Table of Contents

 

 

 

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 March 31, 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)

 

Bermuda

 

98-0231912

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer Identification No.)

 

 

 

50 Main Street, White Plains, New York

 

10606

(Address of principal executive offices)

 

(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):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o
(Do not check if a smaller
reporting company)

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes o No x

 

As of April 22, 2016 the number of shares issued of the registrant was:

 

Common shares, par value $.01 per share: 139,378,060

 

 

 



Table of Contents

 

BUNGE LIMITED

 

TABLE OF CONTENTS

 

 

 

Page

PART I — FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2016 and 2015

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2016 and 2015

4

 

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015

6

 

 

 

 

Condensed Consolidated Statements of Changes in Equity and Redeemable Noncontrolling Interests for the Three Months Ended March 31, 2016 and 2015

7

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

8

 

 

 

 

Cautionary Statement Regarding Forward-Looking Statements

27

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

PART II — INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

43

 

 

 

Item 1A.

Risk Factors

43

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

 

 

 

Item 3.

Defaults upon Senior Securities

43

 

 

 

Item 4.

Mine Safety Disclosures

43

 

 

 

Item 5.

Other Information

43

 

 

 

Item 6.

Exhibits

44

 

 

 

Signatures

45

 

 

Exhibit Index

E-1

 



Table of Contents

 

PART I— FINANCIAL INFORMATION

 

ITEM 1.     FINANCIAL STATEMENTS

 

BUNGE LIMITED AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

(U.S. dollars in millions, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

Net sales

 

$

8,916

 

$

10,806

 

Cost of goods sold

 

(8,296

)

(10,096

)

 

 

 

 

 

 

Gross profit

 

620

 

710

 

Selling, general and administrative expenses

 

(314

)

(331

)

Interest income

 

10

 

11

 

Interest expense

 

(57

)

(53

)

Foreign exchange gains (losses)

 

21

 

(7

)

Other income (expense) — net

 

(5

)

1

 

 

 

 

 

 

 

Income from continuing operations before income tax

 

275

 

331

 

Income tax (expense) benefit

 

(34

)

(85

)

 

 

 

 

 

 

Income (loss) from continuing operations

 

241

 

246

 

Income (loss) from discontinued operations, net of tax

 

(9

)

14

 

 

 

 

 

 

 

Net income (loss)

 

232

 

260

 

Net (income) loss attributable to noncontrolling interests

 

3

 

3

 

 

 

 

 

 

 

Net income (loss) attributable to Bunge

 

235

 

263

 

Convertible preference share dividends and other obligations

 

(13

)

(14

)

 

 

 

 

 

 

Net income (loss) available to Bunge common shareholders

 

$

222

 

$

249

 

 

 

 

 

 

 

Earnings per common share—basic (Note 16)

 

 

 

 

 

Net income (loss) from continuing operations

 

$

1.64

 

$

1.61

 

Net income (loss) from discontinued operations

 

(0.07

)

0.10

 

 

 

 

 

 

 

Net income (loss) attributable to Bunge common shareholders

 

$

1.57

 

$

1.71

 

 

 

 

 

 

 

Earnings per common share—diluted (Note 16)

 

 

 

 

 

Net income (loss) from continuing operations

 

$

1.60

 

$

1.58

 

Net income (loss) from discontinued operations

 

(0.06

)

0.09

 

 

 

 

 

 

 

Net income (loss) attributable to Bunge common shareholders

 

$

1.54

 

$

1.67

 

 

 

 

 

 

 

Dividends per common share

 

$

0.38

 

$

0.34

 

 

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

 

3



Table of Contents

 

BUNGE LIMITED AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

(U.S. dollars in millions)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

Net income (loss)

 

$

232

 

$

260

 

Other comprehensive income (loss):

 

 

 

 

 

Foreign exchange translation adjustment

 

520

 

(1,339

)

Unrealized gains (losses) on designated cash flow and net investment hedges, net of tax (expense) benefit of nil in 2016 and nil in 2015

 

(184

)

42

 

Reclassification of realized net losses (gains) to net income, net of tax expense (benefit) of nil in 2016 and nil in 2015

 

7

 

13

 

Pension adjustment, net of tax (expense) benefit of nil in 2016 and nil in 2015

 

 

3

 

Total other comprehensive income (loss)

