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Table of Contents
MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q

 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Nov. 30, 2016
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     
Commission file number 001-16167
MONSANTO COMPANY
(Exact name of registrant as specified in its charter)
 
Delaware
43-1878297
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
800 North Lindbergh Blvd.,
63167
St. Louis, MO
(Zip Code)
(Address of principal executive offices)
 
(314) 694-1000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
  
Accelerated filer
o
Non-accelerated filer
o  (Do not check if a smaller reporting company)
  
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 438,554,825 shares of common stock, $0.01 par value, outstanding as of January 3, 2017.
 


Table of Contents
MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q

CAUTION REGARDING FORWARD-LOOKING STATEMENTS
In the interests of our investors, this section of our report explains some of the important reasons that actual results may be materially different from those that we anticipate. In this report, and from time to time throughout the year, we share our expectations for our company’s future performance. These forward-looking statements include statements about our business plans; the pending transaction with Bayer Aktiengesellschaft (“Bayer”); the potential development, regulatory approval, and public acceptance of our products; our expected financial performance, including sales performance, and the anticipated effect of our strategic actions; the anticipated benefits of acquisitions; the outcome of contingencies, such as litigation; domestic or international economic, political and market conditions; and other factors that could affect our future results of operations or financial position, including, without limitation, statements under the captions “Overview — Executive Summary — Outlook,” “Seeds and Genomics Segment,” “Agricultural Productivity Segment,” “Financial Condition, Liquidity and Capital Resources,” “Outlook,” “Critical Accounting Policies and Estimates” and “Legal Proceedings.” Any statements we make that are not matters of current reportage or historical fact should be considered forward-looking. Such statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “will,” and similar expressions. By their nature, these types of statements are uncertain and are not guarantees of our future performance.
Since these statements are based on factors that involve risks and uncertainties, our company’s actual performance and results may differ materially from those described or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, among others: continued competition in seeds, traits and agricultural chemicals; the company’s exposure to various contingencies, including those related to intellectual property protection, regulatory compliance and the speed with which approvals are received, and public understanding and acceptance of our biotechnology and other agricultural products; the success of the company’s research and development activities; the outcomes of major lawsuits; developments related to foreign currencies and economies; the impact of exploring, responding to, entering into or consummating potential acquisitions or other transactions and proposals, including risks related to the pending Merger with Bayer; fluctuations in commodity prices; compliance with regulations affecting our manufacturing; the accuracy of the company’s estimates related to distribution inventory levels; the increases in and expected higher levels of indebtedness; the company’s ability to fund its short-term financing needs and to obtain payment for the products that it sells; the effect of weather conditions, natural disasters, accidents, and security breaches, including cybersecurity incidents, on the agriculture business or the company’s facilities; and other risks and factors described or referenced in Part II — Item 1A — Risk Factors — below and Part I — Item 1A of our Report on Form 10-K for the fiscal year ended Aug. 31, 2016.
Our forward-looking statements represent our estimates and expectations and are based on currently available information at the time that we make those statements. However, circumstances change constantly, often unpredictably, and many events beyond our control will determine whether the expectations encompassed in our forward-looking statements will be realized. As a result, investors should not place undue reliance on these forward-looking statements. We disclaim any current intention or obligation to revise or update any forward-looking statements, or the factors that may affect their realization, whether in light of new information, future events or otherwise, and investors should not rely on us to do so.



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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q

TABLE OF CONTENTS
Page
Item 1.
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
Item 3.
Item 4.
 
 
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.

 

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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q

PART I—FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
The Statements of Consolidated Operations of Monsanto Company and its consolidated subsidiaries for the three months ended Nov. 30, 2016, and Nov. 30, 2015, the Statements of Consolidated Comprehensive Loss for the three months ended Nov. 30, 2016, and Nov. 30, 2015, the Statements of Consolidated Financial Position as of Nov. 30, 2016, and Aug. 31, 2016, the Statements of Consolidated Cash Flows for the three months ended Nov. 30, 2016, and Nov. 30, 2015, the Statements of Consolidated Shareowners’ Equity for the three months ended Nov. 30, 2016, and year ended Aug. 31, 2016, and related Notes to the Consolidated Financial Statements follow. Unless otherwise indicated, “Monsanto” and the “company” are used interchangeably to refer to Monsanto Company or to Monsanto Company and its consolidated subsidiaries, as appropriate to the context. Unless otherwise indicated, “earnings per share” and “per share” mean diluted earnings per share. In the Notes to the Consolidated Financial Statements, all dollars are expressed in millions, except per share amounts. Unless otherwise indicated, trademarks owned or licensed by Monsanto or its subsidiaries are shown in special type. Unless otherwise indicated, references to “Roundup herbicides” mean Roundup branded herbicides, excluding all lawn-and-garden herbicides and other glyphosate-based herbicides, and references to “Roundup and other glyphosate-based herbicides” exclude all lawn-and-garden herbicides.

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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q

Statements of Consolidated Operations
Unaudited
(Dollars in millions, except per share amounts)
Three Months Ended
Nov. 30, 2016
Nov. 30, 2015
Net Sales
$
2,650

$
2,219

Cost of goods sold
1,391

1,318

Gross Profit
1,259

901

Operating Expenses:
 
 
Selling, general and administrative expenses
585

543

Research and development expenses
370

364

Restructuring charges
(36
)
266

  Pending Bayer transaction related costs
93


Total Operating Expenses
1,012

1,173

Income (Loss) from Operations
247

(272
)
Interest expense
136

129

Interest income
(18
)
(20
)
Other expense, net
43

25

Income (Loss) from Continuing Operations Before Income Taxes
86

(406
)
Income tax provision (benefit)
61

(137
)
Income (Loss) from Continuing Operations Including Portion Attributable to Noncontrolling Interest
$
25

$
(269
)
Discontinued Operations:
 
 
Income from operations of discontinued business
16

20

Income tax provision
6

8

Income from Discontinued Operations
10

12

Net Income (Loss)
$
35

$
(257
)
Less: Net income (loss) attributable to noncontrolling interest
6

(4
)
Net Income (Loss) Attributable to Monsanto Company
$
29

$
(253
)
Amounts Attributable to Monsanto Company:
 
 
Income (loss) from continuing operations
$
19

$
(265
)
Income from discontinued operations
10

12

Net Income (Loss) Attributable to Monsanto Company
$
29

$
(253
)
Basic Earnings per Share Attributable to Monsanto Company:
 
 
Income (loss) from continuing operations
$
0.05

$
(0.58
)
Income from discontinued operations
0.02

0.02

Net Income (Loss) Attributable to Monsanto Company
$
0.07

$
(0.56
)
Diluted Earnings per Share Attributable to Monsanto Company:
 
 
Income (loss) from continuing operations
$
0.05

$
(0.58
)
Income from discontinued operations
0.02

0.02

Net Income (Loss) Attributable to Monsanto Company
$
0.07

$
(0.56
)
Weighted Average Shares Outstanding:
 
 
Basic
438.1

454.1

Diluted
441.7

454.1

Dividends Declared per Share
$

$

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



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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q

Statements of Consolidated Comprehensive Loss
Unaudited
(Dollars in millions)
Three Months Ended
Nov. 30, 2016
Nov. 30, 2015
Comprehensive Loss Attributable to Monsanto Company
 
 
Net Income (Loss) Attributable to Monsanto Company
$
29

$
(253
)
Other Comprehensive Loss, Net of Tax:
 
 
Foreign currency translation, net of tax of $(1), and $1, respectively
(268
)
(229
)
Postretirement benefit plan activity, net of tax of $6, and $5, respectively
10

10

Unrealized net losses on investment holdings, net of tax of $1, and $(1), respectively
(1
)
(2
)
Unrealized net derivative gains, net of tax of $15, and $(4), respectively
31


Realized net derivative losses, net of tax of $15, and $5, respectively
21

4

Total Other Comprehensive Loss, Net of Tax
(207
)
(217
)
Comprehensive Loss Attributable to Monsanto Company
$
(178
)
$
(470
)
Comprehensive Income (Loss) Attributable to Noncontrolling Interests
 
 
Net Income (Loss) Attributable to Noncontrolling Interests
6

(4
)
Other Comprehensive Loss
 
 
Foreign currency translation
(1
)
(1
)
Total Other Comprehensive Loss
(1
)
(1
)
Comprehensive Income (Loss) Attributable to Noncontrolling Interests
$
5

$
(5
)
Total Comprehensive Loss
$
(173
)
$
(475
)
The accompanying notes are an integral part of these consolidated financial statements.



