UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
November 13, 2002
BUNGE LIMITED
(Translation of registrant's name into English)
50 Main Street
White Plains, New York 10606
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F /X / Form 40-F / /
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes / / No /X/
BUNGE LIMITED
INDEX TO FORM 6-K
Page
----
FINANCIAL STATEMENTS 2
Consolidated Balance Sheets at September 30, 2002 and December 31, 2001 2
Consolidated Interim Statements of Income for the Three Months Ended and
Nine Months Ended September 30, 2002 and 2001 3
Consolidated Interim Statements of Cash Flows for the Nine Months Ended
September 30, 2002 and 2001 4
Notes to Consolidated Interim Financial Statements 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 17
Disclosure Regarding Forward-Looking Information 17
Results of Operations 17
Liquidity and Capital Resources 25
Acquisition of Cereol 28
Recent Developments:
Argentina 28
Brazil 29
Dividends 30
Critical Accounting Policies 30
Recent Accounting Pronouncements 30
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 31
OTHER INFORMATION 33
1
FINANCIAL STATEMENTS
BUNGE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNITED STATES DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 231 $ 199
Marketable securities......................................................... 16 6
Trade accounts receivable (less allowance of $54 and $63) .................... 649 881
Inventories (Note 3).......................................................... 1,863 1,368
Recoverable taxes............................................................. 38 75
Deferred income taxes......................................................... 103 84
Other current assets (Note 5)................................................. 839 671
------------- -------------
Total current assets............................................................. 3,739 3,284
------------- -------------
Property, plant and equipment, net............................................... 1,221 1,669
Goodwill......................................................................... 143 163
Deferred income taxes............................................................ 77 100
Other non-current assets......................................................... 162 227
------------- -------------
TOTAL ASSETS..................................................................... $ 5,342 $ 5,443
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt............................................................... $ 170 $ 803
Current portion of long-term debt............................................. 124 180
Trade accounts payable........................................................ 953 775
Other current liabilities (Note 6)............................................ 874 588
------------- -------------
Total current liabilities........................................................ 2,121 2,346
------------- -------------
Long-term debt (Note 7).......................................................... 1,308 830
Deferred income taxes............................................................ 125 126
Other non-current liabilities.................................................... 204 272
Commitments and contingencies (Note 9)
Minority interest in subsidiaries................................................ 364 493
Shareholders' equity:
Common shares, par value $.01; authorized - 240,000,000 shares; issued and
outstanding: 2002 - 99,261,733 shares, 2001 - 83,155,100 shares (Note 12)... 1 1
Additional paid-in capital.................................................... 1,998 1,706
Receivable from former shareholder (Note 8)................................... (76) (76)
Retained earnings............................................................. 575 435
Accumulated other comprehensive loss.......................................... (1,278) (690)
------------- -------------
Total shareholders' equity....................................................... 1,220 1,376
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................................... $ 5,342 $ 5,443
============= =============
The accompanying notes are an integral part of these consolidated interim
financial statements.
2
BUNGE LIMITED AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF INCOME
(UNITED STATES DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------- --------- -------- ---------
2002 2001 2002 2001
--------- --------- -------- ---------
(UNAUDITED) (UNAUDITED)
Net sales............................................................. $ 3,603 $ 3,151 $ 9,390 $ 8,312
Cost of goods sold.................................................... 3,107 2,818 8,390 7,613
--------- --------- -------- ---------
GROSS PROFIT.......................................................... 496 333 1,000 699
Selling, general and administrative expenses.......................... 132 126 371 320
--------- --------- -------- ---------
INCOME FROM OPERATIONS................................................ 364 207 629 379
Non-operating income (expense) - net (Note 10)........................ (177) (100) (283) (232)
--------- --------- -------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX AND MINORITY
INTEREST........................................................... 187 107 346 147
Income tax expense (Note 13).......................................... (65) (24) (104) (28)
--------- --------- -------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST............ 122 83 242 119
Minority interest..................................................... (27) (26) (61) (43)
--------- --------- -------- ---------
INCOME FROM CONTINUING OPERATIONS..................................... 95 57 181 76
Discontinued operations, net of tax benefit of $0..................... - - - 3
--------- --------- -------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE.......................................................... 95 57 181 79
Cumulative effect of a change in accounting principle, net of tax
benefit (expense) of $1 (2002) and $(4) (2001) (Note 2)............ - - (14) 7
--------- --------- -------- ---------
NET INCOME............................................................ $ 95 $ 57 $ 167 $ 86
========= ========= ======== =========
EARNINGS PER COMMON SHARE - BASIC (NOTE 14):
Income from continuing operations..................................... $ .96 $ .76 $ 1.91 $ 1.12
Discontinued operations............................................... - - - .04
Cumulative effect of a change in accounting principle................. - - (.15) .10
--------- --------- -------- ---------
Net income per share.................................................. $ .96 $ .76 $ 1.76 $ 1.26
========= ========= ======== =========
EARNINGS PER COMMON SHARE - DILUTED (NOTE 14):
Income from continuing operations..................................... $ .95 $ .76 $ 1.90 $ 1.12
Discontinued operations............................................... - - - .04
Cumulative effect of a change in accounting principle................. - - (.15) .10
--------- --------- -------- ---------
Net income per share.................................................. $ .95 $ .76 $ 1.75 $ 1.26
========= ========= ======== =========
The accompanying notes are an integral part of these consolidated interim
financial statements.
3
BUNGE LIMITED AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(UNITED STATES DOLLARS IN MILLIONS)
NINE MONTHS ENDED
SEPTEMBER 30,
--------- ----------
2002 2001
--------- ----------
(UNAUDITED)
OPERATING ACTIVITIES
Net income...................................................................... $ 167 $ 86
Adjustments to reconcile net income to cash provided by (used for) operating
activities:
Unrealized foreign exchange loss........................................... 247 49
Unrealized gain on marketable securities................................... - (11)
Bad debt expense........................................................... 17 18
Provision for recoverable taxes............................................ 32 -
Depreciation, depletion and amortization................................... 118 114
Cumulative effect of a change in accounting principle ..................... 14 -
Minority interest.......................................................... 61 43
Other - net................................................................ (21) (12)
Changes in operating assets and liabilities, excluding the effects of
acquisitions:
Marketable securities................................................... (4) 15
Trade accounts receivable............................................... 29 (45)
Inventories............................................................. (809) (516)
Recoverable taxes....................................................... (67) 102
Trade accounts payable.................................................. 381 108
Other - net............................................................. (11) 4
--------- ----------
Cash provided by (used for) operating activities .................... 154 (45)
INVESTING ACTIVITIES
Payments made for capital expenditures.......................................... (132) (151)
Business acquisitions, net of cash acquired..................................... (97) (9)
Proceeds from disposal of property, plant and equipment......................... 6 8
Proceeds from sale of investments............................................... 12 -
Proceeds from sale of discontinued operations................................... - 58
--------- ----------
Cash used for investing activities................................... (211) (94)
FINANCING ACTIVITIES
Net change in short-term debt................................................... (615) (199)
Proceeds from long-term debt.................................................... 1,068 53
Repayment of long-term debt..................................................... (507) (196)
Proceeds from sale of common shares............................................. 292 278
Dividends paid to shareholders.................................................. (27) -
Dividends paid to minority interest............................................. (27) (24)
Proceeds from receivable from former shareholder................................ - 18
--------- ----------
Cash provided by (used for) financing activities..................... 184 (70)
Effect of exchange rate changes on cash and cash equivalents ................... (95) (23)
--------- ----------
Net increase (decrease) in cash and cash equivalents............................ 32 (232)
Cash and cash equivalents, beginning of period.................................. 199 423
--------- ----------
Cash and cash equivalents, end of period........................................ $ 231 $ 191
========= ==========
The accompanying notes are an integral part of these consolidated interim
financial statements.
4
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements
of Bunge Limited and subsidiaries (Bunge) have been prepared in accordance
with United States of America generally accepted accounting principles
(U.S. GAAP) for interim financial information and with reference to the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by U.S.
GAAP for complete financial statements. In the opinion of management, all
adjustments necessary for a fair presentation have been included. The
consolidated balance sheet at December 31, 2001 has been derived from
Bunge's audited financial statements at that date. Operating results for
the three and nine months ended September 30, 2002 are not necessarily
indicative of the results to be expected for the year ending December 31,
2002. The financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for the years
ended December 31, 2001, 2000, and 1999, included in Bunge's 2001 Annual
Report on Form 20-F filed with the Securities and Exchange Commission.
2. NEW ACCOUNTING STANDARDS
In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 146, ACCOUNTING FOR
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. This statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND
OTHER COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A
RESTRUCTURING). This statement requires that a liability for a cost
associated with an exit or disposal activity be recognized and measured
initially at fair value when the liability is incurred. The provisions of
this statement are effective for exit or disposal activities that are
initiated after December 31, 2002. Bunge does not expect that adoption of
SFAS No. 146 will have a material effect on its financial position, results
of operations or cash flows.
In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB
STATEMENTS NO. 4, 44 AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND
TECHNICAL CORRECTIONS. This statement clarifies guidance related to the
reporting of gains and losses from extinguishments of debt and resolves
inconsistencies related to the required accounting treatment of certain
lease modifications. The provisions of this statement relating to the
extinguishment of debt become effective for financial statements issued for
fiscal years beginning after May 15, 2002. The provisions relating to lease
modification are effective for transactions occurring after May 15, 2002.
Bunge does not expect that adoption of SFAS No. 145 will have a material
effect on its financial position, results of operations or cash flows.
Effective January 1, 2002, Bunge adopted SFAS No. 142, GOODWILL AND
OTHER INTANGIBLE ASSETS. SFAS No. 142 supercedes Accounting Principle Board
(APB) Opinion No. 17, INTANGIBLE ASSETS, and changes the accounting for
goodwill and other intangible assets acquired individually or with a group
of other assets, and those acquired in a business combination, by
eliminating prospectively the amortization of all existing and newly
acquired goodwill and other intangible assets with indefinite lives. SFAS
No. 142 requires goodwill and other intangible assets to be tested at least
annually for impairment based on the fair value of the reporting unit
associated with the goodwill. Separable other intangible assets that are
not deemed to have an indefinite life will continue to be amortized over
their useful lives. The amortization provisions of SFAS No. 142 apply
immediately to goodwill and intangible assets acquired after June 30, 2001.
SFAS No. 142 also requires that companies complete a transitional goodwill
impairment test within six months from the date of adoption.
5
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
2. NEW ACCOUNTING STANDARDS (CONTINUED)
In accordance with the transitional guidance and the adoption of SFAS
No. 142, Bunge completed a transitional impairment test and recorded a
charge of $14 million, net of tax of $1 million as of January 1, 2002 for
goodwill impairment losses, related mainly to goodwill in the bakery mixes
business line of its wheat milling and bakery products segment. The
goodwill impairment losses are recorded as a cumulative effect of a change
in accounting principle in Bunge's consolidated statement of income for the
nine months ended September 30, 2002. Bunge's other intangible assets were
not affected by the adoption of SFAS No. 142.
