[BUNGE LIMITED LETTERHEAD]
December 6, 2006
VIA EDGAR TRANSMISSION AND FACSIMILE
Securities and Exchange Commission
Division of Corporation Finance
100 F Street N.E.
Washington, D.C. 20549
Attention: Jill S. Davis
Jonathan Duersch
Re: Bunge Limited
Form 10-K for Fiscal Year Ended December 31, 2005
Filed March 15, 2006
Form 10-Q for Fiscal Quarters Ended June 30, 2006 and
September 30, 2006
Filed August 9, 2006 and November 9, 2006
File No. 001-16625
Dear Ms. Davis and Mr. Duersch:
On behalf of Bunge Limited (the "Company" or "Bunge"), set forth below
are the Company's responses to the comments (the "Comments") of the staff (the
"Staff") of the Securities and Exchange Commission (the "Commission"), received
in your letter dated November 21, 2006 concerning the Company's
above-referenced periodic filings. For the purposes of this letter, the Company
refers to its Annual Report on Form 10-K for the fiscal year ended December 31,
2005 as its "2005 Form 10-K"; its Quarterly Reports on Form 10-Q for the
quarterly periods ended June 30, 2006 and September 30, 2006 as its "Second
Quarter 2006 Form 10-Q" and its "Third Quarter 2006 Form 10-Q," respectively.
For your convenience, the Company's responses follow the sequentially numbered
Comments copied in bold from your letter. All page numbers in the responses
below refer to the page numbers of the relevant periodic filing.
Where appropriate, we have provided revised disclosures from our 2005
Form 10-K reflecting the Company's responses to the Comments. The Company
proposes to reflect these revised disclosures in future periodic filings.
Page 2
Form 10-K for the Fiscal Year Ended December 31, 2005
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Management's Discussion and Analysis of Financial Condition and Results of
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Operations, page 29
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Income Tax Benefit (Expense), page 39
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1. We note your disclosure regarding the change in the tax valuation
allowance which you attribute to three items, namely i) legal restructuring
of your Brazilian subsidiaries, ii) increased statutory taxable income due
to real appreciation, and iii) actions undertaken to recover the net
operating loss carry-forwards. Please more fully describe to us these items
in detail and compare and contrast how these items affected the assumptions
underlying the likelihood of net loss carry-forward recoverability in
fiscal years 2004 and 2005. Expand your critical accounting policies and
management's discussion and analysis as to provide investors with an
understanding of each of these items and the assumptions management uses to
estimate net loss carry-forward recoverability.
In response to the Staff's Comment, we have provided the following
additional description of the $79 million reversal of deferred tax
valuation allowances recorded in 2005.
Legal Restructuring of the Brazilian Subsidiaries
-------------------------------------------------
Bunge has had substantial operations in many different industries in Brazil
since 1938. These operations were conducted through several different
operating subsidiaries incorporated in Brazil. Bunge's ownership interest
in these operating subsidiaries was held through several different holding
companies that also had operations in the past, but had since become
non-operational. Additionally, the majority of the operating subsidiaries
had minority investors.
In the early 1990's, our management developed and began to carry out a
strategy of selling non-core assets and focusing our efforts on growth in
the agribusiness segment. The disposition of the non-core assets was
substantially completed by 2000. This strategy primarily involved the sale
of non-core operating subsidiaries. In addition, beginning in 2000, our
management developed a strategy of increasing our ownership interest in
subsidiaries involved in our Brazilian agribusiness and fertilizer business
that were not wholly owned. In that regard, in the second half of 2004, we
acquired the remaining 17% of the outstanding capital stock which we did
not already own of Bunge Brasil S.A., a Brazilian publicly-traded holding
company for our Brazilian operations. Following the acquisition, we owned
100% of Bunge Brasil S.A. and its subsidiaries, Bunge Alimentos S.A. and
Bunge Fertilizantes S.A.
