XNYS:BG Bunge Ltd Quarterly Report 10-Q Filing - 6/30/2012

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Table of Contents

 

 

 

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 June 30, 2012

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from        to      

 

Commission File Number 001-16625

 

BUNGE LIMITED

(Exact name of registrant as specified in its charter)

 

Bermuda

 

98-0231912

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer Identification No.)

 

50 Main Street, White Plains, New York

 

10606

(Address of principal executive offices)

 

(Zip Code)

 

(914) 684-2800

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o
(Do not check if a smaller reporting company)

 

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 July 27, 2012 the number of shares issued of the registrant was:

 

Common shares, par value $.01 per share: 146,055,782

 

 

 



Table of Contents

 

BUNGE LIMITED

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I— FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited):

 

 

 

 

 

Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2012 and 2011

2

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2012 and 2011

3

 

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2012 and December 31, 2011

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011

5

 

 

 

 

Condensed Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2012 and 2011

6

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

7

 

 

 

 

Cautionary Statement Regarding Forward-Looking Statements

31

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

 

 

 

Item 4.

Controls and Procedures

50

 

 

 

PART II — INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

51

 

 

 

Item 1A.

Risk Factors

51

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

 

 

 

Item 3.

Defaults upon Senior Securities

51

 

 

 

Item 4.

Mine Safety Disclosures

51

 

 

 

Item 5.

Other Information

51

 

 

 

Item 6.

Exhibits

51

 

 

 

Signatures

S-1

 

 

Exhibit Index

E-1

 



Table of Contents

 

PART I— FINANCIAL INFORMATION

 

ITEM 1.     FINANCIAL STATEMENTS

 

BUNGE LIMITED AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

(U.S. dollars in millions, except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net sales

 

$

15,090

 

$

14,488

 

$

28,536

 

$

26,682

 

Cost of goods sold

 

(14,430

)

(13,841

)

(27,355

)

(25,396

)

 

 

 

 

 

 

 

 

 

 

Gross profit

 

660

 

647

 

1,181

 

1,286

 

Selling, general and administrative expenses

 

(396

)

(383

)

(815

)

(727

)

Interest income

 

21

 

23

 

47

 

44

 

Interest expense

 

(82

)

(70

)

(144

)

(142

)

Foreign exchange gain (loss)

 

18

 

77

 

84

 

119

 

Other income (expense) — net

 

(8

)

1

 

(37

)

(7

)

Gain on sale of investments in affiliates

 

85

 

37

 

85

 

37

 

Gain on acquisition of controlling interest

 

36

 

 

36

 

 

 

 

 

 

 

 

 

 

 

 

Income before income tax

 

334

 

332

 

437

 

610

 

Income tax expense

 

(68

)

(20

)

(82

)

(63

)

 

 

 

 

 

 

 

 

 

 

Net income

 

266

 

312

 

355

 

547

 

Net loss (income) attributable to noncontrolling interest

 

8

 

4

 

11

 

1

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Bunge

 

274

 

316

 

366

 

548

 

Convertible preference share dividends

 

(9

)

(9

)

(17

)

(17

)

 

 

 

 

 

 

 

 

 

 

Net income available to Bunge common shareholders

 

$

265

 

$

307

 

$

349

 

$

531

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share — basic (Note 19)

 

 

 

 

 

 

 

 

 

Earnings to Bunge common shareholders

 

$

1.82

 

$

2.08

 

$

2.39

 

$

3.61

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share — diluted (Note 19)

 

 

 

 

 

 

 

 

 

Earnings to Bunge common shareholders

 

$

1.78

 

$

2.02

 

$

2.37

 

$

3.51

 

 

 

 

 

 

 

 

 

 

 

Dividends per common share

 

$

0.27

 

$

0.25

 

$

0.52

 

$

0.48

 

 

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

 

2



Table of Contents

 

BUNGE LIMITED AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

(U.S. dollars in millions)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net income

 

$

266

 

$

312

 

$

355

 

$

547

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Foreign exchange translation adjustment

 

(1,133

)

361

 

(798

)

658

 

Unrealized gains (losses) on commodity futures and foreign exchange contracts designated as cash flow hedges, net of tax (expense) benefit of $12 and $8 in 2012, $(7) and $(7) in 2011

 

(25

)

9

 

(16

)

13

 

