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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 September 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 October 26, 2018 the number of shares issued of the registrant was:
Common shares, par value $.01 per share: 141,088,072

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
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Net sales
 
$
11,412

 
$
11,423

 
$
34,200

 
$
34,189

Cost of goods sold
 
(10,494
)
 
(10,934
)
 
(32,356
)
 
(32,886
)
Gross profit
 
918

 
489

 
1,844

 
1,303

Selling, general and administrative expenses
 
(333
)
 
(339
)
 
(1,054
)
 
(1,044
)
Interest income
 
7

 
9

 
21

 
29

Interest expense
 
(101
)
 
(64
)
 
(265
)
 
(191
)
Foreign exchange gains (losses)
 
(20
)
 
1

 
(116
)
 
108

Other income (expense) – net
 
(19
)
 
25

 
9

 
24

Income (loss) from continuing operations before income tax
 
452

 
121

 
439

 
229

Income tax (expense) benefit
 
(85
)
 
(29
)
 
(106
)
 
(2
)
Income (loss) from continuing operations
 
367

 
92

 
333

 
227

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

 
—

 
12

 
—

Net income (loss)
 
374

 
92

 
345

 
227

Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
(9
)

—


(13
)

(7
)
Net income (loss) attributable to Bunge
 
365

 
92

 
332

 
220

Convertible preference share dividends
 
(8
)
 
(8
)
 
(25
)
 
(25
)
Net income (loss) available to Bunge common shareholders
 
$
357

 
$
84

 
$
307

 
$
195

 
 
 
 
 
 
 
 
 
Earnings per common share—basic (Note 18)
 
 

 
 

 
 

 
 

Net income (loss) from continuing operations
 
$
2.48

 
$
0.59

 
$
2.09

 
$
1.39

Net income (loss) from discontinued operations
 
0.05

 
—

 
0.09

 
(0.01
)
Net income (loss) attributable to Bunge common shareholders
 
$
2.53

 
$
0.59

 
$
2.18

 
$
1.38

 
 
 
 
 
 
 
 
 
Earnings per common share—diluted (Note 18)
 
 

 
 

 
 

 
 

Net income (loss) from continuing operations
 
$
2.39

 
$
0.59

 
$
2.08

 
$
1.38

Net income (loss) from discontinued operations
 
0.05

 
—

 
0.08

 
(0.01
)
Net income (loss) attributable to Bunge common shareholders
 
$
2.44

 
$
0.59

 
$
2.16

 
$
1.37

 
 
 
 
 
 
 
 
 
Dividends declared per common share
 
$
0.50

 
$
0.46

 
$
1.46

 
$
1.34

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
September 30,
 
Nine Months Ended
September 30,
 
 
2018
 
2017
 
2018
 
2017
Net income (loss)
 
$
374

 
$
92

 
$
345

 
$
227

Other comprehensive income (loss):
 
 

 
 

 
 

 
 

Foreign exchange translation adjustment (1)
 
(168
)
 
332

 
(1,225
)
 
458

Unrealized gains (losses) on designated cash flow and net investment hedges, net of tax (expense) benefit of $1 and $4 in 2018 and nil and nil in 2017
 
8

 
(37
)
 
172

 
(108
)
Unrealized gains (losses) on investments, net of tax (expense) benefit of nil and nil in 2018 and nil and $(1) in 2017
 
(1
)
 
—

 
(1
)
 
1

Reclassification of realized net losses (gains) to net income, net of tax expense (benefit) of nil and nil in 2018 and $2 and $1 in 2017
 
—

 
(12
)
 
(1
)
 
(31
)
Pension adjustment, net of tax (expense) benefit of $1 and $1 in 2018 and $(5) and $(1) in 2017
 
(3
)
 
9

 
(2
)
 
9

Total other comprehensive income (loss)
 
(164
)
 
292

 
(1,057
)
 
329

Total comprehensive income (loss)
 
210

 
384

 
(712
)
 
556

Less: comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests
 
(8
)
 
(3
)
 
16

 
(20
)
Total comprehensive income (loss) attributable to Bunge
 
$
202

 
$
381

 
$
(696
)
 
