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 |
|
|
|
|
For the quarterly period ended June 30, 2008 |
|
|
|
OR |
|
|
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT |
|
|
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 |
|
|
50
Main Street, White Plains, New York |
10606 |
|
|
(914) 684-2800 |
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 is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x |
Accelerated filer o |
Non-accelerated
filer o |
Smaller reporting company o |
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 August 1, 2008 the number of common shares issued and outstanding of the registrant was:
Common shares, par value $.01: 121,617,081
BUNGE LIMITED
Table of Contents
|
|
|
Page |
|
|||
|
|||
|
|
||
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets at June 30, 2008 and December 31, 2007 |
3 |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
21 |
|||
|
|
||
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
21 |
|
|
|
|
|
|
37 |
||
|
|
|
|
|
40 |
||
|
|
|
|
|
|||
|
41 |
||
|
|
|
|
|
42 |
||
|
|
|
|
|
43 |
||
|
|
|
|
|
43 |
||
|
|
|
|
|
43 |
||
|
|
|
|
|
43 |
||
|
|
|
|
|
43 |
||
|
|
|
|
44 |
|||
|
|
||
E-1 |
1
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(United States Dollars in Millions, except per share data)
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
2008 |
|
(As Restated) |
|
2008 |
|
(As Restated) |
|
||||
Net sales |
|
$ |
14,365 |
|
$ |
8,298 |
|
$ |
26,834 |
|
$ |
15,641 |
|
Cost of goods sold |
|
(12,914 |
) |
(7,766 |
) |
(24,516 |
) |
(14,809 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
1,451 |
|
532 |
|
2,318 |
|
832 |
|
||||
Selling, general and administrative expenses |
|
(460 |
) |
(307 |
) |
(862 |
) |
(572 |
) |
||||
Interest income |
|
54 |
|
37 |
|
102 |
|
68 |
|
||||
Interest expense |
|
(90 |
) |
(79 |
) |
(188 |
) |
(149 |
) |
||||
Foreign exchange gains |
|
258 |
|
93 |
|
265 |
|
122 |
|
||||
Other income (expense) net |
|
(9 |
) |
1 |
|
(12 |
) |
3 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Income from operations before income tax |
|
1,204 |
|
277 |
|
1,623 |
|
304 |
|
||||
Income tax expense |
|
(337 |
) |
(70 |
) |
(454 |
) |
(76 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Income from operations after income tax |
|
867 |
|
207 |
|
1,169 |
|
228 |
|
||||
Minority interest |
|
(109 |
) |
(35 |
) |
(142 |
) |
(47 |
) |
||||
Equity in earnings of affiliates |
|
(7 |
) |
(4 |
) |
13 |
|
1 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
751 |
|
168 |
|
1,040 |
|
182 |
|
||||
Convertible preference share dividends |
|
(20 |
) |
(9 |
) |
(39 |
) |
(17 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Net income available to common shareholders |
|
$ |
731 |
|
$ |
159 |
|
$ |
1,001 |
|
$ |
165 |
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per common share basic (Note 15) |
|
$ |
6.01 |
|
$ |
1.32 |
|
$ |
8.24 |
|
$ |
1.37 |
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per common share diluted (Note 15) |
|
$ |
5.45 |
|
$ |
1.30 |
|
$ |
7.56 |
|
$ |
1.35 |
|
|
|
|
|
|
|
|
|
|
|
||||
Dividends per common share |
|
$ |
0.19 |
|
$ |
0.16 |
|
$ |
0.36 |
|
$ |
0.32 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(United States Dollars in Millions, except share data)
|
|
June 30, |
|
December 31, |
|
||
ASSETS |
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
1,100 |
|
$ |
981 |
|
Trade accounts receivable (less allowance of $132 and $97) |
|
3,501 |
|
2,541 |
|
||
Inventories (Note 3) |
|
8,792 |
|
5,924 |
|
||
Deferred income taxes |
|
234 |
|
219 |
|
||
Other current assets (Note 5) |
|
5,881 |
|
4,853 |
|
||
Total current assets |
|
19,508 |
|
14,518 |
|
||
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
4,712 |
|
4,216 |
|
||
Goodwill (Note 6) |
|
409 |
|
354 |
|
||
Other intangible assets, net |
|
162 |
|
139 |
|
||
Investments in affiliates |
|
801 |
|
706 |
|
||
Deferred income taxes |
|
939 |
|
903 |
|
||
Other non-current assets |
|
1,131 |
|
1,155 |
|
||
Total assets |
|
$ |
27,662 |
|
$ |
21,991 |
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Short-term debt |
|
$ |
1,426 |
|
$ |
590 |
|
Current portion of long-term debt |
|
593 |
|
522 |
|
||
Trade accounts payable |
|
5,503 |
|
4,061 |
|
||
Deferred income taxes |
|
143 |
|
166 |
|
||
Other current liabilities (Note 8) |
|
4,624 |
|
3,495 |
|
||
Total current liabilities |
|
12,289 |
|
8,834 |
|
||
Long-term debt |
|
3,727 |
|
3,435 |
|
||
Deferred income taxes |
|
149 |
|
149 |
|
||
Other non-current liabilities |
|
1,146 |
|
876 |
|
||
|
|
|
|
|
|
||
Commitments and contingencies (Note 13) |
|
|
|
|
|
||
|
|
|
|
|
|
||
Minority interest in subsidiaries |
|
876 |
|
752 |
|
||
|
|
|
|
|
|
||
Shareholders equity: |
|
|
|
|
|
||
Mandatory convertible preference shares, par value $.01; authorized, issued and outstanding: 2008 and 2007 862,500 (liquidation preference $1,000 per share) |
|
863 |
|
863 |
|
||
Convertible perpetual preference shares, par value $.01; authorized, issued and outstanding: 2008 and 2007 6,900,000 (liquidation preference $100 per share) |
|
690 |
|
690 |
|
||
Common shares, par value $.01; authorized 400,000,000 shares; issued and outstanding: 2008 121,596,460, 2007 121,225,963 shares |
|
1 |
|
1 |
|
||
Additional paid-in capital |
|
2,816 |
|
2,760 |
|
||
Retained earnings |
|
3,905 |
|
2,962 |
|
||
Accumulated other comprehensive income |
|
1,200 |
|
669 |
|
||
Total shareholders equity |
|
9,475 |
|
7,945 |
|
||
Total liabilities and shareholders equity |
|
$ |
27,662 |
|
$ |
21,991 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
(United States Dollars in Millions)
|
|
Six Months Ended |
|
||||
|
|
2008 |
|
(As Restated) |
|
||
OPERATING ACTIVITIES |
|
|
|
|
|
||
Net income |
|
$ |
1,040 |
|
$ |
182 |
|
Adjustments to reconcile net income to cash used for operating activities: |
|
|
|
|
|
||
Foreign exchange gain on debt |
|
(295 |
) |
(92 |
) |
||
Impairment of assets |
|
5 |
|
8 |
|
||
Bad debt expense |
|
50 |
|
16 |
|
||
Depreciation, depletion and amortization |
|
227 |
|
176 |
|
||
Stock based compensation expense |
|
40 |
|
20 |
|
||
Recoverable taxes provision |
|
(9 |
) |
|
|
||
Deferred income taxes |
|
22 |
|
(87 |
) |
||
Minority interest |
|
142 |
|
47 |
|
||
Equity in earnings of affiliates |
|
(13 |
) |
(1 |
) |
||
Changes in operating assets and liabilities, excluding the effects of acquisitions: |
|
|
|
|
|
||
Trade accounts receivable |
|
(658 |
) |
(447 |
) |
||
Inventories |
|
(2,362 |
) |
(932 |
) |
||
Prepaid commodity purchase contracts |
|
38 |
|
(117 |
) |
||
Secured advances to suppliers |
|
169 |
|
128 |
|
||
Trade accounts payable |
|
924 |
|
421 |
|
||
Advances on sales |
|
111 |
|
(24 |
) |
||
Unrealized net loss on derivative contracts |
|
(208 |
) |
(29 |
) |
||
Margin deposits |
|
(82 |
) |
(49 |
) |
||
Accrued liabilities |
|
55 |
|
(22 |
) |
||
Othernet |
|
321 |
|
26 |
|
||
Cash used for operating activities |
|
(483 |
) |
(776 |
) |
||
INVESTING ACTIVITIES |
|
|
|
|
|
||
Payments made for capital expenditures |
|
(372 |
) |
(210 |
) |
||
Investments in affiliates |
|
(79 |
) |
(26 |
) |
||
Acquisitions of businesses (net of cash acquired) |
|
(19 |
) |
(2 |
) |
||
Related party loans |
|
(48 |
) |
3 |
|
||
Proceeds from disposal of property, plant and equipment |
|
28 |
|
14 |
|
||
Proceeds from investment |
|
2 |
|
|
|
||
Cash used for investing activities |
|
(488 |
) |
(221 |
) |
||
FINANCING ACTIVITIES |
|
|
|
|
|
||
Net change in short-term debt with maturities of 90 days or less |
|
(42 |
) |
255 |
|
||
Proceeds from short-term debt with maturities greater than 90 days |
|
1,143 |
|
369 |
|
||
Repayments of short-term debt with maturities greater than 90 days |
|
(294 |
) |
(267 |
) |
||
Proceeds from long-term debt |
|
1,353 |
|
1,572 |
|
||
Repayment of long-term debt |
|
(1,032 |
) |
(807 |
) |
||
Proceeds from sale of common shares |
|
30 |
|
20 |
|
||
Dividends paid to preference shareholders |
|
(42 |
) |
(17 |
) |
||
Dividends paid to common shareholders |
|
(41 |
) |
(39 |
) |
||
Dividends paid to minority interest |
|
(63 |
) |
(7 |
) |
||
Cash provided by financing activities |
|
1,012 |
|
1,079 |
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
78 |
|
19 |
|
||
Net increase in cash and cash equivalents |
|
119 |
|
101 |
|
||
Cash and cash equivalents, beginning of period |
|
981 |
|
365 |
|
||
Cash and cash equivalents, end of period |
|
$ |
1,100 |
|
$ |
466 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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 of the Securities Exchange Act of 1934, as amended (Exchange Act). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included. The consolidated balance sheet at December 31, 2007 has been derived from Bunges audited financial statements at that date. Operating results for the three and six months ended June 30, 2008 are not necessarily indicative of the results to be expected for the year ending December 31, 2008. The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2007 included in Bunges 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 3, 2008.
