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UKRAINE-RUSSIA WAR | 3 Months Ended
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Mar. 31, 2022
Unusual or Infrequent Items, or Both [Abstract] |
UKRAINE-RUSSIA WAR | UKRAINE-RUSSIA WAR On February 24, 2022, Russia initiated a military offensive in Ukraine, a key international grain originating region. As a result, Bunge temporarily idled its Ukrainian operations, comprising two oilseed crushing facilities in Mykolaiv and Dnipropetrovsk, a grain export terminal in the Mykolaiv commercial seaport, numerous grain elevators, and an office in Kiev. The Company also operates a corn milling facility in Ukraine via a joint venture. On March 22, 2022, Bunge’s Mykolaiv port facility sustained damage as a result of the war. Based on initial visual inspections, there does not appear to be material physical damage to the Mykolaiv port facility, the adjacent Oilseed crush plant, or any other facilities. However, a thorough onsite, physical inspection of the damage to the Mykolaiv facility, or potential damage to other Bunge facilities, is currently not possible due to safety concerns. Beginning late March, Bunge restarted certain commercial and operational activities in Ukraine, as well as certain rail or truck exports from Ukraine. Such activities are extremely limited and are performed only where and when the ability to do so safely exists. The Company has over 1,000 employees in Ukraine. As of the date of this report, to our knowledge, there were no reported casualties or injuries to Bunge employees. The safety of its employees is Bunge’s top priority, and the Company is actively providing support and resources to employees and their families who have been impacted by these events. Bunge is also committed to supporting humanitarian efforts in Ukraine by providing food products and monetary assistance to multiple relief organizations helping the people of Ukraine. In response to the war, the United States, other North Atlantic Treaty Organization ("NATO") member states, as well as non-member states, have announced targeted economic sanctions on Russia, certain Russian citizens and enterprises. Any continuation or escalation of the war may trigger additional economic and other sanctions. The scope or extent of potential additional sanctions, and the related impact on Bunge is unknown. The Company has scaled back its Russian grain trading activities in recent years, including via the sale of its Rostov grain export terminal in 2021. The Company continues to operate its oilseed crush plant in Voronezh, in southwest Russia, doing so in compliance with legal requirements imposed following the start of the war. From a humanitarian standpoint, this plant is important to the local food supply as it provides essential food-related products to the Russian population. The scope, intensity, duration and outcome of the ongoing war is uncertain, and any continuation or escalation of the war may have a material adverse effect on Bunge, including its Ukrainian and Russian operations. In accordance with industry standards, Bunge insures against many types of risks. While insurance may mitigate certain of the risks associated with the ongoing Ukraine-Russia war, the Company's level of insurance may not cover all losses the Company could incur. Further details about the current status and corresponding accounting considerations in each country are provided below. Ukraine As of the date of this report, the scope and intensity of the war is rapidly evolving. Bunge is closely monitoring the evolving situation and currently maintains control over all material operations and facilities in Ukraine. The condensed consolidated balance sheet and related discussion below provides information on the Company’s major classes of assets and liabilities in Ukraine as of March 31, 2022. As of March 31, 2022, the total assets and total liabilities associated with Bunge’s Ukrainian subsidiaries comprise 2% and 1% of Bunge’s consolidated total assets and total liabilities, respectively. Due to the nature of the war and its rapidly shifting areas of active combat, it is currently not possible to obtain all information necessary to determine all financial statement impacts. As such, the financial statement impacts and related disclosures presented in these interim financial statements represent management’s best estimates considering the available facts and circumstances as of the date of this report. The functional currency of Bunge’s Ukrainian subsidiaries is the U.S. dollar and the foreign exchange rates used to convert assets and liabilities denominated in Ukrainian hryvnia represent the official exchange rates published by the National Bank of Ukraine. Since the onset of the war the Ukrainian government has imposed certain restrictions on companies’ abilities to repatriate or otherwise remit cash from their Ukrainian-based operations to locations outside Ukraine, however Bunge is currently able to readily exchange U.S. dollars and Ukrainian hryvnia in international currency exchange markets. Bunge continues to exercise control of and consolidates its Ukrainian subsidiaries. The condensed consolidated balance sheet related to the Company’s Ukrainian operations as of March 31, 2022 consist of the following:
(US$ in millions) | March 31, 2022 |
Current assets: |  |
Cash and cash equivalents | $ | 3 |  |
Trade accounts receivable (less allowances of $1 million) | 7 |  |
Inventories | 199 |  |
Other current assets | 114 |  |
Total current assets | 323 |  |
Property, plant and equipment, net | 145 |  |
Other non-current assets | 50 |  |
Total assets | $ | 518 |  |
Current liabilities: |  |
Trade accounts payable and accrued liabilities | $ | 29 |  |
Short-term debt | 211 |  |
Other current liabilities | 5 |  |
Total current liabilities | 245 |  |
Non-current liabilities | 4 |  |
Total liabilities | $ | 249 |  |
Cash and cash equivalents—Comprises cash on deposit with various financial institutions in Ukraine. As of March 31, 2022 and through the date of this report, there are no restrictions on the Company’s access to such cash and cash equivalents. Trade accounts receivable—As a result of the war, the risk characteristics of trade accounts receivables connected to Ukraine differ from those of the Company’s other trade accounts receivable, such that Ukrainian trade receivables may be at a higher risk of default. Additionally, as the scope, intensity, duration, escalation, and outcome of the ongoing war is uncertain, significant judgements have been made in estimating the collectability of the Company’s Ukrainian trade accounts receivable. The Company has therefore segregated its Ukrainian trade accounts receivables into a separate risk pool and incorporated an assessment of current and expected future adverse effects related to the war, including customer-specific factors such as their geographical location in relation to combat zones and operating conditions, when determining an allowance for credit losses in relation to such receivables. The assessment resulted in the Company recording a $1 million allowance for lifetime expected credit losses during the three months ended March 31, 2022, in relation to its $8 million gross Ukrainian receivables balance at March 31, 2022. The expense was recorded in the Company’s Refined and Specialty Oils segment. Inventories—Bunge’s Ukrainian inventories generally comprise agricultural commodity inventories, primarily corn, wheat, sunflower seeds, sunflower meal, and sunflower oil. Due to their commodity characteristics, widely available markets, and international pricing mechanisms, such inventories are generally carried at fair value. However, as a result of the war Bunge is neither able to immediately market its inventories located in Ukraine at internationally-quoted prices, nor make such inventories available for immediate delivery at such prices. Therefore, at March 31, 2022, the Company ceased recording its Ukrainian inventories at fair value and instead recorded all such inventories at the lower of cost or net realizable value, by product category. A thorough onsite physical inspection of all of Bunge’s inventories is currently not able to be conducted due to safety concerns, particularly in areas of active combat. As such, significant judgements have been made in estimating the net realizable value of the Company’s Ukrainian inventories. During the quarter ended of March 31, 2022, the Company recorded an expense of $9 million, in Cost of goods sold, representing known instances of misappropriation or damage to inventories resulting from the war. The expense was recorded in the Company’s Agribusiness segment. Other current assets—Comprises $50 million of marketable securities and other short-term investments, $43 million of recoverable taxes, net, $12 million in prepaid commodity purchase contracts and certain other expenses, and $9 million of various other items, as follows: •Marketable securities and other short-term investments—Primarily comprise Ukrainian (“on-shore”) government debt securities, denominated in Ukrainian hryvnia. Bunge classifies these securities as “trading securities”, carried at fair value in the Company’s condensed consolidated balance sheet, with changes in fair value recorded in the Company’s condensed consolidated statements of income in the period in which they occur. In addition to the marketable securities and other short-term investments belonging to Bunge’s Ukrainian-subsidiaries, as shown on the above balance sheet, certain of the Company’s non-Ukrainian