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
August 14, 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 June 30, 2002 and December 31, 2001 2
Consolidated Interim Statements of Income for the Three Months Ended
and Six Months Ended June 30, 2002 and 2001 3
Consolidated Interim Statements of Cash Flows for the Six Months Ended
June 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 24
Proposed Acquisition of Cereol 26
Recent Developments:
Argentina 26
Brazil 27
Dividends 28
Critical Accounting Policies 28
Recent Accounting Pronouncements 28
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 29
OTHER INFORMATION 31
SIGNATURES 32
1
FINANCIAL STATEMENTS
BUNGE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNITED STATES DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2002 2001
------- -------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 289 $ 199
Marketable securities ...................................................... 16 6
Trade accounts receivable (less allowance of $61 and $63) .................. 767 881
Inventories (Note 3) ....................................................... 1,948 1,368
Recoverable taxes .......................................................... 42 75
Deferred income taxes ...................................................... 73 84
Other current assets (Note 5) .............................................. 580 671
------- -------
Total current assets .......................................................... 3,715 3,284
------- -------
Property, plant and equipment, net ............................................ 1,439 1,669
Goodwill ...................................................................... 220 163
Deferred income taxes ......................................................... 109 100
Other non-current assets ...................................................... 191 227
------- -------
TOTAL ASSETS .................................................................. $ 5,674 $ 5,443
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt ............................................................ $ 904 $ 803
Current portion of long-term debt .......................................... 155 180
Trade accounts payable ..................................................... 975 775
Other current liabilities (Note 6) ......................................... 663 588
------- -------
Total current liabilities ..................................................... 2,697 2,346
------- -------
Long-term debt ................................................................ 761 830
Deferred income taxes ......................................................... 90 126
Other non-current liabilities ................................................. 250 272
Commitments and contingencies (Note 9)
Minority interest in subsidiaries ............................................. 440 493
Shareholders' equity:
Common shares, par value $.01; authorized - 240,000,000 shares; issued and
outstanding: 2002 - 99,249,899 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 .......................................................... 490 435
Accumulated other comprehensive loss ....................................... (977) (690)
------- -------
Total shareholders' equity .................................................... 1,436 1,376
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................................... $ 5,674 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2002 2001 2002 2001
------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
Net sales ....................................................... $ 3,103 $ 2,689 $ 5,787 $ 5,161
Cost of goods sold .............................................. 2,783 2,479 5,283 4,795
------- ------- ------- -------
GROSS PROFIT .................................................... 320 210 504 366
Selling, general and administrative expenses .................... 123 112 239 194
------- ------- ------- -------
INCOME FROM OPERATIONS .......................................... 197 98 265 172
Non-operating income (expense) - net (Note 10) .................. (97) (59) (106) (132)
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX AND MINORITY
INTEREST ..................................................... 100 39 159 40
Income tax expense (Note 13) .................................... (36) (4) (39) (4)
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST ...... 64 35 120 36
Minority interest ............................................... (14) (12) (34) (17)
------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS ............................... 50 23 86 19
Discontinued operations, net of tax benefit of $0 (Note 7) ...... -- -- -- 3
------- ------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE .................................................... 50 23 86 22
Cumulative effect of a change in accounting principle, net of tax
of $1 (2002) and $4 (2001) (Note 2) .......................... -- -- (14) 7
------- ------- ------- -------
NET INCOME ...................................................... $ 50 $ 23 $ 72 $ 29
======= ======= ======= =======
EARNINGS PER COMMON SHARE - BASIC (NOTE 14):
Income from continuing operations ............................... $ .50 $ .36 $ .93 $ .30
Discontinued operations ......................................... -- -- -- .04
Cumulative effect of a change in accounting principle ........... -- -- (.15) .11
------- ------- ------- -------
Net income per share ............................................ $ .50 $ .36 $ .78 $ .45
======= ======= ======= =======
EARNINGS PER COMMON SHARE - DILUTED (NOTE 14):
Income from continuing operations ............................... $ .50 $ .36 $ .92 $ .30
Discontinued operations ......................................... -- -- -- .04
Cumulative effect of a change in accounting principle ........... -- -- (.15) .11
------- ------- ------- -------
Net income per share ............................................ $ .50 $ .36 $ .77 $ .45
======= ======= ======= =======
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)
SIX MONTHS ENDED
JUNE 30,
----------------
2002 2001
----- -----
(UNAUDITED)
OPERATING ACTIVITIES
Net income ............................................................... $ 72 $ 29
Adjustments to reconcile net income to cash used for operating activities:
Unrealized foreign exchange loss (gain) ............................. 73 (1)
Bad debt expense .................................................... 12 13
Provision for recoverable taxes ..................................... 28 --
Depreciation, depletion and amortization ............................ 80 78
Cumulative effect of a change in accounting principle ............... 14 --
Deferred income taxes ............................................... 2 (17)
Minority interest ................................................... 34 17
Other - net ........................................................ (7) (6)
Changes in operating assets and liabilities, excluding the effects of
acquisitions:
Marketable securities ............................................ (9) 11
Trade accounts receivable ........................................ 17 59
Inventories ...................................................... (671) (586)
Recoverable taxes ................................................ (56) 21
Trade accounts payable ........................................... 337 24
Other - net ...................................................... 49 111
----- -----
Cash used for operating activities ............................ (25) (247)
INVESTING ACTIVITIES
Payments made for capital expenditures ................................... (75) (105)
Business acquisitions, net of cash acquired .............................. (99) (4)
Purchase of marketable securities ........................................ -- (62)
Proceeds from disposal of property, plant and equipment .................. 5 6
Proceeds from sale of investments ........................................ 12 --
Proceeds from sale of discontinued operations ............................ -- 58
----- -----
Cash used for investing activities ............................ (157) (107)
FINANCING ACTIVITIES
Net change in short-term debt ............................................ 85 290
Proceeds from long-term debt ............................................. 195 36
Repayment of long-term debt .............................................. (243) (106)
Proceeds from sale of common shares ...................................... 292 --
Dividends paid to shareholders ........................................... (17) --
Dividends paid to minority interest ...................................... (14) (16)
Proceeds from receivable from former shareholder ......................... -- 18
----- -----
Cash provided by financing activities ......................... 298 222
Effect of exchange rate changes on cash and cash equivalents ............. (26) (60)
----- -----
Net increase (decrease) in cash and cash equivalents ..................... 90 (192)
Cash and cash equivalents, beginning of period ........................... 199 423
----- -----
Cash and cash equivalents, end of period ................................. $ 289 $ 231
===== =====
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
generally accepted accounting principles 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 six months ended June 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 the 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 is in the process of assessing
whether the adoption of SFAS No. 146 will have an impact on its financial
position, results of operations or cash flows.
In April 2002, the FASB issued Statement of Financial Accounting
Standards (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 FASB Statement of Financial
Accounting Standards 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. SFAS No. 142
also requires that Bunge complete a transitional goodwill impairment test
within six months from the date of adoption. The amortization provisions of
SFAS No. 142 apply immediately to goodwill and intangible assets acquired
after June 30, 2001.
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 $1 million for the six months ended
5
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
2. NEW ACCOUNTING STANDARDS (CONTINUED)
June 30, 2002 for goodwill impairment losses, related mainly to goodwill in
the bakery mixes business line of its wheat milling and bakery products
segment. Bunge's other intangible assets were not affected by the adoption
of SFAS No. 142. The goodwill impairment losses are recorded as a
cumulative effect of a change in accounting principle in Bunge's
consolidated statement of income for the six months ended June 30, 2002.