Restatements Subsequent to the issuance of the Quarterly Report on Form 10-Q for the period ended June 30, 2007 and as disclosed in Bunges 2007 Annual Report on Form 10-K, Bunge corrected errors in its previously issued 2007 unaudited quarterly condensed consolidated financial statements. The errors, which resulted in an overstatement of net sales and costs of goods sold, had no effect on Bunges previously reported volumes, gross profit, net income or earnings per common share. As a result, amounts for the three and six months ended June 30, 2007 contained in this Quarterly Report on Form 10-Q have been restated. See Note 16 to the condensed consolidated financial statements.
Bunge also re-evaluated the classification of two employee benefit plans in Brazil and concluded that such plans should be properly disclosed as a multiple employer pension plan and a postretirement healthcare plan. Bunge included such amounts under the headings Foreign Pension Benefits and Foreign Postretirement Healthcare Benefits. This correction did not have an effect on Bunges consolidated balance sheet at December 31, 2007, or its condensed consolidated statements of income for the three and six months ended June 30, 2007 and condensed consolidated statements of cash flows for the six months ended June 30, 2007.
In addition, in connection with an increase in short-term borrowings with original maturities greater than 90 days, Bunge has now presented on a gross basis certain short-term borrowings which had been presented on a net basis in its condensed consolidated statement of cash flows for the six months ended June 30, 2007.
Reclassifications Certain reclassifications were made to the prior period condensed consolidated financial statements to conform to the current period presentation.
2. NEW ACCOUNTING PRONOUNCEMENTS
Adoption of New Accounting Pronouncements In 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value, provides enhanced guidance for using fair value to measure assets and liabilities under current U.S. GAAP standards and expands the disclosure of the methods used and the effect of fair value measurements on earnings. SFAS No. 157 applies whenever other U.S. GAAP standards require (or permit) assets or liabilities to be measured at fair value. SFAS No. 157 does not expand the use of fair value in any new circumstances. SFAS No. 157 became effective for Bunge on January 1, 2008. In February 2008, the FASB issued FASB Staff Position FAS 157-1, Application of SFAS No. 157 to SFAS No. 13 and Its Related Interpretative Accounting Pronouncements that Address Leasing Transactions (FSP FAS 157-1) and FASB Staff Position FAS 157-2, Effective Date of SFAS No. 157 (FSP FAS 157-2). FSP FAS 157-1 excludes SFAS No. 13, Accounting for Leases, and its related interpretive accounting pronouncements that address leasing transactions, with the exception of fair value measurements of assets and liabilities recorded as a result of a lease transaction but measured pursuant to other pronouncements within the scope of SFAS No. 157. FSP FAS 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at
5
fair value in the financial statements on a recurring basis (at least annually). FSP FAS 157-1 and FSP FAS 157-2 became effective for Bunge upon adoption of SFAS No. 157 on January 1, 2008. See Note 9 to the condensed consolidated financial statements.
In 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS No. 158). SFAS No. 158 amends SFAS No. 87, Employers Accounting for Pensions, SFAS No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions, and SFAS No. 132(R), Employers Disclosures about Pensions and Other Postretirement Benefits. SFAS No. 158 requires an entity which sponsors defined postretirement benefit plans to: (1) recognize in its statement of financial position the funded status of a defined benefit postretirement plan, (2) measure a defined benefit postretirement plans assets and obligations that determine its funded status as of the end of the employers fiscal year and (3) recognize changes in the funded status of a defined benefit postretirement plan in comprehensive income in the year in which the changes occur. On December 31, 2006, Bunge adopted the recognition and disclosure provisions of SFAS No. 158. The requirement to measure a defined benefit postretirement plan assets and benefit obligations as of the date of the employers fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008, and as a result of the adoption of this measurement provision on January 1, 2008, Bunge recorded approximately $4 million as a reduction to retained earnings to reflect the transition period of the new measurement date.
In 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159), which permits an entity to measure certain financial assets and financial liabilities at fair value. Pursuant to SFAS No. 159, entities that elect the fair value alternative will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value alternative may be elected on an instrument-by-instrument basis, with a few exceptions, as long as it is applied to the instrument in its entirety. The fair value alternative election is irrevocable, unless a new election date occurs. Assets and liabilities that are measured at fair value must be displayed on the face of the balance sheet. SFAS No. 159 was effective as of January 1, 2008. Bunge has not elected to measure financial assets or liabilities at fair value which previously had not been recorded at fair value.
New Accounting Pronouncements In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133 (SFAS No. 161), which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, by requiring expanded disclosures about a companys derivative instruments and hedging activities, including increased qualitative, quantitative, and credit-risk disclosures, but does not change the scope or accounting of SFAS No. 133. SFAS No. 161 also amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to clarify that derivative instruments are subject to the concentration-of-credit-risk disclosures of SFAS No. 107. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption permitted. Bunge is evaluating the provisions of SFAS No. 161 to determine the potential impact, if any, the adoption will have on its consolidated financial statements.
In April 2008, the FASB issued FASB Staff Position (FSP) No. FAS 142-3, Determination of the Useful Life of Intangible Assets. The FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No.142, Goodwill and Other Intangible Assets. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Bunge is currently evaluating the impact FSP 142-3 will have on its consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles ("SFAS No. 162"). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP (the "GAAP hierarchy"). SFAS No. 162 makes the GAAP hierarchy explicitly and directly applicable to preparers of financial statements, a step that recognizes preparers' responsibilities for selecting the accounting principles for their financial statements, and sets the stage for making the framework of the FASB Concept Statements fully authoritative. The effective date for SFAS No. 162 is 60 days following the SEC's approval of the Public Company Accounting Oversight Board's related amendments to remove the GAAP hierarchy from auditing standards, where it has resided for some time. Bunge does not expect the adoption of SFAS No. 162 to have a material impact on its financial statements and results of operations.
6
3. INVENTORIES
Inventories consist of the following:
(US$ in millions) |
|
June 30, |
|
December 31, |
|
||
Agribusiness Readily marketable inventories at market value (1) |
|
$ |
5,332 |
|
$ |
3,358 |
|
Fertilizer |
|
2,100 |
|
924 |
|
||
Edible oils |
|
649 |
|
419 |
|
||
Milling |
|
242 |
|
176 |
|
||
Other (2) |
|
469 |
|
1,047 |
|
||
Total |
|
$ |
8,792 |
|
$ |
5,924 |
|
(1) Readily marketable inventories are agricultural commodities inventories that are readily convertible to cash because of their commodity characteristics, widely available markets and international pricing mechanisms.
(2) Agribusiness inventories carried at lower of cost or market.
4. BUSINESS ACQUISITIONS
On June 23, 2008, Bunge and Corn Products International, Inc. (Corn Products) announced that they have entered into a definitive merger agreement in which Bunge will acquire Corn Products International, Inc. in an all-stock transaction. Under the terms of the merger agreement, approved by the Boards of Directors of both companies, Corn Products stockholders will receive common shares of Bunge with a market value of $56.00 for each share of Corn Products common stock that they own, subject to adjustment as described below.
