UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-16625
BUNGE LIMITED
(Exact name of registrant as specified in its charter)
|
Bermuda |
|
98-0231912 |
|
(State or other jurisdiction of incorporation or |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
|
50 Main Street, White Plains, New York |
|
10606 |
|
(Address of principal executive offices) |
|
(Zip Code) |
(914) 684-2800
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer x |
|
Accelerated filer o |
|
|
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No x
As of November 2, 2012 the number of shares issued of the registrant was:
Common shares, par value $.01 per share: 146,171,736
BUNGE LIMITED
|
|
|
Page |
|
|
|
|
|
| ||
|
|
|
|
|
| ||
|
|
|
|
|
|
2 | |
|
|
|
|
|
|
3 | |
|
|
|
|
|
|
Condensed Consolidated Balance Sheets at September 30, 2012 and December 31, 2011 |
4 |
|
|
|
|
|
|
5 | |
|
|
|
|
|
|
6 | |
|
|
|
|
|
|
7 | |
|
|
|
|
|
|
32 | |
|
|
|
|
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
32 | |
|
|
|
|
|
50 | ||
|
|
|
|
|
52 | ||
|
|
|
|
|
| ||
|
|
|
|
|
52 | ||
|
|
|
|
|
53 | ||
|
|
|
|
|
53 | ||
|
|
|
|
|
53 | ||
|
|
|
|
|
53 | ||
|
|
|
|
|
53 | ||
|
|
|
|
|
53 | ||
|
|
|
|
|
54 | ||
|
|
| |
|
E-1 | ||
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(U.S. dollars in millions, except per share data)
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
Net sales |
|
$ |
17,293 |
|
$ |
15,616 |
|
$ |
45,829 |
|
$ |
42,298 |
|
|
Cost of goods sold |
|
(16,434 |
) |
(14,910 |
) |
(43,789 |
) |
(40,306 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Gross profit |
|
859 |
|
706 |
|
2,040 |
|
1,992 |
| ||||
|
Selling, general and administrative expenses |
|
(416 |
) |
(394 |
) |
(1,231 |
) |
(1,121 |
) | ||||
|
Interest income |
|
13 |
|
28 |
|
60 |
|
72 |
| ||||
|
Interest expense |
|
(86 |
) |
(80 |
) |
(230 |
) |
(222 |
) | ||||
|
Foreign exchange gain (loss) |
|
20 |
|
(127 |
) |
104 |
|
(8 |
) | ||||
|
Other income (expense) — net |
|
(9 |
) |
(1 |
) |
(46 |
) |
(8 |
) | ||||
|
Gain on sales of investments in affiliates |
|
— |
|
— |
|
85 |
|
37 |
| ||||
|
Gain on acquisition of controlling interest |
|
— |
|
— |
|
36 |
|
— |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income before income tax |
|
381 |
|
132 |
|
818 |
|
742 |
| ||||
|
Income tax (expense) benefit |
|
(80 |
) |
1 |
|
(162 |
) |
(62 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income |
|
301 |
|
133 |
|
656 |
|
680 |
| ||||
|
Net loss (income) attributable to noncontrolling interest |
|
(4 |
) |
7 |
|
7 |
|
8 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income attributable to Bunge |
|
297 |
|
140 |
|
663 |
|
688 |
| ||||
|
Convertible preference share dividends |
|
(8 |
) |
(8 |
) |
(25 |
) |
(25 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income available to Bunge common shareholders |
|
$ |
289 |
|
$ |
132 |
|
$ |
638 |
|
$ |
663 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Earnings per common share — basic (Note 20) |
|
|
|
|
|
|
|
|
| ||||
|
Earnings to Bunge common shareholders |
|
$ |
1.97 |
|
$ |
0.90 |
|
$ |
4.37 |
|
$ |
4.51 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Earnings per common share — diluted (Note 20) |
|
|
|
|
|
|
|
|
| ||||
|
Earnings to Bunge common shareholders |
|
$ |
1.92 |
|
$ |
0.89 |
|
$ |
4.29 |
|
$ |
4.42 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Dividends per common share |
|
$ |
0.27 |
|
$ |
0.25 |
|
$ |
0.79 |
|
$ |
0.73 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(U.S. dollars in millions)
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
Net income |
|
$ |
301 |
|
$ |
133 |
|
$ |
656 |
|
$ |
680 |
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
| ||||
|
Foreign exchange translation adjustment |
|
67 |
|
(1,666 |
) |
(731 |
) |
(1,008 |
) | ||||
|
Unrealized gains (losses) on commodity futures and foreign exchange contracts designated as cash flow hedges, net of tax (expense) benefit of $(10) and $(2) in 2012, $8 and $1 in 2011 |
|
19 |
|
(18 |
) |
3 |
|
(5 |
) | ||||
|
Unrealized gains (losses) on investments, net of tax (expense) benefit of $1 and $(5) in 2012, $3 and $0 in 2011 |
|
(2 |
) |
(3 |
) |
9 |
|
— |
| ||||
|
Reclassification of realized net losses (gains) to net income, net of tax expense (benefit) of $(11) and $(11) in 2012, $0 and $7 in 2011 |
|
1 |
|
(2 |
) |
22 |
|
(15 |
) | ||||
|
Pension adjustment, net of tax (expense) benefit of nil in all periods |
|
— |
|
— |
|
1 |
|
(2 |
) | ||||
|
Total other comprehensive income (loss) |
|
85 |
|
(1,689 |
) |
(696 |
) |
(1,030 |
) | ||||
|
Total comprehensive income (loss) |
|
386 |
|
(1,556 |
) |
(40 |
) |
(350 |
) | ||||
|
Less: comprehensive (income) loss attributable to noncontrolling interest |
|
(32 |
) |
53 |
|
5 |
|
36 |
| ||||
|
Total comprehensive income (loss) attributable to Bunge |
|
$ |
354 |
|
$ |
(1,503 |
) |
$ |
(35 |
) |
$ |
(314 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(U.S. dollars in millions, except share data)
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2012 |
|
2011 |
| ||
|
ASSETS |
|
|
|
|
| ||
|
Current assets: |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
690 |
|
$ |
835 |
|
|
Trade accounts receivable (less allowances of $118 and $113) (Note 14) |
|
3,772 |
|
2,459 |
| ||
|
Inventories (Note 4) |
|
8,115 |
|
5,733 |
| ||
|
Deferred income taxes |
|
275 |
|
305 |
| ||
|
Other current assets (Note 5) |
|
5,194 |
|
3,796 |
| ||
|
Total current assets |
|
18,046 |
|
13,128 |
| ||
|
|
|
|
|
|
| ||
|
Property, plant and equipment, net |
|
5,841 |
|
5,517 |
| ||
|
Goodwill (Note 6) |
|
878 |
|
893 |
| ||
|
Other intangible assets, net |
|
303 |
|
220 |
| ||
|
