UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(MARK ONE)

MONSANTO COMPANY

Registrant’s telephone number, including area code
(314) 694-1000

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: None

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 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 an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [    ]

State the aggregate market value of the voting common stock held by nonaffiliates computed by reference to the price at which the common stock was last sold, or the average bid and asked price of such common stock, as of Feb. 29, 2004, the last business day of the registrant’s most recently completed second fiscal quarter: approximately $8.7 billion.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 264,393,839 shares of Common Stock, $0.01 par value, outstanding at Oct. 25, 2004.

Documents Incorporated by Reference

Portions of Monsanto Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than Dec. 9, 2004, are incorporated herein by reference into Part III of this Annual Report on Form 10-K.

INTRODUCTION

In 2004, as in 2003, we have chosen to combine the Monsanto Annual Report to Shareowners with our Form 10-K, which 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 the Form 10-K also include 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 available in a single document.

On July 23, 2003, we announced a change in our fiscal year end from December 31 to August 31. The 2004 Form 10-K covers fiscal year 2004 beginning Sept. 1, 2003, and ending Aug. 31, 2004. As required by the SEC rules, the 2003 period presented is a “transition period,” which began Jan. 1, 2003, and ended Aug. 31, 2003. We have also included results for the 12-month periods ended December 31 for calendar years 2002 and 2001, where appropriate.

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 Web site after it is filed with the SEC in December 2004.

A detailed table of contents for the entire Form 10-K follows.

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TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

Monsanto Company, with its subsidiaries, is a global provider of agricultural products and integrated solutions for farmers. We produce leading seed brands, including DEKALB and Asgrow, and we develop biotechnology traits that assist farmers in controlling insects and weeds. We provide other seed companies with genetic material and biotechnology traits for their seed brands. We also make Roundup herbicide and other herbicides. Our seeds, related biotechnology trait products and herbicides can be combined to provide growers with integrated solutions that improve productivity and reduce the costs of farming. We also provide lawn-and-garden herbicide products for the residential market and animal agricultural products that improve dairy cow productivity and swine genetics.

“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. With respect to the time period prior to Sept. 1, 2000, these terms also refer to the agricultural business of Pharmacia Corporation (Pharmacia). (For more information on our history as a company, please see “Relationships Among Monsanto Company, Pharmacia Corporation, Pfizer Inc. and Solutia Inc.,” below.) Unless otherwise indicated, trademarks owned or licensed by Monsanto or its subsidiaries are shown in special type. Unless otherwise indicated, throughout this Form 10-K, references to “Roundup herbicides” mean Roundup branded and other branded glyphosate-based herbicides, excluding all lawn-and-garden herbicides; and references to “Roundup and other glyphosate-based herbicides” mean both branded and non-branded glyphosate-based herbicides, excluding all lawn-and-garden herbicide products.

In July 2003, Monsanto’s board of directors approved a change to Monsanto’s fiscal year end from December 31 to August 31. The 2003 Form 10-K was a transition report, and included financial information for the eight-month transition period ended Aug. 31, 2003. This Form 10-K includes financial information for the 12-month period ended Aug. 31, 2004, the eight-month transition period ended Aug. 31, 2003, and the 12-month periods ended Dec. 31, 2002, and Dec. 31, 2001, as well as unaudited financial information for the 12-month period ended August 31, 2003, and the eight-month period ended August 31, 2002. In Part I of this Form 10-K, years refer to fiscal years, unless otherwise specified or apparent from the context.

Information in this Form 10-K is current as of Oct. 27, 2004, unless otherwise specified.

Monsanto reports its business in two segments: Seeds and Genomics, and Agricultural Productivity.

The following information, appearing in other parts of this Form 10-K, is incorporated herein by reference:

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Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) — Seeds and Genomics Segment” — the segment description, and the tabular information regarding the sales of our seeds and traits

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Item 7 — “MD&A — Agricultural Productivity Segment” — the segment description, and the tabular information regarding net sales of Roundup and other glyphosate-based herbicides

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Item 7 — “MD&A — Cautionary Statements: Risk Factors Regarding Forward-Looking Statements”

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Item 8 — Note 23 — Segment and Geographic Data

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PRINCIPAL PRODUCTS

Monsanto’s principal products, categorized by our two segments, include the following:

SEEDS AND GENOMICS

AGRICULTURAL PRODUCTIVITY

Products may be sold under different brand names in different countries.

COMPETITION

The global markets for our products are highly competitive. We expect competition to intensify with the continued development and commercialization of new technologies and products, including biotechnology traits.

We compete with numerous multinational companies globally and with hundreds of companies regionally. Most of our seed competitors are also licensees of our germplasm and/or biotechnology traits. In certain countries, we also compete with government-owned seed companies. Growers who save seed from one year to the next also affect competitive conditions. Product performance (in particular, crop yield), customer service, intellectual property and price are important elements of market success. In addition, distributor, retailer and grower relationships have been important in the United States and many other countries.

Our traits compete as a system with agricultural chemicals and, to lesser degree, traits developed by other companies. Other agrichemical and seed marketers produce chemical and seed products that compete with our Roundup Ready and insect-control systems. Competition for the discovery of new agricultural traits based on biotechnology and/or genomics is likely to come from major global agrichemical companies, state-funded programs and academic institutions. Enabling technologies may also come from academic researchers and an array of biotechnology research companies. The primary factors underlying the competitive success of traits are performance and commercial viability, timeliness of introduction, value, governmental approvals, public acceptance, and environmental characteristics.

Competitive success in crop protection products depends on price, product performance, the quality of solutions offered to growers, market coverage, and the service provided to distributors, retailers and growers. We have five to 10 major global competitors for our agricultural herbicide products. Competition from local or regional companies may also be significant.

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For additional information on competition for Roundup herbicide, see Item 7 under the headings: “MD&A — Outlook — Agricultural Productivity,” which is incorporated by reference herein.

Our lawn-and-garden herbicides compete on the basis of product performance. We have fewer than five significant national competitors and a larger number of regional competitors in the United States. We are the only supplier of bovine somatotropin in the United States. The largest market for our lawn-and-garden herbicides and our bovine somatotropin products is the United States.

DISTRIBUTION OF PRODUCTS; CUSTOMERS

We have a worldwide distribution and sales and marketing organization for our seeds and traits and crop protection operations. We market our branded germplasm and traits to growers through distributors, independent retailers and dealers, agricultural cooperatives and agents. We also license a broad package of our germplasm and trait technologies to seed companies that do business in the United States and certain international markets, which then market these products to growers.

We sell our crop protection products through distributors, independent retailers and dealers, agricultural cooperatives, and, in some cases outside the United States, directly to growers. We also sell certain of the intermediates of our crop protection products to other major agricultural chemical producers.

We sell and ship our Posilac bovine somatotropin directly to U.S. dairy farmers. Outside the United States, we rely on a single exclusive distributor for these products. We deliver our swine genetics products directly to swine producers, who pay for the use of the genetics in upfront fees and/or royalties.

We market our lawn-and-garden herbicide products through The Scotts Company (Scotts). For additional information, see Item 7, under the heading “MD&A - Agricultural Productivity Segment — Our Agreement with The Scotts Company,” which is incorporated herein by reference.

While no single customer (including affiliates) represents more than 10 percent of our consolidated net sales, our three largest U. S. agricultural distributors and their affiliates represented, in aggregate, 13 percent of our worldwide net sales and 25 percent of our U.S. net sales in the 12-month period ended Aug. 31, 2004. During this period, one major U.S. distributor and its affiliates represented approximately 12 percent of the net sales for our Agricultural Productivity segment, and approximately 17 percent of the net sales for our Seeds and Genomics segment.

EMPLOYEE RELATIONS

On Oct. 15, 2003, we announced plans for strategic actions that reduced the size of our global workforce by eight percent for a net reduction in work force of five percent in fiscal 2004. As of Aug. 31, 2004, Monsanto had approximately 12,600 employees worldwide. Relations between Monsanto and its employees are satisfactory.

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 pollutants that can be released from our operations 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 parties who sent waste to these sites, without regard to fault or the lawfulness of the original disposal activity. These laws and regulations may be amended from time to time and may become more stringent. We are dedicated to long-term environmental protection and compliance programs that reduce and monitor emissions of hazardous materials into the environment, as well as to the remediation of identified existing environmental concerns. Consistent with a consent order with the State of Idaho, we have embarked on a multiyear project to design and install state-of-the-art air emission control equipment at the P4 Production, LLC facility at Soda Springs, Idaho. P4 Production, LLC is 99 percent owned by, and is operated by, Monsanto. While the costs of our compliance with environmental laws and regulations cannot be predicted with certainty, such costs are not

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expected to have a material adverse effect on our earnings or competitive position. Because of our investment in the Soda Springs project, our capital expenditures for environmental control facilities should be higher than normal in the next few years. Current estimates indicate that total company-wide capital expenditures for environmental compliance will be approximately $25 million in fiscal year 2005 and $16 million in fiscal year 2006.

In addition to potential liability for our own manufacturing locations and off-site disposal and formulation facilities, under the terms of our Sept. 1, 2000, Separation Agreement with Pharmacia (Separation Agreement), we were required to indemnify Pharmacia for any liability it may have for environmental remediation or other environmental responsibilities primarily related to Pharmacia’s former agricultural or chemical businesses. This includes, but is not limited to, environmental liabilities that Solutia Inc. (Solutia), the former chemicals business of Pharmacia, assumed from Pharmacia in connection with its spinoff on Sept. 1, 1997, to the extent that Solutia fails to pay, perform or discharge those liabilities. It is reasonably possible that this indemnification could have a material adverse effect on our financial position, profitability and/or liquidity. For additional information relating to Solutia and related risks to Monsanto’s financial position, profitability and/or liquidity, see “Relationships Among Monsanto Company, Pharmacia Corporation, Pfizer Inc. and Solutia Inc.” in this section and Item 8 — Note 22 - Commitments and Contingencies.

For information regarding certain environmental proceedings, see Item 3 — Legal Proceedings. See information regarding remediation of waste disposal sites and reserves for remediation, appearing in Item 8 — Note 22, which is incorporated herein by reference.

INTERNATIONAL OPERATIONS

See information appearing in Item 7 under the heading “MD&A — Cautionary Statements: Risk Factors Regarding Forward-Looking Statements — Operations Outside the United States” and information appearing in Item 8 — Note 23 - Segment and Geographic Data, which is incorporated herein by reference. More than 45 percent of Monsanto’s sales, 37 percent of our Seeds and Genomics segment’s sales, and 51 percent of our Agricultural Productivity segment’s sales were made outside the United States during fiscal year 2004.

PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS

Monsanto has a broad portfolio of patents in the United States and many foreign countries that provide intellectual property protection for its products and processes.

We routinely obtain patents and/or plant variety protection for our commercial varietal products, and for the parents of our commercial hybrid products. We also routinely obtain registration for our commercial products in registration countries, such as Plant Variety Protection Act Certificates in the United States, and equivalent plant breeders’ rights in other countries. Monsanto’s insect-protection traits (including YieldGard Corn Borer and YieldGard Corn Rootworm traits in corn seed and Bollgard trait in cotton seed) are protected by patents that extend until at least 2011. Based on patent applications filed in 2002 and 2001, it is anticipated that the Bollgard II insect-protection trait will be patent-protected in the United States, and in other areas in which patent protection is sought, through 2022. Monsanto’s herbicide tolerant products (Roundup Ready traits in soybean, corn, canola and cotton seeds) are protected by U.S. patents that extend until at least 2014.

Patents protecting the active ingredient in Roundup herbicide expired in the United States in 2000, and have expired in all other countries. Monsanto has several patents on its glyphosate formulations and manufacturing processes in the United States and other countries, some of which extend beyond 2015. Posilac bovine somatotropin is protected by a United States patent that expires in 2008 and by corresponding patents in other countries, most of which expire in 2005. Other patents protect various aspects of bovine somatotropin manufacture in the United States and expire at varying dates ending March 2012; corresponding patents in other countries have varying terms.

Monsanto also holds licenses from other parties relating to certain products and processes. We have obtained various licenses in order to protect certain of our technologies used in the production of Roundup Ready seeds, and certain of our technologies relating to pipeline products, from claims of infringement of patents of others. These licenses last for the lifetimes of the applicable patents, after which no licenses will be required to use the respective patented technologies. Monsanto holds numerous licenses in connection with its genomics program, for example: a perpetual license to certain genomics

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technologies for use in the areas of plant agriculture and dairy cattle; perpetual licenses to patents expiring from 2018 to 2023 for classes of proprietary genes for the development of commercial traits in crops; perpetual licenses to functional characterizations of the company’s proprietary genes; and perpetual licenses to certain genomics sequences and certain genomics technologies. Monsanto has obtained perpetual licenses to chemicals used to make Harness and Maverick herbicides, and to manufacturing technology for Posilac bovine somatotropin. Monsanto also has a license to chemicals for its halosulfuron herbicides, including Permit, Manage and Sempra; the license expires in 2005 and is not expected to be extended.

We own a considerable number of established trademarks in many countries under which we market our products. Monsanto owns trademark registrations and files trademark applications for the names and many of the designs used on its branded products. Important company trademarks include Roundup (for herbicide products), Roundup Ready, Bollgard and YieldGard (for traits), DEKALB and Asgrow (for agricultural seeds) and Posilac (for dairy productivity products).

P4 Production, LLC holds (directly or by assignment) numerous phosphate leases, which were issued on behalf of or granted by the United States, the State of Idaho and private parties. None of these leases taken individually is material, although the leases in the aggregate are significant because elemental phosphorus is a key raw material for the production of glyphosate-based herbicides. The phosphate leases have varying terms, with leases obtained from the United States being of indefinite duration subject to the modification of lease terms at 20-year intervals.

A considerable number of Monsanto’s patents and licenses are currently the subject of litigation; see Item 3 — Legal Proceedings.

PRINCIPAL EQUITY AFFILIATES

In September 1998, we entered into an agreement (as amended from time to time, the Renessen Agreement) to form the Renessen LLC joint venture (Renessen) with Cargill, Incorporated (Cargill). This joint venture combines our seed assets and technology capabilities with Cargill’s global grain processing, marketing and risk management infrastructure to develop and commercialize enhanced grain products in the processing and animal feed markets, and to increase returns on those products by greater participation in the value chain. Renessen began operations in January 1999. Cargill and we each have a 50 percent interest in Renessen. A governance board on which Cargill and we have equal representation manages Renessen. With respect to Renessen, Cargill and we: (1) have committed to make equal contributions to fund the Renessen business plan that Cargill and we review and approve annually; (2) have granted Renessen a worldwide, fully paid-up, non-exclusive, non-royalty-bearing right and license to Cargill’s and our respective patents and other intellectual property needed for Renessen to pursue the approved business plan; (3) receive rights to use intellectual property developed by Renessen in other specified areas; and (4) have the opportunity to provide specified services to Renessen on a cost-paid or cost-plus-margin basis. Renessen’s products under development include grains designed to enhance processing efficiency and grain products designed to deliver better nutrition in animal feed. Pursuant to the Renessen Agreement, we perform the bulk of Renessen’s upstream research and development (R&D) activities. For the year ended Aug. 31, 2004, we charged Renessen $45 million for R&D expenses. The expenses that were charged to Renessen are not included in the $511 million of research and development expenses reflected in our Statement of Consolidated Operations for the year ended Aug. 31, 2004. Our equity affiliate expense related to Renessen was $36 million in the year ended Aug. 31, 2004, $26 million in the eight-month transition period ended Aug. 31, 2003, and $41 million in each of the 12-month periods ended Dec. 31, 2002 and 2001, all of which is reflected in other expense — net in our Statement of Consolidated Operations. See information regarding Renessen in Item 8 — Note 25 — Equity Affiliates.

RAW MATERIALS AND ENERGY RESOURCES

We are a significant purchaser of basic and intermediate raw materials. Our major raw materials and energy requirements are typically purchased through long-term contracts. We do not depend on any one outside supplier for a significant amount of any raw material requirements, but a few major suppliers provide us certain important raw materials. The markets for many key raw materials are extremely tight and forecasted to remain so for the next few years. Although some additional capacity does exist, pricing is substantially higher than under current contracts. Energy is available as required, but pricing is subject to market fluctuations from time to time.

