
(Dollars in millions)			Gross Amounts Recognized		Gross Amounts Offset in the Statement of Consolidated Financial Position			Net Amounts Included in the Statement of Consolidated Financial Position			Collateral Pledged		Net Amounts Reported in the Statement of Consolidated Financial Position		Other Items Included in the Statement of Consolidated Financial Position		Statement of Consolidated Financial Position Balance
Asset Derivatives:
Trade receivables, net
	Derivatives not designated as hedges:
		Commodity contracts⁽¹⁾	$	—	$	(10	)	$	(10	)	$	10	$	—
Total trade receivables, net			—		(10		)	(10		)	10		—		$	2,014	$	2,014
Miscellaneous receivables
	Derivatives designated as hedges:
		Foreign exchange contracts	5		—			5			—		5
	Derivatives not designated as hedges:
		Foreign exchange contracts	4		—			4			—		4
		Commodity contracts	13		—			13			—		13
Total miscellaneous receivables			22		—			22			—		22		795		817
Other current assets
	Derivatives designated as hedges:
		Commodity contracts⁽¹⁾	4		(57		)	(53		)	53		—
	Derivatives not designated as hedges:
		Commodity contracts⁽¹⁾	19		(1		)	18			—		18
Total other current assets			23		(58		)	(35		)	53		18		187		205
Other assets
	Derivatives designated as hedges
		Foreign exchange contracts	2		—			2			—		2
		Commodity contracts⁽¹⁾	—		(19		)	(19		)	19		—
Total other assets			2		(19		)	(17		)	19		2		807		809
Total Asset Derivatives			$	47	$	(87	)	$	(40	)	$	82	$	42
Liability Derivatives:
Trade receivables, net
	Derivatives not designated as hedges:
		Commodity contracts⁽¹⁾	$	10	$	(10	)	$	—		$	—	$	—
Total trade receivables, net			10		(10		)	—			—		—
Other current assets
	Derivatives designated as hedges:
		Commodity contracts⁽¹⁾	57		(57		)	—			—		—
	Derivatives not designated as hedges:
		Commodity contracts⁽¹⁾	1		(1		)	—			—		—
Total other current assets			58		(58		)	—			—		—
Other assets
	Derivatives designated as hedges:
		Commodity contracts⁽¹⁾	19		(19		)	—			—		—
Total other assets			19		(19		)	—			—		—
Miscellaneous short-term accruals
	Derivatives designated as hedges:
		Foreign exchange contracts	6		—			6			—		6
		Commodity contracts	3		—			3			—		3
	Derivatives not designated as hedges:
		Foreign exchange contracts	13		—			13			—		13
Total miscellaneous short-term accruals			22		—			22			—		22		$	940	$	962
Other liabilities
	Derivatives designated as hedges:
		Commodity contracts	1		—			1			—		1
Total other liabilities			1		—			1			—		1		341		342
Total Liability Derivatives			$	110	$	(87	)	$	23		$	—	$	23

Table of Contents



MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)


(1)	As allowed by the Derivatives and Hedging topic of the ASC, commodity derivative assets and liabilities have been offset by collateral subject to an enforceable master netting arrangement or similar arrangement. Therefore, these commodity contracts that are in an asset or liability position are included in asset accounts within the Statements of Consolidated Financial Position.

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



	Amount of Gain (Loss) Recognized in AOCI⁽¹⁾ (Effective Portion)						Amount of Gain (Loss) Recognized in Income⁽²⁾
	Three Months Ended						Three Months Ended						Statement of Consolidated Operations Classification
(Dollars in millions)	Nov. 30, 2014			Nov. 30, 2013			Nov. 30, 2014			Nov. 30, 2013
Derivatives Designated as Hedges:
Fair value hedges:
Commodity contracts⁽³⁾							$	(2	)	$	(2	)	Cost of goods sold
Commodity contracts⁽⁴⁾							(4		)	—			Other expense, net
Cash flow hedges:
Foreign currency contracts	$	19		$	(2	)	7			(2		)	Net sales
Foreign currency contracts	9			(3		)	—			—			Cost of goods sold
Commodity contracts⁽⁵⁾	(11		)	(61		)	(3		)	(3		)	Cost of goods sold
Interest rate contracts⁽⁶⁾	(14		)	(2		)	(3		)	(3		)	Interest expense
Total Derivatives Designated as Hedges	3			(68		)	(5		)	(10		)
Derivatives Not Designated as Hedges:
Foreign currency contracts⁽⁷⁾							(60		)	22			Other expense, net
Commodity contracts							2			2			Net sales
Commodity contracts							3			5			Cost of goods sold
Total Derivatives Not Designated as Hedges							(55		)	29
Total Derivatives	$	3		$	(68	)	$	(60	)	$	19


(1)	Accumulated other comprehensive income (AOCI) (loss).