Set forth below is Bunge's adjusted net income and earnings per share
had Bunge excluded goodwill amortization for the three and six months ended
June 30, 2001.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
(US$ IN MILLIONS, EXCEPT PER SHARE DATA) 2002 2001 2002 2001
---------------------------------------- ------ ------ ------ ------
(UNAUDITED) (UNAUDITED)
Reported income before cumulative effect of a
change in accounting principle ........... $ 50 $ 23 $ 86 $ 22
Add back goodwill amortization ............... -- 2 -- 4
------ ------ ------ ------
Adjusted income before cumulative effect of a
change in accounting principle ........... $ 50 $ 25 $ 86 $ 26
====== ====== ====== ======
Reported net income .......................... $ 50 $ 23 $ 72 $ 29
Add back goodwill amortization ............... -- 2 -- 4
------ ------ ------ ------
Adjusted net income .......................... $ 50 $ 25 $ 72 $ 33
====== ====== ====== ======
EARNING PER COMMON SHARE - BASIC:
---------------------------------
Income before cumulative effect of a change in
accounting principle ..................... $ .50 $ .36 $ .93 $ .34
Add back goodwill amortization ............... -- .03 -- .06
------ ------ ------ ------
Adjusted income before cumulative effect of a
change in accounting principle ........... $ .50 $ .39 $ .93 $ .40
====== ====== ====== ======
Reported net income .......................... .50 $ .36 $ .78 $ .45
Add back goodwill amortization ............... -- .03 -- .06
------ ------ ------ ------
Adjusted net income .......................... $ .50 $ .39 $ .78 $ .51
====== ====== ====== ======
EARNING PER COMMON SHARE - DILUTED:
-----------------------------------
Income before cumulative effect of a change in
accounting principle ..................... $ .50 $ .36 $ .92 $ .34
Add back goodwill amortization ............... -- .03 -- .06
------ ------ ------ ------
Adjusted income before cumulative effect of a
change in accounting principle ........... $ .50 $ .39 $ .92 $ .40
====== ====== ====== ======
Reported net income .......................... $ .50 $ .36 $ .77 $ .45
Add back goodwill amortization ............... -- .03 -- .06
------ ------ ------ ------
Adjusted net income .......................... $ .50 $ .39 $ .77 $ .51
====== ====== ====== ======
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 on January 1, 2002.
3. INVENTORIES
Inventories consist of the following:
JUNE 30, DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
----------------- ------ ------
(UNAUDITED)
Agribusiness - Readily marketable inventories at market value $1,423 $ 764
Fertilizer .................................................. 316 318
Edible oils ................................................. 54 58
Wheat milling and bakery .................................... 43 49
Other ....................................................... 112 179
------ ------
Total ....................................................... $1,948 $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 of Notes
to Consolidated Interim Financial Statements), any goodwill that Bunge may
recognize as a result of this acquisition, when 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 $108 million has been allocated
to goodwill (see Note 2 of Notes to Consolidated Interim Financial
Statements). As of June 30, 2002, Bunge had not finalized this allocation.
The following unaudited pro forma summary financial information sets
forth Bunge's results of operations as if the restructuring had been
consummated as of January 1, 2001, after making certain adjustments such as
depreciation on assets acquired.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
(US$ IN MILLIONS, EXCEPT PER SHARE DATA) 2002 2001 2002 2001
---------------------------------------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
Net Sales ................................. $ 3,103 $ 2,689 $ 5,787 $ 5,161
======= ======= ======= =======
Income before cumulative effect of a change
in accounting principle ................. $ 50 $ 28 $ 87 $ 26
Cumulative effect of a change in accounting
principle, net of tax ................... -- -- (14) 8
-------- ------- ------- -------
Net income ................................ $ 50 $ 28 $ 73 $ 34
======= ======= ======= =======
Income before cumulative effect of a change
in accounting principle per share ....... $ .50 $ .43 $ .94 $ .40
Cumulative effect of a change in accounting
principle, net of tax ................... -- -- (.15) .12
------- ------- ------- -------
Net income per share ...................... $ .50 $ .43 $ .79 $ .52
======= ======= ======= =======
5. OTHER CURRENT ASSETS
Other current assets consist of the following:
JUNE 30, DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
----------------- ---- ----
(UNAUDITED)
Prepaid commodity purchase contracts .............. $ 50 $139
Secured advances to suppliers ..................... 168 164
Unrealized gain on derivative contracts ........... 116 96
Other ............................................. 246 272
---- ----
Total ............................................. $580 $671
==== ====
8
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
6. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
JUNE 30, DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
----------------- ---- ----
(UNAUDITED)
Accrued liabilities .............................. $260 $301
Advances on sales ................................ 164 115
Unrealized loss on derivative contracts .......... 142 102
Other ............................................ 97 70
---- ----
Total ............................................ $663 $588
==== ====
7. DISCONTINUED OPERATIONS
In March 2001, Bunge sold its Brazilian baked goods division, Plus
Vita S.A., to a third party. The net proceeds from the sale were $58
million, net of expenses. The divestiture resulted in a gain to Bunge of $3
million.
The following table summarizes the financial information related to
the discontinued operations of the baked goods division:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
(US$ IN MILLIONS) 2002 2001 2002 2001
----------------- ----- ----- ----- -----
(UNAUDITED) (UNAUDITED)
Net sales ...................... $ -- $ -- $ -- $ 11
Net loss ....................... $ -- $ -- $ -- $ --
8. RELATED PARTY TRANSACTIONS
At June 30, 2002 and December 31, 2001, shareholders' equity includes
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 June 30, 2002 and 2001 and $2 million for both the six months
ended June 30, 2002 and 2001.
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 $2
million for the three months ended June 30, 2002 and 2001, respectively,
and $2 million and $8 million for the six months ended June 30, 2002 and
2001, respectively.
9
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES
Bunge is party to a number of claims and lawsuits, primarily tax and
labor claims, arising out of the normal course of business. After taking
into account liabilities recorded for all of the foregoing matters,
management believes that the ultimate resolution of such matters will not
have a material adverse effect on Bunge's financial condition, results of
operations or liquidity. Included in other non-current liabilities as of
June 30, 2002 and December 31, 2001 are the following accrued liabilities:
JUNE 30, DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
----------------- ---- ----
(UNAUDITED)
Tax claims ............................... $ 97 $113
Labor claims ............................. 54 76
Civil and other .......................... 34 26
---- ----
Total .................................... $185 $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 law 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 June 30, 2002 and $30 million as of December 31, 2001.
10. NON-OPERATING INCOME (EXPENSE) - NET
Non-operating income (expense) - net consists of income and (expense)
items as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- ----------------
(US$ IN MILLIONS) 2002 2001 2002 2001
----------------- ---- ---- ----- -----
(UNAUDITED) (UNAUDITED)
Interest income .......................... $ 19 $ 31 $ 52 $ 72
Interest expense ......................... (32) (54) (70) (116)
Interest expense on debt financing readily
marketable inventories ................. (8) (10) (12) (21)
Foreign exchange ......................... (79) (28) (84) (71)
Other income ............................. 3 2 8 4
---- ---- ----- -----
Total non-operating income (expense) - net $(97) $(59) $(106) $(132)
==== ==== ===== =====
10
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
10. NON-OPERATING INCOME (EXPENSE) - NET (CONTINUED)
INTEREST EXPENSE ON DEBT FINANCING READILY MARKETABLE INVENTORIES -
Readily marketable inventories are agricultural commodities inventories
that are readily convertible to cash because of their commodity
characteristics, widely available markets and international pricing
mechanisms. Bunge attributes interest expense to these inventories based on
the average interest rates on the debt used to finance these inventories.