Under Brazilian federal tax laws, each legal entity must file a "stand
alone" tax return. There is no concept of consolidated tax returns in
Brazil, which results in operating loss carryforwards being trapped in
separate legal entities, as parent companies are not
Page 3
permitted to file a consolidated tax return. However, operating loss
carryforwards do not expire in Brazil.
Over a period of several years, some of our now non-operating Brazilian
companies had accumulated operating loss carryforwards for which valuation
allowances were recorded against the related deferred tax assets as it was
determined that it was more likely than not that the net operating loss
carryfowards would not be recoverable as future income was not adequate to
recover the operating loss carryforwards, as these companies did not have
revenue generating activities adequate to use the operating loss
carryfowards. Prior to 2005, we did not have tax planning strategies in
place to recover the operating loss carryforwards.
After the completion of the purchase of the remaining capital stock of
Bunge Brasil S.A. in 2004, we began the development of a tax planning
strategy to simplify our Brazilian corporate structure that involved
actions that would result in the realization of the deferred tax assets. In
the third quarter of 2005, we began to execute our tax planning strategy,
which involved the merger of several subsidiaries, recapitalization of
certain subsidiaries, reducing their debt and changing certain Brazilian
federal statutory tax elections, all of which would likely allow us to use
a substantial portion of the operating loss carryforwards. As a result of
the execution of this tax planning strategy, we determined that certain of
the operating loss carryforwards, for which we had established valuation
allowances in prior years, were now more likely than not to be recoverable.
As a result, we reversed $38 million of the existing valuation allowances
in the third quarter of 2005.
Increased Statutory Net Income Due to Real Appreciation
-------------------------------------------------------
During 2005, the Brazilian real appreciated 13% versus the U.S. dollar. The
functional currency of our Brazilian subsidiaries is the real. In 2005, as
part of our foreign exchange hedging program, we initiated a tax planning
strategy to increase taxable income in our Brazilian subsidiaries that had
valuation allowances recorded against deferred tax assets representing net
operating loss carryforwards. This strategy primarily involved the use of
foreign currency derivatives whereby the Brazilian subsidiary would take a
short (liability) U.S. dollar monetary position. As a result of the
appreciation of the real during 2005, these subsidiaries generated
significant taxable foreign exchange gains which could be used to offset
against operating loss carryforwards for Brazilian income tax purposes. As
a result of the execution of this tax planning strategy, we determined that
certain of the net operating loss carryforwards, for which we had
established valuation allowances in prior years, were now more likely than
not to be recoverable. As a result, we reversed $28 million of valuation
allowances in the fourth quarter of 2005.
Actions Undertaken To Recover the Net Operating Loss Carryforwards
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As described above, the merger of non-operating Brazilian subsidiaries with
operating loss carryforwards into operating Brazilian subsidiaries with
income generating activities
Page 4
was the primary strategy used to reverse valuation allowances. As part of
these mergers, we recapitalized certain businesses, changed statutory tax
elections and used foreign currency derivatives and U.S. dollar-denominated
intercompany loans during a period of a strengthening Brazilian real to
generate local taxable income to facilitate the use of the operating loss
carryforwards by the newly merged entities. As a result of the execution of
the tax planning strategy, we determined that certain of the net operating
loss carryforwards for which we had established valuation allowances in
prior years were now more likely than not to be recoverable. As a result,
we reversed $13 million of valuation allowances in the fourth quarter of
2005.
In addition to the information provided on our critical accounting policies
under Income Taxes on page 54 of our 2005 Form 10-K, we propose to include
the following additional disclosures in our critical accounting polices and
management's discussion and analysis in response to the Staff's Comment:
"Our tax planning strategies in Brazil involve the use of foreign
currency derivatives, optimizing the capital structure of our
Brazilian subsidiaries to make it more tax efficient and using U.S.
dollar-denominated intercompany loans."
We request that the Staff permit us to reflect the additional disclosure on
a prospective basis as the proposed additional disclosure is not
significant in relation to our consolidated financial statements and
related disclosures.