$
536

(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)
 
 
September 30,
2018
 
December 31,
2017
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
267

 
$
601

Trade accounts receivable (less allowances of $103 and $107) (Note 13)
 
1,713

 
1,501

Inventories (Note 6)
 
7,183

 
5,074

Other current assets (Note 7)
 
3,948

 
3,227

Total current assets
 
13,111

 
10,403

Property, plant and equipment, net
 
5,164

 
5,310

Goodwill
 
723

 
515

Other intangible assets, net
 
711

 
323

Investments in affiliates
 
454

 
461

Deferred income taxes
 
434

 
516

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

 
315

Other non-current assets (Note 8)
 
849

 
1,028

Total assets
 
$
21,446

 
$
18,871

LIABILITIES AND EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Short-term debt
 
$
2,057

 
$
304

Current portion of long-term debt (Note 12)
 
331

 
15

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

 
315

Trade accounts payable (includes $455 and $583 carried at fair value)
 
3,274

 
3,395

Other current liabilities (Note 10)
 
2,639

 
2,186

Total current liabilities
 
8,301

 
6,215

Long-term debt (Note 12)
 
4,912

 
4,160

Deferred income taxes
 
361

 
223

Other non-current liabilities
 
947

 
916

Commitments and contingencies (Note 15)
 


 


Redeemable noncontrolling interest (Note 16)
 
438

 
—

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 – 141,081,739 shares, 2017 – 140,646,829 shares
 
1

 
1

Additional paid-in capital
 
5,264

 
5,226

Retained earnings
 
8,203

 
8,081

Accumulated other comprehensive income (loss) (Note 17)
 
(6,958
)
 
(5,930
)
Treasury shares, at cost - 2018 and 2017 - 12,882,313 shares
 
(920
)
 
(920
)
Total Bunge shareholders’ equity
 
6,280

 
7,148

Noncontrolling interests
 
207

 
209

Total equity
 
6,487

 
7,357

Total liabilities, redeemable noncontrolling interest and equity
 
$
21,446

 
$
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)
 
 
Nine Months Ended
September 30,
 
 
2018
 
2017
OPERATING ACTIVITIES
 
 

 
 

Net income (loss)
 
$
345

 
$
227

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

 
 

Impairment charges
 
5

 
26

Foreign exchange (gain) loss on net debt
 
134

 
28

Bad debt expense
 
28

 
8

Depreciation, depletion and amortization
 
463

 
448

Share-based compensation expense
 
31

 
27

Deferred income tax (benefit)
 
11

 
(8
)
Other, net
 
51

 
14

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

 
 

Trade accounts receivable
 
(159
)
 
(200
)
Inventories
 
(2,465
)
 
(837
)
Secured advances to suppliers
 
(195
)
 
101

Trade accounts payable and accrued liabilities
 
182

 
265

Advances on sales
 
(157
)
 
(200
)
Net unrealized gain (loss) on derivative contracts
 
23

 
153

Margin deposits
 
(266
)
 
(26
)
Marketable securities
 
92

 
(147
)
Beneficial interest in securitized trade receivables
 
(1,439
)
 
(1,768
)
Other, net
 
31

 
(145
)
Cash provided by (used for) operating activities
 
(3,285
)
 
(2,034
)
INVESTING ACTIVITIES
 
 

 
 

Payments made for capital expenditures
 
(318
)
 
(485
)
Acquisitions of businesses (net of cash acquired)
 
(968
)
 
(369
)
Proceeds from investments
 
1,080

 
398

Payments for investments
 
(1,163
)
 
(686
)
Settlement of net investment hedges
 
124

 
(23
)
Proceeds from beneficial interest in securitized trade receivables
 
1,432

 
1,732

Payments for investments in affiliates
 
(3
)
 
(77
)
Other, net
 
40

 
7

Cash provided by (used for) investing activities
 
224

 
497

FINANCING ACTIVITIES
 
 

 
 

Net change in short-term debt with maturities of 90 days or less
 
1,490

 
596

Proceeds from short-term debt with maturities greater than 90 days
 
475

 
360

Repayments of short-term debt with maturities greater than 90 days
 
(166
)
 