(2)	For derivatives designated as cash flow hedges under the Derivatives and Hedging topic of the ASC, this represents the effective portion of the gain (loss) reclassified from AOCI into income during the period.


(3)	Loss on fair value hedges includes a loss of less than $1 million and $1 million from ineffectiveness during the three months ended Nov. 30, 2014, and Nov. 30, 2013, respectively.


(4)	Loss on fair value hedges includes a loss of $4 million from ineffectiveness during the three months ended Nov. 30, 2014.


(5)	Loss on commodity cash flow hedges includes a loss of less than $1 million and $1 million from ineffectiveness for the three months ended Nov. 30, 2014, and Nov. 30, 2013, respectively. No gains or losses were excluded from the assessment of hedge effectiveness during the three months ended Nov. 30, 2014, and Nov. 30, 2013.


(6)	Loss on interest rate cash flow hedges includes a loss of less than $1 million from ineffectiveness for the three months ended Nov. 30, 2013.


(7)	Loss and gain on foreign currency contracts not designated as hedges is offset by foreign currency transaction gain of $51 million and loss of $41 million during the three months ended Nov. 30, 2014, and Nov. 30, 2013, respectively.

Several 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 Monsanto’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. Foreign currency derivatives that are not covered by ISDA Master Agreements do not have credit-risk-related contingent provisions. Most of Monsanto’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 in the case of an unrealized loss position. Non-exchange-traded commodity derivatives may be covered by the aforementioned ISDA Master Agreements and would be subject to the same

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

credit-risk-related contingent provisions. The aggregate fair value of all derivative instruments under ISDA Master Agreements that are in a liability position was $34 million and $11 million as of Nov. 30, 2014, and Aug. 31, 2014, respectively, 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, 2014, and Aug. 31, 2014, 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.

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 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.

Monsanto regularly evaluates its business practices to minimize its credit risk and periodically engages 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 14.	POSTRETIREMENT BENEFITS — PENSIONS, HEALTH CARE AND OTHER

Most of Monsanto’s U.S. employees hired prior to July 8, 2012 are covered by noncontributory pension plans sponsored by the company. Effective July 8, 2012, the U.S. pension plan was closed to new entrants; there were no changes to the U.S. pension plan for eligible employees hired prior to that date. 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, 2014									Three Months Ended Nov. 30, 2013
Pension Benefits (Dollars in millions)	U.S.			Outside the U.S.			Total			U.S.			Outside the U.S.			Total
Service Cost for Benefits Earned During the Period	$	16		$	3		$	19		$	15		$	3		$	18
Interest Cost on Benefit Obligation	22			2			24			23			2			25
Assumed Return on Plan Assets	(38		)	(3		)	(41		)	(35		)	(2		)	(37		)
Amortization of Unrecognized Net Loss	13			2			15			16			1			17
Curtailment and Settlement Charge	—			1			1			—			1			1
Total Net Periodic Benefit Cost	$	13		$	5		$	18		$	19		$	5		$	24

Monsanto did not make any cash contributions to its U.S. qualified plan in the three months ended Nov. 30, 2014. In the three months ended Nov. 30, 2013, Monsanto contributed $15 million to its U.S. qualified plan. Monsanto contributed $5 million to plans outside the United States for the three month periods ended Nov. 30, 2014, and Nov. 30, 2013.



Health Care and Other Postretirement Benefits	Three Months Ended
(Dollars in millions)	Nov. 30, 2014			Nov. 30, 2013
Service Cost for Benefits Earned During the Period	$	2		$	3
Interest Cost on Benefit Obligation	2			3
Amortization of Unrecognized Net Gain	(1		)	(4		)
Total Net Periodic Benefit Cost	$	3		$	2

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MONSANTO COMPANY		FIRST QUARTER 2015 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)


NOTE 15.	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, 2014, and Nov. 30, 2013. Stock-based compensation cost capitalized in inventory was $3 million as of both Nov. 30, 2014, and Aug. 31, 2014.



	Three Months Ended
(Dollars in millions)	Nov. 30, 2014			Nov. 30, 2013
Cost of Goods Sold	$	2		$	2
Selling, General and Administrative Expenses	25			20
Research and Development Expenses	8			5
Pre-Tax Stock-Based Compensation Expense	35			27
Income Tax Benefit	(10		)	(9		)
Net Stock-Based Compensation Expense	$	25		$	18

The following table summarizes stock-based compensation activity for and as of the three months ended Nov. 30, 2014. Monsanto Stock Plans include employees under the Monsanto Company 2005 Long-Term Incentive Plan, as amended and restated effective Jan. 24, 2012, and employees under The Climate Corporation 2006 Stock Plan, as amended on Oct. 30, 2013. The Director Plan includes members of the Board of Directors under the Monsanto Non-Employee Director Equity Incentive Compensation Plan.

Monsanto Stock Plans

Director Plan

Stock

Options

Restricted

Stock Units

Deferred

Stock