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
May 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 March 31, 2002 and December 31, 2001 2
Consolidated Interim Statements of Income for the Three Months Ended
March 31, 2002 and 2001 3
Consolidated Interim Statements of Cash Flows for the Three Months Ended
March 31, 2002 and 2001 4
Notes to Consolidated Interim Financial Statements 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 15
Disclosure Regarding Forward-Looking Information 15
Results of Operations 15
Liquidity and Capital Resources 19
Dividends 21
Critical Accounting Policies 21
Recent Accounting Pronouncements 21
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22
OTHER INFORMATION 24
SIGNATURES 25
1
FINANCIAL STATEMENTS
BUNGE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNITED STATES DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2002 2001
--------------- ---------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 234 $ 199
Marketable securities ....................................................... 14 6
Trade accounts receivable (less allowance of $76 and $63) ................... 811 881
Inventories (Note 3) ........................................................ 1,576 1,368
Recoverable taxes ........................................................... 94 75
Deferred income taxes ....................................................... 63 84
Other current assets (Note 5) ............................................... 466 671
--------------- ---------------
Total current assets ........................................................... 3,258 3,284
--------------- ---------------
Property, plant and equipment, net ............................................. 1,668 1,669
Goodwill ....................................................................... 252 163
Deferred income taxes .......................................................... 124 100
Other non-current assets ....................................................... 181 227
--------------- ---------------
TOTAL ASSETS ................................................................... $ 5,483 $ 5,443
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt ............................................................. $ 821 $ 803
Current portion of long-term debt ........................................... 196 180
Trade accounts payable ...................................................... 743 775
Other current liabilities (Note 6) .......................................... 476 588
--------------- ---------------
Total current liabilities ...................................................... 2,236 2,346
--------------- ---------------
Long-term debt ................................................................. 731 830
Deferred income taxes .......................................................... 120 126
Other non-current liabilities .................................................. 271 272
Commitments and contingencies (Note 9)
Minority interest in subsidiaries .............................................. 516 493
Shareholders' equity:
Common stock, par value $.01; authorized - 240,000,000 shares; issued and
outstanding: 2002 - 99,248,733 shares, 2001 - 83,155,100 shares (Note 12) .. 1 1
Additional paid-in capital .................................................. 1,998 1,706
Receivable from former shareholder (Note 8) ................................. (76) (76)
Retained earnings ........................................................... 449 435
Accumulated other comprehensive loss ........................................ (763) (690)
--------------- ---------------
Total shareholders' equity ..................................................... 1,609 1,376
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................................... $ 5,483 $ 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
MARCH 31,
---------------------------------
2002 2001
--------------- ----------------
(UNAUDITED)
Net sales ...................................................................... $ 2,684 $ 2,472
Cost of goods sold ............................................................. 2,500 2,316
--------------- ---------------
GROSS PROFIT ................................................................... 184 156
Selling, general and administrative expenses ................................... 116 82
--------------- ---------------
INCOME FROM OPERATIONS ......................................................... 68 74
Non-operating income (expense) - net (Note 10) ................................. (9) (73)
--------------- ---------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX AND MINORITY INTEREST ...... 59 1
Income tax expense (Note 13) ................................................... (3) -
--------------- ---------------
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST ..................... 56 1
Minority interest .............................................................. (20) (5)
--------------- ---------------
INCOME (LOSS) FROM CONTINUING OPERATIONS ....................................... 36 (4)
Discontinued operations, net of tax benefit of $0 (Note 7) ..................... - 3
--------------- ---------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE ......................................................... 36 (1)
Cumulative effect of a change in accounting principle, net of tax
of $1 (2002) and $4 (2001) (Note 2) .......................................... (14) 7
--------------- ---------------
NET INCOME ..................................................................... $ 22 $ 6
=============== ===============
EARNINGS PER COMMON SHARE - BASIC AND DILUTED (NOTE 14):
Income (loss) from continuing operations ....................................... $ .42 $ (.06)
Discontinued operations ........................................................ - .04
Cumulative effect of a change in accounting principle .......................... (.16) .11
--------------- ---------------
Net income per share ........................................................... $ .26 $ .09
=============== ===============
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)
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2002 2001
--------------- ---------------
(UNAUDITED)
OPERATING ACTIVITIES
Net income ..................................................................... $ 22 $ 6
Adjustments to reconcile net income to cash (used for) provided
by operating activities:
Unrealized foreign exchange loss .......................................... 27 27
Bad debt expense .......................................................... 10 2
Depreciation, depletion and amortization .................................. 43 38
Cumulative effect of change in accounting principle ....................... 14 -
Deferred income taxes ..................................................... (13) (1)
Minority interest ......................................................... 20 5
Other - net ............................................................... 3 (4)
Changes in operating assets and liabilities, excluding the effects of
acquisitions:
Marketable securities .................................................. (9) 40
Trade accounts receivable .............................................. 24 82
Inventories ............................................................ (102) 81
Recoverable taxes ...................................................... (52) 31
