FAIR VALUE MEASUREMENTS

6 Months Ended

Feb. 28, 2018

Monsanto determines the fair market value of its financial assets and liabilities based on quoted market prices, estimates from brokers and other appropriate valuation techniques. The company uses the fair value hierarchy established in the Fair Value Measurements and Disclosures topic of the ASC, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy contains three levels as follows, with Level 3 representing the lowest level of input.

Level 1 — Values based on unadjusted quoted market prices in active markets that are accessible at the measurement date for identical assets and liabilities.

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

Level 3 — Values generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions would reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques could include use of option pricing models, discounted cash flow models and similar techniques.

The following tables set forth by level Monsanto’s assets and liabilities disclosed at fair value on a recurring basis as of Feb. 28, 2018, and Aug. 31, 2017. As required by the Fair Value Measurements and Disclosures topic of the ASC, assets and liabilities are classified in their entirety based on the lowest level of input that is a significant component of the fair value measurement. Monsanto’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of fair value assets and liabilities within the fair value hierarchy levels.



	Fair Value Measurements at Feb. 28, 2018, Using
(Dollars in millions)	Level 1		Level 2		Level 3		Net Balance
Assets at Fair Value:
Cash equivalents	$	2,150	$	—	$	—	$	2,150
Short-term investments	5		—		—		5
Equity securities	6		—		—		6
Derivative assets related to:
Foreign currency contracts	—		3		—		3
Commodity contracts	18		9		—		27
Total Assets at Fair Value	$	2,179	$	12	$	—	$	2,191
Liabilities at Fair Value:
Short-term debt instruments⁽¹⁾	$	—	$	1,210	$	2	$	1,212
Long-term debt instruments⁽¹⁾	—		6,653		97		6,750
Derivative liabilities related to:
Foreign currency contracts	—		15		—		15
Commodity contracts	9		7		—		16
Total Liabilities at Fair Value	$	9	$	7,885	$	99	$	7,993


(1)	Debt instruments, excluding mandatorily redeemable shares, are not recorded at fair value on a recurring basis; however, they are measured at fair value for disclosure purposes, as required by the Fair Value Measurements and Disclosures topic of the ASC.



	Fair Value Measurements at Aug. 31, 2017, Using
(Dollars in millions)	Level 1		Level 2		Level 3		Net Balance
Assets at Fair Value:
Cash equivalents	$	1,034	$	—	$	—	$	1,034
Short-term investments	8		—		—		8
Equity securities	10		—		—		10
Derivative assets related to:
Foreign currency contracts	—		10		—		10
Commodity contracts	3		7		—		10
Total Assets at Fair Value	$	1,055	$	17	$	—	$	1,072
Liabilities at Fair Value:
Short-term debt instruments⁽¹⁾	$	—	$	877	$	—	$	877
Long-term debt instruments⁽¹⁾	—		7,499		104		7,603
Derivative liabilities related to:
Foreign currency contracts	—		16		—		16
Commodity contracts	7		6		—		13
Total Liabilities at Fair Value	$	7	$	8,398	$	104	$	8,509


(1)	Debt instruments, excluding mandatorily redeemable shares, are not recorded at fair value on a recurring basis; however, they are measured at fair value for disclosure purposes, as required by the Fair Value Measurements and Disclosures topic of the ASC.

The company’s derivative contracts are measured at fair value, including forward commodity purchase and sale contracts, exchange-traded commodity futures and option contracts and over-the-counter (“OTC”) instruments related primarily to agricultural commodities, energy and raw materials, interest rates and foreign currencies. Exchange-traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified as Level 1. Fair value for forward commodity purchase and sale contracts is estimated based on exchange-quoted prices adjusted for differences in local markets. These differences are generally determined using inputs from broker or dealer quotations or market transactions in either the listed or OTC markets and are classified as Level 2. Interest rate contracts consist of interest rate swaps measured using broker or dealer quoted prices. When observable inputs are available for substantially the full term of the contract, it is classified as Level 2. Based on historical experience with the company’s suppliers and customers, the company’s own credit risk and knowledge of current market conditions, the company does not view nonperformance risk to be a significant input to the fair value for the majority of its forward commodity purchase and sale contracts. The effective portions of changes in the fair value of derivatives designated as cash flow hedges are recognized in the Statements of Consolidated Financial Position as a component of accumulated other comprehensive loss until the hedged items are recorded in earnings or it is probable the hedged transaction will no longer occur. Changes in the fair value of derivatives are recognized in the Statements of Consolidated Operations as a component of net sales, cost of goods sold and other income, net.

