0001110783-14-000048.txt : 20140403 0001110783-14-000048.hdr.sgml : 20140403 20140403143408 ACCESSION NUMBER: 0001110783-14-000048 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20140228 FILED AS OF DATE: 20140403 DATE AS OF CHANGE: 20140403 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONSANTO CO /NEW/ CENTRAL INDEX KEY: 0001110783 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 431878297 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-16167 FILM NUMBER: 14741654 BUSINESS ADDRESS: STREET 1: 800 N LINDBERGH BLVD CITY: ST LOUIS STATE: MO ZIP: 63167 BUSINESS PHONE: 3146941000 MAIL ADDRESS: STREET 1: 800 NORTH LINDBERGH BLVD CITY: ST LOUIS STATE: MO ZIP: 63167 10-Q 1 mon-20140228x10q.htm 10-Q MON-2014.02.28-10Q
MONSANTO COMPANY
 
SECOND QUARTER 2014 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 Feb. 28, 2014
or
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: 524,170,807 shares of Common Stock, $0.01 par value, outstanding as of March 31, 2014.
 


MONSANTO COMPANY
 
SECOND QUARTER 2014 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; 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, 2013.
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.



1

MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q

TABLE OF CONTENTS
Page
Item 1.
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
Item 4.
 
 
Item 1.
Item 1A.
Item 2.
Item 6.



2

MONSANTO COMPANY
 
SECOND QUARTER 2014 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 and six months ended Feb. 28, 2014, and Feb. 28, 2013, the Statements of Consolidated Comprehensive Income (Loss) for the three and six months ended Feb. 28, 2014, and Feb. 28, 2013, the Statements of Consolidated Financial Position as of Feb. 28, 2014, and Aug. 31, 2013, the Statements of Consolidated Cash Flows for the six months ended Feb. 28, 2014, and Feb. 28, 2013, the Statements of Consolidated Shareowners’ Equity for the six months ended Feb. 28, 2014, and year ended Aug. 31, 2013, 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.



3

MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q

Statements of Consolidated Operations
Unaudited
(Dollars in millions)
Three Months Ended
Six Months Ended
Feb. 28, 2014
 
Feb. 28, 2013
Feb. 28, 2014
 
Feb. 28, 2013
Net Sales
$
5,832

 
$
5,472

$
8,975

 
$
8,411

Cost of goods sold
2,385

 
2,402

3,965

 
3,944

Gross Profit
3,447

 
3,070

5,010

 
4,467

Operating Expenses:
 
 
 
 
 
 
Selling, general and administrative expenses
625

 
598

1,214

 
1,140

Research and development expenses
404

 
360

813

 
706

Total Operating Expenses
1,029

 
958

2,027

 
1,846

Income from Operations
2,418

 
2,112

2,983

 
2,621

Interest expense
40

 
35

93

 
86

Interest income
(23
)
 
(27
)
(47
)
 
(50
)
Other expense, net
61

 
22

81

 
39

Income from Continuing Operations Before Income Taxes
2,340

 
2,082

2,856

 
2,546

Income tax provision
672

 
603

824

 
725

Income from Continuing Operations Including Portion Attributable to Noncontrolling Interest
$
1,668

 
$
1,479

$
2,032

 
$
1,821

Discontinued Operations:
 
 
 
 
 
 
Income from operations of discontinued businesses
8

 
6

22

 
17

Income tax provision
4

 
2

9

 
6

Income from Discontinued Operations
4

 
4

13

 
11

Net Income
$
1,672

 
$
1,483

$
2,045

 
$
1,832

Less: Net income attributable to noncontrolling interest
2

 

7

 
10

Net Income Attributable to Monsanto Company
$
1,670

 
$
1,483

$
2,038

 
$
1,822

Amounts Attributable to Monsanto Company:
 
 
 
 
 
 
Income from continuing operations
$
1,666

 
$
1,479

$
2,025

 
$
1,811

Income from discontinued operations
4

 
4

13

 
11

Net Income Attributable to Monsanto Company
$
1,670

 
$
1,483

$
2,038

 
$
1,822

Basic Earnings per Share Attributable to Monsanto Company:
 
 
 
 
 
 
Income from continuing operations
$
3.18

 
$
2.77

$
3.86

 
$
3.39

Income from discontinued operations

 
0.01

0.02

 
0.02

Net Income Attributable to Monsanto Company
$
3.18

 
$
2.78

$
3.88

 
$
3.41

Diluted Earnings per Share Attributable to Monsanto Company:
 
 
 
 
 
 
Income from continuing operations
$
3.15

 
$
2.73

$
3.81

 
$
3.35

Income from discontinued operations

 
0.01

0.02

 
0.02

Net Income Attributable to Monsanto Company
$
3.15

 
$
2.74

$
3.83

 
$
3.37

Weighted Average Shares Outstanding:
 
 
 
 
 
 
Basic
524.8

 
534.8

525.9

 
534.8

Diluted
530.3

 
540.9

531.6

 
540.9

Dividends Declared per Share
$
0.86

 
$
0.75

$
0.86

 
$
0.75

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




4

MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q

Statements of Consolidated Comprehensive Income (Loss)
Unaudited
(Dollars in millions)
Three Months Ended
Six Months Ended
Feb. 28, 2014
 
Feb. 28, 2013
Feb. 28, 2014
 
Feb. 28, 2013
Comprehensive Income Attributable to Monsanto Company
 
 
 
 
 
 
Net Income Attributable to Monsanto Company
$
1,670

 
$
1,483

$
2,038

 
$
1,822

Other Comprehensive Income (Loss), Net of Tax:
 
 
 
 
 