Trade accounts payable ................................................. 13 (83)
Other - net ............................................................ 26 67
--------------- ---------------
Cash provided by operating activities ............................... 26 291
INVESTING ACTIVITIES
Payments made for capital expenditures ......................................... (38) (70)
Business acquisitions, net of cash acquired .................................... (99) (4)
Proceeds from disposal of property, plant and equipment ........................ 2 3
Proceeds from sale of investments .............................................. 12 -
Proceeds from sale of discontinued operations .................................. - 58
--------------- ---------------
Cash used for investing activities .................................. (123) (13)
FINANCING ACTIVITIES
Net change in short-term debt .................................................. (34) (332)
Proceeds from long-term debt ................................................... 75 9
Repayment of long-term debt .................................................... (160) (57)
Proceeds from sale of common stock ............................................. 292 -
Dividends paid to shareholders ................................................. (8) -
Dividends paid to minority interest ............................................ (10) (11)
Proceeds from receivable from former shareholder ............................... - 16
--------------- ---------------
Cash provided by (used for) financing activities .................... 155 (375)
Effect of exchange rate changes on cash and cash equivalents ................... (23) (2)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents ........................... 35 (99)
Cash and cash equivalents, beginning of period ................................. 199 423
--------------- ---------------
Cash and cash equivalents, end of period ....................................... $ 234 $ 324
=============== ===============
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 for
interim financial information and with 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 months ended March 31, 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 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
Effective January 1, 2002, Bunge adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS)
No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 142 supercedes
Accounting Principle Board (APB) Opinion No. 17, INTANGIBLE ASSETS, and
changes the accounting for goodwill and other intangible assets acquired
individually or with a group of other assets, and those acquired in a
business combination, by eliminating prospectively the amortization of all
existing and newly acquired goodwill and other intangible assets with
indefinite lives. SFAS No. 142 requires goodwill and other intangible
assets to be tested at least annually for impairment based on the fair
value of the reporting unit associated with the goodwill. Separable other
intangible assets that are not deemed to have an indefinite life will
continue to be amortized over their useful lives. 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.
As of March 31, 2002, resulting from the transitional guidance and the
adoption of SFAS No. 142, Bunge completed a transitional impairment test
and recorded $14 million, net of tax of $1 million, for goodwill impairment
losses, related mainly to goodwill in the bakery mixes business line of its
wheat milling and bakery products segment. Bunge's other intangible assets
were not impacted by the adoption of SFAS No. 142. The goodwill impairment
losses are recorded as a cumulative effect of a change in accounting
principle in Bunge's consolidated statement of income for the three months
ended March 31, 2002.
The following reflects the adjusted net income and earnings per share,
had Bunge excluded goodwill amortization for the three months ended March
31, 2001.
5
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
2. NEW ACCOUNTING STANDARDS (CONTINUED)
THREE MONTHS ENDED
MARCH 31,
---------------------------------
(US$ IN MILLIONS, EXCEPT PER SHARE DATA) 2002 2001
---------------------------------------- --------------- ---------------
(UNAUDITED)
Reported income (loss) from continuing operations
before effect of a change in accounting principle ................ $ 36 $ (1)
Add back goodwill amortization ....................................... - 2
--------------- ---------------
Adjusted income from continuing operations before
effect of a change in accounting principle ....................... 36 1
=============== ===============
Reported net income .................................................. 22 6
Add back goodwill amortization ....................................... - 2
--------------- ---------------
Adjusted net income .................................................. $ 22 $ 8
=============== ===============
EARNING PER SHARE - BASIC AND DILUTED:
Income (loss) from continuing operations before
effect of a change in accounting principle ....................... $ .42 $ (.02)
Add back goodwill amortization ....................................... - .03
--------------- ---------------
Adjusted income from continuing operations before
effect of a change in accounting principle ....................... .42 .01
=============== ===============
Reported net income .................................................. .26 .09
Add back goodwill amortization ....................................... - .03
--------------- ---------------
Adjusted net income .................................................. $ .26 $ .12
=============== ===============
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. While Bunge is currently assessing the impact
of adopting SFAS No. 143, it has determined that there will be no impact on
its consolidated financial statements from adopting SFAS No. 144.
6
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
3. INVENTORIES
Inventories consist of the following:
MARCH 31, DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
----------------- --------------- ---------------
(UNAUDITED)
Agribusiness - Readily marketable inventories at market value ............. $ 997 $ 764
Fertilizer ................................................................ 340 318
Edible oils ............................................................... 58 58
Wheat milling and bakery .................................................. 59 49
Other ..................................................................... 122 179
--------------- ---------------
Total...................................................................... $ 1,576 $ 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, GOODWILL AND OTHER
INTANGIBLE ASSETS (see Note 2 of Notes to Consolidated Interim Financial
Statements), any goodwill that Bunge may recognize, as a result of this
acquisition, upon finalizing the allocation of the purchase price 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 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 $108 million
has been allocated to goodwill (see Note 2 of Notes to Consolidated Interim
Financial Statements). Bunge has not finalized this allocation as of March
31, 2002.
The following unaudited pro forma summary reflects the results of
operations as if the restructuring had been consummated as of January 1,
2001, after including the impact of certain adjustments such as
depreciation on assets acquired.
