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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
OR
¨         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  ý  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  ý  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 ý
 
Accelerated filer ¨
 
Non-accelerated filer ¨
(Do not check if a smaller
reporting company)
 
Smaller reporting company ¨
 
Emerging growth company ¨
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    No  
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  ¨  No  ý
As of July 27, 2018 the number of shares issued of the registrant was:
Common shares, par value $.01 per share: 141,070,472

Table of Contents

BUNGE LIMITED
TABLE OF CONTENTS
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 

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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
June 30,
 
Six Months Ended
June 30,
 
 
2018
 
2017
 
2018
 
2017
Net sales
 
$
12,147

 
$
11,645

 
$
22,788

 
$
22,766

Cost of goods sold
 
(11,605
)
 
(11,290
)
 
(21,862
)
 
(21,951
)
Gross profit
 
542

 
355

 
926

 
815

Selling, general and administrative expenses
 
(377
)
 
(326
)
 
(721
)
 
(702
)
Interest income
 
6

 
8

 
14

 
20

Interest expense
 
(94
)
 
(62
)
 
(164
)
 
(127
)
Foreign exchange gains (losses)
 
(96
)
 
51

 
(96
)
 
107

Other income (expense) – net
 
4

 
—

 
28

 
(5
)
Income (loss) from continuing operations before income tax
 
(15
)
 
26

 
(13
)
 
108

Income tax (expense) benefit
 
(2
)
 
55

 
(21
)
 
27

Income (loss) from continuing operations
 
(17
)
 
81

 
(34
)
 
135

Income (loss) from discontinued operations, net of tax
 
7

 
6

 
5

 
—

Net income (loss)
 
(10
)
 
87

 
(29
)
 
135

Net (income) loss attributable to noncontrolling interests
 
(2
)

(6
)

(4
)

(7
)
Net income (loss) attributable to Bunge
 
(12
)
 
81

 
(33
)
 
128

Convertible preference share dividends
 
(9
)
 
(9
)
 
(17
)
 
(17
)
Net income (loss) available to Bunge common shareholders
 
$
(21
)
 
$
72

 
$
(50
)
 
$
111

 
 
 
 
 
 
 
 
 
Earnings per common share—basic (Note 18)
 
 

 
 

 
 

 
 

Net income (loss) from continuing operations
 
$
(0.20
)
 
$
0.48

 
$
(0.39
)
 
$
0.79

Net income (loss) from discontinued operations
 
0.05

 
0.04

 
0.03

 
—

Net income (loss) attributable to Bunge common shareholders
 
$
(0.15
)
 
$
0.52

 
$
(0.36
)
 
$
0.79

 
 
 
 
 
 
 
 
 
Earnings per common share—diluted (Note 18)
 
 

 
 

 
 

 
 

Net income (loss) from continuing operations
 
$
(0.20
)
 
$
0.48

 
$
(0.39
)
 
$
0.79

Net income (loss) from discontinued operations
 
0.05

 
0.03

 
0.03

 
—

Net income (loss) attributable to Bunge common shareholders
 
$
(0.15
)
 
$
0.51

 
$
(0.36
)
 
$
0.79

 
 
 
 
 
 
 
 
 
Dividends declared per common share
 
$
0.50

 
$
0.46

 
$
0.96

 
$
0.88

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

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Table of Contents

BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(U.S. dollars in millions)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2018
 
2017
 
2018
 
2017
Net income (loss)
 
$
(10
)
 
$
87

 
$
(29
)
 
$
135

Other comprehensive income (loss):
 
 

 
 

 
 

 
 

Foreign exchange translation adjustment (1)
 
(1,024
)
 
(140
)
 
(1,036
)
 
126

Unrealized gains (losses) on designated cash flow and net investment hedges, net of tax (expense) benefit of $2 and $2 in 2018 and nil and nil in 2017
 
161

 
(64
)
 
164

 
(71
)
Unrealized gains (losses) on investments, net of tax (expense) benefit of nil and nil in 2018 and $1 and $1 in 2017
 
—

 
1

 
—

 
1

Reclassification of realized net losses (gains) to net income, net of tax expense (benefit) of nil and nil in 2018 and nil and nil in 2017
 
3

 
(17
)
 
(1
)
 
(19
)
Pension adjustment, net of tax (expense) benefit of nil and nil in 2018 and nil and nil in 2017
 
2

 
—

 
1

 
—

Total other comprehensive income (loss)
 
(858
)
 
(220
)
 
(872
)
 
37

Total comprehensive income (loss)
 
(868
)
 
(133
)
 
(901
)
 
172

Less: comprehensive (income) loss attributable to noncontrolling interests
 
8

 
(11
)
 
3

 
(17
)
Total comprehensive income (loss) attributable to Bunge
 
$
(860
)
 
$
(144
)
 
$
(898
)
 
$
155

(1) Includes the release of cumulative translation adjustments upon the disposition of the Company's foreign subsidiaries, which is recorded in Other income (expense) - net in the condensed consolidated statements of income.