(206
)
Proceeds from long-term debt
 
9,191

 
6,502

Repayments of long-term debt
 
(8,049
)
 
(6,100
)
Proceeds from the exercise of options for common shares
 
11

 
58

Dividends paid
 
(225
)
 
(207
)
Other, net
 
(18
)
 
(34
)
Cash provided by (used for) financing activities
 
2,709

 
969

Effect of exchange rate changes on cash and cash equivalents, and restricted cash
 
18

 
22

Net increase (decrease) in cash and cash equivalents, and restricted cash
 
(334
)
 
(546
)
Cash and cash equivalents, and restricted cash - beginning of period
 
605

 
938

Cash and cash equivalents, and restricted cash - end of period
 
$
271

 
$
392

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)
 
—

—

 
—

 
—

 
—

 
—

 
332

 
—

 
—

 
13

 
345

Other comprehensive income (loss)
 
(23
)
—

 
—

 
—

 
—

 
—

 
—

 
(1,028
)
 
—

 
(6
)
 
(1,034
)
Dividends on common shares
 
—

—

 
—

 
—

 
—

 
—

 
(206
)
 
—

 
—

 
—

 
(206
)
Dividends on preference shares
 
—

—

 
—

 
—

 
—

 
—

 
(25
)
 
—

 
—

 
—

 
(25
)
Dividends to noncontrolling interests on subsidiary common stock
 
—

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(6
)
 
(6
)
Deconsolidation of a subsidiary
 
—

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3
)
 
(3
)
Acquisition of noncontrolling interest
 
461

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Share-based compensation expense
 
—

—

 
—

 
—

 
—

 
31

 
—

 
—

 
—

 
—

 
31

Impact of adoption of new accounting standards (1)
 
—

—

 
—

 
—

 
—

 
—

 
21

 
—

 
—

 
—

 
21

Issuance of common shares
 
—

(17
)
 
—

 
434,910

 
—

 
7

 
—

 
—

 
—

 
—

 
7

Balance, September 30, 2018
 
$
438

6,899,683

 
$
690

 
141,081,739

 
$
1

 
$
5,264

 
$
8,203

 
$
(6,958
)
 
$
(920
)
 
$
207

 
$
6,487

(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)
 
—

—

 
—

 
—

 
—

 
—

 
220

 
—

 
—

 
7

 
227

Other comprehensive income (loss)
 
—

—

 
—

 
—

 
—

 
—

 
—

 
316

 
—

 
13

 
329

Dividends on common shares
 
—

—

 
—

 
—

 
—

 
—

 
(189
)
 
—

 
—

 
—

 
(189
)
Dividends on preference shares
 
—

—

 
—

 
—

 
—

 
—

 
(25
)
 
—

 
—

 
—

 
(25
)
Dividends to noncontrolling interests on subsidiary common stock
 
—

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(10
)
 
(10
)
Noncontrolling decrease from redemption
 
—

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5
)
 
(5
)
Share-based compensation expense
 
—

—

 
—

 
—

 
—

 
27

 
—

 
—

 
—

 
—

 
27

Issuance of common shares
 
—

(300
)
 
—

 
1,107,795

 
—

 
53

 
—

 
—

 
—

 
—

 
53

Balance, September 30, 2017
 
$
—

6,899,700

 
$
690

 
140,608,657

 
$
1

 
$
5,223

 
$
8,214

 
$
(5,662
)
 
$
(920
)
 
$
204

 
$
7,750

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, PRINCIPLES OF CONSOLIDATION, AND SIGNIFICANT ACCOUNTING POLICIES
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 nine months ended September 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, up until June 30, 2018, it had utilized the official exchange rate of the Argentine peso published by the Argentine government for its commercial transactions and remeasurement 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 was determined that Argentina's economy should be considered highly inflationary, and as such, beginning on July 1, 2018, Bunge's Argentine subsidiaries changed their functional currency to the U.S. Dollar. This change in functional currency did not have a material impact on Bunge's consolidated financial statements.
Revenue Recognition
The Company’s revenue comprises sales from commodity contracts that are accounted for under ASC 815, Derivatives and Hedging (ASC 815) and sales of other products and services that are accounted for under ASC 606, Revenue from Contracts with Customers (ASC 606). Additional information about the Company’s revenues can be found in Note 19: Segment Information.