 

343

 

(1,281

)

Total comprehensive income (loss)

 

575

 

(1,021

)

Less: comprehensive (income) loss attributable to noncontrolling interests

 

(6

)

10

 

Total comprehensive income (loss) attributable to Bunge

 

$

569

 

$

(1,011

)

 

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

 

4



Table of Contents

 

BUNGE LIMITED AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(U.S. dollars in millions, except share data)

 

 

 

March 31,

 

December 31,

 

 

 

2016

 

2015

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

523

 

$

411

 

Time deposits under trade structured finance program (Note 4)

 

242

 

325

 

Trade accounts receivable (less allowances of $141 and $125) (Note 12)

 

1,958

 

1,607

 

Inventories (Note 5)

 

4,807

 

4,466

 

Deferred income taxes

 

112

 

208

 

Other current assets (Note 6)

 

3,781

 

3,899

 

Total current assets

 

11,423

 

10,916

 

 

 

 

 

 

 

Property, plant and equipment, net

 

4,884

 

4,736

 

Goodwill

 

429

 

418

 

Other intangible assets, net

 

339

 

326

 

Investments in affiliates

 

330

 

329

 

Deferred income taxes

 

557

 

417

 

Other non-current assets (Note 7)

 

977

 

772

 

Total assets

 

$

18,939

 

$

17,914

 

LIABILITIES AND EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term debt

 

$

810

 

$

648

 

Current portion of long-term debt (Note 11)

 

213

 

869

 

Letter of credit obligations under trade structured finance program (Note 4)

 

242

 

325

 

Trade accounts payable

 

3,284

 

2,675

 

Deferred income taxes

 

92

 

60

 

Other current liabilities (Note 9)

 

2,451

 

2,763

 

Total current liabilities

 

7,092

 

7,340

 

Long-term debt (Note 11)

 

3,845

 

2,926

 

Deferred income taxes

 

212

 

209

 

Other non-current liabilities

 

786

 

750

 

Commitments and contingencies (Note 14)

 

 

 

 

 

Redeemable noncontrolling interests

 

41

 

37

 

Equity (Note 15):

 

 

 

 

 

Convertible perpetual preference shares, par value $.01; authorized, issued and outstanding: 2016 and 2015 — 6,900,000 shares (liquidation preference $100 per share)

 

690

 

690

 

Common shares, par value $.01; authorized — 400,000,000 shares; issued and outstanding: 2016 — 139,703,904 shares, 2015 — 142,483,467 shares

 

1

 

1

 

Additional paid-in capital

 

5,108

 

5,105

 

Retained earnings

 

7,900

 

7,725

 

Accumulated other comprehensive income (loss) (Note 15)

 

(6,026

)

(6,360

)

Treasury shares, at cost - 2016 - 12,551,432 and 2015 - 9,586,083 shares, respectively

 

(901

)

(720

)

Total Bunge shareholders’ equity

 

6,772

 

6,441

 

Noncontrolling interests

 

191

 

211

 

Total equity

 

6,963

 

6,652

 

Total liabilities and equity

 

$

18,939

 

$

17,914

 

 

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

 

5



Table of Contents

 

BUNGE LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(U.S. dollars in millions)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

2015

 

OPERATING ACTIVITIES

 

 

 

 

 

Net income (loss)

 

$

232

 

$

260

 

Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities:

 

 

 

 

 

Foreign exchange loss (gain) on debt

 

78

 

(225

)

Bad debt expense

 

11

 

7

 

Depreciation, depletion and amortization

 

113

 

120

 

Stock-based compensation expense

 

13

 

13

 

Deferred income tax expense (benefit)

 

32

 

16

 

Other, net

 

12

 

(18

)

Changes in operating assets and liabilities, excluding the effects of acquisitions:

 

 

 

 

 

Trade accounts receivable

 

(301

)

221

 

Inventories

 

(222

)

471

 

Secured advances to suppliers

 

78

 

(226

)

Trade accounts payable and accrued liabilities

 

442

 

38

 

Net unrealized gain/loss on derivative contracts

 

(410

)

(275

)

Margin deposits

 

100

 

10

 

Other, net

 

(101

)

(104

)

Cash provided by (used for) operating activities

 

77

 

308

 

INVESTING ACTIVITIES

 