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


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Table of Contents

BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(U.S. dollars in millions, except share data)
 
 
June 30,
2018
 
December 31,
2017
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
221

 
$
601

Trade accounts receivable (less allowances of $119 and $107) (Note 13)
 
1,814

 
1,501

Inventories (Note 6)
 
7,062

 
5,074

Other current assets (Note 7)
 
4,421

 
3,227

Total current assets
 
13,518

 
10,403

Property, plant and equipment, net
 
5,274

 
5,310

Goodwill
 
728

 
515

Other intangible assets, net
 
738

 
323

Investments in affiliates
 
448

 
461

Deferred income taxes
 
510

 
516

Time deposits under trade structured finance program (Note 5)
 
—

 
315

Other non-current assets (Note 8)
 
908

 
1,028

Total assets
 
$
22,124

 
$
18,871

LIABILITIES AND EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Short-term debt
 
$
2,363

 
$
304

Current portion of long-term debt (Note 12)
 
625

 
15

Letter of credit obligations under trade structured finance program (Note 5)
 
—

 
315

Trade accounts payable (includes $574 and $583 carried at fair value)
 
3,138

 
3,395

Other current liabilities (Note 10)
 
2,917

 
2,186

Total current liabilities
 
9,043

 
6,215

Long-term debt (Note 12)
 
4,992

 
4,160

Deferred income taxes
 
355

 
223

Other non-current liabilities
 
950

 
916

Commitments and contingencies (Note 15)
 


 


Redeemable noncontrolling interest (Note 16)
 
441

 
—

Equity (Note 17):
 
 

 
 

Convertible perpetual preference shares, par value $.01; authorized – 21,000,000 shares, issued and outstanding: 2018 - 6,899,683 shares and 2017 - 6,899,700 shares (liquidation preference $100 per share)
 
690

 
690

Common shares, par value $.01; authorized – 400,000,000 shares; issued and outstanding: 2018 – 141,065,939 shares, 2017 – 140,646,829 shares
 
1

 
1

Additional paid-in capital
 
5,253

 
5,226

Retained earnings
 
7,917

 
8,081

Accumulated other comprehensive income (loss) (Note 17)
 
(6,795
)
 
(5,930
)
Treasury shares, at cost - 2018 and 2017 - 12,882,313 shares
 
(920
)
 
(920
)
Total Bunge shareholders’ equity
 
6,146

 
7,148

Noncontrolling interests
 
197

 
209

Total equity
 
6,343

 
7,357

Total liabilities, redeemable noncontrolling interest and equity
 
$
22,124

 
$
18,871

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

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Table of Contents

BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in millions)
 
 
Six Months Ended
June 30,
 
 
2018
 
2017
OPERATING ACTIVITIES
 
 

 
 

Net income (loss)
 
$
(29
)
 
$
135

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

 
 

Impairment charges
 
4

 
4

Foreign exchange (gain) loss on net debt
 
171

 
(33
)
Bad debt expense
 
23

 
8

Depreciation, depletion and amortization
 
304

 
282

Share-based compensation expense
 
21

 
17

Deferred income tax (benefit)
 
(50
)
 
(2
)
Other, net
 
5

 
14

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

 
 

Trade accounts receivable
 
(245
)
 
(93
)
Inventories
 
(2,202
)
 
(532
)
Secured advances to suppliers
 
(308
)
 
125

Trade accounts payable and accrued liabilities
 
(48
)
 
98

Advances on sales
 
(80
)
 
(149
)
Net unrealized gain (loss) on derivative contracts
 
262

 
(36
)
Margin deposits
 
(217
)
 
(45
)
Marketable securities
 
(56
)
 
(146
)
Beneficial interest in securitized trade receivables
 
(863
)
 
(841
)
Other, net
 
(30
)
 
(115
)
Cash provided by (used for) operating activities
 
(3,338
)
 
(1,309
)
INVESTING ACTIVITIES
 
 

 
 

Payments made for capital expenditures
 
(220
)
 
(342
)
Acquisitions of businesses (net of cash acquired)
 
(968
)
 
(394
)
Proceeds from investments
 
945

 
119

Payments for investments
 
(1,082
)
 
(160
)
Proceeds from beneficial interest in securitized trade receivables
 
853

 
832

Payments for investments in affiliates
 
—

 
(68
)
Other, net
 
44

 
8

Cash provided by (used for) investing activities
 
(428
)
 
(5
)
FINANCING ACTIVITIES
 
 

 
 

Net change in short-term debt with maturities of 90 days or less
 
1,903

 
759

Proceeds from short-term debt with maturities greater than 90 days
 
231

 
380

Repayments of short-term debt with maturities greater than 90 days
 
(63
)
 
(138
)
Proceeds from long-term debt
 
5,926

 
3,872

Repayments of long-term debt
 
(4,430
)
 
(3,853
)
Proceeds from the exercise of options for common shares
 
11

 
57

Dividends paid
 
(147
)
 
(135
)
Other, net
 
(13
)
 
(6
)
Cash provided by (used for) financing activities
 
3,418

 
936

Effect of exchange rate changes on cash and cash equivalents, and restricted cash
 
(32
)
 
21

Net increase (decrease) in cash and cash equivalents, and restricted cash
 
(380
)
 
(357
)
Cash and cash equivalents, and restricted cash - beginning of period
 
605

 
938

Cash and cash equivalents, and restricted cash - end of period
 
$
225

 
$
581

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

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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)
 
 
 
Convertible
Preference Shares
 
Common Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Redeemable
Non-
Controlling
Interests
Shares
 
Amount
 
Shares
 
Amount
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Shares
 
Non-
Controlling
Interests
 
Total
Equity
Balance, January 1, 2018
 
$
—

6,899,700

 
$
690

 
140,646,829

 
$
1

 
$
5,226

 
$
8,081

 
$
(5,930
)
 
