BUNGE GLOBAL SA The following should be read in conjunction with "Cautionary Statement Regarding Forward Looking Statements" and our combined consolidated financial statements and notes thereto included in Item 15 of this Annual Report on Form 10-K. Operating Results Factors Affecting Operating ResultsBunge Limited , aBermuda company, together with its subsidiaries, is a leading global agribusiness and food company with integrated operations that stretch from the farm to consumer foods. The commodity nature of the Company's principal products, as well as regional and global supply and demand variations that occur as an inherent part of the business, make volumes an important operating measure. Accordingly, information is included in "Segment Results" that summarizes certain items in our consolidated statements of income and volumes by reportable segment. The common unit of measure for all reported volumes is metric tons. A description of reported volumes for each reportable segment has also been included in the discussion of key factors affecting results of operations in each of our business segments as discussed below. Agribusiness In the Agribusiness segment, we purchase, store, transport, process and sell agricultural commodities and commodity products. Profitability in this segment is affected by the availability and market prices of agricultural commodities and processed commodity products and the availability and costs of energy, transportation and logistics services. Profitability in our oilseed processing operations is also impacted by volumes procured, processed and sold and by capacity utilization rates. Availability of agricultural commodities is affected by many factors, including weather, farmer planting and selling decisions, plant diseases, governmental policies, and agricultural sector economic conditions. Reported volumes in this segment primarily reflect (i) grains and oilseeds originated from farmers, cooperatives or other aggregators and from which "origination margins" are earned; (ii) oilseeds processed in our oilseed processing facilities and from which "crushing margins" are earned, representing the margin from the industrial separation of the oilseed into its protein meal and vegetable oil components, both of which are separate commodity products; and (iii) third party sales of grains, oilseeds and related commodity products merchandised through our distribution businesses and from which "distribution margins" are earned. The foregoing subsegment volumes may overlap as they produce separate margin capture opportunities. For example, oilseeds procured in our South American grain origination activities may be processed in our oilseed processing facilities inAsia-Pacific and will be reflected at both points within the segment. As such, these reported volumes do not represent solely volumes of net sales to third-parties, but rather where margin is earned, appropriately reflecting their contribution to our global network's capacity utilization and profitability. Demand for our purchased and processed Agribusiness products is affected by many factors, including global and regional economic conditions, changes in per capita income, the financial condition of customers and customer access to credit, worldwide consumption of food products, particularly pork and poultry, population growth rates, relative prices of substitute agricultural products, outbreaks of disease associated with livestock and poultry, and demand for renewable fuels produced from agricultural commodities and commodity products. We expect that the factors described above will continue to affect global supply and demand for our Agribusiness products for the foreseeable future. We also expect that, from time to time, imbalances will likely exist between oilseed processing capacity and demand for oilseed products in certain regions, which impacts our decisions regarding whether, when and where to purchase, store, transport, process or sell these commodities, including whether to change the location of or adjust our own oilseed processing capacity. Additionally, price fluctuations and availability of commodities may cause fluctuations in our working capital, such as inventories, accounts receivable and borrowings over the course of a given year. For example, increased availability of commodities at harvest times often causes fluctuations in our inventories and borrowings. Increases in agricultural commodity prices will also generally cause our cash flow requirements to increase as our operations require increased use of cash to acquire inventories and fund daily settlement requirements on exchange traded futures that we use to hedge our physical inventories. Food and Ingredients In the Food and Ingredients businesses, which consist of our Edible Oil Products and Milling Products segments, our operating results are affected by changes in the prices of raw materials, such as crude vegetable oils and grains, the mix of products that we sell, changes in consumer eating habits, changes in per capita income, consumer purchasing power levels, availability of credit to customers, governmental dietary guidelines and policies, changes in regional economic conditions and 26
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the general competitive environment in our markets. Raw material inputs to our production processes in the Edible Oil Products and Milling Products segments are largely sourced at market prices from our Agribusiness segment. Reported volumes in these segments reflect third-party sales of our finished products and, as such, include the sales of products derived from raw materials sourced from the Agribusiness segment as well as from third-parties. The unit of measure for these volumes is metric tons as these businesses are linked to the commodity raw materials, which are their primary inputs. Sugar and Bioenergy Prior to the formation of theBP Bunge Bioenergia joint venture inDecember 2019 , our bioenergy and sugarcane ethanol business inBrazil consisted of eight sugarcane mills inBrazil . In our former bioenergy and sugarcane ethanol business, we used sugarcane to produce sugar and ethanol, which was supplied by a combination of our own plantations and third-party farmers. Additionally, through cogeneration facilities at our sugarcane mills, we produced electricity from the burning of sugarcane bagasse (the fibrous portion of the sugarcane that remains after the extraction of sugarcane juice) in boilers, which enabled our mills to meet their energy requirements. Any surplus electricity was sold to the local grid or other large third-party users of electricity. All of these activities were assumed by ourBP Bunge Bioenergia joint venture. Following the formation of the joint venture, we accounted for our interest in the joint venture under the equity method of accounting and ceased to consolidate our sugar and bioenergy operations inBrazil in our consolidated financial statements. Profitability in this segment is affected by the profitability of the joint venture and, therefore the value of our investment and the amount and timing of distributions we receive, if any. In turn, the profitability of the joint venture is affected by the availability and quality of sugarcane, which impacts capacity utilization rates and the amount of sugar that can be extracted from the sugarcane, and by market prices of sugar and ethanol. The availability and quality of sugarcane is affected by many factors, including weather, geographical factors such as soil quality and topography, and agricultural practices. Once planted, sugarcane may be harvested for several continuous years, but the yield decreases with each subsequent harvest. As a result, the current optimum economic cycle is generally five to seven consecutive harvests, depending on location. The joint venture owns and/or has partnership agreements to manage farmland on which it grows and harvests sugarcane, and also purchases sugarcane from third parties. Prices of sugarcane inBrazil are established by Consecana, thestate of São Paulo sugarcane, sugar and ethanol council, and are based on the sucrose content of the cane and the market prices of sugar and ethanol. Demand for the joint venture's products is affected by such factors as changes in global or regional economic conditions, the financial condition of customers and customer access to credit, worldwide consumption of food products, population growth rates, changes in per capita income and demand for and governmental support of renewable fuels produced from agricultural commodities, including sugarcane. Fertilizer In the Fertilizer segment, demand for our products is affected by the profitability of the agricultural sectors we serve, the availability of credit to farmers, agricultural commodity prices, the types of crops planted, the number of acres planted, the quality of the land under cultivation and weather-related issues affecting the success of the harvests. Our profitability is impacted by international selling prices for fertilizers and fertilizer raw materials, such as phosphate, sulfur, ammonia and urea, ocean freight rates and other import costs, as well as import volumes at the port facilities we manage. As our operations are inSouth America , primarilyArgentina , our results in this segment are typically seasonal, with fertilizer sales normally concentrated in the third and fourth quarters of the year due to the timing of the South American agricultural cycle. Reported volumes in this segment reflect third-party sales of our finished products. In addition to these industry related factors which impact our business areas, our results of operations in all business areas and segments are affected by the following factors: Foreign Currency Exchange Rates Due to the global nature of our operations, our operating results can be materially impacted by foreign currency exchange rates. Both translation of our foreign subsidiaries' financial statements and foreign currency transactions can affect our results. On a monthly basis, for subsidiaries whose functional currency is a currency other than theU.S. dollar, subsidiary statements of income and cash flows must be translated intoU.S. dollars for consolidation purposes based on weighted-average exchange rates in each monthly period. As a result, fluctuations of local currencies compared to theU.S. dollar during each monthly period impact our consolidated statements of income and cash flows for each reported period (per quarter and year-to-date) and also affect comparisons between those reported periods. Subsidiary balance sheets are translated using exchange rates as of the balance sheet date with the resulting translation adjustments reported in our consolidated balance sheets as a component of Accumulated other comprehensive income (loss).