Set forth below is Bunge's adjusted net income and earnings per share
had Bunge excluded goodwill amortization in accordance with SFAS No. 142
for the three and nine months ended September 30, 2001.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------- --------- --------- --------
(US$ IN MILLIONS, EXCEPT PER SHARE DATA) 2002 2001 2002 2001
--------- --------- --------- --------
(UNAUDITED) (UNAUDITED)
Reported income before cumulative effect of a
change in accounting principle............................ $ 95 $ 57 $ 181 $ 79
Add back goodwill amortization.............................. - 1 - 5
--------- --------- --------- --------
Adjusted income before cumulative effect of a
change in accounting principle............................ $ 95 $ 58 $ 181 $ 84
========= ========= ========= ========
Reported net income......................................... $ 95 $ 57 $ 167 $ 86
Add back goodwill amortization.............................. - 1 - 5
--------- --------- --------- --------
Adjusted net income......................................... $ 95 $ 58 $ 167 $ 91
========= ========= ========= ========
EARNING PER COMMON SHARE - BASIC:
--------------------------------------------
Income before cumulative effect of a change in
accounting principle...................................... $ .96 $ .76 $ 1.91 $ 1.16
Add back goodwill amortization ............................. - .01 - .07
--------- --------- --------- --------
Adjusted income before cumulative effect of a
change in accounting principle............................ $ .96 $ .77 $ 1.91 $ 1.23
========= ========= ========= ========
Reported net income......................................... $ .96 $ .76 $ 1.76 $ 1.26
Add back goodwill amortization.............................. - .01 - .07
--------- --------- --------- --------
Adjusted net income......................................... $ .96 $ .77 $ 1.76 $ 1.33
========= ========= ========= ========
EARNING PER COMMON SHARE - DILUTED:
--------------------------------------------
Income before cumulative effect of a change in
accounting principle...................................... $ .95 $ .76 $ 1.90 $ 1.16
Add back goodwill amortization.............................. - .01 - .07
--------- --------- --------- --------
Adjusted income before cumulative effect of a
change in accounting principle............................ $ .95 $ .77 $ 1.90 $ 1.23
========= ========= ========= ========
Reported net income......................................... $ .95 $ .76 $ 1.75 $ 1.26
Add back goodwill amortization.............................. - .01 - .07
--------- --------- --------- --------
Adjusted net income......................................... $ .95 $ .77 $ 1.75 $ 1.33
========= ========= ========= ========
6
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
2. NEW ACCOUNTING STANDARDS (CONTINUED)
In August 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS effective January 1, 2003 and SFAS No. 144,
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS effective
January 1, 2002. SFAS No. 143 requires the recording of the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. SFAS No. 144 supercedes existing accounting literature dealing
with impairment and disposal of long-lived assets, including discontinued
operations. It addresses financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be disposed
of, and expands current reporting for discontinued operations to include
disposals of a "component" of an entity that has been disposed of or is
classified as held for sale. Bunge is currently assessing the impact of
adopting SFAS No. 143. SFAS No. 144 did not affect Bunge's consolidated
financial statements upon its adoption effective January 1, 2002.
3. INVENTORIES
Inventories consist of the following:
SEPTEMBER 30, DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
----------------- ------------- -------------
(UNAUDITED)
Agribusiness - Readily marketable inventories at market value.................... $ 1,240 $ 764
Fertilizer....................................................................... 261 318
Edible oils...................................................................... 60 58
Wheat milling and bakery......................................................... 49 49
Other............................................................................ 253 179
------------- -------------
Total............................................................................ $ 1,863 $ 1,368
============= =============
READILY MARKETABLE INVENTORIES AT MARKET VALUE - Readily marketable
inventories are agricultural commodities inventories that are readily
convertible to cash because of their commodity characteristics, widely
available markets and international pricing mechanisms.
4. ACQUISITIONS
ARGENTINE ACQUISITION - In March 2002, Bunge completed its acquisition
of La Plata Cereal S.A., an Argentine agribusiness company. The purchase
price was $45 million in cash and assumed debt. This acquisition is being
accounted for using the purchase method under SFAS No. 141, BUSINESS
COMBINATIONS. In accordance with SFAS No. 142 (see Note 2), any goodwill
that Bunge may recognize as a result of this acquisition, when the
allocation of the purchase price is finalized, will not be amortized.
BRAZILIAN RESTRUCTURING - In February 2002, Bunge restructured its
major Brazilian subsidiaries. The restructuring involved the exchange of
all of the shares of Bunge Fertilizantes S.A., Bunge's fertilizer
operations, and Bunge Alimentos S.A., Bunge's agribusiness and food
products operations, for shares of Serrana S.A., which was renamed Bunge
Brasil S.A. Pursuant to Brazilian securities laws, the three restructured
subsidiaries offered withdrawal rights to their shareholders. These
withdrawal rights required Bunge's subsidiaries to buy back and cancel
shares from minority shareholders. Bunge has accounted for the
restructuring as an acquisition of minority interest. The fair value of the
consideration given, including the cash paid on the exercise of the
withdrawal rights
7
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
4. ACQUISITIONS (CONTINUED)
of $105 million, was $275 million. As a result of the restructuring, Bunge
increased its indirect interest in Bunge Alimentos and Bunge Fertilizantes
to 83%. An estimate of the allocation of the excess of the fair value over
the historical book value was prepared and $108 million has been
preliminarily allocated to goodwill in accordance with SFAS No. 141 and No.
142 (see Note 2). As of September 30, 2002, Bunge had not finalized this
allocation.
The following unaudited pro forma summary financial information sets
forth Bunge's results of operations as if the restructuring had been
consummated as of January 1, 2001, after making certain adjustments such as
depreciation on assets acquired.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------- --------- --------- --------
(US$ IN MILLIONS, EXCEPT PER SHARE DATA) 2002 2001 2002 2001
----------------------------------------- --------- --------- --------- --------
(UNAUDITED) (UNAUDITED)
Net sales.............................................. $ 3,603 $ 3,151 $ 9,390 $ 8,312
========= ========= ========= ========
Income before cumulative effect of a
change in accounting principle...................... $ 95 $ 64 $ 182 $ 90
Cumulative effect of a change in
accounting principle, net of tax.................... - - (14) 8
--------- --------- --------- --------
Net income............................................. $ 95 $ 64 $ 168 $ 98
========= ========= ========= ========
EARNINGS PER COMMON SHARE - BASIC:
---------------------------------------
Income before cumulative effect of a
change in accounting principle per share............ $ .96 $ .85 $ 1.92 $ 1.32
Cumulative effect of a change in
accounting principle, net of tax.................... - - (.15) .12
--------- --------- --------- --------
Net income per share................................... $ .96 $ .85 $ 1.77 $ 1.44
========= ========= ========= ========
5. OTHER CURRENT ASSETS
Other current assets consist of the following:
SEPTEMBER 30, DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
------------------ ------------- -------------
(UNAUDITED)
Prepaid commodity purchase contracts........................ $ 117 $ 139
Secured advances to suppliers............................... 182 164
Unrealized gain on derivative contracts..................... 314 96
Other....................................................... 226 272
------------- -------------
Total....................................................... $ 839 $ 671
============= =============
8
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
6. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
SEPTEMBER 30, DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
------------------ ------------- -------------
(UNAUDITED)
Accrued liabilities......................................... $ 350 $ 301
Advances on sales........................................... 258 115
Unrealized loss on derivative contracts..................... 228 102
Other....................................................... 38 70
------------- -------------
Total....................................................... $ 874 $ 588
============= =============
7. FINANCIAL INSTRUMENTS AND LONG-TERM DEBT
On August 7, 2002, Bunge entered into a foreign currency forward
contract with a notional value of EURO 200 million maturing on January 15,
2003. This contract represents an economic hedge against the purchase price
for the Cereol acquisition (see Note 10). The fair value of the contract in
the amount of $4 million was recorded in the consolidated balance sheet as
of September 30, 2002 and a related $4 million unrealized gain reflecting
the fair value adjustment was recognized in the consolidated statements of
income for the three and nine months ended September 30, 2002. This
contract was settled on October 11, 2002 for a gain of $4 million.
In the second and third quarter of 2002, Bunge entered into treasury
rate lock contracts with notional values of $200 million at a 10-year
forward treasury yield of 4.99%, $60 million at 5-year forward treasury
yield of 3.13%, $40 million at a 10-year forward treasury yield of 4.07%
and $300 million at a 10-year forward treasury yield of 4.14%, to hedge
some of the interest rate variability risk associated with changes in the
U.S. Treasury rate. Bunge accounted for these derivative contracts as cash
flow hedges. As of September 30, 2002, Bunge recorded a loss of
approximately $22 million, relating to these derivative contracts, in other
comprehensive income (loss), which will be reclassified to earnings over
the term of the debt incurred. In addition, Bunge recorded a loss of
approximately $5 million, relating to these derivative contracts, in
non-operating income (expense)-net in the consolidated statements of income
for the three and nine months ended September 30, 2002.
On September 25, 2002, Bunge completed a private placement of $486
million aggregate principal amount of unsecured senior guaranteed notes,
which were issued by its wholly owned subsidiary, Bunge Limited Finance
Corp., and guaranteed by Bunge. The notes were issued in three series
comprised of $82 million of notes bearing interest at 6.31% that mature on
September 30, 2007, $53 million of notes bearing interest at 6.78% that
mature on September 30, 2009 and $351 million of notes bearing interest at
7.44% that mature on September 20, 2012. Interest is payable semi-annually,
in arrears on March 30 and September 30 of each year, commencing on March
30, 2003. Bunge used the net proceeds of approximately $483 million to
reduce indebtedness under its commercial paper program and for general
corporate purposes, including payments made in connection with acquisition
activities.
9
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
8. RELATED PARTY TRANSACTIONS
At September 30, 2002 and December 31, 2001, shareholders' equity
included a $76 million long-term note receivable from Mutual Investment
Limited (formerly Bunge International Limited), Bunge's former sole
shareholder, relating to a capital contribution made in 2000. Bunge
recorded interest income on this related party receivable of $1 million for
both the three months ended September 30, 2002 and 2001, respectively, and
$3 million and $4 million for the nine months ended September 30, 2002 and
2001, respectively.
Bunge sells soybean meal and fertilizer products to Seara Alimentos
S.A., a subsidiary of Mutual Investment Limited, which is engaged in the
business of meat and poultry production. These sales were $1 million and $1
million for the three months ended September 30, 2002 and 2001,
respectively, and $3 million and $9 million for the nine months ended
September 30, 2002 and 2001, respectively.
9. COMMITMENTS AND CONTINGENCIES
Bunge is party to a number of claims and lawsuits, primarily tax and
labor claims, arising out of the normal course of business. After taking
into account accrued liabilities recorded for all of the foregoing matters,
management believes that the ultimate resolution of such matters will not
have a material adverse effect on Bunge's financial condition, results of
operations or liquidity. Included in other non-current liabilities as of
September 30, 2002 and December 31, 2001 are the following accrued
liabilities:
SEPTEMBER 30, DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
----------------- ------------- -------------
(UNAUDITED)
Tax claims.................................................. $ 70 $ 113
Labor claims................................................ 45 76
Civil and other............................................. 32 26
------------- -------------
Total....................................................... $ 147 $ 215
============= =============
TAX CLAIMS - The tax claims relate principally to claims against
Bunge's Brazilian subsidiaries, including income tax claims, value added
tax claims (ICMS and IPI) and sales tax claims (PIS and COFINS). The
determination of the manner in which various Brazilian federal, state and
municipal taxes apply to Bunge's operations is subject to varying
interpretations arising from the complex nature of Brazilian tax laws as
well as changes in tax laws introduced by the PLANO REAL in 1994 and the
1988 Brazilian constitution.
LABOR CLAIMS - The labor claims relate principally to labor claims
against Bunge's Brazilian subsidiaries. Court rulings under Brazilian laws
have historically been in favor of the employee-plaintiff. The labor claims
primarily relate to dismissals, severance, health and safety, salary
adjustments and supplementary retirement benefits.
CIVIL AND OTHER - The civil and other claims relate to various
disputes with suppliers and customers.
Bunge has provided guarantees for the payment of long-term loans by
two of its joint ventures in Argentina. These guarantees totaled $26
million as of September 30, 2002 and $30 million as of December 31, 2001.
10
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
10. NON-OPERATING INCOME (EXPENSE) - NET
Non-operating income (expense) - net consists of income and (expense)
items as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------- --------- --------- --------
(US$ IN MILLIONS) 2002 2001 2002 2001
----------------- --------- --------- --------- --------
(UNAUDITED) (UNAUDITED)
Interest income.................................................. $ 19 $ 20 $ 71 $ 92
Interest expense................................................. (33) (38) (103) (154)
Interest expense on debt financing readily
marketable inventories......................................... (9) (10) (21) (31)
Foreign exchange................................................. (159) (71) (243) (142)
Other income (expense)........................................... 5 (1) 13 3
--------- --------- --------- --------
Total non-operating income (expense) - net....................... $ (177) $ (100) $ (283) $ (232)
========= ========= ========= ========
INTEREST EXPENSE ON DEBT FINANCING READILY MARKETABLE INVENTORIES-
Readily marketable inventories are agricultural commodities inventories
that are readily convertible to cash because of their commodity
characteristics, widely available markets and international pricing
mechanisms. Bunge attributes interest expense to these inventories based on
the average interest rates on the debt used to finance these inventories.