Investments in affiliates (Note 8) |
|
282 |
|
600 |
| ||
|
Deferred income taxes |
|
1,326 |
|
1,211 |
| ||
|
Other non-current assets (Note 9) |
|
1,959 |
|
1,706 |
| ||
|
Total assets |
|
$ |
28,635 |
|
$ |
23,275 |
|
|
|
|
|
|
|
| ||
|
LIABILITIES AND EQUITY |
|
|
|
|
| ||
|
Current liabilities: |
|
|
|
|
| ||
|
Short-term debt |
|
$ |
3,476 |
|
$ |
719 |
|
|
Current portion of long-term debt (Note 13) |
|
314 |
|
14 |
| ||
|
Trade accounts payable |
|
3,701 |
|
3,173 |
| ||
|
Deferred income taxes |
|
303 |
|
152 |
| ||
|
Other current liabilities (Note 11) |
|
3,793 |
|
2,889 |
| ||
|
Total current liabilities |
|
11,587 |
|
6,947 |
| ||
|
|
|
|
|
|
| ||
|
Long-term debt (Note 13) |
|
4,142 |
|
3,348 |
| ||
|
Deferred income taxes |
|
105 |
|
134 |
| ||
|
Other non-current liabilities |
|
745 |
|
771 |
| ||
|
|
|
|
|
|
| ||
|
Commitments and contingencies (Note 17) |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Redeemable noncontrolling interest (Note 18) |
|
47 |
|
— |
| ||
|
|
|
|
|
|
| ||
|
Equity (Note 19): |
|
|
|
|
| ||
|
Convertible perpetual preference shares, par value $.01; authorized, issued and outstanding: 2012 and 2011 — 6,900,000 shares (liquidation preference $100 per share) |
|
690 |
|
690 |
| ||
|
Common shares, par value $.01; authorized — 400,000,000 shares; issued and outstanding: 2012 — 146,108,602 shares, 2011 — 145,610,029 shares |
|
1 |
|
1 |
| ||
|
Additional paid-in capital |
|
4,896 |
|
4,829 |
| ||
|
Retained earnings |
|
7,440 |
|
6,917 |
| ||
|
Accumulated other comprehensive income (loss) (Note 19) |
|
(1,306 |
) |
(610 |
) | ||
|
Treasury shares, at cost - 1,933,286 shares |
|
(120 |
) |
(120 |
) | ||
|
Total Bunge shareholders’ equity |
|
11,601 |
|
11,707 |
| ||
|
Noncontrolling interest |
|
408 |
|
368 |
| ||
|
Total equity |
|
12,009 |
|
12,075 |
| ||
|
Total liabilities and equity |
|
$ |
28,635 |
|
$ |
23,275 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in millions)
|
|
|
Nine Months Ended |
| ||||
|
|
|
September 30, |
| ||||
|
|
|
2012 |
|
2011 |
| ||
|
OPERATING ACTIVITIES |
|
|
|
|
| ||
|
Net income |
|
$ |
656 |
|
$ |
680 |
|
|
Adjustments to reconcile net income to cash provided by (used for) operating activities: |
|
|
|
|
| ||
|
Impairment charges |
|
44 |
|
— |
| ||
|
Gain on sales of investments in affiliates |
|
(85 |
) |
(37 |
) | ||
|
Gain on acquisition of controlling interest |
|
(36 |
) |
— |
| ||
|
Foreign exchange loss (gain) on debt |
|
(75 |
) |
103 |
| ||
|
Bad debt expense |
|
40 |
|
15 |
| ||
|
Depreciation, depletion and amortization |
|
414 |
|
398 |
| ||
|
Stock-based compensation expense |
|
44 |
|
40 |
| ||
|
Deferred income taxes |
|
(54 |
) |
73 |
| ||
|
Other, net |
|
2 |
|
(20 |
) | ||
|
Changes in operating assets and liabilities, excluding the effects of acquisitions: |
|
|
|
|
| ||
|
Trade accounts receivable |
|
(1,233 |
) |
287 |
| ||
|
Inventories |
|
(2,665 |
) |
63 |
| ||
|
Prepayments and advances to suppliers |
|
(395 |
) |
(313 |
) | ||
|
Trade accounts payable and accrued liabilities |
|
947 |
|
(355 |
) | ||
|
Net unrealized gain/loss on derivative contracts |
|
(79 |
) |
401 |
| ||
|
Margin deposits |
|
(53 |
) |
560 |
| ||
|
Other, net |
|
(344 |
) |
(532 |
) | ||
|
Cash provided by (used for) operating activities |
|
(2,872 |
) |
1,363 |
| ||
|
INVESTING ACTIVITIES |
|
|
|
|
| ||
|
Payments made for capital expenditures |
|
(667 |
) |
(705 |
) | ||
|
Acquisitions of businesses (net of cash acquired) |
|
(287 |
) |
(104 |
) | ||
|
Proceeds from sales of investments in affiliates |
|
483 |
|
70 |
| ||
|
Payments for investments in affiliates |
|
(111 |
) |
(28 |
) | ||
|
Other, net |
|
56 |
|
51 |
| ||
|
Cash provided by (used for) investing activities |
|
(526 |
) |
(716 |
) | ||
|
FINANCING ACTIVITIES |
|
|
|
|
| ||
|
Net change in short-term debt with maturities of 90 days or less |
|
1,751 |
|
207 |
| ||
|
Proceeds from short-term debt with maturities greater than 90 days |
|
1,421 |
|
671 |
| ||
|
Repayments of short-term debt with maturities greater than 90 days |
|
(491 |
) |
(1,195 |
) | ||
|
Proceeds from long-term debt |
|
4,505 |
|
2,209 |
| ||
|
Repayments of long-term debt |
|
(3,761 |
) |
(1,795 |
) | ||
|
Proceeds from sale of common shares |
|
13 |
|
19 |
| ||
|
Repurchases of common shares |
|
— |
|
(120 |
) | ||
|
Dividends paid |
|
(138 |
) |
(129 |
) | ||
|
Other, net |
|
(2 |
) |
27 |
| ||
|
Cash provided by (used for) financing activities |
|
3,298 |
|
(106 |
) | ||
|
Effect of exchange rate changes on cash and cash equivalents |
|
(45 |
) |
(64 |
) | ||
|
Net (decrease) increase in cash and cash equivalents |
|
(145 |
) |
477 |
| ||
|
Cash and cash equivalents, beginning of period |
|
835 |
|
578 |
| ||
|
Cash and cash equivalents, end of period |
|
$ |
690 |
|
$ |
1,055 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(U.S. dollars in millions, except share data)
|
|
|
|
|
Convertible |
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
| |||||||||||
|
|
|
Redeemable |
|
Preference |
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
|
Non |
|
|
| |||||||||||
|
|
|
Noncontrolling |
|
Shares |
|
Common Shares |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
Treasury |
|
Controlling |
|
Total |
| |||||||||||||
|
|
|
Interest |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Shares |
|
Interest |
|
Equity |
| |||||||||
|
Balance, January 1, 2011 |
|
$ |
— |
|
6,900,000 |
|
$ |
690 |
|
146,635,083 |
|
$ |
1 |
|
$ |
4,793 |
|
$ |
6,153 |
|
$ |
583 |
|
$ |
— |
|
$ |
334 |
|
$ |
12,554 |
|
|
Net income |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
688 |
|
— |
|
— |
|
(8 |
) |
680 |
| |||||||||
|
