UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 001-16625
BUNGE LIMITED
(Exact name of registrant as specified in its charter)
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Bermuda |
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98-0231912 |
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(State or other jurisdiction of incorporation or |
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(I.R.S. Employer Identification No.) |
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50 Main Street, White Plains, New York |
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10606 |
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(Address of principal executive offices) |
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(Zip Code) |
(914) 684-2800
(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. (Check one):
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Large accelerated filer x |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No x
As of October 26, 2016 the number of shares issued of the registrant was:
Common shares, par value $.01 per share: 139,460,010
BUNGE LIMITED
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Condensed Consolidated Balance Sheets at September 30, 2016 and December 31, 2015 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
33 | |
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BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(U.S. dollars in millions, except per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2016 |
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2015 |
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2016 |
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2015 |
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Net sales |
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$ |
11,423 |
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$ |
10,762 |
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$ |
30,880 |
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$ |
32,350 |
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Cost of goods sold |
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(10,867 |
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(10,017 |
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(29,174 |
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(30,360 |
) | ||||
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Gross profit |
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556 |
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745 |
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1,706 |
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1,990 |
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Selling, general and administrative expenses |
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(324 |
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(358 |
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(941 |
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(1,050 |
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Interest income |
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13 |
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18 |
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37 |
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42 |
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Interest expense |
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(73 |
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(77 |
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(189 |
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(187 |
) | ||||
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Foreign exchange gains (losses) |
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(6 |
) |
(24 |
) |
9 |
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(15 |
) | ||||
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Other income (expense) – net |
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4 |
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2 |
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(14 |
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(6 |
) | ||||
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Gain on sale of Canadian grain assets |
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— |
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47 |
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— |
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47 |
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Income (loss) from continuing operations before income tax |
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170 |
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353 |
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608 |
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821 |
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Income tax (expense) benefit |
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(45 |
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(140 |
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(118 |
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(270 |
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Income (loss) from continuing operations |
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125 |
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213 |
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490 |
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551 |
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Income (loss) from discontinued operations, net of tax |
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5 |
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21 |
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(8 |
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36 |
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Net income (loss) |
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130 |
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234 |
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482 |
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587 |
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Net loss (income) attributable to noncontrolling interests |
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(12 |
) |
5 |
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(8 |
) |
1 |
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Net income (loss) attributable to Bunge |
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118 |
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239 |
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474 |
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588 |
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Convertible preference share dividends and other obligations |
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(2 |
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(10 |
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(27 |
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(38 |
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Net income (loss) available to Bunge common shareholders |
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$ |
116 |
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$ |
229 |
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$ |
447 |
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$ |
550 |
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Earnings per common share—basic (Note 17) |
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Net income (loss) from continuing operations |
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$ |
0.80 |
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$ |
1.45 |
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$ |
3.25 |
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$ |
3.57 |
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Net income (loss) from discontinued operations |
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0.03 |
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0.14 |
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(0.06 |
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0.25 |
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Net income (loss) to Bunge common shareholders |
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$ |
0.83 |
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$ |
1.59 |
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$ |
3.19 |
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$ |
3.82 |
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Earnings per common share—diluted (Note 17) |
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Net income (loss) from continuing operations |
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$ |
0.79 |
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$ |
1.42 |
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$ |
3.24 |
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$ |
3.53 |
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Net income (loss) from discontinued operations |
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0.04 |
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0.14 |
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(0.05 |
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0.24 |
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Net income (loss) to Bunge common shareholders |
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$ |
0.83 |
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$ |
1.56 |
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$ |
3.19 |
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$ |
3.77 |
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Dividends declared per common share |
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$ |
0.42 |
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$ |
0.38 |
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$ |
1.22 |
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$ |
1.10 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(U.S. dollars in millions)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2016 |
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2015 |
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2016 |