 
Foreign currency translation, net of tax of $(4) , $0, $(12), and $0, respectively
(48
)
 
114

79

 
166

Postretirement benefit plan activity, net of tax of $4, $7, $9, and $14, respectively
6

 
12

14

 
23

Unrealized net gains on investment holdings, net of tax of $2, $0, $5, and $3, respectively
3

 

8

 
6

Realized net gains (losses) on investment holdings, net of tax of $0, $(4), $0, and $(3), respectively
1

 
(7
)
1

 
(6
)
Unrealized net derivative gains (losses), net of tax of $9, $(31), $(16), and $(37), respectively
12

 
(51
)
(31
)
 
(63
)
Realized net derivative gains (losses), net of tax of $3, $(15), $6, and $(20), respectively
6

 
(24
)
11

 
(34
)
Total Other Comprehensive Income (Loss), Net of Tax
(20
)
 
44

82

 
92

Comprehensive Income Attributable to Monsanto Company
$
1,650

 
$
1,527

$
2,120

 
$
1,914

Comprehensive Income Attributable to Noncontrolling Interests
 
 
 
 
 
 
Net Income Attributable to Noncontrolling Interests
2

 

7

 
10

Other Comprehensive Income
 
 
 
 
 
 
Foreign currency translation
1

 
12

6

 
8

Total Other Comprehensive Income
1

 
12

6

 
8

Comprehensive Income Attributable to Noncontrolling Interests
$
3

 
$
12

$
13

 
$
18

Total Comprehensive Income
$
1,653

 
$
1,539

$
2,133

 
$
1,932

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



5

MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q

Statements of Consolidated Financial Position
Unaudited
(Dollars in millions)
As of
Feb. 28, 2014
 
Aug. 31, 2013
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents (variable interest entity restricted - 2014: $15 and 2013: $140)
$
3,805

 
$
3,668

Short-term investments
45

 
254

Trade receivables, net (variable interest entity restricted - 2014: $129 and 2013: $0)
2,515

 
1,715

Miscellaneous receivables
668

 
748

Deferred tax assets
591

 
579

Inventory, net
3,692

 
2,947

Other current assets
234

 
166

Total Current Assets
11,550

 
10,077

Total property, plant and equipment
9,815

 
9,491

Less accumulated depreciation
5,080

 
4,837

Property, Plant and Equipment, Net
4,735

 
4,654

Goodwill
4,327

 
3,520

Other Intangible Assets, Net
1,645

 
1,226

Noncurrent Deferred Tax Assets
459

 
454

Long-Term Receivables, Net
131

 
237

Other Assets
610

 
496

Total Assets
$
23,457

 
$
20,664

Liabilities and Shareowners’ Equity
 
 
 
Current Liabilities:
 
 
 
Short-term debt, including current portion of long-term debt
$
104

 
$
51

Accounts payable
847

 
995

Income taxes payable
630

 
91

Accrued compensation and benefits
334

 
492

Accrued marketing programs
1,018

 
1,078

Deferred revenues
863

 
517

Grower production accruals
225

 
60

Dividends payable
226

 
228

Customer payable
31

 
12

Miscellaneous short-term accruals
773

 
812

Total Current Liabilities
5,051

 
4,336

Long-Term Debt
3,051

 
2,061

Postretirement Liabilities
333

 
357

Long-Term Deferred Revenue
94

 
138

Noncurrent Deferred Tax Liabilities
507

 
469

Long-Term Portion of Environmental and Litigation Liabilities
187

 
193

Other Liabilities
393

 
382

Shareowners’ Equity:
 
 
 
Common stock (authorized: 1,500,000,000 shares, par value $0.01)
 
 
 
Issued 604,208,684 and 601,631,267 shares, respectively
 
 
 
Outstanding 524,459,766 and 529,029,712 shares, respectively
6

 
6

Treasury stock 79,748,918 and 72,601,555 shares, respectively, at cost
(4,904
)
 
(4,140
)
Additional contributed capital
10,997

 
10,783

Retained earnings
8,775

 
7,188

Accumulated other comprehensive loss
(1,196
)
 
(1,278
)
Total Monsanto Company Shareowners’ Equity
13,678

 
12,559

Noncontrolling Interest
163

 
169

Total Shareowners’ Equity
13,841

 
12,728

Total Liabilities and Shareowners’ Equity
$
23,457

 
$
20,664

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


6

MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q

Statements of Consolidated Cash Flows
Unaudited
(Dollars in millions)
Six Months Ended
Feb. 28, 2014
 
Feb. 28, 2013
Operating Activities:
 
 
 
Net Income
$
2,045

 
$
1,832

Adjustments to reconcile cash provided by operating activities:
 
 
 
Items that did not require (provide) cash:
 
 
 
Depreciation and amortization
332

 
305

Bad-debt expense
20

 
10

Stock-based compensation expense
57

 
49

Excess tax benefits from stock-based compensation
(36
)
 
(47
)
Deferred income taxes
32

 
52

Equity affiliate (income) expense, net
4

 
(2
)
Net gain on sales of a business or other assets
(2
)
 
(14
)
Other items
42

 
(37
)
Changes in assets and liabilities that provided (required) cash, net of acquisitions:
 
 
 
Trade receivables, net
(705
)
 
(201
)
Inventory, net
(742
)
 
(243
)
Deferred revenues
313

 
301

Accounts payable and other accrued liabilities
588

 
25

Pension contributions
(49
)
 
(24
)
Other items
(53
)
 
(149
)
Net Cash Provided by Operating Activities
1,846

 
1,857

Cash Flows (Required) Provided by Investing Activities:
 
 
 
Purchases of short-term investments
(105
)
 
(320
)
Maturities of short-term investments
314

 
312

Capital expenditures
(471
)
 