Unrealized gains (losses) on investments, net of tax (expense) benefit of $1 and $(6) in 2012, $(2) and $(2) in 2011

 

(2

)

3

 

11

 

3

 

Reclassification of realized net losses (gains) to net income, net of tax expense (benefit) of $(1) and $0 in 2012, $7 and $7 in 2011

 

21

 

(13

)

21

 

(13

)

Pension adjustment, net of tax (expense) benefit of nil in all periods

 

 

 

1

 

(2

)

Total other comprehensive income (loss)

 

(1,139

)

360

 

(781

)

659

 

Total comprehensive income (loss)

 

(873

)

672

 

(426

)

1,206

 

Less: comprehensive (income) loss attributable to noncontrolling interest

 

47

 

(6

)

37

 

(17

)

Total comprehensive income (loss) attributable to Bunge

 

$

(826

)

$

666

 

$

(389

)

$

1,189

 

 

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

 

3



Table of Contents

 

BUNGE LIMITED AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(U.S. dollars in millions, except share data)

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

467

 

$

835

 

Trade accounts receivable (less allowances of $117 and $113) (Note 13)

 

2,805

 

2,459

 

Inventories (Note 4)

 

7,930

 

5,733

 

Deferred income taxes

 

394

 

305

 

Other current assets (Note 5)

 

4,764

 

3,796

 

Total current assets

 

16,360

 

13,128

 

 

 

 

 

 

 

Property, plant and equipment, net

 

5,596

 

5,517

 

Goodwill (Note 6)

 

880

 

893

 

Other intangible assets, net

 

306

 

220

 

Investments in affiliates (Note 7)

 

278

 

600

 

Deferred income taxes

 

1,276

 

1,211

 

Other non-current assets (Note 8)

 

2,017

 

1,706

 

Total assets

 

$

26,713

 

$

23,275

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Short-term debt

 

$

2,332

 

$

719

 

Current portion of long-term debt (Note 12)

 

315

 

14

 

Trade accounts payable

 

3,048

 

3,173

 

Deferred income taxes

 

275

 

152

 

Other current liabilities (Note 10)

 

3,704

 

2,889

 

Total current liabilities

 

9,674

 

6,947

 

 

 

 

 

 

 

Long-term debt (Note 12)

 

4,247

 

3,348

 

Deferred income taxes

 

155

 

134

 

Other non-current liabilities

 

765

 

771

 

 

 

 

 

 

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

 

 

 

 

 

Equity (Note 17):

 

 

 

 

 

Convertible perpetual preference shares, par value $.01; authorized, issued and outstanding: 2012 and 2011 — 6,900,000 shares (liquidation preference $100 per share)

 

690

 

690

 

Common shares, par value $.01; authorized — 400,000,000 shares; issued and outstanding: 2012 — 146,035,349 shares, 2011 — 145,610,029 shares

 

1

 

1

 

Additional paid-in capital

 

4,868

 

4,829

 

Retained earnings

 

7,190

 

6,917

 

Accumulated other comprehensive income (loss) (Note 17)

 

(1,365

)

(610

)

Treasury shares, at cost - 1,933,286 shares

 

(120

)

(120

)

Total Bunge shareholders’ equity

 

11,264

 

11,707

 

Noncontrolling interest (Note 18)

 

608

 

368

 

Total equity

 

11,872

 

12,075

 

Total liabilities and equity

 

$

26,713

 

$

23,275

 

 

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

 

4



Table of Contents

 

BUNGE LIMITED AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

(U.S. dollars in millions)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2012

 

2011

 

OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

355

 

$

547

 

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

 

 

 

 

 

Gain on sale of investments in affiliates

 

(85

)

(37

)

Gain on acquisition of controlling interest

 

(36

)

 

Foreign exchange loss (gain) on debt

 

(49

)

(78

)

Bad debt expense

 

29

 

9

 

Depreciation, depletion and amortization

 

264

 

247

 

Stock-based compensation expense

 

31

 

26

 

Deferred income taxes

 

(108

)

(136

)

Other, net

 

 

(7

)

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

 

 

 

 

 

Trade accounts receivable

 

(434

)

(64

)

Inventories

 

(2,513

)

(86

)

Prepayments and advances to suppliers

 

(687

)

(239

)

Trade accounts payable and accrued liabilities

 

186

 

(431

)

Net unrealized gain/loss on derivative contracts

 

214

 