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2015 |
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Net income (loss) |
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$ |
130 |
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$ |
234 |
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$ |
482 |
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$ |
587 |
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Other comprehensive income (loss): |
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Foreign exchange translation adjustment |
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(87 |
) |
(1,248 |
) |
898 |
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(2,360 |
) | ||||
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Unrealized gains (losses) on designated cash flow and net investment hedges, net of tax (expense) benefit of nil and $(1) in 2016 and nil and nil in 2015 |
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— |
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166 |
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(339 |
) |
146 |
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Unrealized gains (losses) on investments, net of tax (expense) benefit of nil and nil in 2016, nil and nil in 2015 |
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— |
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— |
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— |
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— |
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Reclassification of realized net losses (gains) to net income, net of tax expense (benefit) of nil and nil in 2016, nil and nil in 2015 |
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(13 |
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33 |
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(13 |
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51 |
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Pension adjustment, net of tax (expense) benefit of nil and nil in 2016, nil and nil in 2015 |
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1 |
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1 |
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1 |
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5 |
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Total other comprehensive income (loss) |
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(99 |
) |
(1,048 |
) |
547 |
|
(2,158 |
) | ||||
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Total comprehensive income (loss) |
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31 |
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(814 |
) |
1,029 |
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(1,571 |
) | ||||
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Less: comprehensive (income) loss attributable to noncontrolling interest |
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(20 |
) |
8 |
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(20 |
) |
5 |
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Total comprehensive income (loss) attributable to Bunge |
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$ |
11 |
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$ |
(806 |
) |
$ |
1,009 |
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$ |
(1,566 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(U.S. dollars in millions, except share data)
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September 30, |
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December 31, |
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2016 |
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2015 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
297 |
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$ |
411 |
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Time deposits under trade structured finance program (Note 4) |
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161 |
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325 |
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Trade accounts receivable (less allowances of $129 and $125) (Note 12) |
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1,680 |
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1,607 |
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Inventories (Note 5) |
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5,173 |
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4,466 |
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Deferred income taxes (Note 2) |
|
— |
|
208 |
| ||
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Other current assets (Note 6) |
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4,612 |
|
3,899 |
| ||
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Total current assets |
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11,923 |
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10,916 |
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Property, plant and equipment, net |
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5,169 |
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4,736 |
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Goodwill |
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371 |
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418 |
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Other intangible assets, net |
|
318 |
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326 |
| ||
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Investments in affiliates |
|
343 |
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329 |
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Deferred income taxes |
|
558 |
|
417 |
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Time deposits under trade structured finance program (Note 4) |
|
464 |
|
— |
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Other non-current assets (Note 7) |
|
899 |
|
772 |
| ||
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Total assets |
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$ |
20,045 |
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$ |
17,914 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Short-term debt |
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$ |
467 |
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$ |
648 |
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Current portion of long-term debt (Note 11) |
|
863 |
|
869 |
| ||
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Letter of credit obligations under trade structured finance program (Note 4) |
|
625 |
|
325 |
| ||
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Trade accounts payable |
|
3,205 |
|
2,675 |
| ||
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Deferred income taxes (Note 2) |
|
— |
|
60 |
| ||
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Other current liabilities (Note 9) |
|
3,121 |
|
2,763 |
| ||
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Total current liabilities |
|
8,281 |
|
7,340 |
| ||
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Long-term debt (Note 11) |
|
3,447 |
|
2,926 |
| ||
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Deferred income taxes |
|
214 |
|
209 |
| ||
|
Other non-current liabilities |
|
826 |
|
750 |
| ||
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|
|
|
|
|
| ||
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Commitments and contingencies (Note 14) |
|
|
|
|
| ||
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Redeemable noncontrolling interests (Note 15) |
|
— |
|
37 |
| ||
|
Equity (Note 16): |
|
|
|
|
| ||
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Convertible perpetual preference shares, par value $.01; authorized, issued and outstanding: |
|
690 |
|
690 |
| ||
|
Common shares, par value $.01; authorized – 400,000,000 shares; issued and outstanding: |
|
1 |
|
1 |
| ||
|
Additional paid-in capital |
|
5,133 |
|
5,105 |
| ||
|
Retained earnings |
|
8,004 |
|
7,725 |
| ||
|
Accumulated other comprehensive income (loss) (Note 16) |
|
(5,825 |
) |
(6,360 |
) | ||
|
Treasury shares, at cost - 2016 - 12,882,313 and 2015 - 9,586,083 shares, respectively |
|
(920 |
) |
(720 |
) | ||
|
Total Bunge shareholders’ equity |
|
7,083 |
|
6,441 |
| ||
|
Noncontrolling interests |
|
194 |
|
211 |
| ||
|
Total equity |
|
7,277 |
|
6,652 |
| ||
|
Total liabilities and equity |
|
$ |
20,045 |
|
$ |
17,914 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in millions)
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Nine Months Ended |
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|
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September 30, |
| ||||
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|
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2016 |
|
2015 |
| ||
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OPERATING ACTIVITIES |
|
|
|
|
| ||
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Net income (loss) |
|
$ |
482 |
|
$ |
587 |
|
|
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities: |
|
|
|
|
| ||
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Impairment charges |
|
17 |
|
24 |
| ||
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Gain on the sale of Canadian grain assets |
|
— |
|
(47 |
) | ||
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Foreign exchange loss (gain) on debt |
|
115 |
|
(227 |
) | ||
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Bad debt expense |
|
16 |
|
20 |
| ||
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Depreciation, depletion and amortization |
|
402 |
|
403 |
| ||
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Stock-based compensation expense |
|
31 |
|
38 |
| ||
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Deferred income tax expense (benefit) |
|
105 |
|
(13 |
) | ||
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Other, net |
|
1 |
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(40 |
) | ||
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Changes in operating assets and liabilities, excluding the effects of acquisitions: |
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|
|
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| ||
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Trade accounts receivable |
|
28 |
|
(330 |
