UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 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 |
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98-0231912 |
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(State or other jurisdiction of incorporation or |
|
(I.R.S. Employer Identification No.) |
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|
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50 Main Street, White Plains, New York |
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10606 |
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(Address of principal executive offices) |
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(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):
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Large accelerated filer x |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No x
As of April 30, 2012 the number of common shares issued of the registrant was:
Common shares, par value $.01: 145,925,411
BUNGE LIMITED
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(U.S. dollars in millions, except per share data)
|
|
|
Three Months Ended |
| ||||
|
|
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March 31, |
| ||||
|
|
|
2012 |
|
2011 |
| ||
|
Net sales |
|
$ |
13,446 |
|
$ |
12,194 |
|
|
Cost of goods sold |
|
(12,925 |
) |
(11,555 |
) | ||
|
|
|
|
|
|
| ||
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Gross profit |
|
521 |
|
639 |
| ||
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Selling, general and administrative expenses |
|
(419 |
) |
(344 |
) | ||
|
Interest income |
|
26 |
|
21 |
| ||
|
Interest expense |
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(62 |
) |
(72 |
) | ||
|
Foreign exchange gain (loss) |
|
66 |
|
42 |
| ||
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Other income (expenses) – net |
|
(29 |
) |
(8 |
) | ||
|
|
|
|
|
|
| ||
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Income before income tax |
|
103 |
|
278 |
| ||
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Income tax expense |
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(14 |
) |
(43 |
) | ||
|
|
|
|
|
|
| ||
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Net income |
|
89 |
|
235 |
| ||
|
Net (income) loss attributable to noncontrolling interest |
|
3 |
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(3 |
) | ||
|
|
|
|
|
|
| ||
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Net income attributable to Bunge |
|
92 |
|
232 |
| ||
|
Convertible preference share dividends |
|
(8 |
) |
(8 |
) | ||
|
|
|
|
|
|
| ||
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Net income available to Bunge common shareholders |
|
$ |
84 |
|
$ |
224 |
|
|
|
|
|
|
|
| ||
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Earnings per common share – basic (Note 19) |
|
|
|
|
| ||
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Earnings to Bunge common shareholders |
|
$ |
0.57 |
|
$ |
1.53 |
|
|
|
|
|
|
|
| ||
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Earnings per common share – diluted (Note 19) |
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|
|
|
| ||
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Earnings to Bunge common shareholders |
|
$ |
0.57 |
|
$ |
1.49 |
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|
|
|
|
|
|
| ||
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Dividends per common share |
|
$ |
0.25 |
|
$ |
0.23 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(U.S. dollars in millions)
|
|
|
Three Months Ended March 31, |
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|
|
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2012 |
|
2011 |
| ||
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Net income |
|
$ |
89 |
|
$ |
235 |
|
|
Other comprehensive income (loss): |
|
|
|
|
| ||
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Foreign exchange translation adjustment |
|
335 |
|
297 |
| ||
|
Unrealized gains (losses) on commodity futures and foreign exchange contracts designated as cash flow hedges, net of tax (expense) benefit $(4), $(2) |
|
9 |
|
4 |
| ||
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Unrealized gains (losses) on investments, net of tax (expense) benefit $(7), $0 |
|
13 |
|
— |
| ||
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Pension adjustment, net of tax (expense) benefit $0, $0 |
|
1 |
|
(2 |
) | ||
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Total other comprehensive income (loss) |
|
358 |
|
299 |
| ||
|
Total comprehensive income (loss) |
|
447 |
|
534 |
| ||
|
Less: Comprehensive income attributable to noncontrolling interest |
|
(10 |
) |
(11 |
) | ||
|
Total comprehensive income (loss) attributable to Bunge |
|
$ |
437 |
|
$ |
523 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(U.S. dollars in millions, except share data)
|
|
|
March 31, |
|
December 31, |
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|
|
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2012 |
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2011 |
| ||
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ASSETS |
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|
|
|
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Current assets: |
|
|
|
|
| ||
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Cash and cash equivalents |
|
$ |
1,250 |
|
$ |
835 |
|
|
Trade accounts receivable (less allowance of $115 and $113) |
|
2,908 |
|
2,459 |
| ||
|
Inventories (Note 4) |
|
6,368 |
|
5,733 |
| ||
|
Deferred income taxes |
|
315 |
|
305 |
| ||
|
Other current assets (Note 5) |
|
3,910 |
|
3,796 |
| ||
|
Total current assets |
|
14,751 |
|
13,128 |
| ||
|
|
|
|
|
|
| ||
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Property, plant and equipment, net |
|
5,791 |
|
5,517 |
| ||
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Goodwill (Note 6) |
|
915 |
|
893 |
