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, 2017
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 |
|
(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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer x |
|
Accelerated filer o |
|
Non-accelerated filer o |
|
Smaller reporting company o |
|
(Do not check if a smaller reporting company) |
|
Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act of 1934). Yes o No 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 28, 2017 the number of shares issued of the registrant was:
Common shares, par value $.01 per share: 140,395,133
BUNGE LIMITED
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(U.S. dollars in millions, except per share data)
|
|
|
Three Months Ended |
| ||||
|
|
|
2017 |
|
2016 |
| ||
|
Net sales |
|
$ |
11,121 |
|
$ |
8,916 |
|
|
Cost of goods sold |
|
(10,661 |
) |
(8,296 |
) | ||
|
|
|
|
|
|
| ||
|
Gross profit |
|
460 |
|
620 |
| ||
|
Selling, general and administrative expenses |
|
(378 |
) |
(314 |
) | ||
|
Interest income |
|
12 |
|
10 |
| ||
|
Interest expense |
|
(65 |
) |
(57 |
) | ||
|
Foreign exchange gains (losses) |
|
56 |
|
21 |
| ||
|
Other income (expense) — net |
|
(3 |
) |
(5 |
) | ||
|
|
|
|
|
|
| ||
|
Income from continuing operations before income tax |
|
82 |
|
275 |
| ||
|
Income tax (expense) benefit |
|
(28 |
) |
(34 |
) | ||
|
|
|
|
|
|
| ||
|
Income (loss) from continuing operations |
|
54 |
|
241 |
| ||
|
Income (loss) from discontinued operations, net of tax |
|
(6 |
) |
(9 |
) | ||
|
|
|
|
|
|
| ||
|
Net income (loss) |
|
48 |
|
232 |
| ||
|
Net (income) loss attributable to noncontrolling interests |
|
(1 |
) |
3 |
| ||
|
|
|
|
|
|
| ||
|
Net income (loss) attributable to Bunge |
|
47 |
|
235 |
| ||
|
Convertible preference share dividends and other obligations |
|
(8 |
) |
(13 |
) | ||
|
|
|
|
|
|
| ||
|
Net income (loss) available to Bunge common shareholders |
|
$ |
39 |
|
$ |
222 |
|
|
|
|
|
|
|
| ||
|
Earnings per common share—basic (Note 16) |
|
|
|
|
| ||
|
Net income (loss) from continuing operations |
|
$ |
0.31 |
|
$ |
1.64 |
|
|
Net income (loss) from discontinued operations |
|
(0.04 |
) |
(0.07 |
) | ||
|
|
|
|
|
|
| ||
|
Net income (loss) attributable to Bunge common shareholders |
|
$ |
0.27 |
|
$ |
1.57 |
|
|
|
|
|
|
|
| ||
|
Earnings per common share—diluted (Note 16) |
|
|
|
|
| ||
|
Net income (loss) from continuing operations |
|
$ |
0.31 |
|
$ |
1.60 |
|
|
Net income (loss) from discontinued operations |
|
(0.04 |
) |
(0.06 |
) | ||
|
|
|
|
|
|
| ||
|
Net income (loss) attributable to Bunge common shareholders |
|
$ |
0.27 |
|
$ |
1.54 |
|
|
|
|
|
|
|
| ||
|
Dividends per common share |
|
$ |
0.42 |
|
$ |
0.38 |
|
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)
|
|
|
Three Months Ended |
| ||||
|
|
|
2017 |
|
2016 |
| ||
|
Net income (loss) |
|
$ |
48 |
|
$ |
232 |
|
|
Other comprehensive income (loss): |
|
|
|
|
| ||
|
Foreign exchange translation adjustment |
|
266 |
|
520 |
| ||
|
Unrealized gains (losses) on designated cash flow and net investment hedges, net of tax (expense) benefit of nil in 2017 and nil in 2016 |
|
(7 |
) |
(184 |
) | ||
|
Reclassification of realized net losses (gains) to net income, net of tax expense (benefit) of nil in 2017 and nil in 2016 |
|
(2 |
) |
7 |
| ||
|
Total other comprehensive income (loss) |
|
257 |
|
343 |
| ||
|
Total comprehensive income (loss) |
|
305 |
|
575 |
| ||
|
Less: comprehensive (income) loss attributable to noncontrolling interests |
|
(6 |
) |
(6 |
) | ||
|
Total comprehensive income (loss) attributable to Bunge |
|
$ |
299 |
|
$ |
569 |
|
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)
|
|
|
March 31, |
|
December 31, |
| ||
|
ASSETS |
|
|
|
|
| ||
|
Current assets: |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
676 |
|
$ |
934 |
|
|
Time deposits under trade structured finance program (Note 4) |
|
26 |
|
64 |
| ||
|
Trade accounts receivable (less allowances of $125 and $122) (Note 12) |
|
1,671 |
|
1,676 |
| ||
|
Inventories (Note 5) |
|
5,188 |
|
4,773 |
| ||
|
Other current assets (Note 6) |
|
4,447 |
|
3,645 |
| ||
|
Total current assets |
|
12,008 |
|
11,092 |
| ||
|
|
|
|
|
|
| ||
|
Property, plant and equipment, net |
|
5,351 |
|
5,099 |
| ||
|
Goodwill |
|
497 |
|
373 |
| ||
|
Other intangible assets, net |
|
365 |
|
336 |
| ||
|
Investments in affiliates |
|
419 |
|
373 |
| ||
|
Deferred income taxes |
|
515 |
|
524 |
| ||
|
Time deposits under trade structured finance program (Note 4) |
|
464 |
|
464 |
| ||
|
Other non-current assets (Note 7) |
|
1,001 |
|
927 |
| ||
|
Total assets |
|
$ |
20,620 |
|
$ |
19,188 |
|
|
LIABILITIES AND EQUITY |
|
|
|
|
| ||
|
Current liabilities: |
|
|
|
|
