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16. 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. In addition Bunge periodically updates its evaluation and adjusts its estimated exposure based on these evaluations. 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 condensed consolidated financial statements taken as a whole. Included in other non-current liabilities are the following:
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|
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June 30, |
|
December 31, |
|
|
(US$ in millions) |
|
2012 |
|
2011 |
|
|
Tax claims |
|
$ |
71 |
|
$ |
70 |
|
|
Labor claims |
|
79 |
|
77 |
|
|
Civil and other claims |
|
98 |
|
76 |
|
|
Total |
|
$ |
248 |
|
$ |
223 |
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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.
The Argentine tax authorities have been conducting a review of income and other taxes paid by 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. 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’s locations and those of several other grain exporters with respect to allegations of evasion of liability for value-added taxes. Also during 2011, Bunge paid $112 million of accrued export tax obligations in Argentina under protest while reserving all of Bunge’s rights in respect of such payment. In the first quarter 2012, the Argentine tax authorities assessed Bunge interest on these paid export taxes in an amount totaling approximately $80 million. Bunge believes that these allegations and claims are without merit and intends to vigorously defend itself against them. However, management 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 and includes $27 million relating to a legacy environmental claim in Brazil from 1998, which was recorded in the first quarter of 2012.
Guarantees - Bunge has issued or was a party to the following guarantees at June 30, 2012:
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|
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Maximum |
|
|
|
|
Potential |
|
|
|
|
Future |
|
|
(US$ in millions) |
|
Payments |
|
|
Customer financing (1) |
|
$ |
38 |
|
|
Unconsolidated affiliates financing (2) |
|
25 |
|
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Residual value guarantee (3) |
|
69 |
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Total |
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$ |
132 |
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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 June 30, 2012, Bunge had approximately $25 million of tangible property that had been pledged to Bunge as collateral against certain of these financing arrangements. Bunge evaluates the likelihood of customer repayments of the amounts due under these guarantees based upon an expected loss analysis and records the value of such guarantees as an obligation in its condensed consolidated financial statements. Bunge’s recorded obligation related to these outstanding guarantees was $15 million at June 30, 2012.
(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, 2014 and 2017. There are no recourse provisions or collateral that would enable Bunge to recover any amounts paid under these guarantees. At June 30, 2012, Bunge had no outstanding recorded obligation related to these guarantees.
(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 2016. At June 30, 2012, Bunge’s recorded obligation related to these guarantees was $5 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 June 30, 2012, Bunge’s condensed consolidated balance sheet includes debt with a carrying amount of $5,432 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.
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