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We produce directly, or contract with third-party growers for the production of, corn seed, soybean seed, oilseed rape varieties, wheat seed, sunflower seed and sorghum seed in growing locations throughout the world. The availability and cost of seed primarily depends on seed yields, weather conditions, grower contract terms, commodity prices and global supply and demand. We manage commodity price fluctuations through the use of futures contracts and other hedging mechanisms. We attempt to minimize the risks related to weather by producing seed at multiple growing locations, where practical.

Different catalysts are used in various intermediate steps in the production of glyphosate. These are produced by two major catalyst manufacturers using our proprietary technology at various sites globally. These suppliers have additional capacity at other manufacturing locations. We purchase most of our global supply of elemental phosphorus, a key raw material for the production of Roundup herbicide, from P4 Production, LLC.

We are seeking U.S. Food and Drug Administration (FDA) approval to manufacture the finished dose formulation of Posilac bovine somatotropin at our facility in Augusta, Georgia. Sandoz GmbH, a wholly owned subsidiary of Novartis, manufactures and is our sole supplier of the finished dose formulation until we receive such approval. In second quarter fiscal year 2004, we notified our customers that supplies of Posilac would be temporarily limited while Sandoz completes corrections and improvements at its facility in response to issues raised by the FDA. This limitation has temporarily reduced volumes of Posilac available for sale and required us to allocate available supplies. We expect the supply of Posilac to be limited well into 2005 with incremental increases in supply occurring over time. This allocation is expected to have a material adverse effect on Posilac revenues as long as it continues. For additional information regarding our Posilac supply, see Item 7 under the heading “MD&A - Agricultural Productivity Financial Performance for Fiscal Year 2004.”

RESEARCH AND DEVELOPMENT

Monsanto’s expenses for research and development were $511 million for the fiscal year 2004; $313 million for the eight-month transition period ended Aug. 31, 2003; and $506 million and $544 million for calendar years 2002 and 2001, respectively.

SEASONALITY AND WORKING CAPITAL

For information on seasonality and working capital practices, see information in Item 7, under the heading “MD&A — Financial Condition, Liquidity, and Capital Resources,” incorporated herein by reference.

RELATIONSHIPS AMONG MONSANTO COMPANY, PHARMACIA CORPORATION, PFIZER INC. AND SOLUTIA INC.

Prior to Sept. 1, 1997, a corporation that was then known as Monsanto Company (Former Monsanto) operated an agricultural products business (the Ag Business), a pharmaceuticals and nutrition business (the Pharmaceuticals Business) and a chemical products business (the Chemicals Business). Former Monsanto is today known as Pharmacia. Pharmacia is now a wholly owned subsidiary of Pfizer Inc. (Pfizer), which together with its subsidiaries operates the Pharmaceuticals Business. Our business consists of the operations, assets and liabilities that were previously the Ag Business. Solutia comprises the operations, assets and liabilities that were previously the Chemicals Business. The following table sets forth a chronology of events that resulted in the formation of Monsanto, Pharmacia and Solutia as three separate and distinct corporations, and provides a brief background on the relationships among these corporations.

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Item 3 — Legal Proceedings includes information concerning litigation matters that Monsanto is managing pursuant to its obligation under the Separation Agreement to indemnify Pharmacia. Item 8 — Note 22 includes further information regarding Solutia’s bankruptcy, the related reasonable possibility of a material adverse effect on our financial position, profitability and/or liquidity, and other arrangements between Monsanto and Solutia.

AVAILABLE INFORMATION

Our Internet web site address is www.monsanto.com. We make copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports available free of charge through our web site, as soon as reasonably practicable after they have been filed with or furnished to the Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 (1934 Act). Forms 3, 4 and 5 filed with respect to our equity securities under Section 16(a) of the 1934 Act are also available on the Web site, by the end of the business day after filing. All of these materials are located at the “Investor Information” tab.

Our web site also includes the following corporate governance materials, at the tab “Our Pledge:” 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 Board committees. These materials are available in print to any shareowner upon request by contacting the Office of the General Counsel, Monsanto Company, 800 N. Lindbergh Blvd., St. Louis, MO 63167.

Information on our web site does not constitute part of this report.

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 are located in St. Louis County, Missouri. We also lease additional research facilities in St. Louis County. These office and research facilities are principal properties.

Principal properties used by the Seeds and Genomics segment include seed conditioning plants at: Constantine, Michigan; Grinnell, Iowa; Kearney, Nebraska; Peyehorade, France; Rojas, Argentina; Trebes, France; Uberlândia, Brazil, and Villagran,

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Mexico. The Seeds and Genomics segment also uses seed foundation and production facilities, breeding facilities, and genomics and other research laboratories at various locations.

The Agricultural Productivity segment has principal chemicals manufacturing facilities at the following locations: Alvin, Texas; Antwerp, Belgium; Augusta, Georgia; Camaçari, Brazil; Luling, Louisiana; Muscatine, Iowa; São Jose dos Campos, Brazil; Soda Springs, Idaho; Texas City, Texas; and Zarate, Argentina. We own most of these properties. However, we lease the land underlying the facilities that we own in Alvin, Texas, and in Texas City, Texas. In addition, we lease the manufacturing facility at Augusta, Georgia, with an option to buy, pursuant to an industrial revenue bond financing.

Our principal properties are suitable and adequate for their use. Use of these facilities may vary with seasonal, economic and other business conditions, but none of the principal properties is substantially idle, with the exception of the manufacturing facility at Texas City, Texas. This is one of the facilities that manufactures a key raw material for glyphosate herbicide and was built in order to use byproduct from a neighboring plant owned by another company. Monsanto is not currently receiving the byproduct but has the option to receive the byproduct and re-start its plant. The facilities generally have sufficient capacity for existing needs and expected near-term growth, and expansion projects are undertaken as necessary to meet future needs. In certain instances, we have granted leases on portions of sites not required for current operations.

ITEM 3. LEGAL PROCEEDINGS

This section of the report on Form 10-K provides information regarding material legal proceedings that we are defending or prosecuting. These include proceedings to which we are party in our own name, proceedings to which Pharmacia is a party but that we manage and for which we are responsible, and proceedings that we are managing related to Solutia’s Assumed Liabilities (as defined below). We are also defending or prosecuting other legal proceedings, not described in this section, which arise in the ordinary course of our business.

Under the Separation Agreement, we assumed responsibility for, among other things described below, legal proceedings primarily related to the agricultural business that Pharmacia transferred to us. As required by the Separation Agreement, we will indemnify Pharmacia for costs, expenses, judgments or settlements of, and will receive benefits from, any such legal proceedings.

Pursuant to the Separation Agreement, we were also required to indemnify Pharmacia for liabilities that Solutia assumed from Pharmacia under a Distribution Agreement entered into between those companies in connection with the spinoff of Solutia on Sept. 1, 1997, as amended (Distribution Agreement), to the extent that Solutia fails to pay, perform or discharge those liabilities. Those liabilities remain the present responsibility of Pharmacia and are referred to as “Solutia’s Assumed Liabilities.” Solutia’s Assumed Liabilities may include, among others, litigation, environmental remediation, and certain retiree liabilities relating to individuals who were employed by Pharmacia prior to the Solutia spinoff.

On Dec. 17, 2003, Solutia and 14 of its U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York (Bankruptcy Court). Solutia is seeking relief from paying certain liabilities, including some or all of Solutia’s Assumed Liabilities, and on Feb. 17, 2004, notified Pharmacia and Monsanto that it was disclaiming its obligations to defend pending or future litigation relating to Solutia’s Assumed Liabilities. We believe Solutia remains obligated to continue to defend such litigation unless and until discharged from such obligations by the Bankruptcy Court. However, in order to protect Pharmacia’s and our interests while that issue is resolved, we have assumed, on an interim basis, the management of that litigation for which Solutia has disclaimed responsibility and have advanced and expect to continue to advance funds for the defense, performance or disposition of these matters. To the extent additional such matters arise in the future, we may also assume management of those matters and advance funds for purposes of defense and resolution. We plan to pursue recovery of our expenses from Solutia in the Chapter 11 proceeding. For additional information, see Item 8 — Note 22 — Commitments and Contingencies and Item 1 — Relationships Among Monsanto Company, Pharmacia Corporation, Pfizer Inc. and Solutia Inc.

While the results of litigation cannot be predicted with certainty, we do not believe that the resolution of the proceedings that we are defending or prosecuting, excluding litigation relating to Solutia’s Assumed Liabilities, either individually or taken as a whole, will have a material adverse effect on our financial position, profitability and/or liquidity. As discussed in Item 8 - - Note 22, it is reasonably possible that the resolution of Solutia’s Chapter 11 proceeding, including the allocation of responsibility related to Solutia’s Assumed Liabilities, could have a material adverse effect on our financial position,

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profitability and/or liquidity. We have meritorious legal arguments and will continue to represent our interests vigorously in all of the proceedings that we are defending or prosecuting, including those related to Solutia’s Assumed Liabilities.

Patent and Commercial Proceedings

Monsanto and Mycogen Plant Science, Inc. (Mycogen Plant Science), an affiliate of Dow AgroSciences LLC, have been involved in interference proceedings in the U.S. Patent and Trademark Office to determine the first party to invent certain technology related to synthetic Bt technology. Under U.S. law, patents are issued to the first to invent, not the first to file for a patent on, a subject invention. On Jan. 29, 2004, the Board of Patent Appeals determined that Monsanto scientists were the first to invent synthetic Bt genes for expression in plants. As a result of this decision, we expect that Monsanto’s scientists will receive a patent covering this technology. On March 29, 2004, Mycogen Plant Science filed with the U.S. District Court for the Southern District of Indiana an appeal in which it seeks to have the decision of the Board of Patent Appeals reversed.

On Dec. 4, 2000, Monsanto filed suit in the U.S. District Court for the Eastern District of Missouri for a declaratory judgment against Bayer CropScience AG, a subsidiary of Bayer AG (Bayer CropScience), and its affiliates that four patents, which had been assigned to Bayer CropScience by Plant Genetics Systems, N.V. and which involve claims to truncated Bt technology, were invalid and not infringed by MON810 in YieldGard corn. Bayer CropScience counterclaimed to request royalties for prior sales of YieldGard corn and injunctive relief. The District Court granted Monsanto’s motion for summary judgment and ordered Bayer CropScience to pay Monsanto’s attorneys’ fees and costs. Bayer CropScience appealed the District Court’s judgment to the U.S. Court of Appeals for the Federal Circuit, which on March 30, 2004, determined that possible contested issues of fact existed that made summary judgment inappropriate and reversed the District Court’s summary judgment decision. The award of Monsanto’s attorneys’ fees and costs was subsequently vacated. On June 22, 2004, Bayer CropScience dismissed with prejudice its claims on three of the four patents in dispute and agreed not to sue Monsanto, its affiliates or its sublicensees under those patents for any of Monsanto’s current commercial products. Monsanto intends to seek recovery from Bayer CropScience of its attorneys’ fees involved in defending against the dismissed claims and to assert defenses, including non-infringement and invalidity of the fourth and remaining patent in the litigation.

The following proceedings involve Syngenta AG (Syngenta) and its affiliates:

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On July 25, 2002, Syngenta Seeds, Inc. (Syngenta Seeds) filed a suit against Monsanto, our wholly owned subsidiary DEKALB Genetics Corporation (DEKALB), Pioneer Hi-Bred International, Inc., Dow Agrosciences, LLC, and Mycogen Plant Science, Inc. and Agrigenetics, Inc., collectively Mycogen Seeds, in the U.S. District Court for the District of Delaware alleging infringement of three patents issued between June 2000 and June 2002. The patents allegedly pertain to insect-protected transgenic corn, including our insect-protected corn traits. Syngenta Seeds seeks injunctive relief and monetary damages. A trial is scheduled for Nov. 29, 2004.

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On May 10, 2004, Monsanto filed suit against Syngenta Seeds in the Circuit Court of St. Louis County, Missouri, for declaratory judgment seeking a determination that, under its license from Monsanto for Roundup Ready soybeans, Syngenta Seeds is limited to commercializing its Roundup Ready soybeans under one product brand.

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On May 12, 2004, following an announcement by Syngenta that it acquired certain rights to a glyphosate-tolerant corn product known as GA21 corn and that it intended to commercialize GA21 corn in the United States, Monsanto filed suit against Syngenta Seeds and Syngenta Biotechnology, Inc. (Syngenta Biotechnology) in the U. S. District Court for the District of Delaware. Monsanto has various patent rights that cover GA21 corn, to which Syngenta holds no license. The suit alleges infringement of one of Monsanto’s patents involving glyphosate-tolerant crops and seeks an injunction against Syngenta’s sale of GA21 corn and damages for willful infringement of Monsanto’s patent.

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On July 27, 2004, DEKALB filed suit against Syngenta Seeds and Syngenta Biotechnology in the U. S. District Court for the Northern District of Illinois alleging infringement of two of DEKALB’s patents pertaining to fertile transgenic corn. DEKALB is seeking an injunction against the sale of GA21 corn by Syngenta Seeds and Syngenta Biotechnology and damages for willful infringement of its patents.

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On July 28, 2004, Syngenta filed suit against Monsanto in the U.S. District Court for the District of Delaware, alleging that Monsanto has monopolized or attempted to monopolize markets for glyphosate-tolerant corn seed,

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     European corn borer-protected corn seed and foundation corn seed. Syngenta seeks an unspecified amount of damages and injunctive relief.

Following receipt of a patent relating to bovine growth hormone, on Feb. 17, 2004, the Regents of the University of California filed suit against Monsanto in U.S. District Court for the Northern District of California seeking damages for the alleged infringement of the patent by sales of our Posilac bovine somatotropin product.

On June 3, 1999, AgrEvo Environmental Health (n/k/a Aventis Environmental Science) filed a suit in the U.S. District Court for the Southern District of New York against The Scotts Company (Scotts) and Monsanto seeking damages and injunctive relief for alleged antitrust violations by Scotts and Monsanto and alleged tortious interference of contract by Monsanto. In May 1998, Scotts purchased a consumer herbicide business from AgrEvo Environmental Health (AgrEvo) that included a supply agreement for the active ingredient for the Finale® consumer herbicide. AgrEvo claims that Scotts’ subsequent agreement to become the exclusive sales and marketing agent for Monsanto’s Roundup lawn-and-garden business violated its agreement with AgrEvo and that Monsanto and Scotts agreed that Scotts would divest Finale® to a weaker competitor in connection with the Roundup deal. On Oct. 25, 2004, the court granted Monsanto summary judgment on the state law claims but denied the defendants’ motions for summary judgment on the antitrust claims. A trial is scheduled for Feb. 22, 2005.

Grower Lawsuits

Two purported class action lawsuits by farmers concerning our biotechnology trait products have been consolidated in the U.S. District Court for the Eastern District of Missouri. The suits were initially filed against the former Monsanto Company by two groups of farmers: one on Dec. 14, 1999, in the U.S. District Court for the District of Columbia, which complaint was amended in March 2001 to add Pioneer Hi-Bred International, Inc., Syngenta Seeds, Syngenta Crop Protection, and Bayer CropScience as defendants; and the other on Feb. 14, 2002, in the U.S. District Court for the Southern District of Illinois. The complaints included both tort and antitrust allegations. The tort claims included alleged violations of unspecified international laws through patent license agreements, alleged breaches of an implied warranty of merchantability, and alleged violations of unspecified consumer fraud and deceptive business practices laws, all in connection with the sale of genetically modified seed. The antitrust claims included allegations of violations of various antitrust laws, including allegations of a conspiracy among defendants to fix seed prices in the United States in violation of federal antitrust laws. Plaintiffs sought declaratory and injunctive relief in addition to antitrust, treble, compensatory and punitive damages, and attorneys’ fees. On Sept. 22, 2003, the District Court granted Monsanto’s motion for summary judgment on all tort claims and denied the plaintiffs’ motion to allow the tort claims to proceed as a class action. On Sept. 30, 2003, the District Court for the Eastern District of Missouri denied the plaintiffs’ motion to allow their antitrust claims to proceed as a class action. The plaintiffs appealed this decision, and on Sept. 13, 2004, the U.S. Court of Appeals for the Eighth Circuit heard oral argument on its review of the District Court’s decision denying class certification of the plaintiffs’ antitrust claims.

