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22. 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 at December 31, 2011 and 2010 are the following accrued liabilities:
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
(US$ in millions) |
|
2011 |
|
2010 |
|
|
Tax claims (1) |
|
$ |
70 |
|
$ |
127 |
|
|
Labor claims |
|
|
77 |
|
|
78 |
|
|
Civil and other claims (1) |
|
|
76 |
|
|
114 |
|
| |
|
|
|
|
|
|
Total |
|
$ |
223 |
|
$ |
319 |
|
| |
|
|
|
|
|
- (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 third quarter 2011.
Tax Claims—The tax claims relate principally to claims against Bunge's Brazilian subsidiaries, 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 monitors the Brazilian federal and state governments' 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 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 $100 million. Bunge believes that the allegations and claims are without merit, however, Bunge is, at this time, unable to predict their outcome.
Labor Claims—The labor claims relate principally to claims against Bunge's Brazilian subsidiaries. The labor claims primarily relate to dismissals, severance, health and safety, salary adjustments and supplementary retirement benefits.
Civil and Other—The civil and other claims relate to various disputes with third parties, including suppliers and customers.
Guarantees—Bunge has issued or was a party to the following guarantees at December 31, 2011:
|
|
|
|
|
|
(US$ in millions) |
|
Maximum
Potential Future
Payments |
|
|
Customer financing (1) |
|
$ |
45 |
|
|
Unconsolidated affiliates financing (2) |
|
|
54 |
|
|
Residual value guarantee (3) |
|
|
69 |
|
| |
|
|
|
|
Total |
|
$ |
168 |
|
| |
|
|
|
- (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 December 31, 2011, Bunge had approximately $34 million of tangible property that had been pledged to Bunge 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 consolidated financial statements. Bunge's recorded obligation related to these outstanding guarantees was $7 million at December 31, 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 December 31, 2011, Bunge's recorded obligation related to these guarantees was $1 million.
- (3)
- Bunge issued guarantees to certain financial institutions which are party to certain operating lease arrangements for railcars and barges. These guarantees provide for a minimum residual value to be received by the lessor at conclusion of the lease term. These leases expire in 2018. At December 31, 2011, Bunge's recorded obligation related to these guarantees was $6 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. As of December 31, 2011, Bunge's consolidated balance sheet includes debt with a carrying amount of $3,482 million related to these guarantees. This debt includes the senior notes issued by two of Bunge's 100% owned finance subsidiaries, Bunge Limited Finance Corp. and Bunge N.A. Finance L.P. There are no significant restrictions on the ability of Bunge Limited Finance Corp., Bunge N.A. Finance L.P. or any other Bunge subsidiary to transfer funds to Bunge Limited.
Freight Supply Agreements—In the ordinary course of business, Bunge enters into time charter agreements for the use of ocean freight vessels and freight service on railroad lines for the purpose of transporting agricultural commodities. In addition, Bunge sells the right to use these ocean freight vessels when excess freight capacity is available. These agreements generally range from two months to approximately five years, in the case of ocean freight vessels, depending on market conditions, and 5 to 17 years in the case of railroad services. Future minimum payment obligations due under these agreements are as follows:
|
|
|
|
|
|
(US$ in millions) |
|
Future
Minimum Payment
Obligations |
|
|
Less than 1 year |
|
$ |
218 |
|
|
1 to 3 years |
|
|
206 |
|
|
3 to 5 years |
|
|
58 |
|
|
After five years |
|
|
329 |
|
| |
|
|
|
|
Total |
|
$ |
811 |
|
| |
|
|
|
Actual amounts paid under these contracts may differ due to the variable components of these agreements and the amount of income earned on the sales of excess capacity. The agreements for the freight service on railroad lines require a minimum monthly payment regardless of the actual level of freight services used by Bunge. In 2011, Bunge renegotiated its volume commitments related to certain freight supply agreements resulting in a reduction of its future minimum payment obligations over the remaining term of the agreements of $841 million. No penalties were incurred as a result of these renegotiations. The costs of Bunge's freight supply agreements are typically passed through to the customers as a component of the prices charged for its products.
Also in the ordinary course of business, Bunge enters into relet agreements related to ocean freight vessels. Such relet agreements are similar to sub-leases. Bunge received approximately $101 million in 2011 and expects to receive payments of approximately $22 million in 2012 under such relet agreements.
Commitments—At December 31, 2011, Bunge had approximately $52 million of purchase commitments related to its inventories, $4 million of power supply contracts and $159 million of contractual commitments related to construction in progress. |