 

 

 

 

Payments made for capital expenditures

 

(110

)

(117

)

Acquisitions of businesses (net of cash acquired)

 

 

(48

)

Proceeds from investments

 

158

 

60

 

Payments for investments

 

(251

)

(71

)

Settlement of net investment hedges

 

1

 

 

Payments for investments in affiliates

 

(11

)

(10

)

Other, net

 

1

 

(2

)

Cash provided by (used for) investing activities

 

(212

)

(188

)

FINANCING ACTIVITIES

 

 

 

 

 

Net change in short-term debt with maturities of 90 days or less

 

152

 

67

 

Proceeds from short-term debt with maturities greater than 90 days

 

89

 

148

 

Repayments of short-term debt with maturities greater than 90 days

 

(56

)

(143

)

Proceeds from long-term debt

 

3,094

 

1,461

 

Repayments of long-term debt

 

(2,810

)

(1,319

)

Proceeds from sale of common shares

 

 

10

 

Repurchases of common shares

 

(181

)

(200

)

Dividends paid

 

(62

)

(58

)

Return of capital to noncontrolling interest

 

(6

)

 

Other, net

 

(1

)

(1

)

Cash provided by (used for) financing activities

 

219

 

(35

)

Effect of exchange rate changes on cash and cash equivalents

 

28

 

(67

)

Net increase (decrease) in cash and cash equivalents

 

112

 

18

 

Cash and cash equivalents, beginning of period

 

411

 

362

 

Cash and cash equivalents, end of period

 

$

523

 

$

380

 

 

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

 

6



Table of Contents

 

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-

 

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, 2016

 

$

37

 

6,900,000

 

$

690

 

142,483,467

 

$

1

 

$

5,105

 

$

7,725

 

$

(6,360

)

$

(720

)

$

211

 

$

6,652

 

Net income (loss)

 

(3

)

 

 

 

 

 

235

 

 

 

(3

)

232

 

Accretion of noncontrolling interests

 

5

 

 

 

 

 

(5

)

 

 

 

 

(5

)

Other comprehensive income (loss)

 

2

 

 

 

 

 

 

 

334

 

 

9

 

343

 

Dividends on common shares

 

 

 

 

 

 

 

(52

)

 

 

 

(52

)

Dividends on preference shares

 

 

 

 

 

 

 

(8

)

 

 

 

(8

)

Noncontrolling decrease from redemption

 

 

 

 

 

 

(2

)

 

 

 

(4

)

(6

)

Deconsolidation of a subsidiary

 

 

 

 

 

 

 

 

 

 

(22

)

(22

)

Stock-based compensation expense

 

 

 

 

 

 

13

 

 

 

 

 

13

 

Repurchase of common shares

 

 

 

 

(2,965,349

)

 

 

 

 

(181

)

 

(181

)

Issuance of common shares

 

 

 

 

185,786

 

 

(3

)

 

 

 

 

(3

)

Balance, March 31, 2016

 

$

41

 

6,900,000

 

$

690

 

139,703,904

 

$

1

 

$

5,108

 

$

7,900

 

$

(6,026

)

$

(901

)

$

191

 

$

6,963

 

 

 

 

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)

 

(5

)

 

 

 

 

 

263

 

 

 

(3

)

260

 

Accretion of noncontrolling interest

 

6

 

 

 

 

 

(6

)

 

 

 

 

(6

)

Other comprehensive income (loss)

 

(4

)

 

 

 

 

 

 

(1,274

)

 

(7

)

(1,281

)

Dividends on common shares

 

 

 

 

 

 

 

(49

)

 

 

 

(49

)

Dividends on preference shares

 

 

 

 

 

 

 

(8

)

 

 

 

(8

)

Stock-based compensation expense

 

 

 

 

 

 

13

 

 

 

 

 

13

 

Repurchase of common shares

 

 

 

 

(2,460,600

)

 

 

 

 

(200

)

 

(200

)

Issuance of common shares

 

 

 

 

358,474

 

 

10

 

 

 

 

 

10

 

Balance, March 31, 2015

 

$

34

 

6,900,000

 

$

690

 

143,601,072

 

$

1

 

$

5,070

 

$

7,386

 

$

(5,332

)

$

(620

)

$

234

 

$

7,429

 

 

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

 

7



Table of Contents

 

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 three months ended March 31, 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.