11. COMPREHENSIVE INCOME (LOSS)
The following table summarizes the components of comprehensive income
(loss):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------- --------- --------- --------
(US$ IN MILLIONS) 2002 2001 2002 2001
----------------- --------- --------- --------- --------
(UNAUDITED) (UNAUDITED)
Net income....................................................... $ 95 $ 57 $ 167 $ 86
Other comprehensive income (loss):
Foreign exchange translation adjustment....................... (282) (139) (565) (278)
Cumulative effect of a change in accounting
principle, net of tax of $4.................................. - - - (3)
Unrealized gains on commodity futures designated as cash
flow hedges, net of tax of $5 and $4 (2002),
respectively, $1 (2001)...................................... 8 1 6 1
Loss on treasury rate lock contracts, net of tax
of $0........................................................ (22) - (22) -
Reclassification of unrealized (gains) losses to
net income, net of tax of $3 and $4 (2002),
respectively, $0 (2001)...................................... (5) - (7) 2
--------- --------- --------- --------
Total comprehensive loss......................................... $ (206) $ (81) $ (421) $ (192)
========= ========= ========= ========
12. SHAREHOLDERS' EQUITY
In March 2002, Bunge sold 16,093,633 common shares in a public
offering. Proceeds from this offering and the underwriters' exercise of the
over-allotment option (less underwriting discounts, commissions and
expenses) were
11
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
12. SHAREHOLDERS' EQUITY (CONTINUED)
were $292 million. The net proceeds were used to buy back shares held by
minority shareholders in connection with Bunge's corporate restructuring of
its Brazilian subsidiaries (see Note 4) with the remainder used to reduce
indebtedness under Bunge's commercial paper program.
On August 7, 2001, Bunge sold 17,600,000 of its common shares, par
value $.01, at an offering price of $16 per share in an initial public
offering. On September 6, 2001, Bunge sold an additional 1,175,100 of its
common shares, par value $.01, at an offering price of $16 per share upon
the exercise of the underwriters' over-allotment option. Proceeds from the
initial public offering and the exercise of the over-allotment option (less
underwriting discounts, commissions and expenses) were $278 million. The
net proceeds of the initial public offering and the exercise of the
over-allotment option were used to reduce indebtedness under Bunge's
commercial paper program.
On August 6, 2001, Mutual Investment Limited affected a series of
transactions that resulted in the pro rata distribution of the common
shares of Bunge to the shareholders of Mutual Investment Limited. Prior to
August 6, 2001, all of the common shares of Bunge were owned by Mutual
Investment Limited, a privately held company incorporated in Bermuda.
Between July 5, 2001 and July 12, 2001, Bunge's Board of Directors
approved: (i) the exchange with Mutual Investment Limited of 12,000 common
shares, par value $1.00 per share, of Bunge Limited, for 1.2 million common
shares, par value $.01 per share, of Bunge Limited, (ii) the declaration
and payment of a 52.65-for-1 share dividend, (iii) an increase in Bunge's
authorized share capital to 240,000,000 common shares, par value $.01 per
share, (iv) the authorization of 9,760,000 of undesignated preference
shares and (v) the authorization of 240,000 of Series A Preference Shares.
The common share data presented herein for 2001 has been restated to
reflect the effects of the share exchange and share dividend described
above.
13. INCOME TAXES
During the nine months ended September 30, 2002, Bunge recorded a $9
million tax benefit and $6 million in interest income relating to the
refund of prior years' U.S. foreign sales corporation benefits resulting
from the completion of a tax examination for the years up to and including
1998. Also during this time, Bunge decreased its deferred tax valuation
allowance by $6 million as certain net operating loss carry-forwards
generated at one of its European subsidiaries were more likely than not to
be realized. Our effective rate was favorably affected by the volatility in
the exchange rate for the REAL since we recognize current Brazilian tax
benefits related to foreign exchange losses on intercompany loans.
14. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding, excluding any
dilutive effects of stock options and performance-based restricted stock
awards
12
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
14. EARNINGS PER SHARE (CONTINUED)
during the reporting period. Diluted earnings per share is computed similar
to basic earnings per share, except that the weighted average number of
common shares outstanding is increased to include additional shares from
the assumed exercise of stock options and performance-based restricted
stock awards, if dilutive. The number of additional shares is calculated by
assuming that outstanding stock options were exercised and that the
proceeds from such exercises were used to acquire common shares at the
average market price during the reporting period. The following table sets
forth the computation of basic and diluted earnings per share for the three
and nine months ended September 30, 2002 and 2001.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------- ---------- ---------- ----------
(US$ IN MILLIONS, EXCEPT FOR SHARE DATA) 2002 2001 2002 2001
----------------------------------------- ----------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
Income from continuing operations - basic and
diluted.......................................................... $ 95 $ 57 $ 181 $ 76
=========== ========== ========== ==========
Weighted average number of common shares outstanding:
Basic........................................................ 99,250,814 75,221,060 94,743,716 68,033,397
Effect of dilutive shares.................................... 766,831 39,275 781,613 13,236
----------- ---------- ---------- ----------
Diluted...................................................... 100,017,645 75,260,335 95,525,329 68,046,633
=========== ========== ========== ==========
Income from continuing operations per share:
Basic........................................................ $ .96 $ .76 $ 1.91 $ 1.12
=========== ========== ========== ==========
Diluted...................................................... $ .95 $ .76 $ 1.90 $ 1.12
=========== ========== ========== ==========
15. ARGENTINA
The functional currency of Bunge's Argentine subsidiaries is the PESO.
In January 2002, the Argentine government abandoned the fixed PESO-dollar
exchange rate and created a dual exchange rate system. This system was in
place until February 3, 2002, when the Argentine government abandoned it
and imposed additional foreign currency limitations. Between February 11,
2002, when the Argentine markets reopened, and September 30, 2002, the
exchange rate fluctuated between 1.92 and 3.74 PESOS to the U.S. dollar
representing a 49% devaluation. The total devaluation of the PESO to the
U.S. dollar was 56% for the nine months ended September 30, 2002. Bunge's
Argentine subsidiaries' assets and liabilities are translated into U.S.
dollars from local currency at month-end exchange rates, and the resulting
foreign exchange translation adjustments are recorded in the consolidated
balance sheets as a component of accumulated other comprehensive income
(loss). Included in other comprehensive loss for the three months ended and
the nine months ended September 30, 2002 are a foreign exchange
translation gain of $1 million and a foreign exchange translation loss of
$81 million, respectively, representing the adjustment from the translation
of Bunge's Argentine assets and liabilities.
In accordance with SFAS No. 52, FOREIGN CURRENCY TRANSLATION, a highly
inflationary economy is one whose cumulative inflation over a three-year
period is 100% or more. Based on recent inflationary trends, it is possible
Argentina's three-year cumulative inflation rate could exceed 100%. Upon
classification as a highly
13
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
15. ARGENTINA (CONTINUED)
inflationary economy, the functional currency of Bunge's Argentine
subsidiaries will change to the U.S. dollar from the PESO, as required by
SFAS No. 52. The impact of this change would be reflected in Bunge's
financial statements on a prospective basis only, and such impact cannot be
determined at this time.
On March 4, 2002, the Argentine government announced the imposition of
export tariffs, including a 10% increase to the existing 3.5% export tariff
on raw grains and a new 5% export tariff on manufactured agricultural and
industrial goods, including soy meal and oil. On April 9, 2002, the
Argentine government increased these tariffs an additional 10% on raw
grains and an additional 15% on manufactured agricultural and industrial
goods. As a result of these increases, the export tariffs are 23.5% on raw
grains and 20% on manufactured agricultural and industrial goods. The
current Argentine economic crisis poses significant uncertainty in the
Argentine agricultural markets as to how these new tariffs will be shared
between growers and exporters. Bunge has accounted for these export tariffs
in cost of goods sold in its consolidated interim statements of income in
the three months and nine months ended September 30, 2002.
In addition, in the three months ended September 30, 2002, Bunge
recorded a $4 million provision against recoverable taxes from the
Argentine government. For the nine months ended September 30, 2002, the
provision was $32 million. Bunge did not record any deferred tax benefits
on this provision.
16. BRAZIL
The functional currency of Bunge's Brazilian subsidiaries is the REAL.
Between January 1, 2002 and September 30, 2002, the exchange rate has
fluctuated between 2.32 and 3.89 REAIS to the U.S. dollar, representing a
40% devaluation. Bunge's Brazilian subsidiaries' assets and liabilities are
translated into U.S. dollars from local currency at month-end exchange
rates, and the resulting foreign exchange translation adjustments are
recorded in the consolidated balance sheets as a component of accumulated
other comprehensive income (loss). Accordingly, included in other
comprehensive loss for the three and nine months ended September 30, 2002,
is a foreign exchange translation loss of $222 million and $448 million,
respectively, representing the loss from the translation of Bunge's
Brazilian assets and liabilities.
17. SEGMENT INFORMATION
Bunge has five reporting segments, which are organized based on
similar economic characteristics and are similar in nature of products and
services offered, the nature of production processes, the type and class of
customer and distribution methods. The agribusiness segment is
characterized by both inputs and outputs being agricultural commodities and
thus high volume and low margin. The activities of the fertilizer segment
include raw material mining, mixing fertilizer components and marketing
products. The edible oil products segment involves the manufacturing and
marketing of products derived from vegetable oils. The wheat milling and
bakery products segment involves the manufacturing and marketing of
products derived primarily from wheat. The other segment consists of the
soy ingredients and corn products businesses.
The "Unallocated" column in the following table contains the
reconciliation between the totals for reportable segments and Bunge
consolidated totals, which consists primarily of corporate items not
allocated to the operating segments and intersegment eliminations.
Transfers between the segments are generally valued at market. The revenues
generated from these transfers are shown in the following table as
"Intersegment revenues."
14
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
17. SEGMENT INFORMATION (CONTINUED)
OPERATING SEGMENT INFORMATION
WHEAT
MILLING AND
EDIBLE OIL BAKERY
(US$ IN MILLIONS) AGRIBUSINESS FERTILIZER PRODUCTS (2) PRODUCTS (2) OTHER UNALLOCATED TOTAL
----------------- ------------ ---------- ------------ ------------ ----- ----------- -----
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
2002
Net sales to external customers.... $ 2,681 $ 444 $ 250 $ 146 $ 82 $ - $ 3,603
Intersegment revenues.............. 126 - - - - (126) -
Gross profit....................... 338 100 21 20 17 - 496
Income from operations............. 284 72 2 5 14 (13) 364
Depreciation, depletion and
amortization....................... 16 13 3 4 2 - 38
EBITDA(1).......................... $ 300 $ 85 $ 5 $ 9 $ 16 $ (13) $ 402
THREE MONTHS ENDED SEPTEMBER 30,
2001
Net sales to external customers.... $ 2,322 $ 376 $ 229 $ 147 $ 77 $ - $ 3,151
Intersegment revenues.............. 78 - - - - (78) -
Gross profit....................... 182 90 29 17 15 - 333
Income from operations............. 130 64 7 1 12 (7) 207
Depreciation, depletion and
amortization ...................... 13 13 4 3 2 1 36
EBITDA(1).......................... $ 143 $ 77 $ 11 $ 4 $ 14 $ (6) $ 243
NINE MONTHS ENDED SEPTEMBER 30,
2002
Net sales to external customers.... $ 6,982 $ 1,030 $ 709 $ 437 $ 232 $ - $ 9,390
Intersegment revenues.............. 307 - - - - (307) -
Gross profit ...................... 624 214 68 56 38 - 1,000
Income from operations............. 470 134 11 15 27 (28) 629
Depreciation, depletion and
amortization....................... 45 45 12 9 7 - 118
EBITDA(1).......................... $ 515 $ 179 $ 23 $ 24 $ 34 $ (28) $ 747
NINE MONTHS ENDED SEPTEMBER 30,
2001
Net sales to external customers.... $ 6,108 $ 904 $ 642 $ 430 $ 228 $ - $ 8,312
Intersegment revenues.............. 217 - - - - (217) -
Gross profit....................... 361 175 79 49 35 - 699
Income from operations............. 228 114 19 6 22 (10) 379
Depreciation, depletion and
amortization....................... 37 46 11 11 7 2 114
EBITDA(1).......................... $ 265 $ 160 $ 30 $ 17 $ 29 $ (8) $ 493
----------
(1) Earnings before interest, taxes, depreciation and amortization
("EBITDA") equals income from operations plus depreciation, depletion
and amortization.
(2) In the third quarter of 2002, Bunge reclassified certain consumer
product lines from the edible oil products segment to the wheat milling
and bakery products segment. Accordingly, amounts for the third quarter
ended September 30, 2001 and for the nine months ended September 30,
2002 and 2001 have been reclassified to reflect this change.