2. Please confirm whether or not the net adjustments to the tax valuation
allowance included a component related to any uncertain tax positions and
describe those circumstances, if any.
We confirm that the net adjustments to the tax valuation allowances did not
include a component related to any uncertain tax positions.
Off-Balance Sheet Arrangement, page 49
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3. We note your disclosure indicating that you have entered into synthetic
lease agreements for barges and rail cars which you had originally owned.
Please provide us with the analysis you performed to determine whether or
not these arrangements qualified as variable interests which require
consolidation under FIN 46(R). Additionally, describe more fully the
synthetic lease terms and conditions.
We advise the Staff that no specific entity was created to hold the leased
assets. The asset pools were sold to and leased back from unaffiliated
insurance companies or groups of insurance companies. Where multiple
insurance companies are involved in a lease, a third party financial
institution serves as agent to collect and remit lease payments. There is
no entity or "deemed entity" involved in the transaction that would qualify
for consideration under FIN 46R.
Page 5
Initial terms of the synthetic leases vary from five to ten years at the
end of which renewal options are available. The agreements include purchase
options at various points after the initial and renewal terms. If the
purchase options are not exercised, Bunge would be obligated to pay to the
lessors any deficit between the proceeds of a fair value sale of the asset
group by the lessors and specified formulas for minimum required payment
amounts under make-whole agreements. These maximum required payments upon
lease termination were considered as part of total minimum lease payments
in our evaluation of the classification of the leases as operating in
accordance with SFAS No. 13, Accounting for Leases. Under the terms of the
leases, Bunge specifically retains depreciation deductions on the leased
assets for income tax reporting purposes.
Disclosure Controls and Procedures, page 59
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4. We note your statement that your disclosure controls and procedures are
effective in ensuring that material information required to be disclosed
has been made known to your Chief Executive and Chief Financial Officer in
a timely fashion. Please confirm, if true, that the controls and procedures
have been designed to ensure that information related to the company is
recorded, processed, summarized and reported on a timely basis. Please also
confirm, if true, that the controls and procedures are designed to ensure
that information required to be disclosed is accumulated and communicated
to your management, including your principal executive and principal
financial officers as appropriate to allow timely decisions regarding
required disclosure.
We confirm that our controls and procedures have been designed to ensure
that information related to the Company is recorded, processed, summarized
and reported on a timely basis. We also confirm that our controls and
procedures are designed to ensure that information required to be disclosed
is accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer as appropriate to allow
timely decisions regarding required disclosure. Please note that we revised
the "Disclosure Controls and Procedures" disclosure contained in Item 4 of
our Third Quarter 2006 Form 10-Q to clarify this matter and will continue
to use this revised disclosure in future periodic filings.
Financial Statements
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Consolidated Statement of Cash Flows, page F-7
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5. Please provide us with a schedule detailing the amounts and nature of the
items comprising the "other" line items under operating, investing and
financing activities.
We advise the Staff that we did not have items classified as "other" under
investing and financing activities in our consolidated statements of cash
flows.
We have provided below a schedule detailing the amounts and nature of the
items comprising the "other - net" line item under operating activities.
Other -net in our
Page 6
consolidated statements of cash flows under operating activities represents
the change in other current and non-current operating assets and
liabilities during the periods presented.
Year Ended December 31,
--------------------------------
(US$ in millions) 2005 2004 2003
--------------------------------
Gain on sale of property, plant and equipment (11) (6) (1)
Equity in earnings of affiliates (31) (13) (16)
Changes in other operating assets and liabilties,
excluding the effects of acquisitions and
dispositions:
Unrealized net loss (gain) on derivative contracts 72 71 (99)
Recoverable taxes (42) (101) (58)
Prepaid expenses and other current assets (133) 15 (2)
Other non-current assets (37) (122) (64)
Accrued liabilities (12) 164 13
Income taxes receivable or payable (61) 55 24
Advances on sales 44 12 57
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Total Other Net Operating Cash Flow (211) 75 (146)
====== ====== ======
6. Please clarify the nature of the items included in "Return of capital from
affiliates" which is presented as a component of investing activities.