 

ReclassificationsCertain prior year amounts have been reclassified to conform to current year presentation.

 

2.                                      ACCOUNTING PRONOUNCEMENTS

 

New Accounting Pronouncements — In March 2016, the Financial Accounting Standards Board (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.  Bunge is evaluating the expected impact of this standard on its consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  Under the new provisions, all lessees will report 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

 

8



Table of Contents

 

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 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 remaining 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

 

On January 29, 2016, SALIC Canada Limited (“SALIC”) received the final regulatory approval for its conversion of two non-interest bearing convertible promissory notes issued to SALIC by G3 of $106 million into 148,323,000 common shares.  This conversion was completed on February 1, 2016 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 in the capital 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 institution counterparties or in U.S. dollar, 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 March 31, 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.

 

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The table below summarizes the assets and liabilities included in the condensed consolidated balance sheets and the associated fair value amounts at March 31, 2016 and December 31, 2015, related to the program.   The fair values approximated the carrying amount of the related financial instruments due to their short-term nature.

 

 

 

March 31,

 

December 31,

 

(US$ in millions)

 

2016

 

2015

 

Assets:

 

 

 

 

 

Carrying value of time deposits

 

$

242

 

$

325

 

Fair value (Level 2 measurement) of time deposits

 

$

242

 

$

325

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Carrying value of letters of credit obligations and foreign exchange contracts

 

$

242

 

$

325

 

 

 

 

 

 

 

Fair value (Level 2 measurement) of letters of credit obligations

 

$

242

 

$

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

 

$

242

 

$

325

 

 

As of March 31, 2016 and December 31, 2015, time deposits, LCs, and foreign exchange contracts of $3,580 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 March 31, 2016 and December 31, 2015, time deposits, including those presented on a net basis, carried weighted-average interest rates of 2.29% and 2.21%, respectively.  During the three months ended March 31, 2016 and 2015, total net proceeds from issuances of LCs were $1,396 million and $1,922 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.

 

 

 

March 31,

 

December 31,

 

(US$ in millions)

 

2016

 

2015

 

Agribusiness (1)

 

$

3,914

 

$

3,533

 

Edible Oil Products (2)

 

347

 

356

 

Milling Products

 

177

 

164

 

Sugar and Bioenergy (3)

 

305

 

350

 

Fertilizer

 

64

 

63

 

Total

 

$

4,807

 

$

4,466

 

 


(1)             Includes RMI of $3,769 million and $3,393 million at March 31, 2016 and December 31, 2015, respectively.  Of these amounts $2,877 million and $2,513 million can be attributable to merchandising activities at March 31, 2016 and December 31, 2015, respectively.

 

(2)             Includes RMI of bulk soybean and canola oil in the aggregate amount of $108 million and $110 million at March 31, 2016 and December 31, 2015, respectively.

 

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(3)             Includes sugar RMI, which can be attributable to Bunge’s trading and merchandising business of $80 million and $163 million at March 31, 2016 and December 31, 2015, respectively.

 

6.                                      OTHER CURRENT ASSETS

 

Other current assets consist of the following:

 

 

 

March 31,

 

December 31,

 

(US$ in millions)

 

2016

 

2015

 

Prepaid commodity purchase contracts (1)

 

$

236

 

$

287

 

Secured advances to suppliers, net (2)

 

552

 

521

 

Unrealized gains on derivative contracts, at fair value

 

1,473

 

1,456

 

Recoverable taxes, net

 

289

 

364

 

Margin deposits

 

368

 

467

 

Marketable securities, at fair value and other short-term investments

 

344

 

234

 

Deferred purchase price receivable, at fair value (3)

 

80

 

79

 

Prepaid expenses

 

149

 

132

 

Other

 

290

 

359

 

Total

 

$

3,781

 

$

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 at March 31, 2016 and December 31, 2015.

 

Interest earned on secured advances to suppliers of $11 million for each of the three months ended March 31, 2016 and 2015 is included in net sales in the condensed consolidated statements of income.

 

(3)             Deferred purchase price receivable represents additional 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.