15
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
18. ACCOUNTS RECEIVABLE SECURITIZATION
On July 25, 2002 Bunge, through a wholly owned subsidiary, entered
into an agreement with a financial institution to sell an undivided
interest in certain trade accounts receivable under which, on an ongoing
basis, a maximum of $100 million can be sold from a designated pool of
accounts receivable without recourse. Sales of accounts receivable averaged
$93 million in the period from July 25, 2002 through September 30, 2002.
Accounts receivable at September 30, 2002 were net of $95 million,
representing the interests in receivables sold under this agreement.
19. SUBSEQUENT EVENTS
ACQUISITION OF CEREOL - On October 15, 2002, Bunge completed the
acquisition of a 54.69% controlling interest, or 14,037,220 shares, in
Cereol S.A., a leading oilseed processor for approximately EURO 449 million
in cash or EURO 32 per share, from Edison S.p.A. (Edison). As required by
French law, Bunge has commenced in France the process to purchase, at the
same price per share, the 11,631,389 shares of Cereol that remain publicly
traded on the Euronext market. Assuming 100% of the remaining shares are
purchased as part of this process, the total price paid by Bunge for
Cereol's equity will be approximately EURO 821 million. Under the stock
purchase agreement, Bunge will also pay up to an additional EURO 3 per
share, or approximately EURO 77 million to Edison and Cereol's other
shareholders depending on the outcome of a pending arbitration by the
McCormick Group involving Cereol. Bunge has also paid EURO 14 million to
Edison in exchange for a non-compete agreement. Also, upon the closing of
the Cereol acquisition, Bunge assumed Cereol's debt, which was
approximately EURO 677 million as of June 30, 2002, and has refinanced a
portion of the debt, in accordance with the change in control provisions
in the related financing documents. In anticipation of this refinancing, in
October 2002, Bunge entered into a EURO 500 million 364-day revolving
credit facility.
DEBT FINANCING- On October 15, 2002, Bunge completed an offering of
$200 million aggregate principal amount of unsecured senior notes bearing
interest at a rate of 7.80% per year that mature on October 15, 2012. The
notes were issued by Bunge's wholly owned subsidiary Bunge Limited Finance
Corp., and guaranteed by Bunge. Interest is payable semi-annually, in
arrears on April 15 and October 15 of each year, commencing on April 15,
2003. The net proceeds of approximately $197 million were used to reduce
indebtedness under the commercial paper program and for general corporate
purposes, including payments made in connection with acquisition
activities.
Bunge may redeem these notes at its option at any time at the
redemption prices set forth in the offering memorandum. Upon a specified
change of control, holders of the notes will have the right to require
Bunge to repurchase the notes at the purchase price set forth in the
offering memorandum.
DIVIDENDS - On October 1, 2002, Bunge announced that its Board of
Directors declared a regular quarterly cash dividend of $.10 per share. The
dividend is payable on November 29, 2002 to shareholders of record on
November 15, 2002.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains both historical and forward-looking statements. All
statements, other than statements of historical fact are, or may be deemed to
be, forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. We have tried to identify these forward-looking
statements by using words including "may," "will," "expect," "anticipate,"
"believe," "intend," "estimate" and "continue" and similar expressions.
Forward-looking statements are not based on historical facts, but rather reflect
our current expectations and projections about our future results, performance,
prospects and opportunities. As such, they involve known and unknown risks,
uncertainties and other factors that could cause our actual results,
performance, prospects or opportunities to differ materially from those
expressed in, or implied by, these forward-looking statements. The following
important factors, among others, could affect future results, causing them to
differ materially from those expressed in our forward-looking statements: our
ability to integrate Cereol's operations and recognize anticipated benefits from
the acquisition, estimated demand for commodities and other products that we
sell and use in our business; industry conditions, including the cyclicality of
the agribusiness industry; economic and political conditions in Brazil and
Argentina; and other economic, political, business, competitive and/or
regulatory factors affecting our business generally. The forward-looking
statements included in this report are made only as of its date, and except as
otherwise required by federal securities law, we do not have any obligation to
publicly update or revise any forward-looking statements to reflect subsequent
events or circumstances.
We have changed the format of the management's discussion and analysis of
financial condition and results of operations from the format presented in our
2001 annual report on Form 20-F for the year ended December 31, 2001 and our
quarterly reports filed on Form 6-K during 2001. The results of operations
section is presented by business segment and the liquidity and capital resources
section is presented by sources of liquidity and capital and cash flows.
RESULTS OF OPERATIONS
RECLASSIFICATIONS - In the third quarter of 2002, we reclassified certain
consumer product lines from the edible oil products segment to the wheat milling
and bakery products segment. Accordingly, amounts for the third quarter ended
September 30, 2001 and for the nine months ended September 30, 2002 and 2001
have been reclassified to reflect this change.
Set forth below is a summary of certain items in our consolidated
statements of income and volumes by reportable segment.
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------- -------- --------- --------
2002 2001 2002 2001
--------- -------- --------- --------
(US$ IN MILLIONS, EXCEPT VOLUMES)
NET SALES:
Agribusiness...................................... $ 2,681 $ 2,322 $ 6,982 $ 6,108
Fertilizer........................................ 444 376 1,030 904
Edible oil products............................. 250 229 709 642
Wheat milling and bakery products............... 146 147 437 430
Other (soy ingredients and corn products)....... 82 77 232 228
--------- -------- --------- --------
Food products total.......................... 478 453 1,378 1,300
--------- -------- --------- --------
Total.................................. $ 3,603 $ 3,151 $ 9,390 $ 8,312
========= ======== ========= ========
17
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------- -------- --------- --------
2002 2001 2002 2001
--------- -------- --------- --------
COST OF GOODS SOLD:
Agribusiness...................................... $ 2,343 $ 2,140 $ 6,358 $ 5,747
Fertilizer........................................ 344 286 816 729
Edible oil products............................. 229 200 641 563
Wheat milling and bakery products............... 126 130 381 381
Other (soy ingredients and corn products)....... 65 62 194 193
--------- -------- --------- --------
Food products total.......................... 420 392 1,216 1,137
--------- -------- --------- --------
Total.................................. $ 3,107 $ 2,818 $ 8,390 $ 7,613
========= ======== ========= ========
GROSS PROFIT:
Agribusiness...................................... $ 338 $ 182 $ 624 $ 361
Fertilizer........................................ 100 90 214 175
Edible oil products............................. 21 29 68 79
Wheat milling and bakery products .............. 20 17 56 49
Other (soy ingredients and corn products)....... 17 15 38 35
--------- -------- --------- --------
Food products total.......................... 58 61 162 163
--------- -------- --------- --------
Total.................................. $ 496 $ 333 $ 1,000 $ 699
========= ======== ========= ========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Agribusiness...................................... $ 54 $ 52 $ 154 $ 133
Fertilizer........................................ 28 26 80 61
Edible oil products............................. 19 22 57 60
Wheat milling and bakery products............... 15 16 41 43
Other (soy ingredients and corn products)....... 3 3 11 13
--------- -------- --------- --------
Food products total.......................... 37 41 109 116
--------- -------- --------- --------
Unallocated....................................... 13 7 28 10
--------- -------- --------- --------
Total.................................. $ 132 $ 126 $ 371 $ 320
========= ======== ========= ========
INCOME FROM OPERATIONS:
Agribusiness...................................... $ 284 $ 130 $ 470 $ 228
Fertilizer........................................ 72 64 134 114
Edible oil products............................. 2 7 11 19
Wheat milling and bakery products............... 5 1 15 6
Other (soy ingredients and corn products)....... 14 12 27 22
--------- -------- --------- --------
Food products total.......................... 21 20 53 47
--------- -------- --------- --------
Unallocated other................................. (13) (7) (28) (10)
--------- -------- --------- --------
Total.................................. $ 364 $ 207 $ 629 $ 379
========= ======== ========= ========
NET INCOME ....................................... $ 95 $ 57 $ 167 $ 86
========= ======== ========= ========
VOLUMES (IN THOUSANDS OF METRIC TONS):
Agribusiness...................................... 16,349 17,091 47,642 43,052
Fertilizer........................................ 3,708 3,100 7,999 6,065
Edible oil products............................. 401 385 1,150 1,108
Wheat milling and bakery products .............. 535 561 1,594 1,607
Other (soy ingredients and corn products) ...... 381 360 1,115 1,115
--------- -------- --------- --------
Food products total.......................... 1,317 1,306 3,859 3,830
--------- -------- --------- --------
Total.................................. 21,374 21,497 59,500 52,947
========= ======== ========= ========
18
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001
OVERVIEW
Our net sales increased 14% in the third quarter of 2002 compared to the
third quarter of 2001 due to increases in sales volumes in our fertilizer,
edible oil products and other segments, with fertilizer volumes increasing 20%.
Our cost of goods sold increased 11% over the same period in 2001. Our gross
profit increased 49% in the third quarter of 2002 compared to the third quarter
of 2001. This increase was due to increased gross profit in all segments, except
edible oil products. Our selling, general and administrative expenses (SG&A)
increased 5% in the third quarter of 2002 compared to the third quarter of 2001.
SG&A as a percentage of gross profit in the third quarter of 2002 decreased to
27% compared to 38% in the third quarter of 2001. Our income from operations
increased 76% in the third quarter of 2002 compared to the third quarter of
2001. In our agribusiness segment, increased profitability was due to all three
of our agribusiness business lines (grain origination, oilseed processing and
international marketing), which benefited from higher average gross profit
margins for soybean products, higher sales volumes in our oilseed processing and
grain origination business lines and lower operating expenses in our South
American operations due to a 27% devaluation of the Brazilian REAL versus the
U.S. dollar. The fertilizer segment began its seasonal upturn earlier than usual
in South America, as farmers continued to purchase retail fertilizer products
earlier, due to higher soybean futures prices and the effect of the continued
exchange rate volatility of the Brazilian REAL. In our wheat milling and bakery
products and other segments, gross profit and income from operations increased,
but declined in our edible oil products segment.
The devaluation of the Brazilian REAL during the third quarter of 2002
favorably affected our profitability, particularly in the agribusiness segment.
The agribusiness segment sells most of its products in U.S. dollars into export
markets at a REAL-based price that effectively is dollar-linked. This benefits
gross profit margins as operating costs are based on local currency. In
addition, the currency devaluation in Brazil resulted in gains relating to the
change in the market value of our agribusiness segment's readily marketable
inventories. In our agribusiness segment, the positive effects of the
devaluation on gross profit more than offset the foreign exchange losses
incurred on the dollar denominated monetary items.
The variations in our net sales, gross profit and income from operations by
segments are described in more detail below.
AGRIBUSINESS SEGMENT
In our agribusiness segment, net sales increased 16% to $2,681 million in
the third quarter of 2002 from $2,322 million in the third quarter of 2001 due
to increases in average selling prices partially offset by a 4% decrease in
sales volumes. International marketing sales volumes decreased 23%, primarily
due to slower soybean demand from China. This decrease was partially offset by
sales volume increases in our oilseed processing and grain origination due
primarily to a large South American crop, increased demand for soy commodity
products and the March 2002 acquisition of La Plata Cereal in Argentina.
Gross profit increased 86% to $338 million in the third quarter of 2002
compared with $182 million in the third quarter of 2001 primarily resulting from
stronger gross profit margins in soybean processing in both South and North
America. Gross profit margins also increased in grain origination. Gross profit
margins in all three business lines benefited from a good crop quality in South
America, the acquisition of inventories at lower prices, the devaluation of the
Brazilian REAL and favorable margin positions taken earlier in 2002 in our North
American oilseed processing business. Included in gross profit in the third
quarter of 2002 was a $4 million non-cash charge for collection of an Argentine
tax receivable, reflecting that country's economic difficulties. The Argentine
government is current on its payments and exports are flowing normally.
Nevertheless, we continue to be prudent in the assessment of our ability to
collect Argentine recoverable taxes.
SG&A increased primarily due to the expansion of our business, and was
offset in part by the Brazilian REAL devaluation. Income from operations in our
agribusiness segment increased 118% to $284 million in the third quarter of 2002
from $130 million in the third quarter of 2001 due to the improvement in gross
profit in all three of our business lines resulting from stronger gross profit
margins, profitable results from our La Plata Cereal acquisition and the impact
of the REAL devaluation on expenses.
19
FERTILIZER SEGMENT
In our fertilizer segment, net sales increased 18% to $444 million in the
third quarter of 2002 from $376 million in the third quarter of 2001 primarily
due to an increase in sales volumes partially offset by a decline in average
selling prices. All aspects of our fertilizer business contributed to the 20%
increase in sales volumes. Sales of retail fertilizer and raw material products
began their seasonal pickup earlier than last year as farmers in Brazil
continued purchasing for the new planting season in the third quarter of 2002
due to higher soybean futures prices and concerns that continued exchange rate
volatility of the Brazilian REAL could further increase prices. Animal nutrient
sales continued to benefit from a strong export market for Brazilian meat
products, particularly poultry. The decline in average selling prices was due to
a competitive price environment and the economic uncertainty in Brazil.
