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| BG > SEC Filings for BG > Form 10-Q on 11-May-2009 | All Recent SEC Filings |
11-May-2009
Quarterly Report
First Quarter 2009 Overview
Agribusiness - Our agribusiness segment results for the first quarter of 2009 were weak compared to unusually strong earnings in the same period last year. The first quarter of 2009 was characterized by weak global demand for soybean-based products due to poor economic conditions in end markets and substitution by other agricultural commodity products. This soft environment led to pressure on margins for soybeans, as well as soybean meal and oil. Weaker soybean meal and oil demand was partially offset by strong soybean demand from China, which benefited our grain origination activities. Margin declines were partially offset by lower selling, general and administrative (SG&A) expenses which benefited from the impact of the stronger U.S. dollar on foreign local currency costs when translated into U.S. dollars.
Fertilizer - Our fertilizer segment loss for the first quarter of 2009 resulted primarily from declining sales prices in both the domestic and international markets and high cost raw material and finished product inventories purchased during 2008 prior to international price declines. Margins were further impacted by lower volumes compared to exceptionally strong volumes in the same period of 2008 and by a $64 million inventory valuation write-down. Volume and margin declines were partially offset by lower SG&A expenses which benefited from the impact of the stronger U.S. dollar on foreign local currency costs when translated into U.S. dollars.
Edible oil products - Results in our edible oil products segment for the first quarter of 2009 were lower than those in the same period last year, primarily due to lower volumes and margins as strong competition and high cost inventory in certain geographies, primarily Brazil, limited our ability to recover the costs of high priced crude vegetable oil inventories purchased prior to recent price declines. Volume and margin declines were partially offset by lower SG&A expenses which benefited from the impact of the stronger U.S. dollar on foreign local currency costs when translated into U.S. dollars.
Milling products- Our milling products segment results increased from the same period last year primarily due to strong volumes in both wheat and corn milling. Results also benefited from the impact of the stronger U.S. dollar on foreign local currency costs when translated into U.S. dollars.
Segment Results
A summary of certain items in our condensed consolidated statements of income
and volumes by reportable segment for the periods indicated is set forth below.
Three Months Ended
March 31,
(US$ in millions, except volumes and
percentages) 2009 2008 Change
Volumes (in thousands of metric tons):
Agribusiness 27,633 26,712 3%
Fertilizer 2,061 2,666 (23)%
Edible oil products 1,394 1,391 -%
Milling products 1,163 994 17%
Total 32,251 31,763 2%
Net sales:
Agribusiness $ 6,633 $ 8,863 (25)%
Fertilizer 699 1,191 (41)%
Edible oil products 1,490 1,929 (23)%
Milling products 376 486 (23)%
Total $ 9,198 $ 12,469 (26)%
Cost of goods sold:
Agribusiness $ (6,420) $ (8,399) (24)%
Fertilizer (892) (941) (5)%
Edible oil products (1,411) (1,812) (22)%
Milling products (340) (450) (24)%
Total $ (9,063) $ (11,602) (22)%
Gross profit:
Agribusiness $ 213 $ 464 (54)%
Fertilizer (193) 250 (177)%
Edible oil products 79 117 (32)%
Milling products 36 36 -%
Total $ 135 $ 867 (84)%
Selling, general and administrative expenses:
Agribusiness $ (157) $ (220) (29)%
Fertilizer (57) (75) (24)%
Edible oil products (62) (80) (23)%
Milling products (18) (27) (33)%
Total $ (294) $ (402) (27)%
Foreign exchange gains (losses):
Agribusiness $ (20) $ (6)
Fertilizer 3 9
Edible oil products (2) 4
Milling products - -
Total $ (19) $ 7
Equity in earnings of affiliates:
Agribusiness $ (7) $ 9 (178)%
Fertilizer - 1 (100)%
Edible oil products 12 11 9%
Milling products 1 (1) 200%
Total $ 6 $ 20 (70)%
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Three Months Ended
March 31,
(US$ in millions, except volumes and
percentages) 2009 2008 Change
Noncontrolling interest:
Agribusiness $ (7) $ 4 (275)%
Fertilizer (13) (50) (74)%
Edible oil products (4) (1) 300%
Milling products - - -%
Total $ (24) $ (47) (49)%
Other income (expense):
Agribusiness $ (4) $ -
Fertilizer (2) (2)
Edible oil products (1) -
Milling products - (1)
Total $ (7) $ (3)
Segment earnings before interest and
tax:
Agribusiness $ 18 $ 251 (93)%
Fertilizer (262) 133 (297)%
Edible oil products 22 51 (57)%
Milling products 19 7 171%
Total (1) $ (203) $ 442 (146)%
Depreciation, depletion and amortization:
Agribusiness $ (42) $ (45) (7)%
Fertilizer (32) (42) (24)%
Edible oil products (17) (16) 6%
Milling products (4) (5) (20)%
Total $ (95) $ (108) (12)%
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A reconciliation of total segment EBIT to net (loss) income follows:
Three Months Ended
March 31,
(US$ in millions) 2009 2008
Reconciliation of total segment earnings before
interest and tax:
Total segment EBIT $ (203) $442
Interest income 36 48
Interest expense (67) (98)
Income tax benefit (expense) 34 (117)
Noncontrolling share of interest and tax 5 14
Net (loss) income attributable to Bunge $ (195) $ 289
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Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
Agribusiness Segment. Agribusiness segment net sales decreased 25% primarily due to a decline in market prices for most agricultural commodities and commodity products in our portfolio, particularly soybeans and soybean meal and oil, attributable to lower global demand for these products as a result of poor economic conditions in end markets and substitution of soybean-based products by other agricultural commodities. Volumes increased 3%, mainly from growth in our sugar business. In our grain origination and oilseed processing activities, higher softseed volumes in Europe and strong soybean demand from China were more than offset by declines in our North American grain origination activities as demand for exports from North America was lower than in the first quarter of 2008, reflecting the lower soybean meal and oil demand conditions described above.