 

 

 

March 31,

 

December 31,

 

(US$ in millions)

 

2016

 

2015

 

Foreign government securities

 

$

85

 

$

61

 

Corporate debt securities

 

112

 

92

 

Certificate of deposits/time deposits

 

147

 

55

 

Other

 

 

26

 

Total marketable securities and other short-term investments

 

$

344

 

$

234

 

 

As of March 31, 2016, total marketable securities and other short-term investments includes $159 million of assets classified as held-to-maturity and $185 million as trading. 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 three months ended March 31, 2016 and 2015, we recognized a net gain of $8 million and $7 million, respectively, related to trading securities.

 

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7.                                      OTHER NON-CURRENT ASSETS

 

Other non-current assets consist of the following:

 

 

 

March 31,

 

December 31,

 

(US$ in millions)

 

2016

 

2015

 

Recoverable taxes, net (1)

 

$

214

 

$

133

 

Judicial deposits (1)

 

131

 

119

 

Other long-term receivables

 

28

 

23

 

Income taxes receivable (1)

 

279

 

195

 

Long-term investments

 

53

 

49

 

Affiliate loans receivable, net

 

21

 

15

 

Long-term receivables from farmers in Brazil, net (1)

 

128

 

117

 

Other

 

123

 

121

 

Total

 

$

977

 

$

772

 

 


(1)                                     These non-current assets arise primarily from Bunge’s Brazilian operations and their realization could take in excess of five years.

 

Recoverable taxes, net-Recoverable taxes are reported net of valuation allowances of $22 million and $20 million at March 31, 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 and through credit sales of fertilizer to farmers.

 

The table below summarizes Bunge’s recorded investment in long-term receivables from farmers in Brazil.

 

 

 

March 31,

 

December 31,

 

(US$ in millions)

 

2016

 

2015

 

Legal collection process (1)

 

$

136

 

$

119

 

Renegotiated amounts (2)

 

59

 

58

 

Other long-term receivables

 

41

 

40

 

Total

 

$

236

 

$

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 recorded investment in long-term receivables from farmers in Brazil for the three months ended March 31, 2016 and the year ended December 31, 2015 was $221 million and $214 million, respectively.  The table below summarizes Bunge’s recorded investment in long-term receivables from farmers in Brazil and the related allowance amounts.

 

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March 31, 2016

 

December  31, 2015

 

 

 

Recorded

 

 

 

Recorded

 

 

 

(US$ in millions)

 

Investment

 

Allowance

 

Investment

 

Allowance

 

For which an allowance has been provided:

 

 

 

 

 

 

 

 

 

Legal collection process

 

$

85

 

$

75

 

$

78

 

$

69

 

Renegotiated amounts

 

39

 

33

 

37

 

31

 

For which no allowance has been provided:

 

 

 

 

 

 

 

 

 

Legal collection process

 

51

 

 

41

 

 

Renegotiated amounts

 

20

 

 

21

 

 

Other long-term receivables

 

41

 

 

40

 

 

Total

 

$

236

 

$

108

 

$

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

 

 

 

March 31,

 

(US$ in millions)

 

2016

 

2015

 

Beginning balance

 

$

100

 

$

153

 

Bad debt provisions

 

 

1

 

Recoveries

 

 

(2

)

Transfers (1)

 

 

4

 

Foreign exchange translation

 

8

 

(26

)

Ending balance

 

$

108

 

$

130

 

 


(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 three months ended March 31, 2016 and 2015, income tax expense related to continuing operations was $34 million and $85 million, respectively, resulting in effective tax rates of 12% and 26%. 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 partially offset by an income tax charge of $32 million recorded for an uncertain tax position related to Asia. Excluding the effect of the two discrete items noted above and certain other discrete items our effective tax rate for the three months ended March 31, 2016 was 27%.

 

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.

 

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9.                                      OTHER CURRENT LIABILITIES

 

Other current liabilities consist of the following:

 

 

 

March 31,

 

December 31,

 

(US$ in millions)

 

2016

 

2015

 

Accrued liabilities

 

$

638

 

$

688

 

Unrealized losses on derivative contracts at fair value

 

1,221

 

1,471

 

Advances on sales

 

315

 

371

 

Other

 

277

 

233

 

Total

 

$

2,451

 

$

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 12 for deferred purchase price receivable (“DPP”) related to sales of trade receivables. See Note 7 for long-term receivables from farmers in Brazil, net and other long-term investments 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

 

 

 