| ||
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Other intangible assets, net |
|
270 |
|
220 |
| ||
|
Investments in affiliates |
|
627 |
|
600 |
| ||
|
Deferred income taxes |
|
1,330 |
|
1,211 |
| ||
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Other non-current assets (Note 8) |
|
2,112 |
|
1,706 |
| ||
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Total assets |
|
$ |
25,796 |
|
$ |
23,275 |
|
|
|
|
|
|
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| ||
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LIABILITIES AND EQUITY |
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|
|
|
| ||
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Current liabilities: |
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|
|
|
| ||
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Short-term debt |
|
$ |
758 |
|
$ |
719 |
|
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Current portion of long-term debt (Note 12) |
|
14 |
|
14 |
| ||
|
Trade accounts payable |
|
3,834 |
|
3,173 |
| ||
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Deferred income taxes |
|
188 |
|
152 |
| ||
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Other current liabilities (Note 10) |
|
2,789 |
|
2,889 |
| ||
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Total current liabilities |
|
7,583 |
|
6,947 |
| ||
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|
|
|
|
|
| ||
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Long-term debt (Note 12) |
|
4,471 |
|
3,348 |
| ||
|
Deferred income taxes |
|
161 |
|
134 |
| ||
|
Other non-current liabilities |
|
811 |
|
771 |
| ||
|
|
|
|
|
|
| ||
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Commitments and contingencies (Note 16) |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
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Equity (Note 17): |
|
|
|
|
| ||
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Convertible perpetual preference shares, par value $.01; authorized, issued and |
|
|
|
|
| ||
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outstanding: 2012 and 2011 – 6,900,000 shares (liquidation preference $100 per share) |
|
690 |
|
690 |
| ||
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Common shares, par value $.01; authorized – 400,000,000 shares; issued and outstanding: |
|
|
|
|
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2012 – 145,907,590 shares, 2011 – 145,610,029 shares |
|
1 |
|
1 |
| ||
|
Additional paid-in capital |
|
4,855 |
|
4,829 |
| ||
|
Retained earnings |
|
6,964 |
|
6,917 |
| ||
|
Accumulated other comprehensive income (loss) |
|
(265 |
) |
(610 |
) | ||
|
Treasury shares, at cost - 1,933,286 shares |
|
(120 |
) |
(120 |
) | ||
|
Total Bunge shareholders’ equity |
|
12,125 |
|
11,707 |
| ||
|
Noncontrolling interest (Note 18) |
|
645 |
|
368 |
| ||
|
Total equity |
|
12,770 |
|
12,075 |
| ||
|
Total liabilities and equity |
|
$ |
25,796 |
|
$ |
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)
|
|
|
Three Months Ended |
| ||||
|
|
|
March 31, |
| ||||
|
|
|
2012 |
|
2011 |
| ||
|
OPERATING ACTIVITIES |
|
|
|
|
| ||
|
Net income |
|
$ |
89 |
|
$ |
235 |
|
|
Adjustments to reconcile net income to cash provided by (used for) operating activities: |
|
|
|
|
| ||
|
Foreign exchange loss (gain) on debt |
|
(15 |
) |
(43 |
) | ||
|
Bad debt expense |
|
16 |
|
(4 |
) | ||
|
Depreciation, depletion and amortization |
|
120 |
|
104 |
| ||
|
Stock-based compensation expense |
|
19 |
|
15 |
| ||
|
Deferred income taxes |
|
(34 |
) |
(11 |
) | ||
|
Changes in operating assets and liabilities, excluding the effects of acquisitions: |
|
|
|
|
| ||
|
Trade accounts receivable |
|
(439 |
) |
(212 |
) | ||
|
Inventories |
|
(549 |
) |
40 |
| ||
|
Prepayments and advances to suppliers |
|
(57 |
) |
(98 |
) | ||
|
Trade accounts payable and accrued liabilities |
|
653 |
|
342 |
| ||
|
Net unrealized gain/loss on derivative contracts |
|
(3 |
) |
84 |
| ||
|
Margin deposits |
|
(95 |
) |
330 |
| ||
|
Other, net |
|
(7 |
) |
(48 |
) | ||
|
Cash provided by (used for) operating activities |
|
(302 |
) |
734 |
| ||
|
INVESTING ACTIVITIES |
|
|
|
|
| ||
|
Payments made for capital expenditures |
|
(224 |
) |
(207 |
) | ||
|
Acquisitions of businesses (net of cash acquired) |
|
(98 |
) |
(62 |
) | ||
|
Proceeds from investments |
|
18 |
|
16 |
| ||
|
Payments for investments |
|
(9 |
) |
(12 |
) | ||
|
Investments in affiliates, net |
|
(49 |
) |
(8 |
) | ||
|
Other, net |
|
41 |
|
(9 |
) | ||
|
Cash provided by (used for) investing activities |
|
(321 |
) |
(282 |
) | ||
|
FINANCING ACTIVITIES |
|
|
|
|
| ||
|
Net change in short-term debt with maturities of 90 days or less |
|
69 |
|
(70 |
) | ||
|
Proceeds from short-term debt with maturities greater than 90 days |
|
194 |
|
76 |
| ||
|
Repayments of short-term debt with maturities greater than 90 days |
|
(225 |
) |
(732 |
) | ||
|
Proceeds from long-term debt |
|
1,488 |
|
731 |
| ||
|
Repayments of long-term debt |
|
(457 |
) |
(221 |
) | ||
|
Proceeds from sale of common shares |
|
8 |
|
12 |
| ||
|
Dividends paid |
|
(47 |
) |
(48 |
) | ||
|
Other, net |
|
3 |
|
22 |
| ||
|
Cash provided by (used for) financing activities |
|
1,033 |
|
(230 |
) | ||
|
Effect of exchange rate changes on cash and cash equivalents |
|
5 |
|
12 |
| ||
|
Net increase (decrease) in cash and cash equivalents |
|
415 |
|
234 |
| ||
|
Cash and cash equivalents, beginning of period |
|
835 |
|
578 |
| ||
|
Cash and cash equivalents, end of period |
|
$ |
1,250 |
|
$ |
812 |
|
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 |
|
|
|
|
|
|
| ||||||||||||
|
|
|
Preference |
|
|
|
Additional |
|
|
|
Other |
|
|
|
Non |
|
|
| ||||||||||||
|
|
|
Shares |
|
Common Shares |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
Treasury |
|
Controlling |
|
Total |
| ||||||||||||
|
|
|
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 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