Under the terms of the merger agreement, each share of Corn Products common stock will be converted into the right to receive a fraction of a Bunge common share determined by dividing $56.00 by the volume weighted average closing price of a Bunge common share on the New York Stock Exchange for the 15 trading days ending on and including the second trading day prior to the date on which Corn Products stockholders meeting to adopt the merger agreement is held, provided that if this average closing price is equal to or greater than $133.10, each share of Corn Products common stock will be exchanged for 0.4207 of a Bunge common share, and if this average closing price is equal to or less than $108.90, each share of Corn Products common stock will be exchanged for 0.5142 of a Bunge common share. The exchange of shares in the transaction is expected to qualify as a tax-free reorganization, allowing Corn Products stockholders to defer any gain on their shares for U.S. income tax purposes.
The preliminary estimated purchase price for Corn Products common stock is approximately $4,380 million, based on Corn Products stockholders receiving common shares of Bunge having a value of $56.00 for each share of Corn Products stock owned.
The merger is subject to customary closing conditions, including the approval of stockholders of Corn Products and the shareholders of Bunge and receipt of certain regulatory approvals. Subject to these conditions, Bunge currently expects that the merger will close during the fourth quarter of 2008. Upon closing of the transaction, Corn Products will become a wholly owned subsidiary of Bunge.
7
5. OTHER CURRENT ASSETS
Other current assets consist of the following:
(US$ in millions) |
|
June 30, |
|
December 31, |
|
||
Prepaid commodity purchase contracts |
|
$ |
431 |
|
$ |
429 |
|
Secured advances to suppliers (1) |
|
243 |
|
382 |
|
||
Unrealized gain on derivative contracts |
|
2,823 |
|
2,320 |
|
||
Recoverable taxes (2) |
|
496 |
|
368 |
|
||
Margin deposits |
|
391 |
|
309 |
|
||
Other |
|
1,497 |
|
1,045 |
|
||
Total |
|
$ |
5,881 |
|
$ |
4,853 |
|
(1) Bunge provides cash advances to suppliers, which primarily are farmers of soybeans and other agricultural commodities, primarily in Brazil, to finance a portion of the suppliers production costs. The advances are largely collateralized by future crops and physical assets of the suppliers, carry a local market interest rate and settle when the farmers crop is harvested and sold. In addition to current secured advances, Bunge has non-current secured advances to suppliers, primarily farmers in Brazil, in the amount of $338 million and $379 million at June 30, 2008 and December 31, 2007, respectively, that are included in other non-current assets in the condensed consolidated balance sheets. The repayment terms of the non-current secured advances generally range from two to three years. Included in the secured advances to suppliers recorded in other current assets are advances that were renegotiated from their original terms, equal to an aggregate of $72 million and $41 million at June 30, 2008 and December 31, 2007, respectively. Included in the secured advances to suppliers recorded in other non-current assets are advances that were renegotiated from their original terms, equal to an aggregate of $26 million and $48 million at June 30, 2008 and December 31, 2007, respectively, mainly due to crop failures. These renegotiated advances are largely collateralized by a farmers future crops and a mortgage on the land, buildings and equipment.
Also included in non-current secured advances to suppliers are advances for which Bunge has initiated legal action to collect the outstanding balance, equal to an aggregate of $277 million and $245 million at June 30, 2008 and December 31, 2007, respectively. Collections being pursued through legal action largely reflect loans made for the 2005 and 2006 crops. The allowance for uncollectible advances totaled $88 million and $52 million at June 30, 2008 and December 31, 2007, respectively.
Interest earned on secured advances to suppliers of $10 million and $13 million for the three months ended June 30, 2008 and 2007, respectively, and $23 million and $30 million for the six months ended June 30, 2008 and 2007, respectively, is included in net sales in the consolidated statements of income.
(2) Bunge has a recoverable taxes balance of $197 million and $191 million at June 30, 2008 and December 31, 2007, respectively, which is included in other non-current assets in the condensed consolidated balance sheets. The balance of current and non-current recoverable taxes is net of the allowance for recoverable taxes of $142 million and $135 million at June 30, 2008 and December 31, 2007, respectively. In addition, in May 2008, Bunge received a favorable ruling from the tax authorities in Brazil, related to certain transactional taxes, confirming that it was entitled to a higher credit rate for a certain category of raw material purchases made by Bunge since the third quarter of 2004. As a result, Bunge recorded recoverable taxes (current and non-current) in cost of goods sold $128 million of related tax credits, which it allocated $117 million and $11 million to its agribusiness and its milling products segments, respectively. Bunge will apply the credit as an offset against future Brazilian tax liabilities incurred in the ordinary course of business and expects that the credit will be fully utilized over the next 12 to 18 months.
6. GOODWILL
At June 30, 2008, the changes in the carrying value of goodwill by segment are as follows:
(US$ in millions) |
|
Agribusiness |
|
Edible Oil |
|
Milling |
|
Total |
|
||||
Balance, December 31, 2007 |
|
$ |
318 |
|
$ |
27 |
|
$ |
9 |
|
$ |
354 |
|
Acquired goodwill (1) |
|
7 |
|
21 |
|
|
|
28 |
|
||||
Foreign exchange translation |
|
33 |
|
8 |
|
|
|
41 |
|
||||
Tax benefit on goodwill amortization (2) |
|
(14 |
) |
|
|
|
|
(14 |
) |
||||
Balance, June 30, 2008 |
|
$ |
344 |
|
$ |
56 |
|
$ |
9 |
|
$ |
409 |
|
8
(1) In the six months ended June 30, 2008, Bunge acquired a European margarine producer based in Germany for a purchase price of approximately $31 million, which consisted of $25 million in cash and $6 million of assumed debt. Assets and liabilities acquired consisted of $6 million of cash and $4 million of historical other net assets. As of June 30, 2008, Bunge had not completed the purchase price allocation valuation of the acquired assets and liabilities and has preliminarily recorded $21 million of goodwill in its edible oil products segment related to this acquisition. In addition, Bunge recorded an additional $7 million of goodwill as a result of a resolution of a contingency in the purchase price relating to its 2007 sugarcane and ethanol mill acquisition.
(2) One of Bunges Brazilian subsidiaries has tax deductible goodwill in excess of its book goodwill. For financial reporting purposes, the tax benefits attributable to the excess tax goodwill are first used to reduce recorded goodwill and then to reduce intangible assets prior to recognizing any income tax benefit in the condensed consolidated statements of income.
7. INVESTMENTS IN AFFILIATES
In the six months ended June 30, 2008, Bunge invested $61 million in cash for a 50% ownership interest in its joint venture Bunge Maroc Phosphore S.A. The joint venture was formed to produce fertilizers in Morocco for export primarily to markets in Latin America. Bunge Maroc Phosphore S.A. is accounted for under the equity method of accounting.
8. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
(US$ in millions) |
|
June 30, |
|
December 31, |
|
||
Accrued liabilities |
|
$ |
1,212 |
|
$ |
1,071 |
|
Unrealized loss on derivative contracts |
|
2,708 |
|
2,023 |
|
||
Advances on sales |
|
478 |
|
367 |
|
||
Other |
|
226 |
|
34 |
|
||
Total |
|
$ |
4,624 |
|
$ |
3,495 |
|
9. FINANCIAL INSTRUMENTS
Adoption of SFAS No. 157, Fair Value MeasurementsEffective January 1, 2008, Bunge adopted SFAS No. 157, which provides a framework for measuring fair value. SFAS No. 157 also eliminates the deferral of gains and losses at inception associated with certain derivative contracts whose fair value was not evidenced by observable market data. SFAS No. 157 requires that the impact of this change in accounting for derivative contracts be recorded as an adjustment to opening retained earnings in the period of adoption. Bunge did not have any deferred gains or losses at inception of derivative contracts and therefore no adjustment to opening retained earnings was made upon adoption of SFAS No. 157.
SFAS No. 157 defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in Bunges 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 market values of its readily marketable inventories, derivative contracts, and certain other assets based on the fair value hierarchy established in SFAS No. 157, 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 that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect Bunges own assumptions based on market data and on assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. 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.