March 31, 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)

 

$

 

$

3,227

 

$

730

 

$

3,957

 

$

 

$

3,421

 

$

245

 

$

3,666

 

Trade accounts receivable(1)

 

 

 

10

 

 

 

10

 

 

6

 

 

6

 

Unrealized gain on designated derivative contracts(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate

 

 

11

 

 

11

 

 

 

 

 

Foreign exchange

 

1

 

16

 

 

17

 

 

30

 

 

30

 

Unrealized gain on undesignated derivative contracts (2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange

 

10

 

441

 

 

451

 

9

 

176

 

 

185

 

Commodities

 

231

 

601

 

89

 

921

 

252

 

696

 

220

 

1,168

 

Freight

 

62

 

 

 

 

62

 

65

 

 

 

65

 

Energy

 

11

 

 

 

11

 

7

 

 

1

 

8

 

Deferred purchase price receivable (Note 12)

 

 

80

 

 

80

 

 

79

 

 

79

 

Other (3)

 

42

 

371

 

 

413

 

68

 

176

 

 

244

 

Total assets

 

$

357

 

$

4,757

 

$

819

 

$

5,933

 

$

401

 

$

4,584

 

$

466

 

$

5,451

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts payable(1)

 

$

 

$

348

 

$

291

 

$

639

 

$

 

$

399

 

$

44

 

$

443

 

Unrealized loss on designated derivative contracts (4):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate

 

 

 

 

 

 

3

 

 

3

 

Foreign exchange

 

 

184

 

 

184

 

 

15

 

 

15

 

Unrealized loss on undesignated derivative contracts (4):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate

 

 

1

 

 

1

 

 

 

 

 

Foreign exchange

 

 

201

 

 

201

 

1

 

605

 

 

606

 

Commodities

 

306

 

381

 

70

 

757

 

402

 

304

 

52

 

758

 

Freight

 

57

 

 

1

 

58

 

56

 

 

 

56

 

Energy

 

15

 

3

 

2

 

20

 

31

 

 

2

 

33

 

Total liabilities

 

$

378

 

$

1,118

 

$

364

 

$

1,860

 

$

490

 

$

1,326

 

$

98

 

$

1,914

 

 

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(1)             Trade accounts receivable and payable are generally stated at historical amounts, net of write-offs and allowances, with the exception of $10 million and $639 million, at March 31, 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 March 31, 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 March 31, 2016 and December 31, 2015, respectively.

 

Derivatives — Exchange traded futures and options 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.

 

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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 March 31, 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 months ended March 31, 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 March 31, 2016

 

 

 

 

 

Readily

 

Trade Accounts

 

 

 

 

 

Derivatives,

 

Marketable

 

Receivable/

 

 

 

(US$ in millions)

 

Net (1)

 

Inventories

 

Payable, Net(2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2016

 

$

167

 

$

245

 

$

(44

)

$

368

 

Total gains and (losses), realized/unrealized included in cost of goods sold

 

(85

)

11

 

5

 

(69

)

Purchases

 

 

537

 

(195

)

342

 

Sales

 

 

(248

)

 

(248

)

Issuances

 

 

 

 

 

 

Settlements

 

(66

)

 

 

(66

)

Transfers into Level 3

 

 

 

192

 

(57

)

135

 

Transfers out of Level 3

 

 

 

(7

)

 

 

(7

)

Balance, March 31, 2016

 

$

16

 

$

730

 

$

(291

)

$

455

 

 

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Table of Contents

 


(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 March 31, 2015

 

 

 

 

 

Readily

 

Trade 
Accounts

 

 

 

 

 

Derivatives,

 

Marketable

 

Receivable/

 

 

 

(US$ in millions)

 

Net (1)

 

Inventories

 

Payable, Net (2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2015

 

$

(2

)

$

255

 

$

(33

)

$

220

 

Total gains and (losses), realized/unrealized included in cost of goods sold

 

92

 

20

 

 

112

 

Purchases

 

 

482

 

(1

)

481

 

Sales

 

 

(310

)

 

(310

)

Issuances

 

 

 

(285

)

(285

)

Settlements

 

(18

)

 

 

(18

)

Transfers into Level 3

 

1

 

316

 

(171

)

146

 

Transfers out of Level 3

 

6

 

(88

)

1

 

(81

)

Balance, March 31, 2015

 

$

79

 

$

675

 

$

(489

)

$

265

 

 


(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.

