February 9, 2005
via facsimile and U.S. mail
Mr. Terrell K. Crews
Chief Financial Officer
Monsanto Company
800 North Lindbergh Blvd.
St. Louis, MO 63167
Re: Monsanto Company
Form 10-K, Filed November 4, 2004
Form 10-Q, Filed January 10, 2005
File No. 1-16167
Dear Mr. Crews:
We have reviewed the above filings and have the following
accounting comments. Our review has been limited to your
financial
statements and the related disclosures in Management`s Discussion
and
Analysis. Where indicated, we think you should revise your
document
in response to these comments. If you disagree, we will consider
your explanation as to why our comment is inapplicable or a
revision
is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
ACCOUNTING COMMENTS
Form 10-K for the year ended August 31, 2004
Item 7, Management`s Discussion and Analysis of Financial
Condition
and Results of Operations
Financial Measures, page 24
1. We note your use of EBIT (earnings before interest and taxes)
as a
measure of your segments` profit, its definition and the
reconciliation to net income in note 23 on page 112. We note your
calculation of EBIT excludes losses from discontinued operations,
cumulative effect of accounting changes and cumulative effect of
change in accounting principles. In this regard, it appears the
title of your non-GAAP measure requires modification as it does
not
clearly identify all adjustments you have made to the widely known
and recognized measure of EBIT. The revised title of your non-
GAAP
measures should not refer in any way to "EBIT" unless the measure
is
calculated consistently with its readily known definition. Refer
to
Question 14 of the Frequently Asked Questions Regarding the Use of
Non-GAAP Financial Measures issued on June 13, 2003 for further
explanation.
2. We note your discussion of changes in this measure on a segment
basis in the Management`s Discussion and Analysis section. These
discussions should also include a description of the reconciling
items that apply to each particular segment. Please refer to
Question 19 of the Frequently Asked Questions Regarding the Use of
Non-GAAP Financial Measures issued on June 13, 2003, if you
require
further guidance. In order to comply with Item 10(e) of
Regulation
S-K, it appears your disclosures should be expanded.
Item 8, Financial Statements and Supplementary Data
Statement of Consolidated Operations, page 63
3. We note you have reported the $396 million Solutia PCB
litigation
expense as a separate other expense in the year ended August 31,
2003
and $58 million related to the Solutia assumed liabilities as
other
expense - net in the year ended August 31, 2004. It appears these
expenses are related to prior operations. Tell us why each of
these
items should be classified as a non-operating expense under
Article 5
of Regulation S-X.
4. We note your line item titled "Amortization and adjustments of
goodwill" on the statement of operations and the $69 million
impairment of goodwill recorded during the year ended August 31,
2004. As this amount relates to the impairment of previously
recorded goodwill, we believe it is not appropriate to
characterize
this amount as an "adjustment" to goodwill. In addition, the
depiction of this amount as an adjustment does not truly describe
the
nature of this amount as "adjustment to goodwill" could have
several
meanings. We note you have described this amount in Note 9 on
page
84 as an impairment and believe the remaining disclosures
throughout
your filing require modification to consistently label the $69
million as an impairment.
Statement of Consolidated Financial Position, page 64
5. We note the reported amount of other assets and miscellaneous
short-term accruals are greater that 5% of reported total assets
and
total current liabilities, respectively. On a supplemental basis,
tell us the components of these items. Disclosure of certain
items
may be required under Item 5.02 of Regulation S-X.
Statement of Consolidated Cash Flow, page 65
6. Please expand the "Net change in short-term financing" line
item
to present the additions and repayments as separate line items.
Netting is not appropriate unless you met the requirements of
paragraph 13, as amended, of SFAS 95.
Notes to Consolidated Financial Statements
Note 2. Significant Accounting Policies, page 69
General
7. Please tell us whether you include purchasing and receiving
costs,
inspection costs, warehousing costs, internal transfer costs, and
the
other costs of your distribution network in the cost of products
sold
line item. With the exception of warehousing costs, if you do not
include some of these costs in cost of products sold, please tell
us
why not and disclose:
* in a footnote and in Management`s Discussion & Analysis the line
items that these costs are included in and the amounts included in
each line item for each period presented, and
* in Management`s Discussion & Analysis that your gross margins
may
not be comparable to those of other entities, since some entities
include the costs related to their distribution network in cost of
goods sold and others like you exclude them from gross margin,
including them instead in a line item such as selling, general and
administrative expenses.