(261
)
Acquisition of businesses, net of cash acquired
(922
)
 
(79
)
Purchases of long-term debt and equity securities
(12
)
 

Technology and other investments
(378
)
 
(48
)
Other proceeds
18

 
95

Net Cash Required by Investing Activities
(1,556
)
 
(301
)
Cash Flows Provided (Required) by Financing Activities:
 
 
 
Net change in financing with less than 90-day maturities
(44
)
 
142

Short-term debt proceeds
28

 
1

Short-term debt reductions

 
(29
)
Long-term debt proceeds
999

 
16

Long-term debt reductions
(3
)
 
(2
)
Payments on other financing
(39
)
 

Debt issuance costs
(8
)
 

Treasury stock purchases
(764
)
 
(327
)
Stock option exercises
128

 
136

Excess tax benefits from stock-based compensation
36

 
47

Tax withholding on restricted stock and restricted stock units
(8
)
 
(3
)
Dividend payments
(453
)
 
(402
)
Dividend payments to noncontrolling interests
(19
)
 
(1
)
Net Cash Required by Financing Activities
(147
)
 
(422
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(6
)
 
26

Net Increase in Cash and Cash Equivalents
137

 
1,160

Cash and Cash Equivalents at Beginning of Period
3,668

 
3,283

Cash and Cash Equivalents at End of Period
$
3,805

 
$
4,443

See Note 1 — Background and Basis of Presentation and Note 19Supplemental Cash Flow Information for further details.
The accompanying notes are an integral part of these consolidated financial statements.


7

MONSANTO COMPANY
 
SECOND QUARTER 2014 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, 2012
$
6

 
$
(3,045
)
 
$
10,371

 
$
5,537

 
$
(1,036
)
 
$
203

 
$
12,036

Net income

 

 

 
2,482

 

 
43

 
2,525

Other comprehensive loss for 2013

 

 

 

 
(242
)
 
(27
)
 
(269
)
Treasury stock purchases

 
(1,095
)
 

 

 

 

 
(1,095
)
Restricted stock withholding

 

 
(10
)
 

 

 

 
(10
)
Issuance of shares under employee stock plans

 

 
257

 

 

 

 
257

Excess tax benefits from stock-based compensation

 

 
69

 

 

 

 
69

Stock-based compensation expense

 

 
97

 

 

 

 
97

Cash dividends of $1.56 per common share

 

 

 
(831
)
 

 

 
(831
)
Dividend payments to noncontrolling interest

 

 

 

 

 
(174
)
 
(174
)
Acquisition of noncontrolling interest

 

 
(1
)
 

 

 
(9
)
 
(10
)
Proceeds from noncontrolling interest

 

 

 

 

 
133

 
133

Balance as of Aug. 31, 2013
$
6

 
$
(4,140
)
 
$
10,783

 
$
7,188

 
$
(1,278
)
 
$
169

 
$
12,728

Net income

 

 

 
2,038

 

 
7

 
2,045

Other comprehensive income for 2014

 

 

 

 
82

 
6

 
88

Treasury stock purchases

 
(764
)
 

 

 

 

 
(764
)
Restricted stock withholding

 

 
(8
)
 

 

 

 
(8
)
Issuance of shares under employee stock plans

 

 
128

 

 

 

 
128

Excess tax benefits from stock-based compensation

 

 
37

 

 

 

 
37

Stock-based compensation expense

 

 
57

 

 

 

 
57

Cash dividends of $0.86 per common share

 

 

 
(451
)
 

 

 
(451
)
Dividend payments to noncontrolling interest

 

 

 

 

 
(19
)
 
(19
)
Balance as of Feb. 28, 2014
$
6

 
$
(4,904
)
 
$
10,997

 
$
8,775

 
$
(1,196
)
 
$
163

 
$
13,841

(1)
See Note 17Accumulated 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.


8


MONSANTO COMPANY
 
SECOND QUARTER 2014 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. The Seeds and Genomics segment consists of the global seeds and related traits businesses, biotechnology platforms and precision agriculture. Through the Seeds and Genomics segment, Monsanto produces leading seed brands, including DEKALB, Asgrow, Deltapine, Seminis and De Ruiter, and Monsanto develops biotechnology traits that assist farmers in controlling insects and weeds. Monsanto also provides other seed companies with genetic material and biotechnology traits for their seed brands. Through the Agricultural Productivity segment, the company manufactures Roundup and Harness brand herbicides and other herbicides. See Note 21Segment 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. As a result, financial data for this business has been presented as discontinued operations.
Certain reclassifications of prior year amounts within the operating activities section of the Statement of Consolidated Cash Flows have been made to conform to current year presentation. The company has evaluated the impact and does not consider the reclassifications to be material to the consolidated financial statements.
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, 2013. Financial information for the first six months of fiscal year 2014 should not be annualized because of the seasonality of the company’s business.
NOTE 2.
NEW ACCOUNTING STANDARDS
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 will adopt this standard in the first quarter of fiscal year 2015. While the company is evaluating the impact this standard will have on the presentation of unrecognized tax benefits in the company's Statements of Consolidated Financial Position, it will not affect the company's results of operations, financial condition or cash flows.
In February 2013, the Financial Accounting Standards Board ("FASB") issued "Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," which requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, entities are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail on these amounts. This standard is effective prospectively for reporting periods beginning after Dec. 15, 2012. Accordingly, Monsanto adopted this standard in the first quarter of fiscal year 2014. See Note 17 - Accumulated Other Comprehensive Loss - for additional disclosures.
In July 2012, the FASB issued amendments to the Intangibles-Goodwill and Other topic of the Accounting Standards Codification ("ASC"). Prior to this amendment the company performs a two-step test as outlined by the ASC. Step one of the two-step indefinite-lived intangible asset impairment test is performed by calculating the fair value of the indefinite-lived intangible asset and comparing the fair value with its carrying amount. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, then the company is required to perform the second step of the impairment test to measure the amount of the impairment loss, if any. Under the amendment, an entity has the option to first assess qualitative factors to