$
(920
)
 
$
209

 
$
7,357

Net income (loss)
 
1

—

 
—

 
—

 
—

 
—

 
(33
)
 
—

 
—

 
3

 
(30
)
Other comprehensive income (loss)
 
(21
)
—

 
—

 
—

 
—

 
—

 
—

 
(865
)
 
—

 
(7
)
 
(872
)
Dividends on common shares
 
—

—

 
—

 
—

 
—

 
—

 
(135
)
 
—

 
—

 
—

 
(135
)
Dividends on preference shares
 
—

—

 
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
—

 
(17
)
Dividends to noncontrolling interests on subsidiary common stock
 
—

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(6
)
 
(6
)
Deconsolidation of a subsidiary
 
—

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2
)
 
(2
)
Acquisition of noncontrolling interest
 
461

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Share-based compensation expense
 
—

—

 
—

 
—

 
—

 
21

 
—

 
—

 
—

 
—

 
21

Impact of adoption of new accounting standards (1)
 
—

—

 
—

 
—

 
—

 
—

 
21

 
—

 
—

 
—

 
21

Issuance of common shares
 
—

(17
)
 
—

 
419,110

 
—

 
6

 
—

 
—

 
—

 
—

 
6

Balance, June 30, 2018
 
$
441

6,899,683

 
$
690

 
141,065,939

 
$
1

 
$
5,253

 
$
7,917

 
$
(6,795
)
 
$
(920
)
 
$
197

 
$
6,343

(1) See Note 2 for further details.
 
 
 
Convertible
Preference Shares
 
Common Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Redeemable
Non-
Controlling
Interests
Shares
 
Amount
 
Shares
 
Amount
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Shares
 
Non-
Controlling
Interests
 
Total
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)
 
—

—

 
—

 
—

 
—

 
—

 
128

 
—

 
—

 
7

 
135

Other comprehensive income (loss)
 
—

—

 
—

 
—

 
—

 
—

 
—

 
27

 
—

 
10

 
37

Dividends on common shares
 
—

—

 
—

 
—

 
—

 
—

 
(124
)
 
—

 
—

 
—

 
(124
)
Dividends on preference shares
 
—

—

 
—

 
—

 
—

 
—

 
(17
)
 
—

 
—

 
—

 
(17
)
Dividends to noncontrolling interests on subsidiary common stock
 
—

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(8
)
 
(8
)
Share-based compensation expense
 
—

—

 
—

 
—

 
—

 
17

 
—

 
—

 
—

 
—

 
17

Issuance of common shares
 
—

(300
)
 
—

 
1,090,894

 
—

 
52

 
—

 
—

 
—

 
—

 
52

Balance, June 30, 2017
 
$
—

6,899,700

 
$
690

 
140,591,756

 
$
1

 
$
5,212

 
$
8,195

 
$
(5,951
)
 
$
(920
)
 
$
208

 
$
7,435

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



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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 has a controlling financial interest. 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, 2017 has been derived from Bunge’s audited consolidated financial statements at that date.  Operating results for the six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018.  The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2017, forming part of Bunge’s 2017 Annual Report on Form 10-K filed with the SEC on February 23, 2018.
Translation of Foreign Currency Financial Statements
Bunge's reporting currency is the U.S. dollar. The functional currency of the majority of Bunge's foreign subsidiaries is their local currency and, as such, amounts included in the consolidated statements of income, comprehensive income (loss), cash flows and changes in equity are translated using average exchange rates during each period. Assets and liabilities are translated at period-end exchange rates and resulting foreign currency translation adjustments are recorded in the consolidated balance sheets as a component of accumulated other comprehensive income (loss). However, in accordance with U.S. GAAP, if a foreign entity's economy is determined to be highly inflationary, then such foreign entity's financial statements shall be remeasured as if the functional currency were the reporting currency.
Bunge has significant operations in Argentina and, as of June 30, 2018, has utilized the official exchange rate published by the Argentine government for our commercial transactions and re-measurement purposes of financial statements. Argentina has continued to experience negative economic trends, as evidenced by multiple periods of increasing inflation rates, devaluation of the peso, and increasing borrowing rates, requiring the Argentine government to take mitigating actions. During the second quarter of 2018, it has been determined that Argentina's economy should be considered highly inflationary, and as such, beginning on July 1, 2018, Bunge's Argentine subsidiaries will change their functional currency to the U.S. Dollar. This change in functional currency is not expected to have a material impact on Bunge's consolidated financial statements.
2.
ACCOUNTING PRONOUNCEMENTS
The below outlines new accounting pronouncements issued in 2018, as well as updates on certain previously disclosed Accounting Standard Updates (“ASU”).
New Accounting Pronouncements
In February 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act ("Tax Act"). Consequently, the ASU eliminates the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. However, because this ASU only relates to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. ASU 2018-02 will be effective for Bunge starting January 1, 2019. Bunge is currently evaluating the impact of this ASU.
Recently Adopted Accounting Pronouncements
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

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in exchange for those goods or services. During 2016, the FASB issued additional implementation guidance and practical expedients in ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, to improve the guidance. The Company adopted the standard on January 1, 2018 under the modified retrospective approach, applying it only to contracts open as of that date. The impact of adopting the standard has not resulted in a change in accounting treatment for any of the Company’s revenue streams, with the exception of ocean freight voyage charter services. Under ASC 605, the Company recognized revenue and the related cost of goods sold upon loading of the goods onto the vessel, which generally coincides with receipt of payment by the customer. Under ASC 606, the revenue and the related cost of goods sold will instead be recognized over time as the voyages occur and the related expenses are incurred, respectively. As a result of this change in timing, the adoption of the standard resulted in a cumulative-effect credit adjustment to opening retained earnings that was not material.    