Gross profit increased 11% to $100 million in the third quarter of 2002
from $90 million in the third quarter of 2001 as a result of the higher sales
volumes, partially offset by a 20% increase in cost of goods sold in the third
quarter of 2002 compared to the same quarter in 2001. The increase in cost of
goods sold was primarily due to higher sales volumes resulting from increased
demand for retail fertilizer and animal nutrient products and higher raw
material costs.
SG&A increased 8% in the third quarter of 2002 compared to the same
quarter in 2001, primarily due to the higher sales volumes and related
expenses, partially offset by the REAL devaluation. Also, the third quarter
of 2001 was affected by the collection of a $3 million previously reserved
trade accounts receivable. Income from operations in our fertilizer segment
increased 13% to $72 million in the third quarter of 2002 from $64 million in
the third quarter of 2001. The increase was primarily due to higher gross
profit.
EDIBLE OIL PRODUCTS SEGMENT
In our edible oil products segment, net sales increased 9% to $250 million
in the third quarter of 2002 from $229 million in the third quarter of 2001
primarily due to higher average selling prices, increases in sales volumes in
South and North America and a change in product mix towards higher priced
premium products in North America.
Gross profit decreased 28% to $21 million in the third quarter of 2002 from
$29 million in the third quarter of 2001 primarily due to higher raw material
costs, principally for crude soybean oil.
SG&A decreased 14% to $19 million in the third quarter of 2002 from $22
million in the third quarter of 2001 as a result of cost reduction efforts and
the effects of the REAL devaluation. Income from operations decreased 71% to $2
million in the third quarter of 2002 from $7 million in the third quarter of
2001. The decrease in profitability was attributable to the difficulty
associated with recovering higher raw material costs arising from a highly
competitive edible oil products environment in South America and was partially
offset by the decline in SG&A.
WHEAT MILLING AND BAKERY PRODUCTS SEGMENT
In our wheat milling and bakery products segment, net sales decreased 1% to
$146 million in the third quarter of 2002 from $147 million in the third quarter
of 2001 due to a slight decline in sales volumes resulting from a change in
product mix attributable primarily to our wheat milling business, offset
slightly by higher average selling prices.
Gross profit increased 18% to $20 million in the third quarter of 2002 from
$17 million in the third quarter of 2001 as a result of a change in the
processing methods used in our wheat milling products business towards tolling
services on lower margin products, which resulted in lower costs and also a
change to a higher margin product mix in our bakery products business.
SG&A decreased 7% to $15 million in the third quarter of 2002 from $16
million in the third quarter of 2001 primarily due to the effects of the REAL
devaluation. Income from operations increased to $5 million in the third quarter
of 2002 from $1 million in the third quarter of 2001 primarily due to a higher
gross profit margin product mix and lower SG&A.
OTHER SEGMENT (SOY INGREDIENTS AND CORN PRODUCTS)
In our other segment, net sales increased 7% to $82 million in the third
quarter of 2002 from $77 million in the third quarter of 2001. In our corn
products business, sales volumes and average selling prices increased on a
comparable basis due to a strike at one of the production facilities last year,
which negatively affected net sales during this period in 2001. In our soy
ingredients business, a 36% increase in sales volumes was partially offset by a
decline in average selling prices caused largely by a shift in the product mix.
20
Gross profit increased 13% to $17 million in the third quarter of 2002 from
$15 million in the third quarter of 2001. The increase is attributable to
stronger gross profit in the commercial corn products business. Gross profit in
the soy ingredients business was relatively flat, primarily as a result of an
increase in raw material costs.
SG&A was unchanged in the third quarter of 2002 compared to the third
quarter of 2001. Income from operations increased 17% to $14 million in the
third quarter of 2002 from $12 million in the third quarter of 2001. Income from
operations increased in the corn products businesses primarily due to higher
gross profit. Income from operations in the soy ingredients was flat.
NON-OPERATING INCOME (EXPENSE) - NET
A summary of significant non-operating income (expense) - net for the
periods indicated follows.
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2002 2001
-----------------------------
(US$ IN MILLIONS)
Interest income...................................................... $ 19 $ 20
Interest expense..................................................... (33) (38)
Interest expense on debt financing readily marketable inventories.... (9) (10)
Foreign exchange..................................................... (159) (71)
Other income (expense)............................................... 5 (1)
-----------------------------
Total.............................................. $ (177) $ (100)
=============================
Non-operating income (expense) - net increased 77% to $177 million of
expense in the third quarter of 2002 from $100 million of expense in the third
quarter of 2001 primarily due to a 124% increase in foreign exchange losses,
offset slightly by a 18% decrease in net interest expense. The increase in
exchange losses was primarily due to changes in exchange rates between the U.S.
dollar and the Brazilian REAL. The REAL decreased in value relative to the U.S.
dollar by 27% in the third quarter of 2002 compared to 14% for the third quarter
of 2001. The net income effect of the foreign exchange losses from the REAL
devaluation was offset by the positive effects of the devaluation on gross
profit margins and SG&A expenses. The Argentine PESO appreciated by 2% in value
relative to the U.S. dollar in the third quarter of 2002 compared to the third
quarter of 2001 when the PESO was constant relative to the U.S. dollar. Net
interest expense declined due to lower average debt outstanding and lower
average short-term interest rates. Interest expense on debt financing readily
marketable inventories declined primarily due to lower average short-term
interest rates.
INCOME TAX EXPENSE
Income tax expense increased to $65 million in the third quarter of 2002
from $24 million in the third quarter of 2001 primarily due to an increase in
taxable income. The increase in the effective income tax rate in the third
quarter of 2002 from the third quarter of 2001 was primarily due to changes in
the tax laws in Argentina in 2002 and reversals of deferred income tax valuation
allowances in 2001. Our effective rate can be favorably or unfavorably affected
by the volatility in the exchange rate for the REAL since we recognize current
Brazilian tax benefits or expenses related to foreign exchange losses or gains
on intercompany loans. Our effective tax rate is affected by the assumptions we
have made about the exchange rate for the REAL. To the extent the actual
exchange rate differs significantly from our assumptions, our income tax expense
could be materially affected.
MINORITY INTEREST
Minority interest increased to an expense of $27 million in the third
quarter of 2002 compared to $26 million in the third quarter of 2001 primarily
due to increased earnings at our less than wholly owned subsidiaries.
NET INCOME
Net income increased 67% to $95 million in the third quarter of 2002 from
$57 million in the third quarter of 2001.
21
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2001
OVERVIEW
Our net sales increased 13% in the first nine months of 2002 compared to
the first nine months of 2001 due to increases in net sales in all segments,
with agribusiness volumes increasing 11%. Our cost of goods sold increased 10%
over the same period in 2001. Our gross profit increased 43% in the first nine
months of 2002 compared to the first nine months of 2001. Included in the first
nine months of 2002 was $20 million of gross profit attributable to an extra
month of results from Fosfertil, which had been reporting its results one month
in arrears. The increase in gross profit was primarily due to a 73% increase in
gross profit in our agribusiness segment, but all other segments with the
exception of edible oil products also contributed to the increase. Our SG&A
increased 16% in the first nine months of 2002 compared to the first nine months
of 2001. SG&A in the first nine months of 2002 included expenses attributable
to an extra month of results from Fosfertil and non-recurring credits in the
first nine months of 2001. The first nine months of 2001 benefited from $14
million of non-recurring credits related to the recovery of social health and
welfare taxes paid by our Brazilian subsidiaries. Our income from operations
increased 66% in the first nine months of 2002 compared to the first nine months
of 2001. Income from operations in the first nine months of 2002, included $6
million attributable to an extra month of income from operations from Fosfertil.
AGRIBUSINESS SEGMENT
In our agribusiness segment, net sales increased 14% to $6,982 million in
the first nine months of 2002 from $6,108 million in the first nine months of
2001 due to an 11% increase in volumes and an improvement in average selling
prices. The increase in volumes, although depressed by the slower demand from
China, was due to a strong South American crop, increased demand for soy
commodity products, continued growth in our international marketing business and
our acquisition of La Plata Cereal.
Gross profit increased 73% to $624 million in the first nine months of 2002
compared with $361 million in the first nine months of 2001 due to the impact of
strong global demand for soy commodity products. While gross profit increased in
all three agribusiness business lines, the increase in agribusiness gross profit
was predominately due to an increase in grain origination and oilseed processing
gross profits in South America, which benefited from the devaluation of the
Brazilian REAL and Argentine PESO, an early harvest, which provided favorable
pricing, and good crop quality in Brazil. Gross profit margins were also higher
in the U.S. oilseed processing business. Included in gross profit in the first
nine months of 2002 was a $32 million non-cash charge for collection of a tax
receivable from the Argentine government, reflecting that country's economic
difficulties.
SG&A increased primarily due to the expansion of our business, the
acquisition of La Plata Cereal and additional provisions for doubtful accounts.
Income from operations in our agribusiness segment increased 106% to $470
million in the first nine months of 2002 from $228 million in the first nine
months of 2001 due to the improvement in gross profit.
FERTILIZER SEGMENT
In our fertilizer segment, net sales increased 14% to $1,030 million in the
first nine months of 2002 from $904 million in the first nine months of 2001
primarily due to an increase in sales volumes, partially offset by a decrease in
average selling prices. The 32% increase in volumes was a result of a large
second crop in Brazil, which increased demand for retail and raw material
products, and a strong export market for Brazilian meat products, which
increased demand for animal nutrients, and an extra month of results for
Fosfertil. In addition, sales of retail fertilizer and raw material products
began their seasonal pickup earlier than last year as farmers in Brazil began
buying in the second quarter of 2002 for the new planting season due to higher
soybean futures prices and concerns that continued devaluation of the Brazilian
REAL could further increase prices. The decline in average selling prices was
due to high inventory levels and a competitive price environment due to low
prices of imported raw materials.
Gross profit increased 22% to $214 million in the first nine months of 2002
from $175 million in the first nine months of 2001 as a result of the higher
sales volumes partially offset by an increase in cost of goods sold. The
increase in cost of goods sold was primarily due to higher sales volumes,
partially offset by the REAL devaluation. In addition, gross profit in the first
nine months of 2002 benefited from $20 million of profit attributable to the
extra month of results from Fosfertil.
SG&A increased primarily due to the increase in sales volumes, additional
provisions for doubtful accounts and the inclusion of an extra month of results
from Fosfertil in 2002. In addition, SG&A in the first nine months of 2001
included an $8 million non-recurring credit relating to Brazilian health and
welfare taxes. Income from operations in
22
our fertilizer segment increased 18% to $134 million in the first nine months of
2002 from $114 million in the first nine months of 2001 primarily due to the
improvement in gross profit.
EDIBLE OIL PRODUCTS SEGMENT
In our edible oil products segment, net sales increased 10% to $709 million
in the first nine months of 2002 from $642 million in the first nine months of
2001 primarily due to higher average selling prices and a change in product mix
towards higher priced premium products.
Gross profit decreased 14% to $68 million in the first nine months of 2002
from $79 million in the first nine months of 2001 primarily due to higher raw
material costs, principally crude soybean oil.
SG&A decreased 5% in the first nine months of 2002 from the first nine
months of 2001 due to our cost reduction efforts and the impact of the REAL
devaluation. Also, the nine months results for 2001 were increased by $2 million
of non-recurring credits relating to Brazilian health and welfare taxes. As a
result, income from operations decreased 42% to $11 million in the first nine
months of 2002 from $19 million in first nine months of 2001.
WHEAT MILLING AND BAKERY PRODUCTS SEGMENT
In our wheat milling and bakery products segment, net sales increased 2% to
$437 million in the first nine months of 2002 from $430 million in the first
nine months of 2001 due to higher average selling prices, partially offset by a
decline in sales volumes. The increase in average selling prices was largely due
to a supply shortage in wheat milling products in Brazil as competitors in
financial difficulty lowered production, as well as a change in the product mix
to higher priced products.
Gross profit increased 14% to $56 million in the first nine months of 2002
from $49 million in the first nine months of 2001 as a result of a change in the
processing methods used in our wheat milling products business towards tolling
services on lower margin products, which resulted in lower costs, and also a
change to a higher margin product mix in our bakery products business, higher
average selling prices and higher margin product mix.