Other comprehensive income (loss) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(1,002 |
) |
— |
|
(28 |
) |
(1,030 |
) | |||||||||
|
Dividends on common shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(107 |
) |
— |
|
— |
|
— |
|
(107 |
) | |||||||||
|
Dividends on preference shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(25 |
) |
— |
|
— |
|
— |
|
(25 |
) | |||||||||
|
Dividends to noncontrolling interest on subsidiary common stock |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(16 |
) |
(16 |
) | |||||||||
|
Return of capital to noncontrolling interest |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(7 |
) |
(7 |
) | |||||||||
|
Capital contributions from noncontrolling interest |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
64 |
|
64 |
| |||||||||
|
Acquisition of noncontrolling interest |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(31 |
) |
— |
|
— |
|
— |
|
12 |
|
(19 |
) | |||||||||
|
Stock-based compensation expense |
|
— |
|
— |
|
— |
|
— |
|
— |
|
40 |
|
— |
|
— |
|
— |
|
— |
|
40 |
| |||||||||
|
Repurchase of common shares |
|
— |
|
— |
|
— |
|
(1,933,286 |
) |
— |
|
— |
|
— |
|
— |
|
(120 |
) |
— |
|
(120 |
) | |||||||||
|
Issuance of common shares |
|
— |
|
— |
|
— |
|
813,784 |
|
— |
|
15 |
|
— |
|
— |
|
— |
|
— |
|
15 |
| |||||||||
|
Balance, September 30, 2011 |
|
$ |
— |
|
6,900,000 |
|
$ |
690 |
|
145,515,581 |
|
$ |
1 |
|
$ |
4,817 |
|
$ |
6,709 |
|
$ |
(419 |
) |
$ |
(120 |
) |
$ |
351 |
|
$ |
12,029 |
|
|
|
|
|
|
Convertible |
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
| |||||||||||
|
|
|
Redeemable |
|
Preference |
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
|
Non |
|
|
| |||||||||||
|
|
|
Noncontrolling |
|
Shares |
|
Common Shares |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
Treasury |
|
Controlling |
|
Total |
| |||||||||||||
|
|
|
Interest |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Shares |
|
Interest |
|
Equity |
| |||||||||
|
Balance, January 1, 2012 |
|
$ |
— |
|
6,900,000 |
|
$ |
690 |
|
145,610,029 |
|
$ |
1 |
|
$ |
4,829 |
|
$ |
6,917 |
|
$ |
(610 |
) |
$ |
(120 |
) |
$ |
368 |
|
$ |
12,075 |
|
|
Net income |
|
(2 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
663 |
|
— |
|
— |
|
(5 |
) |
658 |
| |||||||||
|
Other comprehensive income (loss) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(696 |
) |
— |
|
— |
|
(696 |
) | |||||||||
|
Dividends on common shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(115 |
) |
— |
|
— |
|
— |
|
(115 |
) | |||||||||
|
Dividends on preference shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(25 |
) |
— |
|
— |
|
— |
|
(25 |
) | |||||||||
|
Dividends to noncontrolling interest on subsidiary common stock |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(6 |
) |
(6 |
) | |||||||||
|
Capital contributions from noncontrolling interest |
|
1 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
11 |
|
11 |
| |||||||||
|
Acquisition of noncontrolling interest (Note 3) |
|
48 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
40 |
|
40 |
| |||||||||
|
Stock-based compensation expense |
|
— |
|
— |
|
— |
|
— |
|
— |
|
44 |
|
— |
|
— |
|
— |
|
— |
|
44 |
| |||||||||
|
Issuance of common shares |
|
— |
|
— |
|
— |
|
498,573 |
|
— |
|
23 |
|
— |
|
— |
|
— |
|
— |
|
23 |
| |||||||||
|
Balance, September 30, 2012 |
|
$ |
47 |
|
6,900,000 |
|
$ |
690 |
|
146,108,602 |
|
$ |
1 |
|
$ |
4,896 |
|
$ |
7,440 |
|
$ |
(1,306 |
) |
$ |
(120 |
) |
$ |
408 |
|
$ |
12,009 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements include the accounts of Bunge Limited (Bunge), its subsidiaries and variable interest entities (VIEs) in which it is considered the primary beneficiary. 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) and include the assets, liabilities, revenues and expenses of all entities in which Bunge has a controlling financial interest or is otherwise deemed to be the primary beneficiary. 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, 2011 has been derived from Bunge’s audited consolidated financial statements at that date. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012. The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2011, forming part of Bunge’s 2011 Annual Report on Form 10-K filed with the SEC on February 27, 2012.
As described in Note 3, Bunge acquired an asset management business in Europe on March 19, 2012. Based on the accounting requirements of Accounting Standards Codification (ASC) Topic 810-10, Consolidation, Bunge concluded that restrictions on certain subsidiaries of this asset management business that serve as general partners in certain investment funds managed by that business to sell, transfer or encumber their partnership interests without advance approval of specified majorities of limited partner investors, and similar restrictions on such limited partner investors to sell, transfer or encumber their interests in the funds without prior approval of the general partner, result in a potential de facto principal/agency relationship as defined under accounting requirements and, therefore, Bunge is required to consolidate these investment funds, although it does not have significant equity at risk in these investment funds. The consolidation of these investment funds into Bunge’s financial statements impacts primarily investments, long-term debt and noncontrolling interest in Bunge’s condensed consolidated balance sheet as of September 30, 2012 in the amounts of $355 million, $333 million and $40 million, respectively. Bunge does not provide performance guarantees and has no financial obligation to provide funding to these investment funds.
