10-K 1 mon-20160831x10k.htm 10-K Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Aug. 31, 2016
or
[    ] 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
monsantologoa01a04.jpg
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., St. Louis, Missouri
 
63167
(Address of principal executive offices)
 
(Zip Code)
 
 
Registrant’s telephone number including area code:
 
(314) 694-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock $0.01 par value
 
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [ X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
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 [ ]
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One): Large Accelerated Filer [X] Accelerated Filer [ ] Non-Accelerated Filer [ ] Smaller Reporting Company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter (Feb. 29, 2016): approximately $39.2 billion.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 437,982,595 shares of common stock, $0.01 par value, outstanding at Oct. 14, 2016.
Documents Incorporated by Reference
Portions of Monsanto Company’s definitive proxy statement, which is expected to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in December 2016, are incorporated herein by reference into Part III of this Annual Report on Form 10-K.


MONSANTO COMPANY
 
2016 FORM 10-K

INTRODUCTION
This Annual Report on Form 10-K is a document that U.S. public companies file with the Securities and Exchange Commission (“SEC”) every year. Part II of the Form 10-K contains the business information and financial statements that many companies include in the financial sections of their annual reports. The other sections of this Form 10-K include further information about our business that we believe will be of interest to investors. We hope investors will find it useful to have all of this information in a single document.
The SEC allows us to report information in the Form 10-K by “incorporating by reference” from another part of the Form 10-K or from the proxy statement. You will see that information is “incorporated by reference” in various parts of our Form 10-K. The proxy statement will be available on our website after it is filed with the SEC in December 2016.
Monsanto was incorporated in Delaware on Feb. 9, 2000, as a subsidiary of Pharmacia Corporation (subsequently converted to Pharmacia LLC). Monsanto includes the operations, assets and liabilities that were previously the agricultural business of Pharmacia. Pharmacia is now a subsidiary of Pfizer Inc.
Unless otherwise indicated, “Monsanto,” “the company,” “we,” “our” and “us” are used interchangeably to refer to Monsanto Company or to Monsanto Company and its subsidiaries, as appropriate to the context.
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 other glyphosate-based herbicides, and references to “Roundup and other glyphosate-based herbicides” exclude all lawn-and-garden herbicides.
Information in this Form 10-K is current as of October 19, 2016, unless otherwise specified.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
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 proposed transaction with Bayer Aktiengesellschaft (“Bayer”); the potential development, regulatory approval and public acceptance of our products; our expected financial performance, including sales performance, and the anticipated effect of our strategic actions; the anticipated benefits of recent acquisitions; the outcome of contingencies, such as litigation; domestic or international economic, political and market conditions; and other factors that could affect our future results of operations or financial position, including, without limitation, statements under the captions “Legal Proceedings,” “Overview — Executive Summary — Outlook,” “Seeds and Genomics Segment,” “Agricultural Productivity Segment,” “Financial Condition, Liquidity, and Capital Resources” and “Outlook.” 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.
Our forward-looking statements represent our estimates and expectations at the time that we make them. However, circumstances change constantly, often unpredictably, and investors should not place undue reliance on these statements. Many events beyond our control will determine whether our expectations will be realized. 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. In the interests of our investors, Part I. Item 1A. Risk Factors below sets forth some of the important reasons that actual results may be materially different from those that we anticipate.

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TABLE OF CONTENTS FOR FORM 10-K

 
Page
Item 1.
 
 
 
 
 
 
 
 
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
Item 5.
Item 6.
Item 7.
 
 
 
 
 
 
 
Item 7A.
Item 8.
 
 
 
 
 
 
 
 
Item 9.
Item 9A.
Item 9B.
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
Item 15.


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PART I
ITEM 1. BUSINESS
Monsanto Company, along with its subsidiaries, is a leading global provider of agricultural products for farmers. Our seeds, biotechnology trait products, herbicides and digital agriculture products provide farmers with solutions that help improve productivity, reduce the costs of farming and produce better foods for consumers and better feed for animals.
We manage our business in two reportable segments: Seeds and Genomics and Agricultural Productivity. We view our Seeds and Genomics segment as the driver for future growth for our company. In our Agricultural Productivity segment, global glyphosate producers have substantial capacity to supply the market, and we expect this global capacity to maintain pressure on margins.
On Sept. 14, 2016, Monsanto Company entered into an agreement and plan of merger (the “Merger Agreement”) with Bayer Aktiengesellschaft, a German stock corporation (“Bayer”), and KWA Investment Co., a Delaware corporation and an indirect wholly owned subsidiary of Bayer (“Merger Sub”). The Merger Agreement provides, among other things and subject to the terms and conditions set forth therein, that Merger Sub will be merged with and into the company (the “Merger”), with the company continuing as the surviving corporation and as a wholly owned subsidiary of Bayer. The Merger Agreement provides that each share of common stock of the company, par value $0.01 per share (other than certain shares specified in the Merger Agreement), outstanding immediately prior to the effective time of the Merger (the “Effective Time”) will be automatically converted into the right to receive $128.00 in cash, without interest. The obligation of the parties to complete the Merger is subject to customary closing conditions, including, among others, (i) the approval of the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of common stock of the company entitled to vote, (ii) the expiration or earlier termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the adoption of all approvals necessary for the completion of the Merger by the European Commission under Council Regulation (EC) No. 139/2004, (iv) the receipt of certain other required foreign antitrust approvals, (v) completion of the review process by the Committee on Foreign Investment in the United States (“CFIUS”), (vi) no approvals related to CFIUS or antitrust laws having been made or obtained with the imposition of conditions that, together with Divestiture Actions (as defined in the Merger Agreement) undertaken, would reasonably be expected to have a Substantial Detriment (as defined in the Merger Agreement), (vii) no law, order or injunction that is in effect that enjoins or otherwise prohibits the completion of the Merger having been enacted, issued, promulgated, enforced or entered after September 14, 2016 by a court or other governmental entity of competent jurisdiction, (viii) the accuracy of the representations and warranties contained in the Merger Agreement (subject to certain qualifications) and (ix) the performance by the parties of their respective obligations under the Merger Agreement in all material respects. Additional information about the Merger Agreement is set forth in our Current Report on Form 8-K filed with the SEC on September 20, 2016; in addition, see Part I - Item 1A - Risk Factors and Item 8 — Financial Statements and Supplementary Data —Note 27 - Subsequent Event of this Form 10-K for further details on the Merger.
We provide information about our business, including analyses, significant news releases and other supplemental information, on our website: www.monsanto.com. In addition, we make available through our website, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after they have been filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Forms 3, 4 and 5 filed with respect to our equity securities under Section 16(a) of the Exchange Act are also available on our website by the end of the business day after filing. All of these materials can be found under the “Investors” caption. Our website also includes the following corporate governance materials, under the tab “Who We Are — Corporate Governance”: our Code of Business Conduct, our Code of Ethics for Chief Executive and Senior Financial Officers, our Board of Directors’ Charter and Corporate Governance Guidelines and charters of our Board committees. These materials are also available on paper. Any shareowner may request them by contacting the Office of the General Counsel, Monsanto Company, 800 N. Lindbergh Blvd., St. Louis, Missouri, 63167. Information on our website does not constitute part of this report.
A description of our business follows.
SEEDS AND GENOMICS SEGMENT
Through our Seeds and Genomics segment, we produce leading seed brands, including DEKALB, Asgrow, Deltapine, Seminis and De Ruiter, and we develop biotechnology traits that assist farmers in controlling insects and weeds and digital agriculture products to assist farmers in decision making. We also provide other seed companies with genetic material for their seed brands.

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The tabular information about net sales of our seeds and traits that appears in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) — Seeds and Genomics Segment — is incorporated herein by reference.
 
Major Products
  
Applications
  
Major Brands
Germplasm
  
Row crop seeds:
Corn hybrids and foundation seed
Soybean varieties and foundation seed
Cotton varieties, hybrids and foundation seed
Other row crop varieties and hybrids, such as canola

  
 
DEKALB, Channel for corn
Asgrow for soybeans
Deltapine for cotton
 

 
 
Vegetable seeds:
Open field and protected-culture seed for tomato, pepper, melon, cucumber, squash, beans, broccoli, onions and lettuce, among others

 

Seminis and De Ruiter for vegetable seeds

Biotechnology traits(1)
  
Enable crops to protect themselves from borers and rootworm in corn, certain lepidopteran insects in soybeans, and leaf- and boll-feeding worms in cotton, reducing the need for applications of insecticides

  
SmartStax, YieldGard, YieldGard VT Triple, VT Triple PRO and VT Double PRO for corn; Intacta RR2 PRO for soybeans;
Bollgard and Bollgard II for cotton

 
 
Enable crops, such as corn, soybeans, cotton and canola, to be tolerant of Roundup branded and other glyphosate-based herbicides

 
Roundup Ready and Roundup Ready 2 Yield
(soybeans only)
Genuity, global umbrella trait brand

 
 
Enable cotton and soybean crops to be tolerant of dicamba herbicides
 
Roundup Ready 2 Xtend for soybeans and Bollgard II XtendFlex for cotton
(1)
Monsanto also offers farmers stacked-trait products, which are single-seed products in which two or more traits are combined.
 
Distribution of Products
We have a worldwide distribution and sales and marketing organization for our seeds and traits. We sell our products under Monsanto brands and license technology and genetic material to others for sale under their own brands. Through distributors, independent retailers and dealers, agricultural cooperatives and agents, we market our DEKALB, Asgrow and Deltapine branded germplasm to farmers in every agricultural region of the world. In the United States, we market regional seed brands under our American Seeds, LLC and Channel Bio, LLC businesses to farmers directly, as well as through dealers, agricultural cooperatives and agents. In countries where they are approved for sale, we market and sell our trait technologies with our branded germplasm, pursuant to license agreements with our farmer customers. In Brazil, Argentina and Paraguay, we have implemented a point-of-delivery, grain-based payment system. We contract with grain handlers to collect applicable trait fees when farmers deliver grain for which trait fees have not already been paid. In addition to selling our products under our own brands, we license a broad package of germplasm and trait technologies to large and small seed companies in the United States and certain international markets. Those seed companies in turn market our trait technologies in their branded germplasm; they may also market our germplasm under their own brand name. Our vegetable seeds are predominantly marketed under either the Seminis or De Ruiter brand in more than 150 countries either directly to farmers or through distributors, independent retailers and dealers, agricultural cooperatives, plant raisers and agents.
Competition
The global market for the products of our Seeds and Genomics segment is competitive, and the competition has intensified. Both our row crops and our vegetable seed businesses compete with numerous multinational agrichemical and seed marketers globally and with hundreds of smaller companies regionally. Most of our seed competitors in row crops are also licensees of our germplasm or biotechnology traits, and a few of our vegetable seed business competitors have licensed biotech traits for sweet corn or genetic improvements through advanced breeding. In certain countries, we also compete with government-owned seed companies. Our biotechnology traits compete as a system with other practices, including the application of agricultural chemicals, and traits developed by other companies. Genome editing technology, application of emerging data sciences capabilities, and other advancements in breeding technology may enable potentially disruptive improvements in genetic performance by competitors or new market entrants. Our weed- and insect-control systems compete with chemical and seed products produced by other agrichemical and seed marketers. Competition for the discovery of new traits based on biotechnology or genomics is likely to come from major global agrichemical companies, smaller biotechnology research companies and institutions, state-funded programs and academic institutions. Enabling technologies to enhance biotechnology

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trait development may also come from academic researchers and biotechnology research companies. Competitors using our technology outside of license terms and farmers who save seed from one year to the next also affect competitive conditions.
Product performance (in particular, crop vigor and yield for our row crops and quality for our vegetable seeds), customer support and service, intellectual property rights and protection, product availability and planning and price are important elements of our market success in seeds. In addition, distributor, retailer and farmer relationships are important in the United States and many other countries. The primary factors underlying the competitive success of traits are performance and commercial viability; timeliness of introduction; value compared with other practices and products; market coverage; service provided to distributors, retailers and farmers; governmental approvals; value capture; public acceptance; and environmental characteristics.
Patents, Trademarks and Licenses
In the United States and many foreign countries, we hold a broad business portfolio of patents, trademarks and licenses that provide intellectual property protection for our seeds and genomics-related products and processes. Monsanto routinely obtains patents and/or plant variety protection for its breeding technology, commercial varietal seed products and for the parents of its commercial hybrid seed products. We also routinely obtain registrations for commercial seed products in registration countries, as well as Plant Variety Protection Act Certificates in the United States and equivalent plant breeders’ rights in other countries. In soybeans, while our patent coverage on the first generation Roundup Ready trait for soybeans has expired, most Roundup Ready soybeans in the U.S. are protected by utility patents covering specific varieties. In addition, most of our customers and licensees are choosing our second generation Roundup Ready 2 Yield trait for soybeans with patent coverage that extends into the next decade. In Brazil, farmers are adopting our next generation Intacta RR2 PRO soybean that also has patent coverage extending into the next decade. Patents on our next-generation herbicide trait which confers dicamba tolerance extend into the next decade. In corn, patent coverage on our first generation YieldGard trait has expired; however, most farmers have already upgraded to next generation Genuity corn traits with patent coverage extending into the next decade. In cotton, most growers globally are already using our second generation traits with patent coverage extending into the next decade.
 
We broadly license technology and patents to other parties. For example, we have licensed the Roundup Ready trait in soybean, corn, canola and cotton seeds, the YieldGard traits in corn and the Intacta RR2 PRO and Roundup Ready 2 Xtend traits in soybeans to a wide range of commercial entities and in some cases academic institutions. We also hold licenses from other parties relating to certain products and processes. For example, we have obtained licenses to certain technologies that we use to produce Roundup Ready seeds and Genuity SmartStax corn. These licenses generally last for the lifetime of the applicable patents.
We own trademark registrations and file trademark applications for the names and for many of the designs used on branded products around the world. Important company trademarks include Roundup Ready, Bollgard, YieldGard, Genuity, Roundup Ready 2 Yield, Roundup Ready 2 Xtend, Intacta RR2 PRO and SmartStax for traits; Acceleron for seed treatment products; DEKALB, Asgrow and Deltapine for row crop seeds; and Seminis and De Ruiter for vegetable seeds.
Raw Materials and Energy Resources
In growing locations throughout the world, we produce directly or contract with third-party growers for corn seed, soybean seed, vegetable seeds, cotton seed, canola seed and other seeds. The availability of seed and the cost of seed production depend primarily on seed yields, weather conditions, grower contract terms and commodity prices. Where practical, we seek to manage commodity price fluctuations through the use of futures contracts and other hedging instruments. Where practicable, we attempt to minimize weather risks by producing seed at multiple growing locations and under irrigated conditions. Our Seeds and Genomics segment also purchases the energy we need to process our seed; these energy purchases are managed in conjunction with our Agricultural Productivity segment.
AGRICULTURAL PRODUCTIVITY SEGMENT
Through our Agricultural Productivity segment, we manufacture Roundup brand herbicides and other herbicides and provide lawn-and-garden herbicide products for the residential market. The tabular information about net sales of agricultural productivity products that appears in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) — Agricultural Productivity Segment — is incorporated by reference herein.
 

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Major Products
  
Applications
    
Major Brands
Herbicides
  
Nonselective agricultural, industrial, ornamental, turf and residential lawn and garden applications for weed control
 
Control of preemergent annual grass and small seeded broadleaf weeds in corn and other crops
    
Roundup branded
products
 
Harness for corn and
cotton
Distribution of Products
We have a worldwide distribution and sales and marketing organization for our agricultural productivity products. In some world areas, we use the same distribution and sales and marketing organization for our agricultural productivity products as for our seeds and traits. In other world areas, we have separate distribution and sales and marketing organizations for our agricultural productivity products. We sell our agricultural productivity products through distributors, independent retailers and dealers and agricultural cooperatives. In some cases outside the United States, we sell such products directly to farmers. We also sell certain of the chemical intermediates of our agricultural productivity products to other major agricultural chemical producers, who then market their own branded products to farmers. Certain agricultural productivity products for lawn-and-garden use are marketed through The Scotts Miracle-Gro Company (“Scotts”).
Competition
We compete with numerous major global manufacturing companies for sales of agricultural herbicides. Competition from local or regional companies may also be significant. Global glyphosate producers have substantial capacity to supply the market, and we expect this global capacity to affect margins. Launch of dicamba-tolerant crop systems and other multiple mode of action herbicide systems is expected to broaden the competitive landscape with new competitive dynamics. Our lawn-and-garden business has fewer than five significant national competitors and a larger number of regional competitors in the United States. The largest market for our lawn-and-garden herbicides is the United States.
Competitive success in agricultural productivity products depends on price, product performance, the scope of solutions offered to farmers, market coverage, product availability and planning, and the service provided to distributors, retailers and farmers. Our lawn-and-garden herbicides compete on product performance, price and the brand value associated with our trademark Roundup. For additional information on competition for our agricultural herbicides, see Item 7 — MD&A — Outlook — Agricultural Productivity, which is incorporated by reference herein.
 