We advise the Staff that the return of capital from affiliates of $38
million and $17 million included in our consolidated statements of cash
flows for the years ended December 31, 2005 and 2004, respectively,
represent a return of capital primarily from The Solae Company. We have a
28% ownership interest in this joint venture. The amounts presented as
return of capital represent the excess of cash distributed over the equity
in the earnings of Solae. The disclosure of the return of capital was
indicated in the second paragraph, last sentence of Note 10, Investments in
Affiliates, of the Notes to the Consolidated Financial Statements in our
2005 Form 10-K. The return of capital from affiliates was classified as an
investing activity in accordance with paragraph 16(b) of SFAS No. 95,
Statement of Cash Flows (SFAS No. 95).
7. Please provide us with a reconciliation of the changes in your comparative
balance sheet components to your statement of cash flows for each period
presented and include quantified detail of components in "all other items,
net". Additionally, please demonstrate how your disclosures have fully
complied with the requirement to provide supplemental information about
non-cash investing and financing activities. Based on our comparison of the
amounts reported on the face of the balance sheet it was not readily
apparent how the year-to-year changes were reflected in the amounts
reported in your statement of cash flow or disclosed. For example, but
without limitation, we were unable to determine whether or not the change
in the comparative trade accounts payable, trade accounts receivable,
inventory, and long-term debt balance sheet amounts were related
exclusively to
Page 7
foreign currency exchange rate changes, non-cash transactions or cash flow
classification. Refer to paragraphs 29 and 32 of SFAS 95.
In response to the Staff's Comment, we have provided the following
reconciliation of the changes in trade accounts receivable, inventories,
prepaid commodity purchase contracts, advances to suppliers and trade
accounts payable for the years ended December 31, 2005, 2004 and 2003.
(US$ in millions)
Prepaid
Trade commodity Advances Trade
accounts purchase to accounts
Year Ended December 31, 2003 receivable Inventories contracts suppliers payable
- -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 1,168 2,407 173 205 1,271
Sale of U.S. bakery business (28) (36) - - (19)
Sale and contribution of soy ingredients
operations to The Solae Company (47) (62) - - (22)
Bad debt (expense) recovery (3) - - - -
Change per the statements of cash flows 129 249 76 30 174
Effect of exchange rate changes 276 309 (2) 45 274
----- ------ ---- ---- -----
Balance, December 31, 2003 1,495 2,867 247 280 1,678
===== ====== ==== ==== =====
Prepaid
Trade commodity Advances Trade
accounts purchase to accounts
Year Ended December 31, 2004 receivable Inventories contracts suppliers payable
- -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 1,495 2,867 247 280 1,678
Bad debt (expense) recovery (49) - (9)
Change per the statements of cash flows 398 (328) (211) 341 164
Effect of exchange rate changes 84 97 1 85 56
----- ----- ---- ---- -----
Balance, December 31, 2004 1,928 2,636 37 697 1,898
===== ===== ==== ==== =====
Page 8
Prepaid
Trade commodity Advances Trade
accounts purchase to accounts
Year Ended December 31, 2005 receivable Inventories contracts suppliers payable
- -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 1,928 2,636 37 697 1,898
Transfer of bio-diesel assets to Diester
International S.A.S. (26) (12) - - (3)
Bad debt (expense) recovery (56) - - 16 -
Change per the statements of cash flows (270) 11 41 (135) (337)
Effect of exchange rate changes 126 134 15 57 245
----- ----- ---- ---- -----
Balance, December 31, 2005 1,702 2,769 93 635 1,803
===== ===== ==== ==== =====
For the quantified detail of components in "all other items, net", please
see our response to Comment 5 above. In addition, we have provided below a
reconciliation of the change in the current portion of long-term debt and
long-term debt for the years ended December 31, 2005, 2004 and 2003.