Upon the adoption of ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10); Recognition and Measurement of Financial Assets and Financial Liabilities, the Company has made a cumulative effect adjustment to reclassify the unrealized gains/(losses) of equity investments classified as available for sale from accumulated other comprehensive income (loss) to opening retained earnings that was not material.

Upon the adoption of ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force), the Company has changed its presentation of cash flows in relation to the Company’s trade receivables securitization program. Particularly impacted are the cash receipts from payments on the deferred purchase price, which are now classified as cash inflows from investing activities, whereas previously they were classified as inflows from operating activities. This ASU has been applied retrospectively and as a result, $832 million has been reclassified from cash provided by (used for) operating activities to cash provided by (used for) investing activities in the condensed consolidated statement of cash flows for the six months ended June 30, 2017. See Note 13 for additional information on our trade receivables securitization program.
    
Upon the adoption of ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash (a consensus of the Emerging issues Task Force), the Company has changed the way it presents restricted cash in the statement of cash flows. Effective for 2018, and all prior periods presented, restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheet that sums to the total of the same such amounts shown in the condensed consolidated statement of cash flows.
(US$ in millions)
June 30, 2018
June 30, 2017
Cash and cash equivalents
$
221

$
575

Restricted cash included in other current assets
4

6

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
$
225

$
581


Upon the adoption ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, the Company has changed the presentation of net periodic benefit cost related to its employer sponsored defined benefit plans and other postretirement benefits. Effective for 2018 and all prior periods presented, service cost is 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 are now presented separately in Other income (expense), net. For the three and six months ended June 30, 2017, $2 million and $4 million, respectively, was reclassified from Selling, general and administrative expenses to Other income (expense), net to conform to the current presentation.
3.     GLOBAL COMPETITIVENESS PROGRAM
In July 2017, Bunge announced a comprehensive global competitiveness program to improve its cost position and deliver increased value to shareholders (the “Global Competitiveness Program”). When fully implemented, the Global Competitiveness Program is expected to reduce the Company’s overhead costs by approximately $250 million annually by the end of 2019. The Company identified key elements of its strategy to meet this goal, including adopting a zero-based budgeting process that will target excess costs in specific budget categories and improving efficiency and scalability by simplifying organizational structures, streamlining processes and consolidating back office functions globally. In conjunction with the

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Global Competitiveness Program, the Company has implemented other cost reduction and strategic initiatives to enhance the efficiency and performance of the Company’s business.

The Company has approved several initiatives under the Global Competitiveness Program, including position eliminations, the re-leveling of certain positions, simplifying its organizational structure into three regions and establishing new zero-based budgeting procedures and governance on spending categories.  As part of the Global Competitiveness Program, Bunge offered a voluntary early retirement program to certain U.S. based salaried employees. Costs associated with the early retirement program were recorded in 2017. In addition, the Company has also incurred third-party consulting fees and other costs associated with the Global Competitiveness Program.
The table below sets forth, by segment, the types of costs recorded for the Global Competitiveness Program during the six months ended June 30, 2018.
(US$ in millions)
Severance and Other Employee Benefit Costs
 
Other Program Costs
 
Total Program Costs
Agribusiness Segment
$
11

 
$
12

 
$
23

Edible Oils Segment
2

 
3

 
5

Milling Segment
—

 
2

 
2

Sugar and Bioenergy Segment
2

 
3

 
5

Fertilizer Segment
2

 
1

 
3

Total
$
17

 
$
21

 
$
38

In addition to the above charges, $1 million of severance and other employee benefit costs were recorded related to other industrial productivity initiatives. For the costs recorded above, $7 million were recorded in Cost of goods sold and $32 million were recorded in Selling, general and administrative expenses.

Bunge's liability associated with the Global Competitiveness Program and other associated initiatives is primarily comprised of accruals for severance and other employee benefit costs. The following table sets forth the activity affecting the liability for severance and other employee benefit costs related to the Global Competitiveness Program and other associated initiatives, which is recorded in "Other current liabilities" on the condensed consolidated balance sheet.
(US$ in millions)

Severance and Other Employee Benefit Costs
Balance at January 1, 2018
 
$
45

Charges incurred
 
17

Cash payments
 
(45
)
Balance at June 30, 2018
 
$
17


In addition to the cash charges described above, the Company's restructuring initiatives may include the sale or disposal of long-lived assets and rationalization of certain investments. As Bunge continues to review its opportunities, certain gains and charges may be recorded in earnings, including those related to the disposal of assets or investments. For the six months ended June 30, 2018, $15 million of such charges have been recognized.
4.
BUSINESS ACQUISITIONS
On March 1, 2018 ("the acquisition date"), Bunge acquired a 70% ownership interest in IOI Loders Croklaan ("Loders") from IOI Corporation Berhad ("IOI") for approximately $972 million in cash. The preliminary purchase price remains subject to final post-closing adjustments. The transaction expands Bunge's value-added capabilities, reach, and scale across core geographies to establish Bunge as a global leader in B2B oil solutions. Loders' portfolio includes a full range of palm and tropical oil-derived products with strength in confectionery, bakery and infant nutrition applications. Loders serves global food industry customers in more than 100 countries around the world.
The following table summarizes the preliminary allocation of the fair values of the assets acquired and liabilities assumed at the acquisition date, as included in Bunge's condensed consolidated balance sheet. Bunge is in the process of finalizing third-party valuations of certain acquired assets and tax items, and therefore, the measurements below are subject to change:

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(US$ in millions)
 
Cash and cash equivalents
$
82

Accounts receivable
146

Inventories
406

Other current assets
67

Property, plant and equipment
411

Intangible assets
464

Goodwill
243

     Total assets
1,819

Accounts payable
(108
)
Other current liabilities
(100
)
Deferred income taxes
(143
)
Noncurrent liabilities
(35
)
     Total liabilities
(386
)
Redeemable noncontrolling interest
(461
)
Net assets acquired
$
972

Since March 1, 2018, goodwill decreased by $20 million as a result of measurement period adjustments, primarily related to post-closing adjustments of the purchase price.     
The following table provides the details of intangible assets acquired, by major class and weighted average useful life:
(US$ in millions)
Useful life
 
Customer relationships
15 years
$
265

Intellectual property
10 years
120

Trade names
15 years
51

Favorable leases
38 years
26

Other
various
2

     Total intangible assets
 
$
464

The $243 million of goodwill recognized was assigned to the Edible Oil Products segment. The goodwill recognized is primarily attributable to expected synergies and the assembled workforce of Loders. None of the goodwill is expected to be deductible for income tax purposes.
The amounts of revenue and earnings of Loders included in Bunge's condensed consolidated statement of income from the acquisition date to the periods ended June 30, 2018 are as follows:
(US$ in millions)
Three Months Ended
June 30, 2018
Six Months Ended
June 30, 2018
Net sales
$
434

$
571

Income (loss) from continuing operations
$
4

$
4

The following represents the supplemental pro forma results of the combined entity as if Loders was acquired on January 1, 2017:
 
Three Months Ended June 30,
Six Months Ended June 30,
(US$ in millions)
2018
2017
2018
2017
Net sales
$
12,147

$
12,110

$
23,085

$
23,652

Income (loss) from continuing operations
$
(13
)
$
54

$
(24
)
$
100



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The supplemental pro forma amounts for income from continuing operations above have been adjusted to reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied on January 1, 2017. Additionally, these amounts were also adjusted to reflect additional interest expense on the $1 billion of senior notes issued in connection with the acquisition, as if such issuance occurred on January 1, 2017. Supplemental pro forma income from continuing operations for the three and six months ended June 30, 2018 were also adjusted to exclude $5 million and $10 million, respectively, of acquisition and integration related costs incurred in 2018, while 2017 supplemental pro forma income from continuing operations was adjusted to include these charges.
Supplemental pro forma financial information is not necessarily indicative of the Company's actual results of operations if the acquisition had been completed at the date indicated, nor is it necessarily an indication of future operating results. Amounts do not include any operating efficiencies or cost savings that the Company believes are achievable.
The fair value of the 30% redeemable noncontrolling interest in Loders is estimated to be $461 million. The fair value was estimated based as 30% of the total equity value of Loders based on the transaction price for the 70% stake in Loders, considering the cash paid and the value of the put/call provisions. See Note 16 for more information related to this redeemable noncontrolling interest.
Other acquisitions
On January 30, 2018, Bunge acquired Minsa Corporation ("Minsa") for an approximate initial purchase price of $75 million, subject to certain post-closing adjustments based on the net operating assets delivered on the closing date and the achievement of certain earnings targets based on results of the year ended December 31, 2017. As a result of the transaction, Bunge acquired two corn mills in the United States. The preliminary purchase price allocation resulted in $7 million of working capital, $38 million allocated to property, plant, and equipment, $20 million to finite-lived intangible assets, and $10 million to goodwill. Bunge anticipates finalizing the purchase price by the fourth quarter of 2018.
5.    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 six months ended June 30, 2018 and 2017, the net returns from these activities were $14 million and $18 million, respectively, and were included as a reduction of cost of goods sold in the accompanying condensed 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, and other programs in which trade related payables are set-off against receivables, all of which are subject to legally enforceable set-off agreements. The assets and liabilities related to the program are reflected in the condensed consolidated balance sheets as Time deposits under trade structured finance program and Letter of credit obligations under trade structured finance program, respectively. The fair values approximated the carrying amount of the related financial instruments and are all Level 2 measurements.
As of June 30, 2018 and December 31, 2017, receivables and trade payables of $0 million and $1,196 million, respectively, and time deposits and LCs of $6,269 million and $6,321 million, respectively, were presented net on the condensed consolidated balance sheets as the criteria of ASC 210-20, Offsetting, had been met. At June 30, 2018 and December 31, 2017, time deposits, including those presented on a net basis, carried weighted-average interest rates of 3.27% and 2.98%, respectively. During the six months ended June 30, 2018 and 2017, total net proceeds from issuances of LCs were $3,243 million and $3,889 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.
6.
INVENTORIES
Inventories by segment are presented below. Readily marketable inventories (“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 or net realizable value.