9
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 sales 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 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 following table sets forth by level Bunges assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2008. Pursuant to FSP No. FAS 157-2, Effective Date of FASB Statement No. 157, Bunge will delay the adoption of SFAS No. 157 for its nonfinancial assets and liabilities that are recognized on a nonrecurring basis, including goodwill and intangibles and asset retirement obligations. As required by SFAS No. 157, 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. Bunges 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.
|
|
June 30, 2008 |
|
||||||||||||||
|
|
Fair Value Measurements at Reporting Date Using |
|
||||||||||||||
(US$ in millions) |
|
Quoted Prices in |
|
Significant |
|
Significant |
|
Total |
|
||||||||
Assets: |
|
|
|
|
|
|
|
|
|
||||||||
Readily marketable inventories (Note 3) |
|
$ |
|
|
$ |
4,582 |
|
$ |
750 |
|
$ |
5,332 |
|
||||
Unrealized gain on derivative contracts (Note 5) |
|
27 |
|
2,611 |
|
|
185 |
|
2,823 |
|
|||||||
Other (1) |
|
48 |
|
676 |
|
|
|
724 |
|
||||||||
Total assets |
|
$ |
75 |
|
$ |
7,869 |
|
$ |
935 |
|
$ |
8,879 |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
||||||||
Unrealized loss on derivative contracts (Note 8) |
|
$ |
74 |
|
$ |
2,477 |
|
$ |
157 |
|
$ |
2,708 |
|
||||
Total liabilities |
|
$ |
74 |
|
$ |
2,477 |
|
$ |
157 |
|
$ |
2,708 |
|
||||
(1) Other assets include primarily the fair values of firm commitments for the use of ocean vessels under time charter agreements. These firm commitments are hedged by derivative instruments which are designated as fair value hedges and are included in other current assets in the condensed consolidated balance sheets.
DerivativesExchange traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified within Level 1. Bunges forward commodity purchase and sale contracts are classified as derivatives along with other OTC instruments relating primarily to freight, energy and foreign exchange. Bunge estimates fair market values based on exchange quoted prices, adjusted 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 market values of these contracts are recognized in the consolidated financial statements as a component of cost of goods sold, foreign exchange gain or loss or other comprehensive income.
10
OTC derivative contracts include swaps, options and structured transactions that are valued at fair value and may be offset with similar positions in exchange traded markets. The fair values of OTC derivative instruments are 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 of 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.
Readily marketable inventoriesBunges readily marketable commodity inventories are valued at estimated fair market values. These commodities are readily marketable, have quoted market prices and may be sold without significant additional processing. Bunge estimates fair market values based on exchange quoted prices, adjusted for differences in local markets. Changes in the fair market values of these inventories are recognized in our consolidated statements of income as a component of cost of goods sold.
Readily marketable inventories are valued based on the fair values of the commodities, including exchange quotations, broker or dealer quotations, or market transactions in either listed or OTC markets. In such cases, the inventory is classified within Level 2. Certain inventories may utilize significant management judgment or estimation to measure fair value. In such cases, the inventory is classified as Level 3.
If Bunge used different methods or factors to estimate fair market values, amounts reported as unrealized gains and losses on derivative contracts and readily marketable inventories in the consolidated balance sheets and 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 consolidated balance sheets and consolidated statements of income could differ.
Level 3 ValuationBunges 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, 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. Because of differences in the availability of market prices and market liquidity 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 SFAS No. 157 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 DerivativesThe fair values of Level 3 derivative instruments are estimated using pricing information from less active markets. 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.
Level 3 Readily marketable inventoriesReadily marketable inventories are considered Level 3 when at least one significant assumption or input is unobservable. These assumptions or inputs include exchange quotes and certain management estimations regarding local markets.
The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2008. Level 3 instruments presented in the table include readily marketable inventories and derivatives, which were carried at fair value prior to the adoption of
11
SFAS 157. These instruments were valued using pricing models that, in managements judgment, reflect the assumptions a marketplace participant would use at June 30, 2008.
|
|
Level 3 Instruments: |
|
|||||||
|
|
Fair Value Measurements |
|
|||||||
(US$ in millions) |
|
Derivatives, |
|
Readily |
|
Total |
|
|||
Balance, January 1, 2008 |
|
$ |
107 |
|
$ |
133 |
|
$ |
240 |
|
Total gains and losses (realized/unrealized) included in cost of goods sold |
|
97 |
|
65 |
|
162 |
|
|||
Purchases, issuances and settlements |
|
(176 |
) |
609 |
|
433 |
|
|||
Transfers in/out of Level 3 |
|
|
|
(57 |
) |
(57 |
) |
|||
Balance, June 30, 2008 |
|
$ |
28 |
|
$ |
750 |
|
$ |
778 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
The table below summarizes changes in unrealized gains or losses recorded in earnings during 2008 for Level 3 assets and liabilities that were held at June 30, 2008.
|
|
Level 3 Instruments: |
|
|||||||
|
|
Fair Value Measurements |
|
|||||||
(US$ in millions) |
|
Derivatives, |
|
Readily |
|
Total |
|
|||
Changes in unrealized gains and losses relating to assets and liabilities held at June 30, 2008: |
|
|
|
|
|
|
|
|||
Cost of goods sold |
|
$ |
17 |
|
$ |
1 |
|
$ |
18 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
Interest rate derivativesThe interest rate swaps used by Bunge as hedging instruments have been recorded at fair value in the consolidated balance sheets with changes in fair value recorded currently in earnings. Additionally, the carrying amount of the associated debt is adjusted through earnings for changes in the fair value due to changes in interest rates. Ineffectiveness, as defined in SFAS No. 133, is recognized to the extent that these two adjustments do not offset. The derivatives Bunge enters into for hedge purposes are assumed to be perfectly effective under the shortcut method of SFAS No. 133. The differential to be paid or received based on changes in interest rates is recorded as an adjustment to interest expense. The interest rate differential on the swaps settles in cash every six months until expiration.
In the three months ended June 30, 2008, Bunge entered into interest rate swap agreements with an aggregate notional amount of $250 million maturing in 2011 for the purpose of managing its interest rate exposure associated with its $250 million three-year term loan due 2011. Under the terms of the interest rate swap agreements, Bunge makes payments based on the average Federal Funds rate and will receive payments based on fixed interest rates. Bunge has accounted for the interest rate swap agreements as fair value hedges in accordance with SFAS No. 133.
|
|
Maturity |
|
Fair Value |
|
||
(US$ in millions) |
|
2011 |
|
June 30, 2008 |
|
||
|
|
|
|
|
|
||
Receive fixed/pay variable notional amount |
|
$ |
250 |
|
$ |
|
|
Weighted average variable rate payable (1) |
|
3.05 |
% |
|
|
||
Weighted average fixed rate receivable |
|
4.33 |
% |
|
|
||
(1) Interest is payable in arrears based on the average Federal Funds rate.
12
In January 2008, Bunge terminated its outstanding interest rate swap agreements with a notional amount of $1,150 million maturing in 2014, 2015 and 2017 and received approximately $49 million in cash, of which a gain of $48 million on the net settlement of the swap agreements will be amortized to earnings over the remaining term of the debt.
Foreign exchange derivativesBunge uses net investment hedges to partially offset the translation adjustments arising from remeasuring its investment in its Brazilian subsidiaries. For derivative instruments that are designated and qualify as net investment hedges, Bunge records the effective portion of the gain or loss on the derivative instruments in accumulated other comprehensive income (loss). At June 30, 2008 and December 31, 2007, Bunge had outstanding cross currency swaps with a notional value of $76 million for both periods to hedge a portion of its net investment in Brazilian assets. Bunge pays Brazilian reais and receives U.S. dollars using fixed interest rates, offsetting the translation adjustment of its net investment in Brazilian reais assets. The swaps mature in 2008. At June 30, 2008, the fair value of these currency swaps was a loss of $26 million, which was recorded in other current liabilities in the consolidated balance sheet. At December 31, 2007, the fair value of these currency swaps was a loss of $17 million. For the six months ended June 30, 2008, Bunge recorded a $9 million loss as an offset against foreign exchange translation adjustment in accumulated other comprehensive income (loss) that related to the change in the fair value of the outstanding net investment hedges.
10. LONG-TERM DEBT
During the six months ended June 30, 2008, Bunge entered into a $250 million term loan facility with a lending institution. The term loan bears interest at a fixed rate of 4.33% per year and matures in 2011. Bunge used the proceeds from this facility to repay outstanding indebtedness.
In addition, during the six months ended June 30, 2008, Bunge entered into a $650 million, three-year revolving credit facility with a number of lending institutions. The interest rate applicable to borrowings under the revolving credit facility may range from LIBOR plus 0.65% to 1.50% based on the credit ratings of Bunges long-term unsecured debt at the time of borrowing. Borrowings under the revolving credit facility bear interest at LIBOR plus 0.80% based on Bunges current credit ratings. Borrowings under the revolving credit facility, which matures in 2011, may be used for general corporate purposes. There were $550 million of borrowings outstanding under this facility at June 30, 2008.
11. RELATED PARTY TRANSACTIONS
Bunge purchased soybeans, related soybean commodity products and other commodity products from its unconsolidated joint ventures (primarily its North American joint ventures), which totaled $263 million and $141 million for the three months ended June 30, 2008 and 2007, respectively, and $526 million and $277 million for the six months ended June 30, 2008 and 2007, respectively. Bunge also sold soybean commodity products and other commodity products to its unconsolidated North American and certain European joint ventures, which totaled $55 million and $37 million for the three months ended June 30, 2008 and 2007, respectively, and $109 million and $72 million for the six months ended June 30, 2008 and 2007, respectively. Bunge believes these transactions were recorded at values similar to those with third parties.