Additionally, we record transaction gains or losses on monetary assets and liabilities that are not denominated in the functional currency of the entity. These amounts are remeasured into their respective functional currencies at exchange rates as
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of the balance sheet date, with the resulting gains or losses included in the entity's statement of income and, therefore, in our consolidated statements of income as foreign exchange gains (losses). We primarily use a combination of equity and intercompany loans to finance our subsidiaries. Intercompany loans that are of a long-term investment nature with no intention of repayment in the foreseeable future are considered permanently invested and as such are treated as analogous to equity for accounting purposes. As a result, any foreign currency translation gains or losses on such permanently invested intercompany loans are reported in Accumulated other comprehensive income (loss) in our consolidated balance sheets. In contrast, foreign currency translation gains or losses on intercompany loans that are not of a permanent nature are recorded in our consolidated statements of income as foreign exchange gains (losses). Income Taxes As aBermuda exempted company, we are not subject to income taxes on income in our jurisdiction of incorporation. However, our subsidiaries, which operate in multiple tax jurisdictions, are subject to income taxes at various statutory rates ranging from 0% to 35%. The jurisdictions that significantly impact our effective tax rate areBrazil ,the United States ,Argentina andBermuda . Determination of taxable income requires the interpretation of related and often complex tax laws and regulations in each jurisdiction in which we operate, and the use of estimates and assumptions regarding future events. Non-U.S. GAAP Financial Measures Total segment earnings before interest and taxes ("EBIT") is an operating performance measure used byBunge 's management to evaluate segment operating activities.Bunge 's management believes total segment EBIT is a useful measure of operating profitability, since the measure allows for an evaluation of the performance of its segments without regard to its financing methods or capital structure. In addition, EBIT is a financial measure that is widely used by analysts and investors inBunge 's industries. Total Segment EBIT is a non-U.S. GAAP financial measure and is not intended to replace net income attributable toBunge , the most directly comparableU.S. GAAP financial measure. Results of Operations 2019 Overview For the year endedDecember 31, 2019 , net income attributable toBunge decreased by$1,547 million to a loss of$1,280 million from income of$267 million in 2018. This decrease resulted from lower segment EBIT from our reportable segments of$1,721 million , predominantly in Sugar and Bioenergy, where we recorded charges of$1,673 million associated with the sale of our Brazilian sugar and bioenergy operations, in Edible Oils Products, due to a$108 million goodwill impairment charge, and in Agribusiness, primarily from lower results in our oilseed processing, grain origination, and grain trading and distribution businesses. Income tax expense was$86 million in 2019, compared to income tax expense of$179 million in 2018. The effective tax rate for 2019 was negative 7% compared to 39% in 2018. The effective tax rate for 2019 was adversely impacted primarily due to non-deductible losses related to the deconsolidation of our Brazilian sugar and bioenergy operations, partially offset by a favorable earnings mix. The higher effective tax rate for 2018 was primarily due to an unfavorable earnings mix, coupled with an income tax charge of$48 million for valuation allowances established inBrazil andChina . Total segment EBIT was a loss of$891 million in 2019 compared to income of$737 million in 2018. EBIT for 2019 included charges of$1,673 million associated with the sale of our Brazilian sugar and bioenergy operations, a goodwill impairment charge of$108 million associated with our 2018 acquisition of IOI Loders Croklaan ("Loders"),$42 million of severance, employee benefit and other program costs related to our Global Competitiveness Program ("GCP"),$4 million of severance and other employee benefit costs related to other industrial initiatives,$5 million of restructuring charges in our Brazilian industrial sugar operations, and$38 million of indirect tax charges inBrazil . In addition, EBIT included$159 million of asset impairment charges at various facilities associated with portfolio rationalization initiatives, and a$22 million impairment charge associated with the relocation of our global headquarters. EBIT also included a$6 million loss on the sale of an equity investment,$6 million of integration fees, an$11 million write-off of a tax indemnification asset associated with the reversal of an uncertain tax position recorded in a previous year, a$19 million gain on the sale of assets, and a$9 million gain from an arbitration settlement. EBIT for 2018 included$51 million of severance, employee benefit and other program costs related to the GCP,$9 million of severance and other employee benefit costs related to other industrial initiatives,$10 million of restructuring charges in our Brazilian industrial sugar operations, and$10 million of indirect tax credits inBrazil . In addition, EBIT included$10 million of impairment charges related to European port assets,$29 million of losses on the disposition of equity interests inBrazil andAsia ,$19 million of acquisition fees, and a$24 million loss on the extinguishment of debt. 28
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Agribusiness Segment EBIT decreased by$154 million to$491 million in 2019, from$645 million in 2018, primarily due to lower results in our oilseed processing, grain origination, and grain trading and distribution businesses, driven by lower volumes and margins in most regions, as well as impairment charges at various facilities associated with portfolio rationalization initiatives. These negative impacts were partially offset by better results in our ocean freight and financial services businesses, as well as lower SG&A expenses and foreign currency losses. Edible Oil Products Segment EBIT decreased$63 million to$59 million in 2019 from$122 million in 2018, primarily due to a goodwill impairment charge related to the 2018 acquisition of Loders, partially offset by higher volumes and margins in theU.S. andEurope , and higher volumes and margins associated with a more favorable product mix inArgentina . Milling Products Segment EBIT decreased by$31 million to$59 million in 2019, from$90 million in 2018 driven by lower volumes and margins inBrazil andMexico , as well as impairment charges associated with certain portfolio rationalization initiatives. Sugar and Bioenergy Segment EBIT decreased by$1,488 million to a loss of$1,623 million in 2019, primarily due to$1,673 million in charges associated with the contribution of our Brazilian sugar and bioenergy operations to our newly formed joint venture,BP Bunge Bioenergia , inDecember 2019 . Fertilizer Segment EBIT increased$15 million to$54 million in 2019, primarily due to higher sales volumes, lower overall expenses, and more favorable foreign exchange results. Segment ResultsBunge has five reportable segments; Agribusiness, Edible Oil Products, Milling Products, Sugar and Bioenergy, and Fertilizer, which are organized based upon similarities in their economic characteristics, products and services offered, production processes, types and classes of customer served, and distribution methods. The Agribusiness segment is characterized by both inputs and outputs being agricultural commodities, and thus high volume and low margin. The Edible Oil Products segment involves the manufacturing and marketing of products derived from vegetable oils. The Milling Products segment involves the manufacturing and marketing of products derived primarily from wheat and corn. The Sugar and Bioenergy segment primarily comprises our investment inBP Bunge Bioenergia , a joint venture formed inDecember 2019 that combinedBunge 's Brazilian sugar and bioenergy operations, through which we produced and sold sugar and ethanol derived from sugarcane, as well as energy derived from the sugar and ethanol production process, together with the Brazilian biofuels business of BP. The Fertilizer segment includes the activities of our port operations inBrazil andArgentina and blending and distribution operations inArgentina . 29
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A summary of certain items in our consolidated statements of income and volumes by reportable segment for the periods indicated is set forth below.
Year Ended December 31,
(US$ in millions) 2019 2018
2017
Volume (in thousands of metric tons): Agribusiness 139,968 146,309 142,855 Edible Oil Products 9,606 9,024 7,731 Milling Products 4,531 4,604 4,460 Sugar and Bioenergy (1) 3,836 6,509 9,389 Fertilizer 1,508 1,328 1,329 Net sales: Agribusiness$ 28,407 $ 32,206 $ 31,741 Edible Oil Products 9,186 9,129 8,018 Milling Products 1,739 1,691 1,575 Sugar and Bioenergy (1) 1,288 2,257 4,054 Fertilizer 520 460 406 Total$ 41,140 $ 45,743 $ 45,794 Cost of goods sold: Agribusiness$ (27,315 ) $ (30,772 ) $ (30,808 ) Edible Oil Products (8,572 ) (8,575 ) (7,519 ) Milling Products (1,578 ) (1,464 ) (1,366 ) Sugar and Bioenergy (1) (2,691 ) (2,276 ) (3,955 ) Fertilizer (442 ) (390 ) (381 ) Total$ (40,598 ) $ (43,477 ) $ (44,029 ) Gross profit (loss): Agribusiness$ 1,092 $ 1,434 $ 933 Edible Oil Products 614 554 499 Milling Products 161 227 209 Sugar and Bioenergy (1) (1,403 ) (19 ) 99 Fertilizer 78 70 25 Total$ 542 $ 2,266 $ 1,765 Selling, general & administrative expenses: Agribusiness$ (679 ) $ (740 ) $ (805 ) Edible Oil Products (451 ) (412 ) (361 ) Milling Products (130 ) (136 ) (138 ) Sugar and Bioenergy (1) (69 ) (112 ) (114 ) Fertilizer (16 ) (23 ) (19 ) Other (6 ) - - Total$ (1,351 ) $ (1,423 ) $ (1,437 ) Foreign exchange gain (loss): Agribusiness$ (32 ) $ (104 ) $ 85 Edible Oil Products - - 3 Milling Products 4 2 (3 ) Sugar and Bioenergy (1) (89 ) 7 11 Fertilizer - (6 ) (1 ) Total$ (117 ) $ (101 ) $ 95 30
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Year Ended December 31,
(US$ in millions) 2019 2018 2017
EBIT attributable to noncontrolling
interests:(2)
Agribusiness $ 2 $ (14 ) $ (9 )
Edible Oil Products 7 (12 ) (8 )
Milling Products - - -
Sugar and Bioenergy (1) - 1 -
Fertilizer (3 ) (2 ) (2 )
Total $ 6 $ (27 ) $ (19 )
Other income (expense):
Agribusiness $ 108 $ 79 $ 56
Edible Oil Products (3 ) (8 ) (7 )
Milling Products 5 (3 ) (5 )
Sugar and Bioenergy (1) (7 ) 4 (4 )
Fertilizer (5 ) - -
Other 75 (24 ) -
Total $ 173 $ 48 $ 40
Gain (loss), net on disposition of equity
interests-Agribusiness $ - $ (10 ) $ 9
Equity investment impairment-Agribusiness $ - $ - $ (13 )
Goodwill impairment-Edible Oils Products $ (108 ) $ - $ -
Gain on sale of assets-Milling Products $ 19 $ - $ -
Loss on disposition of equity
interest/subsidiaries-Sugar and Bioenergy $ (55 ) $ (16 ) $ -
Equity investment impairment-Sugar and
Bioenergy $ - $ - $ (4 )
Segment EBIT:(2)
Agribusiness $ 491 $ 645 $ 256
Edible Oil Products 59 122 126
Milling Products 59 90 63
Sugar and Bioenergy (1) (1,623 ) (135 ) (12 )
Fertilizer 54 39 3
Other 69 (24 ) -
Total $ (891 ) $ 737 $ 436
Depreciation, depletion and amortization:
Agribusiness $ (254 ) $ (257 ) $ (267 )
Edible Oil Products (159 ) (153 ) (105 )
Milling Products (54 ) (58 ) (61 )
Sugar and Bioenergy (1) (74 ) (146 ) (164 )
Fertilizer (7 ) (8 ) (12 )
Total $ (548 ) $ (622 ) $ (609 )
Net income (loss) attributable to Bunge $ (1,280 ) $ 267 $ 160
(1) In December 2019, we contributed our Brazilian sugar and bioenergy
operations forming the majority of our Sugar and Bioenergy segment into
the
of
operations in
for our interest in the joint venture under the equity method of
accounting.
(2) We refer to our earnings before interest and taxes in each of our segments
as "Segment EBIT". Total Segment EBIT is an operating performance measure
used by
Total
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segment EBIT is a non-U.S. GAAP financial measure and is not intended to replace net income attributable toBunge , the most directly comparableU.S. GAAP financial measure.Bunge 's management believes segment EBIT is a useful measure of its segments' operating profitability, since the measure allows for an evaluation of the performance of its segments without regard to its financing methods or capital structure. In addition, EBIT is a financial measure that is widely used by analysts and investors inBunge 's industries. Total segment EBIT excludes EBIT attributable to noncontrolling interests and is not a measure of consolidated operating results underU.S. GAAP and should not be considered as an alternative to net income attributable toBunge or any other measure of consolidated operating results underU.S. GAAP. A reconciliation of net income attributable toBunge to Total Segment EBIT follows: Year Ended December 31, (US$ in millions) 2019 2018 2017 Net income (loss) attributable to Bunge$ (1,280 ) $ 267 $ 160 Interest income (31 ) (31 ) (38 ) Interest expense 339 339 263 Income tax expense 86 179 56
(Income) loss from discontinued operations, net of tax - (10 ) - Noncontrolling interests' share of interest and tax
(5 ) (7 ) (5 )
Total segment EBIT $ (891 ) $ 737 $ 436
2019 Compared to 2018
Net Income Attributable to Bunge - For the year ended December 31, 2019 , net
income attributable to Bunge decreased by $1,547 million to a loss of $1,280
million , from income of $267 million in 2018. This decrease resulted primarily
from lower segment EBIT of $1,628 million , predominantly in Sugar and Bioenergy,
due to $1,673 million in charges associated with the sale of our Brazilian sugar
and bioenergy operations, in Edible Oils Products, due to a $108 million
goodwill impairment charge, and in Agribusiness, due to lower results in our
oilseed processing business.
