UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2014
OR
|
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-16625
BUNGE LIMITED
(Exact name of registrant as specified in its charter)
|
Bermuda |
|
98-0231912 |
|
(State or other jurisdiction of incorporation or |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
|
50 Main Street, White Plains, New York |
|
10606 |
|
(Address of principal executive offices) |
|
(Zip Code) |
(914) 684-2800
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer x |
|
Accelerated filer o |
|
Non-accelerated filer o |
|
Smaller reporting company o |
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 May 1, 2014 the number of shares issued of the registrant was:
Common shares, par value $.01 per share: 147,212,227
BUNGE LIMITED
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(U.S. dollars in millions, except per share data)
|
|
|
Three Months Ended |
| ||||
|
|
|
March 31, |
| ||||
|
|
|
2014 |
|
2013 |
| ||
|
Net sales |
|
$ |
13,461 |
|
$ |
14,785 |
|
|
Cost of goods sold |
|
(13,047 |
) |
(14,138 |
) | ||
|
|
|
|
|
|
| ||
|
Gross profit |
|
414 |
|
647 |
| ||
|
Selling, general and administrative expenses |
|
(366 |
) |
(349 |
) | ||
|
Interest income |
|
19 |
|
9 |
| ||
|
Interest expense |
|
(79 |
) |
(76 |
) | ||
|
Foreign exchange gains (losses) |
|
22 |
|
(40 |
) | ||
|
Other income (expense) — net |
|
6 |
|
39 |
| ||
|
|
|
|
|
|
| ||
|
Income from continuing operations before income tax |
|
16 |
|
230 |
| ||
|
Income tax (expense) benefit |
|
(30 |
) |
(73 |
) | ||
|
|
|
|
|
|
| ||
|
Income (loss) from continuing operations |
|
(14 |
) |
157 |
| ||
|
Income (loss) from discontinued operations, net of tax |
|
(5 |
) |
(9 |
) | ||
|
|
|
|
|
|
| ||
|
Net income (loss) |
|
(19 |
) |
148 |
| ||
|
Net (income) loss attributable to noncontrolling interests |
|
6 |
|
32 |
| ||
|
|
|
|
|
|
| ||
|
Net income (loss) attributable to Bunge |
|
(13 |
) |
180 |
| ||
|
Convertible preference share dividends and other obligations |
|
(14 |
) |
(10 |
) | ||
|
|
|
|
|
|
| ||
|
Net income (loss) available to Bunge common shareholders |
|
$ |
(27 |
) |
$ |
170 |
|
|
|
|
|
|
|
| ||
|
Earnings per common share—basic (Note 16) |
|
|
|
|
| ||
|
Net income (loss) from continuing operations |
|
$ |
(0.15 |
) |
$ |
1.22 |
|
|
Net income (loss) from discontinued operations |
|
(0.03 |
) |
(0.06 |
) | ||
|
|
|
|
|
|
| ||
|
Net income (loss) to Bunge common shareholders |
|
$ |
(0.18 |
) |
$ |
1.16 |
|
|
|
|
|
|
|
| ||
|
Earnings per common share—diluted (Note 16) |
|
|
|
|
| ||
|
Net income (loss) from continuing operations |
|
$ |
(0.15 |
) |
$ |
1.21 |
|
|
Net income (loss) from discontinued operations |
|
(0.03 |
) |
(0.06 |
) | ||
|
|
|
|
|
|
| ||
|
Net income (loss) to Bunge common shareholders |
|
$ |
(0.18 |
) |
$ |
1.15 |
|
|
|
|
|
|
|
| ||
|
Dividends per common share |
|
$ |
0.30 |
|
$ |
0.27 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(U.S. dollars in millions)
|
|
|
Three Months Ended |
| ||||
|
|
|
March 31, |
| ||||
|
|
|
2014 |
|
2013 |
| ||
|
Net income |
|
$ |
(19 |
) |
$ |
148 |
|
|
Other comprehensive income (loss): |
|
|
|
|
| ||
|
Foreign exchange translation adjustment |
|
131 |
|
80 |
| ||
|
Unrealized gains (losses) on designated cash flow and net investment hedges, net of tax (expense) benefit of $(8) in 2014 and $(1) in 2013 |
|
(13 |
) |
11 |
| ||
|
Reclassification of realized net losses (gains) to net income, net of tax expense (benefit) of nil in 2014 and $2 in 2013 |
|
1 |
|
(3 |
) | ||
|
Total other comprehensive income (loss) |
|
119 |
|
88 |
| ||
|
Total comprehensive income (loss) |
|
100 |
|
236 |
| ||
|
Less: comprehensive (income) loss attributable to noncontrolling interests |
|
(2 |
) |
28 |
| ||
|
Total comprehensive income (loss) attributable to Bunge |
|
$ |
98 |
|
$ |
264 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(U.S. dollars in millions, except share data)
|
|
|
March 31, |
|
December 31, |
| ||
|
|
|
2014 |
|
2013 |
| ||
|
ASSETS |
|
|
|
|
| ||
|
Current assets: |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
632 |
|
$ |
742 |
|
|
Time deposits under trade structured finance program (Note 4) |
|
3,259 |
|
4,470 |
| ||
|
Trade accounts receivable (less allowances of $126 and $123) (Note 12) |
|
2,617 |
|
2,144 |
| ||
|
Inventories (Note 5) |
|
6,452 |
|
5,796 |
| ||
|
Deferred income taxes |
|
150 |
|
183 |
| ||
|
Other current assets (Note 6) |
|
5,091 |
|
4,437 |
| ||
|
Total current assets |
|
18,201 |
|
17,772 |
| ||
|
|
|
|
|
|
| ||
|
Property, plant and equipment, net |
|
6,166 |
|
6,075 |
| ||
|
Goodwill |
|
396 |
|
392 |
| ||
|
Other intangible assets, net |
|
313 |
|
326 |
| ||
|
Investments in affiliates |
|
252 |
|
241 |
| ||
|
Deferred income taxes |
|
603 |
|
564 |
| ||
|
Other non-current assets (Note 7) |
|
1,503 |
|
1,411 |
| ||
|
Total assets |
|
$ |
27,434 |
|
$ |
26,781 |
|
|
LIABILITIES AND EQUITY |
|
|
|
|
| ||
|
Current liabilities: |
|
|
|
|
| ||
|
Short-term debt |
|
$ |
1,291 |
|
$ |
703 |
|
|
Current portion of long-term debt (Note 11) |
|
765 |
|
762 |
| ||
|
Letter of credit obligations under trade structured finance program (Note 4) |
|
3,259 |
|
4,470 |
| ||
|
Trade accounts payable |
|
3,828 |
|
3,522 |
| ||
|
Deferred income taxes |
|
50 |
|
60 |
| ||
|
Other current liabilities (Note 9) |
|
3,302 |
|
3,018 |
| ||
|
Total current liabilities |
|
12,495 |
|
12,535 |
| ||
|
|
|
|
|
|
| ||
|
Long-term debt (Note 11) |
|
3,875 |
|
3,179 |
| ||
|
Deferred income taxes |
|
234 |
|
185 |
| ||
|
Other non-current liabilities |
|
731 |
|
757 |
| ||
|
|
|
|
|
|
| ||
|
Commitments and contingencies (Note 14) |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Redeemable noncontrolling interests |