Revenue from commodity contracts (ASC 815) - Revenue from commodity contracts primarily relates to forward sales of commodities in the Company’s Agribusiness segment, such as soybeans, soybean meal and oil, corn and wheat, which are accounted for as derivatives at fair value under ASC 815. These forward sales meet the definition of a derivative under ASC 815 as they have an underlying (e.g. the price of soybeans), a notional amount (e.g. metric tons), no initial net investment and can be net settled since the commodity is readily convertible to cash. Bunge does not apply the normal purchase and normal sale exception available under ASC 815 to these contracts. Certain of the Company’s sales in its Edible Oil Products, Milling Products, and Sugar and Bioenergy segments also qualify as derivatives, primarily sales of commodities like bulk soybean and canola oil, and raw sugar.

Revenue from commodity contracts is recognized in Net sales for the contracted amount when the contracts are settled at a point in time by transferring control of the commodity to the customer, similarly to revenue recognized from contracts with customers under ASC 606.  From inception through settlement, these forward sales arrangements are recorded at fair value

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under ASC 815 with unrealized gains and losses recognized in Cost of goods sold and carried on the consolidated balance sheet as Current assets (see Note 7: Other Current Assets) or Current liabilities (see Note 10: Other Current Liabilities), respectively. Further information about the fair value of these contracts is presented in the Note 11: Financial Instruments and Fair Value Measurements.  

Revenue from contracts with customers (ASC 606) - Revenue from contracts with customers accounted for under ASC 606 is primarily generated in the Company's Edible Oil Products, Milling Products, Sugar and Bioenergy and Fertilizer segments through the sale of refined edible oil-based products such as packaged vegetable oils, shortenings, margarines and mayonnaise; milled grain products such as wheat flours, bakery mixes, corn-based products, and rice; certain sugar and bioenergy products; and fertilizer products. These sales are accounted for under ASC 606 as these sales arrangements do not meet the aforementioned criteria to be considered derivatives under ASC 815. These revenues are measured based on consideration specified in a contract with a customer, and exclude sales taxes, discounts related to promotional programs and amounts collected on behalf of third parties. The Company recognizes revenue from these contracts at a point in time when it satisfies a performance obligation by transferring control of a product to a customer, generally when legal title and risks and rewards transfer to the customer. Sales terms provide for transfer of title either at the time and point of shipment or at the time and point of delivery and acceptance of the product being sold. In contracts that do not specify the timing of transfer of legal title or transfer of significant risks and rewards of ownership, judgment is required in determining the timing of transfer of control. In such cases, the Company considers standard business practices and the relevant laws and regulations applicable to the transaction to determine when legal title or the significant risks and rewards of ownership are transferred.

The transaction price is generally allocated to performance obligations on a relative standalone selling price basis. Standalone selling prices are estimated based on observable data of the Company’s sales of such products and services to similar customers and in similar circumstances on a standalone basis.  In assessing whether to allocate variable consideration to a specific part of the contract, the Company considers the nature of the variable payment and whether it relates specifically to its efforts to satisfy a specific part of the contract. Variable consideration is generally known upon satisfaction of the performance obligation.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue producing transaction, that are collected by the Company from a customer, are excluded from revenue.

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in Cost of goods sold.

Warranties provided to customers are primarily assurance-type of warranties on the fitness of purpose and merchantability of the Company’s goods and services. The Company does not provide service-type warranties to customers.

Payment is generally due at the time of shipment or delivery, or within a specified time frame after shipment or delivery, which is generally 30-60 days. The Company’s contracts generally provide customers the right to reject any products that do not meet agreed quality specifications. Product returns and refunds are not material.