7
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
4. ACQUISITIONS (CONTINUED)
THREE MONTHS ENDED
MARCH 31,
---------------------------------
(US$ IN MILLIONS, EXCEPT PER SHARE DATA) 2002 2001
--------------------------------------- --------------- ---------------
(UNAUDITED)
Net Sales ............................................................ $ 2,684 $ 2,472
=============== ===============
Income (loss) before cumulative effect of a change in accounting
principle ........................................................ 37 (2)
Cumulative effect of a change in accounting principle, net of tax .... (14) 8
--------------- ---------------
Net income ........................................................... $ 23 $ 6
=============== ===============
Income (loss) before cumulative effect of a change in accounting
principle per share .............................................. $ .43 $ (.03)
Cumulative effect of a change in accounting principle, net of tax .... (.16) .12
--------------- ---------------
Net income per share ................................................. $ .27 $ .09
=============== ===============
5. OTHER CURRENT ASSETS
Other current assets consist of the following:
MARCH 31, DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
----------------- --------------- ---------------
(UNAUDITED)
Prepaid commodity purchase contracts ................................. $ 3 $ 139
Secured advances to suppliers ........................................ 162 164
Unrealized gain on derivative contracts .............................. 81 96
Other ................................................................ 220 272
--------------- ---------------
Total ................................................................ $ 466 $ 671
=============== ===============
8
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
6. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
MARCH 31, DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
---------------- -------------- ---------------
(UNAUDITED)
Accrued liabilities .................................................. $ 264 $ 301
Advances on sales .................................................... 105 115
Unrealized loss on derivative contracts .............................. 60 102
Other ................................................................ 47 70
-------------- ---------------
Total ................................................................ $ 476 $ 588
============== ===============
7. DISCONTINUED OPERATIONS
In March 2001, Bunge committed to a divestiture plan and sold its
Brazilian baked goods division, Plus Vita S.A., to a third party. The net
proceeds from the sale were $59 million, net of expenses. The divestiture
resulted in a gain to Bunge of $3 million.
The following table summarizes the financial information related to
the discontinued operations of the baked goods division:
THREE MONTHS ENDED
MARCH 31,
---------------------------------
(US$ IN MILLIONS) 2002 2001
----------------- --------------- ---------------
(UNAUDITED)
Net sales ............................................................ $ - $ 11
Net loss ............................................................. $ - $ -
8. RELATED PARTY TRANSACTIONS
At March 31, 2002 and December 31, 2001, shareholders' equity includes
a $76 million long-term note receivable from Bunge International Limited,
Bunge's former sole shareholder, relating to a capital contribution made in
2000. Bunge recorded interest income of $1 million and $1 million for the
three months ended March 31, 2002 and 2001, respectively, pertaining to the
related party receivable.
Bunge sells soybean meal and fertilizer products to Seara Alimentos
S.A., a subsidiary of Bunge International Limited, which is engaged in the
business of meat and poultry production. These sales were $1 million and $6
million for the three months ended March 31, 2002 and 2001, respectively.
9
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES
Bunge is party to a number of claims and lawsuits, primarily tax and
labor claims, arising out of the normal course of business. After taking
into account liabilities recorded for all of the foregoing matters,
management believes that the ultimate resolution of such matters will not
have a material adverse effect on Bunge's financial condition, results of
operations or liquidity. Included in other non-current liabilities as of
March 31, 2002 and December 31, 2001 are the following accrued liabilities:
MARCH 31, DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
----------------- --------------- ---------------
(UNAUDITED)
Tax claims ........................................................... $ 109 $ 113
Labor claims ......................................................... 68 76
Civil and other ...................................................... 37 26
--------------- ---------------
Total ................................................................ $ 214 $ 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
approximately $30 million as of March 31, 2002 and December 31, 2001.
10. NON-OPERATING INCOME (EXPENSE) - NET
Non-operating income (expense) - net consists of income and (expense)
items as follows:
THREE MONTHS ENDED
MARCH 31,
---------------------------------
(US$ IN MILLIONS) 2002 2001
----------------- --------------- ---------------
(UNAUDITED)
Interest income ................................................... $ 33 $ 41
Interest expense .................................................. (38) (62)
Interest expense on debt financing readily marketable inventories (4) (11)
Foreign exchange .................................................. (5) (43)
Other income ...................................................... 5 2
--------------- ---------------
Total non-operating income (expense) - net ........................ $ (9) $ (73)
=============== ===============
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
MARCH 31,
---------------------------------
(US$ IN MILLIONS) 2002 2001
----------------- --------------- ---------------
(UNAUDITED)
Net income ........................................................... $ 22 $ 6
Other comprehensive income (loss):
Foreign exchange translation adjustment ............................ (71) (84)
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 $0 (2002), $1 (2001) .......... - 1
Reclassification of unrealized (gains) losses to net
income, net of tax of $1 (2002), $0 (2001) ....................... (2) 1
--------------- ---------------
Total comprehensive loss ............................................. $ (51) $ (79)
=============== ===============
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 6, 2001, Bunge International Limited effected a series of
transactions that resulted in the pro rata distribution of the common
shares of Bunge to the shareholders of Bunge International Limited. Prior
to August 6, 2001, all of the common shares of Bunge were owned by Bunge
International Limited, a privately held company incorporated in Bermuda.
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. 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.
11
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
12. SHAREHOLDERS' EQUITY (CONTINUED)
Between July 5, 2001 and July 12, 2001, Bunge's Board of Directors
approved: (i) the exchange with Bunge International 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 has been restated
to reflect the effects of the share exchange and share dividend described
above.