Patents, Trademarks, Licenses, Franchises and Concessions
We also rely on patent protection for the Agricultural Productivity segment of our business. Patents covering glyphosate, an active ingredient in Roundup branded herbicides, have expired in the United States and all other countries. However, we have multiple patents on different glyphosate formulations and manufacturing processes in the United States and other countries with varying expiration dates. We have obtained licenses to chemicals used to make Harness herbicides and hold trademark registrations for the brands under which our chemistries are sold. The most significant trademark in this segment is Roundup. We own trademark registrations for numerous variations of Roundup such as for Roundup WeatherMAX.
We hold (directly or by assignment) numerous phosphate mineral leases from the U.S. government, the state of Idaho, and private parties. None of these leases are material individually, but are significant in the aggregate because elemental phosphorus is a key raw material for the production of glyphosate-based herbicides. The phosphate mineral leases have varying terms. The leases obtained from the U.S. government are of indefinite duration, subject to the modification of lease terms at 20-year intervals.
Environmental Matters
Our operations are subject to environmental laws and regulations in the jurisdictions in which we operate. Some of these laws restrict the amount and type of emissions that our operations can release into the environment. Other laws, such as the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq. (Superfund), can impose liability for the entire cost of cleanup on any former or current site owners or operators or any parties who sent waste to these sites, without regard to fault or to the lawfulness of the original disposal. These laws and regulations may be amended from time to time; they may become more stringent. We are committed to long-term environmental protection and compliance programs that reduce and monitor emissions of hazardous materials into the environment, and to the remediation of identified existing environmental concerns. Although the costs of our compliance with environmental laws and regulations cannot be

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predicted with certainty, such costs are not expected to have a material adverse effect on our earnings or competitive position. In addition to compliance obligations associated with our operations, under the terms of our Sept. 1, 2000, Separation Agreement with Pharmacia (the Separation Agreement), we are required to indemnify Pharmacia for certain liabilities it may have for environmental remediation or other environmental responsibilities that are primarily related to Pharmacia’s former chemical and agricultural businesses. For information regarding certain environmental proceedings, see Item 3 — Legal Proceedings. See also information regarding environmental liabilities, appearing in Item 8 — Financial Statements and Supplementary Date — Note 24Commitments and Contingencies, which is incorporated herein by reference.
Raw Materials and Energy Resources
We are a significant purchaser of basic and intermediate raw materials. Typically, we purchase major raw materials and energy through long-term contracts with multiple suppliers. Certain important raw materials are supplied by a few major suppliers. We expect the markets for our raw materials to remain balanced, though pricing may be volatile given the current state of the global economy. Energy is available as required, but pricing is subject to market fluctuations. Where practical, we seek to manage commodity price fluctuations through the use of futures contracts and other hedging instruments.
Our proprietary technology is used in various global locations to produce the catalysts used in various intermediate steps in the production of glyphosate. We believe capacity is sufficient for our requirements and adequate safety stock inventory reduces the risks associated with production outages. We manufacture and purchase disodium iminodiacetic acid, a key ingredient in the production of glyphosate, and purchase chlorine from limited major suppliers. We manufacture almost all of our global supply of elemental phosphorus, a key raw material for the production of Roundup herbicides. We have multiple mineral rights which, subject to obtaining and maintaining appropriate mining permits, we believe will provide a long term supply of phosphate ore to meet our needs into the foreseeable future. As part of the ongoing course of operating our phosphorus production, we are required to periodically obtain permits for new mining operations. 
RESEARCH AND DEVELOPMENT
Monsanto’s expenses for research and development (“R&D”) were $1,512 million in 2016, $1,580 million in 2015 and $1,725 million in 2014.
SEASONALITY AND WORKING CAPITAL; BACKLOG
For information on seasonality and working capital and backlog practices, see information in Item 7 — MD&A — Financial Condition, Liquidity and Capital Resources, which is incorporated herein by reference.
EMPLOYEE RELATIONS
As of Aug. 31, 2016, we employed approximately 20,800 regular employees worldwide and approximately 3,300 temporary employees. The number of temporary employees varies greatly during the year because of the seasonal nature of our business. We believe that relations between Monsanto and its employees are satisfactory. For additional information on employee relations, see Item 8 — Financial Statements and Supplementary Data — Note 5Restructuring.
CUSTOMERS
In 2016, our four largest U.S. distributors and their affiliates represented, in the aggregate, 20 percent of our worldwide net sales and 34 percent of our U.S. net sales. During 2016, one major U.S. distributor and its affiliates, WinField Solutions, LLC, represented 11 percent of the worldwide net sales for our Seeds and Genomics segment and 17 percent of the U.S. net sales for our Seeds and Genomics segment.
INTERNATIONAL OPERATIONS
See Item 1A under the heading “Our operations outside the United States are subject to special risks and restrictions, which could negatively affect our results of operations and profitability,” and Item 8 — Financial Statements and Supplementary Data —Note 25Segment and Geographic Data, which are incorporated herein by reference. Approximately 41 percent of Monsanto’s sales, including 35 percent of our Seeds and Genomics segment sales and 56 percent of our Agricultural Productivity segment sales, originated from our legal entities outside the United States during fiscal year 2016.

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SEGMENT AND GEOGRAPHIC DATA
For information on segment and geographic data, see Item 8 — Financial Statements and Supplementary Data — Note 25Segment and Geographic Data, which is incorporated by reference herein.
ITEM 1A. RISK FACTORS
Risks Related to Our Business
Competition in seeds and traits and agricultural chemicals has significantly affected, and will continue to affect, our sales.
Many companies engage in research and development of plant biotechnology and breeding and agricultural chemicals, and speed in getting a new product to market can be a significant competitive advantage. Our competitors’ success could render our existing products less competitive, resulting in reduced sales compared to our expectations or past results. We expect to see increasing competition from agricultural biotechnology firms and from major agrichemical and seed companies. We also expect to face continued competition for our Roundup herbicides and selective herbicides product lines, which could be influenced by trade and industrial policies of foreign countries. The extent to which we can realize cash and gross profit from our business will depend on our ability to: control manufacturing and marketing costs without adversely affecting sales; predict and respond effectively to competitor products, pricing and marketing; provide marketing programs meeting the needs of our customers and of the farmers who are our end users; maintain an efficient distribution system; and develop new products and services with features attractive to our end users.
 
Efforts to protect our intellectual property rights and to defend claims against us can increase our costs and will not always succeed; any failures could adversely affect sales and profitability or restrict our ability to do business.
Intellectual property rights are crucial to our business, particularly our Seeds and Genomics segment. We endeavor to obtain and protect our intellectual property rights in jurisdictions in which our products are produced or used and in jurisdictions into which our products are imported. Different nations may provide limited rights and inconsistent duration of protection for our products. We may be unable to obtain protection for our intellectual property in key jurisdictions. Even if protection is obtained, competitors, farmers, or others in the chain of commerce may raise legal challenges to our rights or illegally infringe on our rights, including through means that may be difficult to prevent or detect. For example, the practice by some farmers of saving seeds from non-hybrid crops (such as soybeans, canola and cotton) containing our biotechnology traits has prevented and may continue to prevent us from realizing the full value of our intellectual property, particularly outside the United States. In addition, because of the rapid pace of technological change, and the confidentiality of patent applications in some jurisdictions, competitors may be issued patents from applications that were unknown to us prior to issuance. These patents could reduce the value of our commercial or pipeline products or, to the extent they cover key technologies on which we have unknowingly relied, require that we seek to obtain licenses or cease using the technology, no matter how valuable to our business. We cannot assure we would be able to obtain such a license on acceptable terms. The extent to which we succeed or fail in our efforts to protect our intellectual property will affect our costs, sales and other results of operations.
We are subject to extensive regulation affecting our seed biotechnology and agricultural products and our research and manufacturing processes, which affects our sales and profitability.
Regulatory and legislative requirements affect the development, manufacture and distribution of our products, including the testing and planting of seeds containing our biotechnology traits and the import of crops grown from those seeds, and non-compliance can harm our sales and profitability. Obtaining and maintaining permits for mining and production and obtaining and maintaining testing, planting and import approvals for seeds or biotechnology traits can be time-consuming and costly, with no guarantee of success. In addition, regulatory and legislative requirements may change over time which can also affect our sales and profitability. The failure to receive necessary permits or approvals could have near- and long-term effects on our ability to produce and sell some current and future products. Planting approvals may also include significant regulatory requirements that can limit our sales. Sales of our traits can be affected in jurisdictions where planting has been approved if we have not received approval for the import of crops containing such biotechnology traits by key import markets. Sales of our traits without having approval for the import of crops containing such biotechnology traits by an import market could lead to disruption of that market, and we may face claims of potential liability. Concern about unintended but unavoidable trace amounts (sometimes called “low-level presence”) of commercial biotechnology traits in conventional (non-biotechnology) seed, or in the grain or products produced from conventional or organic crops, among other things, could lead to export disruption and increased regulation or legislation, which may include: liability transfer mechanisms that may include financial protection insurance; possible restrictions or moratoria on testing, planting or use of biotechnology traits;

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and requirements for labeling and traceability, which requirements may cause food processors and food companies to avoid biotechnology and select non-biotechnology crop sources and can affect farmer seed purchase decisions and the sale of our products. Further, the detection of the presence of biotech traits not approved in the country of planting (sometimes called “adventitious presence”) may affect seed availability or result in export disruption and compliance actions, such as crop destruction or product recalls. Legislation encouraging or discouraging the planting of specific crops can also harm our sales. In addition, concern and claims that increased use of glyphosate-based herbicides or biotechnology traits increases the potential for the development of glyphosate-resistant weeds or pests resistant to our traits could result in restrictions on the use of glyphosate-based herbicides or seeds containing our traits or otherwise reduce our sales.
The degree of public understanding and acceptance or perceived public acceptance of our biotechnology and other agricultural products can affect our sales and results of operations by affecting planting approvals, regulatory requirements and customer purchase decisions.
Although all of our products go through rigorous testing, some opponents of our technology actively raise public concern about the potential for adverse effects of our products on human or animal health, other plants and the environment. The potential for low-level or adventitious presence of commercial biotechnology traits in conventional seed, or in the grain or products produced from conventional or organic crops, is another factor that can affect general public acceptance of these traits. Public concern can affect the timing of, and whether we are able to obtain, government approvals for our products. Even after approvals are granted, public concern may lead to increased regulation or legislation or litigation against government regulators concerning prior regulatory approvals, which could affect our sales and results of operations, including by affecting planting approvals, and which may adversely affect sales of our products to farmers, including due to their concerns about available markets for the sale of crops or other products including those derived from biotechnology. In addition, opponents of agricultural biotechnology have attacked farmers’ fields and facilities used by agricultural biotechnology companies, and may launch future attacks against farmers’ fields and our field testing sites and research, production, or other facilities, which could affect our sales and our costs.
The successful development and commercialization of our pipeline products will be necessary for our growth.
We use advanced breeding technologies to produce hybrids and varieties with superior performance in farmers’ fields, and we use biotechnology to introduce traits that enhance specific characteristics of our crops. We use advanced analytics, software tools, mobile communications and new planting and monitoring equipment to provide agronomic recommendations to growers. We also research biological products to protect farmers’ crops from pests and diseases and enhance plant productivity and fertility, and we research chemical products to protect against crop pests. There are a number of reasons why new product concepts in these areas may be abandoned, including greater than anticipated development costs, technical difficulties, regulatory obstacles, competition, inability to prove the original concept, lack of demand and the need to divert focus, from time to time, to other initiatives with perceived opportunities for better returns. The processes of breeding, biotechnology trait discovery and development and trait integration are lengthy, and a very small percentage of the genes and germplasm we test is selected for commercialization. The length of time and the risk associated with the breeding and biotech pipelines are interlinked because both are required as a package for commercial success in markets where biotech traits are approved for growers. In countries where biotech traits are not approved for widespread use, our sales depend on our germplasm. Commercial success frequently depends on being the first company to the market, and many of our competitors are also making considerable investments in similar new biotechnology, improved germplasm products, biological and chemical products, and agronomic recommendation products. Consequently, if we are not able to fund extensive research and development activities and deliver new products to the markets we serve on a timely basis, our growth and operations will be harmed.
Adverse outcomes in legal proceedings could subject us to substantial damages and adversely affect our results of operations and profitability.
From time to time, we have been involved in major lawsuits concerning intellectual property, biotechnology, torts, contracts, antitrust allegations and other matters, as well as governmental inquiries and investigations. Pending and future lawsuits and governmental inquiries and investigations may have outcomes that may be significant to our results of operations in the period recognized or limit our ability to engage in our business activities. While we have insurance related to our business operations, it may not apply to or fully cover any liabilities we incur as a result of these lawsuits. In addition, pursuant to the Separation Agreement, we are required to indemnify Pharmacia for certain liabilities that are primarily related to Pharmacia’s former chemical and agricultural businesses. We have recorded reserves for potential liabilities where we believe the liability to be probable and reasonably estimable. However, our actual costs may be materially different from this estimate. The degree to which we may ultimately be responsible for the particular matters reflected in the reserve is uncertain.

9

MONSANTO COMPANY
 
2016 FORM 10-K

Our operations outside the United States are subject to special risks and restrictions, which could negatively affect our results of operations and profitability.
We engage in manufacturing, seed production, research and development and sales in many parts of the world. Although we have operations in virtually every region, our sales outside the United States in fiscal year 2016 were principally to customers in Brazil, Argentina, Canada and Mexico. Accordingly, developments in those parts of the world generally have a more significant effect on our operations than developments in other places. Our operations outside the United States are subject to special risks and restrictions, including: fluctuations in currency values and foreign-currency exchange rates; exchange control regulations; changes in local political or economic conditions; governmental pricing directives; import and trade restrictions; import or export licensing requirements and trade policy; restrictions on the ability to repatriate funds; and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad. Acts of terror or war may impair our ability to operate in particular countries or regions, and may impede the flow of goods and services between countries. Customers in weakened economies may be unable to purchase our products, or it could become more expensive for them to purchase imported products in their local currency or sell their commodity at prevailing international prices, and we may be unable to collect receivables from such customers. Further, changes in exchange rates may affect our net income, the book value of our assets outside the United States and our shareowners’ equity.
 
We may pursue transactions that have risks and uncertainties that could adversely affect our results of operations and financial condition.
We have completed acquisitions, investments and other transactions and may pursue additional transactions. These transactions involve risks and uncertainties. We must fit them into our long-term growth strategies to generate sufficient value to justify their cost. These transactions also present other challenges, including geographical coordination, personnel integration and retention of key management personnel, systems integration and the reconciliation of corporate cultures. Those operations could divert management’s attention from our business or cause a temporary interruption of or loss of momentum in our business and the loss of key personnel. These transactions may also cause us to assume liabilities, such as ongoing lawsuits, and may subject us to litigation. In addition, we may incur debt in the future to fund potential acquisitions or investments, or for other purposes. If we incur additional debt, it may increase our leverage and cost of borrowing and potentially lower our credit ratings.
Fluctuations in commodity prices can increase our costs and decrease our sales.
We contract production with multiple growers at fair value and retain the seed in inventory until it is sold. These purchases constitute a significant portion of the manufacturing costs for our seeds. Additionally, our chemical manufacturing operations use chemical intermediates and energy, which are subject to increases in price as the costs of oil and natural gas increase. Accordingly, increases in commodity prices may negatively affect our cost of goods sold or cause us to increase seed or chemical prices, which could adversely affect our sales. Where practical, we use hedging strategies and raw material supply agreements that contain terms designed to mitigate the risk of short-term changes in commodity prices. However, we are unable to avoid the risk of medium- and long-term increases. Farmers’ incomes are also affected by commodity prices; as a result, fluctuations in commodity prices could have an impact on farmers’ purchasing decisions and negatively affect their ability and decisions to purchase our seed and chemical products.
Compliance with quality controls and regulations affecting our manufacturing may be costly, and failure to comply may result in decreased sales, penalties and remediation obligations.
Because we use hazardous and other regulated materials in our manufacturing processes and engage in mining operations, we are subject to operational risks, including the potential for unintended environmental contamination, which could lead to potential personal injury claims, remediation expenses and penalties. Should a catastrophic event occur at any of our facilities, we could face significant reconstruction or remediation costs, penalties, third party liabilities and loss of production capacity, which could affect our sales. In addition, lapses in quality or other manufacturing controls could affect our sales and result in claims for defective products.
Our ability to match our production to the level of product demanded by farmers or our licensed customers has a significant effect on our sales, costs and growth potential.
Farmers’ decisions are affected by market, economic and weather conditions that are not known in advance. Failure to provide distributors with enough inventories of our products will reduce our current sales. However, product inventory levels at our distributors may reduce sales in future periods, as those distributor inventories are worked down. In addition, inadequate liquidity of distributors could affect distributors’ abilities to pay for our products and, therefore, affect our sales or our ability to collect on our receivables. Global glyphosate producers have the capacity to supply the market, but global