129

 

Margin deposits

 

(63

)

390

 

Other, net

 

197

 

(6

)

Cash provided by (used for) operating activities

 

(2,699

)

264

 

INVESTING ACTIVITIES

 

 

 

 

 

Payments made for capital expenditures

 

(473

)

(454

)

Acquisitions of businesses (net of cash acquired)

 

(277

)

(83

)

Proceeds from sale of investments in affiliates

 

483

 

70

 

Payments for investments in affiliates

 

(89

)

(10

)

Other, net

 

73

 

37

 

Cash provided by (used for) investing activities

 

(283

)

(440

)

FINANCING ACTIVITIES

 

 

 

 

 

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

 

1,618

 

(294

)

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

 

369

 

439

 

Repayments of short-term debt with maturities greater than 90 days

 

(367

)

(983

)

Proceeds from long-term debt

 

2,761

 

1,377

 

Repayments of long-term debt

 

(1,638

)

(440

)

Proceeds from sale of common shares

 

10

 

16

 

Dividends paid

 

(89

)

(85

)

Other, net

 

 

28

 

Cash provided by (used for) financing activities

 

2,664

 

58

 

Effect of exchange rate changes on cash and cash equivalents

 

(50

)

10

 

Net (decrease) increase in cash and cash equivalents

 

(368

)

(108

)

Cash and cash equivalents, beginning of period

 

835

 

578

 

Cash and cash equivalents, end of period

 

$

467

 

$

470

 

 

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

 

5



Table of Contents

 

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

 

 

 

 

 

 

548

 

 

 

(1

)

547

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

641

 

 

 

18

 

659

 

Dividends on common shares

 

 

 

 

 

 

(71

)

 

 

 

(71

)

Dividends on preference shares

 

 

 

 

 

 

(17

)

 

 

 

(17

)

Dividends to noncontrolling interest on subsidiary common stock

 

 

 

 

 

 

 

 

 

(12

)

(12

)

Capital contributions from noncontrolling interest

 

 

 

 

 

 

 

 

 

53

 

53

 

Stock-based compensation expense

 

 

 

 

 

26

 

 

 

 

 

 

26

 

Issuance of common shares

 

 

 

709,526

 

 

12

 

 

 

 

 

12

 

Balance, June 30, 2011

 

6,900,000

 

$

690

 

147,344,609

 

$

1

 

$

4,831

 

$

6,613

 

$

1,224

 

$

 

$

392

 

$

13,751

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

366

 

 

 

(11

)

355

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

(755

)

 

(26

)

(781

)

Dividends on common shares

 

 

 

 

 

 

(76

)

 

 

 

(76

)

Dividends on preference shares

 

 

 

 

 

 

(17

)

 

 

 

(17

)

Dividends to noncontrolling interest on subsidiary common stock

 

 

 

 

 

 

 

 

 

(6

)

(6

)

Capital contributions from noncontrolling interest

 

 

 

 

 

 

 

 

 

10

 

10

 

Noncontrolling interest at acquisition

 

 

 

 

 

 

 

 

 

273

 

273

 

Stock-based compensation expense

 

 

 

 

 

31

 

 

 

 

 

31

 

Issuance of common shares

 

 

 

425,320

 

 

8

 

 

 

 

 

8

 

Balance, June 30, 2012

 

6,900,000

 

$

690

 

146,035,349

 

$

1

 

$

4,868

 

$

7,190

 

$

(1,365

)

$

(120

)

$

608

 

$

11,872

 

 

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

 

6



Table of Contents

 

BUNGE LIMITED AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(Unaudited)

 

1.             BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Bunge Limited (Bunge), its subsidiaries and variable interest entities (VIEs) in which it is considered the primary beneficiary. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (Exchange Act) and include the assets, liabilities, revenues and expenses of all entities in which Bunge has a controlling financial interest or is otherwise deemed to be the primary beneficiary. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to Securities and Exchange Commission (SEC) rules. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included. The condensed consolidated balance sheet at December 31, 2011 has been derived from Bunge’s audited consolidated financial statements at that date.  Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012.  The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2011, forming part of Bunge’s 2011 Annual Report on Form 10-K filed with the SEC on February 27, 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 June 30, 2012 in the amounts of $335 million, $92 million and $253 million, respectively.  Bunge does not provide performance guarantees and has no financial obligation to provide funding to these investment funds.