9


MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

determine whether it is necessary to perform the current two-step test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. An entity can choose to perform the qualitative assessment on none, some or all of its indefinite-lived intangible assets. Moreover, an entity can bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to step one of the impairment test, and then resume performing the qualitative assessment in any subsequent period. The amendment is effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after Sep. 15, 2012. Accordingly, Monsanto will adopt this amendment in fiscal year 2014 for the annual impairment test of indefinite-lived intangible assets and does not expect the adoption to have a material impact on the consolidated financial statements.
In December 2011 and February 2013, the FASB issued an amendment to the Balance Sheet topic of the ASC, which requires entities to disclose both gross and net information about both derivatives and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting agreement. The objective of the disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. This standard is effective for fiscal years, and interim periods within those years, beginning on or after Jan. 1, 2013. Retrospective presentation for all comparative periods presented is required. Accordingly, Monsanto adopted this amendment in the first quarter of fiscal year 2014. See Note 14 - Financial Instruments - for additional disclosures.
NOTE 3.
BUSINESS COMBINATIONS AND COLLABORATIVE ARRANGEMENTS
Business Combinations
2014 Acquisitions: 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 hyper-local 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 ASC. Acquisition costs were $17 million, of which $1 million were recorded in 2014. These costs were classified as selling, general and administrative expenses. 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.
The business operations and employees of the acquired entity described above were included in the Seeds and Genomics segment results upon acquisition. The estimated fair value of the assets and liabilities, summarized in the table below, represents the preliminary purchase price allocation. This allocation will be finalized as soon as the information becomes available, however, not to exceed one year from the acquisition date.

10


MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

(Dollars in millions)
2014 Acquisition
Current Assets
$
59

Property, Plant & Equipment
9

Goodwill
787

Other Intangible Assets
142

Total Assets Acquired
997

Current Liabilities
10

Other Liabilities
55

Total Liabilities Assumed
65

Net Assets Acquired
$
932

Supplemental Information:
 

Net assets acquired
$
932

Cash acquired
15

Cash paid, net of cash acquired
$
917

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.
The following table presents details of the definite life acquired identifiable intangible assets:
(Dollars in millions)
Weighted-Average Life (Years)
 
Useful Life
(Years)
 
2014 Acquisition
Acquired Intellectual Property
10
 
10
 
$
138

Customer Relationships
1
 
1
 
4

Other Intangible Assets
 
 
 
 
$
142

2013 Acquisitions: In August 2013, Monsanto acquired certain assets and manufacturing capabilities of Dieckmann GmbH & Co. KG, a business based in Germany which specializes in the breeding of oilseed rape and rye seeds. The acquisition, which qualifies as a business under the Business Combinations topic of the ASC, is expected to complement Monsanto's existing activities in the breeding, production and marketing of oilseed rape in Europe. Acquisition costs were approximately $1 million and were classified as selling, general and administrative expenses in the Statements of Consolidated Operations.  The total fair value and cash paid for the acquisition was $30 million. The fair value of the acquisition 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 deductible for tax purposes.
In June 2013, Monsanto acquired 100 percent of the outstanding stock of GrassRoots Biotechnology, Inc., a business based in Durham, North Carolina that is focused on gene expression and other agriculture technologies. The acquisition of the company, which qualifies as a business under the Business Combinations topic of the ASC, is expected to complement Monsanto's existing research platforms. Acquisition costs were less than $1 million and were classified as selling, general and administrative expenses in the Statements of Consolidated Operations. The total fair value and cash paid for the acquisition was $15 million (net of cash acquired). The fair value of the acquisition 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.
In March 2013, Monsanto acquired substantially all of the assets of Rosetta Green Ltd., a business based in Israel which specializes in the identification and use of unique genes to guide key processes in major crops including corn, soybeans and cotton. The acquisition of the company, which qualifies as a business under the Business Combinations topic of the ASC, is expected to complement Monsanto's existing research platforms. Acquisition costs were less than $1 million and were classified as selling, general and administrative expenses in the Statements of Consolidated Operations. The total fair value and cash paid for the acquisition was $35 million. The fair value of the acquisition 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 deductible for tax purposes.

11


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SECOND QUARTER 2014 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

In January 2013, Monsanto acquired select assets of Agradis, Inc., a business focused on developing sustainable agricultural solutions. The acquisition, which qualifies as a business under the Business Combinations topic of the ASC, is intended to support Monsanto's efforts to provide farmers with sustainable biological products to improve crop health and productivity. Acquisition costs incurred were less than $1 million and were classified as selling, general and administrative expenses in the Statements of Consolidated Operations. The total cash paid and the fair value of the acquisition was $85 million, and the purchase price 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 deductible for tax purposes.
For the acquisitions described above, the business operations and employees of the acquired entities were included in the Seeds and Genomics segment results upon acquisition.
Pro forma information related to the 2013 acquisitions is not presented because the impact of these acquisitions, either individually or in the aggregate, on Monsanto's consolidated results of operations is not expected to be 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 multi-year 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.
During both the three and six months ended Feb. 28, 2014, Monsanto expensed royalties, purchases and profit sharing payments to third parties under collaborative agreements in the amount of $4 million. These amounts were classified as cost of goods sold on the Statements of Consolidated Operations. There were no expensed royalties, purchases or profit sharing payments to third parties under collaborative agreements during both the three and six months ended Feb. 28, 2013. During each of the three months ended Feb. 28, 2014, and Feb. 28, 2013, Monsanto recorded a net R&D reimbursement from third parties under collaboration agreements in the amount of $12 million. During the six months ended Feb. 28, 2014, and Feb. 28, 2013, Monsanto recorded a net R&D reimbursement from third parties under collaboration agreements in the amounts of $20 million and $27 million, respectively. These amounts were classified as a reduction to research and development expenses on the Statements of Consolidated Operations.
NOTE 4.
CUSTOMER FINANCING PROGRAMS
Monsanto participates in customer financing programs as follows:
 