10

MONSANTO COMPANY
 
2016 FORM 10-K

dynamics including demand, environmental regulation compliance and raw material availability can cause fluctuations in the supply and the price of generic products. We expect the fluctuation in global production will impact the selling price and margin of Roundup brands and our third-party sourcing business. We depend on the availability of certain key raw materials used in our glyphosate production from single or limited major suppliers. If a major disruption in key raw materials were to occur, it could have a significant effect on our production, sales and costs.
Higher levels of indebtedness and entering into the Merger Agreement may reduce our financial flexibility and the amount of funds available for other business purposes and may adversely affect our financial condition.
We have incurred a significant amount of indebtedness since announcing a $10 billion share repurchase authorization in June 2014, which, in turn, has resulted in higher levels of interest costs. Interest costs related to the increased debt are substantial and impact working capital, liquidity and cash flow. Entering into the Merger Agreement could also limit or increase the cost of the short- and long-term financing options available. Our increased level of indebtedness and related covenants and entering into the Merger Agreement could cause adverse effects, including: reducing funds available; limiting access to short- and long-term debt financing; increasing the cost of short- and long-term debt financing; weakening our short- and long-term credit ratings; and creating more restrictive financial covenants that limit financial and operating flexibility. In addition, we regularly extend credit to our customers in certain areas of the world to enable them to acquire crop production products and seeds at the beginning of their growing seasons. Due to these credit practices as well as the seasonality of our sales and costs, we may need to issue short-term debt at certain times of the year to fund cash flow requirements. Levels of short-term debt may be greater to the extent that we are unable to collect customer receivables when due.
Our results of operations and financial condition may be significantly affected by disruptions caused by weather, natural disasters, accidents and security breaches, including cybersecurity incidents.
Weather and field conditions can adversely affect the timing of crop planting, acreage planted, crop yields and commodity prices. In turn, seed production volumes, quality and cost may also be adversely affected which could impact our sales and profitability. Natural disasters or industrial accidents could also affect our facilities, or those of our major suppliers or major customers, which could affect our costs and our ability to meet supply requirements. One of our major U.S. glyphosate manufacturing facilities is located in Luling, Louisiana, which is an area subject to hurricanes. In addition, several of our key raw material and utility suppliers have production assets in the U.S. Gulf Coast region and are also susceptible to damage risk from hurricanes. Hawaii and Puerto Rico, which are also subject to hurricanes, are major seeds and traits locations for our pipeline products. Security breaches and disruptions to our information technology systems could seriously harm our operations. We utilize and critically rely upon information technology systems in all aspects of our business, including increasingly large amounts of data to support our products and advance our research and development pipeline. We have experienced cybersecurity attacks and IT system outages that have not had a material impact on our financial results, but it is not possible to predict the impact of future incidents. Failure to effectively prevent, detect and recover from the increasing number and sophistication of information security threats could result in theft, misuse, modification and destruction of information, including trade secrets and confidential business information, and cause business disruptions, delays in research and development, reputational damage, and third-party claims, which could significantly affect our results of operations and financial condition.
Risks Related to the Merger
The announcement and pendency of the Merger with Bayer could adversely affect our business, financial results and/or operations.
The announcement and pendency of the Merger could cause disruptions and create uncertainty surrounding our business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the transaction is consummated, and could cause suppliers, customers and other counterparties to change existing business relationships. Changes to existing business relationships, including termination or modification, could negatively affect our revenues, earnings and cash flow, as well as the market price of our common stock.
We are also subject to restrictions on the conduct of our business prior to the consummation of the transaction as provided in the Merger Agreement, including, among other things, restrictions on our ability to acquire other businesses and assets, sell, transfer or license our assets, make investments, enter into certain contracts, repurchase or issue securities, pay dividends in excess of certain thresholds, make capital expenditures, undertake certain licenses or other transactions relating to intellectual property, amend our organizational documents and incur indebtedness. These restrictions could prevent or delay the pursuit of strategic corporate or business opportunities, result in our inability to respond effectively and/or timely to competitive pressures, industry developments, developments relating to our customers and suppliers, and future

11

MONSANTO COMPANY
 
2016 FORM 10-K

opportunities, and may as a result or otherwise have a significant negative impact on our business, results of operations and financial condition.
In addition, management and financial resources have been diverted and will continue to be diverted towards the completion of the Merger. The company has incurred, and expects to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the transaction. These costs could adversely affect the financial condition and results of operation of the company prior to the consummation of the transaction.
We may not complete the Merger with Bayer within the time frame we anticipate or at all, which could have an adverse effect on our business, financial results and/or operations.
There can be no assurance that the Merger with Bayer will occur. Completion of the Merger is subject to a number of closing conditions, including Monsanto shareowner approval and receipt of required regulatory approvals. We can provide no assurance that all required approvals will be obtained or that all closing conditions will be satisfied, and, if all required approvals are obtained and the closing conditions are satisfied, we can provide no assurance as to the terms, conditions and timing of such approvals or the timing of the completion of the Merger. In addition, the Merger Agreement may be terminated under certain specified circumstances, including, but not limited to, a change in the recommendation of the company’s Board of Directors or a termination of the Merger Agreement by us to enter into an agreement for a “Superior Proposal,” as defined in the Merger Agreement.
If the transaction is not consummated within the expected time frame or at all, we may be subject to a number of material risks. The price of our common stock may decline to the extent that current market prices reflect a market assumption that the Merger will be completed. In addition, some costs related to the Merger must be paid whether or not the Merger is completed, and we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed Merger, as well as the direction of management resources towards the Merger, for which we will have received little or no benefit if the closing of the Merger does not occur. Many of the expenses, fees and costs will be payable by us even if the Merger is not completed and may relate to activities that we would not have undertaken other than in connection with the Merger. We may also experience negative reactions from our shareowners and other investors, employees, suppliers, customers, distributors, licensors and licensees. In addition, in specified circumstances, we could be required to reimburse certain expenses of Bayer or pay Bayer a termination fee of up to $1.85 billion. If the Merger Agreement is not adopted by our shareowners, or if the Merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to us will be offered or that our business, prospects or results of operations will not be adversely affected.
In addition, if the Merger is not completed, our Board of Directors may review and consider various alternatives available to us, including, among others, continuing as a public company with no material changes to our business or capital structure, seeking an acquisition or attempting to implement another transaction that is similar to the Merger. These alternative transactions may involve various additional risks to our business, including, among others, distraction of our management team and associated expenses as described above in connection with the proposed Merger, and risks and uncertainties related to our ability to consummate any such alternative transaction and other variables which may adversely affect our operations. During the pendency of the Merger, however, the Merger Agreement contains provisions that restrict our ability to entertain alternative transactions, which could discourage or make it difficult for a third party to propose or complete any such alternative transaction with us.
ITEM 1B. UNRESOLVED STAFF COMMENTS
At Aug. 31, 2016, there were no unresolved comments from the staff of the SEC related to our periodic or current reports under the Exchange Act.
ITEM 2. PROPERTIES
We and our subsidiaries own or lease manufacturing facilities, laboratories, seed production and other agricultural facilities, office space, warehouses and other land parcels in North America, South America, Europe, Asia, Australia and Africa. Our general offices, which we own, are located in St. Louis County, Missouri. These office and research facilities are principal properties.
Additional principal properties used by the Seeds and Genomics segment include seed production and conditioning plants at Boone, Grinnell and Williamsburg, Iowa; Constantine, Michigan; Enkhuizen, Netherlands; Illiopolis, Waterman and Farmer City, Illinois; Remington, Indiana; Kearney and Waco, Nebraska; Oxnard, California; Peyrehorade and Trèbes, France; Rojas,

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MONSANTO COMPANY
 
2016 FORM 10-K

Argentina; Sinesti, Romania; Nagyigmand, Hungary; Uberlândia and Petrolina, Brazil; Thobontle, South Africa; and Hyderabad, India, and research sites at Ankeny, Iowa; Maui, Molokai and Oahu, Hawaii; and Woodland, California. We own all of these properties, except some sites in Hawaii. The Seeds and Genomics segment also uses seed foundation and production facilities, breeding facilities, and genomics and other research laboratories at various other locations worldwide.
The Agricultural Productivity segment has principal chemicals manufacturing facilities at Antwerp, Belgium; Camaçari, Brazil; Luling, Louisiana; Muscatine, Iowa; São José dos Campos, Brazil; Soda Springs, Idaho; Zárate, Argentina; and Rock Springs, Wyoming. We own all of these properties, except the one in Antwerp, Belgium, which is subject to a lease for the land underlying the facility.
We believe that our principal properties are suitable and adequate for their use. Our facilities generally have sufficient capacity for our existing needs and expected near-term growth. Expansion projects are undertaken as necessary to meet future needs. Use of these facilities may vary with seasonal, economic and other business conditions, but none of the principal properties is substantially idle. In certain instances, we have leased portions of sites not required for current operations to third parties.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal proceedings that arise in the ordinary course of our business, as well as proceedings that we have considered to be material under SEC regulations. These include proceedings to which we are party in our own name and proceedings to which our former parent, Pharmacia LLC, or its former subsidiary, Solutia Inc., is a party but that we manage and for which we are responsible pursuant to certain indemnification agreements. Information regarding certain material proceedings and the possible effects on our business of proceedings we are defending is disclosed in Item 8 — Financial Statements and Supplementary Data —Note 24Commitments and Contingencies— under the subheading “Environmental and Litigation Liabilities — Litigation” and is incorporated by reference herein.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
 
Executive Officers
See Part III — Item 10 of this Report on Form 10-K for information about our Executive Officers.

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MONSANTO COMPANY
 
2016 FORM 10-K

PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Monsanto’s common stock is listed on the New York Stock Exchange (‘NYSE’), under the symbol MON. The number of shareowners of record as of Oct. 14, 2016, was 27,269.
The following table sets forth dividend declarations, as well as the high and low intra-day sales prices for Monsanto’s common stock based on NYSE trading, for the fiscal years 2016 and 2015 quarters indicated.
Dividends per Share
 
1st
Quarter
 
2nd
Quarter
 
3rd
Quarter
 
4th
Quarter
 
Fiscal
Year
2016
 
$—
 
$1.08(1)
 
$—
 
$1.08(1)
 
$2.16
2015
 
$—
 
$0.98(2)
 
$—
 
$1.03(2)
 
$2.01
 
 
 
 
 
 
 
 
 
 
 
Common Stock Price
 
1st
Quarter
 
2nd
Quarter
 
3rd
Quarter
 
4th
Quarter
 
Fiscal
Year
2016
 
High
 
$97.62
 
$100.56
 
$113.22
 
$114.26
 
$114.26
 
 
Low
 
81.22
 
84.71
 
83.73
 
98.92
 
81.22
2015
 
High
 
$121.15
 
$126.00
 
$123.82
 
$117.47
 
$126.00
 
 
Low
 
105.76
 
115.16
 
111.16
 
89.34
 
89.34
(1)
Monsanto’s board of directors declared four dividends in 2016, $0.54 per share on Dec. 7, 2015, $0.54 per share on Jan. 29, 2016, $0.54 per share on June 9, 2016, and $0.54 per share on Aug. 12, 2016.
(2)
Monsanto’s board of directors declared four dividends in 2015, $0.49 per share on Dec. 8, 2014, $0.49 per share on Jan. 30, 2015, $0.49 per share on June 5, 2015, and $0.54 per share on Aug. 4, 2015.
Issuer Purchases of Equity Securities
The following table summarizes purchases of equity securities during the fourth quarter of fiscal year 2016 by Monsanto and affiliated purchasers, pursuant to SEC rules.
Period
(a) Total Number of
Shares Purchased
 
(b) Average
Price Paid per Share(1)
 
(c) Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs
 
(d) Approximate Dollar    
Value of Shares that May    
Yet Be Purchased Under    
the Plans or Programs
June 2016:
 
 
 
 
 
 
 
June 1, 2016, through June 30, 2016
32

(2) 
$
103.41

 

 
$

July 2016:
 
 
 
 
 
 
 
July 1, 2016, through July 31, 2016
32

(2) 
$
106.78

 

 
$

August 2016:
 
 
 
 
 
 
 
Aug. 1, 2016, through Aug. 31, 2016
32

(2) 
$
106.50

 

 
$

Total
96

 
$
105.56

 

 
$

(1)
The average price paid per share is calculated on a trade date basis and excludes commission.
(2)
Includes 32 shares withheld for taxes on restricted stock.
In June 2014, the company announced a two-year repurchase authorization of up to $10 billion of the company’s common stock. Repurchases under the authorization commenced on July 1, 2014. The authorization expired on June 24, 2016. There were no other publicly announced plans outstanding as of Aug. 31, 2016. The Merger Agreement includes restrictions on purchases of shares of the company’s common stock by the company.
Stock Price Performance Graph
The graph below compares the performance of Monsanto’s common stock with the performance of the Standard & Poor’s 500 Stock Index (a broad-based market index) and a peer group index over a 60-month period extending through the end of the 2016 fiscal year. The graph assumes that $100 was invested on Sept. 1, 2011, in our common stock, in the Standard & Poor’s 500 Stock Index and the peer group index, and that all dividends were reinvested.

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MONSANTO COMPANY
 
2016 FORM 10-K

Because we are involved both in the agricultural products business and in the seeds and genomics business, no published peer group accurately mirrors our portfolio of businesses. Accordingly, we created a peer group index that includes Bayer AG ADR, Dow Chemical Company, DuPont (E.I.) de Nemours and Company, BASF AG and Syngenta AG. The Standard & Poor’s 500 Stock Index and the peer group index are included for comparative purposes only. They do not necessarily reflect management’s opinion that such indices are an appropriate measure of the relative performance of the stock involved, and they are not intended to forecast or be indicative of possible future performance of our common stock.
mon-2015083_chartx50667a02.jpg
 
8/31/2011
8/31/2012
8/31/2013
8/31/2014
8/31/2015
8/31/2016
Monsanto Company
$100
$128.31
$146.42
$175.73
$150.97
$168.41
S&P 500 Index
$100
$118.00
$140.07
$175.43
$176.27
$198.40
Peer Group
$100
$113.03
$143.33
$175.96
$159.01
$170.76
In accordance with SEC rules, the information contained in Stock Price Performance Graph shall not be deemed to be “soliciting material,” or to be “filed” with the SEC or subject to the SEC’s Regulation 14A, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that Monsanto specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act or the Exchange Act.

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MONSANTO COMPANY
 
2016 FORM 10-K

ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
 
Year Ended Aug. 31,
(Dollars in millions, except per share amounts and ratios)
2016(4)
 
2015 (5)
 
2014 (6)
 
2013
 
2012 (7)
Operating Results:
 
 
 
 
 
 
 
 
 
Net sales
$
13,502

 
$
15,001

 
$
15,855

 
$
14,861

 
$
13,504

Income from operations
2,375

 
3,523

 
4,075

 
3,570

 
3,148

Income from continuing operations including portion attributable to noncontrolling interest
1,296

 
2,297

 
2,749

 
2,514

 
2,087

Income on discontinued operations
17

 
28

 
13

 
11

 
6

Net income attributable to Monsanto Company
1,336

 
2,314

 
2,740

 
2,482

 
2,045

Basic Earnings per Share Attributable to Monsanto Company:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
2.98

 
$
4.79

 
$
5.25

 
$
4.63

 
$
3.82

Income on discontinued operations
0.04

 
0.06

 
0.03

 
0.02

 
0.01

Net income attributable to Monsanto Company
3.02

 
4.85

 
5.28

 
4.65

 
3.83

Diluted Earnings per Share Attributable to Monsanto Company:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
2.95

 
$
4.75

 
$
5.19

 
$
4.58

 
$
3.78

Income on discontinued operations
0.04

 
0.06

 
0.03

 
0.02

 
0.01

Net income attributable to Monsanto Company
2.99

 
4.81

 
5.22

 
4.60

 
3.79

Financial Position at End of Period:
 
 
 
 
 
 
 
 
 
Total assets (1)
$
19,736

 
$
21,920

 
$
21,918

 
$
20,651

 
$
20,210

Working capital(2)
1,428

 
5,448

 
4,563

 
5,741

 
5,437

Current ratio(2)
1.21:1

 
2.05:1

 
1.89:1

 
2.32:1

 
2.29:1

Long-term debt (1)
7,453

 
8,429

 
7,465

 
2,048

 
2,024

Debt-to-capital ratio(3)
67
%
 
56
%
 
49
%
 
14
%
 
15
%
Other Data:
 
 
 
 
 
 
 
 
 
Dividends per share
$
2.16

 
$
2.01

 
$
1.78

 
$
1.56

 
$
1.28

Stock price per share:
 
 
 
 
 
 
 
 
 
High
$
114.26

 
$
126.00

 
$
128.79

 
$
109.33

 
$
89.73

Low
$
81.22

 
$
89.34

 
$
98.84

 
$
82.70

 
$
58.89

End of period
$
106.50

 
$
97.65

 
$
115.65

 
$
97.89

 
$
87.11

Basic shares outstanding
442.7

 
476.9

 
519.3

 
533.7

 
534.1

Diluted shares outstanding
447.1

 
481.4

 
524.9

 
539.7

 
540.2

(1)
Prior period balances have been updated to conform with current period presentation for the adoption of the accounting standard update “Presentation of Debt Issuance Costs” in fiscal year 2015.
(2)
Working capital is total current assets less total current liabilities; current ratio represents total current assets divided by total current liabilities. The decrease in other current assets resulting from the adoption of “Balance Sheet Classification of Deferred Taxes” during the third quarter of fiscal year 2016 impacts the comparability of working capital and current ratio compared to prior periods. See Item 8 — Financial Statements and Supplementary Data — Note 3New Accounting Standards for further information.
(3)
Debt-to-capital ratio is the sum of short-term and long-term debt, divided by total Monsanto Company shareowners’ equity, short-term and long-term debt.
(4)
The company recorded $67 million of cost of goods sold expenses related to the 2015 Restructuring Plan, $297 million of restructuring charges and $270 million of selling, general and administrative expenses related to environmental and litigation settlements and a SEC settlement, with a combined corresponding income tax benefit of $204 million. The company also recorded a net tax charge of $252 million due to losses generated in Argentina in the current year as well as recent uncertainties around the Argentina business. The company evaluated the recoverability of various items on the Statement of Consolidated Financial Position related to the Argentina business and determined an allowance against certain assets was necessary, which resulted in the net charge to tax expense. The company entered into agreements in 2016 to license our alfalfa traits and technology to a third party, which resulted in upfront revenue of approximately $210 million accounted for as an exclusive perpetual license, with a corresponding income tax provision of $74 million. The company signed definitive agreements to sell certain manufacturing assets and contribute to a newly-formed joint venture certain intellectual property, real property and tangible assets related to the company’s sorghum business resulting in a gain of $157 million in 2016 recorded in other expense, net, with a corresponding income tax provision of $47 million.