Income Tax Expense- In the year ended December 31, 2019 , income tax expense was
$86 million compared to income tax expense of $179 million in 2018. The
effective tax rate for 2019 was negative 7% compared to 39% for 2018. The
effective tax rate in 2019 was adversely impacted by non-deductible losses
related to the deconsolidation of our Brazilian sugar and bioenergy operations,
partially offset by a favorable earnings mix. The higher effective tax rate for
2018 was primarily due to an unfavorable earnings mix, coupled with an income
tax charge of $48 million for valuation allowances established in Brazil and
China .
Agribusiness Segment- Agribusiness segment net sales decreased by 12% to $28.4
billion in 2019, compared to $32.2 billion in 2018. The decrease was primarily
due to lower sales volumes in our grain origination, trading and distribution
businesses, associated with lower supply in North America , due to adverse
weather conditions and the ongoing US-China trade dispute, and lower farmer
selling in Brazil through much of the year. Additionally, net sales decreased
due to lower average sales prices in our oilseed businesses, following increased
global soybean meal availability, due to increased Argentinian supply compared
to last year's drought and limited harvest, coupled with lower Chinese demand as
a result of the African Swine Fever outbreak.
Cost of goods sold decreased by 11% in 2019 compared to 2018, primarily related
to lower sales volumes and purchase prices in our grain origination, trading and
distribution businesses, coupled with lower purchase prices and improved trading
results in our oilseed businesses. These impacts were partially offset by
unfavorable mark-to-market in our oilseed processing business compared to the
prior year, and approximately $87 million of impairment charges related to PP&E
at various facilities associated with portfolio rationalization initiatives.
Gross profit decreased to $1,092 million in 2019, from $1,434 million in 2018.
The decrease was primarily due to lower oilseed processing results, including
unfavorable mark-to-market compared to the prior year, and lower results in our
grain origination, trading and distribution businesses, driven by lower volumes
and margins in most regions, as well as approximately $87 million of PP&E
impairment charges at various facilities associated with portfolio
rationalization initiatives. These negative impacts were partially offset by
better results in our oilseed trading and distribution business, higher results
in our ocean freight business, and better results in our financial services
businesses.
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SG&A expenses decreased$61 million to$679 million in 2019, which represented an 8% decrease from$740 million last year. The decrease was mainly due to savings from actions associated with the GCP, as well as lower charges recognized in connection with the execution of the GCP itself, in addition to the depreciation of the Brazilian real against theU.S. dollar. These decreases were partially offset by an impairment charge associated with the relocation of our global headquarters and the write-off of a tax indemnification asset associated with the reversal of an uncertain tax position recorded in a previous year. Foreign exchange results in 2019 were losses of$32 million , compared to losses of$104 million in 2018. Foreign exchange results are primarily driven by funding non-U.S. functional currency operations. Results in 2018 were primarily driven by the devaluation of the Argentine peso onU.S. dollar loans to fund operations inArgentina . Other income (expenses) - net was income of$108 million in 2019, compared to income of$79 million in 2018. The increase was primarily due to higher income earned from financial services activities and improved results from our soy crush investments inSouth America . Additionally, 2018 results included the loss on sale of an equity investment. Segment EBIT decreased by$154 million in 2019 to$491 million , from$645 million in 2018. The decrease was primarily due to lower profits in our oilseed processing business, including an unfavorable mark-to-market impact on forward contracts compared to the prior year, as well as lower profits in our grain origination, trading and distribution businesses, partially offset by higher results in our ocean freight business, better results in our financial services businesses, lower SG&A expenses, and lower foreign exchange losses. Edible Oil Products Segment- Edible oil products segment net sales increased by 1% in 2019 to$9.2 billion , compared to$9.1 billion in 2018. Increased sales volumes driven by our acquisition of Loders onMarch 1, 2018 , were offset by lower prices in theU.S. ,Europe , andBrazil . Cost of goods sold in 2019 remained essentially flat compared to 2018, which is substantially in line with net sales noted above. The increase caused by$30 million of impairment charges related to PP&E at various facilities associated with portfolio rationalization initiatives and$26 million of indirect tax charges was offset by lower sales prices in theU.S. ,Europe , andBrazil . Gross profit in 2019 increased to$614 million , compared to$554 million in 2018. The increase was primarily due to higher sales volumes in theU.S. andEurope , and higher sales volumes and a more favorable product mix inArgentina . These increases were partially offset by the impairment charges and indirect tax charges noted above. SG&A expenses increased by 9% to$451 million in 2019 compared to$412 million in the same period a year ago. The increase was driven by a full year ownership of Loders, as well as impairment charges related to the relocation of our global headquarters and a distribution center inBrazil , partially offset by lower costs inEurope andBrazil due to depreciation of the euro and Brazilian real against theU.S. dollar, and from savings associated with the GCP. Other income (expenses) - net in 2019 included a goodwill impairment charge of$108 million associated with our 2018 acquisition of Loders. Segment EBIT decreased to$59 million in 2019, from$122 million in 2018. The decrease was primarily due to the aforementioned goodwill and other impairment charges, partially offset by higher gross profit in theU.S. ,Europe , andArgentina . Milling Products Segment- Milling products segment net sales increased 3% to$1,739 million in 2019, compared to$1,691 million in 2018. The increase was primarily driven by higher sales prices for wheat products inBrazil , the acquisition of two corn mills in theU.S. ("Minsa") during the first quarter of 2018, and higher sales prices in ourU.S. rice milling business. These increases were partially offset by lower sales volumes inMexico . Cost of goods sold in 2019 increased 8% to$1,578 million , compared to$1,464 million in 2018. The increase was primarily due to higher raw material costs inBrazil , higher raw material costs in ourU.S. rice milling business, impairment charges associated with various portfolio rationalization initiatives, as well as additional costs associated with the acquisition ofMinsa . These increases were partially offset by lower sales volumes inMexico . Gross profit decreased by 29% to$161 million in 2019, down from$227 million in 2018. The decrease was primarily associated with lower margins inBrazil , lower volumes inMexico , and the impairment charges noted above. SG&A expenses decreased 4% to$130 million in 2019, compared to$136 million in 2018. The decrease was primarily due to savings from the GCP and the depreciation of the Brazilian real against theU.S. dollar. Additionally, 2018 was impacted by acquisition costs related toMinsa . 33
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Other income (expenses) - net was income of$5 million in 2019, compared to expense of$3 million in 2018. The increase was primarily due to a gain on an arbitration settlement in theU.S. in 2019. Segment EBIT decreased to$59 million in 2019 from$90 million in 2018. The decrease was primarily due to lower gross profit inBrazil andMexico , as well as impairment charges associated with certain portfolio rationalization initiatives, partially offset by a gain on the sale of wheat milling assets inBrazil , an arbitration settlement gain, and lower overall SG&A expenses. Sugar and Bioenergy Segment- Sugar and Bioenergy segment net sales decreased to$1,288 million in 2019, compared to$2,257 million in 2018. The 43% decrease in sales was primarily due to the exiting of our international trading and merchandising business in 2018, as well as lower global sugar sales volumes and prices, partially offset by higher ethanol sales volumes and prices inBrazil . Additionally, inDecember 2019 we contributed our Brazilian sugar and bioenergy operations to our newly formed joint venture,BP Bunge Bioenergia . Cost of goods sold increased by 18% to$2,691 million in 2019, compared to$2,276 million in 2018. The increase was primarily due to charges of$1,524 million associated with the sale of our Brazilian sugar and bioenergy operations. This increase was partially offset by lower costs aligned with the decrease in net sales noted above. Gross profit was a loss of$1,403 million in 2019, compared to a loss of$19 million in 2018, primarily associated with lower sales and higher costs of goods sold, including the above mentioned charges associated with the contribution of our Brazilian sugar and bioenergy operations to our newly formed joint venture,BP Bunge Bioenergia . SG&A expenses decreased by$43 million to$69 million in 2019, from$112 million in 2018, primarily associated with the exiting of our international trading and merchandising business, lower bad debt expenses, savings and lower costs associated with the GCP, the impact of depreciation of the Brazilian real against theU.S. dollar, as well as the contribution of our Brazilian sugar and bioenergy operations inDecember 2019 to our newly formed joint venture,BP Bunge Bioenergia . Foreign currency results in 2019 were losses of$89 million , compared to gains of$7 million in 2018. Foreign exchange losses in 2019 were primarily associated with intercompany loans related to our Brazilian sugar and bioenergy operations that were classified as held for sale in the third quarter of 2019. Previously, these loans were classified as permanently invested and any related foreign exchange impact was recorded in Other comprehensive income (loss). However, upon classification of our sugar and bioenergy operations as held for sale, such loans could no longer be determined to be permanently invested. As such, any foreign exchange impact was recorded in the condensed consolidated statement of income. Other income (expense) - net was a loss of$7 million in 2019, compared to income of$4 million in 2018. The decrease was primarily associated with lower results from our equity method investments. Segment EBIT decreased to a loss of$1,623 million in 2019, from a loss of$135 million in 2018. The decrease was mainly due to$1,673 million in charges associated with the contribution of our Brazilian sugar and bioenergy operations to our newly formed joint-venture,BP Bunge Bioenergia , as discussed above. Fertilizer Segment- Fertilizer segment net sales increased to$520 million in 2019, compared to$460 million in 2018. The increase was primarily due to higher sales volumes inArgentina . Cost of goods sold in 2019 were$442 million , compared to$390 million in 2018. The increase was primarily due to higher sales volumes. Additionally, 2018 costs were impacted by unfavorable foreign currency movements. Gross profit increased by$8 million to$78 million in 2019, from$70 million in 2018. The increase was primarily due to higher sales volumes and favorable foreign currency impacts compared to the prior year. SG&A expenses decreased by$7 million to$16 million in 2019 from$23 million in 2018. The decrease was primarily due to bad debt recoveries during 2019. Foreign exchange results for 2019 were flat, compared to a loss of$6 million in 2018. Results for 2018 primarily relate to foreign currency hedges of imports of inventories during the first six months of the year. Segment EBIT increased by$15 million to$54 million in 2019, from$39 million in 2018. The increase was primarily due to higher gross profit, lower overall expenses, and favorable foreign exchange results. Other- Other segment EBIT was$69 million in 2019, compared to a loss of$24 million in 2018. Results in 2019 relate to our corporate venture capital unit activities, which benefited from the initial public offering of one of its investments during the second quarter of 2019 and subsequent gains on sales of such securities. The 2018 loss is related to make-whole payments in connection with the early extinguishment of$600 million of our 8.5% senior notes due 2019. 34
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Interest-A summary of consolidated interest income and expense follows:
Year Ended
December 31,
(US$ in millions) 2019 2018
Interest income $ 31 $ 31
Interest expense (339 ) (339 )
Interest income remained constant during 2019 and 2018 at $31 million . Interest
expense remained constant at $339 million in 2019 and 2018. Average debt
balances were lower in 2019 than in 2018, however, total interest expense
remained flat due to the overall debt mix.