 

The tables below summarize changes in unrealized gains or (losses) recorded in earnings during the three months ended March 31, 2016 and 2015 for Level 3 assets and liabilities that were held at March 31, 2016 and 2015:

 

 

 

Level 3 Instruments

 

 

 

Fair Value Measurements

 

 

 

Three Months Ended

 

 

 

 

 

Readily

 

Trade Accounts

 

 

 

 

 

Derivatives,

 

Marketable

 

Receivable and

 

 

 

(US$ in millions)

 

Net (1)

 

Inventories

 

Payable, Net(2)

 

Total

 

Changes in unrealized gains and (losses) relating to assets and liabilities held at March 31, 2016

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

$

(79

)

$

(24

)

$

1

 

$

(102

)

 

 

 

 

 

 

 

 

 

 

Changes in unrealized gains and (losses) relating to assets and liabilities held at March 31, 2015

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

$

21

 

$

(20

)

$

 

$

1

 

 


(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.

 

17



Table of Contents

 

Derivative Instruments

 

Interest rate derivatives — Bunge, from time-to-time uses interest rate derivatives, including interest rate swaps, interest rate basis swaps, interest rate options or interest rate futures. During 2015, Bunge entered into interest rate swap agreements for the purpose of managing certain of its interest rate exposures. The interest rate swaps used by Bunge as hedging instruments have been recorded at fair value in the condensed consolidated balance sheets with changes in fair value recorded contemporaneously in earnings. These swap agreements have been designated as fair value hedges. Additionally, the carrying amount of the associated hedged debt is adjusted through earnings for changes in the fair value arising from changes in benchmark interest rates. Ineffectiveness is recognized to the extent that these two adjustments do not offset.

 

In February 2016, Bunge entered into one year interest rate swap agreements, having a total notional of $500 million that requires Bunge to pay interest at a fixed rate and receive interest at a variable rate. The interest rate swaps do not qualify for hedge accounting, and therefore Bunge has not designated these swaps as hedge instruments for accounting purposes. The interest rate swaps have been recorded at fair value in the consolidated condensed balance sheets with changes in fair value recorded contemporaneously in earnings.

 

As of March 31, 2016, Bunge had fixed-to-variable interest rate swap agreements having a total notional amount of $500 million that requires Bunge to pay interest at a variable rate and receive interest at 3.5%. These interest rate swap agreements are designated as fair value hedges of $500 million of its 3.5% 2020 Senior Notes.

 

 

 

March 31, 2016

 

 

 

Notional Amount of

 

Notional Amount

 

(US$ in millions)

 

Hedged Obligation

 

Derivative (3)

 

Interest rate swap agreements

 

$

500

 

$

500

 

Weighted average rate payable - 3 month LIBOR plus 1.91% (1)

 

 

 

 

 

Weighted average rate receivable - 3.5% (2)

 

 

 

 

 

 


(1)                                     Interest is payable in arrears semi-annually based on three-month U.S. dollar LIBOR plus 1.91%.

 

(2)                                     Interest is receivable in arrears based on a fixed interest rate of 3.5%.

 

(3)                                     The interest rate swap agreements mature in 2020.

 

Foreign exchange derivatives - Bunge uses a combination of foreign exchange forward, swap and option contracts in certain of its operations to mitigate the risk from exchange rate fluctuations in connection with certain commercial and balance sheet exposures. The foreign exchange forward and option contracts may be designated as cash flow hedges.  Bunge may also use net investment hedges to partially offset the translation adjustments arising from the remeasurement of its investment in certain of its foreign subsidiaries.

 

Bunge assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedge transactions are highly effective in offsetting changes in the hedged items.

 

The table below summarizes the notional amounts of open foreign exchange positions.

 

 

 

March 31, 2016

 

 

 

Exchange Traded

 

 

 

 

 

 

 

 

 

Net (Short)

 

Non-exchange Traded

 

Unit of

 

(US$ in millions)

 

& Long (1)

 

(Short) (2)

 

Long (2)

 

Measure

 

Foreign Exchange

 

 

 

 

 

 

 

 

 

Options

 

$

 

$

(222

)

$

234

 

Delta

 

Forwards

 

 

(7,791

)

3,534

 

Notional

 

Futures

 

284

 

 

 

Notional

 

Swaps

 

 

(697

)

91

 

Notional

 

 


(1)             Exchange traded derivatives are presented on a net (short) and long position basis.