 

Certain prior year amounts have been reclassified to conform to the current year presentation (see Notes 6 and 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 on January 1, 2012 did not have a material impact on Bunge’s condensed consolidated financial statements.

 

3.             BUSINESS ACQUISITIONS

 

In June 2012, Bunge acquired sugarcane milling assets in Brazil in its sugar and bioenergy segment for $61 million in cash.  The preliminary purchase price allocation includes $10 million of biological assets, $43 million of property, plant and equipment, $1 million of finite-lived intangible assets and $7 million of goodwill.

 

In May 2012, Bunge acquired an additional 63.5% interest in a wheat mill and bakery dry mix operation in North America in its milling products segment for $102 million, net of cash acquired.  Bunge had an existing 31.5% interest in the entity which was accounted for as an equity method investment.  Upon completion of the transaction,

 

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Bunge has a 95% interest in the entity which it consolidates.  Upon assuming control of the entity Bunge recorded a non-cash gain of $36 million to adjust its previously existing noncontrolling interest to its fair value of $52 million.  The preliminary purchase price allocation includes $19 million of inventories, $35 million of other current assets, $71 million of property, plant and equipment, $32 million of finite-lived intangible assets, $21 million of other liabilities, $27 million of deferred tax liabilities, $6 million of noncontrolling interest and $51 million of goodwill (see Notes 7 and 18).

 

In March 2012, Bunge acquired an asset management business in Europe in its agribusiness segment for $9 million, net of cash acquired.  The preliminary purchase price allocation includes $25 million of current assets, $346 million of long-term investments, $21 million of other finite-lived intangible assets, $25 million of other liabilities, $94 million of debt and $264 million of noncontrolling interest. 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 India in its edible oils segment for $94 million, net of cash acquired. The purchase price consisted of $77 million in cash and $17 million of acquired debt.  The preliminary purchase price allocation includes $15 million of inventories, $4 million of current assets, $27 million of property, plant and equipment, $53 million of intangible assets (primarily trademark and brands) and $5 million of other liabilities.

 

Also in 2012, Bunge acquired finite-lived intangible assets and property, plant and equipment in two transactions in North America in its agribusiness segment for $24 million in cash.

 

4.             INVENTORIES

 

Inventories by segment are presented below.  Readily marketable inventories refers to inventories that are readily convertible to cash because of their commodity characteristics, widely available markets and international pricing mechanisms.

 

 

 

June 30,

 

December 31,

 

(US$ in millions)

 

2012

 

2011

 

Agribusiness (1)

 

$

5,902

 

$

4,080

 

Sugar and bioenergy (2)

 

422

 

465

 

Edible oil products (3)

 

618

 

489

 

Milling products (4)

 

151

 

130

 

Fertilizer (4)

 

837

 

569

 

Total

 

$

7,930

 

$

5,733

 

 


(1)    Includes readily marketable agricultural commodity inventories at fair value of $5,574 million and $3,724 million at June 30, 2012 and December 31, 2011, respectively.  All other agribusiness segment inventories are carried at lower of cost or market.

 

(2)    Includes readily marketable sugar inventories of $85 million and $139 million at June 30, 2012 and December 31, 2011, respectively.  Of these sugar inventories, $57 million and $83 million are carried at fair value at June 30, 2012 and December 31, 2011, respectively, in Bunge’s trading and merchandising business.  Sugar and ethanol inventories in Bunge’s industrial production business are carried at lower of cost or market.

 

(3)    Edible oil products inventories are generally carried at lower of cost or market, with the exception of readily marketable inventories of bulk soybean oil which are carried at fair value in the aggregate amount of $217 million and $212 million at June 30, 2012 and December 31, 2011, respectively.

 

(4)    Milling products and fertilizer inventories are carried at lower of cost or market.

 

5.             OTHER CURRENT ASSETS

 

Other current assets consist of the following:

 

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June 30,

 

December 31,

 

(US$ in millions)

 

2012

 

2011

 

Prepaid commodity purchase contracts (1)

 

$

835

 

$

206

 

Secured advances to suppliers, net (2)

 

337

 

349

 

Unrealized gains on derivative contracts at fair value

 

1,624

 

1,283

 

Recoverable taxes, net

 

495

 

528

 

Margin deposits (3)

 

417

 

352

 

Marketable securities

 

69

 

50

 

Deferred purchase price receivable (4)

 

156

 

192

 

Prepaid expenses

 

368

 

369

 

Restricted cash (5)

 

 

43

 

Other

 

463

 

424

 

Total

 

$

4,764

 

$

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 $4 million at June 30, 2012 and $3 million at December 31, 2011.