Additionally, the Company recognizes revenue in the Agribusiness segment from ocean freight and port services over time as the related services are performed.  Performance obligations are typically completed within a fiscal quarter and any unearned revenue or accrued revenues are not material. 
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 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new provisions, all lessees will be reported on the balance sheet as a right-of-use asset and a liability for the obligation to make payments except for leases with a term of 12 months or less. The standard is effective for Bunge starting January 1, 2019. Bunge has elected the amended transition approach provided by ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows entities to apply the guidance as of the date of initial application. Bunge has established a project implementation group and is evaluating the impact this guidance will have on its consolidated financial statements and related disclosures. Identification of contracts in scope of the new guidance has been completed and the implementation of a new system to perform the reporting and disclosure requirements is underway. We have established accounting policies and proposed changes to existing processes and controls.

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The Company expects the only significant impact to be reclassifications of and increases to assets and liabilities in the consolidated balance sheet, but at this time, the expected financial impact is not yet known.  The Company does not expect significant impacts to its consolidated statement of comprehensive income, consolidated statement of cash flows, or consolidated statement of changes in equity and redeemable noncontrolling interests.
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. The adoption of this ASU is not expected to have a material impact on Bunge's consolidated financial statements.
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 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, $1,732 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 nine months ended September 30, 2017. See Note 13 for additional information on the trade receivables securitization program.

Subsequent to the Company's initial adoption of ASU 2016-15, additional interpretative guidance was released by the SEC in the third quarter of 2018 that clarifies the method to be used for calculating the cash received from payments on the deferred purchase price. This additional guidance indicated that an entity must evaluate daily transaction activity to calculate the value of cash received from payments on the deferred purchase price. The company has applied this guidance on a retrospective basis, effective with the Form 10-Q for the quarterly period ending September 30, 2018, which resulted in additional reclassification of cash inflows from operating activities to cash inflows from investing activities.

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

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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)
September 30, 2018
September 30, 2017
Cash and cash equivalents
$
267

$
389

Restricted cash included in other current assets
4

3

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
$
271

$
392


Upon the adoption of 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. The reclassifications associated with the adoption of this ASU did not have a material impact on Bunge's condensed consolidated financial statements.
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 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 table below sets forth, by segment, the types of costs recorded for the Global Competitiveness Program during the nine months ended September 30, 2018.
(US$ in millions)
Severance and Other Employee Benefit Costs
 
Other Program Costs
 
Total Program Costs
Agribusiness Segment
$
14

 
$
16

 
$
30

Edible Oils Segment
2

 
4

 
6

Milling Segment
—

 
2

 
2

Sugar and Bioenergy Segment
2

 
4

 
6

Fertilizer Segment
2

 
1

 
3

Total
$
20

 
$
27

 
$
47

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 total costs recorded, $9 million were recorded in Cost of goods sold and $39 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
 
20

Cash payments
 
(53
)
Balance at September 30, 2018
 
$
12


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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 nine months ended September 30, 2018, $29 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 $972 million in cash. The preliminary purchase price remains subject to final post-closing adjustments, which are expected during the fourth quarter of 2018. The transaction expands Bunge's value-added capabilities, reach, and scale across core geographies to establish Bunge as a global leader in B2B oil solutions. Loders' portfolio includes a full range of palm and tropical oil-derived products with strength in confectionery, bakery and infant nutrition applications. Loders serves global food industry customers in more than 100 countries around the world.
The following table summarizes the preliminary allocation of the fair values of the assets acquired and liabilities assumed at the acquisition date, as included in Bunge's condensed consolidated balance sheet. Bunge is in the process of finalizing third-party valuations of certain acquired assets and tax items, and therefore, the measurements below are subject to change:
(US$ 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

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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 September 30, 2018 are as follows:
(US$ in millions)
Three Months Ended
September 30, 2018
Nine Months Ended
September 30, 2018
Net sales
$
395

$
966

Income (loss) from continuing operations
$
(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 September 30,
Nine Months Ended September 30,
(US$ in millions)
2018
2017
2018
2017
Net sales
$
11,412

