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Microsoft Excel LibreOffice Calc

Monsanto Co. (MON)


Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

Goodwill

Monsanto follows the guidance of the Business Combinations topic of the ASC in recording the goodwill arising from a business combination as the excess of purchase price and related costs over the fair value of identifiable assets acquired and liabilities assumed.

Under the Intangibles – Goodwill and Other topic of the ASC, goodwill is not amortized and is subject to annual impairment tests. A fair-value-based test is applied at the reporting unit level, which is generally at or one level below the operating segment level. The test compares the fair value of Monsanto’s reporting units to the carrying value of those reporting units. This test requires various judgments and estimates. The fair value of goodwill is determined using an estimate of future cash flows of the reporting unit and a risk-adjusted discount rate to compute a net present value of future cash flows. An adjustment to goodwill will be recorded for any goodwill that is determined to be impaired. Impairment of goodwill is measured as the excess of the carrying amount of goodwill over the fair values of recognized assets and liabilities of the reporting unit. Goodwill is tested for impairment at least annually, or more frequently if events or circumstances indicate it might be impaired.

Other Intangible Assets

Other intangible assets consist primarily of acquired seed germplasm, intellectual property, trademarks and customer relationships. Seed germplasm is the genetic material used in new seed varieties. Germplasm is amortized on a straight-line basis over useful lives ranging from five years for completed technology germplasm to a maximum of 30 years for certain core technology germplasm. Completed technology germplasm consists of seed hybrids and varieties that are commercially available. Core technology germplasm is the collective germplasm of parental seeds and has a longer useful life as it is used to develop new seed hybrids and varieties. Acquired intellectual property includes intangible assets related to acquisitions and licenses through which Monsanto has acquired the rights to various research and discovery technologies. These encompass intangible assets such as enabling processes and data libraries necessary to support the integrated genomics and biotechnology platforms. These intangible assets have alternative future uses and are amortized over useful lives ranging from two years to 19 years. The useful lives of acquired germplasm and acquired intellectual property are determined based on consideration of several factors including the nature of the asset, its expected use, length of licensing agreement or patent and the period over which benefits are expected to be received from the use of the asset.

Monsanto has a broad portfolio of trademarks for herbicide products, traits, agricultural seeds and vegetable seeds, and patents for its traits, formulations used to make its herbicides and various manufacturing processes. The amortization period for acquired trademarks and patents ranges from three years to 30 years. Trademarks are amortized on a straight-line basis over their useful lives. The useful life of a trademark is determined based on the estimated market-life of the associated company, brand or product. Patents are amortized on a straight-line basis over the period in which the patent is legally protected, the period over which benefits are expected to be received, or the estimated market-life of the product with which the patent is associated, whichever is shorter.

In conjunction with acquisitions, Monsanto obtains access to the distribution channels and customer relationships of the acquired companies. These relationships are expected to provide economic benefits to Monsanto. The amortization period for customer relationships ranges from five years to 20 years, and amortization is recognized on a straight-line basis over these periods. The amortization period of customer relationships represents management’s best estimate of the expected usage or consumption of the economic benefits of the acquired assets, which is based on Monsanto’s historical experience of customer attrition rates.

In accordance with the Property, Plant and Equipment topic of the ASC, all amortizable intangible assets are assessed for impairment whenever events indicate a possible loss. At a minimum, Monsanto assesses all amortizable intangible assets annually. Such an assessment involves estimating undiscounted cash flows over the remaining useful life of the intangible. If the review indicates that undiscounted cash flows are less than the recorded value of the intangible asset, the carrying amount of the intangible is reduced by the estimated cash-flow shortfall on a discounted basis, and a corresponding loss is charged to the Statement of Consolidated Operations.

Source: 10-K (filing date: 2017-10-27).


Goodwill and Intangible Assets Disclosure

Monsanto Co., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

Microsoft Excel LibreOffice Calc
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
Acquired Germplasm hidden hidden hidden hidden hidden hidden
Acquired intellectual property hidden hidden hidden hidden hidden hidden
Trademarks hidden hidden hidden hidden hidden hidden
Customer relationships hidden hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden hidden
Other intangible assets, finite lives, carrying amount hidden hidden hidden hidden hidden hidden
Accumulated amortization hidden hidden hidden hidden hidden hidden
Other intangible assets, finite lives, net hidden hidden hidden hidden hidden hidden
In process research & development hidden hidden hidden hidden hidden hidden
Other intangible assets, indefinite lives hidden hidden hidden hidden hidden hidden
Other intangible assets, net hidden hidden hidden hidden hidden hidden
Goodwill hidden hidden hidden hidden hidden hidden
Goodwill and other intangible assets hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2017-10-27), 10-K (filing date: 2016-10-19), 10-K (filing date: 2015-10-29), 10-K (filing date: 2014-10-29), 10-K (filing date: 2013-10-23), 10-K (filing date: 2012-10-19).