|
38 |
|
37 |
| ||
|
|
|
|
|
|
| ||
|
Equity (Note 15): |
|
|
|
|
| ||
|
Convertible perpetual preference shares, par value $.01; authorized, issued and outstanding: 2014 and 2013 — 6,900,000 shares (liquidation preference $100 per share) |
|
690 |
|
690 |
| ||
|
Common shares, par value $.01; authorized — 400,000,000 shares; issued and outstanding: 2014 — 147,135,656 shares, 2013 — 147,796,784 shares |
|
1 |
|
1 |
| ||
|
Additional paid-in capital |
|
4,986 |
|
4,967 |
| ||
|
Retained earnings |
|
6,826 |
|
6,891 |
| ||
|
Accumulated other comprehensive income (loss) (Note 15) |
|
(2,461 |
) |
(2,572 |
) | ||
|
Treasury shares, at cost - 2014 - 3,097,286 and 2013 - 1,933,286 shares, respectively |
|
(212 |
) |
(120 |
) | ||
|
Total Bunge shareholders’ equity |
|
9,830 |
|
9,857 |
| ||
|
Noncontrolling interests |
|
231 |
|
231 |
| ||
|
Total equity |
|
10,061 |
|
10,088 |
| ||
|
Total liabilities and equity |
|
$ |
27,434 |
|
$ |
26,781 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in millions)
|
|
|
Three Months Ended |
| ||||
|
|
|
March 31, |
| ||||
|
|
|
2014 |
|
2013 |
| ||
|
OPERATING ACTIVITIES |
|
|
|
|
| ||
|
Net income |
|
$ |
(19 |
) |
$ |
148 |
|
|
Adjustments to reconcile net income to cash provided by (used for) operating activities: |
|
|
|
|
| ||
|
Foreign exchange loss (gain) on debt |
|
42 |
|
77 |
| ||
|
Bad debt expense |
|
6 |
|
6 |
| ||
|
Depreciation, depletion and amortization |
|
124 |
|
121 |
| ||
|
Stock-based compensation expense |
|
18 |
|
4 |
| ||
|
Deferred income tax expense (benefit) |
|
(11 |
) |
(56 |
) | ||
|
Other, net |
|
(9 |
) |
(4 |
) | ||
|
Changes in operating assets and liabilities, excluding the effects of acquisitions: |
|
|
|
|
| ||
|
Trade accounts receivable |
|
(488 |
) |
(583 |
) | ||
|
Inventories |
|
(658 |
) |
415 |
| ||
|
Prepayments and advances to suppliers |
|
(62 |
) |
(171 |
) | ||
|
Trade accounts payable and accrued liabilities |
|
331 |
|
302 |
| ||
|
Net unrealized gain/loss on derivative contracts |
|
(53 |
) |
165 |
| ||
|
Margin deposits |
|
(115 |
) |
(66 |
) | ||
|
Other, net |
|
(163 |
) |
(255 |
) | ||
|
Cash provided by (used for) operating activities |
|
(1,057 |
) |
103 |
| ||
|
INVESTING ACTIVITIES |
|
|
|
|
| ||
|
Payments made for capital expenditures |
|
(165 |
) |
(224 |
) | ||
|
Acquisitions of businesses (net of cash acquired) |
|
(12 |
) |
(11 |
) | ||
|
Proceeds from investments |
|
30 |
|
13 |
| ||
|
Payments for investments |
|
(39 |
) |
(6 |
) | ||
|
Payment for investments in affiliates |
|
(13 |
) |
(14 |
) | ||
|
Other, net |
|
(9 |
) |
(40 |
) | ||
|
Cash provided by (used for) investing activities |
|
(208 |
) |
(282 |
) | ||
|
FINANCING ACTIVITIES |
|
|
|
|
| ||
|
Net change in short-term debt with maturities of 90 days or less |
|
334 |
|
(64 |
) | ||
|
Proceeds from short-term debt with maturities greater than 90 days |
|
366 |
|
115 |
| ||
|
Repayments of short-term debt with maturities greater than 90 days |
|
(71 |
) |
(78 |
) | ||
|
Proceeds from long-term debt |
|
2,357 |
|
1,452 |
| ||
|
Repayments of long-term debt |
|
(1,675 |
) |
(972 |
) | ||
|
Proceeds from sale of common shares |
|
6 |
|
9 |
| ||
|
Repurchases of common shares |
|
(92 |
) |
— |
| ||
|
Dividends paid |
|
(53 |
) |
(48 |
) | ||
|
Other, net |
|
(14 |
) |
— |
| ||
|
Cash provided by (used for) financing activities |
|
1,158 |
|
414 |
| ||
|
Effect of exchange rate changes on cash and cash equivalents |
|
(3 |
) |
(3 |
) | ||
|
Net increase (decrease) in cash and cash equivalents |
|
(110 |
) |
232 |
| ||
|
Cash and cash equivalents, beginning of period |
|
742 |
|
569 |
| ||
|
Cash and cash equivalents, end of period |
|
$ |
632 |
|
$ |
801 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(Unaudited)
(U.S. dollars in millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
Convertible |
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
| |||||||||||
|
|
|
Redeemable |
|
Preference |
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
|
|
|
|
| |||||||||||
|
|
|
Noncontrolling |
|
Shares |
|
Common Shares |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
Treasury |
|
Noncontrolling |
|
Total |
| |||||||||||||
|
|
|
Interests |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Shares |
|
Interests |
|
Equity |
| |||||||||
|
Balance, January 1, 2013 |
|
$ |
38 |
|
6,900,000 |
|
$ |
690 |
|
146,348,499 |
|
$ |
1 |
|
$ |
4,909 |
|
$ |
6,792 |
|
$ |
(1,410 |
) |
$ |
(120 |
) |
$ |
393 |
|
$ |
11,255 |
|
|
Net income (loss) |
|
(8 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
180 |
|
— |
|
— |
|
(32 |
) |
148 |
| |||||||||
|
Accretion of noncontrolling interest |
|
2 |
|
— |
|
— |
|
— |
|
— |
|
(2 |
) |
— |
|
— |
|
— |
|
— |
|
(2 |
) | |||||||||
|
Other comprehensive income (loss) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
84 |
|
— |
|
4 |
|
88 |
| |||||||||
|
Dividends on common shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(40 |
) |
— |
|
— |
|
— |
|
(40 |
) | |||||||||
|
Dividends on preference shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(8 |
) |
— |
|
— |
|
— |
|
(8 |
) | |||||||||
|
Dividends to noncontrolling interests on subsidiary common stock |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(1 |
) |
(1 |
) | |||||||||
|
Capital contributions from noncontrolling interests |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1 |
|
1 |
| |||||||||
|
Stock-based compensation expense |
|
— |
|
— |
|
— |
|
— |
|
— |
|
4 |
|
— |
|
— |
|
— |
|
— |
|
4 |
| |||||||||
|
Issuance of common shares |
|
— |
|
— |
|
— |
|
716,925 |
|
— |
|
9 |
|
— |
|
— |
|
— |
|
— |
|
9 |
| |||||||||
|