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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q

Statements of Consolidated Financial Position
Unaudited
(Dollars in millions, except share amounts)
As of
Nov. 30, 2016
Aug. 31, 2016
Assets
 
 
Current Assets:
 
 
Cash and cash equivalents (variable interest entity restricted - 2017: $17 and 2016: $122)
$
2,129

$
1,676

Short-term investments
60

60

Trade receivables, net (variable interest entity restricted - 2017: $92 and 2016: $7)
2,196

1,926

Miscellaneous receivables
917

755

Inventory, net
3,839

3,241

Assets held for sale
267

272

Other current assets
244

227

Total Current Assets
9,652

8,157

Total property, plant and equipment
11,124

11,116

Less accumulated depreciation
5,907

5,885

Property, Plant and Equipment
5,217

5,231

Goodwill
3,998

4,020

Other Intangible Assets, Net
1,078

1,125

Noncurrent Deferred Tax Assets
487

613

Long-Term Receivables, Net
39

101

Other Assets
488

489

Total Assets
$
20,959

$
19,736

Liabilities and Shareowners’ Equity
 
 
Current Liabilities:
 
 
Short-term debt, including current portion of long-term debt (variable interest entity restricted - 2017: $0 and 2016: $113)
$
570

$
1,587

Accounts payable
1,073

1,006

Income taxes payable
130

41

Accrued compensation and benefits
212

239

Accrued marketing programs
1,038

1,650

Deferred revenue
2,907

568

Grower production accruals
429

47

Dividends payable

237

Customer payable
94

123

Restructuring reserves
136

227

Miscellaneous short-term accruals
911

1,004

Total Current Liabilities
7,500

6,729

Long-Term Debt (variable interest entity restricted - 2017: $94 and 2016: $0)
8,047

7,453

Postretirement Liabilities
338

371

Long-Term Deferred Revenue
31

35

Noncurrent Deferred Tax Liabilities
90

68

Long-Term Portion of Environmental and Litigation Liabilities
198

200

Long-Term Restructuring Reserves
14

17

Other Liabilities
324

318

Shareowners’ Equity:
 
 
Common stock (authorized: 1,500,000,000 shares, par value $0.01)
 
 
Issued 612,135,613 and 611,435,047 shares, respectively
 
 
Outstanding 438,495,500 and 437,795,024 shares, respectively
6

6

Treasury stock 173,640,113 and 173,640,023 shares, respectively, at cost
(15,053
)
(15,053
)
Additional contributed capital
11,672

11,626

Retained earnings
10,792

10,763

Accumulated other comprehensive loss
(3,015
)
(2,808
)
Total Monsanto Company Shareowners’ Equity
4,402

4,534

Noncontrolling Interest
15

11

Total Shareowners’ Equity
4,417

4,545

Total Liabilities and Shareowners’ Equity
$
20,959

$
19,736

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


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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q

Statements of Consolidated Cash Flows
Unaudited
(Dollars in millions)
Three Months Ended
Nov. 30, 2016
Nov. 30, 2015
Operating Activities:
 
 
Net Income (Loss)
$
35

$
(257
)
Adjustments to reconcile cash provided by operating activities:
 
 
Items that did not require (provide) cash:
 
 
Depreciation and amortization
189

181

Bad-debt expense
7

12

Stock-based compensation expense
36

37

Excess tax benefits from stock-based compensation
(4
)
(6
)
Deferred income taxes
94

6

Restructuring impairments
1

99

Equity affiliate expense, net
2

2

Other items
12

18

Changes in assets and liabilities that (required) provided cash, net of acquisitions:
 
 
Trade receivables, net
(271
)
(515
)
Inventory, net
(681
)
(528
)
Deferred revenue
2,344

2,787

Accounts payable and other accrued liabilities
(54
)
(423
)
Restructuring, net
(89
)
208

Pension contributions
(19
)
(3
)
Other items, net
(139
)
(255
)
Net Cash Provided by Operating Activities
1,463

1,363

Cash Flows (Required) Provided by Investing Activities:
 
 
Capital expenditures
(317
)
(326
)
Acquisition of businesses, net of cash acquired
(7
)

Technology and other investments
(5
)
(12
)
Other investments and property disposal proceeds
2

2

Net Cash Required by Investing Activities
(327
)
(336
)
Cash Flows (Required) Provided by Financing Activities:
 
 
Net change in financing with less than 90-day maturities
(511
)
839

Short-term debt proceeds
3


Short-term debt reductions
(8
)
(3
)
Long-term debt proceeds
599

4

Long-term debt reductions
(509
)
(3
)
Debt issuance costs
(2
)

Treasury stock purchases

(3,000
)
Stock option exercises
21

16

Excess tax benefits from stock-based compensation
4

6

Tax withholding on restricted stock and restricted stock units
(14
)
(18
)
Dividend payments
(237
)
(254
)
Payments to noncontrolling interests
(1
)
(1
)
Net Cash Required by Financing Activities
(655
)
(2,414
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(28
)
(37
)
Net Increase (Decrease) in Cash and Cash Equivalents
453

(1,424
)
Cash and Cash Equivalents at Beginning of Period
1,676

3,701

Cash and Cash Equivalents at End of Period
$
2,129

$
2,277

See Note 17Supplemental Cash Flow Information for further details.
The accompanying notes are an integral part of these consolidated financial statements.


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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q

Statements of Consolidated Shareowners’ Equity
  
Monsanto Shareowners
  
  
Unaudited
(Dollars in millions, except per share data)
Common Stock
Treasury Stock
Additional Contributed Capital
Retained Earnings
Accumulated Other Comprehensive (Loss)(1)
Non-Controlling
Interest
Total
Balance as of Aug. 31, 2015
$
6

$
(12,053
)
$
11,464

$
10,374

$
(2,801
)
$
15

$
7,005

Net Income (Loss)



1,336


(23
)
1,313

Other Comprehensive Loss for 2016




(7
)
(1
)
(8
)
Treasury Stock Purchases

(3,000
)
(1
)



(3,001
)
Restricted Stock and Restricted Stock Unit Tax Withholding


(24
)



(24
)
Issuance of Shares Under Employee Stock Plans


81




81

Net Excess Tax Benefits from Stock-based Compensation


11




11

Stock-based Compensation Expense


111




111

Cash Dividends of $2.16 per Common Share



(947
)


(947
)
Acquisition of Noncontrolling Interest


(16
)


26

10

Payments to Noncontrolling Interest





(6
)
(6
)
Balance as of Aug. 31, 2016
$
6

$
(15,053
)
$
11,626

$
10,763

$
(2,808
)
$
11

$
4,545

Net Income



29


6

35

Other Comprehensive Loss for 2017




(207
)
(1
)
(208
)
Issuance of Shares Under Employee Stock Plans


21




21

Restricted Stock and Restricted Stock Unit Tax Withholding


(14
)



(14
)
Net Excess Tax Benefits from Stock-based Compensation


3




3

Stock-based Compensation Expense


36




36

Payments to Noncontrolling Interest





(1
)
(1
)
Balance as of Nov. 30, 2016
$
6

$
(15,053
)
$
11,672

$
10,792

$
(3,015
)
$
15

$
4,417

(1)
See Note 15Accumulated Other Comprehensive Loss — for further details of the components of accumulated other comprehensive loss.
The accompanying notes are an integral part of these consolidated financial statements.