subsidiaries hold certain U.S. dollar denominated, non-Ukrainian (“off-shore”) corporate debt securities of issuers with significant exposure to Ukraine. The values of these off-shore securities are directly impacted by the ongoing war. Such items, again reported within Other current assets as marketable securities and other short-term investments, totaled $20 million at March 31, 2022. As a result of the war, trading in the Ukrainian and Ukrainian-exposed debt securities has largely ceased. As such, at March 31, 2022, the prices of such securities was determined using pricing models with inputs based on similar securities adjusted to reflect management’s best estimate of the specific characteristics of the securities held by the Company. Such inputs represent a significant component of the fair value of the securities held by the Company, resulting in the securities being classified as Level 3 in the Company’s table of assets and liabilities accounted for at fair value on a recurring basis in Note 11- Fair Value Measurements. During the three months ended March 31, 2022, the Company recorded a combined $64 million loss on its “on-shore” and “off-shore” portfolios, within Other income (expense) – net, in its condensed consolidated statement of income, of which $32 million related to securities still held at March 31, 2022. • Recoverable taxes, net—Comprise $43 million in net value-added taxes paid upon the acquisition of property, plant and equipment, raw materials, taxable services, and other transactional taxes, recoverable in cash from the Ukrainian government. Effective February 24, 2022, the Ukrainian government introduced martial law in Ukraine, thus temporarily substituting military authority for civilian rule in the country, and which remains in effect as of the date of this report. Additionally, effective March 17, 2022, the Ukrainian government enacted Law No. 2120-IX (draft bill No. 7137-d, or the "March 17th Law") which reinstated the process by which the Ukraine government refunds recoverable taxes while under martial law. Although the March 17th Law does not contain any significant negative consequences to the Ukrainian government if it does not issue timely refunds to holders of eligible recoverable tax claims, the law’s enactment provides insights into the Ukrainian government’s intent and commitment to continue making such refunds despite the war and related martial law decree. Additionally, Bunge has continued to receive refunds of recoverable taxes from the Ukrainian government since the start of the war. Therefore, as of March 31, 2022, and during the three months then ended, Bunge has not recorded any change in allowances for recoverable taxes in Ukraine. •Prepaid commodity purchase contracts, and Prepaid expenses—Represent advance payments against contracts for future deliveries of specified quantities of agricultural commodities and advance payments against the future deliveries of certain non-inventory goods or services, respectively. Despite the ongoing war, Bunge currently expects to continue to receive deliveries of the inventory or other goods and services receivable in respect of advance payments made at March 31, 2022. •Other—Primarily comprises unrealized gains on derivative contracts, at fair value, used to hedge the foreign currency balance sheet and commercial exposures of the Company’s Ukrainian subsidiaries in international currency markets. The counterparties to these contracts are non-Ukraine-based financial institutions. Property, plant, and equipment, net—As described above, following the onset of the war, Bunge temporarily idled its Ukrainian operations. However, beginning late March, Bunge restarted certain limited activities. On March 22, 2022, Bunge’s Mykolaiv port facility sustained damage as a result of the war. A thorough onsite, physical inspection of Bunge’s facilities, including the Mykolaiv port, is currently not able to be conducted due to safety concerns. As such, significant judgements have been made in estimating the extent of any damage to the Company’s facilities in Ukraine. However, based on initial visual inspections, the Company is not aware of any damage to the Company’s facilities other than that sustained at its Mykolaiv port facility on March 22, 2022. Accordingly, the Company has recorded an impairment provision of $1 million in relation to such damage, within Cost of goods sold, during the three months ended March 31, 2022. The expense was recorded in the Company’s Agribusiness segment. In light of the war, Bunge evaluated the recoverability of our Ukrainian property, plant and equipment using an income method based on forecasts of expected future cash flows attributable to the respective assets under a range possible of outcomes, including those with