Balance, March 31, 2013 |
|
$ |
32 |
|
6,900,000 |
|
$ |
690 |
|
147,065,424 |
|
$ |
1 |
|
$ |
4,920 |
|
$ |
6,924 |
|
$ |
(1,326 |
) |
$ |
(120 |
) |
$ |
365 |
|
$ |
11,454 |
|
|
|
|
|
|
Convertible |
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
| |||||||||||
|
|
|
Redeemable |
|
Preference |
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
|
|
|
|
| |||||||||||
|
|
|
Noncontrolling |
|
Shares |
|
Common Shares |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
Treasury |
|
Noncontrolling |
|
Total |
| |||||||||||||
|
|
|
Interests |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Shares |
|
Interests |
|
Equity |
| |||||||||
|
Balance, January 1, 2014 |
|
$ |
37 |
|
6,900,000 |
|
$ |
690 |
|
147,796,784 |
|
$ |
1 |
|
$ |
4,967 |
|
$ |
6,891 |
|
$ |
(2,572 |
) |
$ |
(120 |
) |
$ |
231 |
|
$ |
10,088 |
|
|
Net income (loss) |
|
(5 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
(13 |
) |
— |
|
— |
|
(6 |
) |
(19 |
) | |||||||||
|
Accretion of noncontrolling interests |
|
6 |
|
— |
|
— |
|
— |
|
— |
|
(6 |
) |
— |
|
— |
|
— |
|
— |
|
(6 |
) | |||||||||
|
Other comprehensive income (loss) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
111 |
|
— |
|
8 |
|
119 |
| |||||||||
|
Dividends on common shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(44 |
) |
— |
|
— |
|
— |
|
(44 |
) | |||||||||
|
Dividends on preference shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(8 |
) |
— |
|
— |
|
— |
|
(8 |
) | |||||||||
|
Dividends to noncontrolling interests on subsidiary common stock |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(1 |
) |
(1 |
) | |||||||||
|
Return of capital to noncontrolling interests |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(1 |
) |
(1 |
) | |||||||||
|
Stock-based compensation expense |
|
— |
|
— |
|
— |
|
— |
|
— |
|
18 |
|
— |
|
— |
|
— |
|
— |
|
18 |
| |||||||||
|
Repurchase of common shares |
|
— |
|
— |
|
— |
|
(1,164,000 |
) |
— |
|
|
|
— |
|
— |
|
(92 |
) |
— |
|
(92 |
) | |||||||||
|
Issuance of common shares |
|
— |
|
— |
|
— |
|
502,872 |
|
— |
|
7 |
|
— |
|
— |
|
— |
|
— |
|
7 |
| |||||||||
|
Balance, March 31, 2014 |
|
$ |
38 |
|
6,900,000 |
|
$ |
690 |
|
147,135,656 |
|
$ |
1 |
|
$ |
4,986 |
|
$ |
6,826 |
|
$ |
(2,461 |
) |
$ |
(212 |
) |
$ |
231 |
|
$ |
10,061 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements include the accounts of Bunge Limited (Bunge), its subsidiaries and variable interest entities (VIEs) in which Bunge is considered to be the primary beneficiary, and as a result, include the assets, liabilities, revenues and expenses of all entities over which Bunge exercises control. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended (Exchange Act). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with 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, 2013 has been derived from Bunge’s audited consolidated financial statements at that date. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014. The financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2013, forming part of Bunge’s 2013 Annual Report on Form 10-K filed with the SEC on March 1, 2014.
2. ACCOUNTING PRONOUNCEMENTS
Adoption of Accounting Pronouncements — In July 2013, the FASB issued guidance in ASC Topic 740, (Topic 740) Income Taxes (Topic 740). Topic 740 provided guidance regarding the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exist at the reporting date. The adoption of this amendment on January 1, 2014 did not have a significant impact on Bunge’s condensed consolidated financial statements.
In February 2013, the FASB issued guidance in ASC (Topic 405) Liabilities: Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date. The amended guidance addresses the recognition, measurement, and disclosure of certain obligations resulting from joint and several arrangements including debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The ASU is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this amendment on January 1, 2014 did not have a significant impact on Bunge’s condensed consolidated financial statements.
New Accounting Pronouncements — In April 2014, the FASB amended existing guidance in ASC (Topic 205) Presentation of Financial Statements and ASC (Topic 360) Property, Plant and Equipment. The amendments in this Update improve the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results and requires expanded disclosures for discontinued operations. The amendments in this Update include several changes to Topic 360 to improve the organization and readability of Subtopic 205-20 and Subtopic 360-10, Property, Plant, and Equipment—Overall. The adoption of these amendments would expand Bunge’s disclosures but is not expected to impact Bunge’s consolidated financial position or results of operations.
3. BUSINESS ACQUISITIONS
In February 2014, Bunge acquired the assets of Corn Flour Producers, LLC (CFP) for $12 million in cash. The purchase price allocation resulted in $12 million, primarily property, plant and equipment with the remainder in working capital. CFP produces corn flour products and is located in Indiana in the United States.
In January 2013, Bunge acquired two biodiesel facilities adjacent to existing Bunge facilities from its European biodiesel joint venture for $11 million in cash, net of cash acquired. The preliminary purchase price allocation resulted in $4 million of inventory, $17 million of other current assets, $10 million of property, plant and
equipment, $19 million of other current liabilities and $1 million of long-term deferred taxes. There were no changes to the joint venture ownership or governance structure as a result of this transaction.