11. COMPREHENSIVE INCOME (LOSS)
The following table summarizes the components of comprehensive income
(loss):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------- ----------------
(US$ IN MILLIONS) 2002 2001 2002 2001
----------------- ----- ---- ----- -----
(UNAUDITED) (UNAUDITED)
Net income ......................................... $ 50 $ 23 $ 72 $ 29
Other comprehensive income (loss):
Foreign exchange translation adjustment .......... (212) (55) (283) (139)
Cumulative effect of a change in accounting
principle, net of tax of $4 .................... -- -- -- (3)
Unrealized gains (losses) on commodity futures
designated as cash flow hedges, net of tax of $1
(2002), $1 (2001) .............................. (2) (1) (2) 1
Reclassification of unrealized (gains) losses to
net income, net of tax of $1 (2002), $0 (2001) (1) 1 (2) 1
----- ---- ----- -----
Total comprehensive loss ........................... $(165) $(32) $(215) $(111)
===== ==== ===== =====
In anticipation of incurring additional debt, on June 25, 2002 Bunge
entered into a treasury rate lock contract with a notional value of $200
million at a 10-year forward treasury yield of 4.99%, which matures on
August 30, 2002, to hedge some of the interest rate variability to changes
in the U.S. Treasury rate. Bunge accounted for this derivative contract as
a cash flow hedge. When this derivative contract is settled, any gain or
loss associated with it included in comprehensive income (loss) will be
reclassified to earnings over the term of the debt incurred.
12. SHAREHOLDERS' EQUITY
In March 2002, Bunge sold 16,093,633 common shares, or approximately
16% of its outstanding common shares, in a public offering and upon the
exercise of the underwriters' over-allotment option. Proceeds from this
offering and the exercise of the over-allotment option (less underwriting
discounts, commissions and expenses) 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 of Notes to the Consolidated Interim Financial Statements) 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 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.
11
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
12. SHAREHOLDERS' EQUITY (CONTINUED)
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 million 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 was restated to reflect the
effects of the share exchange and share dividend described above.
13. INCOME TAXES
During the six months ended June 30, 2002, Bunge recorded a $12
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 $6 million as certain net operating loss carry-forwards
generated at one of its European subsidiaries were more likely than not to
be realized.
14. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares, excluding any dilutive effects of
stock options and performance-based restricted stock awards during the
reporting period. Diluted earnings per share are computed similar to basic
earnings per share, except that the weighted average number of common
shares outstanding are increased to include additional shares from the
assumed exercise of stock options and performance-based restricted stock
awards, if dilutive. The number of additional shares is calculated by
assuming that outstanding stock options were exercised and that the
proceeds from such exercises were used to acquire common shares at the
average market price during the reporting period. The following table sets
forth the computation of basic and diluted earnings per share for the three
and six months ended June 30, 2002 and 2001.
12
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
14. EARNINGS PER SHARE (CONTINUED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
(US$ IN MILLIONS, EXCEPT FOR SHARE DATA) 2002 2001 2002 2001
---------------------------------------- ------------ ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Income from continuing operations - basic and
diluted ............................................. $ 50 $ 23 $ 86 $ 19
============ ========== =========== ===========
Weighted average number of common shares outstanding:
Basic ........................................... 99,249,886 64,380,000 92,452,815 64,380,000
Effect of dilutive shares ....................... 826,750 -- 816,625 --
------------ ---------- ----------- -----------
Diluted ......................................... 100,076,636 64,380,000 93,269,440 64,380,000
============ ========== =========== ===========
Income from continuing operations per share:
Basic ........................................... $ .50 $ .36 $ .93 $ .30
============ ========== =========== ===========
Diluted ......................................... $ .50 $ .36 $ .92 $ .30
============ ========== =========== ===========
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 the
dual exchange rate system and imposed additional foreign currency
limitations. Between February 11, 2002, when the Argentine markets
reopened, and June 30, 2002, the exchange rate fluctuated between 1.92 and
3.84 PESOS to the U.S. dollar. 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 six months ended June
30, 2002, is a foreign exchange translation loss of $22 million and $82
million, respectively, representing the loss 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% by the
end of 2002. Upon classification as a highly 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
13
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
15. ARGENTINA (CONTINUED)
export tariffs in cost of goods sold in its consolidated interim statements
of income in the three months and six months ended June 30, 2002.
In addition, in the three months ended June 30, 2002, Bunge recorded a
$19 million provision against recoverable taxes from the Argentine
government. For the six months ended June 30, 2002, the provision was $28
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 June 30, 2002, the exchange rate has fluctuated
between 2.32 and 2.86 REAIS to the U.S. dollar, representing 18%
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 six months ended June 30, 2002, is a
foreign exchange translation loss of $226 million, representing the loss
from the translation of Bunge's Brazilian assets and liabilities.
17. SEGMENT INFORMATION
Bunge has five reporting segments, which are organized based on
similar economic characteristics and are similar in nature of products and
services offered, the nature of production processes, the type and class of
customer and distribution methods. The agribusiness segment is
characterized by both inputs and outputs being agricultural commodities and
thus high volume and low margin. The activities of the fertilizer segment
include raw material mining, mixing fertilizer components and marketing
products. The edible oil products segment involves the manufacturing and
marketing of products derived from vegetable oils. The wheat milling and
bakery products segment involves the manufacturing and marketing of
products derived primarily from wheat. The other segment consists of the
soy ingredients and corn products businesses.
The "Unallocated" column in the following table contains the
reconciliation between the totals for reportable segments and Bunge
consolidated totals, which consists primarily of corporate items not
allocated to the operating segments and intersegment eliminations.
Transfers between the segments are generally valued at market. The revenues
generated from these transfers are shown in the following table as
"Intersegment revenues."