Starting the week of March 7, 2004, individual plaintiffs filed essentially identical purported class actions on behalf of direct and indirect purchasers in 16 different state courts essentially re-alleging claims set forth in the federal case described above. On June 8, 2004, Monsanto filed suit in the U.S. District Court for the Eastern District of Missouri against each of the individual named plaintiffs in the state class actions for breach of contract, which we refer to as the “Monsanto Action.” Monsanto alleges that the agreements it entered into with the plaintiffs required that the plaintiffs’ suits be filed in federal or state court in Missouri. Subsequently, the plaintiffs agreed to stay their state actions pending determination of Monsanto’s request for summary judgment in its favor in the Monsanto Action.

Monsanto is defending two lawsuits which allege that, beginning in 1988, the former Monsanto Company, and later Monsanto, conspired with competitors, through a series of negotiations and legal settlements, to fix the price of glyphosate-based and paraquat-based herbicides at prices higher than the market would otherwise bear. One of the lawsuits was filed in state court in California and one in state court in Tennessee. Each lawsuit alleges claims on behalf of all direct purchasers of glyphosate-based or paraquat-based herbicides in the United States from March 1, 1988, to the present and seeks monetary damages.

Proceedings Related to Delta and Pine Land Company

On Jan. 18, 2000, Delta and Pine Land Company (Delta and Pine Land) reinstituted a suit against the former Monsanto Company in the Circuit Court of the First Judicial District of Bolivar County, Mississippi, seeking unspecified compensatory damages for lost stock market value of not less than $1 billion, as well as punitive damages, resulting from an alleged failure to exercise reasonable efforts to complete a merger between the two companies. The amended complaint alleges that the

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former Monsanto Company tortiously interfered with Delta and Pine Land’s prospective business relations by feigning interest in the merger so as to keep Delta and Pine Land from pursuing transactions with other entities. On Sept. 9, 2003, the Court granted Monsanto’s motion to file a counterclaim seeking to set aside the merger agreement on the basis of Delta and Pine Land’s fraudulent nondisclosure of material information and substantial damages including recoupment of the $83 million breakup fee previously paid to Delta and Pine Land. On Sept. 10, 2004, the Court ruled in Monsanto’s favor, ordering that certain documents that Delta and Pine Land had attempted to use for its case were inadmissible and could not be used at trial. On Sept. 30, 2004, Delta and Pine Land Company requested that the Court allow it to immediately appeal the decision. Subsequently, on Oct. 8, 2004, the Court granted Monsanto’s motion for partial summary judgment, which eliminated a significant element of Delta and Pine Land’s damages claim against Monsanto. While it considers various other motions, the Court has suspended all deadlines in the case and indicated that it will issue a new scheduling order in the future. No trial date has been set.

On May 20, 2004, Monsanto filed a request with the American Arbitration Association for arbitration and a determination that Monsanto has the right to terminate the 1996 U.S. licensing agreements that provided Delta and Pine Land with access to Monsanto’s Bollgard insect-protected cotton and Roundup Ready herbicide-tolerant technologies for cotton. Monsanto believes Delta and Pine Land has violated its duties to, and its contracts with, Monsanto in a variety of ways including: (i) failing to calculate, collect and ensure that Monsanto was paid all royalty amounts due under the agreements; (ii) breaching its fiduciary duty to Monsanto as the managing agent of D&M Partners by neglecting to properly collect and allocate the income of D&M Partners; and (iii) misusing Monsanto’s intellectual property by inappropriately providing Monsanto technology to an unlicensed party.

Agent Orange

Various manufacturers of herbicides used by the U.S. armed services during the Vietnam War, including the former Monsanto Company, have been parties to lawsuits filed on behalf of veterans and others alleging injury from exposure to the herbicides. In the United States, this litigation has been assigned to Judge Weinstein of the U.S. District Court for the Eastern District of New York, as part of In re Agent Orange Product Liability Litigation, MDL 381 (MDL)., a multidistrict litigation proceeding established in 1977 to coordinate Agent Orange-related litigation in the United States. In 1984, a settlement in the MDL proceeding concluded all class action litigation filed on behalf of U.S. and certain other groups of plaintiffs. Approximately 30 suits filed by individual U.S. veterans contesting the denial of their claims subsequent to the class action settlement have been consolidated in the MDL and are currently pending in the District Court. On June 9, 2003, the U.S. Supreme Court allowed two claims (Isaacson and Stephenson) to proceed notwithstanding the 1984 class action settlement. On Feb. 9, 2004, the District Court granted defendants’ motion for summary judgment on all claims made in the Isaacson and Stephenson cases on the basis of the government contractor defense. The District Court, however, stayed entry of that judgment and granted plaintiffs’ request for an additional six months to conduct further discovery solely relating to the government contractor defense. On March 18, 2004, the District Court ordered that all other plaintiffs in all other lawsuits currently pending before the court in this matter were to adhere to the same schedule, unless they specifically requested not to be so bound.

On Feb. 5, 2004, a putative class action suit was filed in the U.S. District Court for the Eastern District of New York by certain citizens of Vietnam alleging that the manufacturers of Agent Orange conspired with the United States government to commit war crimes and crimes against humanity in connection with the spraying of Agent Orange. This case has also been assigned to Judge Weinstein.

Certain Korean veterans of the Vietnam War have filed suit in Seoul, South Korea, against The Dow Chemical Company and the former Monsanto Company. Plaintiffs allege that they were exposed to herbicides, and that they suffered injuries or their children suffered birth defects as a result. Three separate complaints filed in October 1999 are being handled collectively and currently involve approximately 16,700 plaintiffs. The complaints seek damages of 300 million won (approximately US$260,000) per plaintiff. On May 23, 2002, the Seoul District Court ruled in favor of the manufacturers and dismissed all claims of the plaintiffs on the basis of lack of causation and statutes of limitations. Plaintiffs have filed an appeal de novo with the Seoul High Court and the parties have engaged in the briefing process required by that court. The Seoul High Court has held three preparatory hearings to address issues on the appeal and has indicated that it will hold a formal hearing on the appeal in December 2004. Other ancillary actions are also pending in Korea, including a request for provisional relief pending resolution of the main action.

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Activities of Foreign Affiliates

During an internal audit and follow-up review conducted by management and outside counsel, management learned of certain books and records and compliance irregularities involving the company’s Indonesian affiliate companies and certain of their foreign national employees. The employment of those employees involved in the irregularities has been terminated. Monsanto notified the SEC of this matter on Nov. 12, 2002, and thereafter provided a full report of its internal review to the SEC, with a copy to the U.S. Department of Justice. On March 22, 2004, Monsanto announced that the Department of Justice had advised Monsanto that its investigation had expanded to include an inquiry into whether a former outside consultant made an improper $50,000 payment to an Indonesian government official in early 2002 at the direction of a former Monsanto employee. Monsanto will continue to cooperate with further review of this matter.

Environmental Proceedings

Since the late 1990s, the U.S. Environmental Protection Agency (EPA) has identified more than 20 sites as potential sources of dioxin in the Kanawha River in West Virginia. In May 2002, the EPA sent Monsanto, as well as Solutia, a “notice of potential liability and offer to negotiate for removal action” regarding the Kanawha River site in Putnam and Kanawha counties, West Virginia, which was premised on Pharmacia’s former operations at its Nitro, West Virginia, manufacturing facility. Pharmacia, Solutia and Monsanto have all been in communication with the EPA regarding the notice and offer. Monsanto believes that the Kanawha River site is the responsibility of Solutia under the terms of the Distribution Agreement between Pharmacia and Solutia relating to Solutia’s 1997 spinoff; however, prior to Solutia’s Chapter 11 filing, Solutia refused to accept responsibility for this matter. In order to mitigate damages and protect the rights and positions of Monsanto and Pharmacia, Monsanto has been managing this matter on behalf of Pharmacia and will make a claim for recovery against Solutia in the course of its bankruptcy proceeding. The EPA, Monsanto and Pharmacia have negotiated a consent order under which Monsanto is preparing an Engineering Evaluation/Cost Analysis Report, which will contain the results of our investigation of dioxin contamination in the Kanawha River, the sources of such contamination, an evaluation of removal options, and a recommended approach to removing or otherwise addressing the contaminated sediments. The degree to which Monsanto, Solutia and Pharmacia, as opposed to third parties, could ultimately be responsible for costs associated with this matter is unclear.

Pharmacia is party to several EPA administrative orders that require investigation and remediation activities in and around Sauget, Illinois. In connection with its Chapter 11 filing bankruptcy, Solutia ceased performing under these orders on Pharmacia’s behalf. Monsanto therefore has stepped in on Pharmacia’s behalf and is performing Pharmacia’s obligations under those administrative orders. We anticipate that work will continue under these administrative orders through 2005, after which we expect EPA to issue a Record of Decision identifying further remedial activities.

On Oct. 20, 2004, the EPA issued a Notice of Violation to P4 Production, LLC (P4 Production) alleging violations of federal and state hazardous waste management regulations at P4 Production’s phosphorus manufacturing plant in Soda Springs, Idaho. The EPA has asserted that the alleged violations may subject P4 Production to civil penalties. We intend to work with the EPA to reach a resolution of this matter.

Pension Plan

On June 23, 2004, two former employees of Monsanto and Pharmacia filed a purported class action lawsuit in the U.S. District Court for the Southern District of Illinois against Monsanto and the Monsanto Company Pension Plan, which we refer to as the “Plan.” The suit claims that the Plan underpaid certain benefits and violated federal law against age discrimination from Jan. 1, 1997 (when the Plan was sponsored by Pharmacia, then known as Monsanto Company), and continuing to the present. On July 13, 2004, Monsanto tendered defense of this suit to Pharmacia pursuant to the terms of the Separation Agreement and demanded that (a) Pharmacia defend Monsanto or pay Monsanto’s costs of defense, and (b) indemnify Monsanto for any liabilities arising from the lawsuit. Pharmacia has rejected Monsanto’s tender.

Proceedings Relating to Solutia’s Assumed Liabilities

As described above, Solutia managed and directed the defense of proceedings with respect to Solutia’s Assumed Liabilities until approximately Feb. 17, 2004, when Solutia notified Pharmacia and Monsanto of its intention to cease or suspend performance. In order to protect the interests of Pharmacia and Monsanto, we have assumed management of these matters on an interim basis or until resolution of Solutia’s Chapter 11 proceeding. As we are now managing proceedings relating to Solutia’s Assumed Liabilities, a description of material pending proceedings relating to Solutia’s Assumed Liabilities that may be material to our company is included in this portion of this report on Form 10-K.

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The following proceedings allege damages arising from exposure to polychlorinated biphenyls (PCBs) discharged from an Anniston, Alabama, plant site that was formerly owned by Pharmacia and was transferred to Solutia as part of the spinoff of Solutia from Pharmacia:

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Owens v. Monsanto: On Oct. 27, 2003, a motion was filed in U.S. District Court for the Northern District of Alabama, contending that the September 2003 global settlement agreement in the Tolbert v. Monsanto and Abernathy v. Monsanto PCB cases also required the payment of additional funds to plaintiffs in Owens v. Monsanto, an Anniston-related PCB case that was settled by Solutia in April 2001 on behalf of itself and Pharmacia. On Jan. 8, 2004, the court substantially denied plaintiffs’ claim but awarded an additional amount of approximately $800 per plaintiff, for a total additional award of $1.3 million, which we have paid on behalf of Pharmacia. The plaintiffs filed an appeal to the U.S. Court of Appeals for the Eleventh Circuit, and on Aug. 19, 2004, the Eleventh Circuit affirmed the trial court’s judgment already paid by Monsanto. On Oct. 15, 2004 the Eleventh Circuit denied the plaintiffs’ motion for a rehearing en banc.

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Payton v. Monsanto: This case was brought in Circuit Court in Shelby County, Alabama, on July 15, 1997, against Pharmacia, on behalf of a purported class of owners, lessees and licensees of properties located on Lay Lake, which is downstream from Lake Logan Martin on the Coosa River in Alabama. Plaintiffs claim that PCBs in Lay Lake entitle them to compensatory and punitive damages in an unspecified amount for an alleged increased risk of physical injury and illness, emotional distress caused by fear of future injury or illness, medical monitoring and diminishment in the value of their properties and their water rights. On Aug. 4, 2004, the class representatives and Monsanto (on behalf of Pharmacia), subject to court and management approval and completion of the class approval and notice process, entered an agreement that if approved would permit the settlement of this class action. On Sept. 15, 2004, the circuit judge preliminarily approved the settlement process, ordered notice to potential class members to commence by Oct. 1, 2004, and set a fairness hearing for Nov. 3, 2004.

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Other Anniston Cases: Other than Payton, after the Tolbert and Abernathy global settlement, 12 cases involving a total of 23 plaintiffs claiming personal injury or property damage remained pending in various Circuit Courts in the State of Alabama. Efforts to remove those 12 cases to federal court were unsuccessful. In addition, Cole v. Monsanto was filed in U.S. District Court for the Northern District of Alabama as a purported class action involving a class of individuals allegedly not included within the Tolbert and Abernathy global settlement.

Pursuant to an Aug. 4, 2003, Partial Consent Decree, Solutia and Pharmacia agreed to conduct a Remedial Investigation and Feasibility Study to provide information for the selection by the EPA of a cleanup remedy for the Anniston PCB site. Solutia has since stated that it will only perform remediation on sites where it has current operations. Monsanto has therefore stepped in as Pharmacia’s representative and is funding some of the remaining environmental obligations.

On June 5, 2003, Solutia and Pharmacia filed suit against 19 parties to force them to pay their fair share toward past and future investigation and cleanup costs under the Comprehensive Environmental Response Compensation and Liability Act. The suit was filed in the U.S. District Court for the Northern District of Alabama in an action captioned Solutia Inc. and Pharmacia Corporation v. McWane, Inc. et al. The 19 parties are owners and operators of manufacturing facilities that Solutia/Pharmacia believed were responsible for a major share of the PCB contamination found throughout Anniston. Solutia was managing this suit until it filed for bankruptcy protection. Monsanto and Solutia have negotiated an arrangement for the continued management and vigorous prosecution of this suit.

Pharmacia was added as a defendant on Feb. 7, 1997, to a case then pending in the Commonwealth Court of Pennsylvania. This action was originally filed against U.S. Mineral Products Company in 1990 by the Commonwealth, seeking damages caused by the presence of asbestos fireproofing in the Transportation and Safety Building (T & S Building) in Harrisburg, Pennsylvania. In June 1994, a fire broke out in the T & S Building. The Commonwealth claims that PCBs contaminated the building and necessitated its demolition and temporary relocation of Commonwealth employees caused by the alleged contamination. In addition, the Commonwealth sought the cost of constructing a new building on the site of the T & S Building. Solutia defended the litigation pursuant to its obligations under the Distribution Agreement and, on Aug. 23, 2000, the jury returned a verdict of $90 million against Pharmacia. The verdict was reduced to $45 million by the trial court. On Nov. 15, 2002, Solutia filed an appeal to the Supreme Court of Pennsylvania. Please refer to Item 8 — Note 22 for more information regarding the appeal bond posted by Monsanto on Solutia’s behalf in this matter. Oral argument before the Supreme Court of Pennsylvania on this matter was heard on May 11, 2004.