 

Interest earned on secured advances to suppliers of $5 million for both the three months ended June 30, 2012 and 2011, respectively, and $13 million and $12 million for the six months ended June 30, 2012 and 2011, respectively, is included in net sales in the condensed consolidated statements of income.

 

(3)    Margin deposits include U.S. treasury securities at fair value and cash.

 

(4)    Deferred purchase price receivable represents additional credit support for the investment conduits in Bunge’s accounts receivables sales program (see Note 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

 

The table below summarizes the carrying amount of goodwill by segment.

 

 

 

 

 

Sugar and

 

Edible Oil

 

Milling

 

 

 

 

 

(US$ in millions)

 

Agribusiness

 

Bioenergy

 

Products

 

Products

 

Fertilizer

 

Total

 

Balance, December 31, 2010

 

$

215

 

$

631

 

$

80

 

$

7

 

$

1

 

$

934

 

Acquired goodwill

 

34

 

 

41

 

 

 

75

 

Reallocation of acquired goodwill

 

(5

)

 

 

 

 

(5

)

Tax benefit on goodwill amortization (3)

 

(7

)

 

 

 

 

(7

)

Foreign exchange translation

 

(21

)

(71

)

(11

)

(1

)

 

(104

)

Balance, December 31, 2011

 

$

216

 

$

560

 

$

110

 

$

6

 

$

1

 

$

893

 

Acquired goodwill (1)

 

 

7

 

 

51

 

 

58

 

Reallocation of acquired goodwill (2)

 

(1

)

 

(13

)

 

1

 

(13

)

Tax benefit on goodwill amortization (3)

 

(3

)

 

 

 

 

(3

)

Foreign exchange translation

 

(11

)

(40

)

(1

)

(3

)

 

(55

)

Balance, June 30, 2012

 

$

201

 

$

527

 

$

96

 

$

54

 

$

2

 

$

880

 

 


(1)   See Note 3.

 

(2)    Beginning in the first quarter of 2012, the management responsibilities for certain Brazilian port facilities were moved from the agribusiness segment to the fertilizer segment. Accordingly, $1 million of goodwill attributable to these port facilities was reclassified to conform to the 2012 segment presentation.  Also in the first quarter of 2012, the purchase price allocation for the 2011 edible oil products acquisition was revised resulting in a reduction of goodwill of $13 million, a reduction of inventories of $6 million, an increase in finite-lived intangibles of $14 million and a reduction of deferred tax liabilities of $5 million.

 

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(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 June 2012, Bunge entered into a joint venture agreement for the construction and operation of a corn wet mill in Argentina.  Bunge has a 50% interest in this joint venture for $14 million.  Bunge accounts for this equity method investment in its sugar and bioenergy segment.  Also during the six months ended June 30, 2012, Bunge made contributions of $18 million and $15 million to its North American biofuels and Paraguay oilseed processing facility joint ventures, respectively.

 

In May 2012, Bunge completed the acquisition of an additional 63.5% voting interest in a North American wheat mill and bakery dry mix operations (see Note 3) in which it previously had a 31.5% interest, and which it reported as an equity method investment in its milling products segment. Upon completion of the transaction, Bunge began to consolidate this entity in its consolidated financial statements.  Upon assuming control of this entity, Bunge recognized a non-cash gain of $36 million to adjust its previously existing investment to fair value.

 

In April 2012, Bunge sold its 28.06% interest in The Solae Company (Solae) to E.I. du Pont de Nemours and Company for $448 million in cash exclusive of a special cash dividend of $35 million. Bunge recognized a pre-tax gain of $85 million in its agribusiness segment related to this transaction.

 

In January 2012, Bunge completed the acquisition in its agribusiness segment of a 35% interest in PT Bumiraya Investindo, an Indonesian palm plantation company, for $43 million which is reported as an equity method investment.

