FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
November 14, 2003
Commission File Number 001-16625
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 if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1):___________
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7):___________
Indicate by check mark whether by furnishing the information contained in
this Form the registrant 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/
If "Yes" is marked, indicate below the file number assigned to the
registrant with Rule 12g3-2(b): 82-
This report on Form 6-K shall be incorporated by reference into the Registration
Statements on Form F-3 (Registration Nos. 333-104974, 333-106182, 333-107376,
333-108441-01 and 333-109309), as amended, and the Registration Statement on
Form F-4 (Registration Statement No. 333-108462), as amended, filed by Bunge
Limited Finance Corp. and Bunge Limited under the Securities Act of 1933, as
amended, and the Registration Statements on Form S-8 (Registration Nos.
333-66594, 333-75762, 333-76938 and 333-109446) filed by Bunge Limited under the
Securities Act of 1933, to the extent not superseded by documents or reports
subsequently filed under the Securities Act of 1933 or the Securities Exchange
Act of 1934, as amended.
BUNGE LIMITED
INDEX TO FORM 6-K
Page
----
FINANCIAL STATEMENTS 2
Consolidated Balance Sheets at September 30, 2003 and December 31, 2002 2
Consolidated Interim Statements of Income for the Three Months Ended and
Nine Months Ended September 30, 2003 and 2002 3
Consolidated Interim Statements of Cash Flows for the Nine Months Ended
September 30, 2003 and 2002 4
Notes to Consolidated Interim Financial Statements 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 19
Disclosure Regarding Forward-Looking Information 19
Events Affecting Operating Results 19
Results of Operations 20
Liquidity and Capital Resources 28
Recent Developments 30
Dividends 30
Critical Accounting Policies 30
Recent Accounting Pronouncements 30
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 31
OTHER INFORMATION 33
EXHIBIT INDEX 35
1
FINANCIAL STATEMENTS
BUNGE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNITED STATES DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 501 $ 470
Trade accounts receivable (less allowance of $97 and $80) ................... 1,355 1,168
Inventories (Note 3) ........................................................ 2,382 2,407
Recoverable taxes ........................................................... 76 79
Deferred income taxes ....................................................... 77 87
Other current assets (Note 6) ............................................... 1,025 1,238
------------- ------------
Total current assets ........................................................... 5,416 5,449
------------- ------------
Property, plant and equipment, net ............................................. 1,900 2,056
Goodwill (Note 5) .............................................................. 169 239
Investment in affiliates ....................................................... 530 52
Deferred income taxes .......................................................... 271 131
Other non-current assets ....................................................... 395 297
------------- ------------
TOTAL ASSETS ................................................................... $ 8,681 $ 8,224
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt ............................................................. $ 671 $ 1,250
Current portion of long-term debt ........................................... 232 249
Trade accounts payable ...................................................... 1,609 1,271
Other current liabilities (Note 7) .......................................... 1,171 1,024
------------- ------------
Total current liabilities ...................................................... 3,683 3,794
------------- ------------
Long-term debt ................................................................. 1,684 1,904
Deferred income taxes .......................................................... 189 128
Other non-current liabilities .................................................. 380 431
Commitments and contingencies (Note 10)
Minority interest in subsidiaries .............................................. 545 495
Shareholders' equity:
Common shares, par value $.01; authorized - 240,000,000
shares; issued and outstanding: 2003 - 99,879,782 shares,
2002 - 99,332,233 shares .................................................. 1 1
Additional paid-in capital .................................................. 2,010 1,999
Receivable from former shareholder (Note 8) ................................. - (55)
Retained earnings ........................................................... 933 653
Accumulated other comprehensive loss ........................................ (744) (1,126)
------------- ------------
Total shareholders' equity ..................................................... 2,200 1,472
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................................... $ 8,681 $ 8,224
============= ============
The accompanying notes are an integral part of these consolidated interim
financial statements.