Certain prior year amounts have been reclassified to conform to the current year presentation (see Notes 6 and 21).
2. NEW ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Pronouncements— In May 2011, the Financial Accounting Standards Board (FASB) amended the guidance in ASC Topic 820, Fair Value Measurement. This guidance is intended to result in convergence between U.S. GAAP and IFRS requirements for measurement of, and disclosures about, fair value. The amendment clarifies or changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The adoption of this standard on January 1, 2012 did not have a material impact on Bunge’s condensed consolidated financial statements.
3. BUSINESS ACQUISITIONS
In July 2012, Bunge acquired a 55% interest in an newly formed oilseed processing venture in Eastern Europe, which it consolidates, in its agribusiness segment for $54 million comprised of $11 million in cash, $40 million in redeemable noncontrolling interest and $3 million in contingent consideration. In conjunction with the formation of the venture, Bunge entered into an agreement to acquire the remaining 45% interest at either Bunge’s or the noncontrolling interest’s option in the future for which the exercise date and price are reasonably determinable. As a result, Bunge has classified the noncontrolling interest as redeemable noncontrolling interest on its condensed consolidated balance sheet as of September 30, 2012. The preliminary purchase price allocation includes $3 million of inventory, $24
million of other current assets, $133 million of property, plant and equipment, $17 million of other current liabilities and $89 million of long-term debt. Bunge has not recognized any goodwill as a result of this transaction (see Note 18).
In June 2012, Bunge acquired sugarcane milling assets in Brazil in its sugar and bioenergy segment for $61 million in cash. The preliminary purchase price allocation includes $10 million of biological assets, $43 million of property, plant and equipment, $1 million of finite-lived intangible assets and $7 million of goodwill.
In May 2012, Bunge acquired an additional 63.5% interest in a wheat mill and bakery dry mix operation in North America in its milling products segment for $102 million in cash (net of cash acquired) and $8 million in redeemable noncontrolling interest. Prior to this transaction, Bunge had an existing 31.5% interest in the entity which was accounted for as an equity method investment. Upon completion of the transaction, Bunge has a 95% interest in the entity, which it consolidates. Upon assuming control of the entity, Bunge recorded a non-cash, non-taxable gain of $36 million to adjust its previously existing noncontrolling interest to its fair value of $52 million. The preliminary purchase price allocation includes $21 million of inventories, $35 million of other current assets, $71 million of property, plant and equipment, $32 million of finite-lived intangible assets, $18 million of other liabilities, $24 million of deferred tax liabilities and $45 million of goodwill (see Notes 8 and 18).
In March 2012, Bunge acquired an asset management business in Europe in its agribusiness segment for $9 million, net of cash acquired. Bunge has been and is continuing to review the asset valuation models and their associated impact on the transaction accounting and financial statement classification; as a result, Bunge has reclassified approximately $222 million of noncontrolling interest to long-term debt on its condensed consolidated balance sheet as of September 30, 2012. The preliminary purchase price allocation includes $27 million of other assets, $344 million of long-term investments, $21 million of other finite-lived intangible assets, $27 million of other liabilities, $316 million of long-term debt and $40 million of noncontrolling interest. Of these amounts, $14 million of other net assets, $344 million of long-term investments, $316 million of long-term debt and $40 million of noncontrolling interest are attributed to certain managed investment funds, which Bunge consolidates as it is deemed to be the primary beneficiary (see Notes 1, 9 and 13).
In February 2012, Bunge acquired an edible oils and fats business in India in its edible oil products segment for $94 million, net of cash acquired. The purchase price consisted of $77 million in cash and $17 million of acquired debt. The preliminary purchase price allocation includes $15 million of inventories, $4 million of current assets, $27 million of property, plant and equipment, $53 million of finite-lived intangible assets (primarily trademark and brands) and $5 million of other liabilities.
Also in 2012, Bunge acquired finite-lived intangible assets and property, plant and equipment in three transactions in North America and Africa in its agribusiness segment for $24 million in cash.
4. INVENTORIES
Inventories by segment are presented below. Readily marketable inventories refers to inventories that are readily convertible to cash because of their commodity characteristics, widely available markets and international pricing mechanisms.
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2012 |
|
2011 |
| ||
|
Agribusiness (1) |
|
$ |
6,090 |
|
$ |
4,080 |
|
|
Sugar and bioenergy (2) |
|
508 |
|
465 |
| ||
|
Edible oil products (3) |
|
625 |
|
489 |
| ||
|
Milling products (4) |
|
210 |
|
130 |
| ||
|
Fertilizer (4) |
|
682 |
|
569 |
| ||
|
Total |
|
$ |
8,115 |
|
$ |
5,733 |
|
|
(1) |
Includes readily marketable agricultural commodity inventories at fair value of $5,792 million and $3,724 million at September 30, 2012 and December 31, 2011, respectively. All other agribusiness segment inventories are carried at lower of cost or market. |
|
(2) |
Includes readily marketable sugar inventories of $164 million and $139 million at September 30, 2012 and December 31, 2011, respectively. Of these sugar inventories, $90 million and $83 million are carried at fair value at September 30, 2012 and December 31, 2011, respectively, in Bunge’s trading and merchandising business. Sugar and ethanol inventories in Bunge’s industrial production business are carried at lower of cost or market. |
|
|
|
|
(3) |
Edible oil products inventories are generally carried at lower of cost or market, with the exception of readily marketable inventories of bulk soybean oil which are carried at fair value in the aggregate amount of $193 million and $212 million at September 30, 2012 and December 31, 2011, respectively. |
|
|
|
|
(4) |
Milling products and fertilizer inventories are carried at lower of cost or market. |
5. OTHER CURRENT ASSETS
Other current assets consist of the following:
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2012 |
|
2011 |
| ||
|
Prepaid commodity purchase contracts (1) |
|
$ |
508 |
|
$ |
206 |
|
|
Secured advances to suppliers, net (2) |
|
366 |
|
349 |
| ||
|
Unrealized gains on derivative contracts at fair value |
|
2,084 |
|
1,283 |
| ||
|
Recoverable taxes, net |
|
530 |
|
528 |
| ||
|
Margin deposits (3) |
|
408 |
|
352 |
| ||
|
Marketable securities |
|
98 |
|
50 |
| ||
|
Deferred purchase price receivable (4) |
|
125 |
|
192 |
| ||
|
Prepaid expenses |
|
443 |
|
369 |
| ||
|
Restricted cash (5) |
|
12 |
|
43 |
| ||
|
Other |
|
620 |
|
424 |
| ||
|
Total |
|
$ |
5,194 |
|
$ |
3,796 |
|
|
(1) |
Prepaid commodity purchase contracts represent advance payments against fixed price contracts for future delivery of specified quantities of agricultural commodities. These contracts are recorded at fair value based on prices of the underlying agricultural commodities. |
|
|
|
|
(2) |
Bunge provides cash advances to suppliers, primarily Brazilian farmers of soybeans, to finance a portion of the suppliers’ production costs. Bunge does not bear any of the costs or risks associated with the related growing crops. The advances are largely collateralized by future crops and physical assets of the suppliers, carry a local market interest rate and settle when the farmer’s crop is harvested and sold. The secured advances to farmers are reported net of allowances of $3 million at both September 30, 2012 and December 31, 2011. |
|
|
|
|
|
Interest earned on secured advances to suppliers of $5 million and $5 million for the three months ended September 30, 2012 and 2011, respectively, and $18 million and $17 million for the nine months ended September 30, 2012 and 2011, respectively, is included in net sales in the condensed consolidated statements of income. |
|
|
|
|
(3) |
Margin deposits include U.S. treasury securities at fair value and cash. |
|
|
|
|
(4) |
Deferred purchase price receivable represents additional credit support for the investment conduits in Bunge’s accounts receivables sales program (see Note 14) and is recognized at its estimated fair value. |
|
|
|
|
(5) |
Restricted cash at December 31, 2011, includes an escrowed cash deposit related to an equity investment, which was completed in the first quarter of 2012. |
6. GOODWILL
The table below summarizes the carrying amount of goodwill by segment.