14
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
17. SEGMENT INFORMATION (CONTINUED)
OPERATING SEGMENT INFORMATION
WHEAT
MILLING
AND
EDIBLE OIL BAKERY
(US$ IN MILLIONS) AGRIBUSINESS FERTILIZER PRODUCTS PRODUCTS OTHER UNALLOCATED TOTAL
----------------- ------------ ---------- -------- -------- ----- ----------- -----
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2002
Net sales to external customers $2,312 $329 $246 $140 $ 76 $ -- $3,103
Intersegment revenues .......... 96 -- -- -- -- (96) --
Gross profit ................... 209 60 23 17 11 -- 320
Income from operations ......... 155 33 2 7 8 (8) 197
EBITDA (1) ..................... 170 47 6 9 10 (8) 234
Depreciation, depletion and
amortization ................... $ 15 $ 14 $ 4 $ 2 $ 2 $ -- $ 37
THREE MONTHS ENDED JUNE 30, 2001
Net sales to external customers $2,021 $245 $222 $135 $ 66 $ -- $2,689
Intersegment revenues .......... 103 -- -- -- -- (103) --
Gross profit ................... 110 47 27 15 11 -- 210
Income from operations ......... 63 24 2 4 4 1 98
EBITDA (1) ..................... 76 40 6 8 6 2 138
Depreciation, depletion and
amortization ................... $ 13 $ 16 $ 4 $ 4 $ 2 $ 1 $ 40
SIX MONTHS ENDED JUNE 30, 2002
Net sales to external customers $4,301 $586 $478 $272 $150 $ -- $5,787
Intersegment revenues .......... 181 -- -- -- -- (181) --
Gross profit ................... 286 114 50 33 21 -- 504
Income from operations ......... 186 62 8 11 13 (15) 265
EBITDA (1) ..................... 215 94 17 16 18 (15) 345
Depreciation, depletion and
amortization ................... $ 29 $ 32 $ 9 $ 5 $ 5 $ -- $ 80
SIX MONTHS ENDED JUNE 30, 2001
Net sales to external customers $3,786 $528 $439 $257 $151 $ -- $5,161
Intersegment revenues .......... 139 -- -- -- -- (139) --
Gross profit ................... 179 85 54 28 20 -- 366
Income from operations ......... 98 50 11 6 10 (3) 172
EBITDA (1) ..................... 122 83 20 12 15 (2) 250
Depreciation, depletion and
amortization ................... $ 24 $ 33 $ 9 $ 6 $ 5 $ 1 $ 78
(1) Earnings before interest, taxes, depreciation and amortization, ("EBITDA")
equals income from operations plus depreciation, depletion and
amortization.
15
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
18. SUBSEQUENT EVENTS
PROPOSED ACQUISITION OF CEREOL - On July 21, 2002, Bunge entered into
a stock purchase agreement to acquire a 54.69% controlling stake in Cereol
S.A., a leading oilseed processor, from Edison S.p.A. Under the terms of
the agreement, Bunge will purchase Edison's approximately 14 million shares
of Cereol for [EURO]32 per share, or approximately [EURO]449.2 million in
cash. As required by French law, Bunge intends to make an offer to
purchase, at the same price per share, the 45.31% of Cereol shares that
will remain publicly traded on the Euronext market after the closing of
the purchase of the Edison shares. 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]821.4 million. Bunge will
also pay up to an additional [EURO]3.00 per share, or approximately
[EURO]77.0 million to Edison and Cereol's public shareholders upon the
resolution of pending arbitration against Cereol. As of June 30, 2002,
Cereol had approximately 25.7 million shares outstanding. Bunge has also
agreed to pay [EURO]14 million to Edison in exchange for a non-compete
agreement. Bunge will assume Cereol's outstanding debt upon closing of
the acquisition. Bunge intends to finance the proposed acquisition with
available cash and borrowings under existing credit facilities.
Bunge expects to consummate the acquisition in 2002; however, the
acquisition is subject to several conditions, including the approval of
antitrust authorities in the European Union and several other jurisdictions
where Bunge and/or Cereol do business. On August 8, 2002, Bunge was
notified by the U.S. antitrust authorities that it had received an early
termination of the waiting period under the Hart-Scott-Rodino Act with
respect to the proposed acquisition. If the remaining antitrust approval is
not obtained within a specified time period of the signing of the stock
purchase agreement, Bunge will be required to pay Edison a break-up fee of
[EURO]14.8 million, which will be credited against the aggregate purchase
price of Cereol if antitrust approval is subsequently obtained prior to a
specified date.
On August 7, 2002, Bunge entered into a foreign currency forward
contract with a notional value of 200 million euros maturing on January
15, 2003. This contract represents an economic hedge against Bunge's
commitment to acquire Cereol. The fair value of the contract and related
unrealized gains and losses reflecting fair value adjustments will be
recognized in the consolidated balance sheets and statements of income.
SALE OF TRADE ACCOUNTS RECEIVABLE - On July 25, 2002 Bunge, through a
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. On July 25, 2002, Bunge sold
$90 million of undivided interest in certain trade accounts receivable from
a designated pool under this agreement.
DIVIDENDS - On July 29, 2002, Bunge announced that its Board of
Directors had declared a regular quarterly cash dividend of $.095 per
share. The dividend is payable on August 30, 2002 to shareholders of record
on August 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 complete the acquisition of Cereol and to integrate Cereol's
operations, 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 filed 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
Set forth below is a summary of certain items in our consolidated
statements of income and volumes by reportable segment.
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
(US$ IN MILLIONS, EXCEPT VOLUMES)
NET SALES:
Agribusiness ................................ $ 2,312 $ 2,021 $ 4,301 $ 3,786
Fertilizer .................................. 329 245 586 528
Edible oil products ....................... 246 222 478 439
Wheat milling and bakery products ......... 140 135 272 257
Other (soy ingredients and corn products) . 76 66 150 151
-------- -------- -------- --------
Food products total .................... 462 423 900 847
-------- -------- -------- --------
Total ............................ $ 3,103 $ 2,689 $ 5,787 $ 5,161
======== ======== ======== ========
COST OF GOODS SOLD:
Agribusiness ................................ $ 2,103 $ 1,911 $ 4,015 $ 3,607
Fertilizer .................................. 269 198 472 443
Edible oil products ....................... 223 195 428 385
Wheat milling and bakery products ......... 123 120 239 229
Other (soy ingredients and corn products) . 65 55 129 131
-------- -------- -------- --------
Food products total .................... 411 370 796 745
-------- -------- -------- --------
Total ............................ $ 2,783 $ 2,479 $ 5,283 $ 4,795
======== ======== ======== ========
17
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
GROSS PROFIT:
Agribusiness ................................ $ 209 $ 110 $ 286 $ 179
Fertilizer .................................. 60 47 114 85
Edible oil products ....................... 23 27 50 54
Wheat milling and bakery products ......... 17 15 33 28
Other (soy ingredients and corn products) . 11 11 21 20
-------- -------- -------- --------
Food products total .................... 51 53 104 102
-------- -------- -------- --------
Total ............................ $ 320 $ 210 $ 504 $ 366
======== ======== ======== ========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Agribusiness ................................ $ 54 $ 47 $ 100 $ 81
Fertilizer .................................. 27 23 52 35
Edible oil products ....................... 21 25 42 43
Wheat milling and bakery products ......... 10 11 22 22
Other (soy ingredients and corn products) . 3 7 8 10
-------- -------- -------- --------
Food products total .................... 34 43 72 75
-------- -------- -------- --------
Unallocated ................................. 8 (1) 15 3
-------- -------- -------- --------
Total ............................ $ 123 $ 112 $ 239 $ 194
======== ======== ======== ========
INCOME FROM OPERATIONS:
Agribusiness ................................ $ 155 $ 63 $ 186 $ 98
Fertilizer .................................. 33 24 62 50
Edible oil products ....................... 2 2 8 11
Wheat milling and bakery products ......... 7 4 11 6
Other (soy ingredients and corn products) . 8 4 13 10
-------- -------- -------- --------
Food products total .................... 17 10 32 27
-------- -------- -------- --------
Unallocated other ........................... (8) 1 (15) (3)
-------- -------- -------- --------
Total ............................ $ 197 $ 98 $ 265 $ 172
======== ======== ======== ========
NET INCOME .................................. $ 50 $ 23 $ 72 $ 29
======== ======== ======== ========
VOLUMES (IN THOUSANDS OF METRIC TONS):
Agribusiness ................................ 19,749 14,846 31,294 25,957
Fertilizer .................................. 2,482 1,713 4,291 3,278
Edible oil products ....................... 409 397 780 765
Wheat milling and bakery products ......... 533 537 1,028 1,011
Other (soy ingredients and corn products) . 379 302 734 475
-------- -------- -------- --------
Food products total .................... 1,321 1,236 2,542 2,251
-------- -------- -------- --------
Total ............................ 23,552 17,795 38,127 31,486
====== ====== ====== ======
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
OVERVIEW
Our net sales increased 15% in the second quarter of 2002 compared to the
second quarter of 2001 due to increases in sales volumes in all of our segments,
especially the 14% increase in our agribusiness segment. Our cost of goods sold
increased 12%. Our gross profit increased 52% in the second quarter of 2002
compared to the second
18
quarter of 2001. This increase was due to the increased gross profit in our
agribusiness, fertilizer and wheat milling and bakery products segments. Our
selling, general and administrative expenses (SG&A) increased 10% in the second
quarter of 2002 compared to the second quarter of 2001. SG&A as a percentage of
gross profit in the second quarter of 2002 decreased to 38% compared to 53% in
the second quarter of 2001. Our income from operations increased 101% in the
second quarter of 2002 compared to the second quarter of 2001. In our
agribusiness segment, increased profitability was largely due to oilseed
processing, which benefited from higher sales volumes and higher average gross
profit margins for soybean products. The fertilizer segment began its seasonal
upturn early, as farmers purchased retail fertilizer products earlier due to
higher soybean futures prices and in anticipation that exchange rate
volatility could further increase prices. The wheat milling and bakery products
segment also continued to recover.