 

(2)             Non-exchange traded derivatives are presented on a gross (short) and long position basis.

 

Commodity derivatives - Bunge uses commodity derivative instruments to manage its exposure to movements associated with agricultural commodity prices. Bunge generally uses exchange traded futures and options contracts to minimize the effects of changes in the prices of agricultural commodities on its agricultural commodity inventories and forward purchase and sale contracts, but may also from time-to-time enter into OTC commodity transactions, including swaps, which are settled in cash at maturity or termination based on exchange-quoted futures prices. Forward purchase and sale contracts are primarily settled through delivery of agricultural commodities. While Bunge considers these exchange traded futures and forward purchase and sale contracts to be effective economic hedges, Bunge does not designate or account for the majority of its commodity contracts as hedges. The forward contracts require performance of both Bunge and the contract counterparty in

 

18



Table of Contents

 

future periods. Contracts to purchase agricultural commodities generally relate to current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of agricultural commodities generally do not extend beyond one future crop cycle.

 

The table below summarizes the volumes of open agricultural commodities derivative positions.

 

 

 

March 31, 2016

 

 

 

Exchange Traded

 

 

 

 

 

 

 

 

 

Net (Short) &

 

Non-exchange Traded

 

Unit of

 

 

 

Long (1)

 

(Short) (2)

 

Long (2)

 

Measure

 

Agricultural Commodities

 

 

 

 

 

 

 

 

 

Futures

 

(818,387

)

 

 

Metric Tons

 

Options

 

(20,920

)

(8,899

)

 

Metric Tons

 

Forwards

 

 

(29,644,774

)

23,948,974

 

Metric Tons

 

Swaps

 

 

(5,564,218

)

1,755,394

 

Metric Tons

 

 


(1)             Exchange traded derivatives are presented on a net (short) and long position basis.

 

(2)             Non-exchange traded derivatives are presented on a gross (short) and long position basis.

 

Ocean freight derivatives Bunge uses derivative instruments referred to as freight forward agreements (FFAs) and FFA options to hedge portions of its current and anticipated ocean freight costs. Changes in the fair values of ocean freight derivatives that are not designated as hedges are recorded in earnings. There were no designated hedges at March 31, 2016 and December 31, 2015, respectively.

 

The table below summarizes the open ocean freight positions.

 

 

 

March 31, 2016

 

 

 

Exchange Cleared

 

 

 

 

 

 

 

 

 

Net (Short) &

 

Non-exchange Cleared

 

Unit of

 

 

 

Long (1)

 

(Short) (2)

 

Long (2)

 

Measure

 

Ocean Freight

 

 

 

 

 

 

 

 

 

FFA

 

3,040

 

 

 

Hire Days

 

FFA Options

 

(282

)

 

 

Hire Days

 

 


(1)             Exchange cleared derivatives are presented on a net (short) and long position basis.

 

(2)             Non-exchange cleared derivatives are presented on a gross (short) and long position basis.

 

Energy derivatives — Bunge uses energy derivative instruments for various purposes including to manage its exposure to volatility in energy costs.  Bunge’s operations use substantial amounts of energy, including natural gas, coal, and fuel oil, including bunker fuel.

 

The table below summarizes the open energy positions.

 

 

 

March 31, 2016

 

 

 

Exchange Traded

 

 

 

 

 

 

 

 

 

Net (Short) &

 

Non-exchange Cleared

 

Unit of

 

 

 

Long (1)

 

(Short) (2)

 

Long (2)

 

Measure (3)

 

Natural Gas (3)

 

 

 

 

 

 

 

 

 

Futures

 

11,981,693

 

 

 

MMBtus

 

Swaps

 

 

 

6,874,101

 

MMBtus

 

Options

 

 

 

 

MMBtus

 

Energy—Other

 

 

 

 

 

 

 

 

 

Futures

 

(15,012

)

 

 

Metric Tons

 

Forwards

 

 

 

7,108,552

 

Metric Tons

 

Swaps

 

244,100

 

 

 

Metric Tons

 

Options