| ||
|
Short-term debt |
|
$ |
503 |
|
$ |
257 |
|
|
Current portion of long-term debt (Note 11) |
|
938 |
|
938 |
| ||
|
Letter of credit obligations under trade structured finance program (Note 4) |
|
490 |
|
528 |
| ||
|
Trade accounts payable |
|
3,898 |
|
3,485 |
| ||
|
Other current liabilities (Note 9) |
|
2,787 |
|
2,476 |
| ||
|
Total current liabilities |
|
8,616 |
|
7,684 |
| ||
|
Long-term debt (Note 11) |
|
3,266 |
|
3,069 |
| ||
|
Deferred income taxes |
|
216 |
|
239 |
| ||
|
Other non-current liabilities |
|
889 |
|
853 |
| ||
|
|
|
|
|
|
| ||
|
Commitments and contingencies (Note 14) |
|
|
|
|
| ||
|
Equity (Note 15): |
|
|
|
|
| ||
|
Convertible perpetual preference shares, par value $.01; authorized, issued and outstanding: 2017 - 6,899,700 and 2016 — 6,900,000 shares (liquidation preference $100 per share) |
|
690 |
|
690 |
| ||
|
Common shares, par value $.01; authorized — 400,000,000 shares; issued and outstanding: 2017 — 140,382,123 shares, 2016 — 139,500,862 shares |
|
1 |
|
1 |
| ||
|
Additional paid-in capital |
|
5,195 |
|
5,143 |
| ||
|
Retained earnings |
|
8,188 |
|
8,208 |
| ||
|
Accumulated other comprehensive income (loss) (Note 15) |
|
(5,726 |
) |
(5,978 |
) | ||
|
Treasury shares, at cost - 2017 and 2016 - 12,882,313 shares, respectively |
|
(920 |
) |
(920 |
) | ||
|
Total Bunge shareholders’ equity |
|
7,428 |
|
7,144 |
| ||
|
Noncontrolling interests |
|
205 |
|
199 |
| ||
|
Total equity |
|
7,633 |
|
7,343 |
| ||
|
Total liabilities and equity |
|
$ |
20,620 |
|
$ |
19,188 |
|
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)
|
|
|
Three Months Ended |
| ||||
|
|
|
2017 |
|
2016 |
| ||
|
OPERATING ACTIVITIES |
|
|
|
|
| ||
|
Net income (loss) |
|
$ |
48 |
|
$ |
232 |
|
|
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities: |
|
|
|
|
| ||
|
Foreign exchange loss (gain) on debt |
|
14 |
|
78 |
| ||
|
Bad debt expense |
|
11 |
|
11 |
| ||
|
Depreciation, depletion and amortization |
|
130 |
|
113 |
| ||
|
Share-based compensation expense |
|
10 |
|
13 |
| ||
|
Deferred income tax expense (benefit) |
|
(12 |
) |
32 |
| ||
|
Other, net |
|
15 |
|
12 |
| ||
|
Changes in operating assets and liabilities, excluding the effects of acquisitions: |
|
|
|
|
| ||
|
Trade accounts receivable |
|
27 |
|
(301 |
) | ||
|
Inventories |
|
(252 |
) |
(222 |
) | ||
|
Trade accounts payable and accrued liabilities |
|
421 |
|
442 |
| ||
|
Net unrealized gain/loss on derivative contracts |
|
(259 |
) |
(410 |
) | ||
|
Margin deposits |
|
(83 |
) |
100 |
| ||
|
Other, net |
|
(117 |
) |
(23 |
) | ||
|
Cash provided by (used for) operating activities |
|
(47 |
) |
77 |
| ||
|
INVESTING ACTIVITIES |
|
|
|
|
| ||
|
Payments made for capital expenditures |
|
(182 |
) |
(110 |
) | ||
|
Acquisitions of businesses (net of cash acquired) |
|
(367 |
) |
— |
| ||
|
Proceeds from investments |
|
59 |
|
158 |
| ||
|
Payments for investments |
|
(65 |
) |
(251 |
) | ||
|
Payments for investments in affiliates |
|
(45 |
) |
(11 |
) | ||
|
Other, net |
|
(7 |
) |
2 |
| ||
|
Cash provided by (used for) investing activities |
|
(607 |
) |
(212 |
) | ||
|
FINANCING ACTIVITIES |
|
|
|
|
| ||
|
Net change in short-term debt with maturities of 90 days or less |
|
170 |
|
152 |
| ||
|
Proceeds from short-term debt with maturities greater than 90 days |
|
108 |
|
89 |
| ||
|
Repayments of short-term debt with maturities greater than 90 days |
|
(50 |
) |
(56 |
) | ||
|
Proceeds from long-term debt |
|
1,432 |
|
3,094 |
| ||
|
Repayments of long-term debt |
|
(1,258 |
) |
(2,810 |
) | ||
|
Proceeds from the exercise of option for common shares |
|
46 |
|
— |
| ||
|
Repurchases of common shares |
|
— |
|
(181 |
) | ||
|
Dividends paid |
|
(67 |
) |
(62 |
) | ||
|
Other, net |
|
(5 |
) |
(7 |
) | ||
|
Cash provided by (used for) financing activities |
|
376 |
|
219 |
| ||
|
Effect of exchange rate changes on cash and cash equivalents |
|
20 |
|
28 |
| ||
|
Net increase (decrease) in cash and cash equivalents |
|
(258 |
) |
112 |
| ||
|
Cash and cash equivalents, beginning of period |
|
934 |
|
411 |
| ||
|
Cash and cash equivalents, end of period |
|
$ |
676 |
|
$ |
523 |
|
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- |
|
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, 2017 |
|
$ |
— |
|
6,900,000 |
|
$ |
690 |
|
139,500,862 |
|
$ |
1 |
|
$ |
5,143 |
|
$ |
8,208 |
|
$ |
(5,978 |
) |
$ |
(920 |
) |
$ |
199 |
|
$ |
7,343 |
|
|
Net income (loss) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
47 |
|
— |
|
— |
|
1 |
|
48 |
| |||||||||
|
Other comprehensive income (loss) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
252 |
|
— |
|
5 |
|
257 |
| |||||||||
|
Dividends on common shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(59 |