13. INCOME TAXES
During the three months ended March 31, 2002, Bunge recorded a $12
million tax benefit and a related $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 $6 million resulting from changes in the
realization of certain net operating loss carry-forwards generated at
one of its European subsidiaries. As a result of these tax benefits,
Bunge's effective tax rate for the three months ended March 31, 2002
was reduced from its estimated annual effective tax rate.
14. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares, excluding any dilutive effects of
options and performance-based restricted stock during the reporting period.
Diluted earnings per share are computed similar to basic earnings per
share, except that the weighted average number of common shares outstanding
are increased to include additional shares from the assumed exercise of
stock options and performance-based restricted stock, if dilutive. The
number of additional shares is calculated by assuming that outstanding
stock options were exercised and that the proceeds from such exercises were
used to acquire common shares at the average market price during the
reporting period. The following table sets forth the computation of basic
and diluted earnings per share for the three months ended March 31, 2002
and 2001.
THREE MONTHS ENDED
(US$ IN MILLIONS, EXCEPT FOR SHARE DATA) MARCH 31,
--------------------------------------- ---------------------------------
2002 2001
--------------- ---------------
(UNAUDITED)
Income (loss) from continuing operations - basic and diluted ......... $ 36 $ (4)
=============== ===============
Weighted average number of common shares outstanding:
Basic ............................................................ 85,580,221 64,380,000
Effect of dilutive shares ........................................ 690,458 -
--------------- ---------------
Diluted .......................................................... 86,270,679 64,380,000
=============== ===============
Income (loss) from continuing operations per share:
Basic ............................................................ $ .42 $ (.06)
=============== ===============
Diluted .......................................................... $ .42 $ (.06)
=============== ===============
12
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
15. ARGENTINE MATTERS
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 March 31, 2002, the exchange rate fluctuated between 1.92 and
3.00 PESOS to the U.S. dollar. The functional currency of Bunge's Argentine
subsidiaries is the PESO. 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 March 31, 2002, is a foreign
exchange translation loss of $60 million representing the loss from the
translation of Bunge's Argentine assets and liabilities.
On March 4, 2002, the Argentine government announced the imposition of
export tariffs, including a 10% increase to the existing 3.5% export tariff
on raw grains and a new 5% export tariff on manufactured agricultural and
industrial goods, including soy meal and oil. On April 9, 2002, the
Argentine government increased these tariffs an additional 10% on raw
grains and an additional 15% on manufactured agricultural and industrial
goods. As a result of these increases, the export tariffs are 23.5% on raw
grains and 20% on manufactured agricultural and industrial goods. The
current Argentine economic crisis poses significant uncertainty in the
Argentine agricultural markets as to how these new tariffs will be shared
between growers and exporters. Bunge has accounted for these export tariffs
in cost of goods sold in its consolidated interim statement of income in
the three months ended March 31, 2002.
In addition, in the three months ended March 31, 2002, Bunge has
recorded a $9 million provision against recoverable taxes from the
Argentine government. Bunge did not record any deferred tax benefits on
this provision. Bunge minimized the effect of the 2002 first quarter
decline in value of the Argentine PESO relative to the U.S. dollar of 45%,
on its net income for the three months ended March 31, 2002, through a long
position in U.S. dollars, including U.S. dollar denominated inventories.
16. SEGMENT INFORMATION
Bunge has five reporting segments, which are organized based on
similar economic characteristics and are similar in nature of products and
services offered, the nature of production processes, the type and class of
customer and distribution methods. The agribusiness segment is
characterized by both inputs and outputs being agricultural commodities and
thus high volume and low margin. The activities of the fertilizer segment
include raw material mining, mixing fertilizer components and marketing
products. The edible oil products segment involves the manufacturing and
marketing of products derived from vegetable oils. The wheat milling and
bakery products segment involves the manufacturing and marketing of
products derived primarily from wheat. The other segment consists of the
soy ingredients and corn products businesses.
The "Unallocated" column in the following table contains the
reconciliation between the totals for reportable segments and Bunge
consolidated totals, which consists primarily of corporate items not
allocated to the operating segments and intersegment eliminations.
Transfers between the segments are generally valued at market. The revenues
generated from these transfers are shown in the following table as
"Intersegment revenues."
13
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
16. SEGMENT INFORMATION (CONTINUED)
OPERATING SEGMENT INFORMATION
WHEAT
MILLING
AND
EDIBLE OIL BAKERY
(US$ IN MILLIONS) AGRIBUSINESS FERTILIZER PRODUCTS PRODUCTS OTHER UNALLOCATED TOTAL
----------------- ------------ ---------- ----------- ---------- -------- ----------- -------
(UNAUDITED)
THREE MONTHS ENDED MARCH, 2002
Net sales to external customers.. $ 1,989 $ 257 $ 232 $ 132 $ 74 $ - $ 2,684
Intersegment revenues ........... 85 - - - - (85) -
Gross profit .................... 77 54 27 16 10 - 184
Income from operations .......... 31 29 6 4 5 (7) 68
EBITDA (1) ...................... 45 47 11 7 8 (7) 111
Depreciation, depletion and
amortization .................... $ 14 $ 18 $ 5 $ 3 $ 3 $ - $ 43
THREE MONTHS ENDED MARCH 31, 2001
Net sales to external customers.. $ 1,765 $ 283 $ 217 $ 122 $ 85 $ - $ 2,472
Intersegment revenues ........... 36 - - - - (36) -
Gross profit .................... 69 38 27 13 9 - 156
Income from operations .......... 35 26 9 2 6 (4) 74
EBITDA (1) ...................... 46 43 14 4 9 (4) 112
Depreciation, depletion and
amortization .................... $ 11 $ 17 $ 5 $ 2 $ 3 $ - $ 38
(1) Earnings before interest, taxes, depreciation and amortization,
("EBITDA") equals income from operations plus depreciation, depletion
and amortization.