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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED



NOTE 1.
BACKGROUND AND BASIS OF PRESENTATION
Monsanto Company, along with its subsidiaries, is a leading global provider of agricultural products for farmers. Monsanto’s seeds, biotechnology trait products, herbicides and digital agriculture products provide farmers with solutions that help improve productivity, reduce the costs of farming and produce better food for consumers and better feed for animals.
Monsanto manages its business in two reportable segments: Seeds and Genomics and Agricultural Productivity. Through the Seeds and Genomics segment, Monsanto produces leading seed brands, including DEKALB, Asgrow, Deltapine, Seminis and De Ruiter, and Monsanto develops biotechnology traits that assist farmers in controlling insects and weeds and digital agriculture to assist farmers in decision making. Monsanto also provides other seed companies with genetic material and biotechnology traits for their seed brands. Through the Agricultural Productivity segment, the company manufactures Roundup and Harness brand herbicides and other herbicides. See Note 19Segment Information — for further details.
In the fourth quarter of 2008, the company announced plans to divest its animal agricultural products business, which focused on dairy cow productivity and was previously reported as part of the Agricultural Productivity segment. This transaction was consummated on Oct. 1, 2008, and included a 10-year earn-out with potential annual payments being earned by Monsanto if certain revenue levels are exceeded. As a result, financial data for this business has been presented as discontinued operations.
On Nov. 2, 2015, the company signed a definitive agreement with Deere & Company (“Deere”) to sell the Precision Planting equipment business which is included in the Seed and Genomics segment for approximately $190 million in cash, subject to customary working capital adjustments. As of Nov. 30, 2016, and Aug. 31, 2016, Monsanto had $169 million and $172 million of assets held for sale, respectively, and $6 million and $12 million of liabilities held for sale classified within miscellaneous short-term accruals, respectively, on the Statements of Consolidated Financial Position related to this transaction. The assets were primarily related to inventory, net; trade receivables, net; property, plant, and equipment, net; goodwill; and other intangible assets, net, and the liabilities were primarily related to accrued marketing programs and accounts payable. In August 2016, the U.S. Department of Justice filed a lawsuit to block Deere’s acquisition of the Precision Planting equipment business, which Deere is contesting. As a result of this development, the closing date for this transaction is uncertain.
The accompanying consolidated financial statements have not been audited but have been prepared in conformity with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, these unaudited consolidated financial statements contain all necessary adjustments which are normal and recurring to present fairly the financial position, results of operations and cash flows for the interim periods reported. This Report on Form 10-Q should be read in conjunction with Monsanto’s Report on Form 10-K for the fiscal year ended Aug. 31, 2016. Financial information for the first three months of fiscal year 2017 should not be annualized because of the seasonality of the company’s business.
NOTE 2.
NEW ACCOUNTING STANDARDS
In November 2016, the Financial Accounting Standards Board (“FASB”) issued accounting guidance, “Statement of Cash Flows: Restricted Cash” which requires restricted cash and restricted cash equivalents to be classified in the Statements of Cash Flows as cash and cash equivalents. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2017, with early adoption permitted. Adoption will be applied on a retrospective basis to all periods presented. Monsanto is required to adopt this standard in the first quarter of fiscal year 2019. The company is currently evaluating the impact this guidance will have on the consolidated financial statements and related disclosures.
In October 2016, the FASB issued accounting guidance, “Income Taxes: Intra-Entity Transfers of Assets Other than Inventory” which will require the recognition of income tax effects of intra-entity transfers of assets other than inventory to be recognized when the transfer occurs. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2017, with early adoption permitted as of the beginning of an annual period. Adoption will be applied on a modified retrospective basis. Monsanto is required to adopt the standard in the first quarter of fiscal year 2019. The company is currently evaluating the impact this guidance will have on the consolidated financial statements and related disclosures.
In August 2016, the FASB issued accounting guidance, “Classification of Certain Cash Receipts and Cash Payments” which clarifies the classification of the activity in the Statements of Consolidated Cash Flows and how the predominant principle should be applied when cash receipts and cash payments have more than one class of cash flows. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2017, with early adoption permitted. Adoption will be applied retrospectively. Monsanto is required to adopt the standard in the first quarter of fiscal year 2019. The company is currently evaluating the impact this guidance will have on the consolidated financial statements and related disclosures.

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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






In June 2016, the FASB issued accounting guidance, “Measurement of Credit Losses on Financial Instruments” which replaces the incurred loss methodology to record credit losses with a methodology that reflects the expected credit losses for financial assets not accounted for at fair value with gains and losses recognized through net income. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2019, with early adoption permitted for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2018. This standard will be adopted on a modified retrospective basis. Monsanto is required to adopt this standard in the first quarter of fiscal year 2021, with early adoption permitted in the first quarter of fiscal year 2020. The company is currently evaluating the impact this guidance will have on the consolidated financial statements and related disclosures.
In March 2016, the FASB issued accounting guidance, “Improvements to Employee Share-Based Payment Accounting” which will simplify the income tax consequences, accounting for forfeitures and classification on the Statements of Consolidated Cash Flows. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2016, with early adoption permitted. Monsanto is required to adopt the standard in the first quarter of fiscal year 2018. The company is currently evaluating the impact this guidance will have on the consolidated financial statements and related disclosures.
In February 2016, the FASB issued accounting guidance, “Leases” which will supersede the existing lease guidance and will require all leases with a term greater than 12 months to be recognized in the Statements of Financial Position and eliminate current real estate-specific lease guidance, while maintaining substantially similar classification criteria for distinguishing between finance leases and operating leases. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2018, with early adoption permitted. This standard will be adopted on a modified retrospective basis. Monsanto is required to adopt the standard in the first quarter of fiscal year 2020. The company is currently evaluating the impact this guidance will have on the consolidated financial statements and related disclosures.
In January 2016, the FASB issued accounting guidance, “Recognition and Measurement of Financial Assets and Financial Liabilities” which would require equity investments not accounted for as an equity method investment or that result in consolidation to be recorded at their fair value with changes in fair value recognized in the Statements of Consolidated Operations. Those equity investments that do not have a readily determinable fair value may be measured at cost less impairment, if any, plus or minus changes resulting from observable price changes. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2017, with early adoption prohibited. Monsanto is required to adopt the standard in the first quarter of fiscal year 2019. The company is currently evaluating the impact this guidance will have on the consolidated financial statements and related disclosures.
In February 2015, the FASB issued accounting guidance, “Amendments to the Consolidation Analysis” which changes the guidance with respect to the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. All legal entities are subject to reevaluation under the revised consolidation model. The new guidance affects the following areas: (1) limited partnerships and similar legal entities, (2) evaluating fees paid to a decision maker or a service provider as a variable interest, (3) the effect of fee arrangements on the primary beneficiary determination, (4) the effect of related parties on the primary beneficiary determination and (5) certain investment funds. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after Dec. 15, 2015. Accordingly, Monsanto adopted this standard in the first quarter of fiscal year 2017. The adoption of this guidance did not have an impact on the consolidated financial statements or related disclosures.
In May 2014, the FASB issued accounting guidance, “Revenue from Contracts with Customers” which has been further clarified and amended. The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and clarify guidance for multiple-element arrangements. Entities have the option to apply the new guidance under a retrospective approach to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application within the Statement of Consolidated Financial Position. In August 2015, the FASB amended the guidance to allow for the deferral of the effective date of this standard. The standard is effective for fiscal years, and interim periods within those years, beginning after Dec. 15, 2017. Accordingly, Monsanto is required to adopt this standard in the first quarter of fiscal year 2019. One-year early adoption is permitted. The initial analysis identifying areas that will be impacted by the new guidance is substantially complete, and the company is currently analyzing the potential impacts to the consolidated financial statements and related disclosures. The company believes the most significant impact relates to its accounting for biotechnology trait license revenue with fixed