Discontinued Operations- In 2019 we no longer report discontinued operations.
Income from discontinued operations (retail fertilizer business in Brazil ) in
2018 was $10 million , which was mainly comprised of a gain on the final
settlement from the liquidation of an entity in 2004, foreign exchange gains due
to the depreciation of the Brazilian real, and the recovery of bad debt
provisions, partially offset by an $11 million charge related to the final
settlement on the sale of the Brazilian retail fertilizer business in 2013.
2018 Compared to 2017
Net Income Attributable to Bunge - For the year ended December 31, 2018 , net
income attributable to Bunge increased by $107 million to $267 million from $160
million in 2017. This increase resulted primarily from higher total segment EBIT
of $301 million , particularly in Agribusiness, partially offset by higher
interest and income tax expenses.
Income Tax Expense- In the year ended December 31, 2018 , income tax expense was
$179 million compared to income tax expense of $56 million in 2017. The
effective tax rate for 2018 was 39% compared to 24% for 2017. The higher
effective tax rate for 2018 was primarily due to unfavorable earnings mix,
coupled with an income tax charge of $48 million for valuation allowances
established in Brazil and China .
Agribusiness Segment- Agribusiness segment net sales increased by 1% to $32.2
billion in 2018, compared to $31.7 billion in 2017, mostly aligned with the
overall volume increase of 2% year over year. Higher volumes and prices in our
oilseed and grain trading and distribution businesses, mainly in Europe and
Asia , and in our oilseed processing activities in Europe , Asia , and the U.S.
were partially offset by lower prices in our grain origination businesses in the
U.S. resulting from an international trade dispute between the U.S. and China ,
and lower volumes in our oilseed processing activities in Argentina , due to
reduced soybean production resulting from adverse weather conditions.
Cost of goods sold in 2018 was relatively flat compared to 2017, with decreases,
primarily in our South American and U.S. grain origination businesses, mainly
due to lower average prices, and oilseed processing businesses in Argentina ,
mainly due to lower volumes, being offset by higher costs in our grain and
oilseed trading and distribution business, mainly due to higher volumes.
Gross profit increased to $1,434 million in 2018, from $933 million in 2017. The
increase was mainly due to higher soy crush margins in all regions primarily
driven by strong global soymeal demand, combined with reduced supply due to the
drought in Argentina .
SG&A expenses decreased $65 million to $740 million in 2018, which represented
an 8% decrease from $805 million last year. The decrease was primarily
attributable to savings from the GCP and lower expenses due to the depreciation
of the Argentine peso and Brazilian real against the U.S. dollar. SG&A expenses
in 2017 also included $17 million of credit reserves in Brazil , $7 million of
impairment charges, primarily of intangible assets related to patents, and $7
million of transaction related costs associated with the acquisition of two
oilseed processing facilities in Europe .
Foreign exchange results in 2018 were losses of $104 million , compared to gains
of $85 million in 2017. Results for 2018 were primarily driven by the impact of
the devaluation of the Argentine peso on U.S. dollar denominated debt in
Argentina to fund operations.
Other income (expenses) - net was income of $79 million in 2018, compared to
income of $56 million in 2017. The increase was primarily due to improved
results from equity method investments in Asia and income earned from financial
services.
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Segment EBIT increased by$389 million in 2018 to$645 million , from$256 million in 2017. The increase was mainly due to higher soy crush margins, partially offset by foreign exchange losses. Edible Oil Products Segment- Edible oil products segment net sales increased by 14% in 2018 to$9.1 billion , compared to$8.0 billion in 2017, resulting primarily from a 17% increase in volumes, driven by our acquisition of Loders inMarch 2018 and the full year impact of production facilities inEurope acquired in 2017. This was partially offset by lower prices inBrazil due to high stocks of soybean oil in the domestic market resulting from the strong soy crushing environment. Cost of goods sold in 2018 increased 14% compared to 2017, which is in line with the increase in net sales noted above, and primarily driven by the impact of the recent acquisitions. Gross profit in 2018 increased to$554 million compared to$499 million in 2017. The increase was primarily due to the contribution to results by Loders and higher volumes and improved margins for margarine inEurope , which was partially offset by lower margins in our Brazilian packaged oil business. SG&A expenses increased by 14% to$412 million in 2018 compared with$361 million in the same period a year ago. The increase was primarily related to the acquisition of Loders, including$19 million of integration costs. These increases were partially offset by lower costs in all other regions from GCP and the depreciation of the Brazilian real against theU.S. dollar. Segment EBIT decreased to$122 million in 2018, from$126 million in 2017. Increased gross profit primarily from the acquisition of Loders was more than offset by weaker margins inBrazil and higher SG&A and other expenses. Milling Products Segment- Milling products segment net sales increased 7% to$1,691 million in 2018 compared to$1,575 million in 2017. The increase was due to higher volumes inBrazil andMexico driven by increased demand in various market segments, and higher prices inMexico , as well as the acquisition ofMinsa USA in the first quarter of 2018. Cost of goods sold in 2018 increased 7% to$1,464 million compared to$1,366 million in 2017, which is in line with the increase in net sales noted above and primarily driven by the acquisition ofMinsa USA , partially offset by lower costs and favorable foreign currency translation impact inBrazil . Gross profit increased by 9% to$227 million in 2018, up from$209 million in 2017. The increase was primarily due to the acquisition ofMinsa USA and lower industrial costs inBrazil . SG&A expenses were essentially flat with$136 million in 2018 compared to$138 million in 2017, as added costs associated with theMinsa USA acquisition were offset by lower costs inBrazil due to the deprecation of the Brazilian real against theU.S. dollar and savings from GCP. Segment EBIT increased to$90 million in 2018 from$63 million in 2017 primarily due to better results in theU.S. and lower industrial costs and SG&A inBrazil . Sugar and Bioenergy Segment- Sugar and Bioenergy segment net sales decreased to$2,257 million in 2018 compared to$4,054 million in 2017. The 44% decrease in sales was driven by lower sales volumes primarily in trading and merchandising resulting from exiting our international trading and merchandising business and lower global prices of sugar. Our sugarcane milling volumes and yields were negatively impacted by drought conditions during the first half of the year, followed by excessive rain in the fourth quarter of 2018. Cost of goods sold decreased by 42% to$2,276 million in 2018 compared to$3,955 million in 2017, which is substantially in line with the decrease in net sales. 2018 results also included$10 million of restructuring charges compared to$22 million of restructuring charges in 2017 related to our industrial operations, as well as$3 million in indirect tax credits in 2018, compared to$16 million in 2017. Gross profit was a loss of$19 million in 2018, compared to income of$99 million in 2017, primarily in our sugarcane milling operations, due to lower sugar sales volumes and a decrease in sugar prices and margins globally, and lower results in our international trading and merchandising business as we exited this business during 2018. SG&A expenses decreased by$2 million to$112 million in 2018 from$114 million in 2017, primarily due to the favorable impact of the depreciation of the Brazilian real against theU.S. dollar, partially offset by higher employee separation and professional services costs related to our GCP. Foreign currency results in 2018 were gains of$7 million compared to$11 million in 2017. These results relate primarily to gains on foreign currency hedges on forward sales positions. Other income (expenses) - net was income of$4 million in 2018, compared to expense of$4 million in 2017, which is primarily associated with results in our equity method investments. 36
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Segment EBIT decreased to a loss of$135 million in 2018 from a loss of$12 million in 2017, primarily due to lower volumes, global sugar prices and margins, the exiting of our international sugar trading activities and a$16 million loss on the sale of an equity investment inBrazil . Fertilizer Segment- Fertilizer segment net sales increased to$460 million in 2018, compared to$406 million in 2017, primarily due to higher international fertilizer prices, partially offset by lower volumes in our port activities inBrazil . Cost of goods sold in 2018 were$390 million compared to$381 million in 2017. The increase was primarily due to the higher costs of imported fertilizer inventories, partially offset by the impact of industrial cost reduction initiatives. Cost of goods sold in 2018 included$1 million of severance and other employee benefit costs, compared to$13 million in 2017. Gross profit increased by$45 million to$70 million in 2018, from$25 million in 2017. The increase was primarily due to higher margins inArgentina , benefits from our restructuring activities and lower severance and other employee benefit costs. SG&A expenses increased by$4 million to$23 million in 2018 from$19 million in 2017. SG&A expenses in 2017 benefited from an insurance recovery and gains on sales of assets. Foreign exchange results for 2018 were a loss of$6 million compared to a loss of$1 million in 2017. Results for 2018 relate primarily to foreign currency hedges in the first six months of the year for the import of inventories. Segment EBIT increased by$36 million to$39 million in 2018 from$3 million in 2017. The increase was primarily due to stronger margins inArgentina . Other- Other segment EBIT (loss) of$24 million in 2018 relates to a loss on extinguishment of debt, which was recorded in other income (expense). See Note 17 - Long-Term Debt and Credit Facilities, to our consolidated financial statements included in this Annual Report on Form 10-K for more information. Interest-A summary of consolidated interest income and expense for the periods indicated follows: Year Ended December 31, (US$ in millions) 2018 2017 Interest income$ 31 $ 38 Interest expense (339 ) (263 ) Interest income decreased by$7 million to$31 million in 2018 compared to$38 million in 2017, primarily related to lower outstanding balances and lower interest rates, primarily inBrazil . Interest expense increased$76 million to$339 million in 2018 from$263 million in 2017, primarily due to higher average debt balances associated with funding the Loders acquisition and higher working capital needs, as well as higher interest rates. These increases were partially offset by the reversal of interest related to ICMS tax credits inBrazil . Discontinued Operations- Income from discontinued operations (retail fertilizer business inBrazil ) in 2018 was$10 million , compared to nil in 2017. The income for 2018 was mainly comprised of a gain on the final settlement from the liquidation of an entity in 2004, foreign exchange gains due to the depreciation of the Brazilian real, and the recovery of bad debt provisions, partially offset by an$11 million charge related to the final settlement on the sale of the Brazilian retail fertilizer business in 2013. Liquidity and Capital Resources Liquidity Our main financial objectives are to prudently manage financial risks, ensure consistent access to liquidity and minimize cost of capital in order to efficiently finance our business and maintain balance sheet strength. We generally finance our ongoing operations with cash flows generated from operations, issuance of commercial paper, borrowings under various bilateral and syndicated revolving credit facilities, term loans and proceeds from the issuance of senior notes. Acquisitions and long-lived assets are generally financed with a combination of equity and long-term debt. Our current ratio, which is a widely used measure of liquidity and is defined as current assets divided by current liabilities, was 1.55 and 1.54 atDecember 31, 2019 and 2018, respectively. 37
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Cash and Cash Equivalents-Cash and cash equivalents were$320 million atDecember 31, 2019 and$389 million atDecember 31, 2018 . Cash balances are managed in accordance with our investment policy, the objectives of which are to preserve the principal value of our cash assets, maintain a high degree of liquidity and deliver competitive returns subject to prevailing market conditions. Cash balances are invested in short-term deposits with highly rated financial institutions and inU.S. government securities. Readily Marketable Inventories ("RMI")-RMI are agricultural commodity inventories, such as soybeans, soybean meal, soybean oil, corn, and wheat that are readily convertible to cash because of their commodity characteristics, widely available markets and international pricing mechanisms. Total RMI reported at fair value were$3,934 million and$4,532 million atDecember 31, 2019 andDecember 31, 2018 , respectively (see Note 5 - Inventories, to our consolidated financial statements included as part of this Annual Report on Form 10-K). Financing Arrangements and Outstanding Indebtedness-We conduct most of our financing activities through a centralized financing structure that provides the company efficient access to debt and capital markets. This structure includes a master trust, the primary assets of which consist of intercompany loans made toBunge Limited and its subsidiaries. Certain ofBunge Limited's 100% owned finance subsidiaries,Bunge Limited Finance Corp. ,Bunge Finance Europe B.V. andBunge Asset Funding Corp. , fund the master trust with short and long-term debt obtained from third parties, including through our commercial paper program and certain credit facilities, as well as the issuance of senior notes. Borrowings by these finance subsidiaries carry full, unconditional guarantees byBunge Limited . Revolving Credit Facilities-AtDecember 31, 2019 , we had$4,315 million of aggregate committed borrowing capacity under our commercial paper program and various revolving bilateral and syndicated credit facilities, of which$4,315 million was unused and available. The following table summarizes these facilities as of the periods presented: Total Committed Borrowings Capacity Outstanding Commercial Paper Program and Revolving Credit Facilities Maturities December 31, 2019 December 31, 2019 December 31, 2018 Commercial Paper 2023 $ 600 $ - $ - Long-Term Revolving Credit Facilities (1) 2022 - 2023 3,715 - 500 Total $ 4,315 $ - $ 500
(1) Borrowings under the revolving credit facilities that have maturities
greater than one year from the date of the consolidated balance sheets are
classified as long-term debt, consistent with the long-term maturity of
the underlying facilities. However, individual borrowings under the
revolving credit facilities are generally short-term in nature, bear
interest at variable rates and can be repaid or renewed as each such
individual borrowing matures.