SG&A decreased 4% in the first nine months of 2002 from the first nine
months of 2001 due to the effects of the REAL devaluation. Income from
operations increased 150% to $15 million in the first nine months of 2002 from
$6 million in the first nine months of 2001, which included $2 million of
non-recurring credits relating to Brazilian health and welfare taxes. Income
from operations benefited from lower raw material costs, improvements in
efficiency and cost reduction efforts.
OTHER SEGMENT (SOY INGREDIENTS AND CORN PRODUCTS)
In our other segment, net sales increased 2% to $232 million in the first
nine months of 2002 from $228 million in the first nine months of 2001 due to
increases in sales volumes in our soy ingredients business as well as increases
in average selling prices in the corn products business, offset by a decline in
average selling prices in soy ingredients business. In our soy ingredients
business, sales volumes increased due to a strong export demand for the lower
margin soy ingredients products. In our corn products business, the average
selling prices increased due to a favorable demand in North America, which more
than offset the 15% decline in volumes. Also, a strike at one of the production
facilities in our corn products business negatively affected sales during this
period in 2001.
Gross profit increased 9% to $38 million in the first nine months of 2002
from $35 million in the first nine months of 2001. The increase was due to cost
of goods sold remaining relatively flat as a result of a decline in raw material
costs caused by a change in the product sales mix and lower costs for raw
materials in the corn products business.
SG&A decreased 15% in the first nine months of 2002 from the first nine
months of 2001 due to the effects of the REAL devaluation. Income from
operations increased 23% to $27 million in the first nine months of 2002
compared with $22 million in the first nine months of 2001 due to the increase
in gross profit and the decline in SG&A.
NON-OPERATING INCOME (EXPENSE) - NET
A summary of significant non-operating income (expense) - net for the
periods indicated follows.
23
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------------
2002 2001
-------------------------------
(US$ IN MILLIONS)
Interest income...................................................... $ 71 $ 92
Interest expense..................................................... (103) (154)
Interest expense on debt financing readily marketable inventories.... (21) (31)
Foreign exchange..................................................... (243) (142)
Other income......................................................... 13 3
-------------------------------
Total.............................................. $ (283) $ (232)
===============================
Non-operating income (expense) - net increased 22% to $283 million in the
first nine months of 2002 from $232 million in the first nine months of 2001
primarily due to a 71% increase in foreign exchange losses, partially offset by
a 43% decrease in net interest expenses. The increase in the foreign exchange
losses was primarily due to changes in exchange rates between the U.S. dollar
and the Brazilian REAL. The REAL decreased in value relative to the U.S. dollar
by 40% in the first nine months of 2002 compared to 13% for the same period in
2001. The Argentine PESO decreased in value relative to the U.S. dollar by 56%
in the first nine months of 2002 compared the same period in 2001 when the PESO
was constant relative to the U.S. dollar. We minimized our foreign currency
exposure in Argentina through an increase in our permanently invested
intercompany loans as well as having a long position in U.S. dollars. Net
interest expense declined due to lower average debt outstanding and lower
average short-term interest rates. Interest expense on debt financing readily
marketable inventories declined primarily due to lower average short-term
interest rates.
INCOME TAX EXPENSE
Income tax expense increased to $104 million in the first nine months of
2002 from $28 million in the first nine months of 2001 primarily due to an
increase in taxable income. The increase in the effective income tax rate in the
third quarter of 2002 from the third quarter of 2001 was predominately due to
changes in the tax laws in Argentina in 2002 and reversals of deferred income
tax valuation allowances in 2001. Our effective tax rate for the first nine
months of 2002 was impacted by a $9 million tax credit relating to the refund of
prior years' U.S. foreign sales corporation benefits and a $6 million decrease
in the deferred tax asset valuation allowance resulting from changes in the
realization of certain net operating loss carry-forwards. Our effective rate can
be favorably or unfavorably affected by the volatility in the exchange rate for
the REAL since we recognize current Brazilian tax benefits or expenses related
to foreign exchange losses or gains on intercompany loans. Our effective tax
rate is affected by the assumptions we have made about the exchange rate for the
REAL. To the extent the actual exchange rate differs significantly from our
assumptions, our income tax expense could be materially affected.
MINORITY INTEREST
Minority interest increased to an expense of $61 million in the first nine
months of 2002 compared to an expense of $43 million in the first nine months of
2001 primarily due to increased earnings at our less than wholly owned
subsidiaries.
NET INCOME
Net income increased 94% to $167 million in the first nine months of 2002
from $86 million in the first nine months of 2001.
Net income in the first nine months of 2002 included a $14 million loss
from the cumulative effect of change in accounting principle related to the
adoption of Statement of Financial Accounting Standards (SFAS) No. 142, GOODWILL
AND OTHER INTANGIBLE ASSETS. As a result of the adoption of SFAS No. 142 and our
completion of the transitional impairment test, we recorded $14 million for
goodwill impairment losses related mainly to goodwill in the bakery mixes
business line of our wheat milling and bakery products segment.
Net income in the first nine months of 2001 was positively affected by a $7
million cumulative effect of a change in accounting principle related to the
adoption of SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. As a result of the adoption, commencing in 2001, we began recording
unrealized gains and losses on previously unrecognized forward and sales
contracts as a component of cost of goods sold over the term of these
24
contracts rather than on the delivery date for the underlying commodity. In
addition, we recorded a $3 million gain on the disposal of our consumer bread
products division in Brazil, which we sold to a third party in March 2001 for
$58 million.
In February 2002, we restructured our corporate organization in Brazil,
which generated an increase in our ownership. We paid $105 million in cash to
increase our interest in Bunge Alimentos and Bunge Fertilizantes to 83%. For the
first nine months of 2002, net income was $17 million higher than it would have
been if the restructuring transaction had not taken place.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF LIQUIDITY AND CAPITAL
Our primary financing objective is to maintain a conservative balance sheet
that provides flexibility to pursue our growth objectives. We use a combination
of equity and debt to finance non-current assets and working capital needs.
To finance working capital, we use cash flows generated from operations and
short-term (usually 30-60 days maturity) borrowings, including our commercial
paper facility and various short-term credit lines. At September 30, 2002, we
had $155 million outstanding under our commercial paper program. In order to
reduce our reliance on short-term borrowings, on July 11, 2002, we amended our
commercial paper facility to reduce the maximum borrowings allowed under that
facility from $930 million to $600 million. We maintain back-up bank credit
lines at least equal to our outstanding commercial paper borrowings. On July 11,
2002, we also amended our back-up credit lines so that $360 million has a
364-day term and $240 million has a three-year term. If we were unable to access
the commercial paper market, we would use our back-up bank credit lines, which
would be at a higher cost than our commercial paper. We have never used these
back-up credit lines.
We also have a $460 million three-year revolving senior credit facility,
which we increased from $420 million in August 2002, and of which $150 million
was outstanding at September 30, 2002. In addition, we have a $67 million
two-year senior credit facility of which nothing was outstanding at September
30, 2002 and a $50 million three-year senior credit facility of which $50
million was outstanding at September 30, 2002. Total long-term debt at the Bunge
corporate level at September 30, 2002 was $917 million.
On September 25, 2002, we completed the private placement of $486 million
aggregate principal amount of unsecured senior guaranteed notes, which were
issued by our wholly owned subsidiary, Bunge Limited Finance Corp., and
guaranteed by us. The notes were issued in three series comprised of $82 million
of notes bearing interest at 6.31% that mature on September 30, 2007, $53
million of notes bearing interest at 6.78% that mature on September 30, 2009 and
$351 million of notes bearing interest at 7.44% that mature on September 30,
2012. Interest is payable semi-annually, in arrears on March 30 and September 30
of each year, commencing on March 30, 2003. We used the net proceeds of
approximately $483 million to reduce indebtedness under our commercial paper
program and for general corporate purposes, including payments made in
connection with acquisition activities.
At our subsidiary level, we have various other long-term debt facilities at
fixed and variable interest rates denominated in both U.S. dollars and Brazilian
REAIS, most of which mature between 2002 and 2006. At September 30, 2002, we had
$515 million outstanding under these long-term credit facilities. Of this
amount, at September 30, 2002, $269 million was secured by certain land,
property, equipment and export commodity contracts, as well as shares of the
capital stock of Bunge Fertilizantes, Fosfertil and Ultrafertil having a net
carrying value of $548 million. We repaid $56 million of the secured debt in the
first nine months of 2002.
Our long-term debt agreements, commercial paper program and senior credit
facilities require us to comply with specified financial covenants related to
minimum net worth and working capital and a maximum long-term debt to net worth
ratio. We were in compliance with these covenants as of September 30, 2002.
On April 29, 2002, we entered into senior credit facilities for back-up
liquidity purposes in connection with our proposed acquisition of Cereol with
aggregate available borrowings of $800 million, under which no borrowings were
outstanding at September 30, 2002. As a result of our issuance of $486 million
aggregate principal amount of senior guaranteed notes and $200 million of senior
notes, these facilities were terminated.
25
On July 25, 2002, Standard & Poor's assigned a BBB corporate credit rating
to Bunge and on September 27, 2002, Standard & Poor's assigned a BBB senior
unsecured debt rating to our senior guaranteed notes. On July 24, 2002, Fitch
Ratings placed the rating of our senior unsecured notes, which are rated BBB, on
"Rating Watch Negative" in response to our announcement of the proposed Cereol
acquisition. According to the announcement, the "Rating Watch Negative" reflects
an anticipated decline in our credit protection measures in the near term as a
result of the acquisition and uncertainties about the integration process. On
October 14, 2002, Fitch Ratings assigned a rating of "BBB" to our senior
unsecured notes, and confirmed our status as "Rating Watch Negative". On August
6, 2002, Moody's Investors Services assigned a Baa3 to our $107 million
three-year trust certificates and $18 million five-year trust certificates.
Standard & Poor's, Fitch and Moody's have indicated that, based on current
information, they do not expect Bunge to be rated below investment grade
subsequent to the acquisition.
In the third quarter of 2002, we entered into a foreign currency forward
contract with a notional value of EURO 200 million maturing on January 15, 2003.
This contract represents an economic hedge against the purchase price for the
Cereol acquisition. The fair value of the contract in the amount of $4 million
was recorded in the consolidated balance sheet as of September 30, 2002 and a
related $4 million unrealized gain reflecting the fair value adjustments was
recognized in the consolidated statements of income for the three and nine
months ended September 30, 2002. This contract was settled on October 11, 2002
for a gain of $4 million.
In anticipation of incurring additional debt, in the second and third
quarters of 2002, we entered into treasury rate lock contracts with notional
values of $200 million at a 10-year forward treasury yield of 4.99%, $60 million
at 5-year forward treasury yield of 3.13%, $40 million at a 10-year forward
treasury yield of 4.07% and $300 million at a 10-year forward treasury yield of
4.14%, to hedge some of the interest rate variability risk associated with
changes in the U.S. Treasury rate. We accounted for these derivative contracts
as cash flow hedges. As of September 30, 2002, we recorded a loss of
approximately $22 million, relating to these derivative contracts, in other
comprehensive income (loss), which will be reclassified to earnings over the
term of the debt incurred. In addition, we recorded a loss of approximately $5
million, relating to these derivative contracts, in non-operating income
(expense)-net in the consolidated statements of income for three and nine months
ended September 30, 2002.
Also, upon the closing of our acquisition of Cereol, we assumed Cereol's
debt of approximately EURO 677 million, and have refinanced a portion of the
debt in accordance with the change in control provisions in the related
financing documents. In anticipation of this refinancing, in October 2002, we
entered into a EURO 500 million 364-day revolving credit facility.
We do not have any ratings downgrade triggers that would accelerate the
maturity dates of our debt. However, a downgrade in our credit rating could
adversely affect our ability to renew existing, or to obtain access to new,
credit facilities in the future and would increase the cost of such facilities
to us.
Our current ratio, defined as current assets divided by current
liabilities, was 1.76 at September 30, 2002 and 1.40 at December 31, 2001. Due
to our cash levels and the liquidity of our agricultural commodities
inventories, we believe we have sufficient working capital to satisfy our
present business needs.
We have guaranteed the payment of the long-term loans of a joint venture in
Argentina. As of September 30, 2002, the guarantee totaled $26 million.