As of
(Dollars in millions)
Feb. 28, 2014
 
Aug. 31, 2013
Transactions that Qualify for Sales Treatment
 
 
 
U.S. agreement to sell trade receivables(1)
 
 
 
Outstanding balance
$
10

 
$
348

Maximum future payout under recourse provisions
1

 
19

European and Latin American agreements to sell trade receivables(2)
 
 
 
Outstanding balance
$
9

 
$
44

Maximum future payout under recourse provisions
9

 
41

Agreements with Lenders(3)
 
 
 
Outstanding balance
$
84

 
$
45

Maximum future payout under the guarantee
60

 
32


12


MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

The gross amount of receivables sold under transactions that qualify for sales treatment were: 
  
Gross Amount of Receivables Sold
 
Three Months Ended
Six Months Ended
(Dollars in millions)
Feb. 28, 2014
 
Feb. 28, 2013
Feb. 28, 2014
 
Feb. 28, 2013
Transactions that Qualify for Sales Treatment
 
 
 
 
 
 
U.S. agreement to sell trade receivables(1)
$

 
$

$
23

 
$
2

European and Latin American agreements to sell trade receivables(2)
3

 
3

10

 
3

(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 $430 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 our investment. 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 5Variable Interest Entities.
There were no significant recourse or non-recourse liabilities for all programs as of Feb. 28, 2014, and Aug. 31, 2013. There were no significant delinquent loans for all programs as of Feb. 28, 2014, and Aug. 31, 2013.
NOTE 5.
VARIABLE INTEREST ENTITIES
Monsanto is involved with entities that are deemed to be variable interest entities (VIEs). Monsanto has determined that the company holds variable interests in an entity that is established as a revolving financing program. In addition, Monsanto has various variable interests in biotechnology companies that focus on plant gene and agricultural fungicide research, development and commercialization. These variable interests have also been determined to be VIEs.
Consolidated VIEs
Monsanto has a financing program in Brazil that is recorded as a consolidated 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 have 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 Feb. 28, 2014, and Aug. 31, 2013, and Monsanto holds the remaining nine percent interest. 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. See Note 4Customer Financing Programs — for additional information regarding the revolving financing arrangement.
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

13


MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

other than the maximum exposure to loss relating to the VIE. The following table presents the carrying value of assets and liabilities, which are identified as restricted assets and liabilities on the company’s Statements of Consolidated Financial Position, and the maximum exposure to loss relating to the VIE for which Monsanto is the primary beneficiary.
  
Financing Program VIE
 
As of
(Dollars in millions)
Feb. 28, 2014
 
Aug. 31, 2013
Cash and cash equivalents
$
15

 
$
140

Trade receivables, net
129

 

Total Assets
$
144

 
$
140

Total Liabilities

 

Maximum Exposure to Loss
$
13

 
$

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 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. As of Feb. 28, 2014, and Aug. 31, 2013, the VIEs had no significant assets or liabilities. Monsanto's maximum exposure to loss was $43 million and $11 million as of Feb. 28, 2014, and Aug. 31, 2013, respectively, which includes our 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 VIE.
Non-Consolidated VIE
Monsanto has a variable interest through an investment with a software company that develops software with agricultural applications. The company has not provided financial or other support other than its original investment, has no implied or unfunded commitments and the maximum exposure to loss is limited to the amount of investment in the entity and is not significant. There were no significant assets or liabilities for the VIE as of Feb. 28, 2014, and Aug. 31, 2013.
NOTE 6.
RECEIVABLES
Trade receivables on the Statements of Consolidated Financial Position are net of allowances of $72 million and $68 million as of Feb. 28, 2014, and Aug. 31, 2013, 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 $128 million and $112 million with a corresponding allowance for credit losses on these receivables of $105 million and $104 million as of Feb. 28, 2014, and Aug. 31, 2013, respectively. These long-term customer receivable balances and the corresponding allowance are included in long-term receivables, net on 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.

14


MONSANTO COMPANY
 
SECOND QUARTER 2014 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, 2012
$
141

Incremental Provision
7

Recoveries
(1
)
Write-offs
(47
)
Other(1) 
4

Balance as of Aug. 31, 2013
$
104

Incremental Provision
5

Recoveries
(2
)
Write-offs
(10
)
Other(1)
8

Balance as of Feb. 28, 2014
$
105

(1)Includes reclassifications from trade receivables, net and foreign currency translation adjustments.
In addition, the company has long-term contractual receivables. These receivables are collected at fixed and determinable dates in accordance with the customer long-term agreement. The long-term contractual receivables were $108 million and $229 million as of Feb. 28, 2014, and Aug. 31, 2013, respectively, and did not have any allowance recorded related to these balances. These receivables are included in long-term receivables, net on the Statements of Consolidated Financial Position. There are no balances related to these long-term contractual receivables that are past due. These receivables are outstanding with large, reputable companies who have been timely with scheduled payments thus far and are considered to be fully collectible. Interest is accrued on these receivables in accordance with the agreements and is included within interest income in the Statements of Consolidated Operations.
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)
Feb. 28, 2014
 