On December 16, 2019 , we entered into an amendment and restatement agreement
(the "Amendment and Restatement Agreement") which amends and extends our
unsecured $1.75 billion revolving credit facility we entered into on December
12, 2017 (as amended by the Amendment and Restatement Agreement, the "Revolving
Credit Facility"), adding a sustainability-linked mechanism to the facility.
Through the sustainability-linked mechanism, the interest rate under the
Revolving Credit Facility is tied to five sustainability performance targets
that highlight and measure the continued advancement of our sustainability
initiatives across the following three areas: 1) reducing greenhouse gas
emissions by improving industrial efficiency; 2) increasing traceability for
main agricultural commodities; and 3) supporting increasing levels of adoption
of sustainable practices across the wider soybean and palm supply chain. We may
from time to time, with the consent of the agent, request one or more of the
existing lenders or new lenders to increase the total commitments in an amount
not to exceed $250 million pursuant to an accordion provision set forth in the
Revolving Credit Facility. Pursuant to the Amendment and Restatement Agreement,
the Revolving Credit Facility will mature on December 12, 2022 . Borrowings under
the Revolving Credit Facility will bear interest at LIBOR plus a margin, which
will vary from 0.30% to 1.30%, based on the senior long-term unsecured debt
ratings provided by Moody's Investors Services Inc. and S&P Global Ratings.
Amounts under the Revolving Credit Facility that remain undrawn are subject to a
commitment fee payable quarterly in arrears at a rate of 35% of the margin
specified above, which will vary based on the rating level at each such
quarterly payment date. We also will pay a fee that will vary from 0.10% to
0.40% based on our utilization of the Revolving Credit Facility. We had no
borrowings outstanding at December 31, 2019 , under the Revolving Credit
Facility.
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We had no borrowings outstanding atDecember 31, 2019 under our unsecured$1,100 million five-year syndicated revolving credit agreement (the "Credit Agreement") with certain lenders party thereto maturingDecember 14, 2023 . We have the option to request an extension of the maturity date of the Credit Agreement for two additional one-year periods, subject to the consent of the lenders. Borrowings under the Credit Agreement will bear interest at LIBOR plus a margin, which will vary from 1.00% to 1.625%, based on the credit ratings of our senior long-term unsecured debt ("Rating Level"). Amounts under the Credit Agreement that remain undrawn are subject to a commitment fee at rates ranging from 0.09% to 0.225%, varying based on the Rating Level. We may, from time to time, request one or more of the existing lenders or new lenders to increase the total commitments under the Credit Agreement by up to$200 million pursuant to an accordion provision. We had no borrowings outstanding atDecember 31, 2019 under our unsecured$865 million revolving credit facility, maturingSeptember 6, 2022 (the "2022 Facility"). Borrowings under the 2022 Facility bear interest at LIBOR plus a margin, which will vary from 1.00% to 1.75% per annum, based on the credit ratings of our senior long-term unsecured debt. Amounts under the 2022 Facility that remain undrawn are subject to a commitment fee payable quarterly based on the average undrawn portion of the 2022 Facility at rates ranging from 0.125% to 0.275%, based on the credit ratings of our senior long-term unsecured debt. Our commercial paper program is supported by committed back-up bank credit lines (the ''Liquidity Facility'') equal to the amount of the commercial paper program provided by lending institutions that are required to be rated at least A-1 byStandard & Poor's and P-1 byMoody's Investor Services . The cost of borrowing under the Liquidity Facility would typically be higher than the cost of issuance under our commercial paper program. AtDecember 31, 2019 , no borrowings were outstanding under the commercial paper program and no borrowings were outstanding under the Liquidity Facility. The Liquidity Facility is our only revolving credit facility that requires lenders to maintain minimum credit ratings. InNovember 2019 , the$700 million , 5-year revolving credit facility, maturing onMay 1, 2023 was converted into a term loan and then subsequently transferred to the recently formed joint venture,BP Bunge Bioenergia , on a non-recourse basis. In addition to committed credit facilities, from time to time, through our financing subsidiaries, we enter into bilateral short-term credit lines as necessary based on our financing requirements. AtDecember 31, 2019 there were no borrowings outstanding under these bilateral short-term credit lines. Short and long-term debt-Our short and long-term debt decreased by$378 million atDecember 31, 2019 fromDecember 31, 2018 , primarily due to decreased working capital requirements at the end of the year. For the year endedDecember 31, 2019 , our average short and long-term debt outstanding was approximately$6,142 million compared to approximately$6,929 million for the year endedDecember 31, 2018 . Our long-term debt outstanding balance was$4,223 million atDecember 31, 2019 compared to$4,622 million atDecember 31, 2018 . The following table summarizes our short-term debt activity atDecember 31, 2019 . Weighted Weighted Average Highest Average Outstanding Interest Balance Average Interest Balance at Rate at Outstanding Balance Rate December 31, December 31, During During During (US$ in millions) 2019 2019 (1) 2019 (1) 2019 (1) 2019 (1) Bank Borrowings $ 771 13.83 %$ 1,579 $ 1,140 7.58 % Commercial Paper - - 600 413 2.67 % Total $ 771 13.83 %$ 1,553 6.28 %
(1) Includes
Eastern European, South American, and
average interest rate of 27.16% as of December 31, 2019 .
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The following table summarizes our short and long-term debt:
December 31,
(US$ in millions) 2019 2018
Short-term debt: (1)
Short-term debt (2) $ 771 $ 750
Current portion of long-term debt 507 419
Total short-term debt 1,278
1,169
Long-term debt: Revolving credit facility expiring 2022 (4) -
500
Term loan due 2019 - fixed Yen interest rate of 0.96% (Tranche B) -
54
Term loan due 2024 - three-month Yen LIBOR plus 0.75% (Tranche A) (5) 281
258
Term loan due 2024 - three-month LIBOR plus 1.30% (Tranche B) (5) 89
85
3.50% Senior Notes due 2020 499
498
3.00% Senior Notes due 2022 398
397
1.85% Senior Notes due 2023 - Euro 899
916
4.35% Senior Notes due 2024 596
595
3.25% Senior Notes due 2026 696
695
3.75% Senior Notes due 2027 595 594 Other 170 30 Subtotal 4,223 4,622 Less: Current portion of long-term debt (507 ) (419 ) Total long-term debt (3) 3,716 4,203 Total debt$ 4,994 $ 5,372
(1) Includes secured debt of
(2) Includes
certain Central and Eastern European, South American, and
countries at a weighted average interest rate of 27.16% and 23.61% as of
(3) Includes secured debt of
(4) On
facility totaling
for two additional years, to
(5) On
the maturity date to
Credit Ratings-
Short-term Long-term
Debt(1) Debt Outlook
Standard & Poor's A-1 BBB Negative
Moody's P-1 Baa3 Stable
Fitch F1 BBB- Stable
(1) Short-term rating applies only to
under our commercial paper program.
Our debt agreements do not have any credit rating downgrade triggers that would
accelerate the maturity of our debt. However, credit rating downgrades would
increase our borrowing costs under our credit facilities and, depending on their
severity, could impede our ability to obtain credit facilities or access the
capital markets in the future on competitive terms. A significant increase in
our borrowing costs could impair our ability to compete effectively in our
business relative to competitors with higher credit ratings.
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Our credit facilities and certain senior notes require us to comply with specified financial covenants, including minimum net worth, minimum current ratio, a maximum debt to capitalization ratio, and limitations on secured indebtedness. We were in compliance with these covenants as ofDecember 31, 2019 . Trade Receivable Securitization Program-We initially entered into our trade receivable securitization program (the "Program") inJune 2011 , which provides us with an additional source of liquidity. OnMay 26, 2016 ,Bunge and certain of its subsidiaries renewed and amended the$700 million Program, which terminates onMay 26, 2021 . Each committed purchaser's commitment to fund trade receivables sold under the Program would have terminated onMay 26, 2019 unless extended in accordance with the terms of the receivables transfer agreement. OnFebruary 19, 2019 , we exercised a portion of the$300 million accordion feature under this Program to increase the aggregate size of the facility by$100 million to an aggregate of$800 million and extended the committed purchasers' commitment to fund trade receivables under the Program untilMay 26, 2020 .December 31 , (US$ in millions) 2019
2018
Receivables sold which were derecognized from
$ 801 $ 826 Deferred purchase price included in Other current assets$ 105
The table below summarizes the cash flows and discounts of our trade receivables
associated with the Program. Servicing fees under the Program were not
significant in any period.