13
12. EMPLOYEE BENEFIT PLANS
In 2007, Bunge re-evaluated the classification of two employee benefit plans in Brazil and concluded that such plans should be properly disclosed as a multiple employer pension plan and a postretirement healthcare plan. Bunge included such amounts under the headings Foreign Pension Benefits and Foreign Postretirement Healthcare Benefits. This correction did not have an effect on Bunges consolidated balance sheet at December 31, 2007 or its consolidated statements of income for the three and six months ended June 30, 2007 and cash flows for the six months ended June 30, 2007.
In addition, in the six months ended June 30, 2008, Bunge recorded a $20 million accumulated benefit obligation related to certain postretirement medical costs required to be paid by employers under Brazilian law as a result of recent court decisions which have impacted employer interpretations of the related laws and regulations.
|
|
U.S.-Pension Benefits |
|
Foreign-Pension Benefits Three |
|
|||||||||
(US$ in millions) |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|||||
Service cost |
|
$ |
3 |
|
$ |
3 |
|
$ |
1 |
|
$ |
1 |
|
|
Interest cost |
|
5 |
|
5 |
|
9 |
|
8 |
|
|||||
Expected return on plan assets |
|
(5 |
) |
(5 |
) |
(10 |
) |
(10 |
) |
|||||
Recognized prior service cost |
|
|
|
1 |
|
1 |
|
1 |
|
|||||
Recognized net loss |
|
|
|
|
|
|
|
|
|
|||||
Net periodic benefit cost |
|
$ |
3 |
|
$ |
4 |
|
$ |
1 |
|
$ |
|
|
|
|
|
U.S.-Pension Benefits |
|
Foreign-Pension Benefits Six |
|
||||||||
(US$ in millions) |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
Service cost |
|
$ |
6 |
|
$ |
6 |
|
$ |
2 |
|
$ |
2 |
|
Interest cost |
|
10 |
|
10 |
|
18 |
|
16 |
|
||||
Expected return on plan assets |
|
(10 |
) |
(10 |
) |
(19 |
) |
(20 |
) |
||||
Recognized prior service cost |
|
1 |
|
1 |
|
1 |
|
1 |
|
||||
Recognized net loss |
|
|
|
1 |
|
|
|
|
|
||||
Net periodic benefit cost |
|
$ |
7 |
|
$ |
8 |
|
$ |
2 |
|
$ |
(1 |
) |
|
|
U.S.-Postretirement Benefits |
|
Foreign-Postretirement Benefits |
|
||||||||
(US$ in millions) |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
1 |
|
$ |
|
|
Interest cost |
|
1 |
|
1 |
|
|
|
2 |
|
||||
Recognized net loss |
|
|
|
|
|
|
|
3 |
|
||||
Net periodic benefit cost |
|
$ |
1 |
|
$ |
1 |
|
$ |
1 |
|
$ |
5 |
|
|
|
U.S.-Postretirement Benefits |
|
Foreign-Postretirement Benefits |
|
||||||||
(US$ in millions) |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
1 |
|
$ |
|
|
Interest cost |
|
1 |
|
1 |
|
1 |
|
4 |
|
||||
Recognized net loss |
|
|
|
|
|
|
|
6 |
|
||||
Net periodic benefit cost |
|
$ |
1 |
|
$ |
1 |
|
$ |
2 |
|
$ |
10 |
|
In the six months ended June 30, 2008, Bunge made contributions to its U.S. and foreign defined benefit pension plans totaling approximately $6 million and $4 million, respectively. In the six months ended June 30, 2007, Bunge made contributions totaling approximately $5 million to its U.S. and approximately $2 million to its foreign defined benefit pension plans.
14
In the six months ended June 30, 2008, Bunge made contributions totaling approximately $1 million and $2 million to its U.S. and to its foreign postretirement benefit plans, respectively. In the six months ended June 30, 2007, Bunge made contributions totaling approximately $1 million to its U.S. and approximately $1 million its foreign postretirement benefit plans.
13. COMMITMENTS AND CONTINGENCIES
Bunge is party to a large number of claims and lawsuits, primarily tax and labor claims in Brazil, arising in the normal course of business. Bunge records liabilities related to its general claims and lawsuits when the exposure item becomes probable and can be reasonably estimated. After taking into account the liabilities recorded for the foregoing matters, management believes that the ultimate resolution of such matters will not have a material adverse effect on Bunges financial condition, results of operations or liquidity. Included in other non-current liabilities at June 30, 2008 and December 31, 2007 are the following accrued liabilities:
(US$ in millions) |
|
June 30, |
|
December 31, |
|
||
Tax claims |
|
$ |
240 |
|
$ |
175 |
|
Labor claims |
|
135 |
|
103 |
|
||
Civil and other claims |
|
164 |
|
81 |
|
||
Total |
|
$ |
539 |
|
$ |
359 |
|
Tax ClaimsThe tax claims relate principally to claims against Bunges Brazilian subsidiaries, including primarily value added tax claims. The determination of the manner in which various Brazilian federal, state and municipal taxes apply to the operations of Bunge is subject to varying interpretations arising from the complex nature of Brazilian tax law.
Labor ClaimsThe labor claims relate principally to claims against Bunges Brazilian subsidiaries. The labor claims primarily relate to dismissals, severance, health and safety, salary adjustments and supplementary retirement benefits.
Civil and OtherThe civil and other claims relate to various disputes with suppliers, customers and other third parties.
Bunge has incurred certain costs relating to crude sunflower oil supplied to Bunge by third parties and sold by Bunge in Europe that has been subject to a withdrawal from the market due to non-conformity. To date, such costs have not been material and Bunge does not expect the withdrawal to have a material adverse effect on its financial condition or results of operations.
In July 2008, the European Commission commenced an investigation into whether certain traders and distributors of cereals and other agricultural products in the E.U. have infringed European competition laws. In this regard, on July 10, 2008, the European Commission carried out inspections at the premises of a number of companies, including at Bunges office in Rome, Italy. No other Bunge offices were inspected. The European Commissions investigation is at a preliminary stage and therefore, Bunge is, at this time, unable to predict the outcome of this investigation, including whether the European Commission will ultimately determine to commence formal proceedings against Bunge. Bunge is cooperating with the European Commission in relation to this investigation.
GuaranteesBunge has issued or was a party to the following guarantees at June 30, 2008:
(US$ in millions) |
|
Maximum |
|
|
Unconsolidated affiliates financing (1) |
|
$ |
15 |
|
Customer financing (2) |
|
258 |
|
|
Total |
|
$ |
273 |
|
(1) Prior to January 1, 2003, Bunge issued a guarantee to a financial institution related to debt of its unconsolidated joint ventures in Argentina, which are its unconsolidated affiliates.
15
The term of the guarantee is equal to the term of the related financing, which matures in 2009. There are no recourse provisions or collateral that would enable Bunge to recover any amounts paid under this guarantee.
(2) Bunge has issued guarantees to third parties in Brazil related to amounts owed these third parties by certain of Bunges customers. The terms of the guarantees are equal to the terms of the related financing arrangements, which are generally one year or less, with the exception of certain Brazilian government programs, primarily from 2006, where remaining terms are up to five years. In the event that the customers default on their payments to the third parties and Bunge would be required to perform under the guarantees, Bunge has obtained collateral from the customers. At June 30, 2008, $185 million of these financing arrangements were collateralized by tangible property. Bunge evaluates the likelihood of the customer repayments of the amounts due under these guarantees based upon an expected loss analysis and records the fair value of such guarantees as an obligation in its consolidated financial statements. The fair value of these guarantees is recorded in accrued liabilities at June 30, 2008.
In addition, Bunge Limited has provided full and unconditional parent level guarantees of the indebtedness outstanding under certain senior credit facilities and senior notes entered into, or issued by, its 100% owned subsidiaries. At June 30, 2008, debt with a carrying amount of $4,902 million related to these guarantees is included in Bunges consolidated balance sheets. This debt includes the senior notes issued by two of Bunges 100% owned finance subsidiaries, Bunge Limited Finance Corp. and Bunge N.A. Finance L.P. There are no significant restrictions on the ability of Bunge Limited Finance Corp., Bunge N.A. Finance L.P. or any other Bunge subsidiary to transfer funds to Bunge Limited.
Also, one of Bunges subsidiaries has provided a guarantee of indebtedness of one of its subsidiaries. The total debt outstanding as of June 30, 2008 was $101 million and was recorded as long-term debt in Bunges condensed consolidated balance sheet.