8. Please disclose your accounting policy for shipping and
handling
costs. In doing so, disclose both the line item in which you
include
amounts paid by customers to you for shipping and handling and the
line item in which you include your actual costs for shipping and
handling. If you do not include your costs for shipping and
handling
in cost of sales, also disclose the amounts of your costs for
shipping and handling for each period presented as required by
paragraph 6 of EITF 00-10.
9. Expand your disclosures to include your policy on research and
development expenses, as required by APB 22.
Inventory Valuation, page 71
10. We note you have disclosed the use of different inventory
methods
in your financial statements. We believe a mixture of methods
should
only be used for different types of inventories, particularly when
there are valid business reasons for doing so. Please disclose
which
types of inventory you use each method for. Please disclose
whether
you use both methods for any similar types of inventory. If so,
please also disclose your basis for doing this. In some
instances,
this may be due to the LIFO method being used for similar types of
inventory in countries that permit the LIFO method and the FIFO
method may be used in countries that do not permit the use of the
LIFO method. If this is the case for some of your inventory,
please
identify the foreign countries with similar inventory categories
to
those you use the LIFO method for in the United States, and tell
us
separately for each country why you do not use the LIFO method for
your inventories in that country. If you are permitted to use the
LIFO method in that country, please tell us why your selective use
of
LIFO for similar types of inventories is appropriate.
Goodwill, page 71
11. Expand your disclosure to discuss the accounting policy used
to
determine the carrying amounts of goodwill and intangible assets
disclosed in Note 9. For amortizable intangible assets, disclose
your policy with regard to the amortization method used and the
range
of and basis for useful lives assigned as required by APB 22. In
addition, for clarification purposes, please provide a discussion
of
what the nature of the germplasm intangible asset is.
Note 7. Customer Financing Program, page 83
12. You disclose that your transfers of customer loans are treated
as
a sale. Please tell us in detail how these loan transactions meet
the criteria in paragraphs 9.a., b., and c. of SFAS 140 for sales
treatment. Please tell us specifically how your transferred loans
have been isolated from you when they are still guaranteed by you.
13. Please disclose how you have classified these customer loan
transfers in your statement of consolidated cash flows. Please
disclose the necessary cash flow information as required by
paragraph
17.f.(4) of SFAS 140.
Note 9. Goodwill and Other Intangible Assets, page 84
14. We note the increases in your acquired biotechnology
intellectual
property are due, in part, to deliverables received under the 2002
product discovery and development collaboration with Ceres, Inc.
Expand your disclosures to explain how the intangible assets
received
from Ceres were valued and what consideration was given in
exchange
for them. Specifically address the acquisition of rights in
exchange
for vendor financing and supplementally describe how this exchange
was accounted for. Also, explain what consideration will be
received
in exchange for $137 million of future payments under the
collaboration agreement, if any.
Note 11. Income Taxes, page 87
15. Tell us what factors were considered in establishing the
valuation allowance for your tax loss carryforwards related to the
deferred tax assets in Brazil and what events occurred, causing
changes in these factors during fiscal year 2004 that led to the
conclusion to reverse the valuation allowance. Also, tell us how
you
determined that a valuation allowance was not needed for the
future
recognition of tax loss carryforwards associated with the deferred
tax assets in Argentina as of August 31, 2003 and what events
occurred during fiscal year 2004 that led to the conclusion that a
valuation allowance was needed. We may have further comment.
Note 22. Commitments and Contingencies, page 105
16. We note your discussion under Item 3 on pages 13 through 16 of
numerous legal proceedings, which have not been fully disclosed
within the footnotes to the financial statements. In particular,
Note
22 refers to litigation Solutia was defending in Pennsylvania, the
details of which are provided under Item 3. However, the footnote
discussion does not address the nature of this proceeding. Item 3
also discusses proceedings related to the Delta and Pine Land
Company, Agent Orange, Syngenta and others, which have not been
disclosed in Note 22. Under the requirements of SFAS 5 and FIN
14,
it appears Note 22 requires expansion to discuss the nature and
status of such proceedings. Your expanded disclosure should also
include a discussion of the related accrued liabilities and an
estimate of the range of reasonably possible additional loss or
for
those proceedings in which no accrual has been made, an estimate
of
the range of reasonably possible loss for each proceeding that
meets
the disclosure requirements of SFAS 5. We may have further
comments
upon review of your response.