Aug. 31, 2013
Finished Goods
$
1,700

 
$
1,079

Goods In Process
1,679

 
1,619

Raw Materials and Supplies
479

 
418

Inventory at FIFO Cost
3,858

 
3,116

Excess of FIFO over LIFO Cost
(166
)
 
(169
)
Total
$
3,692

 
$
2,947

NOTE 8.
GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the net carrying amount of goodwill for the first six months of fiscal year 2014, by segment, are as follows:
(Dollars in millions)
Seeds and
Genomics
 
Agricultural
Productivity
 
Total
Balance as of Aug. 31, 2013
$
3,461

 
$
59

 
$
3,520

Acquisition activity (see Note 3)
787

 

 
787

Effect of foreign currency translation adjustments
20

 

 
20

Balance as of Feb. 28, 2014
$
4,268

 
$
59

 
$
4,327

Goodwill increased during the six months ended Feb. 28, 2014, due to the acquisition of The Climate Corporation. See Note 3 - Business Combinations and Collaborative Arrangements - for further information. There were no events or circumstances

15


MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

indicating that goodwill might be impaired as of Feb. 28, 2014. The fiscal year 2014 annual goodwill impairment test will be performed as of March 1, 2014.
Information regarding the company’s other intangible assets is as follows:
  
As of Feb. 28, 2014
 
As of Aug. 31, 2013
(Dollars in millions)
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Carrying
Amount
 
Accumulated
Amortization
 
Net
Acquired Intellectual Property
$
1,187

 
$
(492
)
 
$
695

 
$
1,095

 
$
(791
)
 
$
304

Acquired Germplasm
1,119

 
(735
)
 
384

 
1,113

 
(717
)
 
396

Trademarks
368

 
(135
)
 
233

 
341

 
(131
)
 
210

Customer Relationships
340

 
(193
)
 
147

 
306

 
(179
)
 
127

Other
181

 
(99
)
 
82

 
177

 
(91
)
 
86

Total Other Intangible Assets, Finite Lives
$
3,195

 
$
(1,654
)
 
$
1,541

 
$
3,032

 
$
(1,909
)
 
$
1,123

In Process Research & Development, Indefinite Lives
104

 

 
104

 
103

 

 
103

Total Other Intangible Assets
$
3,299

 
$
(1,654
)
 
$
1,645

 
$
3,135

 
$
(1,909
)
 
$
1,226

The increase in total other intangible assets during the six months ended Feb. 28, 2014, is primarily related to the acquisition of The Climate Corporation and the Novozymes collaborative arrangement. Total amortization expense of other intangible assets was $33 million and $31 million in second quarter of fiscal years 2014 and 2013, respectively. Total amortization expense of other intangible assets was $60 million and $59 million for the six months ended Feb. 28, 2014, and Feb. 28, 2013, respectively.
The estimated intangible asset amortization expense for fiscal year 2014 through fiscal year 2018 is as follows:
(Dollars in millions)
Amount
2014
$
144

2015
176

2016
173

2017
152

2018
118

NOTE 9.
INVESTMENTS
As of Feb. 28, 2014, and Aug. 31, 2013, Monsanto has short-term investments outstanding of $45 million and $254 million, respectively. The investments at Feb. 28, 2014, and Aug. 31, 2013, are comprised of commercial paper with original maturities of one year or less. See Note 13 — Fair Value Measurements.
Monsanto has investments in long-term equity securities, which are considered available-for-sale. As of Feb. 28, 2014, and Aug. 31, 2013, these long-term equity securities are recorded in other assets in the Statements of Consolidated Financial Position at a fair value of $47 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 Feb. 28, 2014, and Aug. 31, 2013, these investments were recorded at $81 million and $67 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 and six month periods ended Feb. 28, 2014, and Feb. 28, 2013.
NOTE 10.
DEFERRED REVENUE
As of Feb. 28, 2014, and Aug. 31, 2013, short-term deferred revenue was $863 million and $517 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