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(US$ in millions)
 
June 30,
2018
 
December 31,
2017
Agribusiness (1)
 
$
5,606

 
$
4,022

Edible Oil Products (2)
 
769

 
458

Milling Products
 
226

 
196

Sugar and Bioenergy (3)
 
381

 
333

Fertilizer
 
80

 
65

Total
 
$
7,062

 
$
5,074

 
(1)
Includes RMI of $5,337 million and $3,865 million at June 30, 2018 and December 31, 2017, respectively.  Of these amounts, $4,345 million and $2,694 million can be attributable to merchandising activities at June 30, 2018 and December 31, 2017, respectively.
(2)
Includes RMI of bulk soybean and canola oil in the aggregate amount of $95 million and $115 million at June 30, 2018 and December 31, 2017, respectively.
(3)
Includes sugar RMI of $99 million and $76 million at June 30, 2018 and December 31, 2017, respectively. Of these amounts, $91 million and $73 million can be attributable to merchandising activities at June 30, 2018 and December 31, 2017, respectively.
7.
OTHER CURRENT ASSETS
Other current assets consist of the following:
(US$ in millions)
 
June 30,
2018
 
December 31,
2017
Unrealized gains on derivative contracts, at fair value
 
$
1,602

 
$
910

Prepaid commodity purchase contracts (1)
 
610

 
282

Secured advances to suppliers, net (2)
 
249

 
412

Recoverable taxes, net
 
441

 
488

Margin deposits
 
469

 
258

Marketable securities, at fair value, and other short-term investments
 
337

 
213

Deferred purchase price receivable, at fair value (3)
 
118

 
107

Income taxes receivable
 
187

 
192

Prepaid expenses
 
190

 
125

Other
 
218

 
240

Total
 
$
4,421

 
$
3,227

 
(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 nil at June 30, 2018 and $1 million at December 31, 2017.
Interest earned on secured advances to suppliers of $8 million and $12 million for the three months ended June 30, 2018 and 2017, respectively, and $18 million and $27 million for the six months ended June 30, 2018 and 2017, respectively, 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 trade receivables securitization program (see Note 13).

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Marketable Securities and Other Short-Term Investments - Bunge invests in foreign government securities, corporate debt securities, deposits, and other securities. The following is a summary of amounts recorded in the condensed consolidated balance sheets for marketable securities and other short-term investments.
(US$ in millions)
 
June 30,
2018
 
December 31,
2017
Foreign government securities
 
$
232

 
$
145

Corporate debt securities
 
83

 
59

Certificates of deposit/time deposits
 
22

 
—

Other
 
—

 
9

Total marketable securities and other short-term investments
 
$
337

 
$
213

As of June 30, 2018, total marketable securities and other short-term investments includes $312 million that are recorded at fair value and $25 million of other short-term investments. As of December 31, 2017, total marketable securities and other short-term investments includes $3 million of assets classified as available for sale, $209 million as trading and $1 million as other short-term investments. Due to the short term nature of these investments, carrying value approximates fair value.
8.
OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
(US$ in millions)
 
June 30,
2018
 
December 31,
2017
Recoverable taxes, net (1)
 
$
168

 
$
155

Judicial deposits (1)
 
114

 
140

Other long-term receivables
 
12

 
12

Income taxes receivable (1)
 
245

 
307

Long-term investments
 
74

 
66

Affiliate loans receivable
 
21

 
24

Long-term receivables from farmers in Brazil, net (1)
 
93

 
131

Other
 
181

 
193

Total
 
$
908

 
$
1,028

 
(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 $28 million and $28 million at June 30, 2018 and December 31, 2017, 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 - 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.

14
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The average recorded investment in long-term receivables from farmers in Brazil for the six months ended June 30, 2018 and the year ended December 31, 2017 was $237 million and $253 million, respectively.  The table below summarizes Bunge’s recorded investment in long-term receivables from farmers in Brazil and the related allowance amounts.
 
 
June 30, 2018
 
December 31, 2017
(US$ in millions)
 
Recorded
Investment
 
Allowance
 
Recorded
Investment
 
Allowance
For which an allowance has been provided:
 
 

 
 

 
 

 
 

Legal collection process (1)
 
$
91

 
$
81

 
$
98

 
$
91

Renegotiated amounts (2)
 
19

 
17

 
25

 
22

For which no allowance has been provided:
 
 

 
 

 
 

 
 

Legal collection process (1)
 
62

 
—

 
76

 
—

Renegotiated amounts (2)
 
12

 
—

 
17

 
—

Other long-term receivables
 
7

 
—

 
28

 
—

Total
 
$
191

 
$
98

 
$
244

 
$
113

(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 table below summarizes the activity in the allowance for doubtful accounts related to long-term receivables from farmers in Brazil.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(US$ in millions)
2018
 
2017
 
2018
 
2017
Beginning balance
$
116

 
$
111

 
$
113

 
$
109

Bad debt provisions
—

 
9

 
4

 
10

Recoveries
(2
)
 
(5
)
 
(3
)
 
(8
)
Write-offs
(1
)
 
(1
)
 
(1
)
 
—

Foreign exchange translation
(15
)
 
(5
)
 
(15
)
 