4. TRADE STRUCTURED FINANCE PROGRAM
Bunge engages in various trade structured finance activities to leverage the value of its trade flows across its operating regions. These activities include a Program under which a Bunge entity generally obtains U.S. dollar-denominated letters of credit (LCs) (each based on an underlying commodity trade flow) from financial institutions, as well as foreign exchange forward contracts, and time deposits denominated in the local currency of the financial institution counterparties, all of which are subject to legally enforceable set-off agreements. The LCs and foreign exchange contracts are presented within the line item letter of credit obligations under trade structured finance program on the condensed consolidated balance sheets as of March 31, 2014 and December 31, 2013. The net return from activities under this Program, including fair value changes, is included as a reduction of cost of goods sold in the accompanying condensed consolidated statements of income.
At March 31, 2014 and December 31, 2013, time deposits (with weighted-average interest rates of 8.55% and 8.36%, respectively) and LCs (including foreign exchange contracts) totaled $3,259 million and $4,470 million, respectively. In addition, at March 31, 2014 and December 31, 2013, the fair values of the time deposits (Level 2 measurements) totaled approximately $3,259 million and $4,470 million, respectively, and the fair values of the LCs (Level 2 measurements) totaled approximately $3,026 million and $4,360 million, respectively. The fair values approximated the carrying amount of the related financial instruments due to their short-term nature. The fair values of the foreign exchange forward contracts (Level 2 measurements) were losses of $233 million and $110 million at March 31, 2014 and December 31, 2013, respectively.
For the three months ended March 31, 2014 and 2013, total proceeds from issuances of LCs were $1,397 million and $2,417 million, respectively. These cash inflows are offset by the related cash outflows resulting from placement of the time deposits and repayment of the LCs. All cash flows related to the Program are included in operating activities in the condensed consolidated statements of cash flows.
5. INVENTORIES
Inventories by segment are presented below. Readily marketable inventories refer to inventories that are readily convertible to cash because of their commodity characteristics, widely available markets and international pricing mechanisms.
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2014 |
|
2013 |
| ||
|
Agribusiness (1) |
|
$ |
5,185 |
|
$ |
4,498 |
|
|
Sugar and Bioenergy (2) |
|
486 |
|
549 |
| ||
|
Edible Oil Products (3) |
|
485 |
|
487 |
| ||
|
Milling Products (4) |
|
238 |
|
210 |
| ||
|
Fertilizer (4) |
|
58 |
|
52 |
| ||
|
Total |
|
$ |
6,452 |
|
$ |
5,796 |
|
(1) Includes readily marketable agricultural commodity inventories carried at fair value of $4,866 million and $4,163 million at March 31, 2014 and December 31, 2013, respectively. Of these amounts $3,631 million and $2,927 million can be attributable to merchandising activities at March 31, 2014 and December 31, 2013, respectively. All other agribusiness segment inventories are carried at lower of cost or market.
(2) Includes readily marketable sugar inventories of $131 million and $182 million at March 31, 2014 and December 31, 2013, respectively. Of these sugar inventories, $115 million and $109 million, respectively, are carried at fair value 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 and canola oil which are carried at fair value in the aggregate amount of $68 million and $67 million at March 31, 2014 and December 31, 2013, respectively.
(4) Milling products and fertilizer inventories are carried at lower of cost or market.
6. OTHER CURRENT ASSETS
Other current assets consist of the following:
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2014 |
|
2013 |
| ||
|
Prepaid commodity purchase contracts (1) |
|
$ |
306 |
|
$ |
220 |
|
|
Secured advances to suppliers, net (2) |
|
558 |
|
555 |
| ||
|
Unrealized gains on derivative contracts, at fair value |
|
2,092 |
|
1,561 |
| ||
|
Recoverable taxes, net |
|
385 |
|
442 |
| ||
|
Margin deposits (3) |
|
418 |
|
305 |
| ||
|
Marketable securities, at fair value |
|
127 |
|
162 |
| ||
|
Deferred purchase price receivable, at fair value (4) |
|
90 |
|
96 |
| ||
|
Prepaid expenses |
|
303 |
|
261 |
| ||
|
Other |
|
812 |
|
835 |
| ||
|
Total |
|
$ |
5,091 |
|
$ |
4,437 |
|
(1) Prepaid commodity purchase contracts represent advance payments against fixed price contracts for future delivery of specified quantities of agricultural commodities.
(2) Bunge provides cash advances to suppliers, primarily Brazilian farmers of soybeans and sugarcane, 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 $19 million and $20 million at March 31, 2014 and December 31, 2013, respectively.
Interest earned on secured advances to suppliers of $11 million and $9 million for the three months ended March 31, 2014 and 2013, respectively, is included in net sales in the condensed consolidated statements of income.
(3) Margin deposits include U.S. treasury securities at fair value and cash.
(4) Deferred purchase price receivable represents additional credit support for the investment conduits in Bunge’s accounts receivables sales program (see Note 12).
7. OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following:
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2014 |
|
2013 |
| ||
|
Recoverable taxes, net (1) |
|
$ |
330 |
|
$ |
283 |
|
|
Judicial deposits (1) |
|
163 |
|
153 |
| ||
|
Other long-term receivables |
|
39 |
|
40 |
| ||
|
Income taxes receivable (1) |
|
313 |
|
304 |
| ||
|
Long-term investments |
|
301 |
|
296 |
| ||
|
Affiliate loans receivable, net |
|
37 |
|
25 |
| ||
|
Long-term receivables from farmers in Brazil, net (1) |
|
133 |
|
134 |
| ||
|
Other |
|
187 |
|
176 |
| ||
|
Total |
|
$ |
1,503 |
|
$ |
1,411 |
|
(1) These non-current assets arise primarily from our Brazilian operations and their realization could take in excess of five years.
Recoverable taxes, net — Recoverable taxes are reported net of valuation allowances of $49 million and $57 million at March 31, 2014 and December 31, 2013, respectively.
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 (the benchmark rate of the Brazilian central bank).
Income taxes receivable — Income taxes receivable at March 31, 2014 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 (the benchmark rate of the Brazilian central bank).
Long-term investments — Long-term investments represent primarily investments held by certain managed investment funds, which are included in Bunge’s condensed consolidated financial statements. The consolidated funds are, for GAAP purposes, investment companies and therefore are not required to consolidate their majority owned and controlled investments. Bunge reflects these investments at fair value. The fair value of these investments (a Level 3 measurement) is $246 million and $238 million at March 31, 2014 and December 31, 2013, respectively.