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In January 1984, Pharmacia was served in Furch v. General Electric Company, et al., the first of five cases brought in state court in Broome County, New York, relating to claims of injury allegedly resulting from exposure to PCBs during and immediately after a fire in a state office building in Binghamton, New York. Plaintiffs were 43 emergency responders or individuals involved in cleanup activities immediately after the fire and their spouses or representatives, for a total of 81 plaintiffs. The plaintiffs claimed that PCBs, dibenzofurans and dibenzodioxins were spread throughout the building when a transformer, located in an equipment room in the basement of the building, ruptured during the fire. Plaintiffs made claims for various personal injuries, including in some cases death, and alleged fear of future disease and the need for medical monitoring. They sought compensatory and punitive damages in an unspecified amount. This case was resolved pursuant to a settlement in the fourth quarter of fiscal 2004.

Seventeen PCB cases are now pending in Mississippi. All of these cases were filed in state court in Hinds County and Copiah County, Mississippi. The 1,654 plaintiffs in 16 of these cases are either present or former employees of an electrical transformer manufacturing facility owned by Kuhlman Electric Corporation located in Crystal Springs, Mississippi, or present or former residents of the Crystal Springs community. The cases assert various negligence and product liability claims and seek damages for personal injury and/or property damage caused by exposure to PCBs. The plaintiffs seek to recover both compensatory and punitive damages in unspecified amounts. The plaintiffs in these cases name as defendants in various combinations Solutia, Monsanto and/or Pharmacia. All 16 cases have been removed to the U.S. District Court for the Southern District of Mississippi. The remaining two cases were recently filed and will also be removed. Motions to remand have been filed in each removed case. On Sept. 29, 2004, in the first case removed to federal court, the District Court denied the plaintiffs’ motion to remand. In addition, on Dec. 30, 2003, a wrongful death case was filed against Monsanto in the Circuit Court of Hinds County on behalf of three wrongful death beneficiaries for damages allegedly arising from their decedent’s exposure to PCBs in the course of his work as an electrician in the Ingall’s shipyard in Pascagoula, Mississippi. Pharmacia is not named as a defendant in this suit. The case was removed to federal court, and a motion to remand was recently denied by the federal court. No trial dates have been scheduled.

See “MD&A — Cautionary Statements: Risk Factors Regarding Forward-Looking Statements,” in Item 7 of this Form 10-K, which is incorporated herein by reference, for information regarding the risk factors that may affect any forward-looking statements regarding our legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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PART II

ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Monsanto’s common stock is traded principally on the New York Stock Exchange, under the symbol MON. The number of shareowners of record as of Oct. 25, 2004, was 54,617.

The original quarterly dividend rate adopted by the board of directors following the initial public offering (IPO) was $0.12. The board of directors increased the company’s quarterly dividend rate in April 2003 to $0.13 and in May 2004 to $0.145.

The following table sets forth dividend information, as well as the high and low sales prices for Monsanto’s common stock, for the fiscal year 2004 quarters indicated.

(1)

During the period from March 1, 2004, through May 31, 2004, Monsanto declared two dividends, $0.13 per share on March 2, 2004, and $0.145 per share on May 4, 2004.

The following table sets forth dividend information, as well as the high and low sales prices for Monsanto’s common stock, for the calendar quarters indicated. Note that because of the company’s change in fiscal year end from December 31 to August 31 in 2003, only the first two quarters were reported for 2003. Dividend information and common stock prices are not included in this table for 2004 as Monsanto has reported 2004 on a fiscal-year basis above.

(2)		Because Monsanto changed its fiscal year from December 31 to August 31 only the first two quarters were reported for the transition period. The eight-month transition period ended Aug. 31, 2003. During the period from July 1, 2003, through Aug. 31, 2003, Monsanto declared no dividends.
(3)		During the period from July 1, 2003, through Aug. 31, 2003, the high and low sales prices of Monsanto stock were $26.35 and $20.86, respectively.

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Issuer Purchases of Equity Securities

The following table is a summary of any purchases of equity securities during the fourth quarter of fiscal year 2004 by the issuer and any affiliated purchasers, pursuant to SEC rules.

(4)

Represents total number of restricted shares withheld to cover the withholding taxes upon the vesting of restricted stock.

On July 31, 2003, the Executive Committee of the board of directors authorized the purchase of up to $500 million of the company’s common stock over a three-year period. The plan expires on July 30, 2006. There were no other publicly announced plans outstanding as of Aug. 31, 2004.

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ITEM 6. SELECTED FINANCIAL DATA

SELECTED FINANCIAL DATA

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 our business results. In July 2003, Monsanto’s board of directors approved a change in the company’s fiscal year end from December 31 to August 31. Accordingly, data presented in this report for the period from Jan. 1, 2003, through Aug. 31, 2003, is otherwise known as the transition period. For all periods except the 12 months ended Aug. 31, 2003, and the eight months ended Aug. 31, 2002, the operating results data, earnings (loss) per share and per pro forma share data, and financial position data set forth above are derived from Monsanto Company’s audited consolidated financial statements. For the 12-month period ended Aug. 31, 2003, and the eight-month period ended Aug. 31, 2002, this data is derived from unaudited consolidated financial statements.

(1)		In 2000, Monsanto adopted the Securities and Exchange Commission’s Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. Monsanto’s adoption of SAB 101 primarily affected its recognition of license revenues from biotechnology traits sold through third-party seed companies. Monsanto adopted the provisions of SAB 101 as an accounting change, recognizing as a cumulative effect of a change in accounting principle a loss of $26 million aftertax ($0.10 per basic and diluted pro forma share) effective Jan. 1, 2000. Assuming SAB 101 was applied retroactively, net income and basic and diluted earnings per pro forma share would have been higher by these amounts in 2000, and lower by these same amounts in 1999.
(2)		As part of the fiscal year 2004 restructuring plan, Monsanto announced plans to: (1) exit the European breeding and seed business for wheat and barley, and (2) discontinue the plant-made pharmaceuticals program. Accordingly, these businesses have been presented as discontinued operations in the Statement of Consolidated Operations for all periods presented above. In the fourth quarter of fiscal year 2004, Monsanto finalized the sale of assets associated with the company’s European wheat and barley business.

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(3)		In 2002, Monsanto adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. In connection with the adoption of this new accounting standard, Monsanto recognized a transitional goodwill impairment charge of $1.8 billion aftertax effective Jan. 1, 2002.
(4)		In 2003, Monsanto adopted SFAS No. 143, Accounting for Asset Retirement Obligations. In connection with the adoption of this new accounting standard, Monsanto recorded a cumulative effect of accounting change of $12 million aftertax ($0.05 per basic and diluted share) effective Jan. 1, 2003.
(5)		Diluted earnings per pro forma share for 2000 were calculated using 258 million weighted-average common shares outstanding plus the effect of dilutive common share equivalents totaling 0.5 million, consisting of outstanding stock options. For all periods prior to 2000, basic and diluted earnings per pro forma share were calculated using 258 million weighted-average common shares, the number of common shares outstanding immediately after the IPO in October 2000.
(6)		Certain prior-year amounts have been reclassified to conform with the current-year presentation.
(7)		Working capital is total current assets less total current liabilities; current ratio represents total current assets divided by total current liabilities.
(8)		Debt-to-capital is the total of short-term and long-term debt, divided by the sum of short-term and long-term debt and shareowners’ equity. Fluctuations in our debt-to-capital ratio from December 31 to August 31 were affected by the seasonality of our business.
(9)		Prior to Sept. 1, 2000, Monsanto was the agricultural business of Pharmacia Corporation and was not a separate corporate entity with shares outstanding or employees.
(10)		The dividend of $0.09 per share on the company’s common stock declared in the fourth quarter of calendar year 2000 is prorated. It was based on a quarterly dividend rate of $0.12 per share, which reflected a policy adopted by the board of directors following Monsanto’s IPO. The board of directors increased the company’s dividend rate in April 2003 to $0.13 and in May 2004 to $0.145.
(11)		In fiscal year 2004, there were five dividends declared. In first and second quarters of 2004, the company declared a dividend of $0.13 per share. In the third quarter of 2004, Monsanto declared two dividends of $0.13 per share and $0.145 per share, totaling $0.275 per share. In the fourth quarter of 2004, the company declared a dividend of $0.145 per share. Refer to footnote 10 to this table for an explanation of the dividend rate increase in fiscal year 2004.

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ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Background

Monsanto Company is a leading global provider of agricultural products and integrated solutions for farmers. We produce leading seed brands, including DEKALB and Asgrow, and we develop biotechnology traits that assist farmers in controlling insects and weeds. We provide other seed companies with genetic material and biotechnology traits for their seed brands. We also make Roundup herbicide and other herbicides. Our seeds, related biotechnology trait products and herbicides can be combined to provide growers with integrated solutions that improve productivity and reduce the costs of farming. We also provide lawn-and-garden herbicide products for the residential market and animal agricultural products focused on improving dairy cow productivity and swine genetics.

We manage our business in two segments: Seeds and Genomics, and Agricultural Productivity. The Seeds and Genomics segment consists of the global seeds and related traits businesses, and genetic technology platforms. The Agricultural Productivity segment consists of the crop protection products, animal agriculture, lawn-and-garden herbicide products, and environmental technologies businesses. More than 45 percent of our sales, 37 percent of our Seeds and Genomics segment’s sales, and 51 percent of our Agricultural Productivity segment’s sales were made outside the United States during fiscal year 2004. In October 2003, we announced plans to exit the European breeding and seed business for wheat and barley and to discontinue the plant-made pharmaceuticals program. As a result of the exit plans, these businesses have been presented as discontinued operations. Accordingly, for fiscal year 2004, the eight months ended Aug. 31, 2003, and calendar years ended Dec. 31, 2002 and 2001, the Statement of Consolidated Operations has been conformed to this presentation. In the fourth quarter of 2004, we finalized the sale of assets associated with our European wheat and barley business. Refer to Item 8 — Note 27 — Discontinued Operations — for further details. These businesses were previously reported as part of the Seeds and Genomics segment.

As discussed in Item 1 — “Business,” Monsanto comprises the operations, assets and liabilities that were previously the agricultural business of Pharmacia, which is now a subsidiary of Pfizer. Beginning Sept. 1, 2000, the consolidated financial statements reflect the results of operations, financial position, and cash flows of the company as a separate entity responsible for procuring or providing for itself the services and financing previously provided by Pharmacia. The consolidated financial statements also include the costs of services purchased from Pharmacia and the reimbursement for services provided to Pharmacia pursuant to a transition services agreement.

MD&A should be read in conjunction with Monsanto’s consolidated financial statements and the accompanying notes. Unless otherwise indicated, “earnings (loss) per share” and “per share” mean diluted earnings (loss) per share. In the tables, all dollar amounts are expressed in millions, except per share amounts. Unless otherwise noted, all amounts and analyses are based on continuing operations.

Change in Fiscal Year End

In July 2003, Monsanto’s board of directors approved a change to Monsanto’s fiscal year end from December 31 to August 31. This change aligned our fiscal year more closely with the seasonal nature of our business. In view of this change, MD&A compares the consolidated financial statements as of and for the 12 months ended Aug. 31, 2004, with the consolidated financial statements as of and for the 12 months ended Aug. 31, 2003. References to 2004 refer to the fiscal year ended Aug. 31, 2004. MD&A also compares the consolidated financial statements as of and for the eight months ended Aug. 31, 2003 (the transition period) with the consolidated financial statements as of and for the eight months ended Aug. 31, 2002. Although this report does not present the consolidated financial statements for the 12 months ended Aug. 31, 2003, and as of and for the eight months ended Aug. 31, 2002, we have included summary information in MD&A for these periods for comparability purposes because of the seasonality of our business. We are also including a discussion and analysis of our financial statements for calendar years ended Dec. 31, 2002 and 2001.

Throughout MD&A, data for all periods except for the 12 months ended Aug. 31, 2003, and as of and for the eight months ended Aug. 31, 2002, are derived from our audited consolidated financial statements, which appear in this report. All data for the 12 months ended Aug. 31, 2003, and as of and for the eight months ended Aug. 31, 2002, are

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derived from our unaudited consolidated financial statements, which are not presented herein. Summary financial information for the eight-month period ended Aug. 31, 2002, can be found in Item 8 — Note 4 — Change in Fiscal Year End.

Financial Measures

The primary operating performance measure for our two business segments is earnings (loss) from continuing operations before cumulative effect of accounting change, interest and income taxes (EBIT). We believe that EBIT is useful to investors and management to demonstrate the operational profitability of our segments by excluding interest and income 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 in determining resource allocations within the company.

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 operations and provided or required by investing activities. We believe that free cash flow is useful to investors and management as a measure of the ability of our business to generate cash. This cash can be used to meet business needs and obligations, to reinvest into the company for future growth, or to return to our shareowners through dividend payments or share repurchases. Free cash flow is also used by management as one of the performance measures in determining incentive compensation.

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 accounting principles generally accepted in the United States.

Executive Summary

Consolidated Operating Results — Net sales increased 11 percent to $5.5 billion in fiscal year 2004 from $4.9 billion in the comparable 2003 12-month period. Sales increased 21 percent, or $398 million, in the Seeds and Genomics segment and 5 percent, or $149 million, in the Agricultural Productivity segment. We experienced sales improvements in corn and soybean traits in the United States, corn seed in the United States, Europe and Brazil, and cotton traits in the United States and India. Sales of Roundup and other glyphosate-based herbicides increased in all world areas outside the United States. Despite somewhat higher volumes, mix continued to shift to lower-priced glyphosate products and market share declined in our U.S. glyphosate business in line with our expectations. Consistent with results for the comparable 2003 12-month period, the gross profit contribution of our Seeds and Genomics segment surpassed the gross profit contribution of our glyphosate business. Fiscal 2004 operating expenses increased 20 percent, or $321 million, and were driven by higher selling, general and administrative expenses, net restructuring charges, and a 2004 goodwill impairment. See the “Restructuring and Other Special Items” section of MD&A, which outlines the fiscal year 2004 restructuring program and related goodwill impairment. In the comparable 2003 12-month period, we participated in a global settlement, which included Solutia and Pharmacia, relating to certain polychlorinated biphenyl (PCB) litigation in Alabama. This global settlement resulted in a $396 million pretax net expense. Fiscal year 2004 net income of $267 million, or $0.99 per share, improved from $68 million, or $0.26 per share, in the comparable 2003 12-month period. For further details, see the “Results of Operations,” “Seeds and Genomics Segment,” and “Agricultural Productivity Segment” sections of MD&A.

Financial Condition, Liquidity, and Capital Resources — As of Aug. 31, 2004, the balance of cash and cash equivalents was more than $1 billion. In fiscal year 2004, we contributed $400 million toward the PCB litigation settlement, purchased $266 million of our shares, and made $215 million in voluntary pension contributions. For fiscal year 2004, net cash provided by operations was $1,261 million, compared with $1,128 million in the comparable prior-year period. Net cash required by investing activities was $262 million in 2004 and $482 million in the comparable 2003 12-month period. As a result, our free cash flow as defined in the “Financial Measures” section above was $999 million in fiscal year 2004 compared with $646 million in the comparable 2003 12-month period. The increase in free cash flow was driven by improved trade accounts receivable collections globally and the timing of short-term investments, which were partially offset by the PCB litigation settlement payment net of PCB insurance proceeds and higher voluntary pension contributions in fiscal year 2004. Total debt outstanding remained consistent between Aug. 31, 2004, and Aug. 31, 2003, at approximately $1.5 billion. See the “Financial Condition, Liquidity, and Capital Resources” section of MD&A for a more detailed discussion.

Outlook — We are continuing to evolve to a company led by its strengths in seeds and biotechnology traits as a means of delivering solutions to our customers. We aim to continually improve our products to maintain market leadership and to

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support near-term performance. We are focused on solving problems in new ways for farmers and bringing second-generation traits to the market, such as Bollgard II, and pipeline products in advanced stages, such as Roundup Ready Flex cotton. We are also focused on providing farmers with multiple solutions in one seed, or “stacking” more than one trait in a seed. Our second-generation products are being introduced before the competition has delivered its first-generation products. Our capabilities in biotechnology research are generating a rich product pipeline that is expected to drive long-term growth. We aspire to bring new solutions to our customers’ unmet needs, for example crops with improved oil and protein composition and drought-tolerant crops. The viability of our product pipeline depends in part on the speed of regulatory approvals globally. As a key determinant of our ability to launch new products, we have focused on aspects of the process we can control. This has resulted in programs such as the Brazil value capture system, which makes it possible to collect a royalty on our Roundup Ready soybean invention even though the longer-term regulatory system there is still evolving. Concurrent to this activity in the Seeds and Genomics segment, we are focused on reducing the costs associated with our agricultural chemistry business as that sector matures globally. Roundup remains the market leader; however, the mix of our glyphosate products reflects the increased competitive dynamics of the marketplace.