$
11,896

$
34,497

$
35,548

Income (loss) from continuing operations
$
368

$
78

$
345

$
178

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 nine months ended September 30, 2018 were also adjusted to exclude $1 million and $11 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 in the opening balance sheet of the 30% redeemable noncontrolling interest in Loders was 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 first quarter of 2019.
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 nine months ended September 30, 2018 and 2017, the net returns from these activities were $23 million and $27 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

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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 September 30, 2018 and December 31, 2017, receivables and trade payables of $0 million and $1,196 million, respectively, and time deposits and LCs of $6,093 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 September 30, 2018 and December 31, 2017, time deposits, including those presented on a net basis, carried weighted-average interest rates of 3.43% and 2.98%, respectively. During the nine months ended September 30, 2018 and 2017, total net proceeds from issuances of LCs were $4,409 million and $5,889 million, respectively. These cash inflows are offset by the related cash outflows resulting from placement of the time deposits and repayment of the LCs. All cash flows related to the programs are included in operating activities in the condensed consolidated statements of cash flows.
6.
INVENTORIES
Inventories by segment are presented below. Readily marketable inventories (“RMI”) are agricultural commodity inventories, such as soybeans, soybean meal, soybean oil, corn, and wheat carried at fair value because of their commodity characteristics, widely available markets, and international pricing mechanisms.  All other inventories are carried at lower of cost or net realizable value.
(US$ in millions)
 
September 30,
2018
 
December 31,
2017
Agribusiness (1)
 
$
5,762

 
$
4,022

Edible Oil Products (2)
 
733

 
458

Milling Products
 
240

 
196

Sugar and Bioenergy (3)
 
352

 
333

Fertilizer
 
96

 
65

Total
 
$
7,183

 
$
5,074

 
(1)
Includes RMI of $5,534 million and $3,865 million at September 30, 2018 and December 31, 2017, respectively.  Of these amounts, $4,466 million and $2,694 million can be attributable to merchandising activities at September 30, 2018 and December 31, 2017, respectively.
(2)
Includes RMI of bulk soybean and canola oil in the aggregate amount of $97 million and $115 million at September 30, 2018 and December 31, 2017, respectively.
(3)
Includes RMI of $75 million and $76 million at September 30, 2018 and December 31, 2017, respectively. Of these amounts, $67 million and $73 million can be attributable to merchandising activities at September 30, 2018 and December 31, 2017, respectively.

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7.
OTHER CURRENT ASSETS
Other current assets consist of the following:
(US$ in millions)
 
September 30,
2018
 
December 31,
2017
Unrealized gains on derivative contracts, at fair value
 
$
1,530

 
$
910

Prepaid commodity purchase contracts (1)
 
465

 
282

Secured advances to suppliers, net (2)
 
259

 
412

Recoverable taxes, net
 
474

 
488

Margin deposits
 
510

 
258

Marketable securities, at fair value, and other short-term investments
 
119

 
213

Deferred purchase price receivable, at fair value (3)
 
114

 
107

Income taxes receivable
 
76

 
192

Prepaid expenses
 
201

 
125

Other
 
200

 
240

Total
 
$
3,948

 
$
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 $1 million at September 30, 2018 and $1 million at December 31, 2017.
Interest earned on secured advances to suppliers of $6 million and $7 million for the three months ended September 30, 2018 and 2017, respectively, and $24 million and $34 million for the nine months ended September 30, 2018 and 2017, respectively, is included in net sales in the condensed consolidated statements of income.
(3)
Deferred purchase price receivable represents additional credit support for the investment conduits in Bunge’s trade receivables securitization program (see Note 13).
Marketable Securities and Other Short-Term Investments - Bunge invests in foreign government securities, corporate debt securities, deposits, and other securities. The following is a summary of amounts recorded in the condensed consolidated balance sheets for marketable securities and other short-term investments.
(US$ in millions)
 
September 30,
2018
 
December 31,
2017
Foreign government securities
 
$
35

 
$
145

Corporate debt securities
 
65

 
59

Certificates of deposit/time deposits
 
13

 
—

Other
 
6

 
9

Total marketable securities and other short-term investments
 
$
119

 
$
213

As of September 30, 2018, total marketable securities and other short-term investments includes $101 million that are recorded at fair value and $18 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.