Years Ended December 31,
(US$ in millions) 2019 2018 2017
Gross receivables sold $ 10,120 $ 9,803 $ 10,022
Proceeds received in cash related to transfer of
receivables $ 9,868 $ 9,484 $ 9,734
Cash collections from customers on receivables
previously sold $ 8,434 $ 9,173 $ 9,659
Discounts related to gross receivables sold
included in SG&A $ 15 $ 14 Non-cash activity for the program in the reporting period is represented by the difference between gross receivables sold and cash collections from customers on receivables previously sold. Our risk of loss following the sale of the trade receivables is limited to the deferred purchase price receivable (the "DPP"), which atDecember 31, 2019 and 2018 had a fair value of$105 million and$128 million , respectively, and is included in other current assets in our consolidated balance sheets (see Note 19 - Trade Receivables Securitization Program, to our consolidated financial statements included as part of this Annual Report on Form 10-K). The DPP will be repaid in cash as receivables are collected, generally within 30 days. Delinquencies and credit losses on trade receivables sold under the Program during the years endedDecember 31, 2019 , 2018 and 2017 were insignificant. Interest Rate Swap Agreements-We may use interest rate swaps as hedging instruments and record the swaps at fair value in the consolidated balance sheets with changes in fair value recorded contemporaneously in earnings. Additionally, the carrying amount of the associated debt is adjusted through earnings for changes in the fair value due to changes in benchmark interest rates. 41
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Equity-Total equity is set forth in the following table:
December 31,
(US$ in millions) 2019 2018
Convertible perpetual preference shares $ 690 $ 690
Common shares 1 1
Additional paid-in capital 5,329 5,278
Retained earnings 6,437 8,059
Accumulated other comprehensive income (5,624 ) (6,935 )
5,913 6,173
Noncontrolling interests 117 205
Total equity $ 6,030 $ 6,378
Total Bunge shareholders' equity was $5,913 million at December 31, 2019
compared to $6,173 million at December 31, 2018 . The decrease in Bunge
shareholders' equity during the year ended December 31, 2019 was primarily due
to $283 million and $34 million of declared dividends to common and preferred
shareholders, respectively, and net loss attributable to Bunge of $1,280
million , partially offset by the release of $1,493 million of cumulative
translation losses that were reclassified to earnings in connection with the
sale of our Brazilian sugar and bioenergy operations.
Noncontrolling interest decreased to $117 million at December 31, 2019 from $205
million at December 31, 2018 primarily due to dividends paid and returns of
capital to non-controlling interest holders, as well as from an agreement for
Bunge to purchase certain noncontrolling interests from the holder, partially
offset by income attributable to our noncontrolling interest entities.
At December 31, 2019, we had 6,899,683 4.875% cumulative convertible perpetual
preference shares outstanding with an aggregate liquidation preference of $690
million . Each convertible perpetual preference share has an initial liquidation
preference of $100 , which will be adjusted for any accumulated and unpaid
dividends. The convertible perpetual preference shares carry an annual dividend
of $4.875 per share payable quarterly. As a result of adjustments made to the
initial conversion price because cash dividends paid on Bunge Limited's common
shares exceeded certain specified thresholds, each convertible perpetual
preference share is convertible, at the holder's option, at any time into 1.2224
Bunge Limited common shares, based on the conversion price of $81.8087 per
share, subject to certain additional anti-dilution adjustments (which represents
8,434,172 Bunge Limited common shares at December 31, 2019 ). At any time, if the
closing price of our common shares equals or exceeds 130% of the conversion
price for 20 trading days during any consecutive 30 trading days (including the
last trading day of such period), we may elect to cause the convertible
perpetual preference shares to be automatically converted into Bunge Limited
common shares at the then-prevailing conversion price. The convertible perpetual
preference shares are not redeemable by us at any time.
Cash Flows
Our cash flows from operations vary depending on, among other items, the market
prices and timing of the purchase and sale of our inventories. Generally, during
periods when commodity prices are rising, our Agribusiness operations require
increased use of cash to support working capital to acquire inventories and fund
daily settlement requirements on exchange traded futures that we use to minimize
price risk related to the purchase and sale of our inventories.
2019 Compared to 2018-In 2019, our cash and cash equivalents, and restricted
cash decreased by $71 million , compared to a decrease of $212 million in 2018.
Cash used for operating activities was $808 million for the year ended
December 31, 2019 compared to cash used for operating activities of $1,264
million for the year ended December 31, 2018 . Net cash outflows from operating
activities was lower for the year ended December 31, 2019 , primarily due to the
lower use of cash associated with beneficial interests in securitized trade
receivables, partially offset by higher working capital requirements, when
compared to the year ended December 31, 2018 . Cash provided by (used for)
operating activities for all periods presented reflects the adoption of ASU
2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash
Receipts and Cash Payments (a consensus of the Emerging Issues Task Force ),
which changed the presentation of cash flows in relation to our trade
receivables securitization program. Particularly impacted are the cash receipts
from payments on the deferred purchase price, which are now classified as cash
inflows from investing activities, whereas previously they were classified as
inflows from operating activities.
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Certain of our non-U.S. operating subsidiaries are primarily funded withU.S. dollar-denominated debt, while currency risk is hedged withU.S. dollar-denominated assets. The functional currency of our operating subsidiaries is generally the local currency. The financial statements of our subsidiaries are calculated in the functional currency, and when the local currency is the functional currency, translated intoU.S. dollar.U.S. dollar-denominated loans are remeasured into their respective functional currencies at exchange rates at the applicable balance sheet date. Also, certain of ourU.S. dollar functional operating subsidiaries outside theU.S. are partially funded with local currency borrowings, while the currency risk is hedged with local currency denominated assets. Local currency loans inU.S. dollar functional currency subsidiaries outside theU.S. are remeasured intoU.S. dollars at the exchange rate on the applicable balance sheet date. The resulting gain or loss is included in our consolidated statements of income as foreign exchange gains or losses. For the years endedDecember 31, 2019 andDecember 31, 2018 , we recorded foreign currency losses of$139 million and$139 million , respectively, which were included as adjustments to reconcile net income to cash used for operating activities in the line item "Foreign exchange (gain) loss on net debt" in our consolidated statements of cash flows. This adjustment is required as these losses are non-cash items that arise from financing activities and therefore will have no impact on cash flows from operations. Cash provided by investing activities was$1,503 million for the year endedDecember 31, 2019 compared to$410 million for the year endedDecember 31, 2018 . During 2019, payments were made for capital expenditures of$524 million , primarily related to the replanting of sugarcane for our industrial sugar business inBrazil , which were subsequently transferred to theBP Bunge Bioenergia joint venture inDecember 2019 , as well as other capital projects at various facilities. In addition, payments were made for investments of$393 million , primarily related to deposits inSouth America and promissory notes related to financial services, which were more than offset by proceeds from such investments and the sale of equity securities associated with an investment subsequent to its initial public offering of$449 million . Cash provided by investing activities was primarily associated with proceeds of$1,312 million from beneficial interests in securitized trade receivables and$729 million from the divestiture of businesses and disposals of property, plant, and equipment. During 2018, payments were made for capital expenditures of$493 million , primarily related to replanting of sugarcane for our industrial sugar business inBrazil , which were subsequently transferred to theBP Bunge Bioenergia joint venture inDecember 2019 , and the upgrade of our crush facility inItaly , as well as other capital projects at various facilities. In addition, we acquired Loders for$908 million , net of cash acquired, andMinsa USA for$73 million , net of cash acquired. Further, payments were made for investments of$1,184 million , primarily related to deposits, treasuries and bonds inSouth America related to financial services, which were substantially offset by proceeds from such investments of$1,098 million . Cash provided by investing activities was primarily associated with proceeds of$1,888 million from beneficial interests in securitized trade receivables, as well as cash inflows related to settlements of net investment hedges of$66 million in the year endedDecember 31, 2018 , primarily driven by the depreciation of the Brazilian real relative to theU.S. dollar in 2018. Cash used for financing activities was$771 million in the year endedDecember 31, 2019 , compared to cash provided by financing activities of$631 million for the year endedDecember 31, 2018 . The net decrease of$438 million in borrowings in 2019 was primarily related to lower working capital needs as well as lower overall debt needs following the transfer of our industrial sugar business inBrazil to theBP Bioenergia joint venture. In addition, we paid dividends of$317 million to our common shareholders and holders of our convertible preference shares. The net increase of$956 million in borrowings in 2018 was primarily related to the funding of acquisitions, financing capital expenditures and funding working capital needs. In 2018, dividends paid to our common shareholders and holders of our convertible preference shares were$305 million . 2018 Compared to 2017-In 2018, our cash and cash equivalents, and restricted cash decreased by$212 million , compared to a decrease of$333 million in 2017. Cash used for operating activities was$1,264 million for the year endedDecember 31, 2018 compared to cash used for operating activities of$1,975 million for the year endedDecember 31, 2017 . Net cash outflows from operating activities was lower for the year endedDecember 31, 2018 , primarily due to the lower use of cash associated with beneficial interests in securitized trade receivables and higher net income during 2018, partially offset by the increased working capital requirements compared to the year endedDecember 31, 2017 . Certain of our non-U.S. operating subsidiaries are primarily funded withU.S. dollar-denominated debt, while currency risk is hedged withU.S. dollar-denominated assets. The functional currency of our operating subsidiaries is generally the local currency. The financial statements of our subsidiaries are calculated in the functional currency, and when the local currency is the functional currency, translated intoU.S. dollar.U.S. dollar-denominated loans are remeasured into their respective functional currencies at exchange rates at the applicable balance sheet date. Also, certain of ourU.S. dollar functional operating subsidiaries outside theU.S. are partially funded with local currency borrowings, while the currency risk is hedged with local currency denominated assets. Local currency loans inU.S. dollar functional currency subsidiaries outside theU.S. are remeasured intoU.S. dollars at the exchange rate on the applicable balance sheet date. The resulting gain or loss is included in our consolidated statements of income as foreign exchange gains or losses. For the years endedDecember 31, 2018 andDecember 31, 2017 , we recorded foreign currency losses of$139 million and$21 million , respectively, which were included as 43
