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, 2011
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)
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Bermuda |
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98-0231912 |
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(State or other jurisdiction of incorporation or |
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(I.R.S. Employer Identification No.) |
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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 (Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No x
As of November 2, 2011 the number of shares outstanding of the registrant was:
Common Stock, par value $.01 per share: 145,542,338
BUNGE LIMITED
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Condensed Consolidated Balance Sheets at September 30, 2011 and December 31, 2010 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(U.S. dollars in millions, except per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Net sales |
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$ |
15,616 |
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$ |
11,662 |
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$ |
42,298 |
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$ |
32,981 |
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Cost of goods sold |
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(14,910 |
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(10,950 |
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(40,306 |
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(31,299 |
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Gross profit |
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706 |
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712 |
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1,992 |
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1,682 |
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Selling, general and administrative expenses |
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(394 |
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(357 |
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(1,121 |
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(1,119 |
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Gain on sale of fertilizer nutrients assets |
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— |
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— |
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— |
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2,440 |
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Interest income |
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28 |
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20 |
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72 |
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62 |
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Interest expense |
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(80 |
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(62 |
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(222 |
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(241 |
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Loss on extinguishment of debt |
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— |
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(90 |
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— |
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(90 |
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Foreign exchange gains (losses) |
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(127 |
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77 |
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(8 |
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(22 |
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Other income (expense) – net |
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(2 |
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(5 |
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(13 |
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(8 |
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Income from operations before income tax |
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131 |
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295 |
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700 |
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2,704 |
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Income tax (expense) benefit |
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1 |
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(97 |
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(62 |
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(648 |
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Equity in earnings of affiliates |
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1 |
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8 |
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42 |
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17 |
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Net income |
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133 |
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206 |
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680 |
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2,073 |
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Net loss (income) attributable to noncontrolling interest |
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7 |
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6 |
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8 |
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(20 |
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Net income attributable to Bunge |
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140 |
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212 |
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688 |
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2,053 |
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Convertible preference share dividends |
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(8 |
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(19 |
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(25 |
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(58 |
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Net income available to Bunge common shareholders |
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$ |
132 |
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$ |
193 |
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$ |
663 |
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$ |
1,995 |
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Earnings per common share – basic (Note 20) |
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Earnings to Bunge common shareholders |
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$ |
0.90 |
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$ |
1.38 |
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$ |
4.51 |
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$ |
14.12 |
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Earnings per common share – diluted (Note 20) |
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Earnings to Bunge common shareholders |
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$ |
0.89 |
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$ |
1.36 |
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$ |
4.42 |
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$ |
13.09 |
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Dividends per common share |
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$ |
0.25 |
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$ |
0.23 |
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$ |
0.73 |
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$ |
0.67 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(U.S. dollars in millions)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Net income |
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$ |
133 |
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$ |
206 |
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$ |
680 |
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$ |
2,073 |
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Other comprehensive income (loss): |
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Foreign exchange translation adjustment, net of tax expense of $0 |
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(1,667 |
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494 |
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(1,008 |
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103 |
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Unrealized gains (losses) on commodity futures and foreign exchange contracts designated as cash flow hedges, net of tax benefit (expense) of $8 and $1 in 2011, $(11) and $(11) in 2010 |
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(16 |
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20 |
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(5 |
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21 |
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Unrealized gains on investments, net of tax benefit of $3 in 2011, $0 in 2010 |
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(5 |
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1 |
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— |
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— |
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Reclassification of realized net losses (gains) to net income, net of tax benefit (expense) of $0 and $7 in 2011, $(7) and $(7) in 2010 |
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(1 |
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(8 |
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(15 |
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(8 |
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Pension adjustment, net of taxes |
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— |
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— |
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(2 |
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— |
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Other postretirement healthcare subsidy tax deduction adjustment |
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— |
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— |
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— |
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2 |
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Total comprehensive income |
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(1,556 |
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713 |
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(350 |
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2,191 |
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Less: Comprehensive loss (income) attributable to noncontrolling interest |
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53 |
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(11 |
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36 |
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8 |
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Total comprehensive income attributable to Bunge |
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$ |