reduced or no future cash flows, and concluded that the Company's Ukrainian property, plant and equipment was recoverable. The recoverability tests depend on a number of significant estimates and assumptions, including the likelihood and timing of a potential peaceful resolution to the war, the availability and cost of raw material commodities and other inputs, as well as demand levels for products. We believe these estimates and assumptions are reasonable. However, future changes in the judgments, assumptions and estimates used in our recoverability tests could result in different conclusions regarding the recoverability of the Company's Ukrainian property, plant and equipment and may result in the need for the Company to record non-cash impairment charges of its Ukrainian property, plant and equipment in the future. Other non-current assets—Comprises $26 million of deferred tax assets, $10 million of operating lease right-of-use assets associated with Bunge’s facilities, $7 million of recoverable taxes, net, expected to be realized in periods greater than twelve months from the balance sheet date, and $7 million of various other items. Trade accounts payable and accrued liabilities—Comprise amounts owed by the Company’s Ukrainian subsidiaries for goods delivered to or services consumed by such subsidiaries in the ordinary course of business. Short-term debt—Bunge's short-term debt represents Ukrainian hryvnia denominated debt, primarily used to fund working capital requirements, issued by Ukrainian branches of non-Ukraine-based financial institutions. Other-current liabilities and Other non-current liabilities—Primarily comprise various commercial and other provisions that arise in the normal course of business. During the three months ended March 31, 2022, the Company recorded a $1 million provision for losses, within Costs of goods sold, associated with commercial damages payable to third parties due to Bunge’s inability to fulfil certain of its contractual obligations as a result of the ongoing war. The expense was recorded in the Company’s Agribusiness segment. Russia The scope of current economic and other sanctions on Russia, certain Russian citizens and enterprises, as well as the nature and extent of potential additional sanctions, is uncertain. Bunge currently maintains control over all material operations and facilities in Russia. Bunge continues to monitor developments regarding the legal and operational environment in Russia together with their related impacts on the Company’s operations. During the three months ended March 31, 2022, the Company's Russian subsidiaries have not experienced any material financial statement impacts as a direct result of the war. The condensed consolidated balance sheet below provides information on the Company’s major classes of assets and liabilities in Russia as of March 31, 2022. As of March 31, 2022, the total assets and total liabilities associated with Bunge’s Russian subsidiaries comprise less than 1% of Bunge’s consolidated total assets and total liabilities, respectively. The functional currency of Bunge’s Russian subsidiaries is the Russian ruble and the foreign exchange rates used to convert assets and liabilities denominated in Russian ruble represent the official exchange rates published by the Central Bank of the Russian Federation. Since the onset of the war the Russian government has imposed certain restrictions on companies’ abilities to repatriate or otherwise remit cash from their Russian-based operations to locations outside of Russia, however Bunge is currently able to readily exchange U.S. dollars and Russian ruble in international currency exchange markets. Bunge continues to exercise control of and consolidates its Russian subsidiaries. The condensed consolidated balance sheet related to the Company’s Russian operations as of March 31, 2022 consist of the following:
(US$ in millions) | March 31, 2022 |
Current assets: |  |
Cash and cash equivalents | $ | 1 |  |
Trade accounts receivable (less allowances of zero) | 10 |  |
Inventories | 59 |  |
Other current assets | 22 |  |
Total current assets | 92 |  |
Property, plant and equipment, net | 20 |  |
Other non-current assets | 17 |  |
Total assets | $ | 129 |  |
Current liabilities: |  |
Trade accounts payable and accrued liabilities | $ | 10 |  |
Other current liabilities) | 7 |  |
Total current liabilities | 17 |  |
Total liabilities | $ | 17 |  |

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- Definition The entire disclosure for an event or transaction that is unusual in nature or infrequent in occurrence, or both. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 220 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=114868817 + Details
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