) |
— |
|
— |
|
— |
|
(59 |
) | |||||||||
|
Dividends on preference shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(8 |
) |
— |
|
— |
|
— |
|
(8 |
) | |||||||||
|
Share-based compensation expense |
|
— |
|
— |
|
— |
|
— |
|
— |
|
10 |
|
— |
|
— |
|
— |
|
— |
|
10 |
| |||||||||
|
Issuance of common shares |
|
— |
|
(300 |
) |
— |
|
881,261 |
|
— |
|
42 |
|
— |
|
— |
|
— |
|
— |
|
42 |
| |||||||||
|
Balance, March 31, 2017 |
|
$ |
— |
|
6,899,700 |
|
$ |
690 |
|
140,382,123 |
|
$ |
1 |
|
$ |
5,195 |
|
$ |
8,188 |
|
$ |
(5,726 |
) |
$ |
(920 |
) |
$ |
205 |
|
$ |
7,633 |
|
|
|
|
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 interest |
|
5 |
|
— |
|
— |
|
— |
|
— |
|
(5 |
) |
— |
|
— |
|
— |
|
— |
|
(5 |
) | |||||||||
|
Other comprehensive income (loss) |
|
2 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
334 |
|
— |
|
9 |
|
343 |
| |||||||||
|
Dividends on common shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(52 |
) |
— |
|
— |
|
— |
|
(52 |
) | |||||||||
|
Dividends on preference shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(8 |
) |
— |
|
— |
|
— |
|
(8 |
) | |||||||||
|
Noncontrolling interests from redemption |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(2 |
) |
— |
|
— |
|
— |
|
(4 |
) |
(6 |
) | |||||||||
|
Deconsolidation of subsidiary |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(22 |
) |
(22 |
) | |||||||||
|
Share-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 |
|
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, 2016 has been derived from Bunge’s audited consolidated financial statements at that date. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017. The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2016, forming part of Bunge’s 2016 Annual Report on Form 10-K filed with the SEC on February 28, 2017.
2. ACCOUNTING PRONOUNCEMENTS
New Accounting Pronouncements — In March 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The new guidance shortens the premium amortization period for certain callable debt securities to the earliest call date. The new guidance does not require an accounting change for securities held at a discount, which will continue to be amortized to maturity. The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted. The new requirements should be implemented using a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this standard is not expected to have a material impact on Bunge’s consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes the presentation of net periodic benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Service cost should be included in the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net periodic benefit pension cost should be presented separately outside of operating income. Additionally, only service costs may be capitalized in assets. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. Entities should apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively. The guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component should be applied prospectively. The adoption of this standard is not expected to have a material impact on Bunge’s consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The new guidance clarifies the scope of Subtopic 610-20 on the sale or transfer of nonfinancial assets to noncustomers, including partial sales. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. The new requirements may be implemented either retrospectively to each period presented in the financial statements (i.e., the full retrospective approach), or retrospectively with a cumulative—effect adjustment to retained earnings at the date of initial application (i.e., the modified retrospective approach). The adoption of this standard is not expected to have a material impact on Bunge’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. The new guidance eliminates Step 2 from the goodwill impairment test. Instead an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The standard is effective for annual or interim impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The new requirements should be implemented on a prospective basis. The adoption of this standard is not expected to have a material impact on Bunge’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) - Clarifying the Definition of a Business. The amendments provide that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. Otherwise, to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. The new requirements should be implemented on a prospective basis. The adoption of this standard is not expected to have a material impact on Bunge’s consolidated financial statements.