) | ||
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Inventories |
|
(487 |
) |
(114 |
) | ||
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Secured advances to suppliers |
|
205 |
|
(382 |
) | ||
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Trade accounts payable and accrued liabilities |
|
233 |
|
722 |
| ||
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Advances on sales |
|
(157 |
) |
(104 |
) | ||
|
Net unrealized gain/loss on derivative contracts |
|
(157 |
) |
7 |
| ||
|
Recoverable and income taxes, net |
|
(159 |
) |
42 |
| ||
|
Margin deposits |
|
(44 |
) |
(32 |
) | ||
|
Other, net |
|
4 |
|
(27 |
) | ||
|
Cash provided by (used for) operating activities |
|
635 |
|
527 |
| ||
|
INVESTING ACTIVITIES |
|
|
|
|
| ||
|
Payments made for capital expenditures |
|
(488 |
) |
(365 |
) | ||
|
Acquisitions of businesses (net of cash acquired) |
|
— |
|
(54 |
) | ||
|
Proceeds from the sale of Canadian grain assets |
|
— |
|
90 |
| ||
|
Proceeds from investments |
|
584 |
|
269 |
| ||
|
Payments for investments |
|
(515 |
) |
(203 |
) | ||
|
Settlement of net investment hedges |
|
(210 |
) |
106 |
| ||
|
Payments for investments in affiliates |
|
(24 |
) |
(158 |
) | ||
|
Other, net |
|
(14 |
) |
4 |
| ||
|
Cash provided by (used for) investing activities |
|
(667 |
) |
(311 |
) | ||
|
FINANCING ACTIVITIES |
|
|
|
|
| ||
|
Net change in short-term debt with maturities of 90 days or less |
|
(128 |
) |
31 |
| ||
|
Proceeds from short-term debt with maturities greater than 90 days |
|
273 |
|
562 |
| ||
|
Repayments of short-term debt with maturities greater than 90 days |
|
(292 |
) |
(303 |
) | ||
|
Proceeds from long-term debt |
|
7,933 |
|
5,781 |
| ||
|
Repayments of long-term debt |
|
(7,430 |
) |
(5,792 |
) | ||
|
Proceeds from sale of common shares |
|
— |
|
24 |
| ||
|
Repurchases of common shares |
|
(200 |
) |
(300 |
) | ||
|
Dividends paid |
|
(191 |
) |
(178 |
) | ||
|
Acquisition of noncontrolling interest |
|
(39 |
) |
— |
| ||
|
Other, net |
|
(28 |
) |
(10 |
) | ||
|
Cash provided by (used for) financing activities |
|
(102 |
) |
(185 |
) | ||
|
Effect of exchange rate changes on cash and cash equivalents |
|
20 |
|
(90 |
) | ||
|
Net increase (decrease) in cash and cash equivalents |
|
(114 |
) |
(59 |
) | ||
|
Cash and cash equivalents, beginning of period |
|
411 |
|
362 |
| ||
|
Cash and cash equivalents, end of period |
|
$ |
297 |
|
$ |
303 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(Unaudited)
(U.S. dollars in millions, except share data)
|
|
|
Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
| |||||||||
|
|
|
Non- |
|
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Convertible |
|
|
|
|
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Additional |
|
|
|
Other |
|
|
|
Non- |
|
|
| |||||||||||
|
|
|
Controlling |
|
|
Preference Shares |
|
Common Shares |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
Treasury |
|
Controlling |
|
Total |
| |||||||||||||
|
|
|
Interests |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Shares |
|
Interests |
|
Equity |
| |||||||||
|
Balance, January 1, 2016 |
|
$ |
37 |
|
|
6,900,000 |
|
$ |
690 |
|
142,483,467 |
|
$ |
1 |
|
$ |
5,105 |
|
$ |
7,725 |
|
$ |
(6,360 |
) |
$ |
(720 |
) |
$ |
211 |
|
$ |
6,652 |
|
|
Net income (loss) |
|
1 |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
474 |
|
— |
|
— |
|
8 |
|
482 |
| |||||||||
|
Accretion of noncontrolling interests |
|
2 |
|
|
— |
|
— |
|
— |
|
— |
|
(2 |
) |
— |
|
— |
|
— |
|
— |
|
(2 |
) | |||||||||
|
Other comprehensive income (loss) |
|
(1 |
) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
535 |
|
— |
|
12 |
|
547 |
| |||||||||
|
Dividends on common shares |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
(170 |
) |
— |
|
— |
|
— |
|
(170 |
) | |||||||||
|
Dividends on preference shares |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
(25 |
) |
— |
|
— |
|
— |
|
(25 |
) | |||||||||
|
Dividends to noncontrolling interests on subsidiary common stock |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(7 |
) |
(7 |
) | |||||||||
|
Noncontrolling decrease from redemption |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
1 |
|
— |
|
— |
|
— |
|
(8 |
) |
(7 |
) | |||||||||
|
Deconsolidation of a subsidiary |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(22 |
) |
(22 |
) | |||||||||
|
Acquisiton of noncontrolling interest |
|
(39 |
) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||||||
|
Stock-based compensation expense |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
31 |
|
— |
|
— |
|
— |
|
— |
|
31 |
| |||||||||
|
Repurchase of common shares |
|
— |
|
|
— |
|
— |
|
(3,296,230 |
) |
— |
|
— |
|
— |
|
— |
|
(200 |
) |
— |
|
(200 |
) | |||||||||
|
Issuance of common shares |
|
— |
|
|
— |
|
— |
|
265,539 |
|
— |
|
(2 |
) |
— |
|
— |
|
— |
|
— |
|
(2 |
) | |||||||||
|
Balance, September 30, 2016 |
|
$ |
— |
|
|
6,900,000 |
|
$ |
690 |
|
139,452,776 |
|
$ |
1 |
|
$ |
5,133 |
|
$ |
8,004 |
|
$ |
(5,825 |
) |
$ |
(920 |
) |
$ |
194 |
|
$ |
7,277 |
|
|
|
|
Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
| |||||||||
|
|
|
Non- |
|
|
Convertible |
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
|
Non- |
|
|
| |||||||||||
|
|
|
Controlling |
|
|
Preference Shares |
|
Common Shares |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
Treasury |
|
Controlling |
|
Total |
| |||||||||||||
|
|
|
Interests |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Shares |
|
Interests |
|
Equity |
| |||||||||
|
Balance, January 1, 2015 |
|
$ |
37 |
|
|
6,900,000 |
|
$ |
690 |
|
145,703,198 |
|
$ |
1 |
|
$ |
5,053 |
|
$ |
7,180 |
|
$ |
(4,058 |
) |
$ |
(420 |
) |
$ |
244 |
|
$ |
8,690 |
|
|
Net income (loss) |
|
(9 |
) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
588 |
|
— |
|
— |
|
(1 |
) |
587 |
| |||||||||
|
Accretion of noncontrolling interest |
|
13 |
|
|
— |
|
— |
|
— |
|
— |
|
(13 |
) |
— |
|
— |
|
— |
|
— |
|
(13 |
) | |||||||||
|
Other comprehensive income (loss) |
|
(3 |
) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(2,154 |
) |
— |
|
(4 |
) |
(2,158 |
) | |||||||||
|
Dividends on common shares |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
(158 |
) |
— |
|
— |
|
— |
|
(158 |
) | |||||||||
|
Dividends on preference shares |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
(25 |
) |
— |
|
— |
|
— |
|
(25 |
) | |||||||||
|
Dividends to noncontrolling interests on subsidiary common stock |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(7 |
) |
(7 |
) | |||||||||
|
Return of capital to noncontrolling interest |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(17 |
) |
(17 |
) | |||||||||
|
Stock-based compensation expense |
|
— |
|
|
— |
|
— |
|
— |
|
— |
|
38 |
|
— |
|
— |
|
— |
|
— |
|
38 |
| |||||||||
|
Repurchase of common shares |
|
— |
|
|
— |
|
— |
|
(3,871,810 |
) |
— |
|
— |
|
— |
|
— |
|
(300 |
) |
— |
|
(300 |
) | |||||||||
|
Issuance of common shares |
|
— |
|
|
— |
|
— |
|
622,522 |
|
— |
|
24 |
|
— |
|
— |
|
— |
|
— |
|
24 |
| |||||||||
|
Balance, September 30, 2015 |
|
$ |
38 |
|
|
6,900,000 |
|
$ |
690 |
|
142,453,910 |
|
$ |
1 |
|
$ |
5,102 |
|
$ |
7,585 |
|
$ |
(6,212 |
) |
$ |
(720 |
) |
$ |
215 |
|
$ |
6,661 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements include the accounts of Bunge Limited (“Bunge”), its subsidiaries and variable interest entities (“VIEs”) in which Bunge is considered to be the primary beneficiary, and as a result, include the assets, liabilities, revenues and expenses of all entities over which Bunge exercises control. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to Securities and Exchange Commission (“SEC”) rules. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included. The condensed consolidated balance sheet at December 31, 2015 has been derived from Bunge’s audited consolidated financial statements at that date. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016. The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2015, forming part of Bunge’s 2015 Annual Report on Form 10-K filed with the SEC on February 25, 2016.
Reclassifications—Certain prior year amounts have been reclassified to conform to current year presentation.
2. ACCOUNTING PRONOUNCEMENTS
New Accounting Pronouncements — In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). This update attempts to reduce diversity in practice by providing guidance on the classification of certain cash receipts and payments in the statement of cash flows. The new standard is effective for Bunge for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Bunge is evaluating the expected impact of this standard on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), which introduces a new accounting model, referred to as the current expected credit losses (CECL) model, for estimating credit losses on certain financial instruments and expands the disclosure requirements for estimating such credit losses. Under the new model, an entity is required to estimate the credit losses expected over the life of an exposure (or pool of exposures). The guidance also amends the current impairment model for debt securities classified as available-for-sale securities. The new guidance will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Bunge is evaluating the expected impact of this standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation, Improvements to Employee Share-Based Payment Accounting (Topic 718). This update identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The adoption of this standard is not expected to have a material impact on Bunge’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new provisions, all lessees will report on the balance sheet a right-of-use asset and a liability for the obligation to make payments with the
exception of those leases with a term of 12 months or less. The new provisions will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Bunge is evaluating the expected impact of this standard on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Other: Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10), which amends the guidance relating to the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The new standard is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is not permitted except for certain provisions. Bunge is evaluating the expected impact of this standard on its consolidated financial statements.
