Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets Disclosure [Text Block]

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table summarizes changes in the carrying amount of goodwill by segment for the nine months ended September 30, 2019:

(In millions)	Agriculture			Crop Protection			Seed			Total
Balance as of December 31, 20181	$	10,193		$	—		$	—		$	10,193
Currency translation adjustment	(28		)	—			—			(28		)
Other goodwill adjustments and acquisitions2	14			—			—			14
Realignment of segments	(10,179		)	4,726			5,453			—
Balance as of June 1, 2019	—			4,726			5,453			10,179
Currency translation adjustment	—			(5		)	(6		)	(11		)
Balance as of September 30, 2019	$	—		$	4,721		$	5,447		$	10,168

^1.  Net of accumulated impairment losses of $4,503 million.

^2.  Primarily consists of the acquisition of a distributor in Greece.

The company tests goodwill for impairment annually (during the fourth quarter), or more frequently when events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit has declined below its carrying value. As mentioned in Note 2 - Summary of Significant Accounting Policies, as a result of the Internal Reorganizations and Realignments, the company changed its reportable segments to Seed and Crop Protection to reflect the manner in which the company's chief operating decision maker assesses performance and allocates resources.  The change in operating segments resulted in changes to the company's reporting units for goodwill impairment testing to align with the level at which discrete financial information is available for review by management. The company’s reporting units include Seed, Crop Protection and Digital.

In connection with the change in reportable segments and reporting units, goodwill was reassigned from the former Agriculture reporting unit to the Seed, Crop Protection and Digital reporting units using a relative fair value allocation approach. As a result, the company performed a goodwill impairment analysis for the former Agriculture reporting unit immediately prior to the realignment and the newly created reporting units immediately after the realignment. The impairment analysis was performed using a discounted cash flow model (a form of the income approach), utilizing Level 3 unobservable inputs or a market approach. The company’s significant estimates in this analysis include, but are not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate. The company believes the current assumptions and estimates utilized are both reasonable and appropriate. Based on the goodwill impairment analysis performed both immediately prior to and immediately subsequent to the realignment, the company concluded the fair value of the former Agriculture reporting unit and the newly created reporting units exceeded their carrying value, and no goodwill impairment charge was necessary.

During the three months ended September 30, 2018, and in connection with strategic business reviews, the company assembled updated financial projections. The revised financial projections of the Agriculture reporting unit assessed and quantified the impacts of developing market conditions, events and circumstances that had evolved throughout 2018, resulting in a reduction in the forecasts of sales and profitability as compared to prior forecasts. The reduction in financial projections was principally driven by lower growth in sales and margins in North America and Latin America and unfavorable currency impacts related to the Brazilian Real.  The lower growth expectation was driven by reduced planted area, an expected unfavorable shift to soybeans from corn in Latin America, and delays in expected product registrations. In addition, decreases in commodity prices and higher than anticipated industry grain inventories were expected to impact farmers’ income and buying choices resulting in shifts to lower technologies and pricing pressure. The company considered the combination of these factors and the resulting reduction in its forecasted projections for the Agriculture reporting unit and determined it was more likely than not that the fair value of the Agriculture reporting unit was less than the carrying value, thus requiring the performance of an updated goodwill and intangible asset impairment analysis for the Agriculture reporting unit as of September 30, 2018.

The company performed an interim impairment analysis for the Agriculture reporting unit using a discounted cash flow model (a form of the income approach), utilizing Level 3 unobservable inputs. The company’s significant estimates in this analysis included, but were not limited to, future cash flow projections, Merger-related cost and growth synergies, the weighted average cost of capital, the terminal growth rate, and the tax rate. The company believed the current assumptions and estimates utilized were both reasonable and appropriate. The key assumption driving the change in fair value was the lower financial projections discussed above. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from the company’s estimates. If the company’s ongoing estimates of future cash flows are not met, the company may have to record additional impairment charges in future periods. The company’s estimates of future cash flows are based on current regulatory and economic climates, recent operating results, and planned business strategy. These estimates could be negatively affected by changes in federal, state, or local regulations or economic downturns. Based on the analysis performed, the company determined that the carrying amount of the Agriculture reporting unit exceeded its fair value resulting in a pre-tax, non-cash goodwill impairment charge of $4,503 million, reflected in goodwill impairment charge in the company’s Consolidated Statements of Operations for the three and nine months ended September 30, 2018. None of the charge was tax-deductible.