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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






payments. Revenue from seed sales, agricultural chemical products and biotechnology trait licenses recognized as third-party seed companies sell seed is expected to remain substantially unchanged. Specifically, under the new standard, revenue for biotechnology trait license with fixed payments are expected to be recognized upon commencement of the license term rather than over the contract period. Due to complexities of certain biotechnology trait license agreements, the actual revenue recognition treatment under the standard will be dependent upon contract-specific terms and may vary in some instances from recognition upon commencement of the license term. The company has not made a decision on the method of adoption.
NOTE 3.
RESTRUCTURING
Restructuring charges were recorded in the Statements of Consolidated Operations as follows:
 
Three Months Ended
(Dollars in millions)
Nov. 30, 2016
Nov. 30, 2015
Cost of Goods Sold(1)
$
(1
)
$
(52
)
Restructuring Charges(2)
36

(266
)
Income (Loss) from Continuing Operations Before Income Taxes
$
35

$
(318
)
Income Tax (Provision) Benefit
(10
)
108

Net Income (Loss)
$
25

$
(210
)
(1)
For the three months ended Nov. 30, 2016, and Nov. 30, 2015, $1 million and $52 million of restructuring charges in cost of goods sold was recorded in the Seeds and Genomics segment.
(2)
For the three months ended Nov. 30, 2016, the net reversal of previously recognized expense of $36 million is split by segment as follows: $34 million in Seeds and Genomics and $2 million in Agricultural Productivity. For the three months ended Nov. 30, 2015, $266 million of restructuring charges is split by segment as follows: $237 million in Seeds and Genomics and $29 million in Agricultural Productivity.
On Oct. 6, 2015, the company approved actions to realign resources to increase productivity, enhance competitiveness by delivering cost improvements and support long-term growth. On Jan. 5, 2016, the company approved additional actions which, together with the Oct. 6, 2015 actions, comprise the 2015 Restructuring Plan. Actions include streamlining and reprioritizing some commercial, enabling, supply chain and research and development efforts.
Cumulative pretax charges related to the 2015 Restructuring Plan are estimated to be approximately $1 billion. Implementation of the 2015 Restructuring Plan is expected to be completed by the end of fiscal year 2018, and substantially all of the cash payments are expected to be made by the end of fiscal year 2018. These pretax charges are currently estimated to be comprised of the following categories: $375 million to $420 million in work force reductions, including severance and related benefits; $130 million to $150 million in facility closures/exit costs, including contract termination costs; $450 million to $485 million in asset impairments and write-offs related to property, plant and equipment, inventory and goodwill and other assets. These pretax charges are currently estimated to be incurred primarily by the Seeds and Genomics segment.
The following table displays the pretax charges incurred by segment under the 2015 Restructuring Plan.
 
Three months ended Nov. 30, 2016
Three months ended Nov. 30, 2015
Cumulative Amount through Nov. 30, 2016
(Dollars in millions)
Seeds and
Genomics
Agricultural
Productivity
Total
Seeds and
Genomics
Agricultural
Productivity
Total
Seeds and
Genomics
Agricultural
Productivity
Total
Work Force Reductions
$
(36
)
$
(2
)
$
(38
)
$
208

$
9

$
217

$
347

$
21

$
368

Facility Closures/Exit Costs
2


2

2


2

25

5

30

Asset Impairments and Write-offs:
 
 
 
 
 
 
 
 
 
Property, plant and equipment
1


1

24


24

123

2

125

Inventory
1


1

37


37

94


94

Goodwill and other assets
(1
)

(1
)
18

20

38

185

20

205

Total Restructuring Charges, Net
$
(33
)
$
(2
)
$
(35
)
$
289

$
29

$
318

$
774

$
48

$
822

The company’s written human resource policies are indicative of an ongoing benefit arrangement with respect to severance packages. Benefits paid pursuant to an ongoing benefit arrangement are specifically excluded from the Exit or Disposal Cost Obligations topic of the Accounting Standards Codification (“ASC”); therefore, severance charges incurred in connection with

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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






the 2015 Restructuring Plan are accounted for when probable and estimable as required under the Compensation - Nonretirement Postemployment Benefits topic of the ASC. In addition, when the decision to commit to a restructuring plan requires a long-lived asset and finite-lived intangible asset impairment review, Monsanto evaluates such impairment issues under the Property, Plant and Equipment topic of the ASC.
The three months ended Nov. 30, 2016, includes the reversal of $45 million of previously recognized expense due to changes in estimates related to work force reductions.
The following table summarizes the activities related to the company’s 2015 Restructuring Plan.
(Dollars in millions)
Work Force Reductions(1)
Facility Closures/Exit Costs
Asset Impairments and Write-offs
Total
Balance as of Aug. 31, 2015
$
217

$

$

$
217

Net restructuring charges recognized in fiscal year 2016
189

28

147

364

Cash payments
(164
)
(28
)

(192
)
Asset impairments and write-offs


(147
)
(147
)
Foreign currency impact
2



2

Balance as of Aug. 31, 2016
$
244

$

$

$
244

Net restructuring charges recognized in first quarter of fiscal year 2017
(38
)
2

1

(35
)
Cash payments
(51
)
(2
)

(53
)
Asset impairments and write-offs


(1
)
(1
)
   Foreign currency impact
(5
)


(5
)
Balance as of Nov. 30, 2016
$
150

$

$

$
150

(1)
The restructuring liability balance included $14 million and $17 million that were recorded in long-term restructuring reserves in the Statements of Consolidated Financial Position as of Nov. 30, 2016, and Aug. 31, 2016, respectively.
NOTE 4.
CUSTOMER FINANCING PROGRAMS
Monsanto participates in customer financing programs as follows:
 
As of
(Dollars in millions)
Nov. 30, 2016
Aug. 31, 2016
Transactions that Qualify for Sales Treatment
 
 
U.S. agreement to sell trade receivables(1)
 
 
Outstanding balance
$
352

$
511

Maximum future payout under recourse provisions
15

19

European and Latin American agreements to sell trade receivables(2)
 
 
Outstanding balance
$
22

$
60

Maximum future payout under recourse provisions
8

35

Agreements with Lenders(3)
 
 
Outstanding balance
$
90

$
73

Maximum future payout under the guarantee
65

57


12

Table of Contents

MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






The gross amounts of receivables sold under transactions that qualify for sales treatment were: 
  
Gross Amounts of Receivables Sold
 
Three Months Ended
(Dollars in millions)
Nov. 30, 2016
Nov. 30, 2015
Transactions that Qualify for Sales Treatment
 