16


MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

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.
In 2008, Monsanto entered into a corn herbicide tolerance and insect control trait technologies agreement with Pioneer Hi-Bred International, Inc. Among its provisions, the agreement modified certain existing corn license agreements between the parties. Under the 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 was recorded for each of the three months ended Feb. 28, 2014, and Feb. 28, 2013, and revenue of $40 million was recorded for each of the six months ended Feb. 28, 2014, and Feb. 28, 2013. As of Feb. 28, 2014, and Aug. 31, 2013, the remaining receivable balance is $147 million and $230 million, respectively, of which $85 million is current in both periods and is included in trade receivables, net. The remaining balance is included in long-term receivables, net on the Statements of Consolidated Financial Position. As of Feb. 28, 2014, and Aug. 31, 2013, the remaining deferred revenue balance is $119 million and $159 million, respectively, of which $79 million is included in current deferred revenue in both periods. The interest income recorded on this receivable is $1 million and $2 million for the three months ended Feb. 28, 2014, and Feb. 28, 2013, respectively. Interest income recorded on this receivable is $2 million and $3 million for the six months ended Feb. 28, 2014, and Feb. 28, 2013, respectively.    
In 2008, Monsanto and Syngenta entered into a Genuity Roundup Ready 2 Yield Soybean License Agreement, which grants Syngenta access to Monsanto’s Genuity Roundup Ready 2 Yield Soybean technology in consideration of royalty payments from Syngenta, based on sales. The minimum obligation from Syngenta over the nine-year contract period is $81 million. Revenue of $11 million and $8 million related to this agreement was recorded for the three months ended Feb. 28, 2014, and Feb. 28, 2013, respectively, and revenue of $14 million and $12 million was recorded for the six months ended Feb. 28, 2014, and Feb. 28, 2013, respectively. As of Feb. 28, 2014, and Aug. 31, 2013, the remaining receivable balance is $42 million and $58 million, respectively. The majority of this balance is current and is included in trade receivables, net. The remaining balance is included in long-term receivables, net on the Statements of Consolidated Financial Position. As of Feb. 28, 2014, and Aug. 31, 2013, the remaining deferred revenue balance is $27 million and $34 million, respectively, of which $20 million is included in current deferred revenue in both periods.
NOTE 11.
INCOME TAXES
Monsanto recorded a tax benefit of $47 million in the first half of 2013 primarily as a result of a capital loss from a deemed liquidation of a subsidiary, the retroactive extension of the research and development credit pursuant to the enactment of the American Taxpayer Relief Act of 2012 on Jan. 2, 2013, and the favorable resolution of domestic and ex-US tax matters.
NOTE 12.
DEBT AND OTHER CREDIT ARRANGEMENTS
In November 2011, Monsanto filed a new shelf registration with the SEC (2011 shelf registration) that allows the company to issue an unlimited capacity of debt, equity and hybrid offerings. The 2011 shelf registration will expire in November 2014.
In November 2013, Monsanto issued $400 million of Floating Rate Senior Notes which are due on Nov. 7, 2016, (Floating Rate Notes), $300 million of 1.85% Senior Notes which are due on Nov. 15, 2018, (2018 Senior Notes) and $300 million of 4.65% Senior Notes which are due on Nov. 15, 2043, (2043 Senior Notes). All notes were issued under the 2011 shelf registration.
The net proceeds from the sale of the Floating Rate, 2018, and 2043 Senior Notes were used for the acquisition of The Climate Corporation and general corporate purposes.
In July 2012, Monsanto issued $250 million of 2.20% Senior Notes which are due on July 15, 2022, (2022 Senior Notes) and $250 million of 3.60% Senior Notes which are due on July 15, 2042, (2042 Senior Notes). Both were issued under the 2011 shelf registration.
The net proceeds from the sale of the 2022 and 2042 Senior Notes were used for general corporate purposes, including refinancing of the company’s indebtedness.
Monsanto has a $2 billion credit facility agreement with a group of banks that provides a senior unsecured revolving credit facility through April 1, 2016.
The fair value of the total short-term debt was $104 million and $51 million as of Feb. 28, 2014, and Aug. 31, 2013, respectively. The fair value of the total long-term debt was $3,246 million and $2,231 million as of Feb. 28, 2014, and Aug. 31, 2013, respectively.

17


MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

NOTE 13.
FAIR VALUE MEASUREMENTS
Monsanto determines the fair market value of its financial assets and liabilities based on quoted market prices, estimates from brokers, and other appropriate valuation techniques. The company uses the fair value hierarchy established in the Fair Value Measurements and Disclosures topic of the ASC, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy contains three levels as follows, with Level 3 representing the lowest level of input:
Level 1 — Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2 — Values based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, discounted cash flow models, or 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 that were accounted for at fair value on a recurring basis as of Feb. 28, 2014, and Aug. 31, 2013. 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 Feb. 28, 2014, Using
(Dollars in millions)
Level 1
Level 2
Level 3
Total
Assets at Fair Value:
 
 
 
 
Cash equivalents
$
3,263

$

$

$
3,263

Short-term investments
45



45

Equity securities
47



47

Derivative assets related to:
 
 
 
 
Foreign currency contracts

8


8

Commodity contracts
5

4


9

Total Assets at Fair Value
$
3,360

$
12

$

$
3,372

Liabilities at Fair Value:
 
 
 
 
Derivative liabilities related to:
 
 
 
 
Foreign currency contracts
$

$
12

$

$
12

Commodity contracts
51

6


57

Total Liabilities at Fair Value
$
51

$
18

$

$
69

Liabilities Not Recorded at Fair Value:
 
 
 
 
Short-term debt instruments(1)
$

$
104

$

$
104

Long-term debt instruments(1)

3,246


3,246

Total Liabilities Not Recorded at Fair Value
$

$
3,350

$

$
3,350

Total Liabilities Recorded and Not Recorded at Fair Value
$
51

$
3,368

$

$
3,419

(1)
Short-term and 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.


18


MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

  
Fair Value Measurements at Aug. 31, 2013, Using
(Dollars in millions)
Level 1
Level 2
Level 3
Total
Assets at Fair Value:
 
 
 
 
Cash equivalents
$
2,865

$

$

$
2,865

Short-term investments
254



254

Equity securities
22



22

Derivative assets related to:
 
 
 


Foreign currency contracts

5


5

Commodity contracts
13

6


19

Total Assets at Fair Value
$
3,154

$
11

$

$
3,165

Liabilities at Fair Value:
 
 
 
 
Contingent consideration
$

$

$
40

$
40

Derivative liabilities related to:
 
 
 
 
Foreign currency contracts

8


8

Commodity contracts
73

12


85

Total Liabilities at Fair Value:
$
73

$
20

$
40

$
133

Liabilities Not Recorded at Fair Value:
 
 
 
 
Short-term debt instrument(1)
$

$
51

$

$
51

Long-term debt instruments(1)

2,231


2,231

Total Liabilities Not Recorded at Fair Value
$

$
2,282

$

$
2,282

Total Liabilities Recorded and Not Recorded at Fair Value
$
73

$
2,302

$
40

$
2,415

(1)
Short-term and 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 listed or OTC markets. 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 Operation as a component of net sales, cost of goods sold and other expense, net.
The company’s short-term investments are comprised of commercial paper. The company’s equity securities are comprised of publicly traded equity investments. Commercial paper and publicly traded equity investments are valued using quoted market prices and are classified as Level 1.
The fair value of short-term and long-term debt was determined based on current market yields for our debt traded in the secondary market.