The devaluations of the Brazilian REAL and the Argentine PESO during the
second quarter of 2002 favorably affected our profitability, particularly in the
agribusiness and fertilizer segments. The agribusiness segment sells most of its
products in U.S. dollars into export markets, and the fertilizer segment sells
products to Brazilian farmers at a REAL-based price that effectively is
dollar-linked. This benefits gross profit margins as costs in both segments are
based on local currency. In addition, currency devaluations in Brazil and
Argentina result in unrealized gains relating to the change in the market value
of our agribusiness segment's readily marketable inventories. The positive
effects of the devaluations 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 14% to $2,312 million
in the second quarter of 2002 from $2,021 million in the second quarter of 2001
due to increases in sales volumes offset by a decrease in average selling
prices. A 33% increase in sales volumes was primarily due to a large South
American crop, increased demand for soy commodity products, continued growth in
international marketing and the March 2002 acquisition of La Plata Cereal in
Argentina. International marketing sales volumes increased 67% reflecting
continued growth in its operations, particularly in sales to Europe.
Gross profit increased 90% to $209 million in the second quarter of 2002
compared with $110 million in the second quarter of 2001 as strong global demand
increased sales volumes and gross profit margins increased. Gross profit margins
increased in grain origination and oilseed processing particularly in South
America, which benefited from an early harvest and good crop quality, the
acquisition of inventories at lower prices and the devaluation of the Brazilian
REAL and the Argentine PESO. Included in gross profit in the second quarter of
2002 was a $19 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 the
acquisition of La Plata Cereal. Income from operations in our agribusiness
segment increased 146% to $155 million in the second quarter of 2002 from $63
million in the second quarter of 2001 due to the improvement in gross profit.
FERTILIZER SEGMENT
In our fertilizer segment, net sales increased 34% to $329 million in the
second quarter of 2002 from $245 million in the second quarter of 2001 primarily
due to an increase in sales volumes partially offset by a decline in average
selling prices. All business lines contributed to the 45% increase in sales
volumes. 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 because of higher soybean
futures prices and concerns that continued exchange rate volatility of the
Brazilian REAL could further increase prices. Animal nutrient sales benefited
from a strong export market for Brazilian meat products, particularly poultry.
The decline in average selling prices was due to high inventory levels and a
competitive price environment due to low prices of imported fertilizer raw
materials. We expect fertilizer demand to increase from last year, which we
believe will resolve the current excess supply situation.
Gross profit increased 28% to $60 million in the second quarter of 2002
from $47 million in the second quarter 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.
19
SG&A increased primarily due to the higher sales volumes and additional
provisions for doubtful accounts. Income from operations in our fertilizer
segment increased 38% to $33 million in the second quarter of 2002 from $24
million in the second 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 11% to $246 million
in the second quarter of 2002 from $222 million in the second 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, which were partially offset by the adverse effects of the REAL
devaluation.
Gross profit decreased 15% to $23 million in the second quarter of 2002
from $27 million in the second quarter of 2001 primarily due to higher raw
material costs, principally for crude soybean oil.
Income from operations was $2 million in the second quarter of 2002, equal
to the second quarter of 2001. The decrease in gross profit was offset by a
decline in SG&A as a result of cost reduction efforts and the effects of the
REAL devaluation.
WHEAT MILLING AND BAKERY PRODUCTS SEGMENT
In our wheat milling and bakery products segment, net sales increased 4% to
$140 million in the second quarter of 2002 from $135 million in the second
quarter of 2001 due to slightly higher average selling prices offset by a slight
decline in sales volumes and the adverse effects of the REAL devaluation.
Gross profit increased 13% to $17 million in the second quarter of 2002
from $15 million in the second quarter of 2001 as a result of a shift to a
higher margin product mix.
Income from operations increased 75% to $7 million in the second quarter of
2002 from $4 million in the second quarter of 2001 primarily due to a higher
gross profit margin product mix and lower SG&A. SG&A decreased primarily due to
the effects of the REAL devaluation.
OTHER SEGMENT (SOY INGREDIENTS AND CORN PRODUCTS)
In our other segment, net sales increased 15% to $76 million in the
second quarter of 2002 from $66 million in the second quarter of 2001. In our
corn products business, a 26% increase in sales volumes was partially offset
by a decline in average selling prices. The decrease in average selling
prices was caused by a product mix shift to lower priced products and a
decline in raw material costs. Also, a strike at one of the production
facilities last year negatively affected net sales during this period in
2001. In our soy ingredients business, a 23% increase in sales volumes was
partially offset by a decline in average selling prices caused largely by a
shift in the product mix.
Gross profit of $11 million in the second quarter of 2002 was unchanged
from the second quarter of 2001. An increase in the gross profit of the corn
products business was offset by a decline in gross profit in the soy ingredients
business. The decline in the gross profit in the soy ingredients business was
primarily due to an increase in raw material costs.
Income from operations increased 100% to $8 million in the second quarter
of 2002 from $4 million in the second quarter of 2001. Income from operations
increased in the corn products businesses primarily due to higher gross profit
and lower SG&A. Income from operations in the soy ingredients increased
primarily due to lower SG&A.
NON-OPERATING INCOME (EXPENSE) - NET
A summary of significant non-operating income (expense) - net for the
periods indicated follows.
THREE MONTHS ENDED
JUNE 30,
------------------
2002 2001
---- ----
(US$ IN MILLIONS)
Interest income ................................................. $ 19 $ 31
Interest expense ................................................ (32) (54)
Interest expense on debt financing readily marketable inventories (8) (10)
Foreign exchange ................................................ (79) (28)
Other income .................................................... 3 2
---- ----
Total ......................................... $(97) $(59)
==== ====
20
Non-operating income (expense) - net increased 64% to $97 million in the
second quarter of 2002 from $59 million in the second quarter of 2001 primarily
due to a 182% increase in foreign exchange losses partially offset by a 43%
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 18% in the second
quarter compared to 6% for the second quarter of 2001. The net income effect of
the foreign exchange losses from the devaluation was more than offset by the
positive effects of the devaluation on gross profit margins.