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8.
OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
(US$ in millions)
 
September 30,
2018
 
December 31,
2017
Recoverable taxes, net (1)
 
$
113

 
$
155

Judicial deposits (1)
 
110

 
140

Other long-term receivables
 
5

 
12

Income taxes receivable (1)
 
245

 
307

Long-term investments
 
86

 
66

Affiliate loans receivable
 
28

 
24

Long-term receivables from farmers in Brazil, net (1)
 
92

 
131

Other
 
170

 
193

Total
 
$
849

 
$
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 $27 million and $28 million at September 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 1 year.
Long-term receivables from farmers in Brazil, net - Bunge provides financing to farmers in Brazil, primarily through secured advances against farmer commitments to deliver agricultural commodities (primarily soybeans) upon harvest of the then-current year’s crop and through credit sales of fertilizer to farmers.
The average recorded investment in long-term receivables from farmers in Brazil for the nine months ended September 30, 2018 and the year ended December 31, 2017 was $220 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.
 
 
September 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)
 
$
85

 
$
74

 
$
98

 
$
91

Renegotiated amounts (2)
 
16

 
16

 
25

 
22

For which no allowance has been provided:
 
 

 
 

 
 

 
 

Legal collection process (1)
 
50

 
—

 
76

 
—

Renegotiated amounts (2)
 
9

 
—

 
17

 
—

Other long-term receivables
 
22

 
—

 
28

 
—

Total
 
$
182

 
$
90

 
$
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.

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The table below summarizes the activity in the allowance for doubtful accounts related to long-term receivables from farmers in Brazil.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(US$ in millions)
2018
 
2017
 
2018
 
2017
Beginning balance
$
98

 
$
109

 
$
113

 
$
109

Bad debt provisions
1

 
—

 
5

 
10

Recoveries
(4
)
 
(3
)
 
(7
)
 
(11
)
Write-offs
(1
)
 
—

 
(2
)
 
—

Foreign exchange translation
(4
)
 
5

 
(19
)
 
3

Ending balance
$
90

 
$
111

 
$
90

 
$
111

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 nine months ended September 30, 2018 and 2017, income tax (expense) benefit related to continuing operations was $(106) million and $(2) million. The higher effective tax rate for the third quarter of 2018 was primarily due to higher overall pretax income for the period. In the third quarter of 2018, Bunge recorded an income tax benefit of $15 million related to the favorable resolution of income tax matters in North America. For the nine months ended September 30, 2017, the income tax expense 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 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 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.
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, the 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 third quarter of 2018, Bunge continued to evaluate and refine the amounts to be reported on its 2017 U.S. federal income tax return. This effort included documenting deemed repatriated earnings and further assessing impacts of subsequent repatriations of foreign earnings on Bunge’s ability to utilize foreign tax

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credits. During the nine months ended September 30, 2018, Bunge did not record any adjustments to the provisional amounts recorded in 2017 as Bunge continues to analyze and finalize these amounts. Bunge expects to complete its analysis during the fourth quarter 2018, and record an adjustment to tax expense, if applicable. Bunge's final determination of its ability to utilize foreign tax credits may impact the Transition Tax calculation and the accrual of incremental withholding taxes. Bunge 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)
 
September 30,
2018
 
December 31,
2017
Unrealized losses on derivative contracts, at fair value
 
$
1,491

 
$
897

Accrued liabilities
 
634

 
606

Advances on sales
 
226

 
406

Other
 
288

 
277

Total
 
$
2,639

 
$
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.
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 considers 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

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based on the lowest level of input that is a significant component of the fair value measurement. The lowest level of input is considered Level 3.
The following table sets forth, by level, Bunge’s assets and liabilities that were accounted for at fair value on a recurring basis.
 