17. SUBSEQUENT EVENTS
On April 26, 2002, Bunge announced that its Board of Directors had
declared a regular quarterly cash dividend of $.095 per share. The dividend
is payable on Thursday, May 30, 2002 to shareholders of record on
Wednesday, May 15, 2002.
14
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:
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 conditions in Brazil and Argentina; and other economic,
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 for the years ended December
31, 2001, 2000 and 1999 from the format presented in our 2001 annual report
filed on Form 20-F 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 ENDED
MARCH 31,
---------------------------------
2002 2001
--------------- ---------------
NET SALES:
Agribusiness ................................................................... $ 1,989 $ 1,765
Fertilizer ..................................................................... 257 283
Edible oil products .......................................................... 232 217
Wheat milling and bakery products ............................................ 132 122
Other (soy ingredients and corn products) .................................... 74 85
--------------- ---------------
Food products total ....................................................... 438 424
--------------- ---------------
Total ............................................................... $ 2,684 $ 2,472
=============== ===============
COST OF GOODS SOLD:
Agribusiness ................................................................... $ 1,912 $ 1,696
Fertilizer ..................................................................... 203 245
Edible oil products .......................................................... 205 190
Wheat milling and bakery products ............................................ 116 109
Other (soy ingredients and corn products) .................................... 64 76
--------------- ---------------
Food products total ....................................................... 385 375
--------------- ---------------
Total ............................................................... $ 2,500 $ 2,316
=============== ===============
15
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2002 2001
--------------- ---------------
GROSS PROFIT:
Agribusiness ................................................................... $ 77 $ 69
Fertilizer ..................................................................... 54 38
Edible oil products .......................................................... 27 27
Wheat milling and bakery products ............................................ 16 13
Other (soy ingredients and corn products) .................................... 10 9
--------------- ---------------
Food products total ....................................................... 53 49
--------------- ---------------
Total ............................................................... $ 184 $ 156
=============== ===============
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Agribusiness ................................................................... $ 46 $ 34
Fertilizer ..................................................................... 25 12
Edible oil products .......................................................... 21 18
Wheat milling and bakery products ............................................ 12 11
Other (soy ingredients and corn products) .................................... 5 3
--------------- ---------------
Food products total ....................................................... 38 32
--------------- ---------------
Unallocated .................................................................... 7 4
--------------- ---------------
Total ............................................................... $ 116 $ 82
=============== ===============
INCOME FROM OPERATIONS:
Agribusiness ................................................................... $ 31 $ 35
Fertilizer ..................................................................... 29 26
Edible oil products .......................................................... 6 9
Wheat milling and bakery products ............................................ 4 2
Other (soy ingredients and corn products) .................................... 5 6
--------------- ---------------
Food products total ....................................................... 15 17
--------------- ---------------
Unallocated other .............................................................. (7) (4)
--------------- ---------------
Total ............................................................... $ 68 $ 74
=============== ===============
NET INCOME ..................................................................... $ 22 $ 6
=============== ===============
VOLUMES (IN THOUSANDS OF METRIC TONS):
Agribusiness ................................................................... 11,545 11,111
Fertilizer ..................................................................... 1,809 1,565
Edible oil products .......................................................... 371 368
Wheat milling and bakery products ............................................ 495 474
Other (soy ingredients and corn products) .................................... 355 173
--------------- ---------------
Food products total ....................................................... 1,221 1,015
--------------- ---------------
Total ............................................................... 14,575 13,691
=============== ===============
16
OVERVIEW
Our net sales increased 9% in the first quarter of 2002 compared to the
same quarter in 2001 due to increases in net sales in our agribusiness,
edible oil products and wheat milling and bakery products segments offset in
part by a slight decline in net sales in our fertilizer and other segments.
Our cost of goods sold increased proportionally with the increase in our net
sales. Our gross profit increased 5% in the first quarter of 2002 compared to
the same quarter in 2001, after excluding $20 million attributable to an
extra month's profit from Fosfertil (acquired in March 2001), which had been
reporting one month in arrears. This increase was due to the increased gross
profit in our agribusiness, wheat milling and bakery products and other
segments. Our selling, general and administrative expenses (SG&A) increased
18% in the first quarter of 2002 compared to the same quarter in 2001, after
excluding non-recurring credits in the first quarter of 2001 and the extra
month of Fosfertil in 2002. The first quarter 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 3% in the first quarter of 2002 compared to the same quarter in
2001, after excluding $6 million attributable to an extra month of income
from operations from Fosfertil in the first quarter of 2002 and the
non-recurring credits in the first quarter of 2001. 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 by 13% to $1,989 million
in the first quarter of 2002 from $1,765 million in the first quarter of last
year due to increases in volumes and average selling prices. A 4% increase in
volumes was primarily due to increased demand for soy commodity products and
continued growth in our international marketing business. Average selling prices
were higher primarily due to an increase in soy commodity product prices, which
benefited from an improved balance between global supply and demand.