|
|
|
|
|
Sugar and |
|
Edible Oil |
|
Milling |
|
|
|
|
| ||||||
|
(US$ in millions) |
|
Agribusiness |
|
Bioenergy |
|
Products |
|
Products |
|
Fertilizer |
|
Total |
| ||||||
|
Balance, December 31, 2010 |
|
$ |
215 |
|
$ |
631 |
|
$ |
80 |
|
$ |
7 |
|
$ |
1 |
|
$ |
934 |
|
|
Acquired goodwill |
|
34 |
|
— |
|
41 |
|
— |
|
— |
|
75 |
| ||||||
|
Reallocation of acquired goodwill |
|
(5 |
) |
— |
|
— |
|
— |
|
— |
|
(5 |
) | ||||||
|
Tax benefit on goodwill amortization (3) |
|
(7 |
) |
— |
|
— |
|
— |
|
— |
|
(7 |
) | ||||||
|
Foreign exchange translation |
|
(21 |
) |
(71 |
) |
(11 |
) |
(1 |
) |
— |
|
(104 |
) | ||||||
|
Balance, December 31, 2011 |
|
$ |
216 |
|
$ |
560 |
|
$ |
110 |
|
$ |
6 |
|
$ |
1 |
|
$ |
893 |
|
|
Acquired goodwill (1) |
|
— |
|
7 |
|
— |
|
45 |
|
— |
|
52 |
| ||||||
|
Reallocation of acquired goodwill (2) |
|
(1 |
) |
— |
|
(13 |
) |
— |
|
1 |
|
(13 |
) | ||||||
|
Tax benefit on goodwill amortization (3) |
|
(4 |
) |
— |
|
— |
|
— |
|
— |
|
(4 |
) | ||||||
|
Foreign exchange translation |
|
(12 |
) |
(43 |
) |
3 |
|
2 |
|
— |
|
(50 |
) | ||||||
|
Balance, September 30, 2012 |
|
$ |
199 |
|
$ |
524 |
|
$ |
100 |
|
$ |
53 |
|
$ |
2 |
|
$ |
878 |
|
|
(1) |
See Note 3. |
|
|
|
|
(2) |
Beginning in the first quarter of 2012, the management responsibilities for certain Brazilian port facilities were moved from the agribusiness segment to the fertilizer segment. Accordingly, $1 million of goodwill attributable to these port facilities was reclassified to conform to the 2012 segment presentation. Also in the first quarter of 2012, the purchase price allocation for the 2011 edible oil products acquisition was revised resulting in a reduction of goodwill of $13 million, a reduction of inventories of $6 million, an increase in finite-lived intangibles of $14 million and a reduction of deferred tax liabilities of $5 million. |
|
|
|
|
(3) |
Bunge’s Brazilian subsidiary’s tax deductible goodwill is in excess of its book goodwill. For financial reporting purposes, for goodwill acquired prior to 2009, the tax benefits attributable to the excess tax goodwill are first used to reduce associated goodwill and then other intangible assets to zero, prior to recognizing any income tax benefit in the condensed consolidated statements of income. |
7. IMPAIRMENT AND RESTRUCTURING CHARGES
Impairment — In the third quarter of 2012, Bunge recorded pretax non-cash impairment charges of $29 million and $10 million in selling, general and administrative expenses and other income (expense)-net, respectively, in its condensed consolidated statements of income, which was allocated to its sugar and bioenergy segment, relating to the write down of an equity investment in and an affiliate loan to a North American corn ethanol joint venture. Declining results of operations at this joint venture’s only facility led to the announced suspension of operations in the venture.
Restructuring — In the three and nine months ended September 30, 2012, Bunge recorded no significant restructuring charges.
The following table summarizes assets measured at fair value on a nonrecurring basis subsequent to initial recognition. For additional information on Level 1, 2 and 3 inputs (see Note 12).
|
|
|
|
|
|
|
|
|
|
|
Impairment Losses |
| |||||
|
|
|
Three Months Ended |
|
Fair Value Measurements Using |
|
Three Months Ended |
| |||||||||
|
(US$ in millions) |
|
September 30, 2012 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
September 30, 2012 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Affiliate loans |
|
$ |
9 |
|
$ |
— |
|
$ |
— |
|
$ |
9 |
|
$ |
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Investment in affiliates |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
Impairment Losses |
| |||||
|
|
|
Nine Months Ended |
|
Fair Value Measurements Using |
|
Nine Months Ended |
| |||||||||
|
(US$ in millions) |
|
September 30, 2012 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
September 30, 2012 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Affiliate loans |
|
$ |
9 |
|
$ |
— |
|
$ |
— |
|
$ |
9 |
|
$ |
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Investment in affiliates |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
(10 |
) |
8. INVESTMENTS IN AFFILIATES
In September 2012, Bunge recorded a $10 million impairment charge related to its equity investment in a North American corn ethanol joint venture reducing the investment value to zero (see Note 7). During the nine months ended September 30, 2012 total contributions made by Bunge to this joint venture were $18 million primarily funding its share of the joint venture’s operating losses.