(1,503 |
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$ |
702 |
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$ |
(314 |
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$ |
2,199 |
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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)
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September 30, |
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December 31, |
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2011 |
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2010 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
1,055 |
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$ |
578 |
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Trade accounts receivable (less allowance of $131 and $177) (Note 13) |
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2,515 |
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2,901 |
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Inventories (Note 5) |
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6,247 |
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6,635 |
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Deferred income taxes |
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243 |
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233 |
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Other current assets (Note 6) |
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5,113 |
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5,468 |
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Total current assets |
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15,173 |
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15,815 |
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Property, plant and equipment, net |
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5,269 |
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5,312 |
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Goodwill (Note 7) |
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867 |
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934 |
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Other intangible assets, net |
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190 |
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186 |
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Investments in affiliates (Note 9) |
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612 |
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609 |
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Deferred income taxes |
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1,182 |
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1,200 |
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Other non-current assets (Note 10) |
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1,608 |
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1,945 |
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Total assets |
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$ |
24,901 |
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$ |
26,001 |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Short-term debt |
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$ |
1,426 |
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$ |
1,718 |
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Current portion of long-term debt (Note 14) |
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142 |
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612 |
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Trade accounts payable |
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3,203 |
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3,637 |
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Deferred income taxes |
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135 |
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262 |
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Other current liabilities (Note 11) |
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3,711 |
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3,775 |
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Total current liabilities |
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8,617 |
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10,004 |
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Long-term debt (Note 14) |
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3,468 |
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2,551 |
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Deferred income taxes |
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85 |
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84 |
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Other non-current liabilities |
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702 |
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808 |
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Commitments and contingencies (Note 17) |
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Equity: (Note 18) |
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Convertible perpetual preference shares, par value $.01; authorized, issued and outstanding: |
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2011 and 2010 – 6,900,000 shares (liquidation preference $100 per share) |
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690 |
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690 |
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Common shares, par value $.01; authorized – 400,000,000 shares; issued: |
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2011 – 147,448,867 shares, 2010 – 146,635,083 shares |
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1 |
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1 |
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Additional paid-in capital |
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4,817 |
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4,793 |
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Retained earnings |
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6,709 |
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6,153 |
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Accumulated other comprehensive income |
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(419 |
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583 |
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Treasury shares, at cost (2011 - 1,933,286) |
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(120 |
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— |
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Total Bunge shareholders’ equity |
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11,678 |
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12,220 |
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Noncontrolling interest (Note 19) |
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351 |
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334 |
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Total equity |
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12,029 |
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12,554 |
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Total liabilities and equity |
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$ |
24,901 |
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$ |
26,001 |
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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)
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Nine Months Ended |
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September 30, |
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2011 |
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2010 |
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OPERATING ACTIVITIES |
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Net income |
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$ |
680 |
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$ |
2,073 |
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Adjustments to reconcile net income to cash provided by (used for) operating activities: |
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Foreign exchange loss (gain) on debt |
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103 |
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53 |
| ||
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Gain on sale of fertilizer nutrients assets |
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— |
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(2,440 |
) | ||
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Impairment of assets |
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— |
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61 |
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Bad debt expense |
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15 |
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23 |
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Depreciation, depletion and amortization |
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398 |
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326 |
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Stock-based compensation expense |
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40 |
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47 |
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Recoverable taxes provision |
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— |
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3 |
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Gain on sale of property, plant and equipment |
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(15 |
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(6 |
) | ||
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Deferred income taxes |
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73 |
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213 |
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Equity in earnings of affiliates |
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(42 |
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(17 |
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Changes in operating assets and liabilities, excluding the effects of acquisitions: |
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Trade accounts receivable |
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287 |
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(1,068 |
) | ||
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Inventories |
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63 |
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(872 |
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Prepaid commodity purchase contracts |
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(247 |
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(370 |
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Secured advances to suppliers |
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(66 |
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71 |
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Trade accounts payable |
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(282 |
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961 |
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Advances on sales |
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71 |