Gross profit increased 12% to $77 million in the first quarter of 2002
compared with $69 million in the first quarter of last year due to the effects
of strong global demand on gross profit margins. 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 gross profit in South
America, which benefited from the devaluation of the Argentine PESO, an early
harvest and good crop quality in Brazil and higher gross profit margins in the
U.S. oilseed processing business. Included in gross profit in the first quarter
of 2002 was a $9 million non-cash charge for collection of an Argentine tax
receivable, reflecting that country's economic difficulties.
Income from operations in our agribusiness segment decreased 11% to $31
million in the first quarter of 2002 from $35 million in the first quarter of
last year. This decrease was due to higher SG&A costs associated with an
increase in the number of international marketing offices and additional
provisions for doubtful accounts. In addition, in the first quarter of 2001, we
received $2 million of non-recurring credits relating to Brazilian social health
and welfare taxes.
FERTILIZER SEGMENT
In our fertilizer segment, net sales decreased by 9% to $257 million in
the first quarter of 2002 from $283 million in the first quarter of last year
primarily due to lower average selling prices, partially offset by an
increase in volumes. The 16% 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 decline in average selling prices was due to an oversupply of
inventory in the market place and from a competitive price environment. We
expect the supply situation to come in line with demand as we expect
fertilizer demand to increase from last year.
Gross profit increased 42% to $54 million in the first quarter of 2002 from
$38 million in the first quarter of last year as a result of the decrease in
cost of goods sold. Cost of goods sold as a percentage of net sales decreased to
79% in the first quarter of 2002 from 87% in the first quarter of 2001. This
decrease was as a result of a shift in product mix away from products that
require nitrogen, one of the more expensive components in our fertilizer
production process, and a shift away from importing raw materials to lower cost
domestic production. Gross profit benefited from the inclusion of $20 million
attributable to an extra month's profit from Fosfertil (acquired in March 2001)
which had been reporting one month in arrears. We eliminated this lag in
reporting by integrating Fosfertil into our operations.
Income from operations in our fertilizer segment increased 12% to $29
million in the first quarter of 2002 from $26 million in the first quarter of
last year. Income from operations was affected by unusual items in the first
quarters
17
of both 2001 and 2002. In 2001, it was increased by $8 million due to
non-recurring credits relating to Brazilian health and welfare taxes. In 2002,
it was increased by $6 million due to the inclusion of an extra month's results
of Fosfertil.
EDIBLE OIL PRODUCTS SEGMENT
In our edible oil segment, net sales increased 7% to $232 million in the
first quarter of 2002 from $217 million in the first quarter of last year
primarily due to higher average selling prices and a change in product mix
towards higher priced premium products. Gross profit was $27 million in the
first quarter of 2002 and 2001. The increase in net sales was offset by higher
raw material costs. In our North American operations, results improved slightly
as a result of improved gross margins, higher sales volumes and lower operating
expenses resulting from our restructuring efforts.
Income from operations decreased 33% to $6 million in the first quarter of
2002 from $9 million in first quarter of last year, 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 8%
to $132 million in the first quarter of 2002 from $122 million in the same
quarter last year due to a 4% 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.
Gross profit increased 23% to $16 million in the first quarter of 2002 from
$13 million in the same quarter last year as a result of a higher margin product
mix.
Income from operations increased 100% to $4 million in the first quarter of
2002 from $2 million in the same quarter last year, 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 13% to $74 million in the first
quarter of 2002 from $85 million in the same quarter last year due to a decline
in average selling prices, which more than offset a 105% increase in volumes. In
our corn products business, a 136% increase in volumes was more than offset by a
decline in average selling prices that was caused by a product mix shift to
lower priced products and a decline in raw material costs. In our soy
ingredients business, sales volumes declined 21% primarily due to a difference
in the timing of the delivery of sales.
Gross profit increased 11% to $10 million in the first quarter of 2002 from
$9 million in the same quarter last year due to decreases in cost of goods sold
caused by a decline in raw material prices resulting from a shift in the product
sales mix. Income from operations decreased 17% to $5 million in the first
quarter of 2002 compared with $6 million last year due to higher SG&A expenses.
NON-OPERATING INCOME (EXPENSE) - NET
A summary of significant non-operating items for the periods indicated
follows.