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(5)
The company recorded $101 million of cost of goods sold expenses related to restructuring, $167 million of selling, general and administrative expenses related to environmental and litigation settlements and a SEC settlement, and $393 million of restructuring expense, with a combined corresponding income tax benefit of $188 million. The company also recorded $274 million of net sales as a result of the sale of a perpetual license to intellectual property, with a corresponding income tax provision of $102 million.
(6)
The company recorded $32 million of selling, general and administrative expenses related to legacy environmental settlements, with a corresponding income tax benefit of $12 million.
(7)
The company recorded $44 million of selling, general and administrative expenses related to legacy environmental settlements, with a corresponding income tax benefit of $17 million.
See Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — for information regarding the factors that have affected or may affect the comparability of our business results.

17

MONSANTO COMPANY
 
2016 FORM 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Background
Monsanto Company, along with its subsidiaries, is a leading global provider of agricultural products for farmers. Our seeds, biotechnology trait products, herbicides and digital agriculture products provide farmers with solutions that help improve productivity, reduce the costs of farming and produce better foods for consumers and better feed for animals.
We manage our business in two reporting segments: Seeds and Genomics and Agricultural Productivity. Through our Seeds and Genomics segment, we produce leading seed brands, including DEKALB, Asgrow, Deltapine, Seminis and De Ruiter, and we develop biotechnology traits that assist farmers in controlling insects and weeds and digital agriculture to assist farmers in decision making. We also provide other seed companies with genetic material and biotechnology traits for their seed brands. Through our Agricultural Productivity segment, we manufacture Roundup and Harness brand herbicides and other herbicides. Approximately 41 percent of our total company sales, 35 percent of our Seeds and Genomics segment sales and 56 percent of our Agricultural Productivity segment sales originated from our legal entities outside the United States during fiscal year 2016.
In the fourth quarter of 2008, we entered into an agreement to divest the animal agricultural products business (the Dairy business). 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 as outlined below. The Dairy business was previously reported as part of the Agricultural Productivity segment.
This MD&A should be read in conjunction with Monsanto’s consolidated financial statements and the accompanying notes. The notes to the consolidated financial statements referred to throughout this MD&A are included in Part II — Item 8 — Financial Statements and Supplementary Data — of this Report on Form 10-K. Unless otherwise indicated, “earnings per share” and “per share” mean diluted earnings per share. Unless otherwise noted, all amounts and analyses are based on continuing operations.
Non-GAAP Financial Measures
MD&A includes financial information prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), as well as two other financial measures, EBIT and free cash flow, that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. The presentation of EBIT and free cash flow information is intended to supplement investors’ understanding of our operating performance and liquidity. Our EBIT and free cash flow measures may not be comparable to other companies’ EBIT and free cash flow measures. Furthermore, these measures are not intended to replace net income (loss), cash flows, financial position or comprehensive income (loss), as determined in accordance with GAAP.
EBIT is defined as earnings (loss) before interest and taxes. Earnings (loss) is intended to mean net income (loss) attributable to Monsanto as presented in the Statements of Consolidated Operations under GAAP. EBIT is an operating performance measure for our two reporting segments. We believe that EBIT is useful to investors and management to demonstrate the operational profitability of our segments by excluding interest and taxes, which are generally accounted for across the entire company on a consolidated basis. EBIT is also one of the measures used by Monsanto management to determine resource allocations within the company. See Item 8 — Financial Statements and Supplementary Data — Note 25Segment and Geographic Data — for a reconciliation of EBIT to net income for fiscal years 2016, 2015 and 2014.
We also provide information regarding free cash flow, an important liquidity measure for Monsanto. We define free cash flow as the total of net cash provided or required by operating activities and net cash provided or required by investing activities. Free cash flow does not represent the residual cash flow available for discretionary expenditures. We believe that free cash flow is useful to investors and management as a measure of the ability of our business to generate cash. Once business needs and obligations are met, this cash can be used to reinvest in the company for future growth or to return to our shareowners through dividend payments or share repurchases. Free cash flow is also used as one of the performance measures in determining incentive compensation. See the “Financial Condition, Liquidity and Capital Resources — Cash Flow” section of MD&A for a reconciliation of free cash flow to net cash provided by operating activities and net cash required by investing activities on the Statements of Consolidated Cash Flows.
 

18

MONSANTO COMPANY
 
2016 FORM 10-K

Executive Summary
Consolidated Operating Results — Net sales decreased $1,499 million, or 10 percent, in fiscal year 2016 compared to fiscal year 2015. The primary contributors to the decrease were agriculture productivity, corn seed and traits, soybean seed and traits and cotton seed and traits. The decrease in agricultural productivity was due to lower price driven by lower average net selling price of Roundup and other glyphosate-based herbicides and the absence of upfront revenue earned from a license agreement with Scotts entered into in fiscal year 2015. Additional drivers for the decline were lower volumes for Roundup and other glyphosate-based herbicides and unfavorable currency impact. The decrease in corn seed and traits was primarily driven by unfavorable currency impacts and decreased average net selling price, while the decrease in soybean seed and traits was primarily due to unfavorable currency impacts in Brazil and lower volumes in the United States resulting from the delay in Roundup Ready 2 Xtend approvals. The decrease in cotton seed and traits was primarily due to lower average net selling price resulting from new government regulations in India. These factors were partially offset by a net sales increase in all other crops seeds and traits, which was driven by agreements entered into in the third quarter of fiscal year 2016 to license our alfalfa traits and technology to a third party, which resulted in upfront revenue accounted for as an exclusive perpetual license to intellectual property.
Net income attributable to Monsanto Company in fiscal year 2016 was $2.99 per share, compared with $4.81 per share in fiscal year 2015.
Financial Condition, Liquidity and Capital Resources — In fiscal year 2016, working capital was $1,428 million compared with $5,448 million in fiscal year 2015, a decrease of $4,020 million. For a detailed discussion of the factors affecting the working capital comparison, see the “Working Capital and Financial Condition” section of the “Financial Condition, Liquidity and Capital Resources” section in this MD&A.
In fiscal year 2016, net cash provided by operating activities was $2,588 million compared with $3,108 million in fiscal year 2015. Net cash required by investing activities was $864 million in fiscal year 2016 compared with $1,019 million in fiscal year 2015. Free cash flow was $1,724 million in fiscal year 2016 compared with $2,089 million in fiscal year 2015. For a detailed discussion of the factors affecting the free cash flow comparison, see the “Cash Flow” section of the “Financial Condition, Liquidity and Capital Resources” section in this MD&A.
At Aug. 31, 2016, our debt-to-capital ratio was 67 percent compared with 56 percent at Aug. 31, 2015. The increase was due to treasury share purchases and cash dividends, offset by the increase in shareowners’ equity resulting from earnings during the fiscal year.
In fiscal year 2016, capital expenditures were $923 million compared with $967 million in fiscal year 2015, a decrease of $44 million.
Effective June 15, 2016, we signed definitive agreements to sell certain manufacturing assets and contribute to a newly-formed joint venture certain intellectual property, real property and tangible assets related to the company’s sorghum business. We received a cash payment of $110 million for the sale of certain manufacturing assets and a minority interest in the newly-formed joint venture, which combined resulted in a gain of approximately $157 million in the fourth quarter of the current fiscal year. For a detailed discussion see the “Capital Resources and Liquidity” section of the “Financial Condition, Liquidity and Capital Resources” section of this MD&A.
Proposed Merger with Bayer — On Sept. 14, 2016, we entered into an agreement and plan of merger (the “Merger Agreement”) with Bayer Aktiengesellschaft, a German stock corporation (“Bayer”), and KWA Investment Co., a Delaware corporation and an indirect wholly owned subsidiary of Bayer (“Merger Sub”). The Merger Agreement provides, among other things and subject to the terms and conditions set forth therein, that Merger Sub will be merged with and into the company (the “Merger”), with the company continuing as the surviving corporation and as a wholly owned subsidiary of Bayer. The Merger Agreement provides that each share of common stock of the company, par value $0.01 per share (other than certain shares specified in the Merger Agreement), outstanding immediately prior to the effective time of the Merger (the “Effective Time”) will be automatically converted into the right to receive $128.00 in cash, without interest. The obligation of the parties to complete the Merger is subject to customary closing conditions, including, among others, (i) the approval of the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of common stock of the company entitled to vote, (ii) the expiration or earlier termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the adoption of all approvals necessary for the completion of the Merger by the European Commission under Council Regulation (EC) No. 139/2004, (iv) the receipt of certain other required foreign antitrust approvals, (v) completion of the review process by the Committee on Foreign Investment in the United States (“CFIUS”), (vi) no approvals related to CFIUS or antitrust laws having been made or obtained with the imposition of conditions that, together with

19

MONSANTO COMPANY
 
2016 FORM 10-K

Divestiture Actions (as defined in the Merger Agreement) undertaken, would reasonably be expected to have a Substantial Detriment (as defined in the Merger Agreement), (vii) no law, order or injunction that is in effect that enjoins or otherwise prohibits the completion of the Merger having been enacted, issued, promulgated, enforced or entered into after Sept. 14, 2016, by a court or other governmental entity of competent jurisdiction, (viii) the accuracy of the representations and warranties contained in the Merger Agreement (subject to certain qualifications) and (ix) the performance by the parties of their respective obligations under the Merger Agreement in all material respects. Additional information about the Merger Agreement is set forth in our Current Report on Form 8-K filed with the SEC on Sept. 20, 2016; in addition, see Part I — Item 1A — Risk Factors and Note 27 — Subsequent Events — of this Form 10-K for further details on the Merger.
Outlook — We plan to continue to innovate and improve our products in order to maintain market leadership and to support near-term performance. We are focused on applying innovation and technology to make our farmer customers more productive and profitable by protecting and improving yields and improving the ways they can produce food, fiber, feed and fuel. We use the tools of modern biology and technology in an effort to make seeds easier to grow, to allow farmers to do more with fewer resources and to help produce healthier foods for consumers. Our current R&D strategy and commercial priorities are focused on bringing our farmer customers integrated yield solutions through our innovative platforms in plant breeding, biotechnology, chemistry, biologicals and data science. Our capabilities in biotechnology and breeding research are generating a rich product pipeline that is expected to drive long-term growth. The viability of our product pipeline depends in part on the speed of regulatory approvals globally, continued patent and legal rights to offer our products, general public acceptance of the products and the value they will deliver to the market.
Roundup herbicides remain the largest crop protection brand globally. Monsanto’s crop protection business focus is to support strategically Monsanto’s Roundup Ready crops through our weed management platform that delivers weed control offerings for farmers. We are focused on managing the costs associated with our agricultural chemistry business as that sector matures globally.
See the “Outlook” section of MD&A for a more detailed discussion of some of the opportunities and risks we have identified for our business. For additional information related to the outlook for Monsanto, see “Caution Regarding Forward-Looking Statements” above and Part I — Item 1A — Risk Factors of this Form 10-K.
New Accounting Pronouncements — See Item 8 — Financial Statements and Supplementary Data — Note 3New Accounting Standards — for information on recently issued accounting guidance.

20

MONSANTO COMPANY
 
2016 FORM 10-K

RESULTS OF OPERATIONS
 
Year Ended Aug. 31,
 
Change
(Dollars in millions, except per share amounts)
2016
2015
2014
 
2016 vs.
2015
2015 vs.
2014
Net Sales
$
13,502

$
15,001

$
15,855

 
(10
)%
(5
)%
Cost of goods sold
6,485

6,819

7,281

 
(5
)%
(6
)%
Gross Profit
7,017

8,182

8,574

 
(14
)%
(5
)%
Operating Expenses:
 
 
 
 
 
 
Selling, general and administrative expenses
2,833

2,686

2,774

 
5
 %
(3
)%
Research and development expenses
1,512

1,580

1,725

 
(4
)%
(8
)%
Restructuring charges
297

393


 
(24
)%
NM

Total Operating Expenses
4,642

4,659

4,499

 
 %
4
 %
Income from Operations
2,375

3,523

4,075

 
(33
)%
(14
)%
Interest expense
436

433

248

 
1
 %
75
 %
Interest income
(74
)
(105
)
(102
)
 
(30
)%
3
 %
Other expense, net
22

34

102

 
(35
)%
(67
)%
Income from Continuing Operations Before Income Taxes
1,991

3,161

3,827

 
(37
)%
(17
)%
Income tax provision
695

864

1,078

 
(20
)%
(20
)%
Income from Continuing Operations Including Portion Attributable to Noncontrolling Interest
1,296

2,297

2,749

 
(44
)%
(16
)%
Discontinued Operations:
 
 
 
 
 
 
Income from operations of discontinued businesses
27

45

22

 
(40
)%
NM

Income tax provision
10

17

9

 
(41
)%
NM

Income on Discontinued Operations
17

28

13

 
(39
)%
NM

Net Income
1,313

2,325

2,762

 
(44
)%
(16
)%
Less: Net (loss) income attributable to noncontrolling interest
(23
)
11

22

 
(309
)%
(50
)%
Net Income Attributable to Monsanto Company
$
1,336

$
2,314

$
2,740

 
(42
)%
(16
)%
Diluted Earnings per Share Attributable to Monsanto Company:
 
 
 
 
 
 
Income from continuing operations
$
2.95

$
4.75

$
5.19

 
(38
)%
(8
)%
Income on discontinued operations
0.04

0.06

0.03

 
NM

NM

Net Income Attributable to Monsanto Company
$
2.99

$
4.81

$
5.22

 
(38
)%
(8
)%
NM = Not Meaningful
 
 
 
 
 
 
Effective Tax Rate
35
%
27
%
28
%
 
 
 
Comparison as a Percent of Net Sales:
 
 
 
 
 
 
Cost of goods sold
48
%
45
%
46
%
 
 
 
Gross profit
52
%
55
%
54
%
 
 
 
Selling, general and administrative expenses
21
%
18
%
17
%
 
 
 
Research and development expenses
11
%
11
%
11
%
 
 
 
Total operating expenses
34
%
31
%
28
%
 
 
 
Income from continuing operations before income taxes
15
%
21
%
24
%
 
 
 
Net income attributable to Monsanto Company
10
%
15
%
17
%
 
 
 

21

MONSANTO COMPANY
 
2016 FORM 10-K

Overview of Financial Performance (2016 compared with 2015)
The following section discusses the significant components of our results of operations that affected the comparison of fiscal year 2016 with fiscal year 2015.
Net sales decreased $1,499 million in fiscal year 2016 from fiscal year 2015. Our Seeds and Genomics segment net sales decreased $255 million, and our Agricultural Productivity segment net sales decreased $1,244 million. The following table presents the percentage changes in fiscal year 2016 worldwide net sales by segment compared with net sales in fiscal year 2015, including the effect that volume, price and currency had on these percentage changes: 
 
2016 Percentage Change in Net Sales vs. 2015
 
Volume    
 
Price (1)(2)
 
Currency    
 
Total    
Seeds and Genomics Segment
1%
 
2%
 
(5)%
 
(2)%
Agricultural Productivity Segment
(9)%
 
(12)%
 
(5)%
 
(26)%
Total Monsanto Company
(3)%
 
(2)%
 
(5)%
 
(10)%
(1)
Seeds and Genomics Segment included the impact of agreements entered into in the third quarter of fiscal year 2016 to license our alfalfa traits and technology to a third party, which resulted in upfront revenue of approximately $210 million accounted for as an exclusive perpetual license to intellectual property.
(2)
Agricultural Productivity Segment includes the impact of the agreement with Scotts entered into in the third quarter of fiscal year 2015, which resulted in $274 million of upfront revenue accounted for as a perpetual license to intellectual property.
Cost of goods sold decreased $334 million in fiscal year 2016 from fiscal year 2015. Our Seeds and Genomics segment cost of goods sold decreased $52 million, and our Agricultural Productivity segment cost of goods sold decreased $282 million. Cost of goods sold as a percent of net sales for the total company increased three percentage points to 48 percent. The following table represents the percentage changes in fiscal year 2016 worldwide cost of goods sold by segment compared with cost of goods sold in fiscal year 2015, including the effect that volume, costs and currency had on these percentage changes: 
 
2016 Percentage Change in Cost of Goods Sold vs. 2015
 
Volume    
 
Costs(1)
 
Currency    
 
Total    
Seeds and Genomics Segment
2%
 
2%
 
(5)%
 
(1)%
Agricultural Productivity Segment
(10)%
 
4%
 
(4)%
 
(10)%
Total Monsanto Company
(4)%
 
3%
 
(4)%
 
(5)%
(1)
Seeds and Genomics Segment includes $66 million and $100 million of restructuring charges related to discontinued products for fiscal years 2016 and 2015, respectively. See Item 8 — Financial Statements and Supplementary Data — Note 5Restructuring— for further information.
Gross profit decreased $1,165 million. Total company gross profit as a percent of net sales decreased three percentage points to 52 percent in fiscal year 2016.
For a more detailed discussion of the factors affecting the net sales, cost of goods sold and gross profit comparisons, see the “Seeds and Genomics Segment” and the “Agricultural Productivity Segment” sections.
Operating expenses decreased $17 million in fiscal year 2016 from fiscal year 2015. Selling, general and administrative (“SG&A”) expenses increased $147 million, or five percent, primarily due to the polychlorinated biphenyls (“PCBs”) settlement of $280 million (see Item 8 — Financial Statements and Supplementary Data —Note 24Commitments and Contingencies — for further information) and higher point-of-delivery expenses in South America given the increase in Intacta RR2 PRO. These increases were offset by costs savings resulting from the 2015 Restructuring Plan, decreased employee incentive awards, currency impact, the absence of expenses related to prior year environmental and litigation settlements and the absence of prior year expense related to the SEC settlement discussed in Item 8 — Financial Statements and Supplementary Data —Note 24Commitments and Contingencies. R&D expenses decreased $68 million, or four percent, primarily due to currency impacts and realized impacts from the 2015 Restructuring Plan. As a percent of net sales, SG&A expense increased three percentage points to 21 percent of net sales and R&D expense remained consistent at 11 percent of net sales in fiscal year 2016 compared to fiscal year 2015. Restructuring charges were $297 million in fiscal year 2016 compared to $393 million in fiscal year 2015 as a result of the 2015 Restructuring Plan discussed in Item 8 — Financial Statements and Supplementary Data —Note 5Restructuring.