(2
)
Ending balance
$
98

 
$
109

 
$
98

 
$
109

9.
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 non-recurring 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, including the realizability of deferred tax assets. Volatility in earnings within a taxing jurisdiction could result in a determination that additional valuation allowance adjustments may be warranted. While management does not currently believe any future valuation allowance adjustments will be significant, the actual results may be different and the impact of such amounts will be recorded in the period in which management's assessment changes.
For the six months ended June 30, 2018 and 2017, income tax (expense) benefit related to continuing operations was $(21) million and $27 million. The higher effective tax rate for the second quarter of 2018 was primarily due to lower overall pretax income for the period and an unfavorable earnings mix associated with pretax losses in certain jurisdictions. For the six months ended June 30, 2017, the effective tax rate reflected certain discrete items, including an income tax benefit of $32 million for favorable resolution of income tax matters in Asia and an income tax benefit of $17 million related to a tax election in South America.
As a global enterprise, Bunge files income tax returns that are subject to periodic examination and challenged 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

15
Table of Contents

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.
On December 22, 2017, H.R. 1, commonly known as the “Tax Cuts and Jobs Act” (the “Tax Act”) was signed into U.S. law. The Tax Act lowers the U.S. statutory corporate tax rate from 35% to 21% starting in 2018, introduces further limitations on the deductibility of interest expense, and imposes a one-time transition tax (“Transition Tax”) on deemed repatriated earnings of certain foreign subsidiaries (non-United States subsidiaries owned by Bunge U.S. affiliates). In addition, the Tax Act introduces additional base-broadening measures, including Global Intangible Low-Taxed Income (“GILTI”) and the Base-Erosion Anti-Abuse Tax (“BEAT”).
Bunge recognized the income tax effects of the Tax Act in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC 740, Income Taxes, in the reporting period in which the Tax Act was signed into law. As such, our financial results reflect the income tax effects of the Tax Act for which the accounting under ASC Topic 740 is complete and provisional amounts for those specific income tax effects of the Tax Legislation for which the accounting under ASC Topic 740 is incomplete but a reasonable estimate could be determined. Pursuant to SAB 118, adjustments to the provisional amounts recorded by us as of December 31, 2017 that are identified within a subsequent measurement period of up to one year from the enactment date will be included as an adjustment to the tax expense from continuing operations in the period the amounts are determined.
Bunge recognized a provisional charge of $60 million in the fourth quarter of 2017, associated with revaluing deferred tax assets and liabilities at the new statutory rate, accruing the Transition Tax, and accruing incremental withholding taxes on future repatriation of earnings to the United States. During the second quarter of 2018, Bunge continued to evaluate and analyze its assessment of the Tax Act, which involves monitoring guidance from the U.S. taxing authorities and refining tax return positions. During the six months ended June 30, 2018, Bunge did not record any adjustments to the provisional amounts recorded in 2017. Bunge expects to complete its analysis during 2018, and record an adjustment to tax expense, if applicable. Bunge also expects to conclude on the policy election to be made in connection with the accounting for GILTI later in 2018.
10.
OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
(US$ in millions)
 
June 30,
2018
 
December 31,
2017
Unrealized losses on derivative contracts, at fair value
 
$
1,695

 
$
897

Accrued liabilities
 
582

 
606

Advances on sales
 
308

 
406

Other
 
332

 
277

Total
 
$
2,917

 
$
2,186

11.
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 5 for trade structured finance program, Note 13 for deferred purchase price receivable related to sales of trade receivables, Note 8 for long-term receivables from farmers in Brazil, net and other long-term investments, and Note 12 for long-term debt. Bunge's financial instruments also include derivative instruments and marketable securities, which are stated at fair value.
Fair value is the expected price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Bunge determines the fair values of its readily marketable inventories, derivatives, and certain other assets based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are inputs based on market data obtained from sources independent of Bunge that reflect the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are inputs that are developed based on the best information available in circumstances that reflect Bunge's own assumptions based on market data and on assumptions that market participants would use in pricing the asset or liability. The fair value standard describes three levels within its hierarchy that may be used to measure fair value.
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 1 assets and liabilities include exchange traded derivative contracts.

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Table of Contents

Level 2: Observable inputs, including Level 1 prices (adjusted), quoted prices for similar assets or liabilities, quoted prices in markets that are less active than traded exchanges and other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include readily marketable inventories and over-the-counter ("OTC") commodity purchase and sale contracts and other OTC derivatives whose value is determined using pricing models with inputs that are generally based on exchange traded prices, adjusted for location specific inputs that are primarily observable in the market or can be derived principally from or corroborated by observable market data.
Level 3: Unobservable inputs that are supported by little or no market activity and that are a significant component of the fair value of the assets or liabilities. In evaluating the significance of fair value inputs, Bunge gives consideration to items that individually or when aggregated with other inputs, generally represent more than 10% of the fair value of the assets or liabilities. For such identified inputs, judgments are required when evaluating both quantitative and qualitative factors in the determination of significance for purposes of fair value level classification and disclosure. Level 3 assets and liabilities include assets and liabilities whose value is determined using proprietary pricing models, discounted cash flow methodologies or similar techniques; as well as, assets and liabilities for which the determination of fair value requires significant management judgment or estimation. Bunge believes a change in these inputs would not result in a significant change in the fair values.
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.