Recently Adopted Accounting Pronouncements - In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810), Interests Held through Related Parties That Are under Common Control, which provides that a single decision maker is not required to consider indirect interests held through related parties that are under common control with the decision maker to be equivalents of direct interests in their entity. The new guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. Bunge adopted this ASU upon its effective date of January 1, 2017 and the adoption did not have a material impact on Bunge’s consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. 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 adopted this ASU upon its effective date of January 1, 2017 and the adoption did not have a material impact on Bunge’s consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330), Simplifying the Measurement of Inventory, which requires entities that measure inventory using the first-in, first-out or average cost methods to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The update is effective for fiscal years beginning after December 15, 2016 on a prospective basis, with earlier application permitted. Bunge adopted this ASU upon its effective date of January 1, 2017 and the adoption did not have a material impact on Bunge’s consolidated financial statements.
3. BUSINESS ACQUISITIONS
On February 28, 2017, Bunge closed on the acquisition of two oilseed processing plants and related operations in the Netherlands and France pursuant to an agreement with Cargill Inc. Bunge paid a total purchase price of approximately $344 million, subject to adjustments for working capital. The preliminary purchase price allocation resulted in $109 million allocated to property, plant and equipment, $125 million to other net assets and liabilities and $7 million to finite-lived intangible assets. The transaction also resulted in $103 million of goodwill allocated to Bunge’s agribusiness operations.
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. For the three months ended March 31, 2017 and 2016, the net return from these activities, was $11 million and $15 million, respectively, and were included as a reduction of cost of goods sold in the
accompanying consolidated statements of income. These activities include programs under which Bunge generally obtains U.S. dollar-denominated letters of credit (“LCs”) (each based on an underlying commodity trade flow) from financial institutions, and time deposits denominated in either the local currency of the financial institutions counterparties or in U.S. dollars, as well as foreign exchange forward contracts, all of which are subject to legally enforceable set-off agreements. The LCs and foreign exchange contracts are presented within the line item letter of credit obligations under trade structured finance program on the condensed consolidated balance sheets as of March 31, 2017 and December 31, 2016.
The table below summarizes the assets and liabilities included in the condensed consolidated balance sheets and the associated fair value amounts at March 31, 2017 and December 31, 2016, related to the program. The fair values approximated the carrying amount of the related financial instruments.
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2017 |
|
2016 |
| ||
|
Current assets: |
|
|
|
|
| ||
|
Carrying value of time deposits |
|
$ |
26 |
|
$ |
64 |
|
|
Fair value (Level 2 measurement) of time deposits |
|
$ |
26 |
|
$ |
64 |
|
|
|
|
|
|
|
| ||
|
Non-current assets: |
|
|
|
|
| ||
|
Carrying value of time deposits |
|
$ |
464 |
|
$ |
464 |
|
|
Fair value (Level 2 measurement) of time deposits |
|
$ |
464 |
|
$ |
464 |
|
|
|
|
|
|
|
| ||
|
Current liabilities: |
|
|
|
|
| ||
|
Carrying value of letters of credit obligations and foreign exchange contracts |
|
$ |
490 |
|
$ |
528 |
|
|
|
|
|
|
|
| ||
|
Fair value (Level 2 measurement) of letters of credit obligations |
|
$ |
489 |
|
$ |
528 |
|
|
Fair value (Level 2 measurement) of foreign exchange forward contracts-(gains) losses |
|
1 |
|
— |
| ||
|
Total fair value (Level 2 measurement) of letters of credit obligations and foreign exchange contracts |
|
$ |
490 |
|
$ |
528 |
|
As of March 31, 2017 and December 31, 2016, time deposits, LCs, and foreign exchange contracts of $6,110 million and $5,732 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, 2017 and December 31, 2016, time deposits, including those presented on a net basis, carried weighted-average interest rates of 2.45% and 2.36%, respectively. During the three months ended March 31, 2017 and 2016, total net proceeds from issuances of LCs were $1,604 million and $1,396 million, respectively. These cash inflows are offset by the related cash outflows resulting from placement of the time deposits and repayment of the LCs. All cash flows related to the programs are included in operating activities in the condensed consolidated statements of cash flows.
5. INVENTORIES
Inventories by segment are presented below. Readily marketable inventory (“RMI”) are agricultural commodity inventories, such as soybeans, soybean meal, soybean oil, corn and wheat, carried at fair value because of their commodity characteristics, widely available markets and international pricing mechanisms. All other inventories are carried at lower of cost and net realizable value.