 
U.S. agreement to sell trade receivables(1)
$
115

$
16

European and Latin American agreements to sell trade receivables(2)
6

21

(1)
Monsanto has agreements in the United States to sell trade receivables, both with and without recourse, up to a maximum outstanding balance of $1.4 billion and to service such accounts. These receivables qualify for sales treatment under the Transfers and Servicing topic of the ASC and, accordingly, the proceeds are included in net cash provided by operating activities in the Statements of Consolidated Cash Flows. The liability for the guarantees for sales with recourse is recorded at an amount that approximates fair value, based upon the company’s historical collection experience and a current assessment of credit exposure.
(2)
Monsanto has various agreements in European and Latin American countries to sell trade receivables, both with and without recourse. These receivables qualify for sales treatment under the Transfers and Servicing topic of the ASC and, accordingly, the proceeds are included in net cash provided by operating activities in the Statements of Consolidated Cash Flows. The liability for the guarantees for sales with recourse is recorded at an amount that approximates fair value, based upon the company’s historical collection experience and a current assessment of credit exposure.
(3)
Monsanto has additional agreements with lenders to establish programs that provide financing for select customers in the United States, Latin America and Europe. Monsanto provides various levels of recourse through guarantees of the accounts in the event of customer default. The term of the guarantee is equivalent to the term of the customer loans. The liability for the guarantees is recorded at an amount that approximates fair value, based on the company’s historical collection experience with customers that participate in the program and a current assessment of credit exposure. If performance is required under the guarantee, Monsanto may retain amounts that are subsequently collected from customers.
In addition to the arrangements in the above table, Monsanto also participates in a financing program in Brazil that allows Monsanto to transfer up to 350 million Brazilian reais (approximately $103 million as of Nov. 30, 2016) for select customers in Brazil to a revolving financing program. Under the arrangement, a recourse provision requires Monsanto to cover the first credit losses within the program up to the amount of the company’s investment. Credit losses above Monsanto’s investment would be covered by senior interests in the entity by a reduction in the fair value of their mandatorily redeemable shares. The company evaluated its relationship with the entity under the guidance within the Consolidation topic of the ASC, and as a result, the entity has been consolidated. For further information on this topic, see Note 5Variable Interest Entities and Investments.
There were no significant recourse or non-recourse liabilities for all programs as of Nov. 30, 2016, and Aug. 31, 2016. There were no significant delinquent loans for all programs as of Nov. 30, 2016, and Aug. 31, 2016.
NOTE 5.
VARIABLE INTEREST ENTITIES AND INVESTMENTS
Variable Interest Entities
On Oct. 19, 2016, Monsanto exited a financing program in Brazil that was recorded as a consolidated variable interest entity (“VIE”). On Nov. 4, 2016, Monsanto entered into a new financing program in Brazil that is recorded as a consolidated VIE. For the most part, the new and previous arrangements of the Brazil VIE consist of a revolving financing program that is funded by investments from the company and other third parties, primarily investment funds, and has been established to service Monsanto’s customer receivables. Under the new arrangement, third parties, primarily investment funds, hold senior interests of 89 percent, and Monsanto holds the remaining 11 percent in the entity as of Nov. 30, 2016. Under the previous arrangement, as of Aug. 31, 2016, third parties, primarily investment funds, held senior interest of 89 percent, and Monsanto held the remaining 11 percent interest. Under the new arrangement, the senior interests held by third parties are mandatorily redeemable shares and are included in long-term debt in the Statement of Consolidated Financial Position as of Nov. 30, 2016. Under the previous arrangement, the senior interests held by third parties were mandatorily redeemable shares and were included in short-term debt in the Statement of Consolidated Financial Position as of Aug. 31, 2016.
Under the new arrangement, Monsanto is required to maintain an investment in the Brazil VIE of at least 11.1 percent and could be required to provide additional contributions to the Brazil VIE. Monsanto currently has no unfunded commitments to the Brazil VIE. Creditors have no recourse against Monsanto in the event of default by the Brazil VIE. The company’s financial or other support provided to the Brazil VIE is limited to its investment. Even though Monsanto holds a subordinate interest in the Brazil VIE, the Brazil VIE was established to service transactions involving the company, and the company determines the receivables that are included in the revolving financing program. Therefore, the determination is that Monsanto has the power

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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






to direct the activities most significant to the economic performance of the Brazil VIE. As a result, the company is the primary beneficiary of the Brazil VIE, and the Brazil VIE has been consolidated in Monsanto’s consolidated financial statements. The assets of the Brazil VIE may only be used to settle the obligations of the respective entity. Third-party investors in the Brazil VIE do not have recourse to the general assets of Monsanto. See Note 4Customer Financing Programs and Note 11Fair Value Measurements— for additional information.
Monsanto has entered into an agreement with third parties to establish an entity to focus on research and development (“R&D”) related to various activities including agricultural fungicides for agricultural applications. This entity is recorded as a consolidated VIE of Monsanto. Under the arrangement, Monsanto holds a call option to acquire the majority of the equity interests in the R&D VIE from the third-party owners. Monsanto funds the operations of the R&D VIE in return for additional equity interests or to retain the call options. The funding is provided in separate research phases if research milestones are met. The R&D VIE was established to perform agricultural-based R&D activities for the benefit of Monsanto, and Monsanto provides all funding of the R&D VIE’s activities. Further, Monsanto has the power to direct the activities most significant to the R&D VIE. As a result, Monsanto is the primary beneficiary of the R&D VIE, and the R&D VIE is consolidated in Monsanto’s consolidated financial statements. The third-party owners of the R&D VIE do not have recourse to the general assets of Monsanto beyond Monsanto’s maximum exposure to loss at any given time relating to the R&D VIE.
Equity Method and Cost Basis Investments
Monsanto has equity method and cost basis investments recorded in other assets in the Statements of Consolidated Financial Position. Due to the nature of the cost basis investments, the fair market value is not readily determinable. These investments are reviewed for impairment indicators on a quarterly basis.
For such investments that were accounted for under the equity method and cost basis included in other assets in the Statements of Consolidated Financial Position, the amounts are summarized in the following table:
 
As of
(Dollars in millions)
Nov. 30, 2016
Aug. 31, 2016
Equity Method Investments
$
148

$
152

Cost Basis Investments
95

94

Total
$
243

$
246


NOTE 6.
RECEIVABLES
Trade receivables in the Statements of Consolidated Financial Position are net of allowances of $102 million and $94 million as of Nov. 30, 2016, and Aug. 31, 2016, respectively.
The company has long-term customer financing receivables that relate to past due accounts which are not expected to be collected within the current year. The long-term customer receivables were $250 million and $260 million with a corresponding allowance for credit losses on these receivables of $217 million and $228 million as of Nov. 30, 2016, and Aug. 31, 2016, respectively. These long-term customer receivable balances and the corresponding allowance are included in long-term receivables, net in the Statements of Consolidated Financial Position. For these long-term customer receivables, interest is no longer accrued when the receivable is determined to be delinquent and classified as long-term based on estimated timing of collection.

14

Table of Contents

MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






The following table displays a roll forward of the allowance for credit losses related to long-term customer receivables.
(Dollars in millions)
  
Balance as of Aug. 31, 2015
$
120

Incremental Provision
78

Recoveries
(2
)
Write-offs
(4
)
Other(1) 
36

Balance as of Aug. 31, 2016
$
228

Recoveries
(14
)
Other(1)
3

Balance as of Nov. 30, 2016
$
217

(1)Includes reclassifications from the allowance for current receivables and foreign currency translation adjustments.
On an ongoing basis, the company evaluates credit quality of its financing receivables utilizing aging of receivables, collection experience and write-offs, as well as evaluating existing economic conditions, to determine if an allowance is necessary.
NOTE 7.
INVENTORY
Components of inventory are:
 
As of
(Dollars in millions)
Nov. 30, 2016
Aug. 31, 2016
Finished Goods
$
1,704

$
1,404

Goods In Process
1,746

1,489

Raw Materials and Supplies
546

498

Inventory at FIFO Cost
3,996

3,391

Excess of FIFO over LIFO Cost
(157
)
(150
)
Total
$
3,839

$
3,241

NOTE 8.
GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the net carrying amount of goodwill for the first three months of fiscal year 2017, by segment, are as follows:
(Dollars in millions)
Seeds and
Genomics
Agricultural
Productivity
Total
Balance as of Aug. 31, 2016
$
3,967

$
53

$
4,020

Effect of foreign currency translation and other adjustments
(24
)
2

(22
)
Balance as of Nov. 30, 2016
$
3,943

$
55

$
3,998

There were no events or circumstances indicating that goodwill might be impaired as of Nov. 30, 2016. The fiscal year 2017 annual goodwill impairment test will be performed as of Mar. 1, 2017.