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2002 2001
--------------- ---------------
(US$ IN MILLIONS)
Interest income ........................................................... $ 33 $ 41
Interest expense .......................................................... (38) (62)
Interest expense on debt financing readily marketable inventories ......... (4) (11)
Foreign exchange .......................................................... (5) (43)
Other income .............................................................. 5 2
--------------- ---------------
Total ................................................... $ (9) $ (73)
=============== ===============
18
Non-operating income (expense) - net decreased 88% to $9 million in the
first quarter of 2002 from $73 million in the same quarter last year primarily
due to an 88% decrease in foreign exchange losses as well as a 72% decrease in
net interest expense. Both of these decreases were the result of our capital
restructuring programs initiated in 2000 and completed in 2001, lower interest
rates and a more stable REAL. In the first quarter of 2002, the value of the
Brazilian REAL relative to the U.S. dollar was unchanged. In contrast, in the
first quarter of 2001 the REAL declined 10% in value relative to the U.S.
dollar. Although in the first quarter of 2002 the value of the Argentine PESO
relative to the U.S. dollar declined by 45%, foreign exchange results benefited
from us having a U.S. dollar long position in Argentina. Net interest expense,
which included $6 million in interest income resulting from the completion of a
tax examination for the years up to and including 1998, declined due to lower
average debt outstanding and lower average short-term interest rates. Interest
expense on debt financing readily marketable inventories declined due to lower
average short-term interest rates.
INCOME TAX EXPENSE
Income tax expense increased to $3 million in the first quarter of 2002
from $0 in the same quarter last year 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 three months
ended March 31, 2002 was reduced from our estimated annual effective tax rate.
MINORITY INTEREST
Minority interest increased to an expense of $20 million in the first
quarter of 2002, versus $5 million in the same quarter last year primarily due
to increased earnings at our less than wholly owned subsidiaries.
NET INCOME
Net income increased 267% to $22 million in the first quarter of 2002 from
$6 million in the same quarter last year.
Net income in the first quarter of 2002 was increased by $2 million due to
the inclusion of an extra month's of results from Fosfertil, and 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 for 2001 was increased by a $7 million gain from the cumulative
effect of change in accounting principle related to the adoption of SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, and a $3
million gain on the disposal of our baked goods division in Brazil. We sold this
division in March 2001 for $59 million, net of expenses.
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 $930 million
commercial paper facility and various short-term credit lines. We maintain
back-up bank credit lines at least equal to our outstanding commercial paper
borrowings. We have never used these back-up lines. If we were unable to access
the commercial paper market, we would use our bank lines of credit, which would
be at a higher cost than our commercial paper.
At March 31, 2002, we had $652 million outstanding and $278 million
available borrowing capacity under our commercial paper program. We also have at
the parent company level a $420 million three-year revolving credit facility, a
$67 million two-year credit facility and a new $50 million three-year credit
facility of which $50 million was outstanding at March 31, 2002. In addition, we
have other various long-term debt facilities at fixed and variable
19
interest rates denominated in both U.S. dollars and Brazilian REAIS, most of
which mature between 2002 and 2006. At March 31, 2002, we had $927 million
outstanding under these long-term credit facilities. Our long-term debt
agreements, commercial paper program and the three-year revolving credit
facility 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 are in compliance with these covenants.
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 $234 million at March 31, 2002 and $199
million at December 31, 2001. Included in our inventories were readily
marketable commodity inventories of $997 million at March 31, 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.
Our current ratio, defined as current assets divided by current liabilities, was
1.46 at March 31, 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 $1,609 million at March 31, 2002 from
$1,376 million at December 31, 2001 as a result of net proceeds of $292 million
from our sale of common stock and $22 million of net income for the first
quarter of 2002. Offsetting these increases were foreign exchange translation
adjustments of $71 million primarily generated by our Argentine subsidiaries and
dividends paid of $8 million.
Off-Balance Sheet Financings
Other than sale-leaseback transactions, we do not have any off balance
sheet financings. We have no majority-owned subsidiaries that are not included
in our financial statements, nor do we have any interests in or relationship
with any special purpose entities that are not reflected in our financial
statements.
Cash Flows
In the first quarter of 2002, we generated cash of $35 million, reflecting
the net impact of cash flows from operating, investing and financing activities,
compared to the first quarter of 2001 when we used $99 million of cash.
Our operating activities generated cash of $26 million in the first quarter
of 2002, a decrease from $291 million in the same period last year. We purchase
the bulk of our Brazilian crops at harvest time. In Brazil, harvest usually
begins in the second quarter, but began earlier in 2002. As a result, we used
cash from operations to purchase soybeans and other commodities that we
typically purchase later in the year, which caused our cash flow from operating
activities to decline when compared to the same period in 2001. Cash flow from
operating activities before working capital changes increased to $126 million
for the first quarter of 2002 from $73 million in the first quarter of last
year. We continue to focus on effectively managing our working capital. Cash
flow from operating activities is one of our major sources of liquidity.
Cash used in investing activities increased to $123 million for the first
quarter of 2002 from $13 million in the first quarter 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
quarter of this year primarily due to the acquisition of shares held by minority
shareholders in connection with the corporate restructuring of our Brazilian
subsidiaries, as well as our acquisition of La Plata Cereal. In the first
quarter of last year, we received proceeds from the sale of our baked goods
division.
Cash provided by financing activities was $155 million in the first quarter
of 2002, compared with cash used of $375 million in the first quarter of last
year. In the first quarter of 2002, we sold common stock 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. In addition, we borrowed $50 million under
our new parent company three-year credit facility. Dividends paid during the
three months ended March 31, 2002 were $8 million.