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102 |
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Net unrealized gain/loss on derivative contracts |
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401 |
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(413 |
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Margin deposits |
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560 |
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(228 |
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Accrued liabilities |
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(73 |
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177 |
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Other—net |
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(603 |
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(316 |
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Cash provided by (used for) operating activities |
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1,363 |
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(1,620 |
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INVESTING ACTIVITIES |
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Payments made for capital expenditures |
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(705 |
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(754 |
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Acquisitions of businesses (net of cash acquired) |
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(104 |
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(138 |
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Proceeds from sales of fertilizer nutrients assets |
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— |
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3,914 |
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Cash disposed in sale of fertilizer nutrients assets |
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— |
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(106 |
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Related party loans |
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10 |
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(17 |
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Proceeds from investments |
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94 |
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50 |
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Payments for investments |
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(50 |
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— |
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Proceeds from disposal of property, plant and equipment |
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67 |
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5 |
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Investments in affiliates |
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(28 |
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(2 |
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Cash provided by (used for) investing activities |
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(716 |
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2,952 |
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FINANCING ACTIVITIES |
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Net change in short-term debt with maturities of 90 days or less |
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207 |
|
467 |
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Proceeds from short-term debt with maturities greater than 90 days |
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671 |
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396 |
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Repayments of short-term debt with maturities greater than 90 days |
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(1,195 |
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(920 |
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Proceeds from long-term debt |
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2,209 |
|
168 |
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Repayments of long-term debt |
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(1,795 |
) |
(1,156 |
) | ||
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Proceeds from sale of common shares |
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19 |
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4 |
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Repurchase of common shares |
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(120 |
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(354 |
) | ||
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Dividends paid to preference shareholders |
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(25 |
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(58 |
) | ||
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Dividends paid to common shareholders |
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(104 |
) |
(92 |
) | ||
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Dividends paid to noncontrolling interest |
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(16 |
) |
(7 |
) | ||
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Capital contributions from noncontrolling interest |
|
64 |
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— |
| ||
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Financing related fees |
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(20 |
) |
— |
| ||
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Other |
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(1 |
) |
36 |
| ||
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Cash provided by (used for) financing activities |
|
(106 |
) |
(1,516 |
) | ||
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Effect of exchange rate changes on cash and cash equivalents |
|
(64 |
) |
(19 |
) | ||
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Net increase (decrease) in cash and cash equivalents |
|
477 |
|
(203 |
) | ||
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Cash and cash equivalents, beginning of period |
|
578 |
|
553 |
| ||
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Cash and cash equivalents, end of period |
|
$ |
1,055 |
|
$ |
350 |
|
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)
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Convertible |
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Accumulated |
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Preference |
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Additional |
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Other |
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Non - |
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Shares |
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Common Shares |
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Paid-in |
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Retained |
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Comprehensive |
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Treasury |
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Controlling |
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Total |
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|
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Shares |
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Amount |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
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Income (Loss) |
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Shares |
|
Interest |
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Equity |
| ||||||||
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Balance, January 1, 2010 |
|
7,762,455 |
|
$ |
1,553 |
|
134,096,906 |
|
$ |
1 |
|
$ |
3,625 |
|
$ |
3,996 |
|
$ |
319 |
|
$ |
— |
|
$ |
871 |
|
$ |
10,365 |
|
|
Net income |
|
— |
|
— |
|
— |
|
— |
|
— |
|
2,053 |
|
— |
|
— |
|
20 |
|
2,073 |
| ||||||||
|
Other comprehensive income (loss) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
146 |
|
— |
|
(28 |
) |
118 |
| ||||||||
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Dividends on common shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(96 |
) |
— |
|
— |
|
— |
|
(96 |
) | ||||||||
|
Dividends on preference shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(58 |
) |
— |
|
— |
|
— |
|
(58 |
) | ||||||||
|
Dividends to noncontrolling interest on subsidiary common stock |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(10 |
) |
(10 |
) | ||||||||
|
Return of capital to noncontrolling interest |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(9 |
) |
(9 |
) | ||||||||
|
Capital contribution from noncontrolling interest |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
46 |
|
46 |
| ||||||||
|
Initial consolidation of subsidiary |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
3 |
|
3 |
| ||||||||
|
Sale of non-wholly-owned subsidiary (Note 19) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(588 |
) |
(588 |
) | ||||||||
|
Stock-based compensation expense |
|
— |
|
— |
|
— |
|
— |
|
47 |
|
— |
|
— |
|
— |
|
— |
|
47 |
| ||||||||
|
Repurchase of common shares |
|
— |
|
— |
|
(6,714,573 |
) |
— |
|
— |
|
— |
|
— |
|
(354 |
) |
— |
|
(354 |
) | ||||||||
|
Issuance of common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
—Business acquisition (Note 3) |
|
— |
|
— |
|
10,315,400 |
|
— |
|
600 |
|
— |
|
— |
|
— |
|
— |
|
600 |
| ||||||||
|
—Stock options and award plans, net of shares withheld for taxes |
|
— |
|
— |
|
473,480 |
|
— |
|
(2 |
) |
— |
|
— |
|
— |
|
— |
|
(2 |
) | ||||||||
|
Balance September 30, 2010 |
|
7,762,455 |
|
$ |
1,553 |
|
138,171,213 |
|
$ |
1 |
|
$ |
4,270 |
|
$ |
5,895 |
|
$ |
465 |
|
$ |
(354 |
) |
$ |
305 |
|
$ |
12,135 |
|
|
|
|
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 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
688 |
|
— |
|
— |
|
(8 |
) |
680 |
| ||||||||
|
Other comprehensive 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 contribution from noncontrolling interest |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
64 |
|
64 |
| ||||||||
|
Acquisition of noncontrolling interest |
|
— |
|
— |
|
— |
|
— |
|
(31 |
) |
— |
|
— |
|
— |
|
12 |
|
(19 |
) | ||||||||
|
Stock-based compensation expense |
|
— |
|
— |
|
— |
|
— |
|
40 |
|
— |
|
— |
|
— |
|
— |
|
40 |
| ||||||||
|
Repurchase of common shares (Note 18) |
|
— |
|
— |
|
(1,933,286 |
) |
— |
|
— |
|
— |
|
— |
|
(120 |
) |
— |
|
(120 |
) | ||||||||
|
Issuance of common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
—Stock options and award plans, net of shares withheld for taxes |
|
— |
|
— |
|
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 |
|
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
The accompanying unaudited condensed consolidated financial statements of Bunge Limited and its subsidiaries (Bunge) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (Exchange Act). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to Securities and Exchange Commission (SEC) rules. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included. The condensed consolidated balance sheet at December 31, 2010 has been derived from Bunge’s audited consolidated financial statements at that date. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011. The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2010, forming part of Bunge’s 2010 Annual Report on Form 10-K filed with the SEC on March 1, 2011.