232 |
|
— |
|
— |
|
3 |
|
235 |
| ||||||||
|
Other comprehensive income (loss) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
291 |
|
|
|
8 |
|
299 |
| ||||||||
|
Dividends on common shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(34 |
) |
— |
|
— |
|
— |
|
(34 |
) | ||||||||
|
Dividends on preference shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(8 |
) |
— |
|
— |
|
— |
|
(8 |
) | ||||||||
|
Dividends to noncontrolling interest on subsidiary common stock |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(6 |
) |
(6 |
) | ||||||||
|
Capital contribution from noncontrolling interest |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
42 |
|
42 |
| ||||||||
|
Stock-based compensation expense |
|
— |
|
— |
|
— |
|
— |
|
15 |
|
— |
|
— |
|
|
|
— |
|
15 |
| ||||||||
|
Issuance of common shares |
|
— |
|
— |
|
571,364 |
|
— |
|
8 |
|
— |
|
— |
|
— |
|
— |
|
8 |
| ||||||||
|
Balance, March 31, 2011 |
|
6,900,000 |
|
$ |
690 |
|
147,206,447 |
|
$ |
1 |
|
$ |
4,816 |
|
$ |
6,343 |
|
$ |
874 |
|
$ |
— |
|
$ |
381 |
|
$ |
13,105 |
|
|
|
|
Convertible |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
| ||||||||||||
|
|
|
Preference |
|
|
|
Additional |
|
|
|
Other |
|
|
|
Non |
|
|
| ||||||||||||
|
|
|
Shares |
|
Common Shares |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
Treasury |
|
Controlling |
|
Total |
| ||||||||||||
|
|
|
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 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
92 |
|
— |
|
— |
|
(3 |
) |
89 |
| ||||||||
|
Other comprehensive income (loss) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
345 |
|
— |
|
13 |
|
358 |
| ||||||||
|
Dividends on common shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(37 |
) |
— |
|
— |
|
— |
|
(37 |
) | ||||||||
|
Dividends on preference shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(8 |
) |
— |
|
— |
|
— |
|
(8 |
) | ||||||||
|
Dividends to noncontrolling interest on subsidiary common stock |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(3 |
) |
(3 |
) | ||||||||
|
Capital contribution from noncontrolling interest |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
270 |
|
270 |
| ||||||||
|
Stock-based compensation expense |
|
— |
|
— |
|
— |
|
— |
|
19 |
|
— |
|
— |
|
— |
|
— |
|
19 |
| ||||||||
|
Issuance of common shares |
|
— |
|
— |
|
297,561 |
|
— |
|
7 |
|
— |
|
— |
|
— |
|
— |
|
7 |
| ||||||||
|
Balance, March 31, 2012 |
|
6,900,000 |
|
$ |
690 |
|
145,907,590 |
|
$ |
1 |
|
$ |
4,855 |
|
$ |
6,964 |
|
$ |
(265 |
) |
$ |
(120 |
) |
$ |
645 |
|
$ |
12,770 |
|
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 months ended March 31, 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 Securities and Exchange Commission (SEC) on February 27, 2011.
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 March 31, 2012 in the amounts of $351 million, $95 million and $267 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 current year presentation (see Notes 6 and 20).
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 did not have a material impact on Bunge’s condensed consolidated financial statements.
In June and December 2011, the FASB amended the guidance in ASC Topic 220, Comprehensive Income. The guidance requires that other comprehensive income be presented in either one continuous statement, or in two separate but consecutive statements. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. The amendment eliminates the option to report other comprehensive income in the statement of changes in equity. The FASB also deferred the required presentation of reclassifications out of accumulated other comprehensive income on the face of the financial statements. The adoption of these standards did not have a material impact on Bunge’s condensed consolidated financial statements.
In September 2011, the FASB amended the guidance in ASC Topic 350, Intangibles—Goodwill and Other Intangibles. This guidance provides an option to perform a qualitative assessment to determine potential impairment as a basis for determining the necessity of the two-step quantitative goodwill impairment test. The adoption of this standard did not have a material impact on Bunge’s condensed consolidated financial statements.
New Accounting Pronouncements—In December 2011, FASB amended the guidance in ASC Topic 210, Balance Sheet. This amendment requires an entity to disclose both gross and net information about financial instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. The amendment is effective for annual and interim periods beginning on January 1, 2013 on a retrospective basis for all comparative periods presented. The adoption of this standard may expand Bunge’s disclosures but is not expected to impact Bunge’s condensed consolidated financial results.
3. BUSINESS ACQUISITIONS
In March 2012, Bunge acquired an asset management business in its agribusiness segment in Europe for $9 million net of cash acquired. The preliminary purchase price allocation includes $25 million of current assets, $346 million of long-term investments, $13 million of other intangible assets, $25 million of other liabilities, $94 million of debt, $264 million of noncontrolling interest and $8 million of goodwill. Of these amounts, $14 million of other net assets, $344 million of long-term investments, $94 million of long-term debt and $264 million of noncontrolling interest are attributed to certain managed investment funds, which Bunge consolidates as it is deemed to be the primary beneficiary.
In February 2012, Bunge acquired an edible oils and fats business in its edible oils segment in India 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 inventory, $4 million of current assets, $27 million of property plant and equipment, $53 million of intangible assets (primarily trademark and brands) and $5 million of other liabilities.