We are required to indemnify Pharmacia for Solutia’s Assumed Liabilities, to the extent that Solutia fails to pay, perform or discharge those liabilities. Prior to and following its filing for bankruptcy protection, Solutia has disclaimed responsibility for Solutia’s Assumed Liabilities. It is reasonably possible that our obligation to indemnify Pharmacia for Solutia’s Assumed Liabilities could result in a material adverse effect on our financial position, profitability and/or liquidity; however, that effect cannot be reasonably estimated at this time. See Item 3 — Legal Proceedings and Item 8 — Note 22 — Commitments and Contingencies for further details.

Refer to the “Outlook” section of MD&A for a more detailed discussion of the opportunities, challenges and risks we have identified for our business.

In October 2004, we announced that return on capital would be a new financial measure for fiscal year 2005. We intend to improve return on capital through continued optimization of the Roundup business while accelerating the seeds and traits businesses. Additionally, we expect our compounded annual earnings per share growth rate to somewhat increase in fiscal year 2005 from the fiscal year 2004 earnings per share base, excluding for both years restructuring charges, the goodwill impairment and discontinued operations. We expect the earnings per share growth to be driven by greater acreage penetration of biotech traits, the use of more than one trait per acre, and pricing flexibility in our global seeds and traits businesses. The factors described in the “Cautionary Statements: Risk Factors Regarding Forward-Looking Statements” section of MD&A represent continuing risks to this expectation.

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RESULTS OF OPERATIONS

Overview of Financial Performance (12 months ended Aug. 31, 2004, compared with 12 months ended Aug. 31, 2003)

We recognized net income of $267 million during fiscal year 2004, and net income of $68 million during the comparable period in 2003. In addition to the discussion that follows the table below, see the “Overview — Executive Summary” section of MD&A for an overview of our results of operations for these periods.

Net sales increased 11 percent in fiscal year 2004 from the same period a year ago. We experienced sales growth in both segments. Our Seeds and Genomics segment net sales improved 21 percent, and sales for our Agricultural Productivity segment increased 5 percent. Ideal weather conditions in almost every world area in fiscal year 2004 contributed to the sales improvements for both segments. Sales of corn, soybean and cotton traits in the United States, and corn seed in the United States, Europe and Brazil drove the Seeds and Genomics segment net sales increase. Sales of Roundup and other glyphosate-based herbicides increased in all world areas outside the United States, with Brazil providing the largest contribution to the fiscal year 2004 sales increase. The Agricultural Productivity segment was negatively affected by a sizable sales decline of Roundup and other glyphosate-based herbicides in the United States because of a mix shift to lower-tier glyphosate products and a market share decline of several share points in line with our expectations. For a more detailed discussion of the factors affecting the net sales comparison, see the “Seeds and Genomics Segment” and the “Agricultural Productivity Segment” sections.

Gross profit increased 12 percent in fiscal year 2004, which was consistent with the 11 percent net sales increase. Total company gross profit as a percentage of sales was 47 percent for both 12-month periods. Consistent with the results of the 12 months ended Aug. 31, 2003, gross profit of our Seeds and Genomics segment in 2004 surpassed the gross profit contribution of our glyphosate business. We expect this trend to continue in fiscal year 2005 and beyond. Restructuring expenses recorded in cost of goods sold totaled $35 million in fiscal year 2004 and $7 million in the comparable prior-year period. Restructuring charges had a 1 percentage point effect on gross profit as a percent of sales in fiscal year 2004, and had no effect on gross profit as a percent of sales in the prior-year 12-month period.

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Gross profit as a percent of sales increased 3 percentage points for the Seeds and Genomics segment to 60 percent, and declined 3 percentage points for the Agricultural Productivity segment to 38 percent in fiscal year 2004. The strength of our Seeds and Genomics segment more than offset the decline in our glyphosate business. Gross profit as a percent of sales for the Seeds and Genomics segment improved because of higher average net selling price for branded corn seed, particularly in the United States, and lower U.S. cost of goods sold due to improved corn yields for seed production. Additionally, gross profit improved from stacking more than one biotech trait in corn and increased corn trait penetration. Gross profit also benefited from an increase in Roundup Ready soybean trait prices in the United States. The decline in Agricultural Productivity gross profit as a percent of sales was primarily because of the U.S. mix shift to lower-priced Roundup and other glyphosate-based herbicides and a U.S. market share decline of several share points, both of which were in line with our expectations.

Operating expenses increased 20 percent, or $321 million, in fiscal year 2004 from the prior-year comparable period. We experienced increases in each of the five expense line items that are part of operating expenses. Selling, general and administrative (SG&A) expenses increased 11 percent, or $110 million, for the 12-month comparison. The largest driver of the SG&A expense increase was higher accrued incentive compensation. These accrued incentive levels are commensurate with our improved operational results this year. SG&A expenses also increased because of higher expense associated with the institution of a royalty system for Roundup Ready soybeans in Brazil (see “Outlook” in MD&A for additional details), and higher agency fee expense as a result of increased fiscal year 2004 net sales for the lawn-and-garden herbicide business compared with the same period in the prior year. As discussed in the “Restructuring and Other Special Items” section of MD&A, we estimated approximately $40 million in fiscal 2004 aftertax savings as a result of the fiscal year 2004 restructuring plan. These savings benefited SG&A, and, to a lesser extent, research and development expenses. The SG&A savings primarily resulted from the 2004 restructuring actions in Europe, and were nearly offset by the unfavorable effect of exchange rates on European SG&A expenses in 2004. As a percent of net sales, SG&A expenses (including bad-debt expense) were 23 percent in both 12-month periods.

Bad-debt expense increased 51 percent, or $37 million, in fiscal year 2004 compared with the same period a year ago. We recorded $45 million in higher bad-debt expense from the same period a year ago for exposures related to potential uncollectible Argentine accounts receivable. Lower bad-debt expenses in Europe somewhat offset the increase. In fiscal year 2004, we continued to restructure our Argentine business model. This redesign focused on streamlining distribution, improving working capital management, and rationalizing our product portfolio. These changes, coupled with the continued economic and business challenges, led to increased credit exposure. We increased the allowance for estimated uncollectible receivables in Argentina after performing a thorough review of our past-due trade receivables. Although we cannot determine with certainty how government actions and economic conditions in Argentina will affect the value of net receivables outstanding, we continue to pursue customer collections aggressively to minimize exposure. The increase in Argentine bad-debt expense also included a reserve for trade receivables related to two minor crops that were exited during fiscal 2004, an action which has resulted in a lower probability of collection. Fiscal year 2004 also had higher Argentine bad-debt expense incurred in the normal course of business.

Research and development (R&D) expenses increased 6 percent, or $27 million, in fiscal year 2004 from the comparable prior-year period. Higher employee-related costs and expenses associated with a third-party software license were the largest drivers of the fiscal 2004 increase. As a percent of net sales, R&D expenses decreased 1 percentage point to 9 percent in fiscal year 2004.

In fiscal year 2004, we recognized a $69 million noncash pretax ($64 million aftertax) goodwill adjustment related to our global wheat business. Our decision to exit the European wheat business required us to re-evaluate the goodwill related to the wheat reporting unit for impairment.

Restructuring charges — net were recorded in both 12-month periods. Restructuring charges recorded in 2004 for the fiscal year 2004 restructuring plan were $118 million, which were reduced by $6 million of restructuring reversals related to our prior restructuring plans. During the prior-year comparable period, we recognized $51 million of restructuring charges in operating expenses related to our 2002 restructuring plan. These restructuring charges were offset by $17 million of restructuring reversals related to the 2000 and 2002 restructuring plans. Thus, net restructuring charges were $112 million in fiscal year 2004 and $34 million in the comparable prior-year period. For a further discussion, see the “Restructuring and Other Special Items” section of MD&A.

Interest expense — net decreased $2 million in fiscal year 2004 to $67 million. Interest expense increased $4 million in fiscal year 2004 to $91 million, primarily because we had a higher average amount of variable-rate medium-term notes in Brazil

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outstanding in fiscal year 2004 compared with the comparable 2003 12-month period. We issued approximately $100 million of additional medium-term notes in Brazil in fiscal 2004 (see Item 8 — Note 12 — Debt and Other Credit Arrangements — for further details). Interest income increased $6 million in fiscal year 2004 to $24 million because of larger overnight cash deposits, which resulted from improved operational cash flow in the United States and Brazil. Further, interest income increased $2 million in 2004 from the accretion of the discount related to the PCB insurance receivables (see the following paragraph).

We recorded $396 million of PCB litigation settlement expense — net in the prior-year 12-month period. The pretax charge of $396 million ($252 million aftertax, reflecting a tax benefit of $144 million) was recorded in August 2003. The net charge includes $1 million of related legal expenses. In August 2003, we participated in a global settlement, which included Solutia and Pharmacia, relating to certain Solutia PCB litigation in Alabama. Our strong cash-generating capabilities allowed us to contribute to this settlement, thereby mitigating the longer-term litigation risk associated with our contractual obligations related to Solutia. We paid a portion ($150 million) of our share of the cash settlement in August 2003, and the remaining $400 million was paid in September 2003. We recorded miscellaneous receivables of $155 million as of Aug. 31, 2003, for the anticipated insurance reimbursement from Pharmacia’s commercial insurance; however, this amount was adjusted by increasing other expense — net by $5 million in fiscal 2004 to reflect the discounted effect as a result of the three-year payment schedule to which we agreed ($2 million was accreted to interest income in fiscal 2004, and an additional $3 million will be accreted in future periods). In August 2004, we and the insurer responsible for approximately $140 million of the reimbursement resolved the mediation of a dispute regarding the amount due and we received net proceeds of $72 million in August 2004. Miscellaneous receivables of $80 million remain recorded as of Aug. 31, 2004, for the anticipated insurance reimbursement ($15 million was recorded in miscellaneous receivables and $65 million was recorded in other assets). The insurer agreed to pay the remainder in quarterly installments over three calendar years beginning in March 2005.

In consideration of our participation in the settlement, Solutia agreed to issue warrants to us for the purchase of 10 million shares of Solutia stock. Solutia did not execute a final warrant agreement or issue or deliver the warrants prior to its Chapter 11 filing in December 2003, and Monsanto expects that Solutia’s obligation to issue warrants will be discharged in the Chapter 11 proceeding. Monsanto has not recorded the warrants in its financial statements, in either period, because they were not received.

Other expense — net increased $77 million during fiscal year 2004. In fiscal year 2004, we recorded $58 million ($36 million aftertax) for the advancement of funds to pay for Solutia’s Assumed Liabilities in light of Solutia’s refusal to pay for those liabilities and for legal and other expenses related to the Solutia bankruptcy. See Item 8 — Note 22 — Commitments and Contingencies — for further details on Solutia’s Assumed Liabilities. Additionally, other expenses were higher in fiscal year 2004 because of increased hedging losses and foreign-currency transaction losses. Hedging losses were $7 million in fiscal 2004 compared to hedging gains of $1 million in the comparable 2003 12-month period. Net foreign-currency transaction losses increased $7 million to $29 million. We recognized $9 million of other income during fiscal year 2004 related to gains that were realized upon the sale of equity securities. Our equity affiliate expense decreased $5 million to $36 million in fiscal year 2004, and was primarily related to our Renessen LLC (Renessen) joint venture. Renessen expenses declined in 2004 because of lower payroll costs as a result of a reorganization that occurred in the prior year, and improved cost management. This joint venture is owned and funded 50-50 with Cargill, Incorporated. It was formed to develop and market products for the grain processing and animal feed industries.

Income tax provision for fiscal year 2004 increased $89 million from the prior-year comparable period. The effective tax rate increased to 33 percent, an increase of 2 percent over the comparable 2003 12-month period. The goodwill adjustment in fiscal year 2004 and the PCB litigation settlement in the prior year significantly affected the effective tax rate comparison. Without the goodwill adjustment, the 2004 effective tax rate would have been 29 percent, and without the PCB litigation settlement, the 2003 effective tax rate would have been 35 percent. Thus, without these items, the 2004 effective tax rate would have been a reduction of 6 percent versus the prior-year period. This improvement was driven primarily by a favorable adjustment to our income tax reserve resulting from a settlement reached with the Internal Revenue Service on a number of issues and, to a lesser extent, a realignment of the company’s European business operations. Income tax expense for 2004 also includes two adjustments for valuation allowances against our deferred tax assets in Argentina and Brazil. In Argentina, we established a valuation allowance of $107 million primarily as a result of the recent history of losses, the continued uncertain economic conditions in Argentina (discussed in the “Outlook” section of MD&A) and the limited tax carryforward period of five years. In Brazil, we reassessed the need for a valuation allowance and reversed the existing valuation allowance of $90 million, primarily as a result of the improved operating results in Brazil and the improvements in the Brazilian

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economy. For further details of these deferred tax adjustments, please refer to the “Critical Accounting Policies and Estimates” section of MD&A and Item 8 — Note 11 — Income Taxes.

As discussed in Note 11, the sale of the European wheat and barley business generated a tax loss deductible in either the United Kingdom or the United States. As of Aug. 31, 2004, a deferred tax asset had not been recorded for the tax loss incurred in the United States because of the existence of a number of uncertainties. These uncertainties were substantially diminished with the enactment of the “American Jobs Creation Act of 2004” on Oct. 22, 2004. As a result, we will record a deferred tax benefit of approximately $105 million, or $0.39 per share, in the first quarter of fiscal year 2005. The recognition of this tax benefit in the United States will effectively preclude Monsanto from claiming any U.K. benefit for the U.K. tax loss. Accordingly, the U.K. deferred tax asset of $68 million, which had a full valuation allowance against it, will be written off. The American Jobs Creation Act of 2004 also contains a number of tax provisions which we are in the process of evaluating their impact. While management does not believe these provisions will have a material impact on fiscal year 2005, they may have a material impact in subsequent years.

The factors above explain the change in income from continuing operations. The loss on discontinued operations was $4 million in fiscal year 2004 and $15 million in the same period a year ago. The aftertax loss of $4 million included $2 million related to restructuring charges recorded in discontinued operations and a $2 million loss from operations of the discontinued businesses. SG&A and R&D expenses related to the discontinued businesses were lower in fiscal year 2004 than in the comparable period a year ago because we were exiting those businesses. Fiscal 2004 also included a benefit from the write-off of a deferred tax liability of $7 million associated with the European wheat and barley business. Pretax restructuring expenses of $11 million offset the lower expenses and tax benefit.

Additionally, in the 12 months ended Aug. 31, 2003, we adopted a new accounting standard relating to asset retirement obligations, which negatively affected our net income by $12 million aftertax, or $0.05 per share.

Overview of Financial Performance (transition period compared with eight months ended Aug. 31, 2002)

We recognized a net loss of $23 million during the transition period, and a net loss of $1.8 billion during the comparable prior-year period. The following factors affected the eight-month comparison:

2003:

•

An aftertax charge of $252 million in 2003 related to the settlement of certain Solutia PCB litigation

•

An aftertax charge of $12 million effective Jan. 1, 2003, upon adoption of a new accounting standard relating to asset retirement obligations

2002:

•

A $1.8 billion aftertax transitional goodwill impairment charge, upon adoption of a new accounting standard relating to goodwill

•

Establishment of a $100 million aftertax, bad-debt reserve in 2002 related to Argentine receivables

•

Actions in 2002 to reduce risks in Latin America, due to economic and market uncertainties, that negatively affected results

•

Aftertax charges of $49 million relating to our 2002 restructuring plan net of prior plan reversals

•

Gain from sales of certain assets for use in certain ex-U.S. markets in 2002, which contributed approximately $20 million aftertax of other income

On an ongoing business basis, our results in the transition period were affected by lower volumes and lower average net selling prices of Roundup herbicides in the United States. However, stronger sales of our seeds and traits in the United States mitigated this shortfall. During the transition period, our Seeds and Genomics segment delivered a greater gross profit

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contribution than that of the Roundup and other glyphosate-based herbicides. This milestone demonstrates the increasing contribution of that segment to our results.