Item Description The company
Other intangible assets, net Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Monsanto Co.’s other intangible assets, net declined from 2015 to 2016 and from 2016 to 2017.
Goodwill Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Monsanto Co.’s goodwill declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.
Goodwill and other intangible assets Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. Monsanto Co.’s goodwill and other intangible assets declined from 2015 to 2016 and from 2016 to 2017.

Analyst Adjustments: Removal of Goodwill

Monsanto Co., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden hidden
Adjustment to Total Monsanto Company Shareowners’ Equity
Total Monsanto Company shareowners’ equity (as reported) hidden hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden hidden
Total Monsanto Company shareowners’ equity (adjusted) hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2017-10-27), 10-K (filing date: 2016-10-19), 10-K (filing date: 2015-10-29), 10-K (filing date: 2014-10-29), 10-K (filing date: 2013-10-23), 10-K (filing date: 2012-10-19).


Monsanto Co., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Goodwill (Summary)

Monsanto Co., adjusted ratios

Microsoft Excel LibreOffice Calc
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden hidden hidden hidden hidden hidden
Adjusted ROE hidden hidden hidden hidden hidden hidden
Return on Assets (ROA)
Reported ROA hidden hidden hidden hidden hidden hidden
Adjusted ROA hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2017-10-27), 10-K (filing date: 2016-10-19), 10-K (filing date: 2015-10-29), 10-K (filing date: 2014-10-29), 10-K (filing date: 2013-10-23), 10-K (filing date: 2012-10-19).

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Monsanto Co.’s adjusted total asset turnover improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Monsanto Co.’s adjusted financial leverage increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Monsanto Co.’s adjusted ROE improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Monsanto Co.’s adjusted ROA deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Monsanto Co., Ratios: Reported vs. Adjusted


Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
As Reported
Selected Financial Data (USD $ in millions)
Net sales hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Ratio
Total asset turnover1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net sales hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Ratio
Adjusted total asset turnover2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2017-10-27), 10-K (filing date: 2016-10-19), 10-K (filing date: 2015-10-29), 10-K (filing date: 2014-10-29), 10-K (filing date: 2013-10-23), 10-K (filing date: 2012-10-19).

2017 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Monsanto Co.’s adjusted total asset turnover improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
As Reported
Selected Financial Data (USD $ in millions)
Total assets hidden hidden hidden hidden hidden hidden
Total Monsanto Company shareowners’ equity hidden hidden hidden hidden hidden hidden
Ratio
Financial leverage1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Adjusted total assets hidden hidden hidden hidden hidden hidden
Adjusted total Monsanto Company shareowners’ equity hidden hidden hidden hidden hidden hidden
Ratio
Adjusted financial leverage2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2017-10-27), 10-K (filing date: 2016-10-19), 10-K (filing date: 2015-10-29), 10-K (filing date: 2014-10-29), 10-K (filing date: 2013-10-23), 10-K (filing date: 2012-10-19).

2017 Calculations

1 Financial leverage = Total assets ÷ Total Monsanto Company shareowners’ equity
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Monsanto Company shareowners’ equity
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Monsanto Co.’s adjusted financial leverage increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to Monsanto Company hidden hidden hidden hidden hidden hidden
Total Monsanto Company shareowners’ equity hidden hidden hidden hidden hidden hidden
Ratio
ROE1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net income attributable to Monsanto Company hidden hidden hidden hidden hidden hidden
Adjusted total Monsanto Company shareowners’ equity hidden hidden hidden hidden hidden hidden
Ratio
Adjusted ROE2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2017-10-27), 10-K (filing date: 2016-10-19), 10-K (filing date: 2015-10-29), 10-K (filing date: 2014-10-29), 10-K (filing date: 2013-10-23), 10-K (filing date: 2012-10-19).

2017 Calculations

1 ROE = 100 × Net income attributable to Monsanto Company ÷ Total Monsanto Company shareowners’ equity
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Net income attributable to Monsanto Company ÷ Adjusted total Monsanto Company shareowners’ equity
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders’ equity. Monsanto Co.’s adjusted ROE improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014 Aug 31, 2013 Aug 31, 2012
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to Monsanto Company hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Ratio
ROA1 hidden hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net income attributable to Monsanto Company hidden hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden hidden
Ratio
Adjusted ROA2 hidden hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2017-10-27), 10-K (filing date: 2016-10-19), 10-K (filing date: 2015-10-29), 10-K (filing date: 2014-10-29), 10-K (filing date: 2013-10-23), 10-K (filing date: 2012-10-19).

2017 Calculations

1 ROA = 100 × Net income attributable to Monsanto Company ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Net income attributable to Monsanto Company ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Monsanto Co.’s adjusted ROA deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.