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2017 |
|
2016 |
| ||
|
Agribusiness (1) |
|
$ |
4,138 |
|
$ |
3,741 |
|
|
Edible Oil Products (2) |
|
432 |
|
404 |
| ||
|
Milling Products |
|
190 |
|
167 |
| ||
|
Sugar and Bioenergy (3) |
|
354 |
|
406 |
| ||
|
Fertilizer |
|
74 |
|
55 |
| ||
|
Total |
|
$ |
5,188 |
|
$ |
4,773 |
|
(1) Includes RMI of $3,979 million and $3,593 million at March 31, 2017 and December 31, 2016, respectively. Of these amounts $2,990 million and $2,523 million can be attributable to merchandising activities at March 31, 2017 and December 31, 2016, respectively.
(2) Includes RMI of bulk soybean and canola oil in the aggregate amount of $108 million and $123 million at March 31, 2017 and December 31, 2016, respectively.
(3) Includes sugar RMI, which can be attributable to Bunge’s trading and merchandising business of $50 million and $139 million at March 31, 2017 and December 31, 2016, respectively.
6. OTHER CURRENT ASSETS
Other current assets consist of the following:
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2017 |
|
2016 |
| ||
|
Unrealized gains on derivative contracts, at fair value |
|
$ |
1,907 |
|
$ |
1,327 |
|
|
Prepaid commodity purchase contracts (1) |
|
252 |
|
273 |
| ||
|
Secured advances to suppliers, net (2) |
|
637 |
|
601 |
| ||
|
Recoverable taxes, net |
|
448 |
|
467 |
| ||
|
Margin deposits |
|
326 |
|
251 |
| ||
|
Marketable securities, at fair value and other short-term investments |
|
151 |
|
94 |
| ||
|
Deferred purchase price receivable, at fair value (3) |
|
95 |
|
87 |
| ||
|
Prepaid expenses |
|
156 |
|
148 |
| ||
|
Other |
|
475 |
|
397 |
| ||
|
Total |
|
$ |
4,447 |
|
$ |
3,645 |
|
(1) Prepaid commodity purchase contracts represent advance payments against 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 operational 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 $10 million at March 31, 2017 and $1 million at December 31, 2016. There were no significant changes in the allowance at March 31, 2017 and December 31, 2016, respectively.
Interest earned on secured advances to suppliers of $16 million and $11 million, respectively, for the three months ended March 31, 2017 and 2016 is included in net sales in the condensed consolidated statements of income.
(3) Deferred purchase price receivable represents additional credit support for the investment conduits in Bunge’s accounts receivables sales program (see Note 12).
Marketable Securities and Other Short-Term Investments - The Company invests in foreign government securities, corporate debt securities, deposits, and other securities. The following is a summary of amounts recorded on the condensed consolidated balance sheets for marketable securities and other short-term investments.
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2017 |
|
2016 |
| ||
|
Foreign government securities |
|
$ |
84 |
|
$ |
28 |
|
|
Corporate debt securities |
|
60 |
|
57 |
| ||
|
Certificate of deposits/time deposits |
|
5 |
|
7 |
| ||
|
Other |
|
2 |
|
2 |
| ||
|
Total marketable securities and other short-term investments |
|
$ |
151 |
|
$ |
94 |
|
As of March 31, 2017, total marketable securities and other short-term investments includes $21 million of assets classified as available for sale, $123 million as trading and $7 million as other short-term investments. As of December 31, 2016, total marketable securities and other short-term investments includes $22 million of assets classified as available for sale, $63 million as trading and $9 million as other short-term investments. Held-to-maturity
foreign government and corporate debt securities and certificate of deposits/time deposits are expected to be converted to cash within a twelve month period and are therefore classified as current. Due to the short term nature of these investments, carrying value approximates fair value.
7. OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2017 |
|
2016 |
| ||
|
Recoverable taxes, net (1) |
|
$ |
155 |
|
$ |
139 |
|
|
Judicial deposits (1) |
|
139 |
|
129 |
| ||
|
Other long-term receivables |
|
26 |
|
23 |
| ||
|
Income taxes receivable (1) |
|
271 |
|
261 |
| ||
|
Long-term investments |
|
62 |
|
54 |
| ||
|
Affiliate loans receivable |
|
27 |
|
25 |
| ||
|
Long-term receivables from farmers in Brazil, net (1) |
|
146 |
|
133 |
| ||
|
Other |
|
175 |
|
163 |
| ||
|
Total |
|
$ |
1,001 |
|
$ |
927 |
|
(1) These non-current assets arise primarily from Bunge’s Brazilian operations and their realization could take several years.
Recoverable taxes, net-Recoverable taxes are reported net of allowances of $27 million and $32 million at March 31, 2017 and December 31, 2016, respectively.
Judicial deposits-Judicial deposits are funds that Bunge has placed on deposit with the courts in Brazil. These funds are held in judicial escrow relating to certain legal proceedings pending legal resolution and bear interest at the SELIC rate, which is the benchmark rate of the Brazilian central bank.
Income taxes receivable-Income taxes receivable includes overpayments of current income taxes plus accrued interest. These income tax prepayments are expected to be primarily utilized for settlement of future income tax obligations. Income taxes receivable in Brazil bear interest at the SELIC rate.
Affiliate loans receivable-Affiliate loans receivable are primarily interest bearing receivables from unconsolidated affiliates with a remaining maturity of greater than one year.