(US$ in millions)
Year Ended December 31,
- ----------------------------------------------------------------------------------------------
2005 2004 2003
- ----------------------------------------------------------------------------------------------
Balance beginning of the year 2,740 2,505 2,153
Proceeds from long-term debt 1,210 860 851
Repayment of long-term debt (952) (678) (529)
Conversion of 3.75% convertible notes
into Bunge Limited common shares (250) - -
Mark to market of debt designated as
hedged item in a fair value hedge of
interest rates (22) 37 -
Effect of exchange rate changes 9 16 30
----- ----- -----
Balance at end of year 2,735 2,740 2,505
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In accordance with paragraph 32 of SFAS No. 95, the non-cash transaction
that resulted in the conversion of the 3.75% convertible notes into the
Company's common shares was disclosed in the fifth paragraph of Note 16,
Long-Term Debt, of the Notes to the Consolidated Financial Statements in
our 2005 Form 10-K.
In addition, we have non-cash financing activities related to employee
stock compensation issuances, which is disclosed in Note 23, Stock-Based
Compensation, of the Notes to the Consolidated Financial Statements in our
2005 Form 10-K.
Page 9
Note 1 Basis of Presentation and Significant Accounting Policies, F-10
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8. We note your various investments in affiliates as disclosed in note 10.
Please expand your disclosure to address your consolidation policy
regarding variable interest entities and how you evaluate whether or not
consolidation is required related to these interests.
As of December 31, 2004, 2005 and September 30, 2006, Bunge has no
investments in affiliates that would be considered VIEs pursuant to FIN
46R. In response to the Staff's Comment, we propose to include the
following paragraph in our significant accounting policies to address our
consolidation policy regarding variable interest entities and our
evaluation regarding consolidation related to the interests in our
investments in affiliates.
"Bunge evaluates its equity investments for consolidation
pursuant to Financial Accounting Standards Board
Interpretation No. FIN 46R, Consolidation of Variable
Interest Entities, an Interpretation of Accounting Research
Bulletin No. 51 (FIN 46R). FIN 46R focuses on controlling
financial interests that may be achieved through arrangements
that do not involve voting interests. A variable interest
entity (VIE) is a legal structure that does not have equity
investors with voting rights or has equity investors that do
not provide sufficient financial resources for the entity to
support its activities. FIN 46R requires that a VIE be
consolidated by a company if that company is the primary
beneficiary of the VIE. The primary beneficiary of a VIE is
an entity that is subject to a majority of the risk of loss
from the VIE's activities or entitled to receive a majority
of the VIE's residual returns or both. As of [end of
period], Bunge has no investments in affiliates that would
be considered VIEs pursuant to FIN 46R."
We request that the Staff permit us to reflect the additional disclosure on
a prospective basis as the proposed additional disclosure is not
significant in relation to our consolidated financial statements and
related disclosures.
9. Please expand your disclosure to indicate how you evaluate and assess your
equity investees for impairment.
In response to the Staff's Comment, we propose to include the following
paragraph in our significant accounting policies to address our impairment
evaluation and assessment related to our equity investees:
"Bunge continually reviews its equity investments to determine whether
a decline in fair value below the cost basis is other-than-temporary.
Bunge considers various factors in determining whether to recognize an
impairment charge, including the length of time that the fair value of
the investment is less than Bunge's carrying value, the financial
condition, operating performance and near term prospects of the
investee, which include general market conditions specific to the
investee or the industry in which it operates, and Bunge's intent and
ability to hold the investment for a period of time sufficient to
allow for the recovery in fair value.
Page 10
Impairment charges for equity investees are included in Bunge's share
of earnings (loss) of affiliates."
We request that the Staff permit us to reflect the additional disclosure on
a prospective basis as the proposed additional disclosure is not
significant in relation to our consolidated financial statements and
related disclosures.