14. COMPREHENSIVE INCOME (LOSS)
The following table summarizes the components of comprehensive income:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
(US$ in millions) |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
Net income |
|
$ |
751 |
|
$ |
168 |
|
$ |
1,040 |
|
$ |
182 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
||||
Foreign exchange translation adjustment, net of tax expense |
|
439 |
|
217 |
|
520 |
|
342 |
|
||||
Unrealized gains on commodity futures and foreign exchange contracts designated as cash flow hedges, net of tax of $(13) and $(13) (2008), $(2) and $(5) (2007) |
|
22 |
|
3 |
|
27 |
|
11 |
|
||||
Unrealized gain (loss) on investments, net of tax of $1 and $2 (2008), $1 and $3 (2007) |
|
(1 |
) |
3 |
|
(5 |
) |
6 |
|
||||
Reclassification of realized net (gains) losses to net income, net of tax of $3 and $7 (2008), $4 and $0 (2007) |
|
(5 |
) |
1 |
|
(11 |
) |
(6 |
) |
||||
Total comprehensive income |
|
$ |
1,206 |
|
$ |
392 |
|
$ |
1,571 |
|
$ |
535 |
|
15. EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding, excluding any dilutive effects of stock options, restricted stock unit awards, convertible preference shares and convertible notes during the reporting period. Diluted earnings per share is computed similar to basic earnings per share, except that the weighted average number of common shares outstanding is increased to include additional shares from the assumed exercise of stock options, restricted stock unit awards and convertible securities, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options, except those which are not dilutive, were exercised and that the proceeds from such exercises were used to acquire common shares at the average market price during the reporting period.
16
In addition, Bunge accounts for the effects of convertible securities, using the if-converted method. Under this method, the convertible securities are assumed to be converted and the related dividends are added back to earnings, if dilutive.
Bunge has 862,500 mandatory convertible preference shares, which are outstanding as of June 30, 2008. Each mandatory convertible preference share has a liquidation preference of $1,000 per share. On the mandatory conversion date of December 31, 2010, each mandatory convertible preference share will automatically convert into between 8.219 and 9.6984 of Bunge Limited common shares, subject to certain anti-dilution adjustments, depending on the average daily volume weighted average price per common share over the 20-trading day period ending on the third trading day prior to such date. At any time prior to December 31, 2010, each mandatory convertible preference share is convertible, at the holders option, at the minimum conversion rate of 8.219 common shares (which represents 7,088,888 Bunge Limited common shares, subject to certain anti-dilution adjustments).
In addition, Bunge has 6,900,000 convertible perpetual preference shares outstanding as of June 30, 2008. Each convertible perpetual preference share has an initial liquidation preference of $100 per share and each convertible preference share is convertible, at any time at the holders option, initially into approximately 1.0846 Bunge Limited common shares (which represents 7,483,740 Bunge Limited common shares), based on an initial conversion price of $92.20 per convertible preference share, subject in each case to certain anti-dilution adjustments.
The following table sets forth the computation of basic and diluted earnings per common share for the three and six months ended June 30, 2008 and 2007:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
(US$ in millions, except for share data) |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
Net income |
|
$ |
751 |
|
$ |
168 |
|
$ |
1,040 |
|
$ |
182 |
|
Convertible preference share dividends |
|
(20 |
) |
(9 |
) |
(39 |
) |
(17 |
) |
||||
Net income available to common shareholders |
|
$ |
731 |
|
$ |
159 |
|
$ |
1,001 |
|
$ |
165 |
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
121,564,112 |
|
120,746,365 |
|
121,431,957 |
|
120,481,542 |
|
||||
Effect of dilutive shares: |
|
|
|
|
|
|
|
|
|
||||
Stock options and awards |
|
1,651,690 |
|
1,257,876 |
|
1,581,430 |
|
1,333,122 |
|
||||
Convertible preference shares |
|
14,572,628 |
|
7,483,740 |
|
14,572,628 |
|
|
|
||||
Diluted (1) |
|
137,788,430 |
|
129,487,981 |
|
137,586,015 |
|
121,814,664 |
|
||||
Earnings per common share: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
6.01 |
|
$ |
1.32 |
|
$ |
8.24 |
|
$ |
1.37 |
|
Diluted |
|
$ |
5.45 |
|
$ |
1.30 |
|
$ |
7.56 |
|
$ |
1.35 |
|
(1) Approximately 1 million stock options and contingently issuable restricted stock units were not dilutive and not included in the weighted average number of common shares outstanding for the three and six months ended June 30, 2008, respectively. Approximately 2 million stock options and contingently issuable restricted stock units were not dilutive and not included in the weighted average number of common shares outstanding for the three and six months ended June 30, 2007, respectively. In addition, the weighted average number of common shares for the six months ended June 30, 2007 excludes 7,483,740 weighted average common shares issuable upon conversion of the convertible perpetual preference shares as the effect of the conversion would not have been dilutive.
16. SEGMENT INFORMATION
Subsequent to the issuance of the Quarterly Report on Form 10-Q for the period ended June 30, 2007 and as disclosed in Bunges 2007 Annual Report on Form 10-K, Bunge corrected errors in its previously issued 2007 unaudited quarterly condensed consolidated financial statements. The errors, which resulted in an overstatement of net sales and costs of goods sold, had no effect on Bunges previously reported volumes, gross profit or net income. As a result, amounts for the three and six months ended June 30, 2007 contained in this Quarterly Report on Form 10-Q have been restated.
The corrections resulted from Bunges review during 2007 of its accounting for, and financial statement presentation of, certain transactions primarily in its agribusiness segment. As a result of this review, certain net sales and cost of goods sold amounts relating to sales among Bunges subsidiaries were identified as incorrectly
17
included in Bunges net sales and cost of goods sold reported in its consolidated financial statements rather than being eliminated in the consolidation process. Management believes that these errors in the transfer of information from the general ledgers of Bunges subsidiaries to Bunges consolidated reporting system were primarily the result of systems changes made during 2007. Additionally, Bunges management concluded that certain transactions related to Bunges trade structured finance activities that had been recorded on a gross basis in net sales and costs of goods sold should have been recorded on a net basis.
The following table shows the amounts originally reported in Bunges quarterly condensed consolidated financial statements and the corrected amounts for the three and six months ended June 30, 2007:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
(US$ in millions) |
|
As Reported |
|
As Corrected |
|
As Reported |
|
As Corrected |
|
||||
Agribusiness |
|
$ |
7,543 |
|
$ |
5,935 |
|
$ |
13,733 |
|
$ |
11,291 |
|
Fertilizer |
|
795 |
|
798 |
|
1,408 |
|
1,407 |
|
||||
Edible oil products |
|
1,267 |
|
1,262 |
|
2,392 |
|
2,383 |
|
||||
Milling products |
|
310 |
|
303 |
|
571 |
|
560 |
|
||||
Total net sales |
|
$ |
9,915 |
|
$ |
8,298 |
|
$ |
18,104 |
|
$ |
15,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agribusiness |
|
$ |
7,280 |
|
$ |
5,672 |
|
13,360 |
|
$ |
10,918 |
|
|
Fertilizer |
|
638 |
|
641 |
|
1,171 |
|
1,170 |
|
||||
Edible oil products |
|
1,191 |
|
1,186 |
|
2,239 |
|
2,230 |
|
||||
Milling products |
|
274 |
|
267 |
|
502 |
|
491 |
|
||||
Total cost of goods sold |
|
$ |
9,383 |
|
$ |
7,766 |
|
$ |
17,272 |
|
$ |
14,809 |
|
In 2008, Bunge re-evaluated the profitability measure of its reportable segments operating performance and has determined that segment operating performance based on segment earnings before interest and tax is a more meaningful profitability measure than segment operating profit, since the segment earnings before interest and tax reflects equity in earnings of affiliates and minority interest and excludes income tax. As a result, amounts for the three and six months ended June 30, 2007 have been restated to conform to the current year presentation.
Bunge has four reportable segmentsagribusiness, fertilizer, edible oil products and milling products, which are organized based upon similar economic characteristics and are similar in nature of products and services offered, the nature of production processes, the type and class of customer and distribution methods. The agribusiness segment is characterized by both inputs and outputs being agricultural commodities and thus high volume and low margin. The activities of the fertilizer segment include raw material mining, mixing fertilizer components and marketing products. The edible oil products segment involves the manufacturing and marketing of products derived from vegetable oils. The milling products segment involves the manufacturing and marketing of products derived primarily from wheat and corn.
The Other column in the following table contains the reconciliation between the totals for reportable segments and Bunge consolidated totals, which consists primarily of corporate items not allocated to the operating segments and inter segment eliminations. Transfers between the segments are generally valued at market. The revenues generated from these transfers are shown in the following table as Intersegment revenues.