On July 1, 2011, Bunge modified its application of the presentation and disclosure provisions of ASC No. 220, Comprehensive Income. As allowed under this standard, Bunge elected in this quarterly report on Form 10-Q to present a separate statement of comprehensive income for all periods presented. The prior period statement of changes in equity has been modified to conform to this current period presentation.
2. NEW ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Pronouncements — Receivables, Disclosures about the Credit of Financing Receivables and the Allowance for Credit Losses - In July 2010, the Financial Accounting Standards Board (FASB) issued a standard that amended a previously issued standard requiring an entity to include additional disaggregated disclosures in their financial statements about their financing receivables, including credit risk disclosures and the allowance for credit losses. Entities with financing receivables are required to disclose a rollforward of the allowance for credit losses, certain credit quality information, impaired loan information, modification information and past due information. Trade receivables with maturities of less than one year are excluded from the scope of the new disclosures. Bunge adopted this disclosure as of December 31, 2010. As a result of the adoption of this standard, we have expanded our disclosures (see Note 10). The adoption of the standard did not have a material impact on our financial position, results from operations or cash flows.
Recent Accounting Pronouncements — In September 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill Impairment. This guidance provides an entity with an option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. An entity may elect not to perform the qualitative assessment and may proceed directly to the two-step quantitative impairment test. The amendments are effective for interim and annual periods beginning after December 15, 2011. The adoption of this standard is not expected to have a material impact on Bunge’s consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. This guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The guidance allows two presentation alternatives: (1) present items of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income; or (2) in two separate, but consecutive, statements of net income and other comprehensive income. 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 is effective for interim and annual periods beginning after December 15, 2011. The adoption of this standard is not expected to have a material impact on Bunge’s consolidated financial statements.
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and the International Financial Reporting Standards (IFRS). This guidance is intended to result in convergence between U.S. GAAP and IFRS requirements for measurement of, and disclosures about, fair value. ASU 2011-04 clarifies or changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The amendments are to be applied prospectively and are effective during interim and annual periods beginning after December 15, 2011. These amendments are not expected to have a material impact on Bunge’s financial results but may require expanded disclosure in Bunge’s consolidated financial statements.
3. BUSINESS ACQUISITIONS
In August of 2011, Bunge acquired a margarine business in North America for approximately $18 million. Preliminary purchase accounting for this acquisition has been completed resulting in approximately $14 million being allocated to property, plant and equipment and $4 million allocated to inventory. In addition, Bunge acquired grain elevator operations in North America for approximately $10 million. Preliminary purchase accounting has been completed resulting in approximately $7 million being allocated to property, plant and equipment and $3 million to the fair value of contracts acquired.
In February of 2011, Bunge completed the acquisition of a port facility in Ukraine for a total purchase price of approximately $100 million net of $2 million cash acquired, consisting of approximately $83 million in cash and approximately $17 million of short-term debt related to assets under construction. The preliminary purchase price allocation for the transaction included approximately $5 million to current assets, $48 million to property, plant and equipment, $32 million to other intangible assets, $34 million to goodwill, $10 million to capital lease obligations, $6 million to deferred tax liabilities and $3 million to other liabilities.
In February 2010, Bunge acquired a 100% interest in five Brazilian sugarcane mills in São Paulo and Minas Gerais states that were formerly part of the Moema Group through the acquisition of Usina Moema Participacões S.A. (Moema Par) and remaining interests in four mills that were not wholly-owned by Moema Par. Bunge collectively refers to the acquired entities as Moema. Bunge issued an aggregate of 10,315,400 common shares and paid $52 million in cash as purchase consideration in the acquisition.
4. BUSINESS DIVESTITURE
On May 27, 2010, Bunge sold its fertilizer nutrients assets in Brazil, including its interest in Fertilizantes Fosfatados S.A. (Fosfertil) to Vale S.A., a Brazil-based global mining company. Final settlement of a post-closing adjustment occurred on August 13, 2010. Bunge received total cash proceeds of $3,914 million and recognized a gain of $2,440 million ($1,901 million net of tax) in its fertilizer segment related to this transaction. Assets and liabilities, results of operations and cash flows related to Bunge’s fertilizer nutrients assets, including its interest in Fosfertil were included in the condensed consolidated financial statements until the transaction closing date of May 27, 2010.
Approximately $144 million of transaction costs and $280 million of withholding taxes are included as a component of cash used for operating activities in Bunge’s condensed consolidated statement of cash flows for the nine months ended September 30, 2010. Gross proceeds of $3,914 million and cash disposed of $106 million related to the sale of the Brazilian fertilizer nutrients assets are included as a component of cash provided by investing activities in Bunge’s condensed consolidated statement of cash flows for the nine months ended September 30, 2010.
5. INVENTORIES
Inventories by segment are presented below. Readily marketable inventories refers to inventories that are readily convertible to cash because of their commodity characteristics, widely available markets and international pricing mechanisms.