Affiliate loans receivable, net — Affiliate loans receivable, net is primarily interest bearing receivables from unconsolidated affiliates with an initial maturity of greater than one year.
Long-term receivables from farmers in Brazil, net — Bunge provides financing to farmers in Brazil, primarily through secured advances against farmer commitments to deliver agricultural commodities (primarily soybeans) upon harvest of the then-current year’s crop and through credit sales of fertilizer to farmers.
The table below summarizes Bunge’s recorded investment in long-term receivables from farmers in Brazil for amounts in the legal collection process and renegotiated amounts.
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2014 |
|
2013 |
| ||
|
Legal collection process (1) |
|
$ |
199 |
|
$ |
213 |
|
|
Renegotiated amounts (2) |
|
120 |
|
117 |
| ||
|
Total |
|
$ |
319 |
|
$ |
330 |
|
(1) All amounts in legal process are considered past due upon initiation of legal action.
(2) All renegotiated amounts are current on repayment terms.
The average recorded investment in long-term receivables from farmers in Brazil for the three months ended March 31, 2014 and the year ended December 31, 2013 was $308 million and $363 million, respectively. The table below summarizes Bunge’s recorded investment in long-term receivables from farmers in Brazil and the related allowance amounts.
|
|
|
March 31, 2014 |
|
December 31, 2013 |
| ||||||||
|
|
|
Recorded |
|
|
|
Recorded |
|
|
| ||||
|
(US$ in millions) |
|
Investment |
|
Allowance |
|
Investment |
|
Allowance |
| ||||
|
For which an allowance has been provided: |
|
|
|
|
|
|
|
|
| ||||
|
Legal collection process |
|
$ |
125 |
|
$ |
119 |
|
$ |
139 |
|
$ |
132 |
|
|
Renegotiated amounts |
|
70 |
|
66 |
|
84 |
|
64 |
| ||||
|
For which no allowance has been provided: |
|
|
|
|
|
|
|
|
| ||||
|
Legal collection process |
|
74 |
|
— |
|
74 |
|
— |
| ||||
|
Renegotiated amounts |
|
50 |
|
— |
|
33 |
|
— |
| ||||
|
Total |
|
$ |
319 |
|
$ |
185 |
|
$ |
330 |
|
$ |
196 |
|
The table below summarizes the activity in the allowance for doubtful accounts related to long-term receivables from farmers in Brazil.
|
|
|
Three Months Ended |
| ||||
|
|
|
March 31, |
| ||||
|
(US$ in millions) |
|
2014 |
|
2013 |
| ||
|
Beginning balance |
|
$ |
196 |
|
$ |
224 |
|
|
Bad debt provisions |
|
2 |
|
1 |
| ||
|
Recoveries |
|
(2 |
) |
(3 |
) | ||
|
Write-offs |
|
(21 |
) |
— |
| ||
|
Transfers |
|
4 |
|
— |
| ||
|
Foreign exchange translation |
|
6 |
|
2 |
| ||
|
Ending balance |
|
$ |
185 |
|
$ |
224 |
|
8. INCOME TAXES
Income tax expense is provided on an interim basis based on 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 on 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.
For the three months ended March 31, 2014 and 2013, income tax expense related to continuing operations was $30 million and $73 million, respectively. The related effective tax rates were 187% and 30%, respectively, and included discrete tax items of $5 million and $31 million, respectively. The high effective tax rate for the quarter ended March 31, 2014 resulted from low net earnings that included profits in higher tax jurisdictions that were largely offset by losses in entities where no tax benefit is recorded as these entities, primarily in Bunge’s sugar segment, have cumulative taxable losses.
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, management believes that the condensed consolidated financial statements reflect the largest amount of tax benefit that will be more likely than not realized. During the three months ended March 31, 2014, Bunge increased its liability for uncertain tax positions in North America resulting in a $5 million charge to income tax expense.
As of March 31, 2014 and December 31, 2013, Bunge had received from the Brazilian tax authorities proposed adjustments totaling an aggregate amount of 1,410 million Brazilian reals ($623 million and $603 million, respectively) plus applicable interest and penalties, related to multiple examinations of income tax returns for certain subsidiaries for years up to 2009. 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 Bunge will prevail on the majority of the proposed adjustments. As of March 31, 2014 and December 31, 2013, Bunge had recognized uncertain tax positions related to these tax assessments of 192 million Brazilian reals ($85 million and $82 million), respectively.
In addition, as of March 31, 2014 and December 31, 2013, Bunge’s Argentine subsidiary had received an income tax assessment relating to fiscal years 2006 and 2007 with a claim of approximately 436 million Argentine pesos (approximately $54 million and $67 million as of March 31, 2014 and December 31, 2013, respectively), plus previously accrued interest on the outstanding amount due of approximately 789 million and 750 million Argentine pesos as of March 31, 2014 and December 31, 2013, respectively
(approximately $99 million and $115 million, respectively). Fiscal years 2008 and 2009 are currently being audited by the tax authorities. It is likely that the tax authorities will also audit fiscal years 2010-2012, although no notice has been rendered to Bunge’s Argentine subsidiary (see also Note 14).
9. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
|
|
|
March 31, |
|
December 31, |
| ||
|
(US$ in millions) |
|
2014 |
|
2013 |
| ||
|
Accrued liabilities |
|
$ |
1,027 |
|
$ |
940 |
|
|
Unrealized losses on derivative contracts at fair value |
|
1,867 |
|
1,401 |
| ||
|
Advances on sales |
|
276 |
|
330 |
| ||
|
Other |
|
132 |
|
347 |
| ||
|
Total |
|
$ |
3,302 |
|
$ |
3,018 |
|
10. 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 12 for deferred purchase price receivable (DPP) related to sales of trade receivables. See Note 7 for long-term receivables from farmers in Brazil, net and other long-term investments and Note 11 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 the 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, 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 topic describes three levels within its hierarchy that may be used to measure fair value.
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 1 assets and liabilities include exchange traded derivative contracts.
Level 2: Observable inputs, including Level 1 prices (adjusted), quoted prices for similar assets or liabilities, quoted prices in markets that are less active than traded exchanges and other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include readily marketable inventories and over-the-counter (OTC) commodity purchase and sale contracts and other OTC derivatives whose value is determined using pricing models with inputs that are generally based on exchange traded prices, adjusted for location specific inputs that are primarily observable in the market or can be derived principally from or corroborated by observable market data.