In March 2002, we sold 16,093,633 common shares in a public offering, which
resulted in net proceeds of $292 million, after underwriting discounts,
commissions and expenses. We used net proceeds of $105 million to buy back
shares held by minority shareholders in connection with the corporate
restructuring of our Brazilian subsidiaries, and the remainder to reduce
indebtedness under our commercial paper program.
Cash and cash equivalents were $231 million at September 30, 2002 and $199
million at December 31, 2001. Included in our inventories were readily
marketable commodities inventories of $1,240 million at September 30, 2002 and
$764 million at December 31, 2001. These agricultural commodities, which are
financed with debt, are readily convertible to cash because of their commodity
characteristics, widely available markets and international pricing mechanisms.
The increase in readily marketable inventories was primarily due to the
acquisition of crops from the South American harvest that occurs in the first
half of the year.
26
Shareholders' equity decreased to $1,220 million at September 30, 2002 from
$1,376 million at December 31, 2001 as a result of increases in foreign exchange
translation adjustments of $565 million primarily generated by our Brazilian and
Argentine subsidiaries, dividends paid to shareholders of $27 million and losses
incurred on the settlement of treasury rate lock contracts in the amount of $22
million. Offsetting these decreases were net proceeds of $292 million from our
sale of common shares and $167 million of net income for the first nine months
of 2002.
OFF-BALANCE SHEET FINANCINGS
Other than sale-leaseback transactions and an accounts receivable
securitization program, we do not have any off-balance sheet financings. In July
2002, through a wholly owned a subsidiary, we entered into an accounts
receivable agreement with a financial institution that allows us to sell on an
ongoing basis, without recourse, an undivided interest of up to $100 million
from a certain designated pool of accounts receivable. Sales of accounts
receivable averaged $93 million in the period from July 25, 2002 through
September 30, 2002. Accounts receivable at September 30, 2002 were net of $95
million, representing the interests in receivables sold under this agreement.
We have no majority-owned subsidiaries that are not included in our
financial statements, nor do we have any interests in or relationships with any
special purpose entities that are not reflected in our financial statements.
CASH FLOWS
In the first nine months of 2002, we generated cash of $32 million, which
was the net affect of cash flows from operating, investing and financing
activities, compared to the first nine months of 2001, when we used cash of $232
million.
Our operating activities provided cash of $154 million in the first nine
months of 2002, a substantial increase from the $45 million used in the same
period last year. We began purchasing the bulk of our future South American
inventory needs during the crop harvest that occurred during the second quarter
of 2002. As a result, changes in our inventory balances between December 31,
2001 and September 30, 2002 were significant. During the first nine months of
2002, our cash flows from operations were sufficient to purchase the
inventories. Cash flow from operating activities before working capital changes
increased to $635 million for the first nine months of 2002 from $287 million in
the first nine months of 2001 due to increased net income and the REAL
devaluation. We continue to focus on effectively managing our working capital.
Cash flow from operating activities before working capital changes is one of our
major sources of liquidity.
Cash used in investing activities increased to $211 million for the first
nine months of 2002 from $94 million used in the first nine months of 2001.
Investing activities consist primarily of additions to property, plant and
equipment under our capital expenditure plan and payments for business
acquisitions. Payments for business acquisitions were significantly higher in
the first nine months of this year primarily due to the acquisition of shares
held by minority shareholders in connection with the corporate restructuring of
our Brazilian subsidiaries. In the first nine months of 2001, we received
proceeds from the sale of our baked goods division.
Cash provided by financing activities increased to $184 million in the
first nine months of 2002 from $70 million used in the first nine months of
2001. In the first quarter of 2002, we sold common shares for net proceeds of
$292 million. As part of our continuing strategy of centralizing our financing
activities at the parent company level, we paid down $451 million of long-term
variable rate revolving loans at some of our subsidiaries and partially replaced
it with parent company borrowings. We also paid the last installment of $56
million on a 9.25% note collateralized by our commodity exports. In addition, we
borrowed $582 million under our long-term credit facilities and on September 25,
2002, we issued $486 million aggregate principal amount of unsecured senior
guaranteed notes from which we received approximately $483 million in net
proceeds. Dividends paid during the first nine months of 2002 were $27 million.
In anticipation of incurring additional debt, in the second and third
quarters of 2002, we entered into treasury rate lock contracts, upon settlement
we made a payment of approximately $12 million in the nine months ended
September 30, 2002.
27
ACQUISITION OF CEREOL
On October 15, 2002, we completed the acquisition of a 54.69% controlling
interest, or 14,037,220 shares, in Cereol S.A., for approximately EURO 449
million in cash, or EURO 32 per share, from Edison S.p.A. (Edison). Under the
stock purchase agreement, we will also pay Edison up to an additional EURO 3 per
share, or approximately EURO 42 million, depending on the outcome of a pending
arbitration by the McCormick Group involving Cereol. As required by French law,
we have commenced in France the process to purchase the remaining 11,631,389
outstanding shares of Cereol that remain publicly traded on the Euronext market,
at the same price per share or approximately EURO 372 million, plus the
potential adjustment of up to an additional EURO 3 per share. Assuming 100% of
the remaining shares are purchased as part of this process, the total price paid
by Bunge for Cereol's equity will be approximately EURO 821 million, plus the
potential adjustment of up to an additional EURO 3 per share. We have also paid
EURO 14 million to Edison in exchange for a non-compete agreement. The closing
of the acquisition occurred significantly earlier than anticipated due to timing
of the regulatory approvals. We have financed the proposed acquisition with
available cash and borrowings.
In addition, upon the closing of the acquisition, we assumed Cereol's
debt, which was approximately EURO 677 million as of June 30, 2002, and have
refinanced a portion of the debt in accordance with the change in control
provisions in the related financing documents. In anticipation of this
refinancing, in October 2002, we entered into a EURO 500 million 364-day
revolving credit facility.
POTENTIAL TRANSACTION INVOLVING LESIEUR
Cereol currently has a partnership agreement with Sofiproteol in a company
called Saipol, which is 66.66% owned by Sofiproteol, and 33.34% owned by
Lesieur, a wholly owned subsidiary of Cereol. Lesieur is the brand name under
which Cereol sells its French bottled oils. As a result of our acquisition of
Cereol, discussions regarding the future of the partnership are currently being
held. These discussions may result in the sale of the Lesieur business to
Saipol, in which we would have a 33.34% interest going forward.
In addition, we are examining several different transactions that could be
implemented in the next twelve months with respect to some of Cereol's
operations. These transactions could include joint ventures, strategic
alliances, acquisitions and mergers, or sales of certain assets. Discussions
with respect to these opportunities are in preliminary stages.
RECENT DEVELOPMENTS
On October 15, 2002, we completed an offering of $200 million aggregate
principal amount of unsecured senior notes bearing interest at a rate of 7.80%
per year that matures on October 15, 2012. The notes were issued by our wholly
owned subsidiary Bunge Limited Finance Corp. and guaranteed by us. Interest is
payable semi-annually, in arrears on April 15 and October 15 of each year,
commencing on April 15, 2003. We used the net proceeds of approximately $197
million to reduce indebtedness under our commercial paper program and for
general corporate purposes, including payments made in connection with
acquisition activities.
ARGENTINA
During late December 2001, the Argentine government suspended foreign
currency trading. In January 2002, the government abandoned the fixed
PESO-dollar exchange rate and created a dual exchange rate system, which was
subsequently abandoned in February 2002. Between February 11, 2002, when the
Argentine markets reopened, and November 11, 2002, the exchange rate has
fluctuated between 1.92 and 3.57 pesos to the U.S. dollar, representing a
46% devaluation. Our Argentine subsidiaries' assets and liabilities are
translated into U.S. dollars from local currency at month-end exchange rates,
and we record the resulting foreign exchange translation adjustments into our
consolidated balance sheets as a component of accumulated other comprehensive
income (loss). Included in our other comprehensive income (loss) for the first
nine months of 2002 were foreign exchange translation losses of $81 million
representing the adjustment from the translation of Bunge's Argentine assets and
liabilities. We minimized the effect on our net income for the first nine months
of 2002 from the decline in value of the Argentine PESO relative to the U.S.
dollar of 56%, through a long position in U.S. dollars, including U.S. dollar
denominated inventories.
As a result of the Argentine economic crisis, in the first nine months of
2002, we recorded a $32 million provision against recoverable taxes from the
Argentine government.
28
In March 2002, the Argentine government announced the imposition of export
tariffs on manufactured agricultural and industrial goods, including soy meal
and oil, and in April 2002, increased these tariffs. As a result of these
increases, export tariffs are 23.5% on raw grains and 20% on manufactured
agricultural and industrial goods. We do not expect our 2002 financial results
to be adversely affected by these tariffs.
Argentina has experienced recent political unrest, in large part due to
negative economic conditions. This political uncertainty could lead to changes
in the Argentine government, including the presidency, which could further
undermine investor confidence and produce additional policy changes.
A highly inflationary economy is one whose cumulative inflation over a
three-year period is 100% or more. Based on recent inflationary trends, it is
possible Argentina's three year cumulative inflation rate could exceed 100% in
the near future. If Argentina becomes classified as a highly inflationary
economy, we will be required to change the functional currency of our Argentine
subsidiaries to the U.S. dollar from the PESO in accordance with U.S. GAAP.
If we change the functional currency of our Argentine subsidiaries to the
U.S. dollar our financial statements would be affected prospectively in several
ways. We would:
- translate depreciation expenses at historical exchange rates;
- generate foreign exchange translation gains or losses on
PESO-denominated monetary assets and liabilities;
- record non-monetary items at the exchange rates on the dates that
the transactions were consummated; and
- cease recording foreign exchange translation adjustments to other
comprehensive income (loss).
We use permanently invested intercompany loans as a source of capital to
reduce the exposure to foreign currency fluctuations in our foreign
subsidiaries. These loans are treated analogous to equity for accounting
purposes. Therefore, the foreign exchange gains or losses on these intercompany
loans are recorded in other comprehensive income (loss). If we change the
functional currency of our Argentine subsidiaries, we would no longer record
foreign exchange gains or losses on these intercompany loans.
It is uncertain if and when Argentina will be classified as a highly
inflationary economy. Because of this uncertainty we are unable to determine
what effect a change in the functional currency of our Argentine subsidiaries to
the U.S. dollar would have on our financial position, results of operations or
cash flows.
BRAZIL
The Brazilian government has often changed its economic policy, sometimes
significantly, in response to negative economic conditions. Past government
actions have included the devaluation of the REAL and the imposition of
exchange, wage and price controls. In early 1999, the Brazilian government
allowed the REAL to float freely, resulting in 66% devaluation against the U.S.
dollar from January 14, 1999 through September 30, 2002. This and prior
devaluations have had a negative effect on our REAL-denominated revenues and on
the value of our Brazilian assets. A sudden movement in the value of the REAL,
as a result of political changes or otherwise, could negatively affect our
results of operations. The functional currency of our Brazilian subsidiaries is
the REAL. Between January 1, 2002 and November 11, 2002, the exchange rate has
fluctuated between 2.32 and 3.50 reais to the U.S. dollar, representing 34%
devaluation. Our Brazilian subsidiaries' assets and liabilities are translated
into U.S. dollars from local currency at month-end exchange rates, and the
resulting foreign exchange translation adjustments are recorded in the
consolidated balance sheets as a component of accumulated other comprehensive
income (loss). Accordingly, included in other comprehensive loss for the nine
months ended September 30, 2002 is a foreign exchange translation loss of $448
million, representing the loss from the translation of our Brazilian assets and
liabilities.
We minimized the effect of the decline in the value of the Brazilian REAL
relative to the U.S. dollar on our net income through the use of intercompany
loans that are deemed to be permanently invested and by hedging U.S. dollar net
monetary assets and liabilities. In addition, our agricultural commodities
inventories, because of their international pricing in U.S. dollars, provide a
natural hedge to the currency exposure. Our Brazilian fertilizer division has
also historically been able to link our sales prices to those of dollar-linked
imported raw material costs, thereby minimizing
29
the effect of exchange rate fluctuations. However, our food products division's
net sales in Brazil, which comprised approximately 15% and 16% of our total net
sales in the nine months ended September 30, 2002 and 2001, respectively, were
denominated in Brazilian REAIS.
Brazilian presidential elections occurred in October 2002. Luiz Inacio
Lula de Silva was elected as the new president for an initial four-year term.
The recent volatility of the REAL and the Brazilian capital markets has been
due, in part, primarily to uncertainties surrounding the impact of Lula's
election and his party's policies. We cannot assure you that the new
government will not implement policy changes that could adversely affect our
Brazilian operations.