15

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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






Information regarding the company’s other intangible assets is as follows:
  
As of Nov. 30, 2016
As of Aug. 31, 2016
(Dollars in millions)
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Accumulated
Amortization
Net
Acquired Germplasm
$
1,061

$
(778
)
$
283

$
1,070

$
(778
)
$
292

Acquired Intellectual Property
1,033

(611
)
422

1,042

(593
)
449

Trademarks
332

(154
)
178

334

(152
)
182

Customer Relationships
297

(224
)
73

301

(223
)
78

Other
66

(35
)
31

65

(33
)
32

Total Other Intangible Assets, Finite Lives
$
2,789

$
(1,802
)
$
987

$
2,812

$
(1,779
)
$
1,033

In Process Research & Development, Indefinite Lives
91


91

92


92

Total Other Intangible Assets
$
2,880

$
(1,802
)
$
1,078

$
2,904

$
(1,779
)
$
1,125

Total amortization expense of total other intangible assets was $30 million and $31 million for the three months ended Nov. 30, 2016, and Nov. 30, 2015, respectively.
The estimated intangible asset amortization expense for fiscal year 2017 through fiscal year 2021 is as follows:
(Dollars in millions)
Amount
2017
$
132

2018
116

2019
108

2020
104

2021
103

NOTE 9.
DEFERRED REVENUE
As of Nov. 30, 2016, and Aug. 31, 2016, short-term deferred revenue was $2,907 million and $568 million, respectively. These balances primarily consist of cash received related to Monsanto’s prepayment programs in the United States and Brazil. These programs allow Monsanto’s customers to receive a discount if they prepay by a certain date, and the short-term deferred revenue balances are consistent with the seasonality of Monsanto’s business. Prepayment options are attractive to customers given the discounted pricing and the ability to utilize cash flow from the current year grain harvest to pay for the next season seed purchases. The deferred revenue balances related to these prepayment programs are considered short-term in nature and thus classified in current liabilities as the prepayments are for products to be shipped within the next 12 months.
NOTE 10.
DEBT AND OTHER CREDIT ARRANGEMENTS
In April 2016, Monsanto filed a shelf registration with the Securities and Exchange Commission (“SEC”) (“2016 shelf registration”) that allows the company to issue a maximum aggregate amount of $6 billion of debt, equity and hybrid offerings. The 2016 shelf registration expires in April 2019.
Monsanto has a $3 billion credit facility agreement that provides a senior unsecured revolving credit facility through Mar. 27, 2020. As of Nov. 30, 2016, Monsanto was in compliance with all debt covenants, and there were no outstanding borrowings under this credit facility.
Monsanto’s short-term debt instruments include commercial paper, the current portion of long-term debt and notes payable to banks. As of Nov. 30, 2016, Monsanto had no commercial paper borrowings outstanding. As of Aug. 31, 2016, there was $500 million of commercial paper borrowings outstanding. Additionally, as of Nov. 30, 2016, the mandatorily redeemable shares of the Brazil VIE were classified as long-term debt instruments. These instruments were classified as short-term debt as of Aug. 31, 2016. See Note 5Variable Interest Entities and Investments — for additional information.
In October 2016, Monsanto closed a $1 billion delayed draw term loan facility that matures the earlier of October 2019 or the consummation of the Merger with Bayer. Borrowings under the facility were $500 million as of Nov. 30, 2016. Proceeds were used for general corporate purposes.

16

Table of Contents

MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






The fair value of total short-term debt was $571 million and $1,589 million as of Nov. 30, 2016, and Aug. 31, 2016, respectively. The fair value of the total long-term debt was $7,896 million and $7,834 million as of Nov. 30, 2016, and Aug. 31, 2016, respectively. See Note 11Fair Value Measurements — for additional information.
NOTE 11.
FAIR VALUE MEASUREMENTS
Monsanto determines the fair market value of its financial assets and liabilities based on quoted market prices, estimates from brokers and other appropriate valuation techniques. The company uses the fair value hierarchy established in the Fair Value Measurements and Disclosures topic of the ASC, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy contains three levels as follows, with Level 3 representing the lowest level of input.
Level 1 — Values based on unadjusted quoted 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 Nov. 30, 2016, and Aug. 31, 2016. 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.

17

Table of Contents

MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






  
Fair Value Measurements at Nov. 30, 2016, Using
(Dollars in millions)
Level 1
Level 2
Level 3
Net Balance
Assets at Fair Value:
 
 
 
 
Cash equivalents
$
1,702

$

$

$
1,702

Short-term investments
60



60

Equity securities
11



11

Derivative assets related to:
 
 
 
 
Foreign currency contracts

21


21

Commodity contracts
13

5


18

Total Assets at Fair Value
$
1,786

$
26

$

$
1,812

Liabilities at Fair Value:
 
 
 
 
Short-term debt instruments(1)
$

$
571

$

$
571

Long-term debt instruments(1)

7,802

94

7,896

Derivative liabilities related to:
 
 
 
 
Foreign currency contracts

30


30

Commodity contracts
27

17


44

Total Liabilities at Fair Value
$
27

$
8,420

$
94

$
8,541

(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, 2016, Using
(Dollars in millions)
Level 1
Level 2
Level 3
Net Balance
Assets at Fair Value:
 
 
 
 
Cash equivalents
$
1,081

$

$

$
1,081

Short-term investments
60



60

Equity securities
13



13

Derivative assets related to:
 
 
 


Foreign currency contracts

10


10

Commodity contracts
9

9


18

Total Assets at Fair Value
$
1,163

$
19

$

$
1,182

Liabilities at Fair Value:
 
 
 
 
Short-term debt instruments(1)
$

$
1,476

$
113

$
1,589

Long-term debt instruments(1)

7,834


7,834

Derivative liabilities related to:
 
 
 
 
Foreign currency contracts

15


15

Commodity contracts
32

20


52

Interest rate contracts

41


41

Total Liabilities at Fair Value
$
32

$
9,386

$
113

$
9,531

(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

18

Table of Contents

MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






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 expense, net.
The company’s short-term investments may consist of commercial paper and cash which is contractually restricted as to withdrawal or usage. The company’s equity securities consist of publicly traded equity investments. Commercial paper and 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 and notes payable to banks. Commercial paper and notes payable to banks 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. See Note 10Debt 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. 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 10Debt and Other Credit Arrangements for additional disclosures. Accretion expense is included in the Statements of Consolidated Operations as interest expense.
For the three months ended Nov. 30, 2016, and Nov. 30, 2015, 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 Nov. 30, 2016, and Aug. 31, 2016. The following table summarizes the change in fair value of the Level 3 long-term debt instrument for the three months ended Nov. 30, 2016.
(Dollars in millions)
 
 Balance Aug. 31, 2016
$

Issuance of mandatorily redeemable shares
93

Accretion expense
1

 Balance Nov. 30, 2016(1)
$
94

(1)
Includes 315,000 mandatorily redeemable shares outstanding with a par value of 1,000 Brazilian reais (approximately $294) as of Nov. 30, 2016.