Level 3: Unobservable inputs that are supported by little or no market activity and that are a significant component of the fair value of the assets or liabilities. In evaluating the significance of fair value inputs, Bunge gives consideration to items that individually or when aggregated with other inputs, generally represent more than 10% of the fair value of the assets or liabilities. For such identified inputs, judgments are required when evaluating both quantitative and qualitative factors in the determination of significance for purposes of fair value level classification and disclosure. Level 3 assets and liabilities include assets and liabilities whose value is determined using proprietary pricing models, discounted cash flow methodologies or similar techniques; as well as, assets and liabilities for which the determination of fair value requires significant management judgment or estimation. 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.
The following table sets forth, by level, Bunge’s assets and liabilities that were accounted for at fair value on a recurring basis.
|
|
|
Fair Value Measurements at Reporting Date |
| ||||||||||||||||||||||
|
|
|
March 31, 2014 |
|
December 31, 2013 |
| ||||||||||||||||||||
|
(US$ in millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Readily marketable inventories (Note 5) |
|
$ |
— |
|
$ |
3,974 |
|
$ |
1,075 |
|
$ |
5,049 |
|
$ |
— |
|
$ |
4,041 |
|
$ |
298 |
|
$ |
4,339 |
|
|
Trade accounts receivable(1) |
|
— |
|
1 |
|
7 |
|
8 |
|
— |
|
5 |
|
1 |
|
6 |
| ||||||||
|
Unrealized gain on designated derivative contracts(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Foreign exchange |
|
— |
|
7 |
|
— |
|
7 |
|
— |
|
7 |
|
— |
|
7 |
| ||||||||
|
Unrealized gain on undesignated derivative contracts (2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Foreign exchange |
|
23 |
|
750 |
|
— |
|
773 |
|
5 |
|
346 |
|
— |
|
351 |
| ||||||||
|
Commodities |
|
273 |
|
774 |
|
185 |
|
1,232 |
|
408 |
|
585 |
|
138 |
|
1,131 |
| ||||||||
|
Freight |
|
61 |
|
3 |
|
2 |
|
66 |
|
59 |
|
— |
|
— |
|
59 |
| ||||||||
|
Energy |
|
12 |
|
— |
|
2 |
|
14 |
|
11 |
|
— |
|
2 |
|
13 |
| ||||||||
|
Deferred purchase price receivable (Note 12) |
|
— |
|
90 |
|
— |
|
90 |
|
— |
|
96 |
|
— |
|
96 |
| ||||||||
|
Other (3) |
|
100 |
|
97 |
|
— |
|
197 |
|
59 |
|
22 |
|
— |
|
81 |
| ||||||||
|
Total assets |
|
$ |
469 |
|
$ |
5,696 |
|
$ |
1,271 |
|
$ |
7,436 |
|
$ |
542 |
|
$ |
5,102 |
|
$ |
439 |
|
$ |
6,083 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Trade accounts payable(1) |
|
$ |
— |
|
$ |
393 |
|
$ |
470 |
|
$ |
863 |
|
$ |
— |
|
$ |
381 |
|
$ |
76 |
|
$ |
457 |
|
|
Unrealized loss on designated derivative contracts (4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Foreign exchange |
|
— |
|
19 |
|
— |
|
19 |
|
— |
|
11 |
|
— |
|
11 |
| ||||||||
|
Unrealized loss on undesignated derivative contracts (4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Interest rate |
|
— |
|
1 |
|
— |
|
1 |
|
— |
|
— |
|
— |
|
— |
| ||||||||
|
Foreign exchange |
|
46 |
|
518 |
|
— |
|
564 |
|
5 |
|
373 |
|
— |
|
378 |
| ||||||||
|
Commodities |
|
365 |
|
684 |
|
98 |
|
1,147 |
|
361 |
|
439 |
|
89 |
|
889 |
| ||||||||
|
Freight |
|
83 |
|
— |
|
20 |
|
103 |
|
81 |
|
— |
|
14 |
|
95 |
| ||||||||
|
Energy |
|
17 |
|
— |
|
17 |
|
34 |
|
11 |
|
— |
|
17 |
|
28 |
| ||||||||
|
Total liabilities |
|
$ |
511 |
|
$ |
1,615 |
|
$ |
605 |
|
$ |
2,731 |
|
$ |
458 |
|
$ |
1,204 |
|
$ |
196 |
|
$ |
1,858 |
|
(1) Trade accounts receivable and payable are generally accounted for at amortized cost, with the exception of $8 million and $863 million, at March 31, 2014 and $6 million and $457 million at December 31, 2013, respectively, related to certain delivered inventory for which the receivable and payable, respectively, fluctuate based on changes in commodity prices. These receivables and payables are hybrid financial instruments for which Bunge has elected the fair value option.
(2) Unrealized gains on designated and undesignated derivative contracts are generally included in other current assets. There are no such amounts included in other non-current assets at March 31, 2014 and December 31, 2013, respectively.
(3) Other includes the fair values of marketable securities and investments in other current assets and other non-current assets.
(4) Unrealized losses on designated and undesignated derivative contracts are generally included in other current liabilities. There are no such amounts included in other non-current liabilities at March 31, 2014 and December 31, 2013, respectively.
Derivatives — Exchange traded futures and options contracts are valued based on unadjusted quoted prices in active markets and are classified within Level 1. Bunge’s forward commodity purchase and sale contracts are classified as derivatives along with other OTC derivative instruments relating primarily to freight, energy, foreign exchange and interest rates, and are classified within Level 2 or Level 3 as described below. Bunge estimates fair
values based on exchange quoted prices, adjusted as appropriate for differences in local markets. These differences are generally valued using inputs from broker or dealer quotations, or market transactions in either the listed or OTC markets. In such cases, these derivative contracts are classified within Level 2.
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.
Exchange traded or cleared derivative contracts are classified 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.
Readily marketable inventories — 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 Measurements — 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, interest rates, volumes and locations. In addition, with the exception of the exchange cleared instruments, 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 adjustments related to non-performance by counterparties at March 31, 2014 and December 31, 2013, respectively.
Level 3 Readily marketable inventories and other — The significant unobservable inputs resulting in Level 3 classification for readily marketable inventories, physically settled forward purchase and sale contracts, and trade accounts receivable and payable, net, relate to certain management estimations regarding costs of transportation and other local market or location-related adjustments, primarily freight related adjustments in the interior of Brazil and the lack of market corroborated information in Canada. In both situations, Bunge uses proprietary information such as purchase and sale contracts and contracted prices for freight, premiums and discounts to value its contracts. Movements in the price of these unobservable inputs alone would not have a material effect on Bunge’s financial statements as these contracts do not typically exceed one future crop cycle.