Net sales for the transition period increased 8 percent over the comparable period in the prior year. Both of our operating segments benefited from improved performance in Latin America. In the eight-month period in the prior year, net sales were negatively affected by difficult economic conditions in that region, as well as the operational changes we made to our business to address the uncertainties there. In the Seeds and Genomics segment, U.S. seed and trait sales continued their strong growth in the transition period, with seed and trait sales for all crops increasing during the eight-month period. Sales in the Agricultural Productivity segment declined because of the continued shift toward lower-priced Roundup and other glyphosate-based herbicides and lower U.S. Roundup volumes in the postpatent glyphosate market. Sales of our selective herbicides also declined. For a more detailed discussion of the factors affecting the net sales comparison, see “Seeds and Genomics Segment” and “Agricultural Productivity Segment” for the transition period.

Gross profit for the transition period increased 9 percent, which was consistent with the 8 percent increase in net sales. Increases in Seeds and Genomics gross profit were partly offset by declines in Agricultural Productivity gross profit, as the continued growth of our Seeds and Genomics segment improved our margins in the transition period. Better financial results in Latin America also improved the margin comparison in the transition period, as the market factors in Latin America and our actions in response to those factors negatively affected our margins in the comparable period in 2002. Collectively, these items improved the eight-month gross profit comparison. They more than mitigated the effect of the shift in Roundup and other glyphosate-based herbicide sales in the United States to lower-priced products. During the eight-month period, the gross profit of our Seeds and Genomics segment surpassed the gross profit contribution of our glyphosate business. As a percent of net sales, gross profit gained one point to 47 percent.

Operating expenses decreased 16 percent for the eight-month comparison. In June 2002, we increased our allowance for doubtful trade receivables by $154 million because of the economic turmoil and related market conditions in Argentina. We also recorded $63 million of net operating expenses related to the restructuring plan approved in 2002. These and other operating expenses in the prior year eight-month period were partially offset by a $25 million reduction in SG&A costs

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stemming from the sale of certain Monsanto herbicide assets in Japan to Nissan Chemical Industries (Nissan). SG&A expenses in the transition period also reflected a reduction, to a lesser extent, in costs related to agreements that are part of our ongoing business. During the transition period, our bad-debt expense was significantly lower, and our operating expenses were reduced by $5 million in restructuring reversals related to our past restructuring plans. However, higher employee-related costs, primarily accrued incentive compensation, drove SG&A expenses higher in the transition period. Continued cost management helped offset some of this increase and also decreased R&D expenses by 7 percent. We also continued to see the benefits from our restructuring programs through lower R&D expenses.

In August 2003, we participated in a global settlement, which included Solutia and Pharmacia, relating to certain Solutia PCB litigation in Alabama. We paid a portion ($150 million) of our share of the cash settlement in August 2003, and the remaining $400 million was paid in September 2003. We expected to receive approximately $155 million in reimbursement from Pharmacia’s commercial insurance. As a result, we recorded a pretax charge of $396 million ($252 million aftertax, reflecting a tax benefit of $144 million) during the transition period. The net charge includes $1 million of related legal expenses. See the fiscal year 2004 “Results of Operations” discussion in MD&A for more details of the PCB litigation settlement expense.

Other expense (net) increased to $67 million during the transition period. Net other expense in the transition period consisted primarily of equity affiliate expense and foreign-currency transaction losses. Our equity affiliate expense of $26 million is primarily related to our Renessen joint venture. During the eight months ended Aug. 31, 2002, we recorded approximately $20 million of other income related to sales of certain herbicide assets for use in ex-U.S. markets, including the Nissan transaction in Japan and a smaller transaction with Nufarm Australia Ltd. (Nufarm) in the Australia and New Zealand markets. We also recognized $10 million of other income during the 2002 eight-month period related to gains that were realized upon the sale of equity securities. These gains were slightly offset by net currency losses reflecting the devaluation of our net assets denominated in Argentine pesos.

Net interest expense increased $11 million to $46 million during the transition period. Although our debt levels during the transition period were significantly lower than debt levels during the comparable period in 2002, higher interest rates associated with our long-term senior notes led to overall higher interest expense. With the issuance of these notes, our debt mix has shifted from primarily commercial paper toward longer-term borrowings, which carry higher interest rates.

We recognized an income tax benefit of $20 million during the transition period on a pretax loss of $18 million. During the same period in 2002, we recognized an income tax provision of $18 million on $65 million of pretax income. The Solutia PCB litigation settlement expense in 2003 and the Argentine bad-debt expense in 2002 significantly affected the eight-month effective tax rate comparison. Without these items, the effective tax rate for both eight-month periods would have been 33 percent.

The factors above explain the change in income from continuing operations. Income from continuing operations was $2 million for the transition period and $47 million in the same period in the prior year.

Discontinued operations related to the European wheat and barley business and plant-made pharmaceuticals program generated an aftertax loss of $13 million in the eight months ended Aug. 31, 2003, and an aftertax loss of $10 million in the comparable prior-year period.

On Jan. 1, 2002, we adopted SFAS 142, Goodwill and Other Intangible Assets, pursuant to which we no longer amortize goodwill. In connection with the adoption of this new accounting standard, we recognized a transitional goodwill impairment charge of $1.8 billion aftertax.

Review of Calendar Year Financial Performance (calendar year 2002 compared with calendar year 2001)

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We recognized a net loss of $1.7 billion, or $6.45 per share, in 2002. This net loss included a $1.8 billion aftertax ($6.94 per share) goodwill impairment upon the adoption of a new goodwill accounting standard. In 2001, we recognized net income of $295 million, or $1.12 per share. The factors that affected the year-to-year comparison are discussed below.

Net sales declined 15 percent to $4.7 billion in 2002 from $5.4 billion in 2001. Sales declined in both the Agricultural Productivity segment and, to a lesser extent, the Seeds and Genomics segment. In the Agricultural Productivity segment, continued competitive pressures on Roundup resulted in U.S. market share loss, and unfavorable weather conditions in key planting regions contributed to lower U.S. sales of Roundup. The effect of a shift in mix to lower-priced glyphosate products also lowered U.S. sales of Roundup by decreasing the average net selling price. The Seeds and Genomics segment experienced higher seed sales in the United States. Higher corn seed sales were partly offset by lower soybean sales. Trait revenues in the United States increased in 2002, even though 2001 results included trait sales for more than one season because of our switch in 2001 to a royalty payment system for licensed traits in corn and soybeans.

Both segments were affected in 2002 by economic conditions in Latin America (including the economic crisis that began in Argentina at the end of 2001), by operational changes we made to our business model to address the continued economic uncertainty and unfavorable market conditions there, and by the actions we took in conjunction with our customers in Argentina. Although these changes and actions significantly affected both segments’ EBIT through lower sales in Latin America and higher product returns in Argentina, they were intended to reduce investments in working capital and our credit risk and other exposures in Argentina and Brazil. Currency losses in Argentina also affected earnings in 2002 and, to a lesser extent, in 2001. In 2001, higher-than-anticipated returns of corn seed in Latin America — primarily in Brazil — negatively affected sales. For a more detailed discussion of these and other factors affecting net sales in 2001 and 2002, see “Seeds and Genomics Segment” and “Agricultural Productivity Segment.”

Cost of goods sold declined 12 percent to $2.5 billion for 2002, reflective of lower sales. Cost of goods sold included $21 million and $82 million of restructuring expenses in 2002 and 2001, respectively. We were able to keep the unit manufacturing costs of Roundup and other glyphosate-based herbicides flat, despite lower Roundup production volumes, which led to unfavorable cost of goods sold manufacturing variances. These costs were offset by cost management efforts and lower raw material and energy prices. Lower seed inventory costs in the United States were offset by higher seed obsolescence in Latin America. The combination of the aforementioned net sales and cost of goods sold factors resulted in an 18 percent decline in gross profit. As a percent of sales, gross profit declined one point. The gross profit effect of lower Roundup average net selling prices was slightly mitigated by increased sales of higher-margin seed traits.

Operating expenses in 2002 declined 6 percent from 2001, as a significant increase in Argentine bad-debt expense was offset by the benefit of no longer amortizing goodwill, and by a decline in our expenses. SG&A expenses for 2002 declined 10 percent from 2001. These lower spending levels reflected cost management, lower employee incentives and other employee-related costs, and an approximate $25 million reduction of costs stemming from the Nissan transaction in Japan.

In 2002, we recorded $208 million of bad-debt expense, the majority of which related to estimated uncollectible trade receivables in Argentina. The allowance for doubtful trade receivables included $154 million ($100 million aftertax) recorded in the second quarter because of the economic turmoil and market conditions in that country. The remaining bad-debt expense in 2002 was in line with our historical experience.

R&D expenses in 2002 decreased 7 percent from 2001, as we continued to focus our spending on seed breeding, plant biotechnology and genomics. The restructuring of our early genomics programs also contributed to the savings.

Operating results in 2002 included the positive effect of our adoption of SFAS 142 on Jan. 1, 2002. In comparison, we recorded $104 million ($72 million, or $0.27 per share aftertax) of amortization and adjustments of goodwill in continuing operations in 2001.

Both 2002 and 2001 included charges relating to our restructuring plans. Results in 2002 included charges for our 2002 restructuring plan, and 2001 results included charges for our 2000 restructuring plan. Net pretax charges (including those recorded within cost of goods sold) related to our restructuring plans were $124 million in 2002, and $213 million in 2001. For further details on both plans, see “Restructuring and Other Special Items” in MD&A.

Interest expense, net of interest income and capitalized interest, declined $14 million in 2002. We benefited from lower commercial paper interest rates during most of the year, as well as lower average borrowing levels. These benefits were

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partially offset by higher interest rates associated with our long-term senior notes issued in August 2002. In 2001, higher interest capitalized on construction ($30 million in 2001 versus $8 million in 2002) reduced net interest expense, primarily associated with the construction of our Camaçari, Brazil, facility, which was completed in late 2001.

Other expense (net) in 2002 decreased significantly from other expense (net) in 2001. In both periods, other expense included equity affiliate expense of $41 million associated with our Renessen joint venture. Both 2001 and 2002 included gains realized upon the sale of equity securities (approximately $10 million in both years). On a year-to-year comparison, other expense (net) was affected by a number of items. In 2002, these factors included the following: currency losses from net assets in Argentina, only partially offset by currency gains in Brazil; approximately $20 million of other income related to the Nissan and Nufarm transactions; and other expense related to a settlement of litigation matters with DuPont and DuPont’s Pioneer subsidiary. In 2001, we recognized $127 million of other expense (net). Three separate legal matters affected other expense in 2001, resulting in a net charge of $60 million, as described in Note 24 — Other Expense — Net. In addition to these legal matters, we recognized $15 million of other expense in 2001 to reflect the devaluation of the Argentine peso, $8 million in impairments of equity investments, and a loss of $4 million related to the early retirement of Employee Stock Ownership Plan (ESOP) debt. The effects of these higher expenses in 2001 were slightly offset by other income from a deferred payout provision related to a past business divestiture and gains on the sale of equity securities.

Income taxes in 2002 decreased significantly from 2001, despite an increase in the effective tax rate from 34 percent in 2001 to 36 percent in 2002. The decline in income taxes was consistent with the lower pretax income in 2002. The absence of goodwill amortization had a favorable effect on the effective tax rate in 2002 because the majority of our historical goodwill amortization was not deductible for tax purposes. However, this improvement was more than offset by higher tax expense in certain ex-U.S. jurisdictions, particularly in Latin America, and an increase in the relative cost of state income taxes.

Discontinued operations related to the European breeding and seed business for wheat and barley and the plant-made pharmaceuticals program generated an aftertax loss of $12 million in 2002 and an aftertax loss of $26 million in 2001. The fluctuation was primarily related to goodwill amortization. We had $17 million in goodwill amortization expense in 2001 and no goodwill amortization expense in 2002 because FAS 142 was effective on Jan. 1, 2002 (see Note 2 of our consolidated financial statements for further details).

SEEDS AND GENOMICS SEGMENT

The Seeds and Genomics segment consists of our global seeds and related trait businesses, and our genetic technology platforms. We produce leading seed brands, including DEKALB and Asgrow, and we develop biotechnology traits that assist farmers in controlling insects and weeds. We also provide genetic material and biotechnology traits to other seed companies for their seed brands.

(1)		Includes any net restructuring charges for the segment that were recorded within cost of goods sold. See Note 5 to our consolidated financial statements and “Restructuring and Other Special Items” in MD&A for further details.
(2)		Earnings (loss) from continuing operations before cumulative effect of accounting change, interest and income taxes. See Note 23 to our consolidated financial statements for further details.

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Seeds and Genomics Financial Performance for Fiscal Year 2004

In fiscal year 2004, net sales in the Seeds and Genomics segment improved 21 percent, or $398 million, and gross profit improved 28 percent, or $297 million, from the comparable prior-year period. The 2004 sales increase reflects gains in all crops. Gross profit as a percentage of sales for the Seeds and Genomics segment increased 3 points, to 60 percent, because of higher average net selling prices for branded corn seed, particularly in the United States, and lower U.S. cost of goods sold due to improved corn yields for seed production. Gross profit also improved from stacking more than one biotech trait in corn, increased corn trait penetration, and the 2004 Roundup Ready soybean trait price increase in the United States.

In fiscal 2004, corn seed and trait net sales increased 19 percent, or $182 million, from the comparable 2003 12-month period. We experienced higher corn seed and trait sales in the United States, and increased corn seed sales in Europe and Brazil. The increase in U.S. corn seed was because of stronger market performance and increased average net selling prices. Our branded corn business increased to 14 share points this year, a one-point improvement over the prior year. Sales of U.S. corn traits increased primarily because of growth in stacked traits and higher corn trait penetration. The higher-value stacked trait products deliver herbicide tolerance and insect protection in a single seed. The number of U.S. acres that growers chose to plant with stacked corn traits in 2004 has increased significantly. European corn seed sales increased because of favorable exchange rates, market share gains and a favorable product mix. Overall, corn seed market share in Europe increased 2 percentage points with gains in five European countries. Corn seed net sales in Brazil increased because of improved market conditions, which included a fiscal year 2004 price increase and a mix shift to higher value products in comparison to the 2003 12-month period. A decrease in Brazil’s branded corn seed volume because of reduced planted area slightly offset the price and mix upside.

Soybean seed and trait net sales increased 19 percent, or $109 million, in fiscal year 2004 from the comparable period a year ago. This increase was primarily driven by a fiscal 2004 price increase for Roundup Ready soybean traits in the United States, which resulted in both higher trait royalties from licensees and branded trait revenues. To a lesser extent, U.S. licensed trait volumes increased. These U.S. soybean trait sales increases were somewhat offset by higher marketing program expenses. We expect to benefit from a price increase in fiscal 2005 for Roundup Ready soybean traits in the United States.

All other crops seed and trait sales increased 29 percent, or $107 million, in fiscal year 2004 from the comparable prior-year period. The increase in all other crops was fueled by higher cotton trait revenues in the United States and India. U.S. cotton trait revenues increased because of higher average net selling prices, a higher percentage of stacked traits in 2004 and the introduction of Bollgard II with Roundup Ready cotton. Fiscal year 2004 cotton trait revenues in India improved from the comparable period a year ago primarily because of increased acreage planted with Bollgard cotton traits. In the prior year, farmers realized the crop protection benefits of our cotton traits, which were approved in calendar year 2002. As a result, more farmers began using or increased the acreage they planted with Bollgard traits in 2004.