In May 2014, the FASB amended ASC (Topic 605) Revenue Recognition and created ASC (Topic 606) Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The initial effective date is for interim and annual periods beginning on or after December 15, 2016, however, in August 2015, the FASB issued an ASU effectively deferring the implementation date by one year. In addition, the ASU permits companies to early adopt the guidance as of the original effective date, but not before January 1, 2017. The new requirements may be implemented either retrospectively for all prior periods presented, or retrospectively with a cumulative-effect adjustment at the date of initial application. Subsequent to the issuance of the original guidance in Topic 606, the FASB issued in March and April 2016, respectively, ASU 2016-08 Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing and ASU 2016-10 Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net), to improve the guidance in that Topic. Bunge is evaluating the expected impact of the standard on its consolidated financial statements.
Recently Adopted Accounting Pronouncements — In November 2015, the FASB issued ASU 2015-17 (“Topic 740”) Income Taxes—Balance Sheet Classification of Deferred Taxes. The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. The update is effective for fiscal years beginning after December 15, 2016 on a prospective or retrospective basis, with earlier application permitted. Bunge early adopted this ASU on a prospective basis effective April 1, 2016 and the adoption did not have a material impact on Bunge’s consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03 Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs (Subtopic 835-30). The amendments in this update require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts, instead of being presented as an asset. Bunge adopted this ASU upon its effective date of January 1, 2016 and the adoption did not have a material impact on Bunge’s consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02 (Topic 810) Consolidation-Amendments to the Consolidation Analysis. The standard makes targeted amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance and requires companies to reevaluate all legal entities under revised consolidation guidance. The revised consolidation rules provide guidance for evaluating: i) limited partnerships and similar entities for consolidation, ii) how decision maker or service provider fees affect the consolidation analysis, iii) how interests held by related parties affect the consolidation analysis and iv) the consolidation analysis required for certain investment funds. The standard is effective for interim and annual reporting periods beginning after December 15, 2015.
Bunge adopted ASU 2015-02 upon its effective date of January 1, 2016 using a modified retrospective approach. As a result of the initial application of ASU 2015-02, Bunge deconsolidated a Brazilian grain terminal and the remainder of its previously consolidated private equity and other investment funds. There was no cumulative effect to retained earnings as a result of the deconsolidation of these entities since there was no difference between the net amounts subtracted from Bunge’s financial statements and the retained interest in those entities.
3. BUSINESS ACQUISITIONS AND DISPOSITIONS
Acquisitions
On October 4, 2016, Bunge acquired a 62.8% equity stake in Walter Rau Neusser Ol und Fett Aktiengesellschaft (“WRAG”), a vegetable oil blends producer for large scale commercial customers based in Germany. Bunge paid approximately $32 million for WRAG.
On August 30, 2016, Bunge announced it had reached an agreement to acquire a controlling interest in Grupo Minsa S.A.B. de C.V. (“Minsa”), a leading corn flour producer in Mexico. The transaction is expected to close in the first quarter of 2017, subject to customary closing conditions. As part of the transaction, Bunge will acquire control of four mills in Mexico and two mills in the United States. The purchase price was approximately $311 million, subject to working capital and other adjustments.
On August 5, 2016, Bunge and Cargill, Inc. announced their intention to enter into an agreement under which Cargill will sell to Bunge two oilseed processing plants and operations in the Netherlands and France. Closing of the transaction is subject to customary closing conditions. Bunge will pay approximately $225 million plus working capital for the two facilities. The transaction is expected to close during the first quarter 2017.
During the quarter ended September 30, 2016, Bunge completed the final purchase price on the acquisition of 100% ownership interest in Moinho Pacifico, a wheat milling business in Brazil. The adjustments resulted in a decrease to goodwill of $65 million and increase to property, plant and equipment of $57 million and intangibles of $8 million. The final allocation of the purchase price based on the fair values of assets and liabilities acquired resulted in $98 million in property, plant and equipment, $10 million in inventory, $9 million in other net assets and liabilities and $97 million of finite-lived intangible assets. The transaction also resulted in $68 million of goodwill allocated to our milling operations in Brazil.
Dispositions
On July 22, 2016, Bunge entered into an agreement to sell a 50% ownership interest in its Terfron port terminal in Brazil to Amaggi Exportacao E Importacao Ltda. for a total consideration in cash of approximately $145 million. Completion of the sale is expected by December 31, 2016, subject to customary closing conditions.
On July 5, 2016, Bunge and Wilmar International Limited (“Wilmar”) announced the formation of a joint venture in Vietnam. Wilmar has agreed to invest into Bunge’s Vietnam crush operations, creating a three-party joint venture with Bunge and Wilmar as equal 45% shareholders and Quang Dung, a leading soybean meal distributor in Vietnam, retaining its existing 10% stake in the operations. Completion of the transaction is expected by December 31, 2016, subject to customary closing conditions.
On February 1, 2016, SALIC Canada Limited (“SALIC”) converted two non-interest bearing convertible promissory notes issued to SALIC by G3 of $106 million into 148,323,000 common shares of G3, increasing SALIC’s ownership percentage in G3 from 49% to 65% and reducing Bunge Canada’s ownership in G3 from 51% to 35%. On the same day, Bunge Canada and SALIC transferred all of their common shares of G3 to G3 Global Holdings Limited Partnership in exchange for additional Class A limited partnership units in G3 Global Holdings Limited Partnership. As a result, as of February 1, 2016, G3 Global Holdings Limited Partnership became the holder of all of the issued and outstanding common shares in G3. On March 30, 2016, Bunge Canada, under the G3 Global Holdings Shareholders Agreement, exercised a contractual put right and sold 10% of its common shares to SALIC in exchange for $37 million of cash so that Bunge Canada now holds 25% ownership of G3 Global Holdings Limited Partnership and SALIC holds 75% ownership.
4. TRADE STRUCTURED FINANCE PROGRAM
Bunge engages in various trade structured finance activities to leverage the value of its trade flows across its operating regions. These activities include programs under which Bunge generally obtains U.S. dollar-denominated letters of credit (“LCs”) (each based on an underlying commodity trade flow) from financial institutions and time deposits denominated in either the local currency of the financial institutions counterparties or in U.S. dollars, as well as foreign exchange forward contracts, all of which are subject to legally enforceable set-off agreements. The LCs and foreign exchange contracts are presented within the line item letter of credit obligations under trade structured finance program on the condensed consolidated balance sheets as of September 30, 2016 and
December 31, 2015. The net return from activities under this program, including fair value changes, is included as a reduction of cost of goods sold in the condensed consolidated statements of income.
The table below summarizes the assets and liabilities included in the condensed consolidated balance sheets and the associated fair value amounts at September 30, 2016 and December 31, 2015, related to the program. The fair values approximated the carrying amount of the related financial instruments.