4. INVENTORIES
Inventories by segment are presented below. Readily marketable inventories refers to inventories that are readily convertible to cash because of their commodity characteristics, widely available markets and international pricing mechanisms.
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2012 |
|
2011 |
| ||
|
Agribusiness (1) |
|
$ |
4,713 |
|
$ |
4,080 |
|
|
Sugar and bioenergy (2) |
|
410 |
|
465 |
| ||
|
Edible oil products (3) |
|
605 |
|
489 |
| ||
|
Milling products (4) |
|
99 |
|
130 |
| ||
|
Fertilizer (4) |
|
541 |
|
569 |
| ||
|
Total |
|
$ |
6,368 |
|
$ |
5,733 |
|
(1) Includes readily marketable agricultural commodity inventories at fair value of $4,353 million and $3,724 million at March 31, 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 $43 million and $139 million at March 31, 2012 and December 31, 2011, respectively. Of these sugar inventories, $38 million and $83 million are carried at fair value at March 31, 2012 and December 31, 2011, respectively, in Bunge’s trading and merchandising business. Sugar and ethanol inventories in our 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 $231 million and $212 million at March 31, 2012 and December 31, 2011, respectively.
(4) Milling products and fertilizer inventories are carried at lower of cost or market.
5. OTHER CURRENT ASSETS
Other current assets consist of the following:
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2012 |
|
2011 |
| ||
|
Prepaid commodity purchase contracts (1) |
|
$ |
359 |
|
$ |
206 |
|
|
Secured advances to suppliers, net (2) |
|
267 |
|
349 |
| ||
|
Unrealized gains on derivative contracts at fair value |
|
1,200 |
|
1,283 |
| ||
|
Recoverable taxes, net |
|
476 |
|
528 |
| ||
|
Margin deposits (3) |
|
450 |
|
352 |
| ||
|
Marketable securities |
|
128 |
|
50 |
| ||
|
Deferred purchase price receivable(4) |
|
200 |
|
192 |
| ||
|
Prepaid expenses |
|
386 |
|
369 |
| ||
|
Restricted cash(5) |
|
— |
|
43 |
| ||
|
Other |
|
444 |
|
424 |
| ||
|
Total |
|
$ |
3,910 |
|
$ |
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 March 31, 2012 and December 31, 2011.
Interest earned on secured advances to suppliers of $8 million and $7 million for the three months ended March 31, 2012 and 2011, respectively, is included in net sales in the condensed consolidated statements of income.
(3) Margin deposits include U.S. treasury securities at fair value and cash.
(4) Deferred purchase price receivable represents additional credit support for the investment conduits in Bunge’s accounts receivables sales program (see Note 13) and is recognized at its estimated fair value.
(5) Restricted cash at December 31, 2011 includes an escrowed cash deposit related to an equity investment which was completed in the first quarter of 2012.
6. GOODWILL
Changes in the carrying value of goodwill by segment for the three months ended March 31, 2012, are as follows:
|
|
|
|
|
Sugar and |
|
Edible Oil |
|
Milling |
|
|
|
|
| ||||||
|
(US$ in millions) |
|
Agribusiness |
|
Bioenergy |
|
Products |
|
Products |
|
Fertilizer |
|
Total |
| ||||||
|
Balance, December 31, 2011 |
|
$ |
216 |
|
$ |
560 |
|
$ |
110 |
|
$ |
6 |
|
$ |
1 |
|
$ |
893 |
|
|
Acquired goodwill (1) |
|
8 |
|
— |
|
— |
|
— |
|
— |
|
8 |
| ||||||
|
Reallocation of acquired goodwill(2) |
|
(1 |
) |
— |
|
(13 |
) |
— |
|
1 |
|
(13 |
) | ||||||
|
Tax benefit on goodwill amortization (3) |
|
(2 |
) |
— |
|
— |
|
— |
|
— |
|
(2 |
) | ||||||
|
Foreign exchange translation |
|
4 |
|
17 |
|
8 |
|
— |
|
— |
|
29 |
| ||||||
|
Balance, March 31, 2012 |
|
$ |
225 |
|
$ |
577 |
|
$ |
105 |
|
$ |
6 |
|
$ |
2 |
|
$ |
915 |
|
(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, 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 inventory 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. INVESTMENTS IN AFFILIATES
In January 2012, Bunge completed the acquisition of a 35% interest in PT Bumiraya Investindo, an Indonesian palm plantation company for $43 million. Bunge accounts for this equity method investment in the agribusiness segment.
8. OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2012 |
|
2011 |
| ||
|
|
|
|
|
|
| ||
|
Recoverable taxes, net |
|
$ |
528 |
|
$ |
386 |
|
|
Long-term receivables from farmers in Brazil, net |
|
253 |
|
284 |
| ||
|
Judicial deposits |
|
173 |
|
167 |
| ||
|
Income taxes receivable |
|
476 |
|
565 |
| ||
|
Affiliate loans receivable |
|
73 |
|
63 |
| ||
|
Long-term investments |
|
398 |
|
37 |
| ||
|
Other |
|
211 |
|
204 |
| ||
|
Total |
|
$ |
2,112 |
|
$ |
1,706 |
|
Recoverable taxes—Recoverable taxes are reported net of valuation allowances of $40 million and $41 million at March 31, 2012 and December 31, 2011, respectively.
Long-term receivables from farmers in Brazil—Bunge provides financing to farmers in Brazil, primarily through secured advances against farmer commitments to deliver agricultural commodities (primarily soybeans) upon harvest of the then-current year’s crop and through credit sales of fertilizer to farmers.