22

MONSANTO COMPANY
 
2016 FORM 10-K

Interest income decreased $31 million in fiscal year 2016 from fiscal year 2015. The decrease is due to less cash invested in the current year compared to prior year, primarily in South America.
Other expense — net decreased $12 million in fiscal year 2016 compared to fiscal year 2015. The decrease was primarily the result of foreign currency losses of $181 million largely related to the Argentine peso offset by a gain recorded from the sale of sorghum manufacturing assets and contribution of sorghum intellectual property assets into a joint venture of $157 million and non-core asset sales in the United States and Europe.
Income tax provision for fiscal year 2016 was $695 million, a decrease of $169 million from fiscal year 2015 primarily as a result of the decrease in pretax income from continuing operations in fiscal year 2016, offset by higher discrete tax expense. The effective tax rate increased to 35 percent, an increase of eight percentage points from fiscal year 2015. Fiscal year 2016 included several discrete tax adjustments resulting in a tax expense of $149 million, compared to a tax benefit of $62 million in fiscal year 2015. The majority of the fiscal year 2016 expense resulted from establishing a valuation allowance on Argentina’s deferred tax assets. Due to losses generated in Argentina in the current year as well as recent uncertainties around our Argentina business, we evaluated the recoverability of various items on our Statements of Consolidated Financial Position and determined a valuation allowance was necessary. This discrete tax expense was partially offset by favorable adjustments to our U.S. and ex-U.S. tax returns filed during the year. Without the discrete items, our effective tax rate for fiscal year 2016 would have been lower than the fiscal year 2015 rate, primarily due to foreign tax credits.
Overview of Financial Performance (2015 compared with 2014)
The following section discusses the significant components of our results of operations that affected the comparison of fiscal year 2015 with fiscal year 2014.
Net sales decreased $854 million in fiscal year 2015 from fiscal year 2014. Our Seeds and Genomics segment net sales decreased $497 million, and our Agricultural Productivity segment net sales decreased $357 million. The following table presents the percentage changes in fiscal year 2015 worldwide net sales by segment compared with net sales in fiscal year 2014, including the effect that volume, price and currency had on these percentage changes: 
    
 
2015 Percentage Change in Net Sales vs. 2014
 
Volume    
 
Price    
 
Currency    
 
Total    
Seeds and Genomics Segment
(4)%
 
3%
 
(4)%
 
(5)%
Agricultural Productivity Segment
(3)%
 
1%
 
(5)%
 
(7)%
Total Monsanto Company
(3)%
 
2%
 
(4)%
 
(5)%
(1)
Agricultural Productivity Segment includes the impact of the agreement with Scotts entered into in the third quarter of fiscal year 2015, which resulted in $274 million of upfront revenue accounted for as a perpetual license to intellectual property.
Cost of goods sold decreased $462 million in fiscal year 2015 from fiscal year 2014. Our Seeds and Genomics segment cost of goods sold decreased $178 million, and our Agricultural Productivity segment cost of goods sold decreased $284 million. Cost of goods sold as a percent of net sales for the total company decreased one percentage point to 45 percent. The following table represents the percentage changes in fiscal year 2015 worldwide cost of goods sold by segment compared with cost of goods sold in fiscal year 2014, including the effect that volume, costs and currency had on these percentage changes: 
    
 
2015 Percentage Change in Cost of Goods Sold vs. 2014
 
Volume    
 
Costs
 
Currency    
 
Total    
Seeds and Genomics Segment
(3)%
 
4%
 
(5)%
 
(4)%
Agricultural Productivity Segment
(4)%
 
(1)%
 
(4)%
 
(9)%
Total Monsanto Company
(3)%
 
1%
 
(4)%
 
(6)%
Gross profit decreased $392 million. Total company gross profit as a percent of net sales increased one percentage point to 55 percent in fiscal year 2015.
For a more detailed discussion of the factors affecting the net sales, cost of goods sold and gross profit comparison, see the “Seeds and Genomics Segment” and the “Agricultural Productivity Segment” sections.

23

MONSANTO COMPANY
 
2016 FORM 10-K

Operating expenses increased $160 million in fiscal year 2015 from fiscal year 2014. Selling, general and administrative expenses decreased $88 million, or three percent, primarily because of lower incentive accruals, lower operational spend and favorable currency impacts, partially offset by increased investment in growth platforms, including The Climate Corporation and BioAg Alliance, increased commissions and accruals related to the SEC investigation discussed in Item 8 — Financial Statements and Supplementary Data — and Note 24Commitments and Contingencies. R&D expenses decreased $145 million, or eight percent, due to lower incentive accruals, lower operational spend and favorable currency impacts. As a percent of net sales, SG&A expense increased one percentage point to 18 percent of net sales, and R&D expense remained consistent at 11 percent of net sales in fiscal year 2015 compared to fiscal year 2014. Restructuring charges were $393 million in fiscal year 2015 as a result of the 2015 Restructuring Plan discussed in Item 8 — Financial Statements and Supplementary Data — Note 5Restructuring. There were no restructuring charges recognized in fiscal year 2014.
Interest expense increased $185 million in fiscal year 2015 from fiscal year 2014. The increase was primarily the result of the $4.5 billion debt issuance in July 2014, the $365 million debt issuance in January 2015 and the $800 million debt issuance in April 2015.
Other expense — net decreased $68 million in fiscal year 2015 due to lower foreign currency losses, largely related to the Argentine peso, compared to the prior fiscal year.
Income tax provision for fiscal year 2015 was $864 million, a decrease of $214 million from fiscal year 2014 primarily as a result of the decrease in pretax income from continuing operations in 2015 and higher discrete tax benefits. The effective tax rate decreased to 27 percent, a decrease of one percentage point from fiscal year 2014. Fiscal year 2015 included several discrete tax adjustments resulting in a tax benefit of $62 million, compared to a tax benefit of $12 million in fiscal year 2014. The majority of the fiscal year 2015 benefit resulted from favorable adjustments to our U.S. and ex-U.S. tax returns filed during the year. Without the discrete items, our effective tax rate for fiscal year 2015 would have been higher than the 2014 rate, primarily due to higher taxes on foreign operations.

SEEDS AND GENOMICS SEGMENT
 
Year Ended Aug. 31,
 
Change
(Dollars in millions)
2016
2015
2014
 
2016 vs. 2015
2015 vs. 2014
Net Sales
 
 
 
 
 
 
Corn seed and traits
$
5,825

$
5,953

$
6,401

 
(2
)%
(7
)%
Soybean seed and traits
2,162

2,276

2,102

 
(5
)%
8
 %
Cotton seed and traits
440

523

665

 
(16
)%
(21
)%
Vegetable seeds
801

816

867

 
(2
)%
(6
)%
All other crops seeds and traits
760

675

705

 
13
 %
(4
)%
Total Net Sales
$
9,988

$
10,243

$
10,740

 
(2
)%
(5
)%
Gross Profit
 
 
 
 
 
 
Corn seed and traits
$
3,450

$
3,557

$
3,932

 
(3
)%
(10
)%
Soybean seed and traits
1,399

1,510

1,364

 
(7
)%
11
 %
Cotton seed and traits
282

408

461

 
(31
)%
(11
)%
Vegetable seeds
401

372

401

 
8
 %
(7
)%
All other crops seeds and traits
542

430

438

 
26
 %
(2
)%
Total Gross Profit
$
6,074

$
6,277

$
6,596

 
(3
)%
(5
)%
EBIT(1)
$
2,292

$
2,206

$
2,607

 
4
 %
(15
)%
(1)
EBIT is defined as earnings (loss) before interest and taxes. Interest and taxes are recorded on a total company basis. We do not record these items at the segment level. See Item 8 — Financial Statements and Supplementary Data — Note 25Segment and Geographic Data — and the “Overview — Non-GAAP Financial Measures” section of MD&A for further details.
Seeds and Genomics Financial Performance for Fiscal Year 2016
Net sales for the Seeds and Genomics segment decreased $255 million in fiscal year 2016 compared to fiscal year 2015. The net sales decrease of $128 million in corn seed and traits was primarily driven by unfavorable currency impacts in Brazil, Mexico

24

MONSANTO COMPANY
 
2016 FORM 10-K

and Europe and decreased average net selling price. The decreased average net selling price was primarily due to higher discounting to counter competitive offers in the United States, partially offset by germplasm and trait mix lift in Brazil. The currency and price impacts were partially offset by higher volumes due to increased acres in North and South America. The net sales decrease of $114 million in soybean seed and traits was primarily due to unfavorable currency impacts in Brazil and lower volumes in the United States resulting in part from the delay in Roundup Ready 2 Xtend approvals. The net sales decreases in soybean seed and traits were partially offset by an increased average net selling price in Brazil related to increased sales of Intacta RR2 PRO. The net sales decrease of $83 million in cotton seed and traits was primarily due to lower average net selling price in India as a result of new government pricing policies.
The net sales decreases were partially offset by an increase of $85 million in all other crops seeds and traits primarily driven by agreements entered into in the third quarter of fiscal year 2016 related to our alfalfa traits and technology, which resulted in approximately $210 million of upfront revenue accounted for as an exclusive perpetual license to intellectual property, partially offset by lower sales volumes of canola seed in Canada as a result of market conditions.
Cost of goods sold in the Seeds and Genomics segment primarily represents field growing, plant processing and distribution costs. Cost of goods sold decreased $52 million, or one percent, to $3,914 million in fiscal year 2016 compared to $3,966 million in fiscal year 2015.
Gross profit decreased $203 million, or three percent, to $6,074 million in fiscal year 2016 compared with $6,277 million in fiscal year 2015. Gross profit as a percent of sales for this segment remained consistent at 61 percent in fiscal year 2016.
Gross profit for cotton seed and traits decreased $126 million, or 31 percent, compared to the 16 percent decrease in net sales for cotton seed and traits primarily due to the effect on margins from the decline of the India business as a result of new government regulations coupled with higher costs in the United States. Gross profit for soybean seed and traits decreased $111 million, or seven percent, compared to the five percent decrease in net sales primarily related to increased Roundup Ready 2 Xtend launch costs within the United States.
The gross profit decreases are partially offset by an increase of $112 million in all other crops seeds and traits primarily driven by the perpetual alfalfa license noted in the net sales discussion.
Seeds and Genomics Financial Performance for Fiscal Year 2015
Net Sales for the Seeds and Genomics segment decreased $497 million in fiscal year 2015 compared to fiscal year 2014. The net sales decrease of $448 million in corn seed and traits was primarily driven by unfavorable foreign currency changes and lower planted acres in key regions including Argentina, United States and Europe. The net sales decrease of $142 million in cotton seed and traits was driven primarily by decreased planted area in the United States and decreased planted area in Australia due to lower water availability.
The net sales decreases were partially offset by an increase of $174 million in soybean seed and traits, which was driven by increased acres in Brazil resulting from the fiscal year 2014 launch of Intacta RR2 PRO.
Cost of goods sold in the Seeds and Genomics segment primarily represents field growing, plant processing and distribution costs. Cost of goods sold decreased $178 million, or four percent, to $3,966 million in fiscal year 2015 compared to $4,144 million in fiscal year 2014. The decrease in corn seed and traits was primarily the result of lower sales volumes in the United States and foreign currency changes offset by higher cost of goods in South America and Europe and asset impairments resulting from the 2015 Restructuring Plan. Cost of goods in the cotton seed and trait business decreased due to decreased planted area in the United States and Australia as noted in the net sales discussion.
Gross profit decreased $319 million, or five percent, to $6,277 million in fiscal year 2015 compared with $6,596 million in fiscal year 2014. Gross profit as a percent of sales for this segment remained consistent at 61 percent in fiscal year 2015.
Gross profit for corn seed and traits decreased $375 million, or ten percent, due to lower volumes in key regions as noted in the net sales discussion, in addition to higher costs in Brazil and Europe and asset impairments resulting from the 2015 Restructuring Plan. Gross profit for cotton seed and traits decreased $53 million, or 11 percent, which was due to the decrease in planted area for cotton seed and traits as noted in the net sales discussion.
Gross profit for soybean seed and traits increased $146 million, or 11 percent, compared to the eight percent increase in net sales for soybean seed and traits due to the increase in trait revenue in Brazil.

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AGRICULTURAL PRODUCTIVITY SEGMENT
 
Year Ended Aug. 31,
 
Change
(Dollars in millions)
2016
2015
2014
 
2016 vs. 2015
2015 vs. 2014
Net Sales
 
 
 
 
 
 
Agricultural Productivity
$
3,514

$
4,758

$
5,115

 
(26
)%
(7
)%
Total Net Sales
$
3,514

$
4,758

$
5,115

 
(26
)%
(7
)%
Gross Profit
 
 
 
 
 
 
Agricultural Productivity
$
943

$
1,905

$
1,978

 
(50
)%
(4
)%
Total Gross Profit
$
943

$
1,905

$
1,978

 
(50
)%
(4
)%
EBIT(1)
$
116

$
1,294

$
1,345

 
(91
)%
(4
)%
(1)
EBIT is defined as earnings (loss) before interest and taxes. Interest and taxes are recorded on a total company basis. We do not record these items at the segment level. See Item 8 — Financial Statements and Supplementary Data — Note 25Segment and Geographic Data — and the “Overview — Non-GAAP Financial Measures” section of MD&A for further details.
Agricultural Productivity Financial Performance for Fiscal Year 2016
Net sales in our Agricultural Productivity segment decreased $1,244 million, or 26 percent, in fiscal year 2016 primarily due to lower average net selling price of Roundup and other glyphosate-based herbicides due to the decline in acid prices and the absence of the Scotts license agreement that existed in the prior year. Additional drivers for the decline were lower volume in South America, the United States and our global supply business due to pressure from generic products and timing of shipments and unfavorable currency impact primarily in Brazil.
Cost of goods sold in the Agricultural Productivity segment primarily represents material, conversion and distribution costs. Cost of goods sold decreased $282 million, or ten percent, in fiscal year 2016 to $2,571 million compared to $2,853 million in fiscal year 2015. Cost of goods sold declined as a result of lower sales volumes and favorable currency impacts, offset in part by higher raw material prices and higher dicamba project expense when compared to fiscal year 2015.
The net sales and cost of goods sold discussed above resulted in a $962 million decrease in gross profit in fiscal year 2016. Gross profit as a percent of sales for the Agricultural Productivity segment decreased 13 percentage points to 27 percent in fiscal year 2016 primarily due to the absence of the Scotts license agreement that existed in the prior year, lower volumes and lower average net selling price as noted in the net sales discussion, increased costs of goods sold and currency impacts.
Agricultural Productivity Financial Performance for Fiscal Year 2015
Net sales in our Agricultural Productivity segment decreased $357 million, or seven percent, in fiscal year 2015 primarily due to lower volumes, unfavorable currency impacts and decreased average net selling price. Lower volumes in our global supply and branded businesses resulted from lower customer demand due to weather conditions, primarily in the United States and Latin America, and average net selling price decreased in fiscal year 2015 compared to fiscal year 2014 as a result of a decline in acid prices. These decreases were partially offset by the agreement with Scotts entered into in fiscal year 2015, which resulted in $274 million of revenue accounted for as a perpetual license to intellectual property.
Cost of goods sold in the Agricultural Productivity segment primarily represents material, conversion and distribution costs. Cost of goods sold decreased $284 million, or nine percent, in fiscal year 2015 to $2,853 million compared to $3,137 million in fiscal year 2014. Roundup and other glyphosate-based herbicides cost of goods sold decreased primarily as a result of the lower sales volumes discussed above and lower raw material prices.
The net sales and cost of goods sold discussed above resulted in a $73 million decrease in gross profit in fiscal year 2015. Gross profit as a percent of sales for the Agricultural Productivity segment increased one percentage point to 40 percent in fiscal year 2015 primarily due to the agreement with Scotts entered into in fiscal year 2015, partially offset by lower average net selling prices in fiscal year 2015 compared to fiscal year 2014.