Net interest expense and interest expense on debt financing readily
marketable inventories declined due to lower average debt outstanding and lower
average short-term interest rates.
INCOME TAX EXPENSE
Income tax expense increased to $36 million in the second quarter of
2002 from $4 million in the second quarter of 2001 primarily due to an
increase in taxable income. The increase in the effective income tax rate in
the second quarter of 2002 from the second 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.
MINORITY INTEREST
Minority interest increased to an expense of $14 million in the second
quarter of 2002 compared to $12 million in the second quarter of 2001 primarily
due to increased earnings at our less than wholly owned subsidiaries.
NET INCOME
Net income increased 117% to $50 million in the second quarter of 2002 from
$23 million in the second quarter of 2001.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
Our net sales increased 12% in the first six months of 2002 compared to
the first six months of 2001 due to increases in net sales in all segments
except our other segment, especially the 14% increase in our agribusiness
segment. Our cost of goods sold increased 10%. Our gross profit increased 34%
in the first six months of 2002 compared to the first six months of 2001,
after excluding $13 million attributable to an extra month's profit from
Fosfertil, which had been reporting its results one month in arrears. This
increase in gross profit was primarily due to a 60% 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 14%
in the first six months of 2002 compared to the first six months of 2001
after excluding non-recurring credits in the first six months of 2001 and the
extra month of results for Fosfertil in 2002. The first six 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 54% in the first six months of 2002 compared
to the first six months of 2001. Income from operations in the first six
months of 2002 included $11 million attributable to an extra month of income
from operations from Fosfertil.
AGRIBUSINESS SEGMENT
In our agribusiness segment, net sales increased 14% to $4,031 million
in the first six months of 2002 from $3,786 million in the first six months of
2001 due to increases in volumes partially offset by a decrease in average
selling prices. A 21% increase in volumes was primarily due to a strong South
American crop, increased demand for soy commodity products, continued growth in
our international marketing business and the March 2002 acquisition of La Plata
Cereal.
Gross profit increased 60% to $286 million in the first six months of 2002
compared with $179 million in the first six months of 2001 due to the effects of
strong global demand on volumes. While gross profit increased in all three
agribusiness business lines, the increase in agribusiness gross profit was
principally due to an increase in grain origination and oilseed processing gross
profit in South America, which benefited from the devaluation of the Brazilian
REAL and Argentine PESO, an early harvest 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 six months of 2002 was a $28 million
non-cash charge for collection of a tax receivable from the Argentine
government, reflecting that country's economic difficulties.
Income from operations in our agribusiness segment increased 90% to $186
million in the first six months of 2002 from $98 million in the first six months
of 2001 to the improvement in gross profit. SG&A increased primarily due to the
expansion of our business, the acquisition of La Plata Cereal and additional
provisions for doubtful accounts.
21
FERTILIZER SEGMENT
In our fertilizer segment, net sales increased 11% to $586 million in
the first six months of 2002 from $528 million in the first six months of
2001 primarily due to an increase in sales volumes partially offset by a
decrease in average selling prices. The 31% 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. The second crop occurs between the major crop production
seasons in Brazil. 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
because of 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 34% to $114 million in the first six months of 2002
from $85 million in the first six 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. In addition, gross
profit benefited from $13 million attributable to an extra month's profit from
Fosfertil which had been reporting its results one month in arrears.
SG&A increased primarily due to the increase in sales volumes, additional
provisions for doubtful accounts and the inclusion of an extra month's results
of Fosfertil in 2002. In addition, 2001 included an $8 million non-recurring
credit relating to Brazilian health and welfare taxes. Income from operations in
our fertilizer segment increased 24% to $62 million in the first six months of
2002 from $50 million in the first six months of 2001 primarily due to the
improvement in gross profit.
EDIBLE OIL PRODUCTS SEGMENT
In our edible oil products segment, net sales increased 9% to $478 million
in the first six months of 2002 from $439 million in the first six months of
2001 primarily due to higher average selling prices and a change in product mix
towards higher priced premium products, which were partially offset by the
adverse effects of the REAL devaluation.
Gross profit decreased 7% to $50 million in the first six months of 2002
from $54 million in the first six months of 2001 primarily due to higher raw
material costs, principally crude soybean oil.
SG&A decreased slightly in the first six months of 2002 from the first six
months of 2001. Income from operations decreased 27% to $8 million in the first
six months of 2002 from $11 million in first six months of 2001, which was
increased by $2 million of non-recurring credits relating to Brazilian health
and welfare taxes.
WHEAT MILLING AND BAKERY PRODUCTS SEGMENT
In our wheat milling and bakery products segment, net sales increased 6% to
$272 million in the first six months of 2002 from $257 million in the same six
months of 2001 due to a 2% increase in sales volumes and higher average selling
prices. The increase in average selling prices was largely due to a supply
shortage 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 18% to $33 million in the first six months of 2002
from $28 million in the first six months of 2001 as a result of higher average
selling prices and higher margin product mix.
SG&A was unchanged in the first half of 2002 from the first six months of
2001. Income from operations increased 83% to $11 million in the first six
months of 2002 from $6 million in the first six months of 2001, which was
increased by $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 decreased 1% to $150 million in the first
six months of 2002 from $151 million in the first six months of 2001 due to a
decline in average selling prices in corn products and soy ingredients offset by
an increase in sales volumes in our corn products business. In our corn products
business, a 63% increase in volumes was partially offset by a decline in average
selling prices. Average selling prices declined because of a product mix shift
to lower priced products and a decline in raw material costs. Also, a strike at
one of the production facilities in our corn products business negatively
affected sales during this period in 2001. In our soy ingredients business,
sales volumes declined slightly.
Gross profit increased 5% to $21 million in the first six months of 2002
from $20 million in the first six months of 2001 due to decreases in cost of
goods sold caused by a decline in raw material costs resulting from a shift in
22
the product sales mix and lower costs for raw materials in the corn products
business. Income from operations increased 30% to $13 million in the first
six months of 2002 compared with $10 million in the first six months of 2001
due to the increase in gross profit and decline in SG&A.
NON-OPERATING INCOME (EXPENSE) - NET
A summary of significant non-operating income (expense) - net for the
periods indicated follows.
SIX MONTHS
ENDED JUNE 30,
----------------
2002 2001
----------------
(US$ IN MILLIONS)
Interest income ................................................. $ 52 $ 72
Interest expense ................................................ (70) (116)
Interest expense on debt financing readily marketable inventories (12) (21)
Foreign exchange ................................................ (84) (71)
Other income .................................................... 8 4
----------------
Total ......................................... $(106) $(132)
================
Non-operating income (expense) - net decreased 20% to $106 million in the
first six months of 2002 from $132 million in the first six months of 2001
primarily due to a 59% decrease in net interest expense partially offset by an
18% increase in foreign exchange losses. The increase in the 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 18%
in the first six months of 2002 compared to 15% for the same period in 2001. Net
interest expense and interest expense on debt financing readily marketable
inventories declined due to lower average debt outstanding and lower average
short-term interest rates.