The table below summarizes Bunge’s recorded investment in long-term receivables from farmers in Brazil for amounts in the legal collection process and renegotiated amounts.
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2012 |
|
2011 |
| ||
|
Legal collection process (1) |
|
$ |
325 |
|
$ |
358 |
|
|
Renegotiated amounts: |
|
|
|
|
| ||
|
Current on repayment terms |
|
143 |
|
125 |
| ||
|
Total |
|
$ |
468 |
|
$ |
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 three months ended March 31, 2012 and the year ended December 31, 2011 was $504 million and $561 million, respectively. The table below summarizes Bunge’s recorded investment in long-term receivables from farmers in Brazil and the related allowance amounts.
|
|
|
March 31, 2012 |
|
December 31, 2011 |
| ||||||||
|
|
|
Recorded |
|
|
|
Recorded |
|
|
| ||||
|
(US$ in millions) |
|
Investment |
|
Allowance |
|
Investments |
|
Allowance |
| ||||
|
For which an allowance has been provided: |
|
|
|
|
|
|
|
|
| ||||
|
Renegotiated amounts |
|
$ |
87 |
|
$ |
71 |
|
$ |
64 |
|
$ |
52 |
|
|
Legal collection process |
|
161 |
|
144 |
|
162 |
|
147 |
| ||||
|
For which no allowance has been provided: |
|
|
|
|
|
|
|
|
| ||||
|
Renegotiated amounts |
|
56 |
|
— |
|
61 |
|
— |
| ||||
|
Legal collection process |
|
164 |
|
— |
|
196 |
|
— |
| ||||
|
Total |
|
$ |
468 |
|
$ |
215 |
|
$ |
483 |
|
$ |
199 |
|
The table below summarizes the activity in the allowance for doubtful accounts related to long-term receivables from farmers in Brazil.
|
|
|
March 31, |
| ||||
|
(US$ in millions) |
|
2012 |
|
2011 |
| ||
|
Beginning Balance |
|
$ |
199 |
|
$ |
201 |
|
|
Bad debt provisions |
|
15 |
|
1 |
| ||
|
Recoveries |
|
(4 |
) |
(1 |
) | ||
|
Write-offs |
|
— |
|
— |
| ||
|
Transfers |
|
— |
|
— |
| ||
|
Foreign exchange translation |
|
5 |
|
4 |
| ||
|
Ending balance |
|
$ |
215 |
|
$ |
205 |
|
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 March 31, 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 (benchmark rate of the Brazilian central bank).
Affiliate loans receivable—Affiliate loans receivable are primarily interest bearing receivables from unconsolidated affiliates with an initial maturity of greater than one year.
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, resulting in Bunge’s consolidation of the associated entities.
9. 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 loss and tax regulations in each geographic region. Management regularly monitors the assumptions used in estimating its annual effective tax rate and adjusts estimates accordingly. If actual results differ from management’s estimates, reported income tax expense in future periods could be materially affected.
For the three months ended March 31, 2012 and 2011, income tax expense was $14 million and $43 million, respectively. The effective tax rates for the three months ended March 31, 2012 and 2011 were 13% and 15%, respectively. Included in the effective tax rate for the three months ended March 31, 2012 and 2011 were approximately $5 million and $21 million, respectively, of discrete tax charges.
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 its non-current income tax liabilities reflect the most probable outcome of known tax contingencies. There were no material changes to uncertain tax positions for the three months ended March 31, 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.
In the quarter ended March 31, 2012, the Brazilian tax authorities proposed certain adjustments to the income tax returns for one of Bunge’s Brazilian subsidiaries for the years 2008 and 2009. The proposed adjustments totaled approximately $62 million plus applicable interest and penalties. Management 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 2005-2009 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 for one of Bunge’s Brazilian subsidiaries for the years 2005 to 2007. The proposed adjustments totaled approximately $525 million plus applicable interest and penalties. In late 2011, Bunge received a decision from the Tax Inspector that dismissed approximately $170 million of the Brazilian IRS’s case against Bunge. Management is appealing the remainder of the case, and has not changed its position that it is more likely than not that it will prevail and therefore, has not recorded an uncertain tax liability.
10. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2012 |
|
2011 |
| ||
|
Accrued liabilities |
|
$ |
1,127 |
|
$ |
1,179 |
|
|
Unrealized losses on derivative contracts at fair value |
|
1,295 |
|
1,370 |
| ||
|
Advances on sales |
|
352 |
|
283 |
| ||
|
Other |
|
15 |
|
57 |
| ||
|
Total |
|
$ |
2,789 |
|
$ |
2,889 |
|
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 13 for deferred purchase price receivable (DPP) related to sales of trade receivables. See Note 8 for long-term receivables from farmers in Brazil, net and see 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 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 |
| ||||||||||||||||||||||
|
|
|
March 31, 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) |
|
$ |
— |
|
$ |
3,945 |
|
$ |
677 |
|
$ |
4,622 |
|
$ |
— |
|
$ |
3,736 |
|
$ |
283 |
|
$ |
4,019 |
|
|
Unrealized gain on designated derivative contracts (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Foreign exchange |
|
— |
|
2 |
|
— |
|
2 |
|
— |
|
13 |
|
— |
|
13 |
| ||||||||
|
Unrealized gain on undesignated derivative contracts (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Foreign exchange |
|
— |
|
234 |
|
1 |
|
235 |
|
— |
|
451 |
|
1 |
|
452 |
| ||||||||
|
Commodities |
|
85 |
|
687 |
|
164 |
|
936 |
|
75 |
|
586 |
|
125 |
|
786 |
| ||||||||
|
Freight |
|
10 |
|
— |
|
1 |
|
11 |
|
5 |
|
— |
|
1 |
|
6 |
| ||||||||
|
Energy |
|
7 |
|
7 |
|
2 |
|
16 |
|
11 |
|
13 |
|
2 |
|
26 |
| ||||||||
|
Deferred purchase price receivable (Note 13) |
|
— |
|
200 |
|
— |
|
200 |
|
— |
|
192 |
|
— |
|
192 |
| ||||||||
|
Other (2) |
|
258 |
|
142 |
|
— |
|
400 |
|
146 |
|
34 |
|
— |
|
180 |
| ||||||||
|
Total assets |
|
$ |
360 |
|
$ |
5,217 |
|
$ |
845 |
|
$ |
6,422 |
|
$ |
237 |
|
$ |
5,025 |
|
$ |
412 |
|
$ |
5,674 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Unrealized loss on designated derivative contracts (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Foreign exchange |
|
$ |
— |
|
$ |
18 |
|
$ |
— |
|
$ |
18 |
|
$ |
— |
|
$ |
45 |
|
$ |
— |
|
$ |
45 |
|
|
Unrealized loss on undesignated derivative contracts (3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest rate |
|
— |
|
1 |
|
— |
|
1 |
|
— |
|
2 |
|
— |
|
2 |
| ||||||||
|
Foreign exchange |
|
— |
|
387 |
|
— |
|
387 |
|
— |
|
617 |
|
— |
|
617 |
| ||||||||
|
Commodities |
|
203 |
|
570 |
|
92 |
|
865 |
|
147 |
|
417 |
|
116 |
|
680 |
| ||||||||
|
Freight |
|
2 |
|
— |
|
— |
|
2 |
|
1 |
|
— |
|
— |
|
1 |
| ||||||||
|
Energy |
|
7 |
|
1 |
|
14 |
|
22 |
|
4 |
|
6 |
|
15 |
|
25 |
| ||||||||
|
Total liabilities |
|
$ |
212 |
|
$ |
977 |
|
$ |
106 |
|
$ |
1,295 |
|
$ |
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 March 31, 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 March 31, 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 financials 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 March 31, 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 March 31, 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 |
| |||||||
|
|
|
|
|
Readily |
|
|
| |||
|
|
|
Derivatives, |
|
Marketable |
|
|
| |||
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Total |
| |||
|
Balance, January 1, 2012 |
|
$ |
(2 |
) |
$ |
283 |
|
$ |
281 |
|
|
Total gains and (losses) (realized/unrealized) included in costs of goods sold |
|
75 |
|
40 |
|
115 |
| |||
|
Total gains and (losses) (realized/unrealized) included in foreign exchange gains (losses) |
|
— |
|
— |
|
— |
| |||
|
Purchases |
|
2 |
|
765 |
|
767 |
| |||
|
Sales |
|
— |
|
(526 |
) |
(526 |
) | |||
|
Issuances |
|
(1 |
) |
— |
|
(1 |
) | |||
|
Settlements |
|
17 |
|
— |
|
17 |
| |||
|
Transfers into Level 3 |
|
(14 |
) |
180 |
|
166 |
| |||
|
Transfers out of Level 3 |
|
(15 |
) |
(65 |
) |
(80 |
) | |||
|
Balance, March 31, 2012 |
|
$ |
62 |
|
$ |
677 |
|
$ |
739 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
|
|
|
Level 3 Instruments: |
| |||||||
|
|
|
Fair Value Measurements |
| |||||||
|
|
|
|
|
Readily |
|
|
| |||
|
|
|
Derivatives, |
|
Marketable |
|
|
| |||
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Total |
| |||
|
Balance, January 1, 2011 |
|
$ |
307 |
|
$ |
264 |
|
$ |
571 |
|
|
Total gains and (losses) (realized/unrealized) included in cost of goods sold |
|
(42 |
) |
(38 |
) |
(80 |
) | |||
|
Total gains and (losses) (realized/unrealized) included in foreign exchange gains (losses) |
|
1 |
|
— |
|
1 |
| |||
|
Purchases |
|
36 |
|
872 |
|
908 |
| |||
|
Sales |
|
— |
|
(400 |
) |
(400 |
) | |||
|
Issuances |
|
(26 |
) |
— |
|
(26 |
) | |||
|
Settlements |
|
(51 |
) |
— |
|
(51 |
) | |||
|
Transfers into Level 3 |
|
5 |
|
117 |
|
122 |
| |||
|
Transfers out of Level 3 |
|
7 |
|
(19 |
) |
(12 |
) | |||
|
Balance, March 31, 2011 |
|
$ |
237 |
|
$ |
796 |
|
$ |
1,033 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
The table below summarizes changes in unrealized gains or (losses) recorded in earnings during the three months ended March 31, 2012 and 2011 for Level 3 assets and liabilities that were held at March 31, 2012 and 2011.