2
BUNGE LIMITED AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF INCOME
(UNITED STATES DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Net sales ................................................................. $ 5,826 $ 3,603 $ 15,936 $ 9,390
Cost of goods sold ........................................................ (5,462) (3,107) (15,038) (8,390)
----------- ----------- ----------- -----------
GROSS PROFIT .............................................................. 364 496 898 1,000
Selling, general and administrative expenses .............................. (183) (132) (505) (371)
Gain on sale of soy ingredients business (Note 4) ......................... - - 111 -
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS .................................................... 181 364 504 629
Non-operating income (expense) - net (Note 11) ............................ (12) (177) 16 (283)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX AND MINORITY INTEREST ............................ 169 187 520 346
Income tax expense (Note 14) .............................................. (47) (65) (131) (104)
----------- ----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST ........................................... 122 122 389 242
Minority interest ......................................................... (33) (27) (78) (61)
----------- ----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLES ............................................................. 89 95 311 181
Cumulative effect of a change in accounting principles,
net of tax benefit of $6 ............................................... - - - (23)
----------- ----------- ----------- -----------
NET INCOME ................................................................ $ 89 $ 95 $ 311 $ 158
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE - BASIC (NOTE 15):
Income before cumulative effect of change in accounting principles ........ $ .89 $ .96 $ 3.12 $ 1.91
Cumulative effect of change in accounting principles ...................... - - - (.24)
----------- ----------- ----------- -----------
Net income per share ...................................................... $ .89 $ .96 $ 3.12 $ 1.67
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE - DILUTED (NOTE 15):
Income before cumulative effect of change in accounting principles ........ $ .88 $ .95 $ 3.08 $ 1.90
Cumulative effect of change in accounting principles ...................... - - - (.25)
----------- ----------- ----------- -----------
Net income per share ...................................................... $ .88 $ .95 $ 3.08 $ 1.65
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated interim
financial statements.
3
BUNGE LIMITED AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(UNITED STATES DOLLARS IN MILLIONS)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2003 2002
------------- ------------
(UNAUDITED)
OPERATING ACTIVITIES
Net income ..................................................................... $ 311 $ 158
Adjustments to reconcile net income to cash provided by (used for)
operating activities:
Gain on sale of soy ingredients business .................................. (111) -
Foreign exchange (gains) losses ........................................... (68) 247
Bad debt expense .......................................................... 9 17
Depreciation, depletion and amortization .................................. 133 118
Cumulative effect of change in accounting principles ...................... - 23
Deferred income taxes ..................................................... (43) -
Minority interest ......................................................... 78 61
Other - net ............................................................... (39) 11
Changes in operating assets and liabilities, excluding
the effects of acquisitions:
Trade accounts receivable .............................................. 57 29
Inventories ............................................................ 173 (809)
Recoverable taxes ...................................................... 14 (67)
Trade accounts payable ................................................. 69 381
Arbitration settlement (Note 10) ....................................... (57) -
Other - net ............................................................ 112 (15)
------------- ------------
Cash provided by operating activities ............................... 638 154
INVESTING ACTIVITIES
Payments made for capital expenditures ......................................... (183) (132)
Business acquisitions, net of cash acquired .................................... (108) (97)
Proceeds from disposal of property, plant and equipment ........................ 26 6
Proceeds from sale of assets held for sale ..................................... 449 12
------------- ------------
Cash provided by (used for) investing activities .................... 184 (211)
FINANCING ACTIVITIES
Net change in short-term debt .................................................. (583) (615)
Proceeds from long-term debt ................................................... 324 1,068
Repayment of long-term debt .................................................... (594) (507)
Proceeds from affiliates loan .................................................. 41
Proceeds from receivable from former shareholder ............................... 55 -
Proceeds from sale of common shares ............................................ 7 292
Dividends paid to shareholders ................................................. (31) (27)
Dividends paid to minority interest ............................................ (61) (27)
------------- ------------
Cash (used for) provided by financing activities .................... (842) 184
Effect of exchange rate changes on cash and cash equivalents ................... 51 (95)
------------- ------------
Net increase in cash and cash equivalents ...................................... 31 32
Cash and cash equivalents, beginning of period ................................. 470 199
------------- ------------
Cash and cash equivalents, end of period ....................................... $ 501 $ 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 U.S.
GAAP for complete financial statements. In the opinion of management, all
adjustments necessary for a fair presentation have been included. The
consolidated balance sheet at December 31, 2002 has been derived from
Bunge's audited financial statements at that date. Operating results for
the three and nine months ended September 30, 2003 are not necessarily
indicative of the results to be expected for the year ending December 31,
2003. The financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for the year
ended December 31, 2002 included in Bunge's 2002 Annual Report on Form 20-F
filed with the Securities and Exchange Commission.
Reclassifications - Certain reclassifications were made to the
December 31, 2002 consolidated balance sheet to conform to the current
presentation.
2. NEW ACCOUNTING STANDARDS
In May 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 150 (SFAS No. 150),
ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY. SFAS No. 150 establishes standards for how a
company classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 requires that
a company classify a financial instrument, which is within the scope of
SFAS No. 150 as a liability (or an asset in some circumstances). SFAS No.