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2011 |
|
2010 |
| ||
|
Agribusiness (1) |
|
$ |
4,321 |
|
$ |
5,137 |
|
|
Sugar and Bioenergy (2) |
|
546 |
|
359 |
| ||
|
Edible oil products (3) |
|
445 |
|
460 |
| ||
|
Milling products (3) |
|
127 |
|
163 |
| ||
|
Fertilizer (4) |
|
808 |
|
516 |
| ||
|
Total |
|
$ |
6,247 |
|
$ |
6,635 |
|
(1) Includes readily marketable agricultural commodity inventories at fair value of $4,075 million and $4,540 million at September 30, 2011 and December 31, 2010, respectively. All other agribusiness segment inventories are carried at lower of cost or market.
(2) Includes readily marketable sugar inventories of $219 million and $86 million at September 30, 2011 and December 31, 2010, respectively. Of these sugar inventories, $151 million and $66 million are carried at fair value at September 30, 2011 and December 31, 2010, 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 and milling products inventories are generally carried at lower of cost or market, with the exception of readily marketable inventories of bulk soybean oil and corn, which are carried at fair value in the aggregate amount of $176 million and $225 million at September 30, 2011 and December 31, 2010, respectively.
(4) Fertilizer inventories are carried at lower of cost or market.
6. OTHER CURRENT ASSETS
Other current assets consist of the following:
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2011 |
|
2010 |
| ||
|
Prepaid commodity purchase contracts(1) |
|
$ |
464 |
|
$ |
267 |
|
|
Secured advances to suppliers, net(2) |
|
295 |
|
245 |
| ||
|
Unrealized gains on derivative contracts at fair value |
|
2,094 |
|
2,619 |
| ||
|
Recoverable taxes - current |
|
587 |
|
500 |
| ||
|
Margin deposits(3) |
|
366 |
|
926 |
| ||
|
Marketable securities |
|
98 |
|
39 |
| ||
|
Deferred purchase price receivable(4) |
|
155 |
|
— |
| ||
|
Prepaid expenses |
|
408 |
|
308 |
| ||
|
Other |
|
646 |
|
564 |
| ||
|
Total |
|
$ |
5,113 |
|
$ |
5,468 |
|
(1) Prepaid commodity purchase contracts represent advance payments against fixed priced 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 and other agricultural commodities, 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 September 30, 2011 and $3 million at December 31, 2010. Changes in the allowance for the nine months ended September 30, 2011 included an increase of $2 million for additional bad debt provisions and a reduction in the allowance for recoveries of $2 million. Changes in the allowance for the year ended 2010 included an increase of $1 million for additional bad debt provisions and a reduction in the allowance for recoveries of $1 million.
Interest earned on secured advances to suppliers of $5 million and $4 million for the three months ended September 30, 2011 and 2010, respectively, and $17 million and $19 million for the nine months ended September 30, 2011 and 2010, respectively, is included in net sales in the condensed consolidated statements of income.
(3) Margin deposits include U.S. treasury securities at fair value and cash.
(4) Deferred purchase price receivable represents additional credit support for the investment conduits in Bunge’s accounts receivables sales program (see Note 13) and is recognized at its estimated fair value.
7. GOODWILL
Changes in the carrying value of goodwill by segment for the nine months ended September 30, 2011, are as follows:
|
|
|
|
|
Sugar and |
|
Edible Oil |
|
Milling |
|
|
|
|
| ||||||
|
(US$ in millions) |
|
Agribusiness |
|
Bioenergy |
|
Products |
|
Products |
|
Fertilizer |
|
Total |
| ||||||
|
Balance, December 31, 2010 |
|
$ |
215 |
|
$ |
631 |
|
$ |
80 |
|
$ |
7 |
|
$ |
1 |
|
$ |
934 |
|
|
Acquired goodwill (1) |
|
34 |
|
— |
|
— |
|
— |
|
— |
|
34 |
| ||||||
|
Reallocation of acquired goodwill |
|
(5 |
) |
— |
|
— |
|
— |
|
— |
|
(5 |
) | ||||||
|
Tax benefit on goodwill amortization (2) |
|
(5 |
) |
— |
|
— |
|
— |
|
— |
|
(5 |
) | ||||||
|
Foreign exchange translation |
|
(20 |
) |
(64 |
) |
(6 |
) |
(1 |
) |
— |
|
(91 |
) | ||||||
|
Balance, September 30, 2011 |
|
$ |
219 |
|
$ |
567 |
|
$ |
74 |
|
$ |
6 |
|
$ |
1 |
|
$ |
867 |
|
(1) See Note 3.
(2) 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.
8. IMPAIRMENT CHARGES
Bunge recorded no impairment charges for the three or nine months ended September 30, 2011.