 

8.     OTHER NON-CURRENT ASSETS

 

Other non-current assets consist of the following:

 

 

 

June 30,

 

December 31,

 

(US$ in millions)

 

2012

 

2011

 

Recoverable taxes, net

 

$

473

 

$

386

 

Long-term receivables from farmers in Brazil, net

 

225

 

284

 

Judicial deposits

 

162

 

167

 

Income taxes receivable

 

462

 

565

 

Affiliate loans receivable

 

80

 

63

 

Long-term investments

 

417

 

37

 

Other

 

198

 

204

 

Total

 

$

2,017

 

$

1,706

 

 

Recoverable taxes — Recoverable taxes are reported net of valuation allowances of $36 million and $41 million at June 30, 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.

 

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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.

 

 

 

June 30,

 

December 31,

 

(US$ in millions)

 

2012

 

2011

 

Legal collection process (1)

 

$

313

 

$

358

 

Renegotiated amounts:

 

 

 

 

 

Current on repayment terms

 

110

 

125

 

Total

 

$

423

 

$

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 six months ended June 30, 2012 and the year ended December 31, 2011 was $485 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.

 

 

 

June 30, 2012

 

December 31, 2011

 

 

 

Recorded

 

 

 

Recorded

 

 

 

(US$ in millions) 

 

Investment

 

Allowance

 

Investment

 

Allowance

 

For which an allowance has been provided:

 

 

 

 

 

 

 

 

 

Legal collection process

 

$

157

 

$

143

 

$

162

 

$

147

 

Renegotiated amounts

 

68

 

55

 

64

 

52

 

For which no allowance has been provided:

 

 

 

 

 

 

 

 

 

Legal collection process

 

156

 

 

196

 

 

Renegotiated amounts

 

42

 

 

61

 

 

Total

 

$

423

 

$

198

 

$

483

 

$

199

 

 

The table below summarizes the activity in the allowance for doubtful accounts related to long-term receivables from farmers in Brazil.

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(US$ in millions) 

 

2012

 

2011

 

2012

 

2011

 

Beginning balance

 

$

215

 

$

205

 

$

199

 

$

201

 

Bad debt provisions

 

11

 

3

 

26

 

4

 

Recoveries

 

(5

)

(4

)

(9

)

(5

)

Write-offs

 

(1

)

 

(1

)

 

Transfers (1)

 

 

2

 

 

2

 

Foreign exchange translation

 

(22

)

9

 

(17

)

13

 

Ending balance

 

$

198

 

$

215

 

$

198

 

$

215

 

 


(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).

 

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Income taxes receivable — Income taxes receivable at June 30, 2012 and December 31, 2011 includes overpayments of current income taxes plus accrued interest. These income tax prepayments are expected to be utilized for settlement of future income tax obligations. Income taxes receivable in Brazil bear interest at the SELIC rate.

 

Affiliate loans receivable — 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 losses and tax regulations in each jurisdiction.  Management regularly monitors the assumptions used in estimating its annual effective tax rate and adjusts estimates accordingly.  If actual results differ from management’s estimates, reported income tax expense in future periods could be materially affected.

 

As a global enterprise, Bunge files income tax returns that are subject to periodic examination and challenge by federal, state and foreign tax authorities.  In many jurisdictions, income tax examinations, including settlement negotiations or litigation, may take several years to finalize.  While it is often difficult to predict the final outcome or timing of resolution of any particular matter with the various tax authorities, management believes that the condensed consolidated financial statements reflect the largest amount of tax benefit that will be more likely than not be realized.  There were no material changes to uncertain tax positions for the six months ended June 30, 2012 and 2011. It is reasonably possible that the amount of unrecognized tax benefit will increase or decrease during the next 12 months; however, management does not expect a material effect on results of operations or financial position.

 

During the first quarter 2012, the Brazilian tax authorities proposed certain adjustments to the income tax returns for one of Bunge’s Brazilian subsidiaries for the years 2008 and 2009.  The proposed adjustments totaled approximately $62 million plus applicable interest and penalties.  Management, in consultation with external legal advisors, has reviewed and responded to the proposed adjustments and believes that it is more likely than not that it will prevail and therefore, has not recorded an uncertain tax liability.

 

In 2011, the Brazilian tax authorities commenced an examination of the income tax returns of one of Bunge’s Brazilian subsidiaries for the years 2005 to 2009 and proposed adjustments totaling approximately $160 million plus applicable interest and penalties. Management, in consultation with external legal advisors, has reviewed and responded to the proposed adjustments and believes that it is more likely than not that it will prevail and therefore, has not recorded an uncertain tax liability.