DIVIDENDS
On October 1, 2002, we announced that our Board of Directors declared a
regular quarterly cash dividend of $.10 per share. The dividend is payable on
November 29, 2002 to shareholders of record on November 15, 2002.
CRITICAL ACCOUNTING POLICIES
The accompanying unaudited consolidated interim financial statements have
been prepared in accordance with U.S. GAAP and include the assets, liabilities,
revenues and expenses of all majority owned subsidiaries over which we exercise
control and for which control is other than temporary. For a complete discussion
of our accounting policies, see our Annual Report on Form 20-F filed with the
Securities and Exchange Commission.
Critical accounting policies are defined as those that are both important
to the portrayal of our financial condition and the results of operations and
require management to exercise significant judgments.
The preparation of financial statements in accordance with U.S. GAAP
requires us to make estimates and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. We periodically review our
estimates and assumptions including, but not limited to, allowances for doubtful
accounts, inventories, allowances for recoverable taxes, restructuring charges,
useful lives of property, plant and equipment and intangible assets with
definite lives, impairment of goodwill, contingent liabilities, income tax
valuation allowances, pension plans and the fair value of financial instruments.
Actual results may differ from the estimates and assumptions used in preparing
our consolidated financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 146, ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, LIABILITY RECOGNITION
FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY
(INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING). This statement requires
that a liability for a cost associated with an exit or disposal activity be
recognized and measured initially at fair value when the liability is incurred.
The provisions of this statement are effective for exit or disposal activities
that are initiated after December 31, 2002. We do not expect that adoption of
SFAS No. 146 will have a material effect on our financial position, results of
operations or cash flows.
In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB STATEMENTS
NO. 4, 44 AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL CORRECTIONS.
This statement clarifies guidance related to the reporting of gains and losses
from extinguishments of debt and resolves inconsistencies related to the
required accounting treatment of certain lease modifications. The provisions of
this statement relating to the extinguishment of debt become effective for
financial statements issued for fiscal years beginning after May 15, 2002. The
provisions relating to lease modification are effective for transactions
occurring after May 15, 2002. We do not expect that adoption of SFAS No. 145
will have a material effect on our financial position, results of operations or
cash flows.
Effective January 1, 2002, we adopted SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS. SFAS No. 142 supercedes APB Opinion No. 17, INTANGIBLE ASSETS
and changes the accounting for goodwill and other intangible assets acquired
individually or with a group of other assets, and those acquired in a business
combination, by eliminating the amortization of goodwill and other intangible
assets with indefinite lives. SFAS No. 142 requires goodwill and other
intangible assets be tested at least annually for impairment. Separable other
intangible assets that are not deemed to have an indefinite life will continue
to be amortized over their useful lives. The amortization provisions of SFAS No.
30
142 apply immediately to goodwill and intangible assets acquired after June 30,
2001. SFAS No. 142 requires that companies to complete a transitional goodwill
impairment test within six months from their adoption of SFAS No. 142.
In accordance with the transitional guidance and the adoption of SFAS No.
142, we completed a transitional impairment test and recorded a charge of $14
million, net of tax of $1 million for the nine months ended September 30, 2002
for goodwill impairment losses, related mainly to goodwill in the bakery mixes
business line of our wheat milling and bakery products segment. We recorded
these impairment losses as a cumulative effect of a change in accounting
principle in our consolidated statement of income for the nine months ended
September 30, 2002. Our other intangible assets were not affected by the
adoption of SFAS No. 142. Goodwill amortization expense was $1 million and $5
million for the three and nine months ended September 30, 2001, respectively.
In August 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS effective January 1, 2003 and SFAS No. 144, ACCOUNTING
FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS effective January 1, 2002.
SFAS No. 143 requires the recording of the fair value of a liability for an
asset retirement obligation in the period in which it is incurred. SFAS No. 144
supercedes existing accounting literature dealing with impairment and disposal
of long-lived assets, including discontinued operations. It addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, and expands current reporting for
discontinued operations to include disposals of a "component" of an entity that
has been disposed of or is classified as held for sale. We are currently
assessing the impact of adopting SFAS No. 143. We have determined that SFAS No.
144 did not affect our consolidated financial statements upon its adoption
effective January 1, 2002.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
COMMODITIES RISK
We operate in many areas of the food industry from agricultural raw
materials to production and sale of branded food products. As a result, we use
and produce various materials, many of which are agricultural commodities,
including soybeans, soybean oil, soybean meal, wheat and corn. Agricultural
commodities are subject to price fluctuations due to a number of unpredictable
factors that may create price risk. We enter into various derivative contracts,
primarily exchange traded futures and options, with the objective of managing
our exposure to adverse price movements in the agricultural commodities used for
our business operations. We have established policies that limit the amount of
unhedged fixed price agricultural commodity positions permissible for our
operating companies, which are a combination of quantity and value at risk
limits. We measure and review our sensitivity to our net commodities position on
a daily basis.
We use a sensitivity analysis to estimate our daily exposure to market risk
on our agricultural commodity position. The daily net agricultural commodity
position consists of inventory, related purchase and sale contracts, and
exchange-traded contracts, including those used to hedge portions of our
production requirements. The fair value of that position is a summation of the
fair values calculated for each agricultural commodity by valuing each net
position at quoted average futures prices for the period. Market risk is
estimated as the potential loss in fair value resulting from a hypothetical 10%
adverse change in prices. The results of this analysis, which may differ from
actual results, are as follows:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2002 DECEMBER 31, 2001
--------------------------------- ---------------------------------
(US$ IN MILLIONS) FAIR VALUE MARKET RISK FAIR VALUE MARKET RISK
----------------- --------------- ---------------- --------------- ----------------
Highest long position............. $ 446 $ 45 $ 209 $ 21
Highest short position............ 10 1 77 8
Average (short) long position..... $ (23) $ (2) $ 138 $ 14
The change in fair value of the average daily position in the nine months
ended September 30, 2002 from the year ended December 31, 2001 was principally a
result of a change in our daily net agricultural commodities position combined
with a decline in prices in the nine months ended September 30, 2002 from higher
price levels during 2001, which was a result of lower demand from China and
larger South American crops.
31
CURRENCY RISK
Our global operations require active participation in foreign exchange
markets. To reduce the risk of foreign exchange rate fluctuations, we follow a
policy of hedging net monetary assets and liabilities denominated in currencies
other than the functional currencies applicable to each of our various
subsidiaries. Our primary exposure is related to our businesses located in
Brazil and Argentina and to a lesser extent, Europe, the Middle East and Asia.
To minimize the adverse impact of currency movements, we enter into foreign
exchange swap and purchased option contracts to hedge currency exposures.
When determining our exposure, we exclude intercompany loans that are
deemed to be permanently invested. Permanently invested intercompany loans will
not be repaid and therefore are treated as analogous to equity for accounting
purposes. As a result, the foreign exchange gains and losses on these borrowings
are excluded from the determination of net income and recorded as a component of
accumulated other comprehensive income (loss). The balance of permanently
invested intercompany borrowings was $699 million as of September 30, 2002 and
$595 million as of December 31, 2001. Included in other comprehensive income
(loss) are exchange losses related to permanently invested intercompany loans of
$294 million in the nine months ended September 30, 2002 and $112 million in the
year ended December 31, 2001.
For risk management purposes and to determine the overall level of hedging
required, we further reduce the foreign exchange exposure determined above by
the value of our agricultural commodities inventories. Our agricultural
commodities inventories, because of their international pricing in U.S. dollars,
provide a natural hedge to our currency exposure.
Our net currency position, including cross-currency swaps and currency
options, and our market risk, which is the potential loss from an adverse 10%
change in foreign currency exchange rates, is set forth in the following table.
In addition, we have provided an analysis of our foreign currency exposure after
reducing the exposure for our agricultural commodities inventory. Actual results
may differ from the information set forth below.
AS OF SEPTEMBER AS OF DECEMBER 31,
(US$ IN MILLIONS) 30, 2002 2001
----------------- ------------------- ----------------------
BRAZILIAN OPERATIONS:
Net currency short position, from financial instruments, including derivatives $ (915) $ (511)
Market risk................................................................. (92) (51)
Agricultural commodities inventories........................................ 1,035 401
Net currency long (short) position, less agricultural commodities inventories 120 (110)
Market risk................................................................. $ 12 $ (11)
ARGENTINE OPERATIONS:
Net currency long (short) position, from financial instruments, including
derivatives............................................................... $ 146 $ (48)
Market risk................................................................. 15 (5)
Agricultural commodities inventories........................................ (5) 93
Net currency long position, less agricultural commodities inventories....... 141 45
Market risk................................................................. $ 14 $ 5
The change in our Brazilian net currency position as of September 30, 2002
from December 31, 2001 was due to our continuing efforts to minimize our foreign
exchange exposures, including the increase in our permanently invested
intercompany loans. The change in our Argentine net currency position as of
September 30, 2002 from December 31, 2001 was due to the increase in our
permanently invested intercompany loans as well as having a long position in
U.S. dollars.
On August 7, 2002, we entered into a foreign currency forward contract with
a notional value of EURO 200 million maturing on January 15, 2003. This contract
represents an economic hedge against the purchase price for the Cereol
acquisition. The fair value of the contract in the amount of $4 million was
recorded in the consolidated balance sheet
32
as of September 30, 2002 and a related $4 million unrealized gain reflecting the
fair value adjustments was recognized in the consolidated statements of income
for the three and nine months ended September 30, 2002. This contract was
settled on October 11, 2002 for a gain of $4 million.
INTEREST RATE RISK
In September 2002 and October 2002, in order to reduce our reliance on
short-term debt, we issued four series of senior notes in the amounts and with
the interest rates and maturities as follows:
AMOUNT INTEREST RATE MATURITY
------ ------------- --------
$ 82 million 6.31% September 30, 2007
$ 53 million 6.78% September 30, 2009
$ 351 million 7.44% September 30, 2012
$ 200 million 7.80% October 15, 2012
We expect that the incurrence of this additional long-term debt will result
in an increase in our interest rates.
In anticipation of incurring additional debt, in the second and third
quarter of 2002, we entered into treasury rate lock contracts with notional
values of $200 million at a 10-year forward treasury yield of 4.99%, $60 million
at 5-year forward treasury yield of 3.13%, $40 million at a 10-year forward
treasury yield of 4.07% and $300 million at a 10-year forward treasury yield of
4.14%, to hedge some of the interest rate variability risk associated with
changes in the U.S. Treasury rate. We accounted for these derivative contracts
as cash flow hedges. As of September 30, 2002, we recorded a loss of
approximately $22 million, relating to these derivative contracts, in other
comprehensive income (loss), which will be reclassified to earnings over the
term of the debt incurred. In addition, we recorded a loss of approximately $5
million, relating to these derivative contracts, in non-operating income
(expense)-net in the consolidated statements of income for three and nine months
ended September 30, 2002.
Except for the aforementioned, there have been no significant changes in
our interest rate market risk since December 31, 2001.
OTHER INFORMATION
COMPLIANCE WITH EXCHANGE ACT REPORTING REQUIREMENTS
We have filed timely our Form 20-F and all other reports required to be
filed by us pursuant to the Securities Exchange Act of 1934 during the preceding
twelve months.
CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, we carried out
an evaluation under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-14 of the Securities Exchange
Act of 1934, as amended). Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures are effective in timely alerting them to material information
relating to Bunge (including its consolidated subsidiaries) required to be
included in the reports we file or submit under the Exchange Act.
There have been no significant changes in our internal controls or in
other factors that could significantly affect our internal controls
subsequent to the date we carried out this evaluation.
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BUNGE LIMITED
Date: November 13, 2002 By: /s/ William M. Wells
--------------------
William M. Wells
Chief Financial Officer
/s/ Theodore P. Fox, III
------------------------
Theodore P. Fox, III
Controller and Principal
Accounting Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alberto Weisser, certify that:
1. I have reviewed this report on Form 6-K of Bunge Limited
(the "registrant"):
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and the other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
report (the "Evaluation Date"); and
c. presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
34
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the Audit
Committee of the registrant's Board of Directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
/s/ ALBERTO WEISSER
--------------------------
Alberto Weisser
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William M. Wells, certify that:
1. I have reviewed this report on Form 6-K of Bunge Limited (the
"registrant"):
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and the other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
35
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
report (the "Evaluation Date"); and
c. presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the Audit
Committee of the registrant's Board of Directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
/s/ WILLIAM M. WELLS
--------------------------
William M. Wells
Chief Financial Officer
36