17
Table of Contents

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
 
 
June 30, 2018
 
December 31, 2017
(US$ in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Readily marketable inventories (Note 6)
 
$
—

 
$
4,306

 
$
1,225

 
$
5,531

 
$
—

 
$
3,691

 
$
365

 
$
4,056

Trade accounts receivable (1)
 
—

 
8

 
—

 
8

 
—

 
5

 
—

 
5

Unrealized gain on designated derivative contracts(2):
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Foreign exchange
 
—

 
169

 
—

 
169

 
—

 
18

 
—

 
18

Unrealized gain on undesignated derivative contracts (2):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest rate
 
—

 
4

 
—

 
4

 
—

 
4

 
—

 
4

Foreign exchange
 
2

 
529

 
—

 
531

 
—

 
321

 
—

 
321

Commodities
 
128

 
670

 
39

 
837

 
115

 
389

 
19

 
523

Freight
 
15

 
—

 
16

 
31

 
18

 
—

 
8

 
26

Energy
 
29

 
1

 
—

 
30

 
18

 
—

 
—

 
18

Deferred purchase price receivable (Note 13 )
 
—

 
118

 
—

 
118

 
—

 
107

 
—

 
107

Other (3)
 
22

 
313

 
—

 
335

 
15

 
234

 
—

 
249

Total assets
 
$
196

 
$
6,118

 
$
1,280

 
$
7,594

 
$
166

 
$
4,769

 
$
392

 
$
5,327

Liabilities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Trade accounts payable (1)
 
$
—

 
$
309

 
$
265

 
$
574

 
$
—

 
$
467

 
$
116

 
$
583

Unrealized loss on designated derivative contracts (4):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest rate
 
—

 
56

 
—

 
56

 
—

 
31

 
—

 
31

Foreign exchange
 
—

 
43

 
—

 
43

 
—

 
2

 
—

 
2

Unrealized loss on undesignated derivative contracts (4):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest rate
 
—

 
1

 
—

 
1

 
—

 
1

 
—

 
1

Foreign exchange
 
2

 
761

 
—

 
763

 
1

 
430

 
—

 
431

Commodities
 
189

 
634

 
26

 
849

 
141

 
271

 
20

 
432

Freight
 
33

 
—

 
11

 
44

 
15

 
—

 
3

 
18

Energy
 
4

 
1

 
2

 
7

 
9

 
2

 
2

 
13

Total liabilities
 
$
228

 
$
1,805

 
$
304

 
$
2,337

 
$
166

 
$
1,204

 
$
141

 
$
1,511

 
(1)
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.
(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 $68 million and $31 million included in other non-current liabilities at June 30, 2018 and December 31, 2017, respectively.
Derivatives—Exchange traded futures and options contracts and exchange cleared contracts are valued based on unadjusted quoted prices in active markets and are classified within Level 1. Bunge's forward commodity purchase and sale contracts are classified as derivatives along with other 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

18
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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 fair valued are 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 condensed consolidated balance sheets and condensed 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 condensed consolidated balance sheets and condensed 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 June 30, 2018 or December 31, 2017.
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 to value freight, premiums and discounts in 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.

19
Table of Contents

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 June 30, 2018 and 2017.  These instruments were valued using pricing models that management believes reflect the assumptions that would be used by a marketplace participant.
 
 
Three Months Ended June 30, 2018
(US$ in millions)
 
Derivatives,
Net
 
Readily
Marketable
Inventories
 
Trade
Accounts
Receivable/
Payable, Net
 
Total
Balance, April 1, 2018
 
$
5

 
$
860

 
$
(317
)
 
$
548

Total gains and (losses), realized/unrealized included in cost of goods sold
 
14

 
46

 
3

 
63

Purchases
 
1

 
532

 
(3
)
 
530

Sales
 
—

 
(267
)
 
—

 
(267
)
Issuances
 
—

 
—

 
—

 
—

Settlements
 
(1
)
 
—

 
110

 
109

Transfers into Level 3
 
(2
)
 
151

 
(76
)
 
73

Transfers out of Level 3
 
(1
)
 
(97
)
 
18

 
(80
)
Balance, June 30, 2018
 
$
16

 
$
1,225

 
$
(265
)
 
$
976

Derivatives, net, readily marketable inventories, and trade accounts receivable/payable net, include gains/(losses) of $13 million, $(16) million and $0 million, respectively, that are attributable to the change in unrealized gains/(losses) relating to Level 3 assets and liabilities still held at June 30, 2018.
 
 
Three Months Ended June 30, 2017
(US$ in millions)
 
Derivatives,
Net
 
Readily
Marketable
Inventories
 
Trade
Accounts
Receivable/
Payable, Net
 
Total
Balance, April 1, 2017
 
$
(72
)
 
$
743

 
$
(372
)
 
$
299

Total gains and (losses), realized/unrealized included in cost of goods sold
 
27

 
86

 
4

 
117

Purchases
 
1

 
380

 
(125
)
 
256

Sales
 
—

 
(658
)
 
—

 
(658
)
Issuances
 
(3
)
 
—

 
—

 
(3
)
Settlements
 
54

 
—

 
91

 
145

Transfers into Level 3
 
(3
)
 
157

 
(51
)
 
103

Transfers out of Level 3
 
(4
)
 
(85
)
 
—

 
(89
)
Balance, June 30, 2017
 
$
—

 
$
623

 
$
(453
)
 
$
170

Derivatives, net, readily marketable inventories, and trade accounts receivable/payable net, includes gains/(losses) of $5 million, $22 million and $(1) million, respectively, that are attributable to the change in unrealized gains/(losses) relating to Level 3 assets and liabilities still held at June 30, 2017.

20
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Six Months Ended June 30, 2018
(US$ in millions)

Derivatives,
Net

Readily
Marketable
Inventories

Trade
Accounts
Receivable/
Payable, Net

Total
Balance, January 1, 2018

$
2