|
|
|
Level 3 Instruments: |
| |||||||
|
|
|
Fair Value Measurements |
| |||||||
|
|
|
|
|
Readily |
|
|
| |||
|
|
|
Derivatives, |
|
Marketable |
|
|
| |||
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Total |
| |||
|
Changes in unrealized gains and (losses) relating to assets and liabilities held at March 31, 2012 |
|
|
|
|
|
|
| |||
|
Cost of goods sold |
|
$ |
83 |
|
$ |
568 |
|
$ |
651 |
|
|
Foreign exchange gains (losses) |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Changes in unrealized gains and (losses) relating to assets and liabilities held at March 31, 2011 |
|
|
|
|
|
|
| |||
|
Cost of goods sold |
|
$ |
(38 |
) |
$ |
695 |
|
$ |
657 |
|
|
Foreign exchange gains (losses) |
|
$ |
1 |
|
$ |
— |
|
$ |
1 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
Derivative Instruments
Interest rate derivatives — Interest rate swaps used by Bunge as hedging instruments are recorded at fair value in the condensed consolidated balance sheets with changes in fair value recorded contemporaneously in earnings. Certain of these swap agreements may be designated as fair value hedges. The carrying amount of the associated hedged debt is also adjusted through earnings for changes in the fair value arising from changes in benchmark interest rates. Ineffectiveness is recognized to the extent that these two adjustments do not offset. Bunge may enter into interest rate swap agreements for the purpose of managing certain of its interest rate exposures. Bunge may also enter into interest rate basis swap agreements that do not qualify as hedges for accounting purposes. Changes in fair value of such interest rate basis swap agreements are recorded in earnings.
Foreign exchange derivatives — Bunge uses a combination of foreign exchange forward, swap and option contracts in certain of its operations to mitigate the risk from exchange rate fluctuations in connection with certain commercial and balance sheet exposures. The foreign exchange forward and option contracts may be designated as cash flow hedges. Bunge may also use net investment hedges to partially offset the translation adjustments arising from the remeasurement of its investment in certain of its foreign subsidiaries.
Bunge assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedge transactions are highly effective in offsetting changes in the hedged items.
The table below summarizes the notional amounts of open foreign exchange positions.
|
|
|
March 31, 2012 |
| |||||||||
|
|
|
Exchange |
|
Non-Exchange Traded |
|
|
| |||||
|
|
|
Net—(Short) |
|
|
|
|
|
Unit of |
| |||
|
(US$ in millions) |
|
& Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure |
| |||
|
Foreign Exchange |
|
|
|
|
|
|
|
|
| |||
|
Options |
|
$ |
(10 |
) |
$ |
(384 |
) |
$ |
82 |
|
Delta |
|
|
Forwards |
|
95 |
|
(3,823 |
) |
12,057 |
|
Notional |
| |||
|
Swaps |
|
— |
|
(109 |
) |
27 |
|
Notional |
| |||
(1) Exchange traded futures and options are presented on a net (short) and long position basis.
(2) Non-exchange traded swaps, options and forwards are presented on a gross (short) and long position basis.
Commodity derivatives — Bunge uses derivative instruments to manage its exposure to movements associated with agricultural commodity prices. Bunge generally uses exchange traded futures and options contracts to minimize the effects of changes in the prices of agricultural commodities on its agricultural commodity inventories and forward purchase and sale contracts, but may also from time to time enter into OTC commodity transactions, including swaps, which are settled in cash at maturity or termination based on exchange-quoted futures prices. Changes in fair values of exchange traded futures contracts representing the unrealized gains and/or losses on these instruments are settled daily generally through Bunge’s wholly-owned futures clearing subsidiary. Forward purchase and sale contracts are primarily settled through delivery of agricultural commodities. While Bunge considers these exchange traded futures and forward purchase and sale contracts to be effective economic hedges, Bunge does not designate or account for the majority of its commodity contracts as hedges. Changes in fair values of these contracts and related readily marketable agricultural commodity inventories are included in cost of goods sold in the condensed consolidated statements of income. The forward contracts require performance of both Bunge and the contract counterparty in future periods. Contracts to purchase agricultural commodities generally relate to current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of agricultural commodities generally do not extend beyond one future crop cycle.
The table below summarizes the volumes of open agricultural commodities derivative positions.
|
|
|
March 31, 2012 |
| ||||||
|
|
|
Exchange |
|
Non-Exchange Traded |
|
|
| ||
|
|
|
Net (Short) & |
|
|
|
|
|
Unit of |
|
|
|
|
Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure |
|
|
Agricultural Commodities |
|
|
|
|
|
|
|
|
|
|
Futures |
|
(10,228,083 |
) |
— |
|
— |
|
Metric Tons |
|
|
Options |
|
(2,311,199 |
) |
(43,922 |
) |
— |
|
Metric Tons |
|
|
Forwards |
|
— |
|
(25,694,308 |
) |
30,100,817 |
|
Metric Tons |
|
|
Swaps |
|
9,525 |
|
(624,784 |
) |
8,165 |
|
Metric Tons |
|
(1) Exchange traded futures and options are presented on a net (short) and long position basis.
(2) Non-exchange traded swaps, options and forwards are presented on a gross (short) and long position basis.
Ocean freight derivatives — Bunge uses derivative instruments referred to as freight forward agreements, or FFAs, and FFA options, to hedge portions of its current and anticipated ocean freight costs. A portion of the ocean freight derivatives may be designated as fair value hedges of Bunge’s firm commitments to purchase time on ocean freight vessels. Changes in the fair value of the ocean freight derivatives that are qualified, designated and highly effective as a fair value hedge, along with the gain or loss on the hedged firm commitments to purchase time on ocean freight vessels that is attributable to the hedged risk, are recorded in earnings. Changes in the fair values of ocean freight derivatives that are not designated as hedges are also recorded in earnings.