Note 5 Other Current Assets, page F-18
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10. We note your disclosure regarding secured advances to suppliers. Please
expand your disclosure to quantify the interest receivable component of
these advances and how you have accounted for interest income in your
consolidated statement of income. Expand your revenue recognition
accounting policy to describe classification and recognition of interest
income related to these secured advances and support your treatment with
reference to authoritative accounting guidance.
We advise the Staff that as previously disclosed in our Third Quarter 2006
Form 10-Q, we have corrected our classification of interest income earned
on secured advances to suppliers by reclassifying amounts from cost of
goods sold to net sales. We have provided below a schedule detailing the
amounts of interest income earned on secured advances to suppliers for the
periods indicated.
(US$ in millions)
Three Three Nine Nine Three Three Six Six
Months Months Months Months Months Months Months Months
Ended Ended Ended Ended Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30, June 30, June 30, June 30, June 30, For the Year Ended Dec. 31,
---------------------------
2006 2005 2006 2005 2006 2005 2006 2005 2005 2004 2003
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
17 22 62 75 21 24 45 53 102 66 30
We intend to reflect this corrected classification of interest income
earned on secured advances to suppliers in all future periodic filings and
we request that the Staff permit us to reflect this corrected
classification on a prospective basis as the proposed additional disclosure
resulting from this correction is not material in relation to our
consolidated financial statements and related disclosures.
Interest income on advances to suppliers results from an activity that is
integral to the ongoing operations of the Company. Advances to suppliers,
which in the case of the Company are advances to farmers, are a necessary
part of our grain origination and oilseed processing business as they
ensure our supply of raw materials (in this case unprocessed agricultural
commodities) for the Company's agribusiness operations. As such, we have
concluded that this activity is properly shown as a component of gross
profit due to its operational nature, and therefore, should be classified
as a component of net sales in accordance with paragraphs 78 and 79 of FASB
Statement of Concepts No. 6,
Page 11
Elements of Financial Statements, which are reproduced below (we have
highlighted the relevant passages for the Staff's reference):
78. Revenues are inflows or other enhancements of assets of an entity
or settlements of its liabilities (or a combination of both) from
delivering or producing goods, rendering services, or other
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activities that constitute the entity's ongoing major or central
----------------------------------------------------------------
operations.
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79. Revenues represent actual or expected cash flows (or the
equivalent) that have occurred or will eventuate as a result of
the entity's ongoing major or central operations. The assets
increased by revenues may be of various kinds - for example,
cash, claims against customers or clients, or goods or services
received, or increased value of a product resulting from
production. Similarly, the transactions and events from which
--------------------------------------
revenues arise and the revenue themselves are in many forms and
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are called by various names - for example, output, deliveries,
---------------------------
sales, fees, interest, dividends, royalties, and rent - depending
--------
on the kinds of operations involved and the way revenues are
recognized.
Paragraph 1 of Rule 5-03 of Regulation S-X of the Securities Exchange Act
of 1934, as amended, indicates the following in connection with income
statements:
Net sales and gross revenue: State separately: (a) Net sales of
tangible products (gross sales less discounts, returns and
allowances), (b) operating revenues of public utilities or others; (c)
income from rentals' (d) revenues from services; and (e) other
revenues.
In addition, in future filings, we will include the following paragraph in
our revenue recognition accounting policy to describe classification and
recognition of interest income related to secured advances to suppliers. In
addition, we will disclose in the Notes to our Consolidated Financial
Statements the amount of interest income related to these secured advances
included in net sales.
"Revenue Recognition - Sales of agricultural commodities, fertilizers
and all other products are recognized when title to the product and
risk of loss transfer to the customer, which is dependent on the
agreed upon sales terms with the customer. These sales terms provide
for passage of title either at the time shipment is made or at the
time of the delivery of product. Net sales are gross sales less
discounts related to promotional programs and sales taxes. Interest
income on secured advances to suppliers is included as a component of
net sales due to the operational nature of this item. Shipping and
handling costs are included as a component of cost of goods sold."