RESTRUCTURING
On Oct. 6, 2015, we approved actions to realign resources to increase productivity, enhance competitiveness by delivering cost improvements and support long-term growth. On Jan. 5, 2016, we approved additional actions which together with the Oct. 6, 2015, actions comprise the 2015 Restructuring Plan. Actions include streamlining and reprioritizing some commercial, enabling, supply chain and research and development efforts.

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Cumulative pretax charges related to the 2015 Restructuring Plan are estimated to be $1 billion to $1.1 billion. Implementation of the 2015 Restructuring Plan is expected to be completed by the end of fiscal year 2018, and substantially all of the cash payments are expected to be made by the end of fiscal year 2018. These pretax charges are currently estimated to be comprised of the following categories: $420 million to $465 million in work force reductions, including severance and related benefits; $130 million to $150 million in facility closures / exit costs, including contract termination costs; $450 million to $485 million in asset impairments and write-offs related to property, plant and equipment, inventory and goodwill and other assets. These pretax charges are currently estimated to be incurred primarily by the Seeds and Genomics segment.
In fiscal year 2016, pretax restructuring charges of $364 million were recorded within the Statement of Consolidated Operations, of which $67 million and $297 million were included in cost of goods sold and restructuring charges, respectively. For additional information on the 2015 Restructuring Plan, see Item 8 — Financial Statements and Supplementary Data — Note 5Restructuring.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Financial Condition
 
As of Aug. 31,
(Dollars in millions, except current ratio)
2016
2015
Cash and Cash Equivalents(1)
$
1,676

$
3,701

Trade Receivables, Net(1)
1,926

1,636

Inventory, Net
3,241

3,496

Other Current Assets(2)
1,314

1,792

Total Current Assets
$
8,157

$
10,625

Short-Term Debt(1)
$
1,587

$
615

Accounts Payable(1)
1,006

836

Accrued Liabilities(1)(3)
4,136

3,726

Total Current Liabilities
$
6,729

$
5,177

Working Capital(4)
$
1,428

$
5,448

Current Ratio(4)
1.21:1

2.05:1

(1) 
Includes restrictions as a result of our variable interest entities. See Item 8 — Financial Statements and Supplementary Data Statements of Consolidated Financial Position and Note 8Variable Interest Entities and Investments — for more information.
(2) 
Includes short-term investments, miscellaneous receivables, assets held for sale, and other current assets at Aug. 31, 2016. Includes short-term investments, miscellaneous receivables, assets held for sale, other current assets and deferred tax assets at Aug. 31, 2015.
(3) 
Includes income taxes payable, accrued compensation and benefits, accrued marketing programs, deferred revenues, grower production accruals, dividends payable, customer payable, miscellaneous short-term accruals and restructuring reserves.
(4) 
Working capital is total current assets less total current liabilities; current ratio represents total current assets divided by total current liabilities.
Working capital decreased $4,020 million between Aug. 31, 2016, and Aug. 31, 2015, primarily because of the following factors: 
Cash and cash equivalents decreased $2,025 million. For a more detailed discussion of the factors affecting the cash flow comparison, see the “Cash Flow” section in this section of MD&A.
Inventory, net decreased $255 million due to a lower production plan for corn inventory, partially offset by an inventory build in agricultural productivity.
Other current assets decreased $478 million between respective periods primarily due to a decrease in deferred tax assets of $743 million between respective periods resulting from the prospective adoption of “Balance Sheet Classification of Deferred Taxes” as of the third quarter of fiscal year 2016. See Item 8 — Financial Statements and Supplementary Data — Note 3New Accounting Standards — for further information. This decrease was partially offset by an increase in assets held for sale of $265 million between respective periods related to the probable sale of the Precision Planting equipment business and the sale of packaging materials.
Short-term debt increased $972 million primarily due to outstanding commercial paper of $500 million; there was no commercial paper outstanding in the prior year.
Accounts payable increased $170 million primarily due to timing of payments compared to prior year.
Accrued liabilities increased $410 million primarily due to the following fluctuations:
Accrued marketing programs increased $158 million due to increased market funding accruals related to Intacta RR2 PRO in Brazil and increased market funding in the United States related to our competitive pricing strategy.
Deferred revenues increased $198 million primarily related to Intacta RR2 PRO prepayments for the upcoming season.

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Restructuring reserves increased $57 million as a result of the 2015 Restructuring Plan.
Miscellaneous short-term accruals increased $213 million primarily due to an accrual related to the PCB settlement of $280 million. See Item 8 — Financial Statements and Supplementary Data — Note 24Commitments and Contingencies — for further information. This increase is partially offset by the absence of the accrual related to the SEC investigation that existed in prior year.
The decreases in accrued liabilities were partially offset by the following:
Income taxes payable decreased $193 million primarily as a result of the timing of tax payments.

These decreases to working capital were partially offset by an increase in trade receivables of $290 million due to a decrease in receivables sold to third parties in the United States.
Backlog: Inventories of finished goods, goods in process and raw materials and supplies are maintained to meet customer requirements and our scheduled production. As is consistent with the nature of the seed industry, we generally produce in one growing season the seed inventories we expect to sell the following season. In general, we do not manufacture our products against a backlog of firm orders; production is geared to projected demand.
 
Customer Financing Programs: We participate in various customer financing programs in an effort to reduce our receivables risk and to reduce our reliance on commercial paper borrowings. As of Aug. 31, 2016, the programs had $571 million in outstanding balances, and we received $607 million of proceeds in fiscal year 2016 under these programs. Our future maximum payout under all programs, including our responsibility for our guarantees with lenders, was $111 million as of Aug. 31, 2016. See Item 8 — Financial Statements and Supplementary Data —Note 7Customer Financing Programs — for further discussion of these programs.

Cash Flow
 
Year Ended Aug. 31,
(Dollars in millions)
2016
2015
2014
Net Cash Provided by Operating Activities
$
2,588

$
3,108

$
3,054

Net Cash Required by Investing Activities
(864
)
(1,019
)
(2,095
)
Free Cash Flow(1)
1,724

2,089

959

Net Cash Required by Financing Activities
(3,742
)
(430
)
(2,259
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(7
)
(325
)
(1
)
Net (Decrease) Increase in Cash and Cash Equivalents
(2,025
)
1,334

(1,301
)
Cash and Cash Equivalents at Beginning of Period
3,701

2,367

3,668

Cash and Cash Equivalents at End of Period
$
1,676

$
3,701

$
2,367

(1) 
Free cash flow represents the total of net cash provided or required by operating activities and provided or required by investing activities (see the “Overview — Non-GAAP Financial Measures” section in MD&A for a further discussion).
2016 compared with 2015:
Operating: The decrease in cash provided by continuing operations in fiscal year 2016 compared to fiscal year 2015 was primarily due to the following:
Increase in trade receivables primarily due to a decrease in sales of receivables to third parties;
Accounts payable and accrued liabilities utilized more cash in the current year compared to prior year primarily due to increased income tax payments and legal spend. This is offset by timing of accounts payable disbursements and an increase in miscellaneous short-term accruals which included the PCB settlement further discussed at Item 8 — Financial Statements and Supplementary Data — Note 24Commitments and Contingencies.
Increase in cash payments made related to the 2015 Restructuring Plan, see Item 8 — Financial Statements and Supplementary Data — Note 5Restructuring— for further information; and
Decrease in earnings from fiscal year 2015 to fiscal year 2016.
The above factors were partially offset by the following:
Decrease in payments for inventory due to a lower production plan for corn inventory, partially offset by an inventory build in agricultural productivity;
Increase in deferred revenue primarily resulting from Intacta RR2 PRO; and
Increase in cash related to timing of collection of value add tax receivables.

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Investing: The decrease in cash required by investing activities in fiscal year 2016 compared to fiscal year 2015 was primarily due to an increase in cash from other investments and property disposal proceeds related to the sale of sorghum manufacturing assets and non-core asset sales in the United States and Europe. A decrease in capital expenditures also provided for additional cash required by investing activities.
Financing: The increase in cash required by financing activities in fiscal year 2016 compared to fiscal year 2015 was primarily due to treasury stock purchases related to the $3 billion accelerated share repurchase agreements and an increase in debt payments, partially offset by the increase in commercial paper borrowings and a decrease in bond issues.
Foreign Currency: The effect of exchange rate changes on cash and cash equivalents reduced the value of our cash and cash equivalents by $7 million during fiscal year 2016.
2015 compared with 2014: In fiscal year 2015, our free cash flow was a source of cash of $2,089 million, compared with $959 million in fiscal year 2014. Cash provided by operating activities increased two percent, or $54 million, to $3,108 million in 2015 compared with $3,054 million in fiscal year 2014. The increase was primarily driven by increased collections on trade receivables, including receipts from customer financing programs, primarily in the United States; a decrease in payments for inventory due to lower production plan for corn inventory, partially offset by an inventory build in agricultural productivity for the production of dicamba; and an increase in customer prepayments for Intacta RR2 PRO in Brazil. These factors were offset by an increase in payments for accounts payable and accrued liabilities primarily due to timing of payments and increased accrued marketing programs and a decrease in earnings from fiscal year 2014 to fiscal year 2015.
Cash required by investing activities was $1,019 million in fiscal year 2015 compared with $2,095 million in fiscal year 2014. The decrease was primarily due to decreased business acquisitions and technology investments, as the prior fiscal year included the acquisition of The Climate Corporation and the collaboration with Novozymes. We also had a decrease in capital expenditures and purchases of short-term investments, offset by a decrease in cash provided by maturities of short-term investments.
The amount of cash required by financing activities was $430 million in fiscal year 2015 compared with $2,259 million in fiscal year 2014. The decrease was primarily due to decreased treasury stock purchases as the prior fiscal year included the impact of the July 2014 ASR agreements. The decrease in cash required was offset by lower long-term debt proceeds, which were used for general corporate purposes, including share repurchases, in fiscal year 2015, while the 2014 fiscal year proceeds were used to partially fund the ASR agreements and fund the acquisition of The Climate Corporation.

Capital Resources and Liquidity
 
As of Aug. 31,
(Dollars in millions, except debt-to-capital ratio)
2016
2015
Short-Term Debt
$
1,587

$
615

Long-Term Debt
7,453

8,429

Total Monsanto Company Shareowners’ Equity
4,534

6,990

Debt-to-Capital Ratio(1)
67
%
56
%
(1) 
Debt-to-capital ratio is the sum of short-term and long-term debt, divided by total Monsanto Company shareowners' equity, short-term and long-term debt.
A major source of our liquidity is operating cash flows, which can be derived from net income. This cash-generating capability and access to bank financing and long-term investment grade debt financing markets provides us with the financial flexibility we need to meet operating, investing and financing needs. Although we are subject to certain restrictions under the terms of the Merger Agreement with Bayer, we believe our sources of liquidity will be sufficient to sustain operations and to finance anticipated investments. To the extent that cash provided by operating activities is not sufficient to fund our cash needs, we believe short-term commercial paper borrowings can be used to finance these requirements. We had commercial paper borrowings of $500 million outstanding at Aug. 31, 2016.
Debt and Other Credit Arrangements: In April 2016, we filed a shelf registration with the SEC (“2016 shelf registration”) that allows us to issue a maximum aggregate amount of $6 billion of debt, equity and hybrid offerings. The 2016 shelf registration expires in April 2019.
We have a $3 billion credit facility agreement with a group of banks that provides a senior unsecured revolving credit facility through Mar. 27, 2020. As of Aug. 31, 2016, we did not have any borrowings under this credit facility, and we were in compliance with all financial debt covenants.

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Our debt-to-capital ratio increased to 67 percent at Aug. 31, 2016, compared with 56 percent at Aug. 31, 2015, as a result of the treasury share purchases as discussed below and cash dividends, offset by the increase in shareowners’ equity as a result of earnings.
We held cash and cash equivalents and short-term investments of $1,736 million and $3,748 million at Aug. 31, 2016, and Aug. 31, 2015, respectively, of which $1,629 million and $1,001 million was held by foreign entities, respectively. Our intent is to indefinitely reinvest approximately $4.5 billion of the $4.6 billion of undistributed earnings of our foreign operations that existed as of Aug. 31, 2016. It is not practicable to estimate the income tax liability that might be incurred if such indefinitely reinvested earnings were remitted to the United States.
Dividends: In fiscal year 2016, we declared the following dividends:
Quarter Ending
Declaration Date
Dividend
Payable Date
To Shareowners of Record as of:
Aug. 31, 2016
Aug. 12, 2016
54 cents
Oct. 28, 2016
Oct. 7, 2016
Aug. 31, 2016
June 9, 2016
54 cents
Jul. 29, 2016
Jul. 8, 2016
Feb. 29, 2016
Jan. 29, 2016
54 cents
Apr. 29, 2016
Apr. 8, 2016
Feb. 29, 2016
Dec. 7, 2015
54 cents
Jan. 29, 2016
Jan. 8, 2016
We paid dividends totaling $964 million in fiscal year 2016, $938 million in fiscal year 2015 and $904 million in fiscal year 2014.
Share Repurchases: On Oct. 9, 2015, we entered into uncollared ASR agreements with each of Citibank, N.A. (“Citi”) and JPMorgan Chase Bank, N.A. (“JPMorgan”), which settled in January 2016. In accordance with the terms of the agreements, an additional 3.8 million shares were received upon final settlement in the second quarter of fiscal year 2016 for a total of 32.2 million shares of Monsanto common stock repurchased at an aggregate cost to us of $3.0 billion. The ASR agreements were entered into pursuant to the share repurchase authorization announced June 2014.
In June 2014, we announced a two-year repurchase authorization of up to $10 billion of the company’s common stock, which expired on June 24, 2016. There were no other publicly announced plans outstanding as of Aug. 31, 2016. The Merger Agreement includes restrictions on purchases of shares of the company’s common stock by the company.

Capital Expenditures: Our capital expenditures were $923 million in fiscal year 2016, $967 million in fiscal year 2015 and $1,005 million in fiscal year 2014. We expect fiscal year 2017 cash required by investing to be $1.0 to $1.2 billion, with the capital expenditures component allocated towards both the seeds and genomics segment and the agricultural productivity segment. Capital expenditures within the agricultural productivity segment include expenditures to construct a dicamba manufacturing facility in Luling, Louisiana.

Healthcare Benefits: The short-term impact of the Healthcare Acts does not have a material impact on our consolidated financial statements. We continue to monitor the long-term impact of the Healthcare Acts, but we do not expect a material impact on our consolidated financial statements.
Pension Contributions: In addition to contributing amounts to our pension plans if required by pension plan regulations, we continue to also make discretionary contributions if we believe they are merited. Although contributions to the U.S. qualified plan were not required, we contributed $60 million in fiscal year 2016 and $32 million in fiscal year 2014. Monsanto did not make any cash contributions to its U.S. qualified plan in fiscal year 2015. For fiscal year 2017, management expects to make $60 million in discretionary cash contributions to the U.S. qualified plan. As the level of required future contributions is unpredictable and depends heavily upon return on plan asset experience and interest rate levels, we will evaluate contributions to the plan on a regular basis in the near term.
Fiscal year 2017 pension expense will be determined using assumptions as of Aug. 31, 2016. Our expected rate of return on assets assumption will remain consistent for fiscal year 2017 at 7.50 percent for the U.S. qualified plan. This assumption was 7.50 percent in each of fiscal years 2016, 2015 and 2014. To determine the rate of return, we consider the historical experience and expected future performance of the plan assets, as well as the current and expected allocation of the plan assets. The U.S. qualified pension plan’s asset allocation as of Aug. 31, 2016, was approximately 53 percent equity securities, 42 percent debt securities and 5 percent other investments, in line with our policy ranges. We periodically evaluate the allocation of plan assets among the different investment classes to ensure that they are within policy guidelines and ranges. Although we do not

30

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currently expect to change the assumed rate of return in the near term, holding all other assumptions constant, we estimate that a half-percent decrease or increase in the expected return on plan assets would affect our fiscal year 2017 pre-tax income by approximately $11 million.
Our weighted average discount rate assumption for the 2017 pension expense is 3.43 percent for U.S. pension plans. This assumption was 4.33 percent, 4.04 percent and 4.44 percent in fiscal years 2016, 2015 and 2014, respectively. In determining the discount rate, we use yields on high-quality fixed-income investments that match the duration of the pension obligations. To the extent the discount rates decrease or increase, our pension obligation is decreased or increased accordingly. Holding all other assumptions constant, we estimate that a quarter-percent decrease or increase in the discount rates would affect our fiscal year 2017 pre-tax income by approximately $4 million. Our salary rate assumption as of Aug. 31, 2016, was 4.0 percent. Holding all other assumptions constant, we estimate that a half-percent decrease or increase in the salary rate assumption would affect our fiscal year 2017 pretax income by $2 million.
 