EBIT for the Seeds and Genomics segment increased 2 percent in fiscal year 2004 from the prior-year comparable period primarily because of the year-over-year gross profit improvement we experienced for corn seed and traits, and soybean and cotton traits, which was almost entirely offset by higher operating expenses. In addition to improved pricing and stacking as described in this section, the growth of our trait businesses was also linked to our advances in breeding and improvement in the overall quality of our products. Operating expenses increased primarily because of higher SG&A expenses and the $69 million global wheat goodwill impairment. SG&A expenses increased because a higher percentage of certain expenses was allocated to this segment in fiscal 2004 versus the same period a year ago based on the Seeds and Genomics segment’s increasing contribution to total Monsanto operations. The allocation percentages were changed at the beginning of fiscal 2004. Our allocation methodology is primarily based on the ratio of sales of the Seeds and Genomics segment to total Monsanto sales, and is consistent with our historical practice. SG&A expenses also increased in fiscal 2004 because of higher accrued incentive compensation and higher expenses associated with the institution of a royalty system for Roundup Ready soybeans in Brazil (see the “Outlook” section in MD&A). To a lesser extent, this segment also had higher R&D, restructuring and bad-debt expenses in fiscal 2004.

Seeds and Genomics Financial Performance for the Transition Period

Sales in the Seeds and Genomics segment improved more than $300 million, with all crops experiencing gains in seed and trait sales. The largest gains were in Latin America and the United States. In Latin America, seed sales were depressed for the comparable period in the prior year, when we recorded additional return accruals in Argentina in response to the contracting market that was affected by that country’s economic crisis. We saw higher corn seed sales and less seed obsolescence there during the transition period. This lower return and obsolescence experience in the region stemmed from improved market

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conditions, coupled with the benefits of the operational changes we instituted in 2002. However, the primary sales activity in Argentina occurs at the beginning of our new fiscal year in September, when the predominant planting season starts, and is therefore not reflected in the eight-month results. In Brazil, the sales season begins during the fourth quarter of our fiscal year (which starts in June). Favorable currency effects and strong market performance in Europe also contributed to corn seed growth. Our operations in France led the strong performance in that region, delivering a market share gain during the transition period.

Continued growth of our stacked corn and cotton traits drove U.S. sales higher. Canola trait revenues also increased in the eight-month comparison. An increasing percentage of our seed sales contain a biotechnology trait, demonstrating continued growth in demand for our biotechnology products. U.S. trait acreage continued to experience double-digit growth, with particularly strong performance by Roundup Ready corn and stacked corn and cotton traits. U.S. corn seed sales also increased. The quality of Monsanto’s corn seed portfolio was evidenced by another market share gain on top of the prior year’s gain in the United States.

The Seeds and Genomics segment delivered positive EBIT of $38 million for the transition period. This is a significant improvement over the EBIT loss of $256 million in the same period in the prior year. Gross profit as a percent of sales increased 9 percentage points. Although these gains primarily reflected improved Latin American operations in the transition period, they also demonstrated the Seeds and Genomics segment’s increased contribution to Monsanto’s results. Segment EBIT for the eight months ended Aug. 31, 2002, included charges for restructuring and additional bad-debt expense related to Argentine receivables. The transition period EBIT reflected higher SG&A expenses, as the effects of higher incentive accruals and other employee-related costs were partially offset by reductions in other SG&A and R&D costs.

Seeds and Genomics Financial Performance for Calendar Year 2002

Net sales for the Seeds and Genomics segment declined to $1.6 billion in 2002. Sales in Latin America were negatively affected by the adverse market and economic conditions described below. The Latin American net sales decline was partially offset by strong U.S. sales and market performance of our branded corn seed. Trait revenues also increased from 2001 to 2002, despite the fact that 2001 trait revenues included an additional $0.34 per share from a timing change in revenue recognition. Grower acceptance of our biotechnology traits continued to rise, as demonstrated by the growth in total acres planted with our traits. In 2002, we estimated that acreage planted with Monsanto’s technology traits grew by 13 percent in the United States and by 14 percent globally. Also contributing to the increased trait revenues was the benefit and growth of new agreements with key licensees.

Seeds and Genomics segment results in 2002 were significantly affected by events in Latin America. In 2002, we changed our business model in Latin America in order to reduce working capital levels and reduce our credit risk and exposure in Argentina and Brazil as a result of the continued economic uncertainty in that region. Results were also affected by adverse market conditions in 2002 and 2001. In Argentina, we experienced approximately $75 million of higher-than-anticipated seed returns (primarily corn seed) in 2002 because of the economic crisis that began at the end of 2001 and the flooding in that same year. In 2001, we experienced approximately $120 million of higher-than-anticipated returns of high-priced corn seed, primarily in Brazil. In 2002, the continued deterioration of the Brazilian corn market negatively affected sales. Farmers had switched more land to soybeans because of their lower input costs. Since Monsanto has less of a presence in the Brazilian soybean market, sales were lower during that period.

Our Latin American grain sales program also affected the year-to-year comparison. Results in 2001 included approximately $65 million of net sales and related cost of goods sold associated with this program. During 2002, we changed the way we account for the program to no longer record revenues and cost of goods sold of essentially the same amount. Under the revised program, we no longer take ownership of the grain, thereby eliminating the associated inventory risk. Although this change affects our net sales and cost of goods sold comparison, the effect on the EBIT year-to-year comparison is minimal.

Corn seed and corn biotechnology trait revenues in the United States increased, reflecting an increase in planted corn acreage in 2002 and strong market performance by our DEKALB and Asgrow brands during the 2002 selling season. Our branded corn seed gained market share in 2002. Monsanto’s Roundup Ready and YieldGard corn traits — both the single-trait and the stacked-trait versions — performed exceptionally well. A decline in U.S. soybean seed and soybean trait revenues, which stemmed from the reduced planting area, slightly offset these corn seed and trait sales increases. However, despite the market dynamics of lower acres and an increased supply of seed, our soybean brands maintained their price in 2002, and held most of the market share gains achieved in 2001. Even though there were fewer planted acres of soybeans in 2003, U.S. soybean

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trait revenues in late 2002 (in preparation for the upcoming 2003 season) increased as a higher percentage of our branded seed sales contained a biotechnology trait.

Seeds and Genomics EBIT in 2002 was a loss of $86 million, an improvement compared with the 2001 EBIT loss of $209 million. This EBIT improvement was achieved despite an overall decline in sales for the segment. Most of our goodwill relates to our acquired seed businesses, so this segment’s EBIT benefited from no longer amortizing goodwill in 2002. In 2001, this segment’s EBIT loss included $102 million of goodwill amortization expense. In 2002, Seeds and Genomics EBIT was negatively affected by a portion of the increase in bad-debt expense related to estimated uncollectible accounts receivable in Argentina. Lower seed inventory costs in the United States were mostly offset by higher seed obsolescence in Latin America. However, gross profit as a percentage of sales increased. Sales gains in high-margin traits more than offset the Latin American gross profit declines.

Lower operating expenses had a positive effect on EBIT. SG&A spending was lower as a result of our continued focus on cost management and lower employee-related costs. R&D expenses also declined, reflecting savings from the restructuring of our early genomics programs.

Several items affected other expense (net) in both years, including litigation matters and other income related to gains that were realized upon the sale of equity securities. For more details, see Note 24 — Other Expense — Net.

AGRICULTURAL PRODUCTIVITY SEGMENT

The Agricultural Productivity segment consists of our crop protection products (Roundup and other glyphosate-based herbicides and selective chemistries) and our animal agriculture, lawn-and-garden herbicides, and environmental technologies businesses. We are a leading worldwide developer, producer and marketer of crop protection products, including Roundup herbicide.

(1)		Includes any net restructuring charges for the segment that were recorded within cost of goods sold. See Note 5 to our consolidated financial statements and “Restructuring and Other Special Items” in MD&A for further details.
(2)		Earnings (loss) from continuing operations before cumulative effect of accounting change, interest and income taxes. See Note 23 to our consolidated financial statements for further details.

Agricultural Productivity Financial Performance for Fiscal Year 2004

Net sales for the Agricultural Productivity segment increased 5 percent, or $149 million, to $3.2 billion in fiscal year 2004 from $3 billion in the comparable prior-year period. The 9 percent, or $166 million, increase in Roundup and other glyphosate-based herbicides net sales was slightly offset by a 1 percent, or $17 million, decrease in all other agricultural productivity products net sales. Roundup and other glyphosate-based herbicides net sales increased in all world areas outside of the United States. Weather conditions in fiscal year 2004 were ideal in almost every world area. In fiscal 2004, the supply of generic glyphosate from China continued to grow somewhat, but was constrained because of major energy and raw material shortages and accompanying price increases. The tight supply and higher Chinese prices provided greater pricing flexibility outside of the United States to everyone in the industry. Fiscal year 2004 gross profit for this segment decreased 3 percent, or $32 million, from the comparable period a year ago. As a percent of sales, gross profit declined 3 percentage points for this segment primarily because of the mix shift to lower-priced glyphosate products and a market share decline of several share points in the United States. The mix shift in the United States was more than offset by improved market conditions in other world areas, particularly Brazil. Higher year-over-year restructuring charges of $20 million were recorded in all other agricultural productivity products cost of goods sold, which also contributed to the gross profit decline.

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Brazil was the most significant contributor to the sales improvement, with a sales volume increase of approximately 65 percent from the comparable period a year ago. Sales volumes in Brazil increased because of an increase in non-branded contracts entered into in fiscal 2004 and strong overall market growth. Brazil’s fiscal year 2004 net sales also benefited from improved pricing conditions, a mix shift to higher-priced branded products, our operational changes that took place in the prior 12-month period, and the favorable effect of the Brazilian real exchange rate. To a lesser extent, sales increased in Asia and Argentina. Fiscal year 2004 net sales of Roundup and other glyphosate-based herbicides in Asia increased because of stronger market demand, which resulted from generic glyphosate pricing as previously mentioned and a return to normal weather from drought conditions in the prior year, and favorable exchange rates. Roundup pricing in Argentina improved in fiscal year 2004 over the comparable prior-year period. Also, as of Aug. 31, 2004, there were lower inventory levels of Roundup and other glyphosate-based herbicides in the distribution channel in Argentina because of our strategic decisions compared with Aug. 31, 2003. Argentine sales in the first three months of the 12-month period ended Aug. 31, 2003, included the effect of actions taken in conjunction with our customers during a time of economic and market turmoil. A one-time exception to our policy regarding crop protection product returns reduced sales for the 12-month period in 2003 by approximately $60 million. Excluding the prior-year actions and despite the increase in Roundup pricing, Argentine net sales decreased in fiscal year 2004 because of the continued reduction in distribution-channel inventory, competitive conditions and dry weather.

Fiscal 2004 sales of Roundup in the United States decreased approximately 26 percent compared with the prior-year comparable period and were somewhat offset by an increase in non-branded sales. During fiscal year 2004, we continued to experience competitive pressures and a shift of sales volume to our lower-priced branded products, particularly Roundup Original MAX, and non-branded products. On the other hand, our U.S. sales volume of Roundup and other glyphosate-based herbicides rose 15 percent year-over-year. Market share of Roundup herbicides in the United States declined several share percentage points in fiscal 2004. We believe we will lose several additional market share points between fiscal 2004 and fiscal 2005. The expectation for market share to continue to decline is consistent with the amount of product purchased by distributors in August 2004. As of Aug. 31, 2004, Roundup inventories in the U.S. distribution channel were down compared with those as of Aug. 31, 2003, and they included a higher percentage of our mid-tier glyphosate products compared to high-tier glyphosate products as of Aug. 31, 2003.

The net sales decrease for all other agricultural productivity products was primarily because of reduced sales in the animal agriculture business and exiting the triallate herbicide business. These factors were nearly offset by net sales increases in our lawn-and-garden herbicide and the environmental technologies businesses. Sales of animal agriculture products decreased because of the Posilac product allocation resulting from corrections and improvements being made by Sandoz GmbH at its manufacturing facility in Austria. Sandoz manufactures the finished dose formulation of Posilac and is our sole supplier of the finished dose formulation until we receive U.S. Food and Drug Administration (FDA) approval at our Augusta, Georgia facility. These changes are being made in response to issues raised by the FDA during and following a November 2003 inspection of Sandoz’s facility and further identified in a March 2004 FDA warning letter to Sandoz. In second quarter fiscal year 2004, we notified our customers that supplies of Posilac would be temporarily limited while Sandoz completes the corrections and improvements at its facility in response to issues identified by the FDA. This limitation has temporarily reduced volumes of Posilac available for sale and required us to allocate available supplies. We expect the supply of Posilac to be limited well into 2005 with incremental increases in supply occurring over time. This allocation is expected to have a material adverse effect on Posilac revenues as long as it continues. Year-over-year sales also decreased because of triallate herbicide sales as we gradually exited the business in fiscal year 2004. We signed a definitive agreement to sell certain triallate intellectual property assets in the third quarter of 2004.

Lawn-and-garden herbicide net sales increased because of strong market performance in the United States and favorable exchange rates in Europe. U.S. sales benefited from the introduction of a private-label product at a large national retailer in fiscal 2004 and from a favorable product mix. We are party to an agency and marketing agreement with Scotts with respect to our lawn-and-garden herbicide business. For additional details, see “Our Agreement with Scotts,” at the end of this section. The environmental technologies business net sales increased in fiscal year 2004 because of several major projects that were in progress in the United States and China; there were no major projects in the comparable prior-year period.

EBIT for the Agricultural Productivity segment increased substantially to $259 million in fiscal year 2004, up from zero in the prior-year 12-month period. The 2003 period included a $396 million charge related to the settlement of Solutia’s PCB litigation. Despite this segment’s sales improvement, gross profit declined $32 million, which negatively impacted EBIT in 2004. The Agricultural Productivity segment had higher restructuring charges and net other expense in fiscal year 2004

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compared with the same period in the prior year. Total restructuring charges, net of reversals, recorded in fiscal year 2004 were $98 million compared with $23 million in the prior-year period. In 2004, net other expense increased primarily because of the advancement of funds to pay for Solutia’s Assumed Liabilities in light of Solutia’s refusal to pay for those liabilities and for legal and other expenses related to the Solutia bankruptcy of $58 million. On the other hand, Agricultural Productivity SG&A expenses slightly declined in 2004 from the comparable period a year ago, while total company SG&A expenses increased 11 percent. Please refer to the fiscal year 2004 discussion in the “Seeds and Genomics Segment” section of MD&A for further explanation of the change in allocation of SG&A expenses between segments.

Agricultural Productivity Financial Performance for the Transition Period

EBIT for the Agricultural Productivity segment declined to a loss of $10 million, from positive EBIT of $356 million for the similar eight-month period of 2002. The largest driver of this segment’s EBIT decline was the $396 million Solutia PCB settlement. Improved operations in Latin America and lower costs more than offset reduced U.S. sales.

Agricultural Productivity net sales in the transition period declined 3 percent from the comparable period in 2002. Lower U.S. sales of Roundup were partially offset by sales gains for Roundup and other glyphosate-based herbicides elsewhere. As expected, in the postpatent U.S. market, we continued to experience competitive pressures and a shift of sales volumes to our lower-priced branded and non-branded glyphosate products. As a result, the average net selling price of Roundup branded products in the United States during the transition period was about 24 percent lower than it was during the comparable period in the previous year. In addition, volumes sold to distributors during the transition period were less than end-user usage, which also reduced our net sales. Volumes of branded Roundup declined 9 percent in the transition period. In the comparable period in 2002, adverse weather conditions reduced the amount of glyphosate used in the U.S. over-the-top market.

Improved performance of glyphosate-based herbicides outside the United States partially offset the U.S. net sales decline. Worldwide, volumes of Roundup and other glyphosate-based herbicides grew. Roundup sales in Latin America improved from sales in the comparable period in 2002, when the economic crisis in Argentina and the operational changes we made in the region caused sales to be lower for that period. We also benefited from increased demand from supply customers — other herbicide producers to whom we sell glyphosate, capitalizing on our manufacturing economies of scale. The Asia-Pacific region also experienced higher sales volumes during the transition period, led by increased demand from supply customers and by more favorable weather conditions in Australia. However, these gains in Asia-Pacific were partly offset by a net sales decrease in Japan, because of our 2002 sale of certain herbicide assets to Nissan.