Long-term receivables from farmers in Brazil, net of reserves-Bunge provides financing to farmers in Brazil, primarily through secured advances against farmer commitments to deliver agricultural commodities (primarily soybeans) upon harvest of the then-current year’s crop and through credit sales of fertilizer to farmers.
The table below summarizes Bunge’s recorded investment in long-term receivables from farmers in Brazil.
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2017 |
|
2016 |
| ||
|
Legal collection process (1) |
|
$ |
150 |
|
$ |
144 |
|
|
Renegotiated amounts (2) |
|
62 |
|
52 |
| ||
|
Other long-term receivables |
|
45 |
|
46 |
| ||
|
Total |
|
$ |
257 |
|
$ |
242 |
|
(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, 2017 and the year ended December 31, 2016 was $255 million and $235 million, respectively. The table below summarizes Bunge’s recorded investment in long-term receivables from farmers in Brazil and the related allowance amounts.
|
|
|
March 31, 2017 |
|
December 31, 2016 |
| ||||||||
|
|
|
Recorded |
|
|
|
Recorded |
|
|
| ||||
|
(US$ in millions) |
|
Investment |
|
Allowance |
|
Investment |
|
Allowance |
| ||||
|
For which an allowance has been provided: |
|
|
|
|
|
|
|
|
| ||||
|
Legal collection process |
|
$ |
84 |
|
$ |
82 |
|
$ |
84 |
|
$ |
78 |
|
|
Renegotiated amounts |
|
29 |
|
29 |
|
36 |
|
31 |
| ||||
|
For which no allowance has been provided: |
|
|
|
|
|
|
|
|
| ||||
|
Legal collection process |
|
66 |
|
— |
|
60 |
|
— |
| ||||
|
Renegotiated amounts |
|
33 |
|
— |
|
16 |
|
— |
| ||||
|
Other long-term receivables |
|
45 |
|
— |
|
46 |
|
— |
| ||||
|
Total |
|
$ |
257 |
|
$ |
111 |
|
$ |
242 |
|
$ |
109 |
|
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) |
|
2017 |
|
2016 |
| ||
|
Beginning balance |
|
$ |
109 |
|
$ |
100 |
|
|
Bad debt provisions |
|
1 |
|
— |
| ||
|
Recoveries |
|
(2 |
) |
— |
| ||
|
Foreign exchange translation |
|
3 |
|
8 |
| ||
|
Ending balance |
|
$ |
111 |
|
$ |
108 |
|
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.
For the three months ended March 31, 2017, and 2016, income tax expense related to continuing operations was $28 million and $34 million, respectively, resulting in effective tax rates of 34% and 12%. The higher tax rate in 2017 was primarily due to unfavorable earnings mix associated with lower overall pretax income in the first quarter and pretax losses in certain jurisdictions. 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 $32 million recorded for an uncertain tax position related to Asia.
As a global enterprise, Bunge files income tax returns that are subject to periodic examination and challenge by federal, state and foreign tax authorities. In many jurisdictions, income tax examinations, including settlement negotiations or litigation, may take several years to finalize. While it is difficult to predict the final outcome or timing of resolution of any particular matter, management believes that the condensed consolidated financial statements reflect the largest amount of tax benefit that is more likely than not to be realized.
9. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2017 |
|
2016 |
| ||
|
Accrued liabilities |
|
$ |
567 |
|
$ |
548 |
|
|
Unrealized losses on derivative contracts at fair value |
|
1,539 |
|
1,203 |
| ||
|
Advances on sales |
|
341 |
|
395 |
| ||
|
Other |
|
340 |
|
330 |
| ||
|
Total |
|
$ |
2,787 |
|
$ |
2,476 |
|
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, 2017 |
|
December 31, 2016 |
| ||||||||||||||||||||
|
(US$ in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Readily marketable inventories (Note 5) |
|
$ |
— |
|
$ |
3,394 |
|
$ |
743 |
|
$ |
4,137 |
|
$ |
— |
|
$ |
3,618 |
|
$ |
237 |
|
$ |
3,855 |
|
|
Trade accounts receivable(1) |
|
— |
|
8 |
|
— |
|
8 |
|
— |
|
6 |
|
— |
|
6 |
| ||||||||
|
Unrealized gain on designated derivative contracts(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest rate |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1 |
|
— |
|
1 |
| ||||||||
|
Foreign exchange |
|
— |
|
37 |
|
— |
|
37 |
|
— |
|
29 |
|
— |
|
29 |
| ||||||||
|
Unrealized gain on undesignated derivative contracts (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest rate |
|
— |
|
1 |
|
— |
|
1 |
|
— |
|
1 |
|
— |