Other Intangible Assets

The gross carrying amounts and accumulated amortization of other intangible assets by major class are as follows: 

(In millions)	September 30, 2019							December 31, 2018							September 30, 2018
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Intangible assets subject to amortization (Definite-lived):
Customer-related	$	1,969	$	(238	)	$	1,731	$	1,985	$	(154	)	$	1,831	$	1,987	$	(125	)	$	1,862
Developed technology1,2	1,463		(332		)	1,131		974		(163		)	811		954		(120		)	834
Trademarks/trade names	166		(84		)	82		180		(92		)	88		171		(79		)	92
Favorable supply contracts	475		(183		)	292		475		(111		)	364		475		(88		)	387
Other2,3	401		(206		)	195		538		(300		)	238		530		(290		)	240
Total other intangible assets with finite lives	4,474		(1,043		)	3,431		4,152		(820		)	3,332		4,117		(702		)	3,415
Intangible assets not subject to amortization (Indefinite-lived):
IPR&D1,2	100		—			100		576		—			576		576		—			576
Germplasm4	6,265		—			6,265		6,265		—			6,265		6,265		—			6,265
Trademarks / trade names	1,871		—			1,871		1,871		—			1,871		1,871		—			1,871
Other	—		—			—		11		—			11		11		—			11
Total other intangible assets	8,236		—			8,236		8,723		—			8,723		8,723		—			8,723
Total	$	12,710	$	(1,043	)	$	11,667	$	12,875	$	(820	)	$	12,055	$	12,840	$	(702	)	$	12,138

^1.  During the first quarter of 2019, the company announced an expanded launch of its Qrome^® corn hybrids following the receipt of regulatory approval from China. As a result, the company reclassified the amounts from indefinite-lived IPR&D to developed technology.

^2.  Refer to discussion of interim impairment analysis completed below.

^3.  Primarily consists of sales and farmer networks, marketing and manufacturing alliances and noncompetition agreements.

^4.  Germplasm is the pool of genetic source material and body of knowledge gained from the development and delivery stage of plant breeding. This intangible asset is expected to contribute to cash flows beyond the foreseeable future and there are no legal, regulatory, contractual, or other factors which limit its useful life.

As discussed in Note 7 - Restructuring and Asset Related Charges - Net, during the three months ended September 30, 2019, and in connection with strategic product and portfolio reviews, the company determined that the fair value of certain intangible assets classified as developed technology, other intangible assets and IPR&D within the Seed segment that primarily relate to heritage DAS intangibles previously acquired from Coodetec was less than the carrying value due to the company’s focus on advancing more competitive products and eliminating redundancy and complexity across the breeding programs.

For IPR&D and developed technology, the company concluded these projects were abandoned.  For other intangible assets, the company performed an analysis of the fair value using the relief from royalty method (a form of the income approach) using Level 3 inputs within the fair value hierarchy. The key assumptions used in the calculation included projected revenue, royalty rates and discount rates. These key assumptions involve management judgment and estimates relating to future operating performance and economic conditions that may differ from actual cash flows.  As a result, the company recorded a pre-tax, non-cash intangible asset impairment charge of $54 million ($41 million after-tax), which is reflected in restructuring and asset related charges - net, in the company's Consolidated Statements of Operations for the three and nine months ended September 30, 2019.

There were no other indicators of impairment for the company’s other intangible assets that would suggest that the fair value is less than its carrying value at September 30, 2019.

During 2018, in reviewing the indefinite-lived intangible assets, the company also determined that the fair value of certain IPR&D assets, within the Seed segment, had declined as a result of delays in timing of commercialization and increases to expected R&D costs. The company performed an analysis of the fair value using the relief from royalty method (a form of the income approach) using Level 3 inputs within the fair value hierarchy. The key assumptions used in the calculation included projected revenue, royalty rates and discount rates. These key assumptions involve management judgment and estimates relating to future operating performance and economic conditions that may differ from actual cash flows. As a result, the company recorded a pre-tax, non-cash intangible asset impairment charge of $85 million ($66 million after tax), which was reflected in restructuring and asset related charges - net, in the company's Consolidated Statements of Operations for the three and nine months ended September 30, 2018.

The aggregate pre-tax amortization expense from continuing operations for definite-lived intangible assets was $100 million and $314 million for the three and nine months ended September 30, 2019, respectively, and $88 million and $284 million for the three and nine months ended September 30, 2018, respectively. The estimated aggregate pre-tax amortization expense from continuing operations for the remainder of 2019 and each of the next five years is approximately $115 million, $402 million, $394 million, $373 million, $292 million and $277 million, respectively.