17. On a similar matter, provide us with a schedule listing all
loss
contingencies, clearly identifying the items mentioned under this
heading and under Item 3, from those which are not, and showing
all
accrual activity for each period presented in your annual report
and
subsequent interim reports. Identify increases attributable to
initial estimates, revisions in estimates and acquisitions, and
decreases attributable to expenditures, revisions in estimates and
dispositions separately. Clearly identify the impact of each
entry
on your results of operations for each period presented. Tell us
your estimate of the range of reasonably possible additional loss
for
each item appearing in your schedule.
18. Submit a separate listing of items mentioned under this
heading
for which no accrual has been made, and those items for which you
are
unable to estimate a range of reasonably possible loss. Tell us
the
amount of damages specified by plaintiffs, and any estimates of
remediation prepared by external parties, of which you are aware.
Note 25. Equity Affiliates, page 114
19. We note the disclosure that you performed services for
Renessen
LLC that were fair valued at $45 million and were recovered at
cost.
Tell us on a supplemental basis how fair value was determined and
how
the related transactions were recorded on your financial
statements.
Note 26. Advertising Costs, page 114
20. We note the disclosure on page 39 regarding your agreement
with
Scotts. Please expand your footnotes to describe your accounting
for
this agency and marketing agreement.
Note 27. Discontinued Operations, page 114
21. We note that your discontinued operations reported no
significant
pre-tax losses and that as of August 31, 2004, the remaining
assets
and liabilities of these businesses were less than $1 million. In
connection with the exit of this business, you disclose that you
recorded a $68 million deferred tax benefit for a foreign capital
loss carryforward, for which a full valuation allowance had been
provided, as of August 31, 2004. Additionally, in Note 30 on page
116, you disclosed that a $105 million U.S. deferred tax asset
related to the disposal that previously was not recorded due to
numerous uncertainties associated with the American Jobs Creation
Act
of 2004 will now be recorded in the first quarter of fiscal year
2005. Tell us the nature of the tax deductions that created these
deferred tax benefits and the circumstances under which it would
reverse, given that no substantial financial loss for discontinued
operations was reported in prior periods and no substantial assets
or
liabilities remain.
Form 10-Q for the quarter ended November 30, 2004
Note 15. Commitments and Contingencies, page 14
22. We note your Form 8-K filed December 20, 2004, which disclosed
a
$284 million charge related to Solutia contingencies would be made
in
your current quarter. In your Form 10-K filed on November 3,
2004,
these contingencies were deemed reasonably possible but not
subject
to estimation. In your Form 10-Q filed on January 10, 2005, you
disclose that the degree to which you are responsible for these
matters is uncertain, and that actual costs may be materially
different from this estimate. Given the requirement to disclose
any
additional reasonably possible losses in accordance with FAS 5 and
FIN 14, tell us how and why you concluded that any additional
losses
for this contingency do not need to be disclosed. If additional
losses are reasonably possible, disclose such losses in accordance
with FAS 5 and FIN 14.
Additionally, we understand this charge was estimated on a
discounted
basis. Please note the requirements of SAB Topic 5Y state
disclosure
of additional information is required for those liabilities
meeting
the conditions for discounting, such as the discount rate used,
the
aggregate undiscounted amount, expected payments over the next
five
years, etc. Please expand your disclosures to provide this
information as required by SAB Topic 5Y. We may have further
comment
after reviewing your response.
Closing Comments
As appropriate, please amend your filing(s) and respond to
these comments within 10 business days or tell us when you will
provide us with a response. You may wish to provide us with
marked
copies of amendment(s) to expedite our review. Please furnish a
cover letter with your amendment(s) that keys your responses to
our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment(s) and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing(s) reviewed by the staff
to
be certain that they have provided all information investors
require
for an informed decision. Since the company and its management
are
in possession of all facts relating to the company`s disclosure,
they
are responsible for the accuracy and adequacy of the disclosures
they
have made. In connection with responding to our comments, please
provide, in writing, a statement from the company acknowledging
that:
the company is responsible for the adequacy and accuracy of the
disclosure in the filing(s);
staff comments or changes to disclosure in response to staff
comments
do not foreclose the Commission from taking any action with
respect
to the filing; and
the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing(s) or
in
response to our comments on your filing(s).
You may contact Gary Newberry at (202) 824-5567 or Shannon
Buskirk at (202) 942-1826 if you have questions regarding comments
on
the financial statements and related matters. Please contact me
at
(202) 942-1870 with any other questions. Direct all
correspondence
to the following ZIP code: 20549-0405.
Sincerely,
H. Roger Schwall
Assistant Director
cc: Shannon Buskirk
Gary Newberry
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Monsanto Company
February 9, 2005
page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0405
DIVISION OF
CORPORATION FINANCE