|
1 |
| ||||||||
|
Foreign exchange |
|
5 |
|
463 |
|
— |
|
468 |
|
— |
|
312 |
|
— |
|
312 |
| ||||||||
|
Commodities |
|
629 |
|
692 |
|
46 |
|
1,367 |
|
421 |
|
431 |
|
96 |
|
948 |
| ||||||||
|
Freight |
|
28 |
|
— |
|
5 |
|
33 |
|
16 |
|
— |
|
— |
|
16 |
| ||||||||
|
Energy |
|
17 |
|
— |
|
— |
|
17 |
|
23 |
|
1 |
|
— |
|
24 |
| ||||||||
|
Deferred purchase price receivable (Note 12 ) |
|
— |
|
95 |
|
— |
|
95 |
|
— |
|
87 |
|
— |
|
87 |
| ||||||||
|
Other (3) |
|
28 |
|
415 |
|
— |
|
443 |
|
18 |
|
108 |
|
— |
|
126 |
| ||||||||
|
Total assets |
|
$ |
707 |
|
$ |
5,105 |
|
$ |
794 |
|
$ |
6,606 |
|
$ |
478 |
|
$ |
4,594 |
|
$ |
333 |
|
$ |
5,405 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Trade accounts payable(1) |
|
$ |
— |
|
$ |
636 |
|
$ |
372 |
|
$ |
1,008 |
|
$ |
— |
|
$ |
478 |
|
$ |
44 |
|
$ |
522 |
|
|
Unrealized loss on designated derivative contracts (4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest rate |
|
— |
|
27 |
|
— |
|
27 |
|
— |
|
18 |
|
— |
|
18 |
| ||||||||
|
Foreign exchange |
|
— |
|
1 |
|
— |
|
1 |
|
— |
|
— |
|
— |
|
— |
| ||||||||
|
Unrealized loss on undesignated derivative contracts (4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Foreign exchange |
|
3 |
|
267 |
|
— |
|
270 |
|
— |
|
233 |
|
— |
|
233 |
| ||||||||
|
Commodities |
|
615 |
|
486 |
|
116 |
|
1,217 |
|
356 |
|
444 |
|
144 |
|
944 |
| ||||||||
|
Freight |
|
26 |
|
— |
|
5 |
|
31 |
|
14 |
|
— |
|
1 |
|
15 |
| ||||||||
|
Energy |
|
17 |
|
— |
|
2 |
|
19 |
|
9 |
|
— |
|
2 |
|
11 |
| ||||||||
|
Total liabilities |
|
$ |
661 |
|
$ |
1,417 |
|
$ |
495 |
|
$ |
2,573 |
|
$ |
379 |
|
$ |
1,173 |
|
$ |
191 |
|
$ |
1,743 |
|
(1) Trade accounts receivable and payable are generally stated at historical amounts, net of write-offs and allowances, with the exception of $8 million and $1,008 million, at March 31, 2017 and $6 million and $522 million at December 31, 2016, 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 $16 million and $5 million included in other non-current assets at March 31, 2017 and December 31, 2016, 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 $27 million and $18 million included in other non-current liabilities at March 31, 2017 and December 31, 2016, 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 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 March 31, 2017 and December 31, 2016.
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, 2017 and 2016. 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, 2017 |
| ||||||||||
|
|
|
|
|
Readily |
|
Trade Accounts |
|
|
| ||||
|
|
|
Derivatives, |
|
Marketable |
|
Receivable/ |
|
|
| ||||
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Payable, Net(2) |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Balance, January 1, 2017 |
|
$ |
(51 |
) |
$ |
237 |
|
$ |
(44 |
) |
$ |
142 |
|
|
Total gains and (losses), realized/unrealized included in cost of goods sold |
|
(59 |
) |
(14 |
) |
7 |
|
(66 |
) | ||||
|
Purchases |
|
4 |
|
764 |
|
(331 |
) |
437 |
| ||||
|
Sales |
|
— |
|
(372 |
) |
— |
|
(372 |
) | ||||
|
Issuances |
|
(2 |
) |
— |
|
— |
|
(2 |
) | ||||
|
Settlements |
|
17 |
|
— |
|
— |
|
17 |
| ||||
|
Transfers into Level 3 |
|
(4 |
) |
184 |
|
(3 |
) |
177 |
| ||||
|
Transfers out of Level 3 |
|
23 |
|
(56 |
) |
(1 |
) |
(34 |
) | ||||
|
Balance, March 31, 2017 |
|
$ |
(72 |
) |
$ |
743 |
|
$ |
(372 |
) |
$ |
299 |
|
(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, 2016 |
| ||||||||||
|
|
|
|
|
Readily |
|
Trade |
|
|
| ||||
|
|
|
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 |
|
(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, 2017 and 2016 for Level 3 assets and liabilities that were held at March 31, 2017 and 2016:
|
|
|
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, 2017 |
|
|
|
|
|
|
|
|
| ||||
|
Cost of goods sold |
|
$ |
(54 |
) |
$ |
(13 |
) |
$ |
2 |
|
$ |
(65 |
) |
|
Changes in unrealized gains and (losses) relating to assets and liabilities held at March 31, 2016 |
|
|
|
|
|
|
|
|
| ||||
|
Cost of goods sold |
|
$ |
(79 |
) |
$ |
(24 |
) |
$ |
1 |
|
$ |
(102 |
) |
(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.
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. Bunge has 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.