 

In 2010, the Brazilian tax authorities had proposed certain significant adjustments to the income tax returns of one of Bunge’s Brazilian subsidiaries for the years 2005 to 2007. The proposed adjustments totaled approximately $525 million plus applicable interest and penalties. In the fourth quarter of 2011, Bunge received a decision from the Tax Inspector that dismissed approximately $170 million of this tax claim against Bunge. Management is appealing the remainder of the case, and has not changed its position that it is more likely than not that it will prevail and therefore, has not recorded an uncertain tax liability.

 

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10.          OTHER CURRENT LIABILITIES

 

Other current liabilities consist of the following:

 

 

 

June 30,

 

December 31,

 

(US$ in millions)

 

2012

 

2011

 

Accrued liabilities

 

$

1,179

 

$

1,179

 

Unrealized losses on derivative contracts at fair value

 

1,907

 

1,370

 

Advances on sales

 

567

 

283

 

Other

 

51

 

57

 

Total

 

$

3,704

 

$

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

 

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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

 

 

 

June 30, 2012

 

December 31, 2011

 

(US$ in millions) 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Readily marketable inventories (Note 4)

 

$

 

$

4,028

 

$

1,820

 

$

5,848

 

$

 

$

3,736

 

$

283

 

$

4,019

 

Unrealized gain on designated derivative contracts (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange

 

 

3

 

 

3

 

 

13

 

 

13

 

Unrealized gain on undesignated derivative contracts (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange

 

 

262

 

 

262

 

 

451

 

1

 

452

 

Commodities

 

157

 

849

 

333

 

1,339

 

75

 

586

 

125

 

786

 

Freight

 

 

 

 

 

5

 

 

1

 

6

 

Energy

 

12

 

4

 

4

 

20

 

11

 

13

 

2

 

26

 

Deferred purchase price receivable (Note 13)

 

 

156

 

 

156

 

 

192

 

 

192

 

Other (2)

 

248

 

46

 

 

294

 

146

 

34

 

 

180

 

Total assets

 

$

417

 

$

5,348

 

$

2,157

 

$

7,922

 

$

237

 

$

5,025

 

$

412

 

$

5,674

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on designated derivative contracts (3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange

 

$

 

$

32

 

$

 

$

32

 

$

 

$

45

 

$

 

$

45

 

Unrealized loss on undesignated derivative contracts (3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate

 

 

 

 

 

 

2

 

 

2

 

Foreign exchange

 

 

580

 

 

580

 

 

617

 

 

617

 

Commodities

 

200

 

914

 

142

 

1,256

 

147

 

417

 

116

 

680

 

Freight

 

 

 

 

 

1

 

 

 

1

 

Energy

 

30

 

 

8

 

38

 

4

 

6

 

15

 

25

 

Total liabilities

 

$

230

 

$

1,526

 

$

150

 

$

1,906

 

$

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 June 30, 2012 and December 31, 2011.

 

(2)    Other assets include primarily the fair values of U.S. Treasury securities held as margin deposits and other marketable securities.

 

(3)    Unrealized losses on designated and undesignated derivative contracts are generally included in other current liabilities.  There are no such amounts included in other non-current liabilities at June 30, 2012 and December 31, 2011.

 

Derivatives — Exchange traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified within Level 1.  Bunge’s forward commodity purchase and sale contracts are classified as derivatives along with other OTC derivative instruments relating primarily to freight, energy, foreign exchange and interest rates, and are classified within Level 2 or Level 3 as described below.  Bunge estimates fair values based on exchange quoted prices, adjusted as appropriate for differences in local markets.  These differences are generally valued using inputs from broker or dealer quotations, or market transactions in either the listed or OTC markets.  In such cases, these derivative contracts are classified within Level 2.  Changes in the fair values of these contracts are recognized in the condensed consolidated financial statements as a component of cost of goods sold,

 

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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

 

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its contracts.  Movements in the price of these unobservable inputs alone would not have a material effect on Bunge’s financial statements as these contracts do not typically exceed one future crop cycle.

 

Transfers in and/or out of Level 3 represent existing assets or liabilities that were either previously categorized as a higher level for which the inputs to the model became unobservable or assets and liabilities that were previously classified as Level 3 for which the lowest significant input became observable during the period. Bunge’s policy regarding the timing of transfers between levels is to record the transfers at the beginning of the reporting period.