Divestitures: In October 2008, we consummated the sale of the Dairy business after receiving approval from the appropriate regulatory agencies and received $300 million in cash, and may receive additional contingent consideration. The contingent consideration is a 10-year earn-out with potential annual payments being earned by us if certain revenue levels are exceeded.
On Nov. 2, 2015, we signed definitive agreements with Deere & Company (“Deere”) to sell the Precision Planting equipment business and to enable exclusive third-party near real-time data connectivity between certain John Deere farm equipment and the Climate FieldView platform. Deere, based in Moline, IL, will acquire Precision Planting, while Climate will retain the digital agriculture portfolio that has been integrated into the Climate FieldView platform. The agreements will provide customers with the option to share their agronomic data between the John Deere Operations Center and the Climate FieldView platform and execute agronomic prescriptions with John Deere equipment. In August 2016, the U.S. Department of Justice filed a lawsuit to block Deere’s acquisition of the Precision Planting equipment business, which Deere has indicated it plans to contest. As a result of this development, the closing date for this transaction is uncertain.
2016 Joint Venture: Effective June 15, 2016, we signed definitive agreements to sell certain manufacturing assets and contribute to a newly-formed joint venture certain intellectual property, real property and tangible assets related to the company’s sorghum business. The agreements created a global joint venture in sorghum breeding that will help expand the commercial and technology reach of the elite germplasm and remain focused on delivering important product offerings for sorghum growers so that they can continue to benefit from new innovations in the crop. We received a cash payment of $110 million and a minority interest in the newly-formed joint venture, which combined resulted in a gain of approximately $157 million in the fourth quarter of the current fiscal year. The joint venture will be accounted for using the equity method of accounting. See Item 8 — Financial Statements and Supplementary Data —Note 8Variable Interest Entities and Investments.
2014 Collaboration: In February 2014, we entered into a collaborative agreement with Novozymes to launch The BioAg Alliance. The BioAg Alliance is focused on the next wave of microbial solutions by bringing together Novozymes’ capabilities for discovering, developing and producing microbial solutions with Monsanto’s discovery programs, and advanced development, testing and commercial capabilities. Value from commercialization is shared 50-50 between both companies. We paid Novozymes an aggregate upfront cash payment of $300 million for recognition of Novozymes’ ongoing business and capabilities in microbials and for Novozymes’ ability to supply alliance products.
2014 Acquisition: In November 2013, we 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 it to develop risk management tools and agronomic decision support tools for growers. The acquisition combined The Climate Corporation’s expertise in agriculture risk-management with our 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 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 us for the right to control the acquired business and technology.



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Contractual Obligations: We have certain obligations and commitments to make future payments under contracts. The following table sets forth our estimates of future payments under contracts as of Aug. 31, 2016. See Item 8 — Financial Statements and Supplementary Data — Note 24Commitments and Contingencies — for a further description of our contractual obligations.
 

Payments Due by Fiscal Year Ending Aug. 31,
(Dollars in millions)
Total  
2017
2018
2019
2020
2021
2022 and
beyond  
Total Debt, including Capital Lease Obligations(1)
$
9,040

$
1,587

$
306

$
804

$
5

$
500

$
5,838

Interest Payments Relating to Long-Term Debt and Capital Lease Obligations(1)
6,320

310

301

282

269

267

4,891

Operating Lease Obligations
520

151

98

76

61

47

87

Purchase Obligations:
 

 
 
 
 
 
 
Commitments to purchase inventories
2,550

1,282

375

335

243

183

132

Commitments to purchase breeding research
495

55

55

55

55

55

220

R&D alliances and joint venture obligations
150

48

37

26

18

17

4

Uncompleted additions to property
271

271






Other Liabilities:
 
 
 
 
 
 
 
Postretirement liabilities(2)
106

106






Unrecognized tax benefits(3)
70







Environmental liabilities
189

12

16

11

6

6

138

Total Contractual Obligations
$
19,711

$
3,822

$
1,188

$
1,589

$
657

$
1,075

$
11,310

(1)
For variable rate debt, interest is calculated using the applicable rates as of Aug. 31, 2016.
(2)
Includes the company’s planned pension and other postretirement benefit contributions for 2017. The actual amounts funded in 2017 may differ from the amounts listed above. Contributions in 2018 and beyond are excluded as those amounts are unknown. Refer to Item 8 — Financial Statements and Supplementary Data — Note 16 — Postretirement Benefits — Pensions — and Note 17Postretirement Benefits - Health Care and Other Postemployment Benefits — for more information.
(3)
Unrecognized tax benefits relate to reserves for uncertain tax positions recorded under the Income Taxes topic of the ASC. We are unable to reasonably predict the timing of tax settlements, as tax audits can involve complex issues, and the resolution of those issues may span multiple years, particularly if subject to negotiation or litigation. See Item 8 — Financial Statements and Supplementary Data — Note 12Income Taxes — for more information.
Off-Balance Sheet Arrangements
Under our Separation Agreement with Pharmacia, we are required to indemnify Pharmacia for certain liabilities that are primarily related to Pharmacia’s former chemical and agricultural businesses. To the extent we are currently managing any such matters, we evaluate them in the course of managing our own potential liabilities and establish reserves as appropriate. However, additional matters may arise in the future, and we may manage, settle or pay judgments or damages with respect to those matters in order to mitigate contingent liability and protect Pharmacia and ourselves. See Item 8 — Financial Statements and Supplementary Data — Note 24Commitments and Contingencies — and Part I — Item 3 — Legal Proceedings — for further information.
We have entered into various customer financing programs which are accounted for in accordance with the Transfers and Servicing topic of the ASC. See Item 8 — Financial Statements and Supplementary Data — Note 7Customer Financing Programs — for further information.
We are in the process of making a significant expansion of our Chesterfield, Missouri, facility. In December 2013, we executed the first of a series of incentive agreements with the County of St. Louis, Missouri. Under these agreements we have transferred our Chesterfield, Missouri, facility to St. Louis County and received Industrial Revenue Bonds in the amount of up to $470 million which enables us to reduce our cost of constructing and operating the expansion by reducing certain state and local tax expenditures. We immediately leased the facility from the County of St. Louis and have an option to purchase the facility upon tendering the Industrial Revenue Bonds we received to the County. The payments due to us in relation to the Industrial Revenue Bonds and owed by us in relation to the lease of the facilities qualify for the right of offset under the Balance Sheet topic of the

32

MONSANTO COMPANY
 
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ASC on our Statements of Consolidated Financial Position. As such, neither the Industrial Revenue Bonds nor the lease obligation are recorded on the Statements of Consolidated Financial Position as an asset or liability, respectively. The Chesterfield facilities and the expansion is being treated as being owned by us.
Other Information
As discussed in Item 8 — Financial Statements and Supplementary Data — Note 24Commitments and Contingencies — and Part I — Item 3 — Legal Proceedings, we are responsible for significant environmental remediation and are involved in a number of lawsuits and claims relating to a variety of issues. Many of these lawsuits relate to intellectual property disputes. We expect that such disputes will continue to occur as the agricultural biotechnology industry evolves.
Seasonality
Our fiscal year end of August 31 synchronizes our quarterly and annual results with the natural flow of the agricultural cycle in our major markets. It provides a more complete picture of the North American and South American growing seasons in the same fiscal year. Sales by our Seeds and Genomics segment, and to a lesser extent, by our Agricultural Productivity segment, are seasonal. In fiscal year 2016, approximately 70 percent of our Seeds and Genomics segment sales occurred in the second and third quarters. This segment’s seasonality is primarily a function of the purchasing and growing patterns in North America. Agricultural Productivity segment sales were more evenly spread across our fiscal year quarters in 2016.
 
Net income has been the highest in second and third quarters, which correlates with the sales of the Seeds and Genomics segment and its gross profit contribution. Sales and income may shift somewhat between quarters, depending on planting and growing conditions. Our inventory has been at its lowest level at the end of our fiscal year, which is consistent with the agricultural cycles in our major markets. Additionally, our trade accounts receivable generally has been at its lowest levels in our fourth quarter. However, at Aug. 31, 2016, our trade accounts receivable balance is higher compared to prior year primarily due to a decrease in sales of receivables to third parties at year end.
As is the practice in our industry, we regularly extend credit to enable our customers to acquire crop protection products and seeds at the beginning of the growing season. Because of the seasonality of our business and the need to extend credit to customers, we sometimes use short-term borrowings to finance working capital requirements. Our need for such financing has generally been higher in the first and third quarters of the fiscal year and lower in the second and fourth quarters of the fiscal year. Our customer financing programs are expected to continue to reduce our receivable risk and to reduce our reliance on commercial paper borrowings.
OUTLOOK
We believe we have achieved an industry-leading position in the areas in which we compete in both of our business segments. However, the outlook for each part of our businesses is quite different. In the Seeds and Genomics segment, our seeds and traits business is expected to expand via our investments in new products. In the Agricultural Productivity segment, we expect to continue to deliver competitive products that support our Seeds and Genomics segment.
We believe that our company is positioned to deliver value-added products to growers enabling us to grow our gross profit in the future. We expect to see strong cash flow in the future, and we remain committed to returning value to shareowners through vehicles such as investments that expand the business and dividends. We will remain focused on cost and cash management, both to support the progress we have made in managing our investment in working capital and to realize the full earnings potential of our businesses. We are in the process of executing our plan to reduce operational spending through fiscal year 2018. We plan to continue to seek additional external financing opportunities for our customers as a way to manage receivables for each of our segments. In the United States, we expect to incur higher interest costs as we refinance maturing debt.
Outside of the United States, our businesses will continue to face challenges related to the risks inherent in operating in international markets. We will continue to consider, assess and address these developments and the challenges and issues they place on our businesses. We believe we have taken appropriate measures to manage our credit exposure, which has the potential to affect sales negatively in the near term. In addition, volatility in foreign currency exchange rates may negatively affect our profitability, the book value of our assets outside the United States, and our shareowners’ equity. We continuously monitor the potential for currency devaluation in Brazil, Argentina, Venezuela and Ukraine, including changes to exchange rate mechanisms or structures, and the potential impact on future periods. Subsequent to recent currency devaluations in Argentina and Venezuela, we continue to monitor the economic situations and the impact of currency volatility on earnings.

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Seeds and Genomics
Our capabilities in plant breeding and biotechnology research and development are generating a rich and balanced product pipeline that we expect will drive long-term growth. We plan to continue to invest in the areas of seeds, genomics, biotechnology, digital agriculture and biologicals and to invest in technology arrangements that have the potential to increase the efficiency and effectiveness of our R&D efforts. We believe that our seeds and traits businesses will have near-term growth opportunities through a combination of improved breeding, continued growth of stacked biotech traits and expansion in established and emerging markets.
We expect advanced breeding techniques combined with improved production practices and capital investments will continue to contribute to improved germplasm quality and yields for our seed offerings, leading to increased global demand for both our branded germplasm and our licensed germplasm. Our vegetable seeds business, which has a portfolio focused on 21 crops, is expected to continue to develop and deliver new innovative products to our customer base as we continue to focus on our breeding investments and process optimization. We expect to see continued competition in seeds and genomics. We believe we will maintain a competitive advantage because of our global breeding capabilities and our multiple-channel sales approach in the United States for corn and soybean seeds.
Commercialization of second- and third-generation traits and the stacking of multiple traits in corn, soy and cotton are expected to increase penetration in approved markets, particularly as we continue to price our traits in line with the value growers have experienced from their use. We continue to experience an increase in competition in biotechnology as more competitors launch traits in the United States and internationally. Acquisitions may also present mid-to-longer term opportunities to increase penetration of our traits. The United States business could be significantly impacted by timing of regulatory approvals related to the Roundup Ready XTEND platform.
Intacta RR2 PRO technology has been fully approved by Brazil, Argentina, Paraguay, Uruguay and their key export markets, and we are currently selling that technology in Brazil, Argentina, Paraguay and Uruguay. In South America, we generally operate using a business model working with growers and grain handlers to collect technology value for soybeans either on the sale of new certified seed or through a point-of-delivery system for seeds that have been saved and replanted. The system has been operating in Brazil for many years, and nearly all of the grain handlers have enrolled in the point-of-delivery system. In Argentina, nearly all of the exporting grain handlers have enrolled in the point-of-delivery system, and we are enrolling additional local elevators. As previously announced, due to uncertainty raised by recent actions of the new government of Argentina, and while we continue to pursue value capture in Argentina, we have placed a hold on the launch of new soybean traits in that country. We continue to pursue a long-term system that operates with integrity and predictability and will continue to evaluate our soybean business in Argentina. With regard to first generation Roundup Ready soybeans, we have deferred collection of royalties in Brazil until a final decision is reached by the courts on our patent term correction case. The Supreme Court of Brazil has granted certiorari of the case. We do not plan to collect on first generation Roundup Ready soybeans in Argentina.
Our international traits businesses, in particular, are likely to continue to face unpredictable regulatory environments that may be highly politicized. We operate in volatile, and often difficult, economic and political environments. Longer term, income is expected to grow in South America as farmers choose to plant more of our approved traits in soybeans, corn and cotton. The agricultural economy in Brazil and Argentina could be impacted by global commodity prices, particularly for corn and soybeans. We continue to maintain our strict credit policy, expand our grain-based collection system and focus on cash collection and sales, as part of a continuous effort to manage our risk in Brazil and Argentina against such volatility. India’s cotton germplasm and traits business could continue to be significantly impacted by government policies, including controlled pricing and regulatory uncertainties, and we will continue to evaluate our cotton business in India.
Agricultural Productivity
Our Agricultural Productivity businesses operate in markets that are competitive. Gross profit and cash flow levels will fluctuate in the future based on global business dynamics including market supply, demand and manufacturing capacity. We expect to maintain our branded prices at a slight premium over generic products, and we believe our Roundup herbicide business will continue to be a sustainable source of cash and gross profit. Our crop protection business focus is to support strategically our Roundup Ready crops through our weed management platform that delivers weed control offerings for farmers. We continue to invest in our pending Roundup Ready XTEND crop system, which includes capital expenditures to construct a dicamba manufacturing facility in Luling, Louisiana. In addition, we expect our lawn-and-garden business will continue to be a solid contributor to our Agricultural Productivity segment.
Global glyphosate producers have the capacity to supply the market, but global dynamics including demand, environmental regulation compliance and raw material availability can cause fluctuations in supply and price of those generic products. We

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expect the fluctuation in global capacity will impact the selling prices and margins of Roundup brands and our third party sourcing opportunities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing our financial statements, we must select and apply various accounting policies. Our most significant policies are described in Item 8 — Financial Statements and Supplementary Data — Note 2Significant Accounting Policies. In order to apply our accounting policies, we often need to make estimates based on judgments about future events. In making such estimates, we rely on historical experience, market and other conditions, and on assumptions that we believe to be reasonable. However, the estimation process is by its nature uncertain given that estimates depend on events over which we may not have control. If market and other conditions change from those that we anticipate, our results of operations, financial condition and changes in financial condition may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or to take other corrective actions, either of which may also have a material effect on our results of operations, financial condition or changes in financial condition. Members of our senior management have discussed the development and selection of our critical accounting estimates, and our disclosures regarding them, with the audit and finance committee of our board of directors, and do so on a regular basis.
We believe that the following estimates have a higher degree of inherent uncertainty and require our most significant judgments. In addition, had we used estimates different from any of these, our results of operations, financial condition or changes in financial condition for the current period could have been materially different from those presented.
 
Restructuring: We may from time to time initiate restructuring activities. Management is required to estimate the timing and amount of severance and other related benefits for workforce reduction, as well as the fair value of property, plant and equipment and goodwill and other intangible assets. Our written human resource policies are indicative of an ongoing benefit arrangement with respect to severance packages. Costs associated with severance and other related benefits for workforce reduction are recorded when we consider them probable and estimable. As of Aug. 31, 2016, and 2015, we had $244 million and $217 million, respectively, accrued related to severance and related benefit costs. The primary factors affecting our accrual for severance and related benefit costs include estimated years of service and eligible pay related to the position severed. We review long-lived assets and finite-lived intangible assets for impairment when, in management’s judgment, conditions indicate a possible loss. Such an assessment involves estimating undiscounted cash flows over the remaining useful life of the assets. If the review indicates that undiscounted cash flows are less than the carrying value of the assets, the assets are considered to be impaired. If an impairment is indicated, the asset is written down to its fair value, or if fair value is not readily determinable, to an estimated fair value based on discounted cash flows. For fiscal years 2016 and 2015 for the 2015 Restructuring Plan, we have recognized $43 million and $81 million of impairments related to property, plant and equipment and $39 million and $71 million of impairments related to intangible assets.