As of March 31, 2017, Bunge had fixed-to-variable interest rate swap agreements. Below is a summary of Bunge’s current interest rate swap agreements designated as fair value hedge agreements as of March 31, 2017.
|
Notional |
|
|
|
|
|
|
|
|
| ||||
|
Amount of |
|
Notional |
|
|
|
Payment |
|
|
| ||||
|
Hedged |
|
Amount of |
|
|
|
Weighted Average |
|
Fixed Rate |
| ||||
|
Obligation |
|
Derivative |
|
Maturity Date |
|
Rate Payable |
|
Receivable |
| ||||
|
$ |
500 |
|
$ |
500 |
|
November 24, 2020 |
|
3 month LIBOR plus 1.91% |
|
3.50 |
% | ||
|
euro |
800 |
|
euro |
800 |
|
June 16, 2023 |
|
6 month EURIBOR plus 1.64% |
|
1.85 |
% | ||
|
$ |
550 |
|
$ |
550 |
|
August 15, 2026 |
|
3 month LIBOR plus 1.12% |
|
3.25 |
% | ||
Additionally, on various dates in 2016 and 2017, Bunge entered into interest rate futures, one year interest rate swap agreements and forward rate agreements that do not qualify for hedge accounting, and therefore Bunge has not designated these as hedge instruments for accounting purposes. The interest rate futures, interest rate swaps and forward rate agreements have been recorded at fair value in the consolidated condensed balance sheets with changes in fair value recorded contemporaneously in earnings. Below is a summary of Bunge’s outstanding interest rate swap agreements and forward rate agreements.
|
|
|
March 31, 2017 | ||||||||||
|
|
|
Exchange Traded |
|
|
|
|
|
|
| |||
|
|
|
Net (Short) |
|
Non-exchange Traded |
|
Unit of |
| |||||
|
(US$ in millions) |
|
& Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure |
| |||
|
Interest Rate |
|
|
|
|
|
|
|
|
| |||
|
Futures |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
Notional |
|
|
Swaps |
|
— |
|
(2,048 |
) |
1,476 |
|
Notional |
| |||
|
Forward Rate Agreements |
|
— |
|
— |
|
825 |
|
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.
Foreign exchange derivatives and hedging activities - 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.
Foreign exchange risk is also managed through the use of foreign currency debt. Bunge has 800 million euro senior unsecured euro-denominated notes of which 797 million euro is designated as, and effective as, a net investment hedge of euro denominated assets. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments are included in foreign currency translation adjustment within OCI.
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, 2017 |
| |||||||||
|
|
|
Exchange Traded |
|
|
|
|
|
|
| |||
|
|
|
Net (Short) |
|
Non-exchange Traded |
|
Unit of |
| |||||
|
(US$ in millions) |
|
& Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure |
| |||
|
Foreign Exchange |
|
|
|
|
|
|
|
|
| |||
|
Options |
|
$ |
— |
|
$ |
(230 |
) |
$ |
157 |
|
Delta |
|
|
Forwards |
|
— |
|
(9,515 |
) |
8,341 |
|
Notional |
| |||
|
Futures |
|
(90 |
) |
— |
|
— |
|
Notional |
| |||
|
Swaps |
|
— |
|
(265 |
) |
389 |
|
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 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, 2017 |
| ||||||
|
|
|
Exchange Traded |
|
|
|
|
|
|
|
|
|
|
Net (Short) & |
|
Non-exchange Traded |
|
Unit of |
| ||
|
|
|
Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure |
|
|
Agricultural Commodities |
|
|
|
|
|
|
|
|
|
|
Futures |
|
768,446 |
|
— |
|
— |
|
Metric Tons |
|
|
Options |
|
(968,475 |
) |
— |
|
— |
|
Metric Tons |
|
|
Forwards |
|
— |
|
(35,909,050 |
) |
26,296,335 |
|
Metric Tons |
|
|
Swaps |
|
30,000 |
|
(6,932,933 |
) |
1,768,321 |
|
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, 2017 and December 31, 2016, respectively.
The table below summarizes the open ocean freight positions.
|
|
|
March 31, 2017 |
| ||||||
|
|
|
Exchange Cleared |
|
|
|
|
|
|
|
|
|
|
Net (Short) & |
|
Non-exchange Cleared |
|
Unit of |
| ||
|
|
|
Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure |
|
|
Ocean Freight |
|
|
|
|
|
|
|
|
|
|
FFA |
|
1,264 |
|
— |
|
— |
|
Hire Days |
|
|
FFA Options |
|
(985 |
) |
— |
|
— |
|
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 energy, including electricity, natural gas, coal, and fuel oil, including bunker fuel.
The table below summarizes the open energy positions.
|
|
|
March 31, 2017 |
| ||||||
|
|
|
Exchange Traded |
|
|
|
|
|
|
|
|
|
|
Net (Short) & |
|
Non-exchange Cleared |
|
Unit of |
| ||
|
|
|
Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure (3) |
|
|
Natural Gas (3) |
|
|
|
|
|
|
|
|
|
|
Futures |
|
5,167,500 |
|
— |
|
— |
|
MMBtus |
|
|
Swaps |
|
— |
|
— |
|
1,236,469 |
|
MMBtus |
|
|
Options |
|
— |
|
— |
|
— |
|
MMBtus |
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy—Other |
|
|
|
|
|
|
|
|
|