 
Fair Value Measurements at Reporting Date
 
 
September 30, 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)
 
$
—

 
$
4,760

 
$
946

 
$
5,706

 
$
—

 
$
3,691

 
$
365

 
$
4,056

Trade accounts receivable (1)
 
—

 
5

 
—

 
5

 
—

 
5

 
—

 
5

Unrealized gain on designated derivative contracts (2):
 
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Foreign exchange
 
—

 
53

 
—

 
53

 
—

 
18

 
—

 
18

Unrealized gain on undesignated derivative contracts (2):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest rate
 
—

 
3

 
—

 
3

 
—

 
4

 
—

 
4

Foreign exchange
 
1

 
668

 
—

 
669

 
—

 
321

 
—

 
321

Commodities
 
112

 
612

 
32

 
756

 
115

 
389

 
19

 
523

Freight
 
9

 
—

 
12

 
21

 
18

 
—

 
8

 
26

Energy
 
27

 
1

 
—

 
28

 
18

 
—

 
—

 
18

Deferred purchase price receivable (Note 13)
 
—

 
114

 
—

 
114

 
—

 
107

 
—

 
107

Other (3)
 
62

 
64

 
—

 
126

 
15

 
234

 
—

 
249

Total assets
 
$
211

 
$
6,280

 
$
990

 
$
7,481

 
$
166

 
$
4,769

 
$
392

 
$
5,327

Liabilities:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Trade accounts payable (1)
 
$
—

 
$
361

 
$
94

 
$
455

 
$
—

 
$
467

 
$
116

 
$
583

Unrealized loss on designated derivative contracts (4):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest rate
 
—

 
69

 
—

 
69

 
—

 
31

 
—

 
31

Foreign exchange
 
—

 
51

 
—

 
51

 
—

 
2

 
—

 
2

Unrealized loss on undesignated derivative contracts (4):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest rate
 
—

 
2

 
—

 
2

 
—

 
1

 
—

 
1

Foreign exchange
 
—

 
675

 
—

 
675

 
1

 
430

 
—

 
431

Commodities
 
201

 
501

 
37

 
739

 
141

 
271

 
20

 
432

Freight
 
20

 
—

 
11

 
31

 
15

 
—

 
3

 
18

Energy
 
11

 
—

 
1

 
12

 
9

 
2

 
2

 
13

Total liabilities
 
$
232

 
$
1,659

 
$
143

 
$
2,034

 
$
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 $88 million and $31 million included in other non-current liabilities at September 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

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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 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. In addition, except for 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 may be made based on Bunge's estimate of the potential loss in the event of counterparty non-performance. Bunge did not have significant adjustments related to non-performance by counterparties at September 30, 2018 or December 31, 2017.
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.
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.

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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 September 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 September 30, 2018
(US$ in millions)
 
Derivatives,
Net
 
Readily
Marketable
Inventories
 
Trade
Accounts
Receivable/
(Payable), Net
 
Total
Balance, July 1, 2018
 
$
16

 
$
1,225

 
$
(265
)
 
$
976

Total gains and (losses), realized/unrealized included in cost of goods sold
 
(12
)
 
80

 
4

 
72

Purchases
 
—

 
317

 
(31
)
 
286

Sales
 
—

 
(898
)
 
—

 
(898
)
Issuances
 
(2
)
 
—

 
—

 
(2
)
Settlements
 
(2
)
 
—

 
231

 
229

Transfers into Level 3
 
(5
)
 
255

 
(1
)
 
249

Transfers out of Level 3
 
—

 
(33
)
 
(32
)
 
(65
)
Balance, September 30, 2018
 
$
(5
)
 
$
946

 
$
(94
)
 
$
847

Derivatives, net, readily marketable inventories, and trade accounts receivable/payable net, include gains/(losses) of $(19) million, $50 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 September 30, 2018.
 
 
Three Months Ended September 30, 2017
(US$ in millions)
 
Derivatives,
Net
 
Readily
Marketable
Inventories
 
Trade
Accounts
Receivable/
(Payable), Net
 
Total
Balance, July 1, 2017
 
$
—

 
$
623

 
$
(453
)
 
$
170

Total gains and (losses), realized/unrealized included in cost of goods sold
 
(4
)
 
23

 
(2
)
 
17

Purchases
 
3

 
233

 
(5
)
 
231

Sales
 
—

 
(443
)
 
—

 
(443
)
Issuances
 
(3
)
 
—

 
—

 
(3
)
Settlements