Net sales of our other Agricultural Productivity products declined $16 million during the transition period. Selective herbicide sales were down, primarily because of lower sales in the U.S. acetanilide market. This trend reflects the competitive nature of this market and continued adoption of Roundup Ready corn traits. Sales in the transition period were also negatively affected by wet weather, which led to some of this season’s acetanilide applications being lost. Distributors were conservatively managing their inventories, which also lowered our sales this period. The animal agriculture business reported moderately lower sales of Posilac bovine somatotropin in an extremely weak milk price environment during the transition period.

Higher sales of lawn-and-garden herbicides partially offset these sales declines, as the business benefited from favorable early-season weather in the western United States and favorable exchange rates outside the United States. Lawn-and-garden sales were also higher because of an increase in the number of retail outlets and continued communication of product benefits via national television advertising.

As noted earlier, EBIT for the segment was down for the transition period. Significantly lower restructuring costs in the transition period and unusually high bad-debt expense in Argentina in the comparable period in 2002, as well as improved operations in Latin America, partially offset the Roundup sales decline and the PCB settlement. Continued cost management also helped lessen the EBIT effect of the lower sales of Roundup, though SG&A expenses were slightly higher overall because of higher employee-related costs. Segment results in 2002 also included gains from the Nissan transaction.

Agricultural Productivity Financial Performance for Calendar Year 2002

The 2002 decline in Agricultural Productivity segment net sales was largely attributable to lower sales of Roundup and other glyphosate-based herbicides. Lower sales of these products was driven by a decline in both volumes and average net selling prices, with the largest declines in the United States and Argentina.

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In the United States, 2002 net sales of Roundup and other glyphosate-based herbicides were down 24 percent from 2001 net sales. Market share loss because of continued competitive pressures in the burndown market, and to a lesser extent the over-the-top market, contributed to the lower volumes. In addition, adverse weather conditions in the second and third quarters of 2002 reduced the amount of glyphosate used in the over-the-top, fallow, and postharvest markets. As a result, the overall growth of the U.S. market was lower than expected, with sales volumes of Roundup in the United States declining 17 percent. In 2002, average net selling prices of branded Roundup in the United States declined approximately 11 percent from 2001 average net selling prices. The lower average net selling prices included the effect of continued competitive pressures and a shift in mix to lower-priced glyphosate products. Year-end distribution channel inventory levels of Roundup in the United States were roughly flat compared with 2001 year-end levels. In 2002, we launched Roundup WeatherMAX, a new high-performance formulation of Roundup that provides consistent weed control in a variety of less-than-ideal weather conditions.

Poor economic conditions and the operational decisions we made to reduce our risk of doing business in Latin America negatively affected sales of Roundup in 2002. These operational changes included working with our customers in Argentina during this difficult time to maintain our long-term customer relationships, thereby reducing risks for both parties. Because of the economic conditions in Argentina brought on by the economic crisis that began late in 2001 and continued into 2002, we allowed some crop protection product returns on a case-by-case basis. This one-time exception to our policy regarding crop protection product returns reduced sales of Roundup and other glyphosate-based herbicides by approximately $60 million in 2002. Roundup sales in Brazil declined as well, as distribution inventory levels decreased in that country. In Latin America, we intend to keep our distribution inventories at the lower levels achieved in 2002. In Asia, competitive pricing of generic products decreased sales early in 2002. In addition, sales in Asia declined for the year as a result of the mid-year Nissan transaction.

Overall sales of our other Agricultural Productivity businesses declined, though sales in our lawn-and-garden herbicides and animal agriculture businesses increased. Sales of our U.S. acetanilide products declined because of the adverse weather conditions discussed above and competitive conditions. Sales in our environmental technologies business also declined because of unfavorable industry conditions. These declines were slightly mitigated by growth in our animal agriculture business, which was led by an 8 percent increase in sales volumes of Posilac. The lawn-and-garden herbicide business delivered strong sales growth, resulting from growth in the market and from market share gains driven by new product introductions and stronger advertising.

These factors led to an overall decline in EBIT for the segment in 2002, with the most notable effects coming from declines in the United States and Latin America, driven primarily by the lower sales discussed previously. Lower production volumes of Roundup led to unfavorable cost of goods sold manufacturing volume variances, but these effects were offset by cost-management efforts and lower prices for raw materials and energy. Segment EBIT was negatively affected by the increase in bad-debt expense relating to estimated uncollectible accounts receivable in Argentina. Our environmental technologies business also experienced an EBIT decline. Lower operating expenses slightly mitigated these margin shortfalls. The sales of certain herbicide assets to Nissan and Nufarm for use in Asia-Pacific markets reduced SG&A expenses and provided other income. These EBIT gains were partially offset by lower herbicide sales in Asia. SG&A expenses also declined because of continued cost management and lower employee-related expenses. In addition, our R&D spending was lower in 2002, as we continued to focus our spending. We were able to reduce the cost of goods sold for our Posilac business, even while animal agriculture sales increased.

Our Agreement with Scotts

In 1998, Monsanto entered into an agency and marketing agreement with Scotts with respect to our lawn-and-garden herbicide business. Under the agreement, beginning in the fourth quarter of 1998, Scotts was obligated to pay us a $20 million fixed fee each year to defray costs associated with the lawn-and-garden business. Scotts’ payment of a portion of this fee owed in each of the first three years of the agreement was deferred; it is required to be paid at later dates, with interest. Monsanto is accruing the deferred portions of the $20 million annual fixed fee owed by Scotts ratably over the periods during which it is being earned as a reduction of SG&A expenses. We are also accruing the interest on the amounts owed by Scotts and including it in interest income. The total amount owed by Scotts, including accrued interest, was approximately $49 million as of Aug. 31, 2004, $50 million as of Aug. 31, 2003, and $50 million as of Dec. 31, 2002. Scotts began paying these deferred amounts ($5 million per year in monthly installments) in October 2002.

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RESTRUCTURING AND OTHER SPECIAL ITEMS

Our results include restructuring activities and other special items that significantly affected net income. See Note 5 — Restructuring and Other Special Items — for further details. Restructuring and other special items were recorded in the Statement of Consolidated Operations as follows:

(1)		Restructuring charges include reversals related to prior plans of $7 million and $20 million in fiscal year 2004 and the comparable 2003 12-month period, respectively. Further, of the 2004 reversals, $1 million was recorded in cost of goods sold and $6 million was recorded in net restructuring charges, and of the 12-month 2003 reversals, $3 million was recorded in cost of good sold and $17 million was recorded in net restructuring charges. Restructuring reversals of $8 million and $1 million were recorded in the transition period and the comparable 2002 eight-month period, respectively. Restructuring reversals of $13 million and $8 million were recorded in calendar years 2002 and 2001, respectively. See Note 5 to our consolidated financial statements for further details of restructuring reversals related to the 2000 and/or 2002 restructuring plans recorded in fiscal year 2004, the transition period, and calendar years 2002 and 2001.
(2)		In fiscal year 2004, the $35 million of restructuring charges recorded in cost of goods sold was split by segment as follows: $9 million in Seeds and Genomics and $26 million in Agricultural Productivity. Also, in fiscal year 2004, the $112 million recorded in restructuring charges — net was split by segment as follows: $40 million in Seeds and Genomics and $72 million in Agricultural Productivity.
(3)		Fiscal year 2004 also contains restructuring charges related to discontinued businesses (see Note 27 to the consolidated financial statements). These restructuring charges were recorded in discontinued operations. See the next table in this section for more details.

Fiscal Year 2004 Restructuring Plan: In October 2003, we announced plans to continue to reduce costs primarily associated with our agricultural chemistry business as that segment matures globally. Total restructuring actions approved under the fiscal year 2004 restructuring plan were estimated to be $289 million pretax. These plans included: (1) reducing costs associated with our Roundup herbicide business, (2) exiting the European breeding and seed business for wheat and barley, and (3) discontinuing the plant-made pharmaceuticals program. These actions were originally expected to require restructuring charges of up to $220 million pretax ($155 million aftertax) in fiscal year 2004. Additionally, the approved plan included the $69 million impairment of goodwill in the global wheat business ($64 million aftertax; see Note 9 — Goodwill and Other Intangible Assets). Total restructuring charges related to these actions were $165 million pretax ($105 million aftertax) in 2004. Charges relating to work force reductions were approximately $20 million lower than originally estimated, primarily because of fewer headcount reductions as resources were reallocated to support the seeds and traits businesses. Charges relating to asset impairments were approximately $30 million lower than previously estimated because of the favorable results from the sale of the European wheat and barley business. We expect to incur charges of up to $5 million pretax in fiscal year 2005 to complete the restructuring actions. We are following accounting standards SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Plans and for Termination Benefits; SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets; and SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities; to record these actions.

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Work force reduction and facility closure charges were cash charges. Asset impairments were noncash charges. The following table outlines the pretax restructuring charges related to our fiscal year 2004 restructuring plan recorded by segment in continuing operations and discontinued operations for fiscal 2004 (before restructuring reversals related to prior-year plans of $7 million):

In fiscal year 2004, we recorded pretax restructuring charges of $104 million related to work force reductions. Work force reductions in continuing operations of $98 million were primarily in the areas of downsizing the regional structure in Europe, and sales and marketing, manufacturing, R&D, and information technology in the United States. Work force reduction charges of $6 million included in discontinued operations were related to employees of the plant-made pharmaceuticals program as well as incremental benefit plan costs for employees of the European wheat and barley business. Facility closure charges of $5 million in continuing operations primarily related to the shutdown of production lines and the disposal of discontinued agricultural chemical products in the United States. Facility closure charges of $3 million were also recorded in discontinued operations related to shutdown expenses resulting from the exit of the plant-made pharmaceuticals site. Asset impairments in continuing operations of $51 million included $34 million recorded in cost of goods sold and the remainder in restructuring charges (net). Property, plant and equipment impairments of $20 million were recorded in the United States, Canada and Asia for the shutdown of production lines and the disposal of equipment, and in Brazil for impairment of computer systems to be consolidated with a global system. We also recorded inventory impairments of $14 million related to discontinued agricultural chemical products and seed hybrids in Argentina, Brazil and Latin America; discontinued agricultural chemical products in the United States and Asia; and disposal of inventory at closed production sites in Canada. Asset impairments in restructuring charges (net) were $17 million, of which $11 million was for the closure of an office building in the United States. Discontinued operations asset impairments of $2 million consisted primarily of property, plant and equipment impairments associated with the plant-made pharmaceuticals program.

The actions relating to this restructuring plan resulted in aftertax savings of approximately $40 million in fiscal year 2004, and they are expected to produce aftertax savings of approximately $80 million to $95 million in fiscal year 2005, and approximately $90 million to $105 million in fiscal year 2006, with continuing savings thereafter. We expect that these actions will lower our costs, primarily SG&A, as a percent of sales.

2002 Restructuring Plan (charges recorded in calendar 2002): In 2002, Monsanto’s management approved a restructuring plan. Under this plan, various R&D programs and sites were shut down in the United States and Europe. This restructuring plan also involved the closure and downsizing of certain agricultural chemical manufacturing facilities in Asia-Pacific and the United States as a result of more efficient production capacity installed at other Monsanto manufacturing sites. Certain seed sites were consolidated, and certain U.S. swine facilities were exited. Finally, the plan included work force reductions in addition to those related to the facility closures. These additional reductions were primarily marketing and administrative positions in Asia-Pacific, Europe-Africa, and the United States.

In connection with the 2002 restructuring plan, we recorded $132 million pretax of net charges in 2002. These restructuring costs primarily related to the closure of certain research and manufacturing sites, as well as work force reductions. Work force reductions of $64 million included involuntary employee separation costs for approximately 1,140 employees worldwide, including positions in marketing, manufacturing, R&D, and administration. As of Aug. 31, 2004, the planned employee separations were completed. Facility closures and other exit costs totaled $24 million: contract terminations ($8

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million), equipment dismantling and disposal ($8 million), and other shutdown costs ($8 million) resulting from the exit of certain research and manufacturing sites. We also wrote off $45 million of property, plant and equipment and $6 million of inventories (recorded within cost of goods sold) associated with these exit activities.

Restructuring reversals of $5 million offset these charges in 2002, as did a $2 million recoverable amount from a third party. The reversals stemmed primarily from facility closing costs that were lower than originally estimated and higher proceeds from disposed assets than originally estimated. Restructuring reversals were recorded for work force reductions, primarily because severance expenses were lower than originally estimated. The recoverable amount from a third party represents a portion of work force reduction and exit costs that will be reimbursed to Monsanto. Reversals of $5 million were recorded in the transition period because we were able to settle certain liabilities for less than originally estimated. We recorded $1 million in reversals in fiscal 2004 because of lower than anticipated severance expenses. As of Aug. 31, 2004, the reserve balance was depleted. We anticipate that the actions related to this plan will yield annual cash savings of more than $50 million.

2000 Restructuring Plan (charges recorded in calendar 2001 and 2000): In 2000, Monsanto’s management formulated a plan as part of our overall strategy to focus on certain key crops and to streamline operations. Restructuring and other special items, primarily associated with the implementation of this plan, were recorded in 2000 and 2001. These charges totaled $474 million pretax, with $261 million recorded in 2000, and $213 million recorded in 2001.

The 2001 net charges were primarily for the streamlining of manufacturing operations, the discontinuation of certain seed hybrids, the elimination of noncore activities, and the exit of certain research programs. This plan also involved the closure and downsizing of certain agricultural chemical manufacturing facilities to eliminate duplicate manufacturing capacity to formulate and package herbicides. Due to geographical location and cost considerations, improved technologies were installed at other Monsanto manufacturing sites. These sites, by incorporating technological advancements, have been able to increase their production capacity to meet current and expected future demand for Roundup herbicide and other herbicides. The pretax charge of $213 million was partially offset by the reversal of $8 million of restructuring liabilities recorded during 2000 and 2001, primarily because severance expenses were lower than originally estimated. In addition, reversals of $4 million were recorded in 2001 primarily because severance expenses relating to the 1998 restructuring plan were lower than originally estimated.

The work force reduction charges in 2001 ($50 million) and 2000 ($61 million) included involuntary separation costs for approximately 1,500 employees worldwide, including positions in administration, R&D, and manufacturing. Facility closures and other exit costs in 2000 included contract termination costs ($5 million), equipment dismantling and disposal costs ($2 million), and other shutdown costs ($2 million). Facility closures and other exit costs in 2001 included contract termination costs ($28 million), property, plant and equipment dismantling and disposal costs ($18 million), and other shutdown costs ($3 million). The inventory write-offs in 2000 related to laureate oil, seed and other inventories. The inventory write-offs in 2001 related to discontinued seed hybrids ($31 million), unused raw materials at closed agricultural chemical manufacturing facilities ($6 million), and other inventories, including certain discontinued agricultural chemical products ($8 million). Inventory write-offs for both years, as well as $37 million in property, plant and equipment impairments in 2001, were recorded in cost of goods sold. The remaining $20 million in property, plant and equipment impairments in 2001 was recorded in restructuring charges, and was related to the consolidation of agricultural chemical distribution sites and various corporate assets. The intangible asset impairment in 2000 included a $79 million goodwill impairment associated with the decision to terminate certain nutrition programs.

The cost to carry out certain actions related to the 2000 restructuring plan was lower than originally anticipated. Accordingly, reserve balances were reduced by reversals of $3 million in fiscal 2004, $3 million in the transition period, and $8 million in each of the 12-month periods ended Dec. 31, 2002 and 2001.

These actions under the 2000 restructuring plan have yielded annual cash savings of more than $100 million. As of Aug. 31, 2004, there was no outstanding restructuring reserve balance related to this plan.

Also included in the 2000 plan were special items. In 2001, a total charge of $6 million was recorded in other expense (net) to reflect the impairment of equity investments caused by adverse business developments of the investees.

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FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

Working Capital and Financial Condition