11. We note your disclosure on page 44 of your document indicating that you
generally settle your prepaid commodity purchase contracts and advances
with farmers after the crop is harvested and sold. Given the harvest cycle
and nature of farm
Page 12
operations please clarify why you have long-term secured advances. Expand
your disclosure to indicate the general terms of these long-term advances
and tell us whether or not these long-term advances are a renegotiation of
original advancement terms.
We advise the Staff that we have secured advances to suppliers, which in
the case of the Company are advances to farmers, with repayment terms of
more than 12 months, which are recorded in other non-current assets in our
consolidated balance sheets.
The repayment terms of our long-term secured advances to suppliers
generally range from two to three years. We extend secured advances to
suppliers on a long-term basis as Brazilian producers increase acreage used
for the production of agricultural commodities. These advances are used by
our suppliers to invest in the cultivation of newly converted land and
other supplies needed for the production of agricultural commodities. This
program ensures a future supply of agricultural commodities from the
increased acreage. Often, these new production areas will take two to three
years to reach normal yields.
Included in the total long-term secured advances to suppliers are advances
that were renegotiated from their original terms of $56 million and $55
million at December 31, 2005 and 2004, respectively, mainly due to crop
failures. These renegotiated advances are collateralized by a farmer's
future crops and a mortgage on the farmer's land, buildings and equipment.
In response to the Staff's Comment, we propose to include the following
paragraphs in our disclosure related to secured advances to farmers and
prepaid commodity contracts:
"The repayment terms of our long-term secured advances to
suppliers generally range from two to three years. We extend
secured advances to suppliers on a long-term basis as
Brazilian producers increase acreage used for the production
of agricultural commodities. These advances are used by our
suppliers to invest in the cultivation of newly converted
land and other supplies needed for the production of
agricultural commodities. This program ensures a future
supply of agricultural commodities from the increased
acreage. Often these new production areas will take two to
three years to reach normal yields.
Included in the long-term secured advances to suppliers are
advances that were renegotiated from their original terms of
$56 million and $55 million at December 31, 2005 and 2004,
respectively, mainly due to crop failures. These
renegotiated advances are collateralized by a farmer's
future crops and a mortgage on the land, buildings and
equipment."
We request that the Staff permit us to reflect this additional disclosure
on a prospective basis as the proposed additional disclosure is not
significant in relation to our consolidated financial statements and
related disclosures.
Page 13
Note 7 Goodwill, page F-19
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12. We note your disclosure indicating that you determine goodwill impairment
based on the reporting units estimated discounted future cash flows. Please
expand your disclosure to specifically define your reporting units based on
your operations.
In response to the Staff's Comment, we propose to include the following
paragraph to define our reporting units based on our operations as it
relates to our goodwill impairment disclosure:
"Bunge performs its annual goodwill impairment reviews and
tests on its reporting units in the fourth quarter of its
fiscal year. Bunge's reporting units are its operating
segments -agribusiness, edible oil products and milling
products."
We request that the Staff permit us to reflect this additional disclosure
on a prospective basis as the proposed additional disclosure is not
significant in relation to our consolidated financial statements and
related disclosures.
Note 20 Commitments and Contingencies, page F-13
- ------------------------------------------------
13. Please expand your disclosure to include assessments of the likelihood of
loss and obligations by legal matter using terms as defined in paragraph 3
of SFAS 5.
We advise the Staff that we are a party to a large number of claims and
lawsuits, primarily tax and labor claims in Brazil, of which there are no
individual material claims other than what has been separately disclosed in
Note 20, Commitments and Contingencies, of the Notes to the Consolidated
Financial Statements in our 2005 Form 10-K.
In response to the Staff's Comment, we propose to include the following
sentence in our commitment and contingencies disclosure relating to our
assessments of the likelihood of loss and obligations by legal matter:
"Bunge records liabilities related to its general claims and
lawsuits when the exposure item becomes probable and can be
reasonably estimated."