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adjustments to reconcile net income to cash used for operating activities in the line item "Foreign exchange (gain) loss on net debt" in our consolidated statements of cash flows. This adjustment is required as these gains or losses are non-cash items that arise from financing activities and therefore will have no impact on cash flows from operations. Cash provided by investing activities was$410 million for the year endedDecember 31, 2018 compared to cash provided by investing activities of$1,819 million for the year endedDecember 31, 2017 . During 2018, payments were made for capital expenditures of$493 million , primarily related to replanting of sugarcane for our industrial sugar business inBrazil and the upgrade of our crush facility inItaly , as well as other capital projects at various facilities. In addition, we acquired Loders for$908 million , net of cash acquired, andMinsa USA for$73 million , net of cash acquired. Further, payments were made for investments of$1,184 million , primarily related to deposits, treasuries and bonds inSouth America related to financial services, which were substantially offset by proceeds from such investments of$1,098 million . Cash provided by investing activities was primarily associated with proceeds of$1,888 million from beneficial interests in securitized trade receivables (due to the change in accounting described above), as well as cash inflows related to settlements of net investment hedges of$66 million in the year endedDecember 31, 2018 , primarily driven by the depreciation of the Brazilian real relative to theU.S. dollar in 2018. During 2017, payments were made for capital expenditures of$662 million , primarily related to the upgrade and expansion of an export terminal in theU.S. , replanting of sugarcane for our industrial sugar business, the expansion of a crushing facility inBrazil and the upgrade of our crush facility inItaly . In addition, we acquired two oilseed processing plants inthe Netherlands andFrance for$318 million , an edible oils business inArgentina for$26 million and an olive oil and seed oil producer inTurkey for$23 million , net of cash acquired. Additionally, we had cash outflows related to settlements of net investment hedges of$20 million , primarily driven by the appreciation of the Brazilian real relative to the US dollar in 2017, and payments for investments in affiliates relating to our G3, SB Oils and Tapajos joint ventures, as well as the acquisition of a non-controlling stake inAgricola Alvorada , a Brazilian agribusiness company during 2017. Proceeds from and payments for investments included primarily purchases and sales of short-term investments. Cash provided by investing activities was primarily associated with proceeds of$2,981 million from beneficial interests in securitized trade receivables. Cash provided by financing activities was$631 million in the year endedDecember 31, 2018 , compared to cash used for financing activities of$180 million for the year endedDecember 31, 2017 . The net increase of$956 million in borrowings in 2018 was primarily related to the funding of acquisitions, financing capital expenditures and funding working capital needs. In addition, we paid dividends of$305 million to our common shareholders and holders of our convertible preference shares. In 2017, dividends paid to our common shareholders and holders of our convertible preference shares were$281 million . Brazilian Farmer Credit Background-We advance collateralized funds to counterparties (farmers and crop resellers), primarily to secure the origination of soybeans for our soybean processing facilities inBrazil . These activities are generally intended to be short-term in nature. The ability of our counterparties to repay these amounts is affected by agricultural economic conditions in the relevant geography, which are, in turn, affected by commodity prices, currency exchange rates, crop input costs and crop quality and yields. As a result, these arrangements are typically secured, including by a farmer's crop and, in many cases, land and other assets. In the event of counterparty default, we generally initiate legal proceedings to recover the defaulted amounts. However, the legal recovery process through the judicial system is a long-term process, generally spanning a number of years. Additionally, we may seek to renegotiate certain terms of our contract with the defaulting supplier in order to accelerate the recovery of amounts owed. Because Brazilian farmer credit exposures are denominated in local currency, reported values are impacted by movements in the value of the Brazilian real when translated intoU.S. dollars. FromDecember 31, 2018 toDecember 31, 2019 , the Brazilian real depreciated by approximately 4%, decreasing the reported farmer credit exposure balances when translated intoU.S. dollars. We periodically evaluate the collectability of our farmer receivables and record allowances if we determine that collection is doubtful. We base our determination of the allowance on analyses of the credit quality of individual accounts, also considering the economic and financial condition of the farming industry and other market conditions, as well as the value of any collateral related to amounts owed. We continuously review defaulted farmer receivables for impairment on an individual account basis. We consider all accounts in legal collections processes to be defaulted and past due. For such accounts, we determine the allowance for uncollectible amounts based on the fair value of the associated collateral, net of estimated costs to sell. For all renegotiated accounts (current and past due), we consider changes in farm economic conditions and other market conditions, our historical experience related to renegotiated accounts, and the fair value of collateral in determining the allowance for doubtful accounts. Secured Advances to Suppliers and Prepaid Commodity Contracts-We purchase soybeans through prepaid commodity purchase contracts (advance cash payments to suppliers against contractual obligations to deliver specified quantities of soybeans in the future) and secured advances to suppliers (advances to suppliers against commitments to deliver soybeans in 44
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the future), primarily inBrazil . These financing arrangements are typically secured by the farmer's future crop and mortgages on the farmer's land, buildings and equipment, and are generally settled after the farmer's crop is harvested and sold. Interest earned on secured advances to suppliers of$26 million ,$30 million and$44 million for the years endedDecember 31, 2019 , 2018 and 2017, respectively, is included in net sales in the consolidated statements of income. The table below shows details of prepaid commodity contracts and secured advances to suppliers outstanding at our Brazilian operations as of the dates indicated. See Note 6 - Other Current Assets and Note 12 - Other Non-Current Assets, to our consolidated financial statements included as part of this Annual Report on Form 10-K for more information. December
31,
(US$ in millions) 2019
2018
Prepaid commodity contracts$ 98 $ 199 Secured advances to suppliers (current) 336
248
Total (current) 434
447
Commodities not yet priced(1) (9 ) (6 ) Net 425
441
Secured advances to suppliers (non-current) 134
162
Total (current and non-current) 559
603
Allowance for uncollectible amounts (current and non-current)
(1) Commodities delivered by suppliers that are yet to be priced are reflected
at prevailing market prices at
Capital Expenditures Our cash payments made for capital expenditures were$524 million ,$493 million and$662 million for the years endedDecember 31, 2019 , 2018 and 2017, respectively. We intend to make capital expenditures of approximately$450 million in 2020. The forecasted decrease compared to prior years is primarily due to the sale of our Brazilian sugar and bioenergy operations, as we will no longer have expenditures for sugar planting and associated maintenance. Our priorities for 2020 capital expenditures are to maintain the cash generating capacity of our assets through maintenance, compliance, and safety initiatives, as well as certain productivity and growth projects. We intend to fund these capital expenditures primarily with cash flows from operations. Off-Balance Sheet Arrangements Guarantees We have issued or were party to the following guarantees atDecember 31, 2019 : Maximum Potential (US$ in millions) Future Payments Unconsolidated affiliates guarantee (1)(2) $ 300 Residual value guarantee (3) 254 Total $ 554 (1) We have issued guarantees to certain financial institutions related to debt of certain of our unconsolidated affiliates. The terms of the guarantees are equal to the terms of the related financings which have maturity dates through 2034. There are no recourse provisions or collateral that would enable us to recover any amounts paid under these guarantees. In addition, one of our subsidiaries has guaranteed the obligations of two of its affiliates and in connection therewith has secured its guarantee obligations through a pledge of one of its affiliate's shares plus loans receivable from the affiliate to the financial institutions in the event that the guaranteed obligations are enforced. Based on the 45
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amounts drawn under such debt facilities atDecember 31, 2019 , our potential liability was$168 million and we have recorded a$16 million obligation related to these guarantees. (2) We have issued guarantees to certain third parties related to the
performance of our unconsolidated affiliates. The terms of the guarantees
are equal to the completion date of a port terminal which is expected to
be completed in 2020. There are no recourse provisions or collateral that
would enable us to recover any amounts paid under these guarantees. At
December 31, 2019 , our maximum potential future payments under these
performance guarantees was $46 million , and no obligation has been
recorded related to these guarantees.
(3) We have issued guarantees to certain financial institutions which areparty 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 at various
dates from 2020 through 2026. At
recorded related to these guarantees. Any obligation recorded would be
recognized in Current operating lease obligations or Non-current operating
lease obligations (see Note 27, Leases, to our consolidated financial
statements).
We have provided a Guaranty to the Director of theIllinois Department of Agriculture as Trustee forBunge North America, Inc. ("BNA"), an indirect wholly-owned subsidiary, which guarantees all amounts due and owing by BNA, to grain producers and/or depositors in theState of Illinois who have delivered commodities to BNA'sIllinois facilities. In addition, we have provided full and unconditional parent level guarantees of the outstanding indebtedness under certain credit facilities entered into, and senior notes issued by, our subsidiaries. AtDecember 31, 2019 , our consolidated balance sheet includes debt with a carrying amount of$4,688 million related to these guarantees. This debt includes the senior notes issued by two of our 100% owned finance subsidiaries,Bunge Limited Finance Corp. andBunge Finance Europe B.V. There are largely no restrictions on the ability ofBunge Limited Finance Corp. andBunge Finance Europe B.V. or any otherBunge subsidiary to transfer funds toBunge Limited .
Contractual Obligations
The following table summarizes our scheduled contractual obligations and their
expected maturities at
expected to have on our liquidity and cash flows in the future periods
indicated.
Payments due by period
2025 and
(US$ in millions) Total 2020 2021 - 2022 2023 - 2024 thereafter
Short-term debt $ 771 $ 771 $ - $ - $ -
Long-term debt(1) 4,204 512 518 1,871 1,303
Variable interest rate
obligations 25 6 11 8 -
Interest obligations on fixed
rate debt 550 124 198 130 98
Non-cancelable lease
obligations(2) 859 243 345 163 108
Capital commitments 39 39 - - -
Freight supply agreements(3) 190 84 53 53 -
Inventory purchase commitments 705 691 14 - -
Power supply purchase
commitments 42 27 7 6 2
Other commitments and
obligations(4) 89 37 42 6 4
Total contractual cash
obligations(5) $ 7,474 $ 2,534 $ 1,188 $ 2,237 $ 1,515
(1) Excludes components of long-term debt attributable to fair value hedge
accounting of
premiums of $18 million .
(2) Represents future minimum payments under non-cancelable leases with
initial terms of one year or more. Minimum lease payments have not been
reduced by minimum sublease income receipts of
periods under non-cancelable subleases.
(3) Represents purchase commitments for time on ocean freight vessels and
railroad freight lines for the purpose of transporting agriculturalcommodities. The ocean freight service agreements are short term contracts
with a duration of less than a year. Ocean freight service agreements with
terms in excess of one year are included in non-cancelable lease
obligations. The railroad freight service agreements require a minimum
monthly payment regardless of the actual level of freight services used.