INCOME TAX EXPENSE
Income tax expense increased to $39 million in the first six months of 2002
from $4 million in the first six months of 2001 primarily due to an increase
in taxable income. Our effective tax rate was reduced by a $12 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. As a result of these tax benefits, our effective tax
rate for the first six months of 2002 was reduced from our estimated annual
effective tax rate.
MINORITY INTEREST
Minority interest increased to an expense of $34 million in the first six
months of 2002 compared to $17 million in the first six months of 2001 primarily
due to increased earnings at our less than wholly owned subsidiaries.
NET INCOME
Net income increased 148% to $72 million in the first six months of 2002
from $29 million in the first six months of 2001.
Net income in the first six months of 2002 was decreased by 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 a 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 six 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 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.
23
In February 2002, we restructured our corporate organization in Brazil
which generated an increase in ownership. We paid $105 million in cash to
increase our interest in Bunge Alimentos and Bunge Fertilizantes to 83%. For the
first six months of 2002, net income was $11 million higher than it would have
been if the 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 June 30, 2002, we had
$859 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. Our intent is to replace the reduced
borrowing capacity under the commercial paper program with long-term debt. We
maintain back-up bank credit lines at least equal to our outstanding commercial
paper borrowings. On July 11, 2002, we amended our back-up credit lines so that
$360 million has a 364-day term and $240 million has a three-year term. We have
never used these back-up lines. If we were unable to access the commercial paper
market, we would use our back-up bank lines of credit, which would be at a
higher cost than our commercial paper.
We also have a $420 million three-year revolving senior credit facility,
which was increased to $460 million in August 2002 and of which $100 million was
outstanding at June 30, 2002, a $67 million two-year senior credit facility of
which $0 was outstanding at June 30, 2002 and a $50 million three-year senior
credit facility of which $50 million was outstanding at June 30, 2002. Total
long-term debt at the Bunge corporate level at June 30, 2002 was $315 million.
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 June 30, 2002, we had $601
million outstanding under these long-term credit facilities. Of this amount, at
June 30, 2002, $309 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 $516
million. We repaid $56 million of the secured debt in the second quarter 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 June 30, 2002.
On July 25, 2002, Standard & Poor's assigned a BBB corporate credit rating
to Bunge. 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 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.
On April 29, 2002, we entered into $800 million of senior credit
facilities, of which $0 was outstanding at June 30, 2002. Bunge intends to use
the credit facilities, as needed, for backup liquidity purposes in connection
with its proposed acquisition of Cereol, to finance working capital needs and
for general corporate purposes. The interest rates on borrowings under the
credit facilities will be variable and based on market factors. The aggregate
amount of borrowings available under the credit facilities will be reduced to
the extent that Bunge issues or incurs additional long-term debt during the term
of the credit facilities. See "Proposed Acquisition of Cereol" below.
24
On August 7, 2002, we entered into a foreign currency forward contract with
a notional value of 200 million euros maturing on January 15, 2003. This
contract represents an economic hedge against our commitment to acquire Cereol.
The fair value of the contract and related unrealized gains and losses
reflecting fair value adjustments will be recognized in the consolidated balance
sheets and statements of income.
In anticipation of incurring additional debt, on June 25, 2002, we entered
into a treasury rate lock contract with a notional value of $200 million at a
10-year forward treasury yield of 4.99%, which matures on August 30, 2002, to
hedge some of the interest rate variability to changes in the U.S. Treasury
rate. We accounted for this derivative contract as a cash flow hedge. When this
derivative contract is settled, the recorded gain or loss associated with it
included in other comprehensive income (loss) will be reclassified to earnings
over the term of the debt.
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.
We have guaranteed the payment of the long-term loans of a joint venture in
Argentina. As of June 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 $289 million at June 30, 2002 and $199
million at December 31, 2001. Included in our inventories were readily
marketable commodities inventories of $1,423 million at June 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. Our current ratio, defined as current assets divided by
current liabilities, was 1.38 at June 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.
Shareholders' equity increased to $1,436 million at June 30, 2002 from
$1,376 million at December 31, 2001 as a result of net proceeds of $292 million
from our sale of common shares and $72 million of net income for the first six
months of 2002. Offsetting these increases were foreign exchange translation
adjustments of $283 million primarily generated by our Brazilian and Argentine
subsidiaries and dividends paid of $17 million.
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, we entered into an agreement with a financial institution that
allows us to sell on an on-going basis, without recourse, an undivided
interest of up to $100 million in certain trade accounts receivable. On July
25, 2002, we sold $90 million 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 six months of 2002, we generated cash of $90 million, which
was the net affect of cash flows from operating, investing and financing
activities, compared to the first six months of 2001, when we used cash of $192
million.
Our operating activities used cash of $25 million in the first six months
of 2002, a substantial decrease from the $247 million used in the same period
last year. We purchase the bulk of our South American inventories during the
crop harvest which occurs during the second quarter. As a result, changes in our
inventory balances between December 31, 2001 and June 30, 2002 were significant.
During the first six months of 2002, our cash flows from
25
operations were sufficient to purchase the inventories. Cash flow from operating
activities before working capital changes increased to $308 million for the
first six months of 2002 from $113 million in the first six months of last year
primarily due to increased net income. 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 $157 million for the first
six months of 2002 from $107 million in the first six months of last year.
Investing activities consist primarily of additions to property, plant and
equipment under our normal capital expenditure plan and payments for business
acquisitions. Payments for business acquisitions were significantly higher in
the first six 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 six months of last year, we received
proceeds from the sale of our baked goods division.
Cash provided by financing activities increased to $298 million in the
first six months of 2002 from $222 million in the first six months of last
year. 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 $135 million
of long-term variable rate revolving loans at one 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 $150 million under our three-year credit
facilities. Dividends paid during the first six months of 2002 were $17
million.
PROPOSED ACQUISITION OF CEREOL
On July 21, 2002, we entered into a stock purchase agreement with Edison
S.p.A., a European conglomerate involved in energy, telecommunications and
other ventures, to acquire its 54.69% interest in Cereol S.A., a leading
oilseed processor in Europe and North America and a leading producer of
edible oils and processed protein products worldwide. Pursuant to the
agreement, we will acquire Edison's 14,037,220 shares of Cereol for [EURO]32
per share, or approximately [EURO]449.2 million in cash. In addition, under
the agreement, we will be required to pay up to an additional [EURO]3 per
share, or approximately [EURO]42.1 million, if a pending arbitration is
resolved in favor of Cereol. After consummation of the acquisition, in
accordance with French law, we will commence an offer to purchase the
11,632,780 outstanding shares of Cereol that are publicly traded on the
Euronext market, at a price of [EURO]32 per share, or approximately [EURO]
372.2 million plus the potential adjustment of up to an additional [EURO]3
per share. We have also agreed to pay [EURO]14 million to Edison in exchange
for a non-compete agreement.
Upon closing of the acquisition, we will assume Cereol's outstanding debt,
and we will refinance approximately $500 million of the debt in accordance with
the change in control provisions in the related financing documents.
We expect to consummate the acquisition in 2002; however, the
acquisition is subject to several conditions, including the approval of
antitrust authorities in the European Union and several other jurisdictions
where we and/or Cereol do business. On August 8, 2002, we were notified by
the U.S. antitrust authorities that we have received an early termination of
the waiting period under the Hart-Scott-Rodino Act with respect to the
proposed acquisition. If the remaining antitrust approval is not obtained
within a specified time period of the signing of the stock purchase
agreement, we will be required to pay Edison a break-up fee of [EURO]14.8
million, which will be credited against the aggregate purchase price of
Cereol if antitrust approval is subsequently obtained prior to a specified
date. We intend to finance the proposed acquisition with available cash and
borrowings under our credit facilities.