19

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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






The following table summarizes the change in fair value of the Level 3 short-term debt instrument for the three months ended Nov. 30, 2016.
(Dollars in millions)
 
 Balance Aug. 31, 2016(1)
$
113

Redemption of mandatorily redeemable shares
(103
)
Accretion expense
2

Payments
(7
)
Effect of foreign currency translation adjustments
(5
)
 Balance Nov. 30, 2016
$

(1)
Includes 350,000 mandatorily redeemable shares outstanding with a par value of 1,000 Brazilian reais (approximately $309) as of Aug. 31, 2016.
There were no significant measurements of liabilities to their implied fair value on a nonrecurring basis during the three months ended Nov. 30, 2016, and Nov. 30, 2015.
There were no significant measurements of assets to their implied fair value on a nonrecurring basis during the three months ended Nov. 30, 2016. Significant measurements during the three months ended Nov. 30, 2015, of assets to their implied fair value on a nonrecurring basis were as follows:
Property, Plant and Equipment, Net: During the three months ended Nov. 30, 2015, property, plant and equipment within the Seeds and Genomics segment with a net book value of $34 million was written down to its implied fair value estimate of $10 million, resulting in an impairment charge of $24 million, with $15 million included in cost of goods sold and $9 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 3Restructuring — for additional disclosures.
Other Intangible Assets, Net: During the three months ended Nov. 30, 2015, other intangible assets within the Seeds and Genomics segment with a net book value of $16 million were written down to their implied fair value of less than $1 million, resulting in an impairment charge of $16 million, with $16 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 3Restructuring — for additional disclosures.
During the three months ended Nov. 30, 2015, other intangible assets within the Agricultural Productivity segment with a net book value of $20 million were written down to their implied fair value of less than $1 million, resulting in an impairment charge of $20 million, with $20 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 3Restructuring — 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 Nov. 30, 2016, and Aug. 31, 2016.
Management is ultimately responsible for all fair values presented in the company’s consolidated financial statements. The company performs analysis and review of the information and prices received from third parties to ensure that the prices represent a reasonable estimate of fair value. This process involves quantitative and qualitative analysis. As a result of the analysis, if the company determines there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly.
NOTE 12.
FINANCIAL INSTRUMENTS
Cash Flow Hedges
The company uses foreign currency options and foreign currency forward contracts as hedges of anticipated sales or purchases denominated in foreign currencies. The company enters into these contracts to protect itself against the risk that the eventual net cash flows will be adversely affected by changes in exchange rates.

20

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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






Monsanto’s commodity price risk management strategy is to use derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from volatility in commodity prices. Price fluctuations in commodities, mainly in corn and soybeans, can cause the actual prices paid to production growers for corn and soybean seeds to differ from anticipated cash outlays. Monsanto generally uses commodity futures and options contracts to manage these risks. Monsanto’s energy and raw material risk management strategy is to use derivative instruments to minimize significant unanticipated manufacturing cost fluctuations that may arise from volatility in natural gas, diesel and ethylene prices.
 
Monsanto’s interest rate risk management strategy is to use derivative instruments, such as forward-starting interest rate swaps and option contracts, to minimize significant unanticipated earnings fluctuations that may arise from volatility in interest rates of the company’s borrowings and to manage the interest rate sensitivity of its debt.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive loss and reclassified into earnings in the period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.
The maximum term over which the company is hedging exposures to the variability of cash flow (for all forecasted transactions) is 9 months for foreign currency hedges and 24 months for commodity hedges. During the next 12 months, a pretax net loss of approximately $23 million is expected to be reclassified from accumulated other comprehensive loss into earnings. A pretax loss of $37 million was reclassified into other expense, net as a result of the discontinuance of an interest rate hedge during the three months ended Nov. 30, 2016, because it was probable the original forecasted transaction would not occur by the end of the originally specified time period. A pretax loss of less than $1 million during the three months ended Nov. 30, 2015, was reclassified into cost of goods sold in the Statement of Consolidated Operations as a result of the discontinuance of commodity cash flow hedges because it was probable that the original forecasted transaction would not occur by the end of the originally specified time period.
Fair Value Hedges
The company uses commodity futures, forwards and options contracts as fair value hedges to manage the value of its soybean inventory and other assets. For derivative instruments that are designated and qualify as fair value hedges, both the gain or loss on the derivative and the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. No fair value hedges were discontinued during the three months ended Nov. 30, 2016, and Nov. 30, 2015.
Derivatives Not Designated as Hedging Instruments
The company uses foreign currency contracts to hedge the effects of fluctuations in exchange rates on foreign currency denominated third-party and intercompany receivables and payables. Both the gain or loss on the derivative and the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings.
The company uses commodity option contracts to hedge anticipated cash payments to growers in the United States, Mexico and Brazil, which can fluctuate with changes in commodity price. Because these option contracts do not meet the provisions specified by the Derivatives and Hedging topic of the ASC, they do not qualify for hedge accounting treatment. Accordingly, the gain or loss on these derivatives is recognized in current earnings.
To reduce credit exposure in Latin America, Monsanto collects payments on certain customer accounts in grain. Such payments in grain are negotiated at or near the time Monsanto’s products are sold to the customers and are valued at the prevailing grain commodity prices. By entering into forward sales contracts related to grain, Monsanto mitigates the commodity price exposure from the time a contract is signed with a customer until the time a grain merchant collects the grain from the customer on Monsanto’s behalf. The forward sales contracts do not qualify for hedge accounting treatment under the Derivatives and Hedging topic of the ASC. Accordingly, the gain or loss on these derivatives is recognized in current earnings.
Monsanto uses interest rate contracts to minimize the variability of forecasted cash flows arising from the company’s consolidated VIE in Brazil. The interest rate contracts do not qualify for hedge accounting treatment under the Derivatives and Hedging Topic of the ASC. Accordingly, the gain or loss on these derivatives is recognized in current earnings.
Financial instruments are neither held nor issued by the company for trading purposes.

21

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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






The notional amounts of the company’s derivative instruments outstanding as of Nov. 30, 2016, and Aug. 31, 2016, are as follows:
 
As of
(Dollars in millions)
Nov. 30, 2016
Aug. 31, 2016
Derivatives Designated as Hedges:
 
 
Foreign exchange contracts
$
277

$
388

Commodity contracts
617

484

Interest rate contracts

150

Total Derivatives Designated as Hedges
$
894

$
1,022

Derivatives Not Designated as Hedges:
 
 
Foreign exchange contracts
$
1,270

$
1,096

Commodity contracts
173

223

Interest rate contracts
79

116

Total Derivatives Not Designated as Hedges
$
1,522

$
1,435


22

Table of Contents

MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






The net presentation of the company’s derivative instruments outstanding was as follows:
 
 
 
As of Nov. 30, 2016
(Dollars in millions)
Gross Amounts Recognized
Gross Amounts Offset in the Statement of Consolidated Financial Position
Net Amounts Included in the Statement of Consolidated Financial Position
Collateral Pledged
Net Amounts Reported in the Statement of Consolidated Financial Position
Other Items Included in the Statement of Consolidated Financial Position
Statement of Consolidated Financial Position Balance
Asset Derivatives:
 
 
 
 
 
 
 
Other current assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
$
8

$
(25
)
$
(17
)
$
17

$

 
 
 
 
Foreign exchange contracts
13


13


13

 
 
 
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
5

(3
)
2


2

 
 
 
 
Foreign exchange contracts
8


8


8

 
 
Total other current assets
34

(28
)
6

17

23

$
221

$
244

Other assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
5

(2
)
3


3

 
 
Total other assets
5

(2
)
3


3

485

488

Total Asset Derivatives
$
39

$
(30
)
$
9

$
17

$
26

 
 
Liability Derivatives:
 
 
 
 
 
 
 
Other current assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
$
25

$
(25
)
$

$

$

 
 
 
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
3

(3
)



 
 
Total other current assets
28

(28
)



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

(2
)



 
 
Total other assets
2

(2
)



 
 
Miscellaneous short-term accruals
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts
13


13


13

 
 
 
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
30


30


30

 
 
Total miscellaneous short-term accruals
43


43


43

$
868

$
911

Other liabilities
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts
1


1


1

 
 
Total other liabilities
1


1


1

323

324

Total Liability Derivatives
$
74

$
(30
)
$
44

$

$
44

 
 
(1)
As allowed by the Derivatives and Hedging topic of the ASC, derivative assets and liabilities have been offset by collateral subject to an enforceable master netting arrangement or similar arrangement. Therefore, contracts that are in an asset or liability position are included in asset accounts within the Statements of Consolidated Financial Position.