In April 2012, Bunge entered into a joint venture agreement for the construction and operation of a renewable oils production facility in its sugar and bioenergy segment in Brazil. Bunge has a 49.9% interest in this entity and contributed $10 million in July 2012.
In June 2012, Bunge entered into a joint venture agreement for the construction and operation of a corn wet mill in Argentina. Bunge has a 50% interest in this joint venture and has contributed $21 million during the nine months ended September 30, 2012. Bunge accounts for this equity method investment in its sugar and bioenergy segment. Also during the nine months ended September 30, 2012, Bunge made contributions totaling $19 million to its Paraguay oilseed processing facility joint venture.
In May 2012, Bunge completed the acquisition of an additional 63.5% voting interest in a North American wheat mill and bakery dry mix operation (see Note 3) in which it previously had a 31.5% interest and which it reported as an equity method investment in its milling products segment. Upon completion of the transaction, Bunge began to consolidate this entity in its condensed consolidated financial statements. Upon assuming control of this entity, Bunge recognized a non-cash, non-taxable gain of $36 million to adjust its previously existing investment to fair value.
In April 2012, Bunge sold its 28.06% interest in The Solae Company (Solae) to E.I. du Pont de Nemours and Company for $448 million in cash exclusive of a special cash dividend of $35 million. Bunge recognized a pretax gain of $85 million in its agribusiness segment related to this transaction.
In January 2012, Bunge completed the acquisition in its agribusiness segment of a 35% interest in PT Bumiraya Investindo, an Indonesian palm plantation company, for $43 million which is reported as an equity method investment.
9. OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2012 |
|
2011 |
| ||
|
Recoverable taxes, net |
|
$ |
464 |
|
$ |
386 |
|
|
Long-term receivables from farmers in Brazil, net |
|
220 |
|
284 |
| ||
|
Judicial deposits |
|
166 |
|
167 |
| ||
|
Income taxes receivable |
|
439 |
|
565 |
| ||
|
Affiliate loans receivable, net |
|
54 |
|
63 |
| ||
|
Long-term investments |
|
432 |
|
37 |
| ||
|
Other |
|
184 |
|
204 |
| ||
|
Total |
|
$ |
1,959 |
|
$ |
1,706 |
|
Recoverable taxes, net — Recoverable taxes are reported net of valuation allowances of $43 million and $41 million at September 30, 2012 and December 31, 2011, respectively.
Long-term receivables from farmers in Brazil, net — Bunge provides financing to farmers in Brazil, primarily through secured advances against farmer commitments to deliver agricultural commodities (primarily soybeans) upon harvest of the then-current year’s crop and through credit sales of fertilizer to farmers.
The table below summarizes Bunge’s recorded investment in long-term receivables from farmers in Brazil for amounts in the legal collection process and renegotiated amounts.
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2012 |
|
2011 |
| ||
|
Legal collection process (1) |
|
$ |
274 |
|
$ |
358 |
|
|
Renegotiated amounts: |
|
|
|
|
| ||
|
Current on repayment terms |
|
137 |
|
125 |
| ||
|
Total |
|
$ |
411 |
|
$ |
483 |
|
(1) All amounts in legal process are considered past due upon initiation of legal action.
The average recorded investment in long-term receivables from farmers in Brazil for the nine months ended September 30, 2012 and the year ended December 31, 2011 was $461 million and $561 million, respectively. The table below summarizes Bunge’s recorded investment in long-term receivables from farmers in Brazil and the related allowance amounts.
|
|
|
September 30, 2012 |
|
December 31, 2011 |
| ||||||||
|
|
|
Recorded |
|
|
|
Recorded |
|
|
| ||||
|
(US$ in millions) |
|
Investment |
|
Allowance |
|
Investment |
|
Allowance |
| ||||
|
For which an allowance has been provided: |
|
|
|
|
|
|
|
|
| ||||
|
Legal collection process |
|
$ |
154 |
|
$ |
140 |
|
$ |
162 |
|
$ |
147 |
|
|
Renegotiated amounts |
|
71 |
|
51 |
|
64 |
|
52 |
| ||||
|
For which no allowance has been provided: |
|
|
|
|
|
|
|
|
| ||||
|
Legal collection process |
|
120 |
|
— |
|
196 |
|
— |
| ||||
|
Renegotiated amounts |
|
66 |
|
— |
|
61 |
|
— |
| ||||
|
Total |
|
$ |
411 |
|
$ |
191 |
|
$ |
483 |
|
$ |
199 |
|
The table below summarizes the activity in the allowance for doubtful accounts related to long-term receivables from farmers in Brazil.
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
(US$ in millions) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
Beginning balance |
|
$ |
198 |
|
$ |
215 |
|
$ |
199 |
|
$ |
201 |
|
|
Bad debt provisions |
|
8 |
|
10 |
|
34 |
|
14 |
| ||||
|
Recoveries |
|
(7 |
) |
(5 |
) |
(16 |
) |
(10 |
) | ||||
|
Write-offs |
|
(8 |
) |
— |
|
(9 |
) |
— |
| ||||
|
Transfers (1) |
|
— |
|
(2 |
) |
— |
|
— |
| ||||
|
Foreign exchange translation |
|
— |
|
(34 |
) |
(17 |
) |
(21 |
) | ||||
|
Ending balance |
|
$ |
191 |
|
$ |
184 |
|
$ |
191 |
|
$ |
184 |
|
(1) Represents reclassifications from allowance for doubtful accounts — current for secured advances to suppliers.
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 (benchmark rate of the Brazilian central bank).
Income taxes receivable — Income taxes receivable at September 30, 2012 and December 31, 2011 includes overpayments of current income taxes plus accrued interest. These income tax prepayments are expected to be utilized for settlement of future income tax obligations. Income taxes receivable in Brazil bear interest at the SELIC rate.
Affiliate loans receivable, net — Affiliate loans receivable, net are primarily interest bearing receivables net of allowances from unconsolidated affiliates with an initial maturity of greater than one year. In the three and nine months ended September 30, 2012, Bunge recorded a reserve of $29 million related to a loan receivable from a North American corn ethanol joint venture (see Note 7).
Long-term investments — Long-term investments primarily relate to investments held by certain managed investment funds (see Note 1) for which Bunge has been deemed the primary beneficiary and result in Bunge’s consolidation of the associated entities.
These investments of $355 million at September 30, 2012 are recorded at fair value (a Level 3 measurement) which was determined using proprietary pricing models and discounted cash flow analyses.