 

Level 3 Derivatives — Level 3 derivative instruments utilize both market observable and unobservable inputs within the fair value measurements.  These inputs include commodity prices, price volatility factors, interest rates, volumes and locations.  In addition, with the exception of the exchange cleared instruments where Bunge clears trades through an exchange, Bunge is exposed to loss in the event of the non-performance by counterparties on over-the-counter derivative instruments and forward purchase and sale contracts.  Adjustments are made to fair values on occasions when non-performance risk is determined to represent a significant input in Bunge’s fair value determination.  These adjustments are based on Bunge’s estimate of the potential loss in the event of counterparty non-performance. Bunge did not have significant allowances related to non-performance by counterparties at June 30, 2012.

 

Level 3 Readily marketable inventories — Readily marketable inventories are considered Level 3 when at least one significant assumption or input is unobservable.  These assumptions or unobservable inputs include certain management estimations regarding costs of transportation and other local market or location-related adjustments.

 

The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended June 30, 2012 and 2011.  Level 3 instruments presented in the tables include readily marketable inventories and derivatives.  These instruments were valued using pricing models that, in management’s judgment, reflect the assumptions that would be used by a marketplace participant to determine fair value.

 

 

 

Level 3 Instruments:

 

 

 

Fair Value Measurements

 

 

 

Three Months Ended June 30, 2012

 

 

 

 

 

Readily

 

 

 

 

 

Derivatives,

 

Marketable

 

 

 

(US$ in millions)

 

Net (1)

 

Inventories

 

Total

 

Balance, April 1, 2012

 

$

62

 

$

677

 

$

739

 

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

 

172

 

190

 

362

 

Total gains and (losses) (realized/unrealized) included in foreign exchange gains (losses)

 

 

 

 

Purchases

 

1

 

511

 

512

 

Sales

 

1

 

(351

)

(350

)

Issuances

 

(1

)

 

(1

)

Settlements

 

(101

)

 

(101

)

Transfers into Level 3

 

55

 

802

 

857

 

Transfers out of Level 3

 

(2

)

(9

)

(11

)

Balance, June 30, 2012

 

$

187

 

$

1,820

 

$

2,007

 

 


(1)    Derivatives, net include Level 3 derivative assets and liabilities.

 

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Level 3 Instruments:

 

 

 

Fair Value Measurements

 

 

 

Three Months Ended June 30, 2011

 

 

 

 

 

Readily

 

 

 

 

 

Derivatives,

 

Marketable

 

 

 

(US$ in millions)

 

Net (1)

 

Inventories

 

Total

 

Balance, April 1, 2011

 

$

237

 

$

796

 

$

1,033

 

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

 

(76

)

130

 

54

 

Total gains and (losses) (realized/unrealized) included in foreign exchange gains (losses)

 

(1

)

 

(1

)

Purchases

 

34

 

614

 

648

 

Sales

 

 

(962

)

(962

)

Issuances

 

(33

)

 

(33

)

Settlements

 

(6

)

 

(6

)

Transfers into Level 3

 

10

 

157

 

167

 

Transfers out of Level 3

 

(31

)

(13

)

(44

)

Balance, June 30, 2011

 

$

134

 

$

722

 

$

856

 

 


(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 six months ended June 30, 2012 and 2011.  Level 3 instruments presented in the tables include readily marketable inventories and derivatives.  These instruments were valued using pricing models that, in management’s judgment, reflect the assumptions that would be used by a marketplace participant to determine fair value.

 

 

 

Level 3 Instruments:

 

 

 

Fair Value Measurements

 

 

 

Six Months Ended June 30, 2012

 

 

 

 

 

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 cost of goods sold

 

246

 

230

 

476

 

Purchases

 

3

 

1,276

 

1,279

 

Sales

 

1

 

(876

)

(875

)

Issuances

 

(3

)

 

(3

)

Settlements

 

(83

)

 

(83

)

Transfers into Level 3

 

41

 

981

 

1,022

 

Transfers out of Level 3

 

(16

)

(74

)

(90

)

Balance, June 30, 2012

 

$

187

 

$

1,820

 

$

2,007

 

 


(1)    Derivatives, net include Level 3 derivative assets and liabilities.

 

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Level 3 Instruments:

 

 

 

Fair Value Measurements