The company’s short-term investments consist of cash which is contractually restricted as to withdrawal or usage. The company’s equity securities consist of publicly traded equity investments. Publicly traded equity investments are valued using quoted market prices and are classified as Level 1. Contractually restricted cash may be held in an interest bearing account measured using prevailing interest rates and is classified as Level 1. Short-term debt instruments are classified as Level 2. The company’s long-term debt securities are classified as Level 2 and valued using broker or dealer quoted prices with a maturity greater than one year.

Short-term debt instruments may consist of commercial paper, current portion of long-term debt, borrowings under the delayed draw term loan facility, notes payable to banks and mandatorily redeemable shares. Commercial paper, notes payable to banks and borrowings under the delayed draw term loan facility are recorded at amortized cost in the Statements of Consolidated Financial Position, which approximates fair value. Current portion of long-term debt is measured at fair value for disclosure purposes and determined based on current market yields for Monsanto’s debt traded in the secondary market. Mandatorily redeemable shares are recorded in the Statements of Consolidated Financial Position at fair value, which represents the amount of cash the consolidated variable interest entity would pay if settlement occurred as of the respective reporting date. Fair value of the mandatorily redeemable shares of the variable interest entity is calculated using observable and unobservable inputs from an interest rate market in Brazil and stated contractual terms (a Level 3 measurement). See Note 11 — Debt and Other Credit Arrangements — for additional disclosures.

Long-term debt was measured at fair value for disclosure purposes and determined based on current market yields for Monsanto’s debt traded in the secondary market. Long-term debt includes mandatorily redeemable shares. See Note 11 — Debt and Other Credit Arrangements — for additional disclosures. Accretion expense is included in the Statements of Consolidated Operations as interest expense.

For the six months ended Feb. 28, 2018, and Feb. 28, 2017, the company had no transfers between Level 1, Level 2 and Level 3. Monsanto does not have any assets with fair value determined using Level 3 inputs as of Feb. 28, 2018, and Aug. 31, 2017. The following table summarizes the change in fair value of the Level 3 short-term debt instrument for the six months ended Feb. 28, 2018.



(Dollars in millions)
Balance Aug. 31, 2017	$	—
Reclass from long-term	2
Balance Feb. 28, 2018⁽¹⁾	$	2

(1) Includes interest on 315,000 mandatorily redeemable shares outstanding with a par value of 1,000 Brazilian reais (approximately $308) as of Feb. 28, 2018.

The following table summarizes the change in fair value of the Level 3 long-term debt instrument for the six months ended Feb. 28, 2018.



(Dollars in millions)
Balance Aug. 31, 2017	$	104
Reclass to short-term	(2		)
Accretion expense	3
Payments	(5		)
Effect of foreign currency translation adjustments	(3		)
Balance Feb. 28, 2018⁽¹⁾	$	97


(1)	Includes 315,000 mandatorily redeemable shares outstanding with a par value of 1,000 Brazilian reais (approximately $308) as of Feb. 28, 2018.

There were no significant measurements of liabilities to their implied fair value on a nonrecurring basis during the six months ended Feb. 28, 2018, and Feb. 28, 2017. There were no significant measurements of assets to their implied fair value on a nonrecurring basis during the six months ended Feb. 28, 2018.

Significant measurements during the six months ended Feb. 28, 2017, of assets to their implied fair value on a nonrecurring basis were as follows:

Property, Plant and Equipment, Net: During the three and six months ended Feb. 28, 2017, property, plant and equipment within the Seeds and Genomics segment with a net book value of $18 million was written down to its implied fair value estimate of $7 million, resulting in an impairment charge of $11 million, with $4 million included in cost of goods sold and $7 million included in restructuring charges in the Statement of Consolidated Operations. The implied fair value calculations were performed using a discounted cash flow model (a Level 3 measurement). See Note 3 — Restructuring — for additional disclosures.

The recorded amounts of cash, trade receivables, miscellaneous receivables, third-party guarantees, accounts payable, grower production accruals, accrued marketing programs and miscellaneous short-term accruals approximate their fair values as of Feb. 28, 2018, and Aug. 31, 2017.

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

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

MONSANTO CO /NEW/ 10-Q