RECENT DEVELOPMENTS
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 August 12, 2002, the exchange rate has
fluctuated between 1.92 and 3.59 pesos to the U.S. dollar. 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 six months of 2002 were
foreign exchange translation losses of $82 million related to changes in the
value of
26
our Argentine net assets. We minimized the effect on our net income for the
first six months of 2002 from the decline in value of the Argentine PESO
relative to the U.S. dollar of 57%, 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 six months of
2002, we recorded a $28 million provision against recoverable taxes from the
Argentine government.
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:
o translate depreciation expenses at historical exchange rates on
the dates that the assets were placed in service;
o generate foreign exchange translation gains or losses on
PESO-denominated monetary assets and liabilities;
o record non-monetary items, such as inventories, prepaid expenses
and fixed assets, at the exchange rates on the dates that the
transactions were consummated; and
o 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 or 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
drastically, 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 58% devaluation against the U.S.
dollar from January 14, 1999 through June 30, 2002. These and prior devaluations
have had a negative effect on our real-denominated revenues and on the value of
our Brazilian assets.
27
A sudden decrease 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 June 30, 2002, the exchange rate has fluctuated between
2.32 and 2.86 REAIS to the U.S. dollar, representing 18% 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 three and
six months ended June 30, 2002, is a foreign exchange translation loss of
$226 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 the effect of exchange rate
fluctuations. However, our food products division's net sales in Brazil, which
comprised approximately 9% of our total net sales in the six months ended June
30, 2002 and 2001, were denominated in Brazilian reais.
Brazilian presidential elections are scheduled to occur in October 2002.
The recent volatility of the real and the Brazilian capital markets is primarily
due to uncertainties surrounding the upcoming election. We cannot assure you
that the new government will not implement policy changes that could adversely
affect our Brazilian operations.
DIVIDENDS
On July 29, 2002, we announced that our Board of Directors had declared a
regular quarterly cash dividend of $.095 per share. The dividend is payable on
August 30, 2002 to shareholders of record on August 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 the 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 are in the process of
assessing whether the adoption of SFAS No. 146 will have an impact on its
financial position, results of operations or cash flows.
In April 2002, the FASB issued Statement of Financial Accounting Standards
(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.
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
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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. Bunge
has determined that SFAS No. 144 has had no impact on its consolidated financial
statements upon its adoption on January 1, 2002.
In July 2001, the FASB issued SFAS No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS. SFAS No. 142 supercedes APB Opinion No. 17, INTANGIBLE ASSETS and
changed 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.
142 apply immediately to goodwill and intangible assets acquired after June 30,
2001. For goodwill and intangible assets acquired before June 30, 2001, SFAS No.
142 requires companies to complete, within six months from their adoption of
SFAS No. 142, a transitional goodwill impairment test.
As a result of our adoption of SFAS No. 142 and subsequent completion of a
transitional impairment test, we recorded a charge of $14 million goodwill
impairment loss 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 six months ended June 30, 2002.
Goodwill amortization expense was $2 million and $4 million for the three and
six months ended June 30, 2001, respectively.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
COMMODITIES RISK
We operate in many areas of the food industry from agricultural raw
materials to production and sale of branded food products. As a result, we use
and produce various materials, many of which are agricultural commodities,
including soybeans, soybean oil, soybean meal, wheat and corn. Agricultural
commodities are subject to price fluctuations due to a number of unpredictable
factors that may create price risk. We enter into various derivative contracts,
primarily exchange traded futures and options, with the objective of managing
our exposure to adverse price movements in the agricultural commodities used for
our business operations. We have established policies that limit the amount of
unhedged fixed price agricultural commodity positions permissible for our
operating companies, which are a combination of quantity and value at risk
limits. We measure and review our sensitivity to our net commodities position on
a daily basis.
We use a sensitivity analysis to estimate our daily exposure to market risk
on our agricultural commodity position. The daily net agricultural commodity
position consists of inventory, related purchase and sale contracts, and
exchange-traded contracts, including those used to hedge portions of our
production requirements. The fair value of that position is a summation of the
fair values calculated for each agricultural commodity by valuing each net
position at quoted average futures prices for the period. Market risk is
estimated as the potential loss in fair value resulting from a hypothetical 10%
adverse change in prices. The results of this analysis, which may differ from
actual results, are as follows:
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SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2002 DECEMBER 31, 2001
--------------------------------- ---------------------------------
(US$ IN MILLIONS) FAIR VALUE MARKET RISK FAIR VALUE MARKET RISK
--------------- ---------------- --------------- ----------------
Highest long position............. $174 $17 $209 $21
Highest short position............ 87 9 77 8
Average (short) long position..... $(22) $(2) $138 $14
The change in fair value of the average daily position in the six months
ended June 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 six months ended June 30, 2002 from higher price
levels during 2001 resulting from lower demand from China and larger South
American crops.
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 June 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 $166
million in the six months ended June 30, 2002 and $112 million in the year ended
December 31, 2001.
For risk management purposes and to determine the overall level of hedging
required, we further reduce the foreign exchange exposure determined above by
the value of our agricultural commodities inventories. Our agricultural
commodities inventories, because of their international pricing in U.S. dollars,
provide a natural hedge to our currency exposure.
Our net currency position, including cross-currency swaps and currency
options, and our market risk, which is the potential loss from an adverse 10%
change in foreign currency exchange rates, is set forth in the following table.
In addition, we have provided an analysis of our foreign currency exposure after
reducing the exposure for our agricultural commodities inventory. Actual results
may differ from the information set forth below.
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AS OF AS OF
JUNE 30, DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
----- -----
BRAZILIAN OPERATIONS:
Net currency short position, from financial instruments, including derivatives .................. $(812) $(511)
Market risk ..................................................................................... (81) (51)
Agricultural commodities inventories ............................................................ 774 401
Net currency short position, less agricultural commodities inventories .......................... (38) (110)
Market risk ..................................................................................... $ (4) $ (11)
ARGENTINE OPERATIONS:
Net currency long (short) position, from financial instruments, including
derivatives ..................................................................................... $ 73 $ (48)
Market risk ..................................................................................... 7 (5)
Agricultural commodities inventories ............................................................ 35 93
Net currency long position, less agricultural commodities inventories ........................... 108 45
Market risk ..................................................................................... $ 11 $ 5
The change in our Brazilian net currency position as of June 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 June
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 200 million euros maturing on January 15, 2003. This
contract represents an economic hedge against our commitment to acquire Cereol.
The fair value of the contract and related unrealized gains and losses
reflecting fair value adjustments will be recognized in the consolidated balance
sheets and statements of income.
INTEREST RATE RISK
In anticipation of incurring additional debt, on June 25, 2002 we entered
into a treasury rate lock contract with a notional value of $200 million at a
ten-year forward treasury yield of 4.99%, which matures on August 30, 2002, to
hedge some of the interest rate variability to changes in the U.S. Treasury
rate. We accounted for this derivative contract as a cash flow hedge. When this
derivative contract is settled, the recorded gain or loss associated with it
included in other comprehensive income (loss) will be reclassified to earnings
over the term of the debt.
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.
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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: August 14, 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
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