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2016 |
|
2015 |
| ||
|
Current assets: |
|
|
|
|
| ||
|
Carrying value of time deposits |
|
$ |
161 |
|
$ |
325 |
|
|
Fair value (Level 2 measurement) of time deposits |
|
$ |
161 |
|
$ |
325 |
|
|
|
|
|
|
|
| ||
|
Non-current assets: |
|
|
|
|
| ||
|
Carrying value of time deposits |
|
$ |
464 |
|
$ |
— |
|
|
Fair value (Level 2 measurement) of time deposits |
|
$ |
464 |
|
$ |
— |
|
|
|
|
|
|
|
| ||
|
Current liabilities: |
|
|
|
|
| ||
|
Carrying value of letters of credit obligations and foreign exchange contracts |
|
$ |
625 |
|
$ |
325 |
|
|
|
|
|
|
|
| ||
|
Fair value (Level 2 measurement) of letters of credit obligations |
|
$ |
625 |
|
$ |
323 |
|
|
Fair value (Level 2 measurement) of foreign exchange forward contracts-(gains) losses |
|
— |
|
2 |
| ||
|
Total fair value (Level 2 measurement) of letters of credit obligations and foreign exchange contracts |
|
$ |
625 |
|
$ |
325 |
|
As of September 30, 2016 and December 31, 2015, time deposits, LCs, and foreign exchange contracts of $4,645 million and $3,394 million, respectively, were presented net on the condensed consolidated balance sheets as the criteria of ASC 210-20, Offsetting, had been met. At September 30, 2016 and December 31, 2015, time deposits, including those presented on a net basis, carried weighted-average interest rates of 2.53% and 2.21%, respectively. During the nine months ended September 30, 2016 and 2015, total net proceeds from issuances of LCs were $5,165 million and $4,701 million, respectively. These cash inflows are offset by the related cash outflows resulting from placement of the time deposits and repayment of the LCs. All cash flows related to the programs are included in operating activities in the condensed consolidated statements of cash flows.
5. INVENTORIES
Inventories by segment are presented below. Readily marketable inventories (“RMI”) are agricultural commodity inventories carried at fair value, which are non-perishable with a high shelf life and exceptionally liquid due to their homogenous nature and widely available markets with international pricing mechanisms. All other inventories are carried at lower of cost or market.
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2016 |
|
2015 |
| ||
|
Agribusiness (1) |
|
$ |
3,981 |
|
$ |
3,533 |
|
|
Edible Oil Products (2) |
|
354 |
|
356 |
| ||
|
Milling Products |
|
191 |
|
164 |
| ||
|
Sugar and Bioenergy (3) |
|
569 |
|
350 |
| ||
|
Fertilizer |
|
78 |
|
63 |
| ||
|
Total |
|
$ |
5,173 |
|
$ |
4,466 |
|
(1) Includes RMI of $3,865 million and $3,393 million at September 30, 2016 and December 31, 2015, respectively. Of these amounts $2,920 million and $2,513 million can be attributable to merchandising activities at September 30, 2016 and December 31, 2015, respectively.
(2) Includes RMI of bulk soybean and canola oil in the aggregate amount of $89 million and $110 million at September 30, 2016 and December 31, 2015, respectively.
(3) Includes sugar RMI, which can be attributable to Bunge’s trading and merchandising business of $267 million and $163 million at September 30, 2016 and December 31, 2015, respectively.
6. OTHER CURRENT ASSETS
Other current assets consist of the following:
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2016 |
|
2015 |
| ||
|
Unrealized gains on derivative contracts, at fair value |
|
$ |
2,037 |
|
$ |
1,456 |
|
|
Prepaid commodity purchase contracts (1) |
|
303 |
|
287 |
| ||
|
Secured advances to suppliers, net (2) |
|
406 |
|
521 |
| ||
|
Recoverable taxes, net |
|
451 |
|
364 |
| ||
|
Margin deposits |
|
505 |
|
467 |
| ||
|
Marketable securities, at fair value and other short-term investments |
|
179 |
|
234 |
| ||
|
Deferred purchase price receivable, at fair value (3) |
|
104 |
|
79 |
| ||
|
Prepaid expenses |
|
217 |
|
132 |
| ||
|
Other |
|
410 |
|
359 |
| ||
|
Total |
|
$ |
4,612 |
|
$ |
3,899 |
|
(1) Prepaid commodity purchase contracts represent advance payments against fixed price contracts for future delivery of specified quantities of agricultural commodities.
(2) Bunge provides cash advances to suppliers, primarily Brazilian farmers of soybeans and sugarcane, to finance a portion of the suppliers’ production costs. Bunge does not bear any of the costs or risks associated with the related growing crops. The advances are largely collateralized by future crops and physical assets of the suppliers, carry a local market interest rate and settle when the farmer’s crop is harvested and sold. The secured advances to farmers are reported net of allowances of $2 million and $2 million at September 30, 2016 and December 31, 2015, respectively. Interest earned on secured advances to suppliers of $7 million and $7 million for the three months ended September 30, 2016 and 2015, respectively, and $25 million and $27 million for the nine months ended September 30, 2016 and 2015, respectively, is included in net sales in the condensed consolidated statements of income.
(3) Deferred purchase price receivable represents credit support for the investment conduits in Bunge’s accounts receivables sales program (see Note 12).
Marketable Securities and Other Short-Term Investments - The Company invests in foreign government securities, corporate debt securities, deposits, and other securities. The following is a summary of amounts recorded on the condensed consolidated balance sheets for marketable securities and other short-term investments.
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2016 |
|
2015 |
| ||
|
Foreign government securities |
|
$ |
115 |
|
$ |
61 |
|
|
Corporate debt securities |
|
52 |
|
92 |
| ||
|
Certificate of deposits/time deposits |
|
12 |
|
55 |
| ||
|
Other |
|
— |
|
26 |
| ||
|
Total marketable securities and other short-term investments |
|
$ |
179 |
|
$ |
234 |
|
As of September 30, 2016, total marketable securities and other short-term investments include $21 million of assets classified as available for sale, $147 million as trading and $11 million as other short-term investments. As of December 31, 2015, total marketable securities and other short-term investments includes $76 million of assets classified as held-to-maturity and $158 million as trading. Held-to-maturity foreign government and corporate debt securities and certificate of deposits/time deposits are expected to be converted to cash within a twelve month period and are therefore classified as current. Due to the short term nature of these investments, carrying value
approximates fair value. For the nine months ended September 30, 2016 and 2015, Bunge recognized a net gain of $16 million and $6 million, respectively, related to trading securities.
7. OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2016 |
|
2015 |
| ||
|
Recoverable taxes, net (1) |
|
$ |
166 |
|
$ |
133 |
|
|
Judicial deposits (1) |
|
139 |
|
119 |
| ||
|
Other long-term receivables |
|
19 |
|
23 |
| ||
|
Income taxes receivable (1) |
|
227 |
|
195 |
| ||
|
Long-term investments |
|
53 |
|
49 |
| ||
|
Affiliate loans receivable, net |
|
22 |
|
15 |
| ||
|
Long-term receivables from farmers in Brazil, net (1) |
|
125 |
|
117 |
| ||
|
Other |
|
148 |
|
121 |
| ||
|
Total |
|
$ |
899 |
|
$ |
772 |
|
(1) These non-current assets arise primarily from Bunge’s Brazilian operations and recovery of these amounts could take in excess of five years.
Recoverable taxes, net - Recoverable taxes are reported net of valuation allowances of $34 million and $20 million at September 30, 2016 and December 31, 2015, respectively.
Judicial deposits - Judicial deposits are funds that Bunge has placed on deposit with the courts in Brazil. These funds are held in judicial escrow relating to certain legal proceedings pending legal resolution and bear interest at the SELIC rate, which is the benchmark rate of the Brazilian central bank.
Income taxes receivable - Income taxes receivable includes overpayments of current income taxes plus accrued interest. These income tax prepayments are expected to be utilized for settlement of future income tax obligations. Income taxes receivable in Brazil bear interest at the SELIC rate.
Affiliate loans receivable, net - Affiliate loans receivable, net is primarily interest bearing receivables from unconsolidated affiliates with an initial maturity of greater than one year.
Long-term receivables from farmers in Brazil, net - Bunge provides financing to farmers in Brazil, primarily through secured advances against farmer commitments to deliver agricultural commodities (primarily soybeans) upon harvest of the then-current year’s crop.
The table below summarizes Bunge’s gross investment in long-term receivables from farmers in Brazil.
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2016 |
|
2015 |
| ||
|
Legal collection process (1) |
|
$ |
153 |
|
$ |
119 |
|
|
Renegotiated amounts (2) |
|
48 |
|
58 |
| ||
|
Other long-term receivables |
|
33 |
|
40 |
| ||
|
Total |
|
$ |
234 |
|
$ |
217 |
|
(1) All amounts in legal process are considered past due upon initiation of legal action.
(2) All renegotiated amounts are current on repayment terms.
The average gross investment in long-term receivables from farmers in Brazil for the nine months ended September 30, 2016 and the year ended December 31, 2015 was $234 million and $214 million, respectively. The table below summarizes Bunge’s gross investment in long-term receivables from farmers in Brazil and the related allowance amounts.
|
|
|
September 30, 2016 |
|
December 31, 2015 |
| ||||||||
|
|
|
Gross |
|
|
|
Gross |
|
|
| ||||
|
(US$ in millions) |
|
Investment |
|
Allowance |
|
Investment |
|
Allowance |
| ||||
|
For which an allowance has been provided: |
|
|
|
|
|
|
|
|
| ||||
|
Legal collection process |
|
$ |
92 |
|
$ |
81 |
|
$ |
78 |
|
$ |
69 |
|
|
Renegotiated amounts |
|
33 |
|
28 |
|
37 |
|
31 |
| ||||
|
For which no allowance has been provided: |
|
|
|
|
|
|
|
|
| ||||
|
Legal collection process |
|
61 |
|
— |
|
41 |
|
— |
| ||||
|
Renegotiated amounts |
|
15 |
|
— |
|
21 |
|
— |
| ||||
|
Other long-term receivables |
|
33 |
|
— |
|
40 |
|
— |
| ||||
|
Total |
|
$ |
234 |
|
$ |
109 |
|
$ |
217 |
|
$ |
100 |
|
The table below summarizes the activity in the allowance for doubtful accounts related to long-term receivables from farmers in Brazil.
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
(US$ in millions) |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
|
Beginning balance |
|
$ |
111 |
|
$ |
127 |
|
$ |
100 |
|
$ |
153 |
|
|
Bad debt provisions |
|
— |
|
1 |
|
1 |
|
6 |
| ||||
|
Recoveries |
|
(2 |
) |
(4 |
) |
(11 |
) |
(18 |
) | ||||
|
Write-offs |
|
— |
|
(1 |
) |
— |
|
(1 |
) | ||||
|
Transfers (1) |
|
1 |
|
— |
|
1 |
|
5 |
| ||||
|
Foreign exchange translation |
|
(1 |
) |
(27 |
) |
18 |
|
(49 |
) | ||||
|
Ending balance |
|
$ |
109 |
|
$ |
96 |
|
$ |
109 |
|
$ |
96 |
|
(1) Represents reclassifications from allowance for doubtful accounts-current for secured advances to suppliers.
8. INCOME TAXES
Income tax expense is provided on an interim basis based on management’s estimate of the annual effective income tax rate and includes the tax effects of certain discrete items, such as changes in tax laws or tax rates or other unusual or nonrecurring tax adjustments in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The effective tax rate is highly dependent on the geographic distribution of Bunge’s worldwide earnings or losses and tax regulations in each jurisdiction. Management regularly monitors the assumptions used in estimating its annual effective tax rate and adjusts estimates accordingly. If actual results differ from management’s estimates, reported income tax expense in future periods could be materially affected.
For the nine months ended September 30, 2016 and 2015, income tax expense related to continuing operations was $118 million and $270 million, respectively, resulting in effective tax rates of 19% and 33%. The lower rate in 2016 was primarily due to certain discrete items, including an income tax benefit of $60 million recorded for a change in estimate resulting from a tax election for North America and an income tax benefit of $11 million recorded for income tax refund claims in Europe, partially offset by an income tax charge of $32 million recorded for an uncertain tax position related to Asia.
As mentioned above, during the second quarter of 2016, one of Bunge’s European subsidiaries amended a tax position for the for 2010-2015 tax years as a result of the receipt of a tax ruling. However, given the unique factual circumstances and the uncertain state of the applicable tax regulations, Bunge recorded an unrecognized tax benefit of $253 million recorded in the second quarter of 2016. As of September 30, 2016, if the unrecognized tax benefits are ultimately recognized, Bunge would receive a cash refund of $62 million and tax credit carryforwards of $192 million. The tax credit carryforwards would be assessed for recoverability and it is anticipated that they will be fully offset by a valuation allowance as it is not more likely than not that Bunge would realize a benefit from the tax credit carryforwards.
As a global enterprise, Bunge files income tax returns that are subject to periodic examination and challenge by federal, state and foreign tax authorities. In many jurisdictions, income tax examinations, including settlement negotiations or litigation, may take several years to finalize. While it is difficult to predict the final outcome or timing of resolution of any particular matter, management believes that the condensed consolidated financial statements reflect the largest amount of tax benefit that is more likely than not to be realized.
9. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2016 |
|
2015 |
| ||
|
Unrealized losses on derivative contracts, at fair value |
|
$ |
1,968 |
|
$ |
1,471 |
|
|
Accrued liabilities |
|
586 |
|
688 |
| ||
|
Advances on sales |
|
213 |
|
371 |
| ||
|
Other |
|
354 |
|
233 |
| ||
|
Total |
|
$ |
3,121 |
|
$ |
2,763 |
|
10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Bunge’s various financial instruments include certain components of working capital such as cash and cash equivalents, trade accounts receivable and trade accounts payable. Additionally, Bunge uses short and long-term debt to fund operating requirements. Cash and cash equivalents, trade accounts receivable, trade accounts payable and short-term debt are stated at their carrying value, which is a reasonable estimate of fair value. See Note 4 for trade structured finance program, Note 12 for deferred purchase price receivable (“DPP”) related to sales of trade receivables, Note 7 for long-term receivables from farmers in Brazil, net and Note 11 for long-term debt. Bunge’s financial instruments also include derivative instruments and marketable securities, which are stated at fair value.
The majority of Bunge’s exchange traded agricultural commodity futures are settled daily generally through its clearing subsidiary and, therefore, such futures are not included in the table below. 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. The lowest level of input is considered Level 3.
The following table sets forth, by level, Bunge’s assets and liabilities that were accounted for at fair value on a recurring basis.
|
|
|
Fair Value Measurements at Reporting Date |
| ||||||||||||||||||||||
|
|
|
September 30, 2016 |
|
December 31, 2015 |
| ||||||||||||||||||||
|
(US$ in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Readily marketable inventories (Note 5) |
|
$ |
— |
|
$ |
3,929 |
|
$ |
292 |
|
$ |
4,221 |
|
$ |
— |
|
$ |
3,421 |
|
$ |
245 |
|
$ |
3,666 |
|
|
Trade accounts receivable(1) |
|
— |
|
9 |
|
— |
|
9 |
|
— |
|
6 |
|
— |
|
6 |
| ||||||||
|
Unrealized gain on designated derivative contracts(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest rate |
|
— |
|
18 |
|
— |
|
18 |
|
— |
|
— |
|
— |
|
— |
| ||||||||
|
Foreign exchange |
|
— |
|
33 |
|
— |
|
33 |
|
— |
|
30 |
|
— |
|
30 |
| ||||||||
|
Unrealized gain on undesignated derivative contracts (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest rate |
|
— |
|
1 |
|
— |
|
1 |
|
— |
|
— |
|
— |
|
— |
| ||||||||
|
Foreign exchange |
|
— |
|
341 |
|
— |
|
341 |
|
9 |
|
176 |
|
— |
|
185 |
| ||||||||
|
Commodities |
|
695 |
|
789 |
|
112 |
|
1,596 |
|
252 |
|
696 |
|
220 |
|
1,168 |
| ||||||||
|
Freight |
|
33 |
|
— |
|
— |
|
33 |
|
65 |
|
— |
|
— |
|
65 |
| ||||||||
|
Energy |
|
15 |
|
— |
|
— |
|
15 |
|
7 |
|
— |
|
1 |
|
8 |
| ||||||||
|
Deferred purchase price receivable (Note 12 ) |
|
— |
|
104 |
|
— |
|
104 |
|
— |
|
79 |
|
— |
|
79 |
| ||||||||
|
Other (3) |
|
30 |
|
195 |
|
— |
|
225 |
|
68 |
|
176 |
|
— |
|
244 |
| ||||||||
|
Total assets |
|
$ |
773 |
|
$ |
5,419 |
|
$ |
404 |
|
$ |
6,596 |
|
$ |
401 |
|
$ |
4,584 |
|
$ |
466 |
|
$ |
5,451 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Trade accounts payable(1) |
|
$ |
— |
|
$ |
525 |
|
$ |
43 |
|
$ |
568 |
|
$ |
— |
|
$ |
399 |
|
$ |
44 |
|
$ |
443 |
|
|
Unrealized loss on designated derivative contracts (4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest rate |
|
— |
|
— |
|
— |
|
— |
|
— |
|
3 |
|
— |
|
3 |
| ||||||||
|
Foreign exchange |
|
— |
|
2 |
|
— |
|
2 |
|
— |
|
15 |
|
— |
|
15 |
| ||||||||
|
Unrealized loss on undesignated derivative contracts (4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest rate |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||||
|
Foreign exchange |
|
— |
|
387 |
|
— |
|
387 |
|
1 |
|
605 |
|
— |
|
606 |
| ||||||||
|
Commodities |
|
839 |
|
557 |
|
145 |
|
1,541 |
|
402 |
|
304 |
|
52 |
|
758 |
| ||||||||
|
Freight |
|
25 |
|
— |
|
1 |
|
26 |
|
56 |
|
— |
|
— |
|
56 |
| ||||||||
|
Energy |
|
9 |
|
1 |
|
2 |
|
12 |
|
31 |
|
— |
|
2 |
|
33 |
| ||||||||
|
Total liabilities |
|
$ |
873 |
|
$ |
1,472 |
|
$ |
191 |
|
$ |
2,536 |
|
$ |
490 |
|
$ |
1,326 |
|
$ |
98 |
|
$ |
1,914 |
|
(1) Trade accounts receivable and payable are generally stated at historical amounts, net of write-offs and allowances, with the exception of $9 million and $568 million, at September 30, 2016 and $6 million and $443 million at December 31, 2015, respectively, related to certain delivered inventory for which the receivable and payable, respectively, fluctuate based on changes in commodity prices. These receivables and payables are hybrid financial instruments for which Bunge has elected the fair value option.
(2) Unrealized gains on designated and undesignated derivative contracts are generally included in other current assets. There are no such amounts included in other non-current assets at September 30, 2016 and December 31, 2015, respectively.
(3) Other includes the fair values of marketable securities and investments in other current assets and other non-current assets.
(4) Unrealized losses on designated and undesignated derivative contracts are generally included in other current liabilities. There are no such amounts included in other non-current liabilities at September 30, 2016 and December 31, 2015, respectively.
Derivatives — Exchange traded futures and options contracts and exchange cleared contracts are valued based on unadjusted quoted prices in active markets and are classified within Level 1. Bunge’s forward commodity purchase and sale contracts are classified as derivatives along with other over-the-counter (“OTC”) derivative instruments relating primarily to freight, energy, foreign exchange and interest rates, and are classified within Level 2 or Level 3 as described below. Bunge estimates fair values based on exchange quoted prices, adjusted as appropriate for differences in local markets. These differences are generally valued using inputs from broker or dealer quotations, or market transactions in either the listed or OTC markets. In such cases, these derivative contracts are classified within Level 2.