We request that the Staff permit us to reflect this additional disclosure
on a prospective basis as the proposed additional disclosure is not
significant in relation to our consolidated financial statements and
related disclosures.
14. We note your disclosure regarding your freight contracts which states,
"Actual amounts paid under these contracts may differ due to the variable
components of these agreements and the amount of income earned on the sales
of excess capacity." Please describe the variable components to which you
refer and clarify whether these variable components represent embedded
derivatives or if your freight contracts otherwise qualify as derivative
contracts. Please describe the
Page 14
authoritative accounting literature you have applied in accounting for
these arrangements.
We advise the Staff that we have determined at the inception of the
contracts that our freight contracts are not subject to the requirements of
SFAS 133, Accounting for Derivative Instruments and Hedging Activities,
(SFAS No. 133). In accordance with paragraph 10(b) and 58(b) of SFAS No.
133, and Implementation Issues C-12, Scope Exception: Interpreting the
Normal Purchases and Normal Sales Exception as on Election, and C-15, Scope
Exception: Normal Purchases and Normal Sales Exceptions for Certain
Option-Type Contracts and Forward Contracts in Electricity, our freight
contracts are normal purchase and sales contracts that provide for the
purchase of time on ocean freight vessels and freight service on railroad
lines for the purpose of transporting agricultural commodities in
quantities expected to be used by us over a reasonable period in the normal
course of business. It is important for us to enter into freight agreements
in advance of the actual sales of agricultural commodities to secure the
freight capacity needed to deliver future sales to our customers. There is
a limited amount of ocean and railroad freight capacity available and
agricultural commodities are an important international bulk commodity.
Our freight contracts do not contain net settlement provisions as described
in either paragraph 9(a) or 9(b) of SFAS No. 133. In addition, the freight
contracts do not permit the periodic cash settlement of gains or losses
settled on a net basis. We are required to take delivery of the underlying
freight services and there are no freestanding or embedded option
components of the freight contracts that permit modifications of the
services to be delivered or require the exercise of an option before the
freight services are rendered. The price of the freight contracts are based
on an underlying that is clearly and closely related to the freight
services being acquired.
The phrase "variable component of these agreements" refers to our railroad
freight service agreements in Brazil. Under the terms of these agreements,
we are charged based on the metric tons of agricultural products
transported and the market price on the date of delivery of the freight
services. However, we are charged a minimum monthly payment regardless of
the actual level of freight services used by us as a "capacity charge." It
is also important to note that these railroad freight services agreements
do not permit us to resell the underlying freight services to a third party
and, in any event, the underlying freight services are not readily
convertible to cash.
We account for the freight contracts as firmly committed, non-cancelable,
executory operating leases in accordance with paragraph 15 of SFAS No. 13,
Accounting for Leases, and paragraphs 35 to 40 of FASB Statement of
Concepts No. 6, Elements of Financial Statements.
Page 15
Forms 10-Q for the Fiscal Quarters Ended June 30, 2006 and September 30, 2006
- -----------------------------------------------------------------------------
15. Please revise your financial statements and disclosures as necessary to
comply with all applicable comments related to your fiscal year 2005 Form
10-KSB.
We propose to reflect our responses to all Comments in our future filings
of Quarterly Reports on Form 10-Q.
* * * *
The Company hereby acknowledges that:
o The Company is responsible for the adequacy and accuracy of the
disclosure in the filings;
o Staff comments or changes to disclosure in response to Staff comments
do not foreclose the Commission from taking any action with respect to
the filings; and
o The Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
If you or any other members of the Staff have any questions concerning the
matters referred to in this letter, please contact the undersigned at (914)
684-3490.
Sincerely,
/s/ WILLIAM M. WELLS
-----------------------------------
William M. Wells
Chief Financial Officer
cc: Christopher Bradley - Deloitte & Touche LLP
Andrew B. Janszky - Shearman & Sterling LLP