The tables below present reconciliations for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2014 and 2013. These instruments were valued using pricing models that management believes reflect the assumptions that would be used by a marketplace participant.
|
|
|
Level 3 Instruments |
| ||||||||||
|
|
|
Fair Value Measurements |
| ||||||||||
|
|
|
Three Months Ended March 31, 2014 |
| ||||||||||
|
|
|
|
|
Readily |
|
Trade Accounts |
|
|
| ||||
|
|
|
Derivatives, |
|
Marketable |
|
Receivable/ |
|
|
| ||||
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Payable, Net(2) |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Balance, January 1, 2014 |
|
$ |
20 |
|
$ |
298 |
|
$ |
(75 |
) |
$ |
243 |
|
|
Total gains and losses (realized/unrealized) included in cost of goods sold |
|
65 |
|
12 |
|
— |
|
77 |
| ||||
|
Purchases |
|
13 |
|
1,089 |
|
(1 |
) |
1,101 |
| ||||
|
Sales |
|
(4 |
) |
(377 |
) |
8 |
|
(373 |
) | ||||
|
Issuances |
|
— |
|
— |
|
(393 |
) |
(393 |
) | ||||
|
Settlements |
|
(32 |
) |
— |
|
(1 |
) |
(33 |
) | ||||
|
Transfers into Level 3 |
|
(16 |
) |
127 |
|
(7 |
) |
104 |
| ||||
|
Transfers out of Level 3 |
|
8 |
|
(74 |
) |
6 |
|
(60 |
) | ||||
|
Balance, March 31, 2014 |
|
$ |
54 |
|
$ |
1,075 |
|
$ |
(463 |
) |
$ |
666 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
(2) Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.
|
|
|
Level 3 Instruments |
| ||||||||||
|
|
|
Fair Value Measurements |
| ||||||||||
|
|
|
Three Months Ended March 31, 2013 |
| ||||||||||
|
|
|
|
|
Readily |
|
Trade Accounts |
|
|
| ||||
|
|
|
Derivatives, |
|
Marketable |
|
Receivable/ |
|
|
| ||||
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Payable, Net (2) |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Balance, January 1, 2013 |
|
$ |
66 |
|
$ |
436 |
|
$ |
(40 |
) |
$ |
462 |
|
|
Total gains and losses (realized/unrealized) included in cost of goods sold |
|
(24 |
) |
(84 |
) |
71 |
|
(37 |
) | ||||
|
Purchases |
|
— |
|
952 |
|
— |
|
952 |
| ||||
|
Sales |
|
— |
|
(266 |
) |
— |
|
(266 |
) | ||||
|
Issuances |
|
— |
|
— |
|
(422 |
) |
(422 |
) | ||||
|
Settlements |
|
(73 |
) |
— |
|
— |
|
(73 |
) | ||||
|
Transfers into Level 3 |
|
(1 |
) |
149 |
|
(58 |
) |
90 |
| ||||
|
Transfers out of Level 3 |
|
1 |
|
— |
|
— |
|
1 |
| ||||
|
Balance, March 31, 2013 |
|
$ |
(31 |
) |
$ |
1,187 |
|
$ |
(449 |
) |
$ |
707 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
(2) Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.
The table below summarizes changes in unrealized gains or (losses) recorded in earnings during the three months ended March 31, 2014 and 2013 for Level 3 assets and liabilities that were held at March 31, 2014 and 2013.
|
|
|
Level 3 Instruments |
| ||||||||||
|
|
|
Fair Value Measurements |
| ||||||||||
|
|
|
Three Months Ended |
| ||||||||||
|
|
|
|
|
Readily |
|
Trade Accounts |
|
|
| ||||
|
|
|
Derivatives, |
|
Marketable |
|
Receivable and |
|
|
| ||||
|
(US$ in millions) |
|
Net (1) |
|
Inventories |
|
Payable, Net(2) |
|
Total |
| ||||
|
Changes in unrealized gains and (losses) relating to assets and liabilities held at March 31, 2014 |
|
|
|
|
|
|
|
|
| ||||
|
Cost of goods sold |
|
$ |
93 |
|
$ |
56 |
|
$ |
(51 |
) |
$ |
98 |
|
|
Changes in unrealized gains and (losses) relating to assets and liabilities held at March 31, 2013 |
|
|
|
|
|
|
|
|
| ||||
|
Cost of goods sold |
|
$ |
(106 |
) |
$ |
703 |
|
$ |
(351 |
) |
$ |
246 |
|
(1) Derivatives, net include Level 3 derivative assets and liabilities.
(2) Trade Accounts Receivable and Trade Accounts Payable, net, include Level 3 inventory related receivables and payables.
Derivative Instruments
Interest rate derivatives — Interest rate swaps used by Bunge as hedging instruments are recorded at fair value in the condensed consolidated balance sheets with changes in fair value recorded contemporaneously in earnings. Certain of these swap agreements may be designated as fair value hedges. The carrying amount of the associated hedged debt is also adjusted through earnings for changes in the fair value arising from changes in benchmark interest rates. Ineffectiveness is recognized to the extent that these two adjustments do not offset. Bunge may enter into interest rate swap agreements for the purpose of managing certain of its interest rate exposures. Bunge may also enter into interest rate basis swap agreements that do not qualify as hedges for accounting purposes. Changes in fair value of such interest rate basis swap agreements are recorded in earnings.
Foreign exchange derivatives — Bunge uses a combination of foreign exchange forward, swap and option contracts in certain of its operations to mitigate the risk from exchange rate fluctuations in connection with certain commercial and balance sheet exposures. The foreign exchange forward and option contracts may be designated as cash flow hedges. Bunge may also use net investment hedges to partially offset the translation adjustments arising from the remeasurement of its investment in certain of its foreign subsidiaries.
Bunge assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedge transactions are highly effective in offsetting changes in the hedged items.
The table below summarizes the notional amounts of open foreign exchange positions.
|
|
|
March 31, 2014 |
| |||||||||
|
|
|
Exchange Traded |
|
|
|
|
|
|
| |||
|
|
|
Net (Short) |
|
Non-exchange Traded |
|
Unit of |
| |||||
|
(US$ in millions) |
|
& Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure |
| |||
|
Foreign Exchange |
|
|
|
|
|
|
|
|
| |||
|
Options |
|
$ |
(3 |
) |
$ |
(44 |
) |
$ |
68 |
|
Delta |
|
|
Forwards |
|
— |
|
(17,525 |
) |
15,244 |
|
Notional |
| |||
|
Futures |
|
(1 |
) |
— |
|
— |
|
Notional |
| |||
|
Swaps |
|
— |
|
(17 |
) |
75 |
|
Notional |
| |||
(1) Exchange traded futures and options are presented on a net (short) and long position basis.