Bunge recorded pretax non-cash impairment charges of $49 million in cost of goods sold in its condensed consolidated statement of income for the three months ended September 30, 2010, which consisted of $42 million related to the write-down of a European oilseed processing and refining facility, $5 million related to the closure of an edible oil facility in Europe as part of Bunge’s plan to improve its European footprint and $2 million related to the write-down of an administrative office in Brazil. These pretax impairment charges were allocated $22 million to the agribusiness segment and $27 million to the edible oil products segment. Total pretax non-cash impairment charges of $61 million recorded in cost of goods sold in Bunge’s condensed consolidated statement of income for the nine months ended September 30, 2010, included these charges as well as $12 million related to the closure of an older, less efficient oilseed processing facility in the United States and a co-located corn oil extraction line in the first quarter of 2010. Of the $61 million of the impairment charges, $32 million were allocated to the agribusiness segment, $27 million to the edible oil products segment and $2 million to the milling products segment.
The following tables summarize assets measured at fair value (all of which utilized Level 3 inputs) on a nonrecurring basis subsequent to initial recognition. For additional information on Level 1, 2 and 3 inputs see Note 12.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
| |||||
|
|
|
Three Months Ended |
|
Fair Value Measurements Using |
|
September 30, 2010 |
| |||||||||
|
(US$ in millions) |
|
September 30, 2010 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total Losses |
| |||||
|
Property, plant and equipment |
|
$ |
91 |
|
$ |
— |
|
$ |
— |
|
$ |
91 |
|
$ |
(49 |
) |
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
| |||||
|
|
|
Nine Months Ended |
|
Fair Value Measurements Using |
|
September 30, 2010 |
| |||||||||
|
(US$ in millions) |
|
September 30, 2010 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total Losses |
| |||||
|
Property, plant and equipment |
|
$ |
91 |
|
$ |
— |
|
$ |
— |
|
$ |
91 |
|
$ |
(61 |
) |
9. INVESTMENTS IN AFFILIATES
During the first nine months of 2011, Bunge contributed approximately $28 million to several new investees that are being accounted for as equity method investments. Of these investments, $20 million is attributable to the agribusiness segment and $8 million to the fertilizer segment.
In June 2011, Bunge sold its investment in a European oilseed processing facility joint venture for $57 million. Bunge recognized a gain of $37 million in equity in earnings of affiliates on this sale during the second quarter of 2011.
10. OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Recoverable taxes, net |
|
$ |
801 |
|
$ |
964 |
|
|
Long-term receivables from farmers in Brazil, net |
|
301 |
|
377 |
| ||
|
Judicial deposits |
|
171 |
|
172 |
| ||
|
Other long-term receivables |
|
11 |
|
129 |
| ||
|
Other |
|
324 |
|
303 |
| ||
|
Total |
|
$ |
1,608 |
|
$ |
1,945 |
|
Recoverable taxes—Recoverable taxes are reported net of valuation allowances of $31 million and $38 million at September 30, 2011 and December 31, 2010, 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. These are commercial transactions that are intended to be short-term in nature with amounts expected to be repaid either in cash or through delivery to Bunge of agricultural commodities when the related crops are harvested. These arrangements are typically secured by the farmer’s expected current year crop and liens on land, buildings and equipment to ensure recoverability in the event of crop failure. The terms of fertilizer credit sales do not include interest. The secured advances against commitments to deliver soybeans provide for interest between the advance date and the scheduled soybean delivery date. The credit factors considered by Bunge in evaluating farmers before initial advance or extension of credit include, among other things, the credit history of the farmer, financial strength, available agricultural land and available collateral in addition to the expected crop.
Upon farmer default, Bunge generally initiates legal proceedings to recover the defaulted amounts. However, the legal recovery process through the judicial system is a long-term process, generally spanning a number of years. As a result, once accounts have been submitted to the judicial process for recovery, Bunge may also seek to renegotiate certain terms with the defaulting farmer in order to accelerate recovery.
Bunge adopted the accounting guidance on disclosure about the credit quality of financing receivables and the allowance for credit losses as of December 31, 2010. This guidance requires information to be disclosed at disaggregated levels, defined as portfolio segments and classes. Based upon its analysis of credit losses and risk factors to be considered in determining the allowance for credit losses, Bunge has determined that the long-term receivables from farmers in Brazil represents a single portfolio segment.
Bunge evaluates this single portfolio segment by class of receivables, which is defined as a level of information (below a portfolio segment) in which the receivables have the same initial measurement attribute and a similar method for assessing and monitoring risk. Bunge has identified accounts in legal collection processes and renegotiated amounts as classes of long-term receivables from farmers. Valuation allowances for accounts in legal collection processes are determined by Bunge on individual accounts based on the fair value of the collateral provided as security for the secured advance or credit sale. The fair value is determined using a combination of internal and external resources, including published information concerning Brazilian land values by region. For
determination of the valuation allowances for renegotiated amounts, Bunge considers historical experience with the individual farmers, current weather and crop conditions, as well as the fair value of non-crop collateral.