10. INCOME TAXES
Income tax expense is provided on an interim basis based upon management’s estimate of the annual effective income tax rate and includes the tax effects of certain discrete items, such as changes in tax laws or tax rates or other unusual or nonrecurring tax adjustments in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The effective tax rate is highly dependent upon the geographic distribution of Bunge’s worldwide earnings or losses and tax regulations in each jurisdiction. Management regularly monitors the assumptions used in estimating its annual effective tax rate and adjusts estimates accordingly. If actual results differ from management’s estimates, reported income tax expense in future periods could be materially affected.
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 often difficult to predict the final outcome or timing of resolution of any particular matter with the various tax authorities, management believes that the condensed consolidated financial statements reflect the largest amount of tax benefit that will be more likely than not realized. During the three months ended September 30, 2012, Bunge decreased its liability for unrecognized tax benefits by $21 million and recorded a favorable adjustment to the tax provision of $8 million as a result of the expiration of certain statutes of limitations. There were no other material changes to uncertain tax positions for the nine months ended September 30, 2012 and 2011. It is reasonably possible that the amount of unrecognized tax benefit will increase or decrease during the next 12 months; however, management does not expect a material effect on results of operations or financial position.
During the first quarter 2012, the Brazilian tax authorities proposed certain adjustments to the income tax returns for one of Bunge’s Brazilian subsidiaries for the years ended 2008 and 2009. The proposed adjustments totaled approximately $62 million plus applicable interest and penalties. Management, in consultation with external legal advisors, has reviewed and responded to the proposed adjustments and believes that it is more likely than not that it will prevail and, therefore, has not recorded an uncertain tax liability.
In 2011, the Brazilian tax authorities commenced an examination of the income tax returns of one of Bunge’s Brazilian subsidiaries for the years ended 2005 to 2009 and proposed adjustments totaling approximately $160 million plus applicable interest and penalties. Management, in consultation with external legal advisors, has reviewed and responded to the proposed adjustments and believes that it is more likely than not that it will prevail and, therefore, has not recorded an uncertain tax liability.
In 2010, the Brazilian tax authorities had proposed certain significant adjustments to the income tax returns of one of Bunge’s Brazilian subsidiaries for the years ended 2005 to 2007. The proposed adjustments totaled
approximately $525 million plus applicable interest and penalties. In the fourth quarter of 2011, Bunge received a decision from the Tax Inspector that dismissed approximately $170 million of this tax claim against Bunge. Management is appealing the remainder of the case, and has not changed its position that it is more likely than not that it will prevail and, therefore, has not recorded an uncertain tax liability.
11. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2012 |
|
2011 |
| ||
|
Accrued liabilities |
|
$ |
1,211 |
|
$ |
1,179 |
|
|
Unrealized losses on derivative contracts at fair value |
|
2,068 |
|
1,370 |
| ||
|
Advances on sales |
|
392 |
|
283 |
| ||
|
Other |
|
122 |
|
57 |
| ||
|
Total |
|
$ |
3,793 |
|
$ |
2,889 |
|
12. 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 14 for deferred purchase price receivable (DPP) related to sales of trade receivables. See Note 9 for long-term receivables from farmers in Brazil, net and other long-term investments, see Note 13 for long-term debt and see Note 18 for redeemable noncontrolling interest. 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 Bunge’s 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 established in ASC Topic 820, Fair Value Measurements and Disclosures, 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 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 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 which are primarily related to inland transportation costs, 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. Bunge’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of fair value assets and liabilities within the fair value hierarchy levels. 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, 2012 |
|
December 31, 2011 |
| ||||||||||||||||||||
|
(US$ in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Readily marketable inventories (Note 4) |
|
$ |
— |
|
$ |
4,948 |
|
$ |
1,127 |
|
$ |
6,075 |
|
$ |
— |
|
$ |
3,736 |
|
$ |
283 |
|
$ |
4,019 |
|
|
Unrealized gain on designated derivative contracts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Foreign exchange |
|
— |
|
14 |
|
— |
|
14 |
|
— |
|
13 |
|
— |
|
13 |
| ||||||||
|
Unrealized gain on undesignated derivative contracts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Foreign exchange |
|
— |
|
210 |
|
— |
|
210 |
|
— |
|
451 |
|
1 |
|
452 |
| ||||||||
|
Commodities |
|
164 |
|
1,166 |
|
496 |
|
1,826 |
|
75 |
|
586 |
|
125 |
|
786 |
| ||||||||
|
Freight |
|
7 |
|
— |
|
— |
|
7 |
|
5 |
|
— |
|
1 |
|
6 |
| ||||||||
|
Energy |
|
20 |
|
4 |
|
3 |
|
27 |
|
11 |
|
13 |
|
2 |
|
26 |
| ||||||||
|
Deferred purchase price receivable (Note 14) |
|
— |
|
125 |
|
— |
|
125 |
|
— |
|
192 |
|
— |
|
192 |
| ||||||||
|
Other (2) |
|
210 |
|
49 |
|
— |
|
259 |
|
146 |
|
34 |
|
— |
|
180 |
| ||||||||
|
Total assets |
|
$ |
401 |
|
$ |
6,516 |
|
$ |
1,626 |
|
$ |
8,543 |
|
$ |
237 |
|
$ |
5,025 |
|
$ |
412 |
|
$ |
5,674 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Unrealized loss on designated derivative contracts (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Foreign exchange |
|
$ |
— |
|
$ |
13 |
|
$ |
— |
|
$ |
13 |
|
$ |
— |
|
$ |
45 |
|
$ |
— |
|
$ |
45 |
|
|
Unrealized loss on undesignated derivative contracts (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest rate |
|
— |
|
— |
|
— |
|
— |
|
— |
|
2 |
|
— |
|
2 |
| ||||||||
|
Foreign exchange |
|
1 |
|
158 |
|
— |
|
159 |
|
— |
|
617 |
|
— |
|
617 |
| ||||||||
|
Commodities |
|
321 |
|
1,340 |
|
210 |
|
1,871 |
|
147 |
|
417 |
|
116 |
|
680 |
| ||||||||
|
Freight |
|
3 |
|
— |
|
— |
|
3 |
|
1 |
|
— |
|
— |
|
1 |
| ||||||||
|
Energy |
|
10 |
|
— |
|
12 |
|
22 |
|
4 |
|
6 |
|
15 |
|
25 |
| ||||||||
|
Total liabilities |
|
$ |
335 |
|
$ |
1,511 |
|
$ |
222 |
|
$ |
2,068 |
|
$ |
152 |
|
$ |
1,087 |
|
$ |
131 |
|
$ |
1,370 |
|
(1) Unrealized gains on designated and undesignated derivative contracts are generally included in other current assets. There are no such amounts included in other non-current assets at September 30, 2012 and December 31, 2011.
(2) Other assets include primarily the fair values of U.S. Treasury securities held as margin deposits and other marketable securities.