Cost of goods sold decreased 24% also due to a decline in market prices for agricultural commodity raw materials and the impact of a stronger U.S. dollar on foreign local currency costs of subsidiaries when translated into U.S. dollars.
Gross profit decreased 54% as a result of lower oilseed processing and distribution margins compared with exceptionally strong margins in the first quarter of 2008.
SG&A expenses decreased 29% primarily due to the favorable impact of a stronger U.S. dollar on foreign local currency costs when translated into U.S. dollars. The first quarter of 2008 included approximately $31 million of bad debt provisions related to South American farmer advances.
Foreign exchange losses in the first quarter of 2009 resulted primarily from continued depreciation of the Euro and Argentine Peso. Foreign exchange losses in the same period of 2008 related primarily to the volatility of the Brazilian realduring the period. Foreign exchange losses for both periods are substantially offset by inventory mark-to-market adjustments, which are included in cost of goods sold.
Equity in earnings of affiliates decreased to a loss of $7 million in the first quarter of 2009 from income of $9 million in the same quarter of 2008 due to lower results in our European and North American biofuels investments.
Noncontrolling interest of $7 million in the first quarter of 2009 was the noncontrolling interest attributable share of period gains, primarily in our European operations. In the same period of 2008, noncontrolling interest was $4 million of period losses.
Segment EBIT decreased by $233 million to $18 million from $251 million in the first quarter of 2008 largely due to lower gross profit, partially offset by lower SG&A expenses during the first quarter of 2009.
Fertilizer Segment. Fertilizer segment net sales decreased 41% driven primarily by lower average selling prices as a result of lower domestic and international fertilizer prices compared to the historically high levels of 2008. Sales prices were further impacted, particularly in Brazil, as competitors reduced selling prices in order to liquidate inventories in a tight credit environment. Volumes decreased 23% compared to exceptionally strong volumes in the same period last year when soybean farmers accelerated purchases because of favorable agricultural commodity prices and concerns about increasing crop input costs. Tight farmer credit in 2009, combined with lower agricultural commodity prices, resulted in purchases of fertilizer returning to historical seasonal norms.
Cost of goods sold decreased 5%, primarily as a result of the lower sales volumes and the favorable translation effect on local currency expenses of the weaker Brazilian real compared to the first quarter of 2008. These factors were largely offset by higher average raw material inventory costs in the first quarter of 2009 from purchases made in 2008 prior to the decline in international fertilizer prices and by a $64 million inventory valuation write-down.
Gross profit decreased 177%, despite recovery of approximately $150 million in foreign exchange losses recorded in 2008 as inventories were sold in the first quarter of 2009. The decrease in gross profit is primarily a result of lower selling prices, higher raw material and finished product inventory costs and lower sales volumes.
SG&A decreased by 24%, primarily as a result of the positive impact of a weaker Brazilian real on local currency expenses translated into U.S. dollars compared to the first quarter of 2008. The first quarter of 2008 included a provision of approximately $7 million for certain postretirement medical costs required to be paid by employers under Brazilian law as a result of court decisions which impacted employer interpretations of the related laws and regulations.
Foreign exchange gains decreased by $6 million to $3 million in the first quarter of 2009 primarily driven by lower U.S. dollar monetary liability positions during the first quarter of 2009 as imported raw material purchases were reduced.