For both classes, a long-term receivable from farmers in Brazil is considered impaired, based on current information and events, if Bunge determines it to be probable that all amounts due under the original terms of the receivable will not be collected. Recognition of interest income on secured advances to farmers is suspended once the farmer defaults on the originally scheduled delivery of agricultural commodities as the collection of future income is determined to not be probable. No additional interest income is accrued from the point of default until ultimate recovery, where amounts collected are credited first against the receivable and then to any unrecognized interest income.
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) |
|
2011 |
|
2010 |
| ||
|
Legal collection process (1) |
|
$ |
390 |
|
$ |
441 |
|
|
Renegotiated amounts: |
|
|
|
|
| ||
|
Current on repayment terms |
|
95 |
|
137 |
| ||
|
Ending balance |
|
$ |
485 |
|
$ |
578 |
|
(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, 2011 and the year ended December 31, 2010 was $580 million and $582 million, respectively. The table below summarizes Bunge’s recorded investment in long-term receivables from farmers in Brazil and the related allowance amounts.
|
|
|
September 30, 2011 |
|
December 31, 2010 |
| ||||||||
|
|
|
Recorded |
|
|
|
Recorded |
|
|
| ||||
|
(US$ in millions) |
|
Investment |
|
Allowance |
|
Investment |
|
Allowance |
| ||||
|
For which an allowance has been provided: |
|
|
|
|
|
|
|
|
| ||||
|
Legal collection process |
|
$ |
163 |
|
$ |
147 |
|
$ |
180 |
|
$ |
162 |
|
|
Renegotiated amounts |
|
56 |
|
37 |
|
66 |
|
39 |
| ||||
|
For which no allowance has been provided: |
|
|
|
|
|
|
|
|
| ||||
|
Legal collection process |
|
227 |
|
— |
|
261 |
|
— |
| ||||
|
Renegotiated amounts |
|
39 |
|
— |
|
71 |
|
— |
| ||||
|
Total |
|
$ |
485 |
|
$ |
184 |
|
$ |
578 |
|
$ |
201 |
|
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) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
Beginning Balance |
|
$ |
215 |
|
$ |
196 |
|
$ |
201 |
|
$ |
232 |
|
|
Bad debt provision |
|
10 |
|
4 |
|
14 |
|
15 |
| ||||
|
Recoveries |
|
(5 |
) |
— |
|
(10 |
) |
(12 |
) | ||||
|
Write-offs |
|
— |
|
(28 |
) |
— |
|
(55 |
) | ||||
|
Transfers (1) |
|
(2 |
) |
3 |
|
— |
|
3 |
| ||||
|
Foreign exchange translation |
|
(34 |
) |
12 |
|
(21 |
) |
4 |
| ||||
|
Ending balance |
|
$ |
184 |
|
$ |
187 |
|
$ |
184 |
|
$ |
187 |
|
(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).
Other long-term receivables—Other long-term receivables at December 31, 2010 primarily include installment payments to be received from Bunge’s sale of its 33.34% interest in Saipol S.A.S. in December 2009 for 145 million Euros, or its equivalent at that date of approximately $209 million. The sale agreement provided for payment in four equal annual installments, two of which had been received as of January 2011. In the second quarter 2011, Bunge sold this receivable and a loss of $2 million is included in selling, general and administrative expenses in the condensed consolidated statement of income for the nine months ended September 30, 2011.
11. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
|
|
|
September 30, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2011 |
|
2010 |
| ||
|
Accrued liabilities |
|
$ |
1,325 |
|
$ |
1,268 |
|
|
Unrealized losses on derivative contracts at fair value |
|
1,967 |
|
2,105 |
| ||
|
Advances on sales |
|
369 |
|
323 |
| ||
|
Other |
|
50 |
|
79 |
| ||
|
Total |
|
$ |
3,711 |
|
$ |
3,775 |
|
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 13 for deferred purchase price receivable (DPP) related to sales of trade receivables. See Note 10 for long-term receivables from farmers in Brazil, net and see Note 14 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 a FASB issued standard, 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, 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.