(3) Unrealized losses on designated and undesignated derivative contracts are generally included in other current liabilities. There are no such amounts included in other non-current liabilities at September 30, 2012 and December 31, 2011.
Derivatives — Exchange traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified within Level 1. Bunge’s forward commodity purchase and sale contracts are classified as derivatives along with other 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. Changes in the fair values of these contracts are recognized in the condensed consolidated financial statements as a component of cost of goods sold, foreign exchange gains (losses), interest income (expense), other income (expense), net or other comprehensive income (loss).
OTC derivative contracts include swaps, options and structured transactions that are valued at fair value generally determined using quantitative models that require the use of multiple market inputs including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets which are not highly active, other observable inputs relevant to the asset or liability, and market inputs corroborated by correlation or other means. These valuation models include inputs such as interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors. Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. Certain OTC derivatives trade in less active markets with less availability of pricing information and certain structured transactions can require internally developed model inputs that might not be observable in or corroborated by the market. When unobservable inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3.
Bunge’s policy is to only classify exchange traded or cleared derivative contracts 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.
Bunge may designate certain derivative instruments as either fair value hedges or cash flow hedges and assesses, both at inception of the hedge and on an ongoing basis, whether derivatives that are designated as hedges are highly effective in offsetting changes in the hedged items or anticipated cash flows.
Readily marketable inventories — The majority of Bunge’s readily marketable commodity inventories are valued at fair value. These agricultural commodity inventories are readily marketable, have quoted market prices and may be sold without significant additional processing. Changes in the fair values of these inventories are recognized in the condensed consolidated statements of income as a component of cost of goods sold.
Readily marketable inventories 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 readily marketable inventories 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 readily marketable inventories at fair value in the condensed consolidated balance sheets and condensed consolidated statements of income could differ.
Level 3 Valuation — Bunge’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy. In evaluating the significance of fair value inputs, Bunge gives consideration to items that individually, or when aggregated with other inputs, represent more than 10% of the fair value of the asset or liability. 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. Because of differences in the availability of market pricing data over their terms, inputs for some assets and liabilities may fall into any one of the three levels in the fair value hierarchy or some combination thereof. While FASB guidance requires Bunge to classify these assets and liabilities in the lowest level in the hierarchy for which inputs are significant to the fair
value measurement, a portion of that measurement may be determined using inputs from a higher level in the hierarchy.
The significant unobservable inputs resulting in Level 3 classification relate to freight in the interior of Brazil and the lack of market corroborated information in Canada. In both situations, Bunge uses proprietary information such as purchase and sale contracts and contracted prices for freight, premiums and discounts to value its contracts. Movements in the price of these unobservable inputs alone would not have a material effect on Bunge’s financial statements as these contracts do not typically exceed one future crop cycle.
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 factors, interest rates, volumes and locations. In addition, with the exception of the exchange cleared instruments where Bunge clears trades through an exchange, Bunge is exposed to loss in the event of the non-performance by counterparties on over-the-counter 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 allowances related to non-performance by counterparties at September 30, 2012.
Level 3 Readily marketable inventories — Readily marketable inventories are considered Level 3 when at least one significant assumption or input is unobservable. These assumptions or unobservable inputs include certain management estimations regarding costs of transportation and other local market or location-related adjustments.
The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended September 30, 2012 and 2011. Level 3 instruments presented in the tables include readily marketable inventories and derivatives. These instruments were valued using pricing models that, in management’s judgment, reflect the assumptions that would be used by a marketplace participant to determine fair value.
|
|
|
Level 3 Instruments: |
| |||||||
|
|
|
Fair Value Measurements |
| |||||||
|
|
|
Three Months Ended September 30, 2012 |
| |||||||
|
|
|
|
|
Readily |
|
|
| |||
|
|
|
Derivatives, |
|
Marketable |
|
|
| |||
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Total |
| |||
|
Balance, July 1, 2012 |
|
$ |
187 |
|
$ |
1,820 |
|
$ |
2,007 |
|
|
Total gains and (losses) (realized/unrealized) included in cost of goods sold |
|
93 |
|
(176 |
) |
(83 |
) | |||
|
Purchases |
|
— |
|
(293 |
) |
(293 |
) | |||
|
Sales |
|
2 |
|
(250 |
) |
(248 |
) | |||
|
Issuances |
|
(1 |
) |
— |
|
(1 |
) | |||
|
Settlements |
|
(93 |
) |
— |
|
(93 |
) | |||
|
Transfers into Level 3 |
|
4 |
|
197 |
|
201 |
| |||
|
Transfers out of Level 3 |
|
85 |
|
(171 |
) |
(86 |
) | |||
|
Balance, September 30, 2012 |
|
$ |
277 |
|
$ |
1,127 |
|
$ |
1,404 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
|
|
|
Level 3 Instruments: |
| |||||||
|
|
|
Fair Value Measurements |
| |||||||
|
|
|
Three Months Ended September 30, 2011 |
| |||||||
|
|
|
|
|
Readily |
|
|
| |||
|
|
|
Derivatives, |
|
Marketable |
|
|
| |||
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Total |
| |||
|
Balance, July 1, 2011 |
|
$ |
134 |
|
$ |
722 |
|
$ |
856 |
|
|
Total gains and (losses) (realized/unrealized) included in cost of goods sold |
|
(42 |
) |
65 |
|
23 |
| |||
|
Total gains and (losses) (realized/unrealized) included in foreign exchange gains (losses) |
|
2 |
|
— |
|
2 |
| |||
|
Purchases |
|
24 |
|
264 |
|
288 |
| |||
|
Sales |
|
(1 |
) |
(749 |
) |
(750 |
) | |||
|
Issuances |
|
(30 |
) |
— |
|
(30 |
) | |||
|
Settlements |
|
17 |
|
— |
|
17 |
| |||
|
Transfers into Level 3 |
|
1 |
|
124 |
|
125 |
| |||
|
Transfers out of Level 3 |
|
(27 |
) |
(73 |
) |
(100 |
) | |||
|
Balance, September 30, 2011 |
|
$ |
78 |
|
$ |
353 |
|
$ |
431 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2012 and 2011. Level 3 instruments presented in the tables include readily marketable inventories and derivatives. These instruments were valued using pricing models that, in management’s judgment, reflect the assumptions that would be used by a marketplace participant to determine fair value.
|
|
|
Level 3 Instruments: |
| |||||||
|
|
|
Fair Value Measurements |
| |||||||
|
|
|
Nine Months Ended September 30, 2012 |
| |||||||
|
|
|
|
|
Readily |
|
|
| |||