18
Operating Segment Information
(US$ in millions) |
|
Agribusiness |
|
Fertilizer |
|
Edible Oil |
|
Milling |
|
Other(1) |
|
Total |
|
||||||
Three Months Ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net sales to external customers |
|
$ |
9,879 |
|
$ |
1,785 |
|
$ |
2,250 |
|
$ |
451 |
|
$ |
|
|
$ |
14,365 |
|
Intersegment revenues |
|
2,541 |
|
78 |
|
7 |
|
(4 |
) |
(2,622 |
) |
|
|
||||||
Gross profit |
|
745 |
|
521 |
|
105 |
|
80 |
|
|
|
1,451 |
|
||||||
Foreign exchange gains |
|
165 |
|
92 |
|
1 |
|
|
|
|
|
258 |
|
||||||
Equity in earnings of affiliates |
|
(7 |
) |
3 |
|
(6 |
) |
3 |
|
|
|
(7 |
) |
||||||
Minority interest |
|
(21 |
) |
(132 |
) |
(2 |
) |
|
|
46 |
|
(109 |
) |
||||||
Other income/(expense) |
|
(21 |
) |
(1 |
) |
13 |
|
|
|
|
|
(9 |
) |
||||||
Segment earnings before interest and tax (2) |
|
614 |
|
393 |
|
15 |
|
56 |
|
|
|
1,078 |
|
||||||
Depreciation, depletion and amortization |
|
(51 |
) |
(44 |
) |
(20 |
) |
(4 |
) |
|
|
(119 |
) |
||||||
Interest income |
|
15 |
|
30 |
|
1 |
|
|
|
8 |
|
54 |
|
||||||
Interest expense |
|
$ |
(62 |
) |
$ |
(6 |
) |
$ |
(20 |
) |
$ |
(2 |
) |
$ |
|
|
$ |
(90 |
) |
Three Months Ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net sales to external customers |
|
$ |
5,935 |
|
$ |
798 |
|
$ |
1,262 |
|
$ |
303 |
|
$ |
|
|
$ |
8,298 |
|
Intersegment revenues |
|
1,177 |
|
3 |
|
23 |
|
12 |
|
(1,215 |
) |
|
|
||||||
Gross profit |
|
263 |
|
157 |
|
76 |
|
36 |
|
|
|
532 |
|
||||||
Foreign exchange gains (losses) |
|
58 |
|
35 |
|
(1 |
) |
(1 |
) |
2 |
|
93 |
|
||||||
Equity in earnings of affiliates |
|
(9 |
) |
(3 |
) |
6 |
|
2 |
|
|
|
(4 |
) |
||||||
Minority interest |
|
(11 |
) |
(52 |
) |
|
|
|
|
28 |
|
(35 |
) |
||||||
Other income/(expense) |
|
|
|
3 |
|
(2 |
) |
|
|
|
|
1 |
|
||||||
Segment earnings before interest and tax (2) |
|
158 |
|
71 |
|
6 |
|
15 |
|
|
|
250 |
|
||||||
Depreciation, depletion and amortization |
|
(37 |
) |
(35 |
) |
(15 |
) |
(3 |
) |
|
|
(90 |
) |
||||||
Interest income |
|
7 |
|
17 |
|
|
|
|
|
13 |
|
37 |
|
||||||
Interest expense |
|
$ |
(67 |
) |
$ |
(3 |
) |
$ |
(8 |
) |
$ |
(1 |
) |
$ |
|
|
$ |
(79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Six Months Ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net sales to external customers |
|
$ |
18,742 |
|
$ |
2,976 |
|
$ |
4,179 |
|
$ |
937 |
|
$ |
|
|
$ |
26,834 |
|
Intersegment revenues |
|
4,496 |
|
134 |
|
59 |
|
3 |
|
(4,692 |
) |
|
|
||||||
Gross profit |
|
1,209 |
|
771 |
|
222 |
|
116 |
|
|
|
2,318 |
|
||||||
Foreign exchange gains |
|
159 |
|
101 |
|
5 |
|
|
|
|
|
265 |
|
||||||
Equity in earnings of affiliates |
|
2 |
|
4 |
|
5 |
|
2 |
|
|
|
13 |
|
||||||
Minority interest |
|
(17 |
) |
(182 |
) |
(3 |
) |
|
|
60 |
|
(142 |
) |
||||||
Other income/(expense) |
|
(21 |
) |
(3 |
) |
12 |
|
|
|
|
|
(12 |
) |
||||||
Segment earnings before interest and tax (2) |
|
865 |
|
526 |
|
65 |
|
64 |
|
|
|
1,520 |
|
||||||
Depreciation, depletion and amortization |
|
(96 |
) |
(86 |
) |
(36 |
) |
(9 |
) |
|
|
(227 |
) |
||||||
Interest income |
|
31 |
|
52 |
|
2 |
|
1 |
|
16 |
|
102 |
|
||||||
Interest expense |
|
$ |
(138 |
) |
$ |
(9 |
) |
$ |
(30 |
) |
$ |
(11 |
) |
$ |
|
|
$ |
(188 |
) |
Six Months Ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net sales to external customers |
|
$ |
11,291 |
|
$ |
1,407 |
|
$ |
2,383 |
|
$ |
560 |
|
$ |
|
|
$ |
15,641 |
|
Intersegment revenues |
|
1,992 |
|
6 |
|
54 |
|
13 |
|
(2,065 |
) |
|
|
||||||
Gross profit |
|
373 |
|
237 |
|
153 |
|
69 |
|
|
|
832 |
|
||||||
Foreign exchange gains (losses) |
|
64 |
|
61 |
|
|
|
(3 |
) |
|
|
122 |
|
||||||
Equity in earnings of affiliates |
|
(8 |
) |
(1 |
) |
10 |
|
|
|
|
|
1 |
|
||||||
Minority interest |
|
(11 |
) |
(73 |
) |
|
|
|
|
37 |
|
(47 |
) |
||||||
Other income/(expense) |
|
5 |
|
|
|
(2 |
) |
|
|
|
|
3 |
|
||||||
Segment earnings before interest and tax (2) |
|
145 |
|
107 |
|
24 |
|
26 |
|
|
|
302 |
|
||||||
Depreciation, depletion and amortization |
|
(70 |
) |
(70 |
) |
(29 |
) |
(7 |
) |
|
|
(176 |
) |
||||||
Interest income |
|
14 |
|
31 |
|
1 |
|
1 |
|
21 |
|
68 |
|
||||||
Interest expense |
|
$ |
(121 |
) |
$ |
(10 |
) |
$ |
(16 |
) |
$ |
(2 |
) |
$ |
|
|
$ |
(149 |
) |
(1) Includes minority interest share of interest and tax to reconcile to consolidated minority interest and other amounts not attributable to Bunges operating segments.
(2) Total segment earnings before interest and taxes (EBIT) is an operating performance measure used by Bunges management to evaluate its segments operating activities. Total segment EBIT is a non-GAAP financial measure and is not intended to replace net income, the most directly comparable GAAP financial measure. Bunges management believes total segment EBIT is a useful measure of its segments operating profitability, since the measure reflects equity in earnings of affiliates and minority interest and excludes income tax.
19
Income tax is excluded as Bunges management believes income tax is not material to the operating performance of its segments. In addition, interest income and expense have become less meaningful to the segments operating activities. Total segment EBIT is not a measure of consolidated operating results under U.S. GAAP and should not be considered as an alternative to net income or any other measure of consolidated operating results under U.S. GAAP.
A reconciliation of total segment EBIT to net income follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
(US$ in millions) |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
Total segment earnings before interest and tax |
|
$ |
1,078 |
|
$ |
250 |
|
$ |
1,520 |
|
$ |
302 |
|
Interest income |
|
54 |
|
37 |
|
102 |
|
68 |
|
||||
Interest expense |
|
(90 |
) |
(79 |
) |
(188 |
) |
(149 |
) |
||||
Income tax |
|
(337 |
) |
(70 |
) |
(454 |
) |
(76 |
) |
||||
Minority interest share of interest and tax |
|
46 |
|
28 |
|
60 |
|
37 |
|
||||
Other (1) |
|
|
|
2 |
|
|
|
|
|
||||
Net income |
|
$ |
751 |
|
$ |
168 |
|
$ |
1,040 |
|
$ |
182 |
|
(1) Includes other amounts not directly attributable to Bunges operating segments.
17. SUBSEQUENT EVENT
In July 2008, Bunge announced an agreement to acquire the international sugar trading and marketing division of Tate & Lyle PLC. The acquisition will be accomplished in two stages. In the first stage, completed in July 2008, the operations and employees of Tate & Lyle's international sugar trading business were transferred to Bunge. The purchase consideration attributable to this stage of the transaction is immaterial. The working capital in the business will remain with, and be collected and paid by, Tate & Lyle through March 31, 2009, at which point it will be assumed by Bunge upon final completion of the transaction. The completion of the transaction is subject to certain customary conditions.