OTC derivative contracts include swaps, options and structured transactions that are valued at fair value generally determined using quantitative models that require the use of multiple market inputs including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets which are not highly active, other observable inputs relevant to the asset or liability, and market inputs corroborated by correlation or other means. These valuation models include inputs such as interest rates, prices and
indices to generate continuous yield or pricing curves and volatility factors. Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. Certain OTC derivatives trade in less active markets with less availability of pricing information and certain structured transactions can require internally developed model inputs that might not be observable in or corroborated by the market. When unobservable inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3.
Exchange traded or cleared derivative contracts are classified in Level 1, thus transfers of assets and liabilities into and/or out of Level 1 occur infrequently. Transfers into Level 1 would generally only be expected to occur when an exchange cleared derivative contract historically valued using a valuation model as the result of a lack of observable inputs becomes sufficiently observable, resulting in the valuation price being essentially the exchange traded price. There were no significant transfers into or out of Level 1 during the periods presented.
Readily marketable inventories — RMI reported at fair value are valued based on commodity futures exchange quotations, broker or dealer quotations, or market transactions in either listed or OTC markets with appropriate adjustments for differences in local markets where Bunge’s inventories are located. In such cases, the inventory is classified within Level 2. Certain inventories may utilize significant unobservable data related to local market adjustments to determine fair value. In such cases, the inventory is classified as Level 3.
If Bunge used different methods or factors to determine fair values, amounts reported as unrealized gains and losses on derivative contracts and RMI at fair value in the consolidated balance sheets and consolidated statements of income could differ. Additionally, if market conditions change subsequent to the reporting date, amounts reported in future periods as unrealized gains and losses on derivative contracts and RMI at fair value in the consolidated balance sheets and consolidated statements of income could differ.
Level 3 Measurements — Transfers in and/or out of Level 3 represent existing assets or liabilities that were either previously categorized as a higher level for which the inputs to the model became unobservable or assets and liabilities that were previously classified as Level 3 for which the lowest significant input became observable during the period. Bunge’s policy regarding the timing of transfers between levels is to record the transfers at the beginning of the reporting period.
Level 3 Derivatives — Level 3 derivative instruments utilize both market observable and unobservable inputs within the fair value measurements. These inputs include commodity prices, price volatility, interest rates, volumes and locations. In addition, with the exception of the exchange cleared instruments, Bunge is exposed to loss in the event of the non-performance by counterparties on OTC derivative instruments and forward purchase and sale contracts. Adjustments are made to fair values on occasions when non-performance risk is determined to represent a significant input in Bunge’s fair value determination. These adjustments are based on Bunge’s estimate of the potential loss in the event of counterparty non-performance. Bunge did not have significant adjustments related to non-performance by counterparties at September 30, 2016 and December 31, 2015.
Level 3 Readily marketable inventories and other — The significant unobservable inputs resulting in Level 3 classification for RMI physically settled forward purchase and sale contracts, and trade accounts receivable and payable, net, relate to certain management estimations regarding costs of transportation and other local market or location-related adjustments, primarily freight related adjustments in the interior of Brazil and the lack of market corroborated information in Canada. In both situations, Bunge uses proprietary information such as purchase and sale contracts and contracted prices for freight, premiums and discounts to value its contracts. Movements in the price of these unobservable inputs alone would not have a material effect on Bunge’s financial statements as these contracts do not typically exceed one future crop cycle.
The tables below present reconciliations for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and nine months ended September 30, 2016 and 2015. These instruments were valued using pricing models that management believes reflect the assumptions that would be used by a marketplace participant.
|
|
|
Level 3 Instruments |
| ||||||||||
|
|
|
Fair Value Measurements |
| ||||||||||
|
|
|
Three Months Ended September 30, 2016 |
| ||||||||||
|
|
|
|
|
Readily |
|
Trade |
|
|
| ||||
|
|
|
Derivatives, |
|
Marketable |
|
Receivable/ |
|
|
| ||||
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Payable, Net(2) |
|
Total |
| ||||
|
Balance, July 01, 2016 |
|
$ |
127 |
|
$ |
917 |
|
$ |
(188 |
) |
$ |
856 |
|
|
Total gains and (losses), realized/unrealized included in cost of goods sold |
|
(120 |
) |
12 |
|
7 |
|
(101 |
) | ||||
|
Purchases |
|
— |
|
171 |
|
(8 |
) |
163 |
| ||||
|
Sales |
|
— |
|
(517 |
) |
— |
|
(517 |
) | ||||
|
Issuances |
|
— |
|
— |
|
— |
|
— |
| ||||
|
Settlements |
|
(37 |
) |
— |
|
95 |
|
58 |
| ||||
|
Transfers into Level 3 |
|
(5 |
) |
208 |
|
— |
|
203 |
| ||||
|
Transfers out of Level 3 |
|
(1 |
) |
(499 |
) |
51 |
|
(449 |
) | ||||
|
Balance, September 30, 2016 |
|
$ |
(36 |
) |
$ |
292 |
|
$ |
(43 |
) |
$ |
213 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
(2) Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.
|
|
|
Level 3 Instruments |
| ||||||||||
|
|
|
Fair Value Measurements |
| ||||||||||
|
|
|
Three Months Ended September 30, 2015 |
| ||||||||||
|
|
|
|
|
Readily |
|
Trade |
|
|
| ||||
|
|
|
Derivatives, |
|
Marketable |
|
Receivable/ |
|
|
| ||||
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Payable, Net (2) |
|
Total |
| ||||
|
Balance, July 01, 2015 |
|
$ |
192 |
|
$ |
910 |
|
$ |
(357 |
) |
$ |
745 |
|
|
Total gains and (losses), realized/unrealized included in cost of goods sold |
|
217 |
|
109 |
|
(18 |
) |
308 |
| ||||
|
Purchases |
|
— |
|
170 |
|
(5 |
) |
165 |
| ||||
|
Sales |
|
— |
|
(647 |
) |
— |
|
(647 |
) | ||||
|
Issuances |
|
— |
|
— |
|
— |
|
— |
| ||||
|
Settlements |
|
(91 |
) |
— |
|
261 |
|
170 |
| ||||
|
Transfers into Level 3 |
|
(1 |
) |
167 |
|
— |
|
166 |
| ||||
|
Transfers out of Level 3 |
|
— |
|
(98 |
) |
(47 |
) |
(145 |
) | ||||
|
Balance, September 30, 2015 |
|
$ |
317 |
|
$ |
611 |
|
$ |
(166 |
) |
$ |
762 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
(2) Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.
|
|
|
Level 3 Instruments |
| ||||||||||
|
|
|
Fair Value Measurements |
| ||||||||||
|
|
|
Nine Months Ended September 30, 2016 |
| ||||||||||
|
|
|
|
|
Readily |
|
Trade Accounts |
|
|
| ||||
|
|
|
Derivatives, |
|
Marketable |
|
Receivable/ |
|
|
| ||||
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Payable, Net(2) |
|
Total |
| ||||