Goodwill: The majority of our goodwill relates to our seed company acquisitions. We are required to assess at least annually whether any of our goodwill is impaired. In order to do this, we apply judgment in determining our reporting units, which represent component parts of our business. Our annual goodwill impairment assessment involves estimating the fair value of a reporting unit and comparing it with its carrying value. If the carrying value of the reporting unit exceeds its fair value, additional steps are required to calculate a potential impairment loss.
Calculating the fair value of the reporting units requires significant estimates and long-term assumptions. Changes in key assumptions about the business and its prospects, or any changes in market conditions, interest rates or other externalities, could result in an impairment charge. We estimate the fair value of our reporting units by applying discounted cash flow methodologies. A discounted cash flow analysis requires us to make various judgmental estimates and assumptions that include, but are not limited to, sales growth, gross profit margin rates and discount rates. Discount rates were evaluated by reporting segment to account for differences in inherent industry risk. Sales growth and gross profit margin assumptions were based on our long range plan.
The annual goodwill impairment tests were performed as of Mar. 1, 2016, and Mar. 1, 2015. No indications of goodwill impairment existed as of either date. The results of management’s Mar. 1, 2016, goodwill impairment test indicated that all reporting units had a calculated fair value greater than 10 percent in excess of its carrying value.
Income Taxes: Management regularly assesses the likelihood that deferred tax assets will be recovered from future taxable income. To the extent management believes that it is more likely than not that a deferred tax asset will not be realized, a valuation allowance is established. When a valuation allowance is established, increased or decreased, an income tax charge or benefit is included in the consolidated financial statements, and net deferred tax assets are adjusted accordingly. Changes in tax

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laws, statutory tax rates and estimates of our future taxable income levels could result in actual realization of the deferred tax assets being materially different from the amounts provided for in the consolidated financial statements. If the actual recovery amount of the deferred tax asset is different than anticipated, we would be required to adjust the remaining deferred tax asset and the tax provision, resulting in an adjustment to net income and shareowners’ equity.
Under the Income Taxes topic of the ASC, in order to recognize the benefit of an uncertain tax position, the taxpayer must be more likely than not of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the position. Tax authorities regularly examine our returns in the jurisdictions in which we do business. Management regularly assesses the tax risk of our return filing positions and believes our accruals for uncertain tax positions are adequate as of Aug. 31, 2016.
As of Aug. 31, 2016, and Aug. 31, 2015, management has recorded deferred tax assets of $335 million and $291 million in Brazil primarily related to net operating loss carryforwards that have no expiration date. Management continues to believe it is more likely than not that we will realize our deferred tax assets in Brazil.
As of Aug. 31, 2016, management has recorded deferred tax assets of $281 million in Argentina primarily related to accrued royalties for which a tax benefit will be realized when paid. As a result of losses generated in Argentina in the current year as well as recent uncertainties around the Argentina business, during 2016, management determined we were not more likely than not to utilize these deferred tax assets and established a valuation allowance against the entire balance of these deferred tax assets.
Revenue Recognition: We sell our products directly to customers as well as through distributors. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is reasonably assured. Product is considered delivered to the customer or distributor once it has been shipped and risk and rewards of ownership have been transferred.
We may enter into multiple-element arrangements, including those where a customer purchases technology and licenses. When elements of a multiple element arrangement do not have stand-alone value, we account for such elements as a combined unit of accounting. We allocate revenue to each unit of accounting in a multiple-element arrangement based upon the relative selling price of each deliverable. When applying the relative selling price method, we determine the selling price for each deliverable by using vendor-specific objective evidence (“VSOE”) of selling price, if it exists, or third-party evidence (“TPE”) of selling price. If neither VSOE nor TPE of selling price exist for a unit of accounting, we use our best estimate of selling price for that unit of accounting. When we use our best estimate to determine selling price, significant judgment is required. The significant assumptions used to estimate selling price for significant units of accounting may consist of cost, gross margin objectives or forecasted customer selling volumes. Changes in assumptions used to estimate selling price could result in a different allocation of arrangement consideration across the units of accounting within an arrangement. Revenue allocated to each unit of accounting is recognized when all revenue recognition criteria for that unit of accounting have been met. Biotechnology trait license revenue, including those within multiple element arrangements, is generally recognized over the contract period as third-party seed companies sell seed containing our traits, which can be from one year up to the related patent term. License revenue from the sale of intellectual property, including those within multiple element arrangements, is generally recognized upon commencement of the license term.
We record reductions to revenue for estimated customer sales returns and certain customer incentive programs. These reductions to revenue are made based upon reasonable and reliable estimates that are determined by historical experience, economic trends, contractual terms, current market conditions and changes in customer demand. The primary factors affecting our accrual for estimated customer returns include estimated return rates as well as the number of units shipped that have a right of return. At least each quarter, we re-evaluate our estimates to assess the adequacy of our recorded accruals for customer returns and allowance for doubtful accounts, and adjust the amounts as necessary.
Customer Incentive Programs: Customer incentive program costs are recorded in accordance with the Revenue Recognition topic of the ASC, based upon specific performance criteria met by our customers, such as purchase volumes, promptness of payment and market share increases. We also have Agricultural Productivity customer incentive programs which provide certain customers price protection consideration if standard published prices are lowered from the price the distributor was charged on the eligible products. The cost of certain customer incentive programs is recorded in net sales in the Statements of Consolidated Operations. Certain customer incentive programs require management to estimate the number of customers who will actually redeem the incentive. As actual customer incentive program expenses are not known at the time of the sale, estimates based on the best available information (such as historical experience and market research) and the specific terms and conditions of particular incentive programs are used as a basis for recording customer incentive program liabilities. If a greater than estimated proportion of customers redeem such incentives, we would be required to record additional reductions to

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revenue, which would have a negative impact on our results of operations and cash flow. Management analyzes and reviews the customer incentive program balances on a quarterly basis, and adjustments are recorded as appropriate.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the effect of interest rate changes, foreign currency fluctuations, and changes in commodity, equity and debt securities prices. Market risk represents the risk of a change in the value of a financial instrument, derivative or nonderivative, caused by fluctuations in interest rates, currency exchange rates, and commodity, equity and debt securities prices. Monsanto handles market risk in accordance with established policies by engaging in various derivative transactions. Such transactions are not entered into for trading purposes.
See Item 8 — Financial Statements and Supplementary Data — Note 2Significant Accounting Policies, Note 14Fair Value Measurements —and Note 15Financial Instruments — to the consolidated financial statements for further details regarding the accounting and disclosure of our derivative instruments and hedging activities.
The sensitivity analysis discussed below presents the hypothetical change in fair value of those financial instruments held by the company as of Aug. 31, 2016, that are sensitive to changes in interest rates, currency exchange rates and commodity and equity securities prices. Actual changes may prove to be greater or less than those hypothesized.
Changes in Interest Rates: Our interest-rate risk exposure pertains primarily to the debt portfolio. To the extent that we have cash available for investment to ensure liquidity, we will invest that cash only in short-term instruments. Most of our debt as of Aug. 31, 2016, consisted of fixed-rate long-term obligations.
Market risk with respect to interest rates is estimated as the potential change in fair value resulting from an immediate hypothetical one percentage point parallel shift in the yield curve. The fair values of our investments and debt are based on quoted market prices or discounted future cash flows. As the carrying amounts on short-term debt and investments maturing in less than 360 days and the carrying amounts of variable-rate medium-term notes approximate their respective fair values, a one percentage point change in the interest rates would not result in a material change in the fair value of our debt and investments portfolio.

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The following table illustrates the fair values of the company’s long-term debt instruments at Aug. 31, 2016, and Aug. 31, 2015, and the fair values for each of these instruments after a hypothetical one percentage point decrease in interest rates to the rate that existed at Aug. 31, 2016, and Aug. 31, 2015:
 
Initial Principal Amount Issued
Fair Value (2)
Fair Value Sensitivity
 
As of Aug. 31,
As of Aug. 31,
(Dollars in millions)
2016
2015
2016
2015
5.500% Senior Notes due 2035 issued July 2005
$
400

$
472

$
424

$
535

$
524

5.500% Senior Notes due 2025 issued August 2005
314

367

350

395

402

5.125% Senior Notes due 2018 issued April 2008
300

317

325

322

338

5.875% Senior Notes due 2038 issued April 2008
250

302

277

345

352

2.750% Senior Notes due 2016 issued April 2011
300


303


300

2.200% Senior Notes due 2022 issued July 2012
250

249

229

263

255

3.600% Senior Notes due 2042 issued July 2012
250

232

195

274

254

1.850% Senior Notes due 2018 issued November 2013
300

302

300

309

311

4.650% Senior Notes due 2043 issued November 2013
300

315

280

370

358

1.150% Senior Notes due 2017 issued July 2014
500

500

496

504

510

2.125% Senior Notes due 2019 issued July 2014
500

506

498

520

525

2.750% Senior Notes due 2021 issued July 2014
500

516

490

540

533

3.375% Senior Notes due 2024 issued July 2014
750

788

720

845

823

4.200% Senior Notes due 2034 issued July 2014
500

526

457

598

576

4.400% Senior Notes due 2044 issued July 2014
1,000

1,042

904

1,232

1,171

4.700% Senior Notes due 2064 issued July 2014
750

723

647

881

888

4.300% Senior Notes due 2045 issued January 2015
365

351

313

414

383

2.850% Senior Notes due 2025 issued April 2015
300

301

276

325

317

3.950% Senior Notes due 2045 issued April 2015
500

488

421

581

548

Floating Rate Senior Notes due 2016 issued November 2013(1)
400

400

400

400

400

(1) 
A one percentage point increase in interest rates would result in an annualized increase to interest expense of approximately $4 million related to the Floating Rate Senior Notes due 2016.
(2) 
Does not include the fair value of other long term debt, primarily consisting of capital lease obligations, which had a fair value of $36 million and $28 million at Aug. 31, 2016, and Aug. 31, 2015, respectively.
Foreign Currency Fluctuations: Monsanto transacts business in various foreign currencies other than the U.S. dollar, principally the European euro, Brazil real, Argentine peso, Canadian dollar and Mexican peso, which exposes us to movements in exchange rates which may impact revenue and expenses, assets and liabilities and cash flows. In managing foreign currency risk, we focus on reducing the volatility in consolidated cash flows and earnings caused by fluctuations in exchange rates. We may use foreign currency forward exchange contracts, foreign currency options and economic hedges to manage the net currency exposure, in accordance with established hedging policies. We may hedge recorded commercial transaction exposures, intercompany loans, net investments in foreign subsidiaries and forecasted transactions.
The company’s significant hedged positions included the European euro, the Brazilian real, the Canadian dollar, the Australian dollar and the Argentine peso. The total notional amount of foreign currency derivative instruments designated as hedges and not designated as hedges at Aug. 31, 2016, was $1,484 million, representing a settlement liability of $5 million. All of these derivatives are hedges of anticipated transactions, translation exposure, or existing assets or liabilities, and mature within 11 months. For all derivative positions, we evaluated the effects of a ten percent shift in exchange rates between those currencies and the U.S. dollar, holding all other assumptions constant. Unfavorable currency movements of ten percent would negatively affect the fair values of the derivatives held to hedge currency exposures by $85 million. These unfavorable changes would generally have been offset by favorable changes in the values of the underlying exposures.
The company held cash and cash equivalents and short-term investments of $1,736 million at Aug. 31, 2016, of which $1,629 million was held by foreign entities. For all non-U.S. dollar denominated cash held by foreign entities, we evaluated the effects of a ten percent shift in exchange rates between those currencies and the U.S. dollar, holding all other assumptions constant. Unfavorable currency movements of ten percent would negatively affect the fair values of cash and cash equivalents and short-term investments by $100 million.

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Changes in Commodity Prices: Where practical, we use futures contracts to protect the company against commodity price increases and use option contracts to limit the unfavorable effect that price changes could have on these purchases. Our futures contracts are accounted for as cash flow hedges and are mainly in the Seeds and Genomics segment. Our option contracts do not qualify for hedge accounting under the provisions specified by the Derivatives and Hedging topic of the ASC. The majority of these contracts hedge the committed or future purchases of, and the carrying value of payables to growers for, soybean and corn inventories. In addition, we collect payments on certain customer accounts in grain, and enter into forward sales contracts to mitigate the commodity price exposure. A ten percent decrease in the prices would have a negative effect on the fair value of these instruments of $23 million. We also use natural gas, diesel and ethylene swaps to manage energy input costs and raw material costs. A ten percent decrease in the price of these swaps would have a negative effect on the fair value of these instruments of $6 million.
Changes in Equity Securities Prices: We also have investments in marketable equity securities. All such investments are classified as long-term available-for-sale investments. The fair value of these investments was $13 million and $17 million as of Aug. 31, 2016 and 2015, respectively. These securities are listed on a stock exchange, quoted in an over-the-counter market or measured using an independent pricing source and adjusted for expected future credit losses. If the market price of the marketable equity securities should decrease by ten percent, the fair value of the equities would decrease by $1 million. See Item 8 — Financial Statements and Supplementary Data — Note 14Fair Value Measurements — for further details.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management Report
Monsanto Company’s management is responsible for the fair presentation and consistency, in accordance with accounting principles generally accepted in the United States of America, of all the financial information included in this Form 10-K. Where necessary, the information reflects management’s best estimates and judgments.
Management is also responsible for establishing and maintaining an effective system of internal control over financial reporting. The purpose of this system is to provide reasonable assurance that Monsanto’s assets are safeguarded against material loss from unauthorized acquisition, use or disposition, that authorized transactions are properly recorded to permit the preparation of accurate financial information in accordance with generally accepted accounting principles, that records are maintained which accurately and fairly reflect the transactions and dispositions of the company, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company. This system of internal control over financial reporting is supported by formal policies and procedures, including a Business Conduct program designed to encourage and assist employees in living up to high standards of integrity, as well as a Code of Ethics for Chief Executive and Senior Financial Officers. Management seeks to maintain the effectiveness of internal control over financial reporting by careful personnel selection and training, division of responsibilities, establishment and communication of policies, and ongoing internal reviews and audits. See Management’s Annual Report on Internal Control over Financial Reporting for Management’s conclusion of the effectiveness of Monsanto’s internal control over financial reporting as of August 31, 2016.
Monsanto’s consolidated financial statements have been audited by Deloitte & Touche LLP, independent registered public accounting firm. Their audits were conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), and included a test of financial controls, tests of accounting records, and such other procedures as they considered necessary in the circumstances.
The Audit and Finance Committee, composed entirely of outside directors, meets regularly with management, with the internal auditors and with the independent registered public accounting firm to review accounting, financial reporting, auditing and internal control matters. The committee has direct and private access to the registered public accounting firm and internal auditors.
/s/ Hugh Grant
Hugh Grant
Chairman and Chief Executive Officer
/s/ Pierre Courduroux
Pierre Courduroux
Senior Vice President and Chief Financial Officer
October 19, 2016

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareowners of Monsanto Company:
We have audited the accompanying statements of consolidated financial position of Monsanto Company and subsidiaries (the "Company") as of August 31, 2016 and 2015, and the related statements of consolidated operations, comprehensive income, cash flows, and shareowners’ equity for each of the three years in the period ended August 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Monsanto Company and subsidiaries as of August 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of August 31, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 19, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
October 19, 2016

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Statements of Consolidated Operations
 
 
Year Ended Aug. 31,
(Dollars in millions, except per share amounts)
2016
2015
2014
Net Sales
$
13,502

$
15,001

$
15,855

Cost of goods sold
6,485

6,819

7,281

Gross Profit
7,017

8,182

8,574

Operating Expenses:
 
 
 
Selling, general and administrative expenses
2,833

2,686

2,774

Research and development expenses
1,512

1,580

1,725

Restructuring charges
297

393


Total Operating Expenses
4,642

4,659

4,499

Income from Operations
2,375

3,523

4,075

Interest expense
436

433

248

Interest income
(74
)
(105
)
(102
)
Other expense, net
22

34

102

Income from Continuing Operations Before Income Taxes
1,991

3,161

3,827

Income tax provision
695

864

1,078

Income from Continuing Operations Including Portion Attributable to Noncontrolling Interest
1,296

2,297

2,749

Discontinued Operations:
 
 
 
Income from operations of discontinued businesses
27

45

22

Income tax provision
10

17

9

Income on Discontinued Operations
17

28

13

Net Income
1,313

2,325

2,762

Less: Net (loss) income attributable to noncontrolling interest
(23
)
11

22

Net Income Attributable to Monsanto Company
$
1,336

$
2,314

$
2,740

Amounts Attributable to Monsanto Company:
 
 
 
Income from continuing operations
$
1,319

$
2,286

$
2,727

Income on discontinued operations
17

28

13

Net Income Attributable to Monsanto Company
$
1,336

$
2,314

$
2,740

Basic Earnings per Share Attributable to Monsanto Company:
 
 
 
Income from continuing operations
$
2.98

$
4.79

$
5.25

Income on discontinued operations
0.04

0.06

0.03

Net Income Attributable to Monsanto Company
$
3.02

$
4.85

$
5.28

Diluted Earnings per Share Attributable to Monsanto Company:
 
 
 
Income from continuing operations
$
2.95

$
4.75

$
5.19

Income on discontinued operations
0.04

0.06

0.03

Net Income Attributable to Monsanto Company
$
2.99

$
4.81

$
5.22

Weighted Average Shares Outstanding:
 
 
 
Basic
442.7

476.9

519.3

Diluted
447.1

481.4

524.9

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

42

MONSANTO COMPANY
 
2016 FORM 10-K

Statements of Consolidated Comprehensive Income
 
 
Year Ended Aug. 31,
(Dollars in millions)
2016
2015
2014
Comprehensive Income Attributable to Monsanto Company
 
 
 
Net Income Attributable to Monsanto Company
$
1,336

$
2,314

$
2,740

Other Comprehensive (Loss) Income, Net of Tax:
 
 
 
Foreign currency translation, net of tax of $2, $(18) and $(33), respectively
35

(1,596
)
100

Postretirement benefit plan activity, net of tax of $(35), $(39) and $76, respectively
(54
)
(65
)
119

Unrealized net losses on investment holdings, net of tax of $(1), $0 and $0, respectively
(2
)


Realized net losses (gains) on investment holdings, net of tax of $1, $(1) and $(2), respectively
1

(3
)
(3
)
Unrealized net derivative losses, net of tax of $(26), $(46) and $(42), respectively
(42
)
(54
)
(69
)
Realized net derivative losses, net of tax of $44, $23 and $9, respectively
55

31

17

Total Other Comprehensive (Loss) Income, Net of Tax
(7
)
(1,687
)
164

Comprehensive Income Attributable to Monsanto Company
1,329

627

2,904

Comprehensive Income Attributable to Noncontrolling Interests
 
 
 
Net (Loss) Income Attributable to Noncontrolling Interests
(23
)
11

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