20
Cautionary Statement Regarding Forward Looking Statements
This report contains both historical and forward looking statements. All statements, other than statements of historical fact are, or may be deemed to be, forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These forward looking statements are not based on historical facts, but rather reflect our current expectations and projections about our future results, performance, prospects and opportunities. We have tried to identify these forward looking statements by using words including may, will, expect, anticipate, believe, intend, estimate, continue and similar expressions. These forward looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or implied by, these forward looking statements. The following important factors, among others, could affect our business and financial performance: governmental policies and laws affecting our business, including agricultural and trade policies, as well as biofuels legislation; our funding needs and financing sources; changes in foreign exchange policy or rates; the outcome of pending regulatory and legal proceedings; our ability to complete, integrate and benefit from acquisitions, divestitures, joint ventures and strategic alliances; availability and demand for the commodities and other products that we sell and use in our business; industry conditions, including the cyclicality of the oilseed processing industry, commodities market conditions, unpredictability of the weather and the impact of crop and animal disease on our business; agricultural, economic, political, social, and health conditions in the primary markets where we operate; and other economic, business, competitive and/or regulatory factors affecting our business generally.
The forward looking statements included in this report are made only as of the date of this report, and except as otherwise required by federal securities law, we do not have any obligation to publicly update or revise any forward looking statements to reflect subsequent events or circumstances.
You should refer to Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2007, filed with the SEC on March 3, 2008, and Part II Item 1A. Risk Factors in this Quarterly Report on Form 10-Q for a more detailed discussion of these factors.
Item 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Second Quarter 2008 Overview
Agribusiness segment earnings before interest and taxes (EBIT) for the second quarter of 2008 was strong and significantly higher than the same period last year. Results continued to benefit from strong margins around the world, driven primarily by good demand as a result of rising living standards in developing countries. In addition, risk management strategies worked well during a period of price volatility. Results in the second quarter of 2008 included a $117 million credit resulting from a favorable ruling related to certain transactional taxes in Brazil. Specifically, in May 2008, Bunge received a favorable ruling from the tax authorities in Brazil confirming that it was entitled to a higher credit rate for a certain category of raw material purchases made by Bunge since the third quarter of 2004. Bunge will apply the credit as an offset against future Brazilian tax liabilities incurred in the ordinary course of business and expects that the credit will be fully utilized over the next 12 to 18 months.
Fertilizer segment EBIT for the second quarter of 2008 exceeded the same period last year due to strong demand and margins. Retail volumes in the quarter were higher due to favorable agricultural commodity prices and concerns about increasing crop input costs, which encouraged certain farmers to purchase crop inputs for soybean and corn plantings in the second quarter of 2008 rather than in the second half of the year when these purchases are more typically made.
Edible oil products segment EBIT for the second quarter of 2008 was higher than the same period of last year primarily due to a $14 million non-operating gain on a land sale in North America. Excluding this gain, results for the quarter were lower than results for the second quarter of 2007 because of the difficulty of passing on higher raw material costs to customers primarily in Europe, which were only partially offset by better results in Brazil. Results also decreased compared to the second quarter of 2007 as a result of the impact of the weaker U.S. dollar on local currency costs, growth of activities in Europe and Asia, which increased SG&A, and losses reported by Saipol, our edible oils joint venture in Europe. Results for the second quarter of 2007 included $4 million of impairment and restructuring charges related to announced facility closures in Europe.
21
Milling products segment EBIT for the second quarter of 2008 increased compared with the same period of last year driven mainly by improved margins that resulted from a combination of effective product pricing and lower priced raw materials purchased earlier in a period of rising prices. Sales volumes declined due to increased Argentinean flour competition in Brazil.
Segment Results
Subsequent to the issuance of the Quarterly Report on Form 10-Q for the period ended June 30, 2007 and as disclosed in Bunges 2007 Annual Report on Form 10-K, Bunge corrected errors in its previously issued 2007 unaudited quarterly condensed consolidated financial statements. The errors, which resulted in an overstatement of net sales and costs of goods sold, had no effect on Bunges previously reported volumes, gross profit or net income. As a result, amounts for the three and six months ended June 30, 2007 contained in this Quarterly Report on Form 10-Q have been restated.
In 2008, Bunge re-evaluated the profitability measure of its segments operating performance and has determined that segment operating performance based on segment earnings before interest and tax is a more meaningful profitability measure than segment operating profit, since the segment earnings before interest and tax reflects equity in earnings of affiliates and minority interest and excludes income tax. As a result, amounts for the three and six months ended June 30, 2007 have been restated to conform to current year presentation.
A summary of certain items in our condensed consolidated statements of income and volumes by reportable segment for the periods indicated is set forth below.
(US$ in millions, except |
|
Three Months Ended |
|
|
|
Six Months Ended |
|
|
|
||||||||
volumes and percentages) |
|
2008 |
|
2007 |
|
Change |
|
2008 |
|
2007 |
|
Change |
|
||||
Volumes (in thousands of metric tons): |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Agribusiness |
|
30,906 |
|
30,000 |
|
3 |
% |
56,818 |
|
55,093 |
|
3 |
% |
||||
Fertilizer |
|
3,000 |
|
3,045 |
|
(1 |
)% |
5,666 |
|
5,496 |
|
3 |
% |
||||
Edible oil products |
|
1,438 |
|
1,388 |
|
4 |
% |
2,829 |
|
2,651 |
|
7 |
% |
||||
Milling products |
|
974 |
|
1,008 |
|
(3 |
)% |
1,968 |
|
1,913 |
|
3 |
% |
||||
Total |
|
36,318 |
|
35,441 |
|
2 |
% |
67,281 |
|
65,153 |
|
3 |
% |
||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Agribusiness |
|
$ |
9,879 |
|
$ |
5,935 |
|
66 |
% |
$ |
18,742 |
|
$ |
11,291 |
|
66 |
% |
Fertilizer |
|
1,785 |
|
798 |
|
124 |
% |
2,976 |
|
1,407 |
|
112 |
% |
||||
Edible oil products |
|
2,250 |
|
1,262 |
|
78 |
% |
4,179 |
|
2,383 |
|
75 |
% |
||||
Milling products |
|
451 |
|
303 |
|
49 |
% |
937 |
|
560 |
|
67 |
% |
||||
Total |
|
$ |
14,365 |
|
$ |
8,298 |
|
73 |
% |
$ |
26,834 |
|
$ |
15,641 |
|
72 |
% |
Cost of goods sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Agribusiness |
|
$ |
(9,134 |
) |
$ |
(5,672 |
) |
61 |
% |
$ |
(17,533 |
) |
$ |
(10,918 |
) |
61 |
% |
Fertilizer |
|
(1,264 |
) |
(641 |
) |
97 |
% |
(2,205 |
) |
(1,170 |
) |
88 |
% |
||||
Edible oil products |
|
(2,145 |
) |
(1,186 |
) |
81 |
% |
(3,957 |
) |
(2,230 |
) |
77 |
% |
||||
Milling products |
|
(371 |
) |
(267 |
) |
39 |
% |
(821 |
) |
(491 |
) |
67 |
% |
||||
Total |
|
$ |
(12,914 |
) |
$ |
(7,766 |
) |
66 |
% |
$ |
(24,516 |
) |
$ |
(14,809 |
) |
66 |
% |
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Agribusiness |
|
$ |
745 |
|
$ |
263 |
|
183 |
% |
$ |
1,209 |
|
$ |
373 |
|
224 |
% |
Fertilizer |
|
521 |
|
157 |
|
232 |
% |
771 |
|
237 |
|
225 |
% |
||||
Edible oil products |
|
105 |
|
76 |
|
38 |
% |
222 |
|
153 |
|
45 |
% |
||||
Milling products |
|
80 |
|
36 |
|
122 |
% |
116 |
|
69 |
|
68 |
% |
||||
Total |
|
$ |
1,451 |
|
$ |
532 |
|
173 |
% |
$ |
2,318 |
|
$ |
832 |
|
179 |
% |
Selling, general and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Agribusiness |
|
$ |
(247 |
) |
$ |
(143 |
) |
73 |
% |
$ |
(467 |
) |
$ |
(278 |
) |
68 |
% |
Fertilizer |
|
(90 |
) |
(69 |
) |
30 |
% |
(165 |
) |
(117 |
) |
41 |
% |
||||
Edible oil products |
|
(96 |
) |
(73 |
) |
32 |
% |
(176 |
) |
(137 |
) |
28 |
% |
||||
Milling products |
|
(27 |
) |
(22 |
) |
23 |
% |