20
ARGENTINE MATTERS
In January 2002, the Argentine government abandoned the fixed PESO-dollar
exchange rate and created a dual exchange rate system. This system was in place
until February 3, 2002, when the Argentine government abandoned it and imposed
additional foreign currency limitations. Between February 11, 2002, when the
Argentine markets reopened, and March 31, 2002, the exchange rate fluctuated
between 1.92 and 3.00 PESOS to the U.S. dollar. The functional currency of our
Argentine subsidiaries is the PESO. 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 other comprehensive loss for the
first quarter of 2002 is a foreign exchange translation loss of $60 million
representing the loss from the translation of Bunge's Argentine assets and
liabilities.
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. Taking into account the
acquisition of La Plata Cereal S.A., our grain export volumes from Argentina in
2002 are expected to be 3.0 million metric tons and our soy product export
volumes 4.4 million metric tons. Although there is significant uncertainty in
the Argentine agricultural markets as to how these new tariffs will be shared
between growers and exporters and the effect they will have on future exports,
we do not expect our 2002 exports from Argentina to be adversely affected.
As a result of the Argentine economic crisis, in the first quarter of 2002,
we recorded a $9 million provision against recoverable taxes from the Argentine
government. We minimized the effect on our first quarter 2002 net income from
the decline in value of the Argentine PESO relative to the U.S. dollar of 45%,
through a long position in U.S. dollar, including U.S. dollar denominated
inventories.
DIVIDENDS
On April 26, 2002, we announced that our Board of Directors had declared
a regular quarterly cash dividend of $.095 per share. The dividend is payable on
Thursday, May 30, 2002 to shareholders of record on Wednesday, May 15, 2002.
CRITICAL ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America 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 judgements.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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 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
21
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. While Bunge is currently
assessing the impact of adopting SFAS No. 143, it has determined that there will
be no impact on its consolidated financial statements from adopting SFAS No.
144.
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 $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 quarter ended March 31, 2002. Goodwill amortization
expense was $2 million for the quarter ended March 31, 2001.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
COMMODITIES RISK
We operate in many areas of the food industry from agricultural raw
materials to production and sale of branded food products. As a result, we use
and produce various materials, many of which are agricultural commodities,
including soybeans, soybean oil, soybean meal, wheat and corn. Agricultural
commodities are subject to price fluctuations due to a number of unpredictable
factors that may create price risk. We enter into various derivative contracts,
primarily exchange traded futures and options, with the objective of managing
our exposure to adverse price movements in the agricultural commodities used for
our business operations. We have established policies that limit the amount of
unhedged fixed price agricultural commodity positions permissible for our
operating companies, which are a combination of quantity and value at risk
limits. We measure and review our sensitivity to our net commodities position on
a daily basis.
We use a sensitivity analysis to estimate our daily exposure to market risk
on our agricultural commodity position. The daily net agricultural commodity
position consists of inventory, related purchase and sale contracts, and
exchange-traded contracts, including those used to hedge portions of our
production requirements. The fair value of that position is a summation of the
fair values calculated for each agricultural commodity by valuing each net
position at quoted average futures prices for the period. Market risk is
estimated as the potential loss in fair value resulting from a hypothetical 10%
adverse change in prices. The results of this analysis, which may differ from
actual results, are as follows:
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THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2002 DECEMBER 31, 2001
---------------------------- ----------------------------
(US$ IN MILLIONS) FAIR VALUE MARKET RISK FAIR VALUE MARKET RISK
----------------- ---------- ----------- ---------- -----------
Highest long position ............ $ 90 $ 9 $ 209 $ 21
Highest short position ........... 73 7 77 8
Average (short) long position .... $ (18) $ (2) $ 138 $ 14
The change in fair value of the average daily position in the three
months ended March 31, 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 three months ended March
31, 2002 from higher price levels during 2001 resulting from lower demand
from China and larger South American crop expectations.
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 $701 million as of March 31, 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 $47
million in the three months ended and $112 million in the year ended December
31, 2001.
For risk management purposes and to determine the overall level of hedging
required, we further reduce the foreign exchange exposure determined above by
the value of our agricultural commodities inventories. Our agricultural
commodities inventories, because of their international pricing in U.S. dollars,
provide a natural hedge to our currency exposure.
Our net currency position, including cross-currency swaps and currency
options, and our market risk, which is the potential loss from an adverse 10%
change in foreign currency exchange rates, is set forth in the following table.
In addition, we have provided an analysis of our foreign currency exposure after
reducing the exposure for our agricultural commodities inventory. Actual results
may differ from the information set forth below.
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AS OF MARCH 31, AS OF DECEMBER 31,
(US$ IN MILLIONS) 2002 2001
------------------- ---------------- ------------------
BRAZILIAN OPERATIONS:
Net currency short position, from financial instruments, including derivatives . $ (395) $ (511)
Market risk .................................................................... (40) (51)
Agricultural commodities inventories ........................................... 351 401
Net currency short position, less agricultural commodities inventories ......... (44) (110)
Market risk .................................................................... $ (4) $ (11)
ARGENTINE OPERATIONS:
Net currency long (short) position, from financial instruments, including
derivatives .................................................................... $ 20 $ (48)
Market risk .................................................................... 2 (5)
Agricultural commodities inventories ........................................... 21 93
Net currency long position, less agricultural commodities inventories .......... 41 45
Market risk .................................................................... 4 5
The change in our Brazilian and Argentine net currency position as of
March 31, 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 as well as having a long position in
U.S. dollars in Argentina.
INTEREST RATE RISK
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: May 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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