The costs of our freight supply agreements are typically passed through to
our customers
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as a component of the prices we charge for our products. However, changes in the
market value of such freight services compared to the rates at which we have
contracted them may affect margins on the sales of agricultural commodities.
(4) Represents other purchase commitments and obligations, such as take-or-pay
contracts, throughput contracts, and debt commitment fees.
(5) Does not include estimated payments of liabilities associated with
uncertain income tax positions. As of December 31, 2019 , Bunge had tax
liabilities of $53 million , including interest and penalties. At thistime, we are unable to make a reasonably reliable estimate of the timing
of payments in individual years in connection with these tax liabilities;
therefore, such amounts are not included in the above contractual
obligations table. See Note 14 - Income Taxes to our consolidated
financial statements.
Employee Benefit Plans
We expect to contribute $19 million to our defined benefit pension plans and $5
million to our postretirement benefit plans in 2020.
Critical Accounting Policies and Estimates
The Company's accounting policies are more fully described in Note 1 - Nature of
Business, Basis of Presentation, and Significant Accounting Policies to our
consolidated financial statements included as part of this Annual Report on
Form 10-K. As disclosed in Note 1, the preparation of financial statements in
conformity with U.S. GAAP requires management to make substantial judgment or
estimation in their application that may significantly affect reported amounts
in the financial statements and accompanying notes. Actual results could differ
significantly from those estimates. The Company believes that the following
discussion addresses the Company's most critical accounting policies, which are
those that are most important to the portrayal of the Company's financial
condition and results of operations and require management's most difficult,
subjective and complex judgments.
Inventories and Derivatives
Our RMI, forward RMI purchase and sale contracts, and exchange traded futures
and options are primarily valued at fair value. RMI are freely-traded, have
quoted market prices, may be sold without significant additional processing and
have predictable and insignificant disposal costs. We estimate fair values of
commodity inventories and forward purchase and sale contracts on these
inventories based on exchange-quoted prices, adjusted for differences in local
markets. Certain inventories may utilize significant unobservable data related
to local market adjustments to determine fair value. The significant
unobservable inputs for RMI and physically settled forward purchase and sale
contracts 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, we use proprietary
information such as purchase and sale contracts and contracted prices to value
freight, premiums and discounts in our contracts. Changes in the fair values of
these inventories and contracts are recognized in our consolidated statements of
income as a component of Cost of goods sold. If we used different methods or
factors to estimate fair values, amounts reported as inventories and unrealized
gains and losses on derivative contracts in the consolidated balance sheets and
Cost of goods sold could differ. Additionally, if market conditions change
subsequent to year-end, amounts reported in future periods as inventories,
unrealized gains and losses on derivative contracts, and Cost of goods sold
could differ.
Allowances for Uncollectible Accounts
Accounts receivable and secured advances to suppliers are stated at historical
carrying amounts net of write-offs and allowances for uncollectible accounts. We
establish an allowance for uncollectible trade accounts receivable and secured
advances to farmers based on historical experience, farming, economic and other
market conditions, as well as specific customer collection issues. Uncollectible
accounts are written off when a settlement is reached for an amount that is less
than the outstanding historical balance or when we have determined that
collection of the balance is unlikely.
We follow the accounting guidance on the disclosure of the credit quality of
financing receivables and the allowance for credit losses which requires
information to be disclosed at disaggregated levels, defined as portfolio
segments and classes. Based upon an analysis of credit losses and risk factors
to be considered in determining the allowance for credit losses, we have
determined that the long-term receivables from farmers in Brazil are a single
portfolio segment.
We evaluate this single portfolio segment by class of receivables, which is
defined as a level of information (below a portfolio segment) in which the
receivables have the same initial measurement attribute and a similar method for
assessing and monitoring risk. We have identified accounts in legal collection
processes and renegotiated amounts as classes of long-term
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receivables from farmers. Valuation allowances for accounts in legal collection processes are determined by us on individual accounts based on the fair value of the collateral provided as security for the secured advance or credit sale. The fair value is determined using a combination of internal and external resources, including published information concerning Brazilian land values by region. To determine the valuation allowances for renegotiated amounts, we consider our historical experience with the individual farmers, current weather and crop conditions, as well as the fair value of non-crop collateral. For both classes, a long-term receivable from farmers inBrazil is considered impaired, based on current information and events, if we determine it to be probable that all amounts due under the original terms of the receivable will not be collected. Recognition of interest income on secured advances to farmers is suspended once the farmer defaults on the originally scheduled delivery of agricultural commodities as the collection of future income is determined not to be probable. No additional interest income is accrued from the point of default until ultimate recovery, where amounts collected are credited first against the receivable and then to any unrecognized interest income.Goodwill When we acquire a business, the consideration is first assigned to identifiable assets and liabilities, including intangible assets, based on estimated fair values, with any excess recorded as goodwill. Determining fair value requires significant estimates and assumptions based on an evaluation of a number of factors, including market participants, projected growth rates, the amounts and timing of future cash flows, and the discount rates applied to the cash flows. Determining the useful life of an asset also requires significant judgement. Our goodwill balance is not amortized to expense. Instead, it is tested for impairment at least annually. We perform our annual impairment analysis during the fourth quarter. If events or indicators of impairment occur between annual impairment analyses, we perform an impairment analysis at that date. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant asset. In testing for a potential impairment of goodwill, we: (1) verify there are no changes to our reporting units with goodwill balances; (2) allocate goodwill to our various reporting units to which the acquired goodwill relates; (3) determine the carrying value, or book value, of our reporting units; (4) estimate the fair value of each reporting unit using a discounted cash flow model and/or using market multiples; (5) compare the fair value of each reporting unit to its carrying value; and (6) if the estimated fair value of a reporting unit is less than the carrying value, we recognize an impairment charge for such amount, but not exceeding the total amount of goodwill allocated to that reporting unit. The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis, including the identification of our reporting units, identification and allocation of the assets and liabilities to each of our reporting units, and determination of fair value. In estimating the fair value of a reporting unit for the purposes of our annual or periodic impairment analysis, we make estimates and significant judgments about the future cash flows of that reporting unit aligned with management's strategic business plans. Changes in judgment related to these assumptions and estimates could result in further goodwill impairment charges. We believe that the assumptions and estimates used are appropriate based on the information currently available to management. Estimates based on market earnings multiples of peer companies identified for the reporting unit may also be used, where available. Critical estimates in the determination of fair value under the income approach include, but are not limited to, assumptions about variables such as commodity prices, crop throughput and production volumes, profitability, future capital expenditures and discount rates, all of which are subject to a high degree of judgment. During the fourth quarter of 2019, we performed our annual impairment assessment and determined that the estimated fair values of our goodwill reporting units, except our Loders reporting unit, were substantially in excess of each of their carrying values. See Note 8,Goodwill , to our consolidated financial statements, for additional information relating to a goodwill impairment charge of$108 million recorded in 2019 related to our Loders reporting unit. Property, Plant and Equipment and Other Finite-Lived Intangible Assets Long-lived assets include property, plant and equipment and other finite-lived intangible assets. Property, plant and equipment and finite-lived intangible assets are depreciated or amortized over their estimated useful life on a straight line basis. When facts and circumstances indicate that the carrying values of these assets may be impaired, an evaluation of recoverability is performed by comparing the carrying value of the assets to the undiscounted projected future cash flows to be generated by such assets from their use and ultimate disposal. If it appears that the carrying value of our assets is not recoverable, we recognize an impairment loss as a charge against results of operations. Our judgments related to the expected useful lives of these assets and our ability to realize undiscounted cash flows in excess of the carrying amount of such assets are affected by factors such as the ongoing maintenance of the assets, changes in economic conditions and changes in operating performance. As we assess the ongoing expected cash flows and carrying amounts of these assets, changes in these factors could cause us to 48
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realize material impairment charges. We recorded impairment charges of$180 million for property, plant, and equipment and intangible assets during the year endedDecember 31, 2019 , primarily related to portfolio rationalization initiatives. Contingencies We are a party to a large number of claims and lawsuits, primarily non-income tax and labor claims inBrazil and non-income tax claims inArgentina , and have accrued our estimates of the probable costs to resolve these claims. These estimates have been developed in consultation with in-house and outside counsel and are based on an analysis of potential results, assuming a combination of litigation and settlement strategies. Future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategies relating to these proceedings. For more information on tax and labor claims inBrazil , see "Item 3. Legal Proceedings" Income Taxes We record valuation allowances to reduce our deferred tax assets to the amount that we are likely to realize. We consider projections of future taxable income and prudent tax planning strategies to assess the need for and the amount of the valuation allowances. If we determine that we can realize a deferred tax asset in excess of our net recorded amount, we decrease the valuation allowance, thereby decreasing income tax expense. Conversely, if we determine that we are unable to realize all or part of our net deferred tax asset, we increase the valuation allowance, thereby increasing income tax expense. We apply a "more likely than not" threshold to the recognition and de-recognition of tax benefits. Accordingly, we recognize the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. The calculation of our uncertain tax positions involves complexities in the application of intricate tax regulations in a multitude of jurisdictions across our global operations. Future changes in judgment related to the ultimate resolution of unrecognized tax benefits will affect the earnings in the quarter of such change. AtDecember 31, 2019 and 2018, we had recorded uncertain tax positions of$53 million and$120 million , respectively, in our consolidated balance sheets. For additional information on income taxes, please refer to Note 14 - Income Taxes to our consolidated financial statements included as part of this Annual Report on Form 10-K. Recoverable Taxes We evaluate the collectability of our recoverable taxes and record allowances if we determine that collection is doubtful. Recoverable taxes include value-added taxes paid upon the acquisition of property, plant and equipment, raw materials and taxable services and other transactional taxes, which can be recovered in cash or as compensation against income taxes, or other taxes we may owe, primarily inBrazil . Management's assumption about the collectability of recoverable taxes requires significant judgment because it involves an assessment of the ability and willingness of the applicable federal or local government to refund the taxes. The balance of these allowances fluctuates depending on the sales activity of existing inventories, purchases of new inventories, percentages of export sales, seasonality, changes in applicable tax rates, cash payments by the applicable government agencies and the offset of outstanding balances against income or certain other taxes owed to the applicable governments, where permissible. AtDecember 31, 2019 and 2018, the allowance for recoverable taxes was$78 million and$37 million , respectively. We continue to monitor the economic environment and events taking place in the applicable countries and in cases where we determine that recovery is doubtful, recoverable taxes are reduced by allowances for the estimated unrecoverable amounts. New Accounting Pronouncements See Note 1-Nature of Business, Basis of Presentation, and Significant Accounting Policies to our consolidated financial statements included as part of this Annual Report on Form 10-K.
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