Equity in earnings of affiliates decreased by $1 million compared to the first quarter of 2008 due to slightly lower results from Fosbrasil, our Brazilian joint venture which produces phosphoric acid.
Noncontrolling interest decreased 74% compared to the first quarter of 2008 due to lower earnings at Fosfertil.
Segment EBIT decreased 297% as a result of lower gross profit and lower foreign exchange gains, partially offset by lower SG&A expenses.
Edible Oil Products Segment. Edible oil products segment net sales decreased 23% compared to the first quarter of 2008, driven primarily by lower average selling prices for vegetable oils due to lower crude vegetable oil prices. Selling prices were also pressured by a highly competitive environment, particularly in Brazil.
Cost of goods sold decreased 22% due primarily to lower crude vegetable oil market prices, principally softseed and soybean oils. Prices of rapeseed and sunflower oils in Europe decreased 52% and 57%, respectively, compared to the first quarter of 2008 and prices of crude soybean oil were approximately 57% lower than in the same period of last year. Cost of goods sold also decreased as a result of the impact of the stronger U.S. dollar on foreign local currency costs when translated into U.S. dollars.
Gross profit decreased 32% primarily due to weaker margins in Brazil as strong competition kept selling prices low.
SG&A expenses decreased 23% primarily as a result of the impact of the stronger U.S. dollar on foreign local currency expenses when translated into U.S. dollars.
Foreign exchange results for the first quarter of 2009 decreased to a loss of $2 million from a gain of $4 million in the same period of 2008, primarily due to the strengthening of the U.S. dollar.
Equity in earnings of affiliates increased to $12 million in the first quarter of 2009 compared to $11 million in the same period of 2008 as a result of continued strong results from Saipol S.A.S, our European affiliate that processes and sells branded packaged vegetable oils in France.
Noncontrolling interest of $4 million in the first quarter of 2009 was the noncontrolling interest attributable share of period gains. Noncontrolling interest was $1 million of period gains in the same period of 2008.
Segment EBIT decreased 57% as a result of lower gross profit and foreign exchange losses, partially offset by lower SG&A expenses.
Milling Products Segment. Milling products segment net sales decreased 23% due primarily to lower average market selling prices for corn and wheat and related products. The impact of selling price declines was partially offset by a 17% increase in volumes.
Cost of goods sold decreased 24% as a result of lower raw material costs and the impact of a weaker Brazilian realon local currency costs when translated into U.S. dollars. Wheat and corn prices for the first quarter of 2009 decreased by 42% and 33%, respectively, from the same period of 2008.
Gross profit was flat compared with the first quarter of 2008 as sales and cost of goods sold declined with the lower prices of corn and wheat and related products.
SG&A expenses decreased 33% primarily due to lower selling expenses and the impact of a weaker Brazilian real on wheat milling local currency expenses when translated into U.S. dollars.
Segment EBIT increased 171% as SG&A expenses benefited from the impact of a weaker Brazilian real.
Interest. A summary of consolidated interest income and expense for the periods indicated follows:
Three Months Ended
March 31,
(US$ in millions, except percentages) 2009 2008 Change
Interest income $36 $48 (25)%
Interest expense (67) (98) (32)%
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Interest income decreased 25% primarily due to lower average interest bearing cash balances relating largely to lower sales. Interest expense decreased 32% due to lower average borrowings resulting from lower working capital requirements due primarily to lower commodity and fertilizer prices.
Income Tax Benefit (Expense). In the quarter ended March 31, 2009, we recorded an income tax benefit of $34 million compared to an income tax expense of $117 million in the quarter ended March 31, 2008. The effective tax rate for the three months ended March 31, 2009 was 16%, compared to 28% for the three months ended March 31, 2008.
Net (Loss) Income Attributable to Bunge. For the quarter ended March 31, 2009, net income attributable to Bunge decreased by $484 million to a net loss of $195 million, from net income of $289 million in the quarter ended March 31, 2008. This reduction was primarily the result of lower segment EBIT in all segments except milling products.
Liquidity and Capital Resources
Liquidity
Our primary financial objective is to maintain sufficient liquidity, balance sheet strength and financial flexibility to fund the operating and capital requirements of our business. We generally finance our ongoing operations with cash flows generated from operations, issuance of commercial paper, borrowings under various revolving credit facilities and, to a lesser extent, term loans, as well as proceeds from the issuance of senior notes. 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 1.72 and 1.63 at March 31, 2009 and December 31, 2008, respectively.
Cash and Cash Equivalents. Cash and cash equivalents were $498 million at March 31, 2009 and $1,004 million at December 31, 2008. Of these amounts, $301 million and $574 million, respectively, was held at Fosfertil, our non-wholly owned, publicly-traded subsidiary in Brazil, which is included in our consolidated financial statements. Fosfertil's cash and cash equivalents are generally not made available to other Bunge companies until a cash dividend distribution is made by Fosfertil.