23

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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






 
 
 
As of Aug. 31, 2016
(Dollars in millions)
Gross Amounts Recognized
Gross Amounts Offset in the Statement of Consolidated Financial Position
Net Amounts Included in the Statement of Consolidated Financial Position
Collateral Pledged
Net Amounts Reported in the Statement of Consolidated Financial Position
Other Items Included in the Statement of Consolidated Financial Position
Statement of Consolidated Financial Position Balance
Asset Derivatives:
 
 
 
 
 
 
 
Other current assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
$
9

$
(29
)
$
(20
)
$
20

$

 
 
 
 
Foreign exchange contracts
4


4


4

 
 
 
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
9

(6
)
3


3

 

 
 
Foreign exchange contracts
6


6


6

 
 
Total other current assets
28

(35
)
(7
)
20

13

$
214

$
227

Other assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges
 
 
 
 
 
 
 
 
 
Commodity contracts(1)

(4
)
(4
)
4


 
 
Total other assets

(4
)
(4
)
4


489

489

Total Asset Derivatives
$
28

$
(39
)
$
(11
)
$
24

$
13





Liability Derivatives:
 
 
 
 
 
 
 
Other current assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
$
29

$
(29
)
$

$

$

 
 
 
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts(1)
6

(6
)



 
 
Total other current assets
35

(35
)



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

(4
)



 
 
Total other assets
4

(4
)



 
 
Miscellaneous short-term accruals
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts
11


11


11

 
 
 
 
Foreign currency contracts
8


8


8

 
 
 
 
Interest rate contracts
41


41


41

 
 
 
Derivatives not designated as hedges:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
7


7


7

 
 
Total miscellaneous short-term accruals
67


67


67

$
937

$
1,004

Other liabilities
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
 
 
 
Commodity contracts
2


2


2

 

Total other liabilities
2


2


2

316

318

Total Liability Derivatives
$
108

$
(39
)
$
69

$

$
69





(1)
As allowed by the Derivatives and Hedging topic of the ASC, commodity derivative assets and liabilities have been offset by collateral subject to an enforceable master netting arrangement or similar arrangement. Therefore, these commodity contracts that are in an asset or liability position are included in asset accounts within the Statements of Consolidated Financial Position.

24

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MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






The gains and losses on the company’s derivative instruments were as follows:
 
Amount of Gain (Loss)
Recognized in AOCL(1) 
(Effective Portion)
Amount of Gain (Loss)
Recognized in Income(2)(3)
 
 
Three Months Ended
Three Months Ended
Statements of Consolidated Operations Classification
(Dollars in millions)
Nov. 30, 2016
Nov. 30, 2015
Nov. 30, 2016
Nov. 30, 2015
Derivatives Designated as Hedges:
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
Commodity contracts
 
 
$
(13
)
$

Cost of goods sold
Cash flow hedges:
 
 
 
 
 
Foreign currency contracts
$
17

$
2

7

4

Net sales
Foreign currency contracts
6

10

1

7

Cost of goods sold
Commodity contracts
19

(9
)
(3
)
(17
)
Cost of goods sold
Interest rate contracts


(37
)

Other expense, net
Interest rate contracts
4

(7
)
(4
)
(3
)
Interest expense
Total Derivatives Designated as Hedges
46

(4
)
(49
)
(9
)
 
Derivatives Not Designated as Hedges:
 
 
 
 
 
Foreign currency contracts(4)
 
 
(45
)
(55
)
Other expense, net
Commodity contracts
 
 

1

Net sales
Commodity contracts
 
 
(1
)

Cost of goods sold
Total Derivatives Not Designated as Hedges
 
 
(46
)
(54
)
 
Total Derivatives
$
46

$
(4
)
$
(95
)
$
(63
)
 
(1)
Accumulated other comprehensive loss (AOCL).
(2)
For derivatives designated as cash flow hedges under the Derivatives and Hedging topic of the ASC, this represents the effective portion of the gain (loss) reclassified from AOCL into income during the period.
(3)
The gain or loss on derivatives designated as hedges from ineffectiveness is not significant during the three months ended Nov. 30, 2016, and Nov. 30, 2015. No gains or losses were excluded from the assessment of hedge effectiveness during the three months ended Nov. 30, 2016, and Nov. 30, 2015.
(4)
Gain or loss on foreign currency contracts not designated as hedges was offset by a foreign currency transaction gain of $39 million and $28 million during the three months ended Nov. 30, 2016, and Nov. 30, 2015, respectively.

Most of the company’s outstanding foreign currency derivatives are covered by International Swap and Derivatives Association (“ISDA”) Master Agreements with the counterparties. There are no requirements to post collateral under these agreements; however, should Monsanto’s credit rating fall below a specified rating immediately following the merger of the company with another entity, the counterparty may require all outstanding derivatives under the ISDA Master Agreement to be settled immediately at current market value, which equals carrying value. Foreign currency derivatives that are not covered by ISDA Master Agreements do not have credit-risk-related contingent provisions. Most of Monsanto’s outstanding commodity derivatives are listed commodity futures, and the company is required by the relevant commodity exchange to post collateral each day to cover the change in the fair value of these futures in the case of an unrealized loss position. Non-exchange-traded commodity derivatives and interest rate contracts may be covered by the aforementioned ISDA Master Agreements and would be subject to the same credit-risk-related contingent provisions. The aggregate fair value of all derivative instruments under ISDA Master Agreements that are in a liability position was $25 million and $63 million as of Nov. 30, 2016, and Aug. 31, 2016, respectively, which is the amount that would be required for settlement if the credit-risk-related contingent provisions underlying these agreements were triggered.

25

Table of Contents

MONSANTO COMPANY
 
FIRST QUARTER 2017 FORM 10-Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED (continued)






Credit Risk Management
Monsanto invests excess cash in deposits with major banks or money market funds throughout the world in high-quality short-term debt instruments. Such investments are made only in instruments issued or enhanced by high-quality institutions. As of Nov. 30, 2016, and Aug. 31, 2016, the company had no financial instruments that represented a significant concentration of credit risk. Limited amounts are invested in any single institution to minimize risk. The company has not incurred any credit risk losses related to those investments.
The company sells a broad range of agricultural products to a diverse group of customers throughout the world. In the United States, the company makes substantial sales to relatively few large wholesale customers. The company’s business is highly seasonal and is subject to weather conditions that affect commodity prices and seed yields. Credit limits, ongoing credit evaluation and account monitoring procedures are used to minimize the risk of loss. Collateral is secured when it is deemed appropriate by the company.
Monsanto regularly evaluates its business practices to minimize its credit risk and periodically engages multiple banks in the United States, Latin America and Europe in the development of customer financing options that involve direct bank financing of customer purchases. For further information on these programs, see Note 4Customer Financing Programs.
NOTE 13.
POSTRETIREMENT BENEFITS — PENSIONS, HEALTH CARE AND OTHER
Monsanto maintains noncontributory pension plans for the benefit of its U.S. employees. Effective Jul. 8, 2012, the U.S. pension plans were closed to new entrants; there were no significant changes to these plans for eligible employees hired prior to that date. The company also provides certain postretirement health care and life insurance benefits for eligible retired employees and certain pension plan benefits outside the U.S. The company’s net periodic benefit cost for pension benefits and health care and other postretirement benefits include the following components:
Pension Benefits
Three Months Ended Nov. 30, 2016
Three Months Ended Nov. 30, 2015

(Dollars in millions)
U.S.
Outside the
U.S.
Total
U.S.
Outside the
U.S.
Total
Service Cost for Benefits Earned During the Period
$
15

$
3

$
18

$
16

$
3

$
19

Interest Cost on Benefit Obligation
21

2

23

24

2

26

Assumed Return on Plan Assets
(42
)
(2
)
(44
)
(39
)
(2
)
(41
)
Amortization of Unrecognized Net Loss
12

1

13

12

1

13

Total Net Periodic Benefit Cost
$
6

$
4

$
10

$
13

$
4

$