19


MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

For the six months ended Feb. 28, 2014, and Feb. 28, 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 Feb. 28, 2014, and Aug. 31, 2013. The following table summarizes the change in fair value of the Level 3 liability for the six months ended Feb. 28, 2014.
(Dollars in millions)
Contingent
Consideration
Balance as of Aug. 31, 2013
$
40

Settlement
(40
)
Balance as of Feb. 28, 2014
$

There were no significant measurements of assets or liabilities to their implied fair value on a nonrecurring basis during the six months ended Feb. 28, 2014, and Feb. 28, 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 Feb. 28, 2014, and Aug. 31, 2013.
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.
NOTE 14.
FINANCIAL INSTRUMENTS
Cash Flow Hedges
The company uses foreign currency forward and foreign currency option contracts to hedge anticipated sales or purchases denominated in foreign currencies. The company enters into these contracts to protect itself against the risk that the eventual net cash flows will be adversely affected by changes in exchange rates.
Monsanto’s commodity price risk management strategy is to use derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from volatility in commodity prices. Price fluctuations in commodities, mainly in corn and soybeans, can cause the actual prices paid to production growers for corn and soybean seeds to differ from anticipated cash outlays. Monsanto uses commodity futures and options contracts to manage these risks. Monsanto’s energy and raw material risk management strategy is to use derivative instruments to minimize significant unanticipated manufacturing cost fluctuations that may arise from volatility in natural gas, diesel and ethylene prices.
Monsanto’s interest rate risk management strategy is to use derivative instruments, such as forward-starting interest rate swaps, to minimize significant unanticipated earnings fluctuations that may arise from volatility in interest rates of the company’s borrowings and to manage the interest rate sensitivity of its debt.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive loss and reclassified into earnings in the period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.
The maximum term over which the company is hedging exposures to the variability of cash flow (for all forecasted transactions) is 18 months for foreign currency hedges and 39 months for commodity hedges. During the next 12 months, a pretax net loss of approximately $50 million is expected to be reclassified from accumulated other comprehensive loss into earnings. During the three and six months ended Feb. 28, 2014, and Feb. 28, 2013, no cash flow hedges were discontinued.
Fair Value Hedges
The company uses commodity futures and options contracts as fair value hedges to manage the value of its soybean inventory. For derivative instruments that are designated and qualify as fair value hedges, both the gain or loss on the derivative and the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. No fair value hedges were discontinued during the three and six months ended Feb. 28, 2014, and Feb. 28, 2013.

20


MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

Derivatives Not Designated as Hedging Instruments
The company uses foreign exchange 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 contracts to hedge anticipated cash payments to growers in the United States, Argentina, Mexico and Brazil, which can fluctuate with changes in commodity price. Because these 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 one of the company’s VIEs. 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.
The notional amounts of the company’s derivative instruments outstanding as of Feb. 28, 2014, and Aug. 31, 2013, were as follows:
 
As of
(Dollars in millions)
Feb. 28, 2014
Aug. 31, 2013
Derivatives Designated as Hedges:
 
 
Foreign exchange contracts
$
243

$
261

Commodity contracts
949

872

Total Derivatives Designated as Hedges
$
1,192

$
1,133

Derivatives Not Designated as Hedges:
 
 
Foreign exchange contracts
$
1,269

$
1,188

Commodity contracts
145

217

Interest rate contracts
137


Total Derivatives Not Designated as Hedges
$
1,551

$
1,405


21


MONSANTO COMPANY
 
SECOND QUARTER 2014 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 Feb. 28, 2014
(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
$
2

$

$
2

$

$
2

 
 
Total trade receivables, net
2


2


2

$
2,513

$
2,515

Miscellaneous receivables
 
 
 
 
 
 
 
 
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
8


8


8

 
 
Total miscellaneous receivables
8


8


8

660

668

Other current assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
3

(46
)
(43
)
43


 
 
 
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
2

(1
)
1

1

2

 
 
Total other current assets
5

(47
)
(42
)
44

2

232

234

Other assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
2

(4
)
(2
)
2


 
 
Total other assets
2

(4
)
(2
)
2


610

610

Total Asset Derivatives
$
17

$
(51
)
$
(34
)
$
46

$
12

 
 
Liability Derivatives:
 
 
 
 
 
 
 
Other current assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
$
46

$
(46
)
$

$

$

 
 
 
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
1

(1
)



 
 
Total other current assets
47

(47
)



 
 
Other assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
4

(4
)



 
 
Total other assets
4

(4
)



 
 
Miscellaneous short-term accruals
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
3


3


3

 
 
 
 
Commodity contracts
3


3


3

 
 
 
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
9


9


9

 
 
 
 
Commodity contracts
1


1


1

 
 
Total miscellaneous short-term accruals
16


16


16

$
757

$
773

Other liabilities
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts
2


2


2

 
 
Total other liabilities
2


2


2

391

393

Total Liability Derivatives
$
69

$
(51
)
$
18

$

$
18

 
 
(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

22


MONSANTO COMPANY
 
SECOND QUARTER 2014 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)

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, 2013
(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)
$
1

$
(6
)
$
(5
)
$
5

$

 


Total trade receivables, net
1

(6
)
(5
)
5


$
1,715

$
1,715

Miscellaneous receivables
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
3


3


3

 
 
 
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
2


2


2

 
 
 
 
Commodity contracts
4


4


4

 
 
Total miscellaneous receivables
9


9


9

739

748

Other current assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
9