Readily Marketable Inventories. Readily marketable inventories 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. Readily marketable inventories of $2,562 million at March 31, 2009 and $2,619 million at December 31, 2008 were included in our agribusiness segment
inventories for each period. In addition, inventories at fair value of $109 million and $122 million were included in our edible oil products segment inventories at March 31, 2009 and December 31, 2008, respectively. We recorded interest expense on debt financing readily marketable inventories of $7 million and $30 million in the three months ended March 31, 2009 and 2008, respectively.
Financing Arrangements and Outstanding Indebtedness. We conduct most of our financing activities through a centralized financing structure, designed to act as our central treasury, which enables us and our subsidiaries to borrow more efficiently. This structure includes a master trust facility, the primary assets of which consist of intercompany loans made to Bunge Limited and its subsidiaries. Certain of Bunge Limited's 100%-owned subsidiaries fund the master trust with long- and short-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 subsidiaries carry full, unconditional guarantees by Bunge Limited.
Revolving Credit Facilities. At March 31, 2009, we had an aggregate of approximately $3,362 million of available, committed borrowing capacity under our commercial paper program and revolving credit facilities. The following table summarizes these facilities and outstanding amounts as of the periods presented:
Total
Availability Borrowings Outstanding
Commercial Paper Program March 31, March 31, December 31,
and Revolving Credit Facilities Maturities 2009 2009 2008
(US$ in millions)
Commercial Paper 2012 $600 $170 $-
Short-Term Revolving Credit
Facilities 2009 850 - -
Long-Term Revolving Credit
Facilities (1)(2)(3) 2009-2011 2,082 - -
Total $3,532 $170 $-
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(2) During 2008, one participant bank with a commitment of $18 million in a $650 million syndicated revolving credit facility maturing in 2011 was placed into state receivership, and accordingly, total availability under such facility has been reduced by the bank's commitment amount.
(3) Included in this amount is our $850 million, five-year revolving credit facility maturing in June 2009, which is discussed further below.
Our $600 million commercial paper program is supported by committed back-up bank credit lines of $600 million (we refer to such back-up bank credit lines as the liquidity facility) provided by lending institutions that are rated at least A-1 by Standard & Poors and P-1 by Moody's Investors Services. The liquidity facility, which matures in June 2012, permits us, at our option, to set up direct borrowings or issue commercial paper in an aggregate amount of up to $600 million. The cost of borrowing under the liquidity facility would typically be higher than the cost of borrowing under our commercial paper program. At March 31, 2009, we had $170 million of borrowings outstanding under the commercial paper program.
From time to time, we also enter into uncommitted short-term credit lines with lending institutions. These credit lines are entered into as necessary based on our liquidity requirements. At both March 31, 2009 and December 31, 2008, $50 million was outstanding under such short-term credit lines. These short-term credit lines are included in short-term debt in our condensed consolidated balance sheets.
Our $850 million, five-year revolving credit facility and our $850 million, 364-day, revolving credit facility, are scheduled to mature in June and November 2009, respectively. We intend to renew these facilities on or prior to their respective maturity dates. Due to current tight conditions in the credit markets, we expect to face increased borrowing spreads as well as higher bank fees in connection with these renewals.
Short-and Long-Term Debt. Our short- and long-term debt increased by $100 million at March 31, 2009 from December 31, 2008, primarily due to a slight increase in working capital resulting from lower trade accounts payables.
The following table summarizes our short- and long-term indebtedness at March 31, 2009 and December 31, 2008:
March 31, December 31,
(US$ in
millions) 2009 2008
Short-term debt (1):
Short-term debt $617 $473
Current portion of long-term debt 68 78
Total short-term debt 685 551
Long-term debt (2):
Long-term debt, variable interest rates indexed
to LIBOR (3) plus 0.60% to 0.80%, payable
through 2010 - -
Term loans due 2011-LIBOR (3) plus 1.25% to
1.75% 475 475
Term loan due 2011-fixed interest rate of 4.33% 250 250
Japanese Yen term loan due 2011-Yen LIBOR
(4) plus 1.40% 102 110
6.78% Senior Notes, Series B, due 2009 53 53
7.44% Senior Notes, Series C, due 2012 351 351
7.80% Senior Notes due 2012 200 200
5.875% Senior Notes due 2013 300 300
5.35% Senior Notes due 2014 500 500
5.10% Senior Notes due 2015 382 382
5.90% Senior Notes due 2017 250 250
BNDES(5) loans, variable interest rate indexed
. . .
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