(2) Non-exchange traded swaps, options and forwards are presented on a gross (short) and long position basis.
Commodity derivatives — Bunge uses derivative instruments to manage its exposure to movements associated with agricultural commodity prices. Bunge generally uses exchange traded futures and options contracts to minimize the effects of changes in the prices of agricultural commodities on its agricultural commodity inventories and forward purchase and sale contracts, but may also from time to time enter into OTC commodity transactions, including swaps, which are settled in cash at maturity or termination based on exchange-quoted futures prices. Forward purchase and sale contracts are primarily settled through delivery of agricultural commodities. While Bunge considers these exchange traded futures and forward purchase and sale contracts to be effective economic hedges, Bunge does not designate or account for the majority of its commodity contracts as hedges. The forward contracts require performance of both Bunge and the contract counterparty in future periods. Contracts to
purchase agricultural commodities generally relate to current or future crop years for delivery periods quoted by regulated commodity exchanges. Contracts for the sale of agricultural commodities generally do not extend beyond one future crop cycle.
The table below summarizes the volumes of open agricultural commodities derivative positions.
|
|
|
March 31, 2014 |
| ||||||
|
|
|
Exchange Traded |
|
|
|
|
|
|
|
|
|
|
Net (Short) & |
|
Non-exchange Traded |
|
Unit of |
| ||
|
|
|
Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure |
|
|
Agricultural Commodities |
|
|
|
|
|
|
|
|
|
|
Futures |
|
(7,122,877 |
) |
— |
|
— |
|
Metric Tons |
|
|
Options |
|
(2,588,486 |
) |
(202,310 |
) |
843,530 |
|
Metric Tons |
|
|
Forwards |
|
(16,786 |
) |
(38,020,243 |
) |
27,216,747 |
|
Metric Tons |
|
|
Swaps |
|
25,000 |
|
— |
|
— |
|
Metric Tons |
|
(1) Exchange traded futures and options are presented on a net (short) and long position basis.
(2) Non-exchange traded swaps, options and forwards are presented on a gross (short) and long position basis.
Ocean freight derivatives — Bunge uses derivative instruments referred to as freight forward agreements, or FFAs, and FFA options to hedge portions of its current and anticipated ocean freight costs. Changes in the fair values of ocean freight derivatives that are not designated as hedges are recorded in earnings. There were no designated hedges at March 31, 2014 and December 31, 2013, respectively.
The table below summarizes the open ocean freight positions.
|
|
|
March 31, 2014 |
| ||||||
|
|
|
Exchange Cleared |
|
|
|
|
|
|
|
|
|
|
Net (Short) & |
|
Non-exchange Cleared |
|
Unit of |
| ||
|
|
|
Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure |
|
|
Ocean Freight |
|
|
|
|
|
|
|
|
|
|
FFA |
|
(2,083 |
) |
— |
|
— |
|
Hire Days |
|
|
FFA Options |
|
(9,530 |
) |
— |
|
— |
|
Hire Days |
|
(1) Exchange cleared futures and options are presented on a net (short) and long position basis.
(2) Non-exchange cleared options and forwards are presented on a gross (short) and long position basis.
Energy derivatives — Bunge uses derivative instruments for various purposes including to manage its exposure to volatility in energy costs. Bunge’s operations use substantial amounts of energy, including natural gas, coal, and fuel oil, including bunker fuel.
The table below summarizes the open energy positions.
|
|
|
March 31, 2014 |
| ||||||
|
|
|
Exchange Traded |
|
|
|
|
|
|
|
|
|
|
Net (Short) & |
|
Non-exchange Cleared |
|
Unit of |
| ||
|
|
|
Long (1) |
|
(Short) (2) |
|
Long (2) |
|
Measure (3) |
|
|
Natural Gas (3) |
|
|
|
|
|
|
|
|
|
|
Futures |
|
(4,291,561 |
) |
— |
|
— |
|
MMBtus |
|
|
Swaps |
|
— |
|
— |
|
303,318 |
|
MMBtus |
|
|
Options |
|
3,276,626 |
|
— |
|
— |
|
MMBtus |
|
|
Energy—Other |
|
|
|
|
|
|
|
|
|
|
Futures |
|
584,986 |
|
— |
|
— |
|
Metric Tons |
|
|
Forwards |
|
— |
|
(450 |
) |
37,948,884 |
|
Metric Tons |
|
|
Swaps |
|
(25,000 |
) |
— |
|
— |
|
Metric Tons |
|
|
Options |
|
(82,829 |
) |
— |
|
— |
|
Metric Tons |
|
(1) Exchange traded and exchange cleared futures and options are presented on a net (short) and long position basis.
(2) Non-exchange cleared swaps, options and forwards are presented on a gross (short) and long position basis.
(3) Million British Thermal Units (MMBtus) are the standard unit of measurement used to denote an amount of natural gas.
The Effect of Derivative Instruments on the Condensed Consolidated Statements of Income
The table below summarizes the effect of derivative instruments that are designated as fair value hedges and also derivative instruments that are undesignated on the condensed consolidated statements of income for the three months ended March 31, 2014 and 2013.
|
|
|
|
|
Gain or (Loss) Recognized in |
| ||||
|
|
|
|
|
Income on Derivative Instruments |
| ||||
|
|
|
|
|
Three Months Ended March 31, |
| ||||
|
(US$ in millions) |
|
Location |
|
2014 |
|
2013 |
| ||
|
Undesignated Derivative Contracts: |
|
|
|
|
|
|
| ||
|
Foreign Exchange |
|
Foreign exchange gains (losses) |
|
$ |
77 |
|
$ |
10 |
|
|
Foreign Exchange |
|
Income (loss) from discontinued operations, net of tax |
|
— |
|
1 |
| ||
|
Foreign Exchange |
|
Cost of goods sold |
|
160 |
|
137 |
| ||
|
Commodities |
|
Cost of goods sold |
|
(541 |
) |
88 |
| ||
|
Freight |
|
Cost of goods sold |
|
(23 |
) |
(10 |
) | ||
|
Energy |
|
Cost of goods sold |
|
— |
|
3 |
| ||
|
Total |
|
|
|
$ |
(327 |
) |
$ |
229 |
|
The table below summarizes the effect of derivative instruments that are designated and qualify as cash flow and net investment hedges on the condensed consolidated statement of income for the three months ended March 31, 2014.
|
|
|
Three Months Ended March 31, 2014 |
| ||||||||||||||
|
|
|
|
|
Gain or |
|
Gain or (Loss) |
|
|
|
|
| ||||||
|
|
|
||||||||||||||||