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, 2011 |
|
December 31, 2010 |
| ||||||||||||||||||||
|
(US$ in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Readily marketable inventories (Note 5) |
|
$ |
— |
|
$ |
4,049 |
|
$ |
353 |
|
$ |
4,402 |
|
$ |
— |
|
$ |
4,567 |
|
$ |
264 |
|
$ |
4,831 |
|
|
Unrealized gain on designated derivative contracts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest Rate |
|
— |
|
28 |
|
— |
|
28 |
|
— |
|
— |
|
— |
|
— |
| ||||||||
|
Foreign Exchange |
|
— |
|
30 |
|
— |
|
30 |
|
— |
|
22 |
|
— |
|
22 |
| ||||||||
|
Unrealized gain on undesignated derivative contracts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest Rate |
|
— |
|
— |
|
— |
|
— |
|
— |
|
4 |
|
— |
|
4 |
| ||||||||
|
Foreign Exchange |
|
— |
|
484 |
|
3 |
|
487 |
|
2 |
|
209 |
|
1 |
|
212 |
| ||||||||
|
Commodities |
|
79 |
|
1,269 |
|
181 |
|
1,529 |
|
114 |
|
1,754 |
|
454 |
|
2,322 |
| ||||||||
|
Freight |
|
7 |
|
6 |
|
— |
|
13 |
|
1 |
|
22 |
|
3 |
|
26 |
| ||||||||
|
Energy |
|
15 |
|
9 |
|
11 |
|
35 |
|
9 |
|
11 |
|
16 |
|
36 |
| ||||||||
|
Deferred Purchase Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Receivable (Note 13) |
|
— |
|
155 |
|
— |
|
155 |
|
— |
|
— |
|
— |
|
— |
| ||||||||
|
Other (2) |
|
163 |
|
34 |
|
— |
|
197 |
|
252 |
|
88 |
|
— |
|
340 |
| ||||||||
|
Total assets |
|
$ |
264 |
|
$ |
6,064 |
|
$ |
548 |
|
$ |
6,876 |
|
$ |
378 |
|
$ |
6,677 |
|
$ |
738 |
|
$ |
7,793 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Unrealized loss on designated derivative contracts (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Foreign Exchange (4) |
|
$ |
— |
|
$ |
55 |
|
$ |
— |
|
$ |
55 |
|
$ |
— |
|
$ |
22 |
|
$ |
— |
|
$ |
22 |
|
|
Unrealized loss on undesignated derivative contracts (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest Rate |
|
— |
|
3 |
|
— |
|
3 |
|
— |
|
1 |
|
— |
|
1 |
| ||||||||
|
Foreign Exchange |
|
— |
|
808 |
|
— |
|
808 |
|
— |
|
69 |
|
— |
|
69 |
| ||||||||
|
Commodities |
|
225 |
|
778 |
|
102 |
|
1,105 |
|
692 |
|
1,167 |
|
162 |
|
2,021 |
| ||||||||
|
Freight |
|
2 |
|
— |
|
— |
|
2 |
|
— |
|
— |
|
— |
|
— |
| ||||||||
|
Energy |
|
7 |
|
1 |
|
15 |
|
23 |
|
8 |
|
1 |
|
5 |
|
14 |
| ||||||||
|
Total liabilities |
|
$ |
234 |
|
$ |
1,645 |
|
$ |
117 |
|
$ |
1,996 |
|
$ |
700 |
|
$ |
1,260 |
|
$ |
167 |
|
$ |
2,127 |
|
(1) Unrealized gains on designated and undesignated derivative contracts are generally included in other current assets. Included in other non-current assets are unrealized gains of $28 million and zero at September 30, 2011 and December 31, 2010, respectively.
(2) Other assets include primarily the fair values of U.S. Treasury securities held as margin deposits.
(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, 2011 and December 31, 2010.
(4) Included in current portion of long-term debt are unrealized losses of $29 million and $22 million at September 30, 2011 and December 31, 2010, respectively.
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 designates certain derivative instruments as 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 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.
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.
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.
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, 2011 and 2010. Level 3 instruments presented in the tables include readily marketable inventories and derivatives.
|
|
|
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.
|
|
|
Level 3 Instruments: |
| |||||||
|
|
|
Fair Value Measurements |
| |||||||
|
|
|
Three Months Ended September 30, 2010 |
| |||||||
|
|
|
|
|
Readily |
|
|
| |||
|
|
|
Derivatives, |
|
Marketable |
|
|
| |||
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Total |
| |||
|
Balance, July 1, 2010 |
|
$ |
47 |
|
$ |
354 |
|
$ |
401 |
|
|
Total gains and (losses) (realized/unrealized) included in cost of goods sold |
|
156 |
|
130 |
|
286 |
| |||
|
Total gains and (losses) (realized/unrealized) included in foreign exchange gains (losses) |
|
(2 |
) |
— |
|
(2 |
) | |||
|
Purchases, issuances and settlements |
|
(37 |
) |
(225 |
) |
(262 |
) | |||
|
Transfers into Level 3 |
|
5 |
|
2 |
|
7 |
| |||
|
Transfers out of Level 3 |
|
1 |
|
— |
|
1 |
| |||
|
Balance, September 30, 2010 |
|
$ |
170 |
|
$ |
261 |
|
$ |
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, 2011 and 2010. Level 3 instruments presented in the tables include readily marketable inventories and derivatives.
|
|
|
Level 3 Instruments: |
| |||||||
|
|
|
Fair Value Measurements |
| |||||||
|
|
|
Nine Months Ended September 30, 2011 |
| |||||||
|
|
|
|
|
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 |
|
(160 |
) |
157 |
|
(3 |
) | |||
|
Total gains and (losses) (realized/unrealized) included in foreign exchange gains (losses) |
|
2 |
|
— |
|
2 |
| |||
|
Purchases |
|
95 |
|
1,750 |
|
1,845 |
| |||
|
Sales |
|
(1 |
) |
(2,111 |
) |
(2,112 |
) | |||
|
Issuances |
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