The table below summarizes the open ocean freight positions.
|
|
|
March 31, 2012 |
| ||||||
|
|
|
Exchange |
|
Non-Exchange Cleared |
|
|
| ||
|
|
|
Net (Short) & |
|
|
|
|
|
Unit of |
|
|
|
|
Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure |
|
|
Ocean Freight |
|
|
|
|
|
|
|
|
|
|
FFA |
|
(1,089 |
) |
— |
|
— |
|
Hire Days |
|
|
FFA Options |
|
(474 |
) |
— |
|
— |
|
Hire Days |
|
(1) Exchange cleared futures and options are presented on a net (short) and long position basis.
(2) Non-exchange cleared options and forwards are presented on a gross (short) and long position basis.
Energy derivatives — Bunge uses derivative instruments for various purposes including to manage its exposure to volatility in energy costs. Bunge’s operations use substantial amounts of energy, including natural gas, coal and fuel oil, including bunker fuel.
The table below summarizes the open energy positions.
|
|
|
March 31, 2012 |
| ||||||
|
|
|
Exchange |
|
Non-Exchange Cleared |
|
|
| ||
|
|
|
Net (Short) & |
|
|
|
|
|
Unit of |
|
|
|
|
Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure(3) |
|
|
Natural Gas (3) |
|
|
|
|
|
|
|
|
|
|
Futures |
|
(10,000 |
) |
— |
|
— |
|
MMBtus |
|
|
Swaps |
|
70,000 |
|
— |
|
859,101 |
|
MMBtus |
|
|
Options |
|
(187,000 |
) |
— |
|
— |
|
MMBtus |
|
|
Energy—Other |
|
|
|
|
|
|
|
|
|
|
Futures |
|
(124,401 |
) |
— |
|
— |
|
Metric Tons |
|
|
Forwards |
|
— |
|
(718,732 |
) |
8,117,992 |
|
Metric Tons |
|
|
Swaps |
|
164,866 |
|
(8,861 |
) |
— |
|
Metric Tons |
|
|
Options |
|
(366,675 |
) |
(31,378 |
) |
— |
|
Metric Tons |
|
(1) Exchange traded and exchange cleared futures and options are presented on a net (short) and long position basis.
(2) Non-exchange cleared swaps, options and forwards are presented on a gross (short) and long position basis.
(3) Million British Thermal Units (MMBtus) are the standard unit of measurement used to denote an amount of natural gas.
The Effect of Derivative Instruments on the Condensed Consolidated Statements of Income
The table below summarizes the effect of derivative instruments that are undesignated on the condensed consolidated statements of income for the three months ended March 31, 2012 and 2011. There was no effect on the condensed consolidated statements of income of either period from derivatives designated as fair value hedges.
|
|
|
Gain or (Loss) Recognized in Income on Derivative Instruments |
| ||||||
|
|
|
|
|
March 31, |
| ||||
|
|
|
|
|
2012 |
|
2011 |
| ||
|
Interest Rate |
|
Interest income/Interest expense |
|
$ |
— |
|
$ |
4 |
|
|
Foreign Exchange |
|
Foreign exchange gains (losses) |
|
(7 |
) |
(4 |
) | ||
|
Foreign Exchange |
|
Cost of goods sold |
|
17 |
|
(10 |
) | ||
|
Commodities |
|
Cost of goods sold |
|
(193 |
) |
(133 |
) | ||
|
Freight |
|
Cost of goods sold |
|
15 |
|
32 |
| ||
|
Energy |
|
Cost of goods sold |
|
(8 |
) |
8 |
| ||
|
Total |
|
|
|
$ |
(176 |
) |
$ |
(103 |
) |
The table below summarizes the effect of derivative instruments that are designated and qualify as cash flow hedges on the condensed consolidated statement of income for the three months ended March 31, 2012.
|
|
|
March 31, 2012 |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Recognized in Income on |
| ||||||
|
|
|
|
|
Gain or |
|
Gain or (Loss) |
|
Derivatives (Ineffective |
| ||||||||
|
|
|
|
|
(Loss) |
|
Reclassified from |
|
Portion and Amount |
| ||||||||
|
|
|
|
|
Recognized in |
|
Accumulated OCI into |
|
Excluded from |
| ||||||||
|
|
|
Notional |
|
Accumulated |
|
Income (1) |
|
Effectiveness Testing) |
| ||||||||
|
(US$ in millions) |
|
Amount |
|
OCI (1) |
|
Location |
|
Amount |
|
Location |
|
Amount (2) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Cash Flow Hedge: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Foreign Exchange (3) |
|
$ |
519 |
|
$ |
9 |
|
Foreign exchange gains (losses) |
|
$ |
(1 |
) |
Foreign exchange gains (losses) |
|
$ |
— |
|
|
Total |
|
$ |
519 |
|
$ |
9 |
|
|
|
$ |
(1 |
) |
|
|
$ |
— |
|
(1) The gain or (loss) recognized relates to the effective portion of the hedging relationship. At March 31, 2012, Bunge expects to reclassify into income in the next 12 months $9 million after tax losses related to its foreign exchange cash flow hedges. As of March 31, 2012, there were no designated commodities cash flow hedges.
(2) There was no gain or loss recognized in income relating to the ineffective portion of the hedging relationships or relating to amounts excluded from the assessment of hedge effectiveness.
(3) The foreign exchange contracts mature at various dates in 2012.
The table below summarizes the effect of derivative instruments that are designated and qualify as cash flow and net investment hedges on the condensed consolidated statement of income for the three months ended March 31, 2011.
|
|
|
March 31, 2011 |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Recognized in Income on |
| ||||||
|
|
|
|
|
Gain or |
|
Gain or (Loss) |
|
Derivative (Ineffective |
| ||||||||
|
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