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17. 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 recorded liabilities for these matters, management believes that the ultimate resolution of such matters will not have a material effect on Bunge’s financial condition, results of operations or liquidity. Included in other non-current liabilities are the following accrued liabilities:
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|
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September 30, |
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December 31, |
|
|
(US$ in millions) |
|
2011 |
|
2010 |
|
|
Tax claims (1) |
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$ |
75 |
|
$ |
127 |
|
|
Labor claims |
|
74 |
|
78 |
|
|
Civil and other claims (1) |
|
73 |
|
114 |
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|
Total |
|
$ |
222 |
|
$ |
319 |
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(1) Pursuant to the terms of the 2009 Brazilian amnesty program to settle tax and other financial claims with the Brazilian government, certain of the tax and civil and other claims were settled during the nine months ended September 30, 2011.
Tax Claims — The tax claims relate principally to claims against Bunge’s Brazilian subsidiaries, including primarily value-added tax claims (ICMS, IPI, PIS and COFINS). 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. Bunge is currently monitoring the Brazilian federal and state government’s responses to recent Brazilian supreme court decisions invalidating certain ICMS incentives and benefits granted by various states on constitutional grounds. While Bunge was not a recipient of any of the incentives and benefits that were the subject of the supreme court decisions, it has received certain similar tax incentives and benefits. Bunge has not received any tax assessment related to the validity of ICMS incentives or benefits it has received and, based on its assessment of the matter under the provisions of U.S. GAAP, no liability has been recorded in the consolidated financial statements.
The Argentine tax authorities have been conducting a review of income and other taxes paid by large exporters and processors of cereals and other agricultural commodities in the country. In that regard, in October 2010, the Argentine tax authorities carried out inspections at several of Bunge’s locations in Argentina relating to allegations of income tax evasion covering the periods from 2007 to 2009. More recently, in July 2011, Bunge received a preliminary income tax audit report from the Argentine tax authorities relating to fiscal years 2006 and 2007 with an estimated claim of approximately $100 million. Additionally, in April 2011, the Argentine tax authorities conducted inspections of Bunge locations and those of several other grain exporters with respect to allegations of evasion of liability for value added taxes. Bunge believes that the allegations and claims are without merit, however, these matters are at a preliminary stage and therefore Bunge is, at this time, unable to predict their outcome.
Labor Claims — The labor claims relate principally to claims against Bunge’s Brazilian subsidiaries. The labor claims primarily relate to dismissals, severance, health and safety, salary adjustments and supplementary retirement benefits.
Civil and Other — The civil and other claims relate to various disputes with third parties, including suppliers and customers.
Guarantees — Bunge has issued or was a party to the following guarantees at September 30, 2011:
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|
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Maximum |
|
|
|
|
Potential |
|
|
|
|
Future |
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(US$ in millions) |
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Payments |
|
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Customer financing (1) |
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$ |
61 |
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Unconsolidated affiliates financing (2) |
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52 |
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Total |
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$ |
113 |
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(1) Bunge has issued guarantees to third parties in Brazil related to amounts owed to these third parties by certain of Bunge’s 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 guarantees issued under certain Brazilian government programs, primarily from 2006 and 2007, where 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 September 30, 2011, Bunge had approximately $51 million of tangible property that had been pledged as collateral against certain of these refinancing arrangements. Bunge evaluates the likelihood of 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 condensed consolidated financial statements. Bunge’s recorded obligation related to these outstanding guarantees was $9 million at September 30, 2011.
(2) Bunge issued guarantees to certain financial institutions related to debt of certain of its unconsolidated joint ventures. The terms of the guarantees are equal to the terms of the related financings, which have maturity dates in 2012, 2016 and 2018. There are no recourse provisions or collateral that would enable Bunge to recover any amounts paid under these guarantees. At September 30, 2011, Bunge’s recorded obligation related to these guarantees was $12 million.
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 September 30, 2011, debt with a carrying amount of $4,087 million related to these guarantees is included in Bunge’s condensed consolidated balance sheet. This debt includes the senior notes issued by two of Bunge’s 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.
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