150 is effective for financial instruments entered into or modified after
May 31, 2003, and to certain other instruments that existed prior to May
31, 2003 as of the beginning of the first interim period beginning after
June 15, 2003. The adoption of SFAS No. 150 did not have a material impact
on Bunge's consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
CONSOLIDATION OF VARIABLE INTEREST ENTITIES (FIN 46), an interpretation of
Accounting Research Bulletin No. 51, CONSOLIDATED FINANCIAL STATEMENTS (ARB
51). FIN 46 addresses consolidation by business enterprises of variable
interest entities, which are entities that are subject to consolidation
according to the provisions of FIN 46. For interests acquired on or after
February 1, 2003, FIN 46 applies immediately. For existing interests as of
January 31, 2003, FIN 46 is effective in the fourth quarter of 2003. Bunge
does not believe the adoption of FIN 46 will impact the accounting for its
accounts receivable securitizations. Bunge is evaluating the effect, if
any, that FIN 46 will have on its consolidated financial statements.
5
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
3. INVENTORIES
Inventories consist of the following:
SEPTEMBER 30, DECEMBER 31,
(US$ IN MILLIONS) 2003 2002
----------------- ------------- ------------
(UNAUDITED)
Agribusiness - Readily marketable inventories at market value (1) ......... $ 1,563 $ 1,517
Fertilizer ................................................................ 359 214
Edible oils ............................................................... 198 346
Milling and baking ........................................................ 55 63
Other (2) ................................................................. 207 267
------------- ------------
Total ..................................................................... $ 2,382 $ 2,407
============= ============
----------
(1) 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.
(2) Agribusiness inventories carried at lower of cost or market.
4. BUSINESS COMBINATIONS AND ALLIANCES
ACQUISITION OF CEREOL S.A. - In 2002, Bunge acquired 97.38% of the
shares of Cereol S.A. for $787 million in cash (net of cash acquired of $90
million). In April 2003, Bunge acquired the remaining 2.62% of the shares
of Cereol for $23 million in cash. As a result, Bunge owns 100% of Cereol's
capital and voting rights. Cereol is engaged in the processing of oilseeds
and the production of edible oils in Europe and North America. Cereol's
results of operations have been included in the consolidated financial
statements of Bunge since October 1, 2002. Bunge financed the Cereol
acquisition with available cash and borrowings.
The acquisition is being accounted for using the purchase method
under SFAS No. 141, BUSINESS COMBINATIONS. The cost to acquire Cereol has
been allocated to the assets acquired and liabilities assumed, according to
estimated fair values.
The following table summarizes the available data as of September
30, 2003 of the estimated fair value of the assets acquired and liabilities
assumed at the date of the Cereol acquisition.
(US$ IN MILLIONS)
-----------------
CALCULATION OF PURCHASE PRICE:
Cash paid............................................................... $ 900
Current liabilities assumed............................................. 835
Other non-current liabilities assumed................................... 472
-----------------
Total................................................................... $ 2,207
=================
ALLOCATION OF PURCHASE PRICE:
Current assets.......................................................... $ 948
Property, plant and equipment........................................... 363
Net assets of Lesieur................................................... 200
Assets contributed to Solae............................................. 520
Other non-current assets................................................ 202
Minority interest ...................................................... (26)
-----------------
Total................................................................... $ 2,207
=================
6
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
4. BUSINESS COMBINATIONS AND ALLIANCES(CONTINUED)
In connection with the Cereol acquisition, Bunge has accrued
termination benefits and facility related exit costs as part of its
integration plan (the "Plan"). The Plan is designed to streamline personnel
and close surplus or unprofitable facilities acquired from Cereol. These
costs, which totaled $35 million, have been accrued as part of the purchase
price and are included in current liabilities on the consolidated balance
sheet at September 30, 2003. Bunge commenced the integration process, which
included an evaluation of these issues, prior to the October 2002
consummation of the Cereol acquisition and finalized the Plan in the nine
months ended September 30, 2003. Of the costs accrued, $29 million relate
to employee termination and $6 million relate to facility closures. The
execution of the Plan will result in the termination of approximately 340
employees and the closure of 8 facilities. The following table summarizes
activity related to the Plan:
EMPLOYEE
TERMINATION FACILITY
(US$ IN MILLIONS) COSTS EXIT COSTS TOTAL
---------------- ----------- ------------ -------
Accrued in purchase price........................... $ 29 $ 6 $ 35
Amount paid......................................... (7) (1) (8)
----------- ------------ -------
Balance at September 30, 2003....................... $ 22 $ 5 $ 27
=========== ============ =======
As of September 30, 2003, 155 employees have been terminated pursuant
to the Plan. Payments related to employee termination costs are expected to
be substantially completed in 2004. Payments related to facility exit costs
are expected to be substantially completed in 2004. The Plan is expected to
be funded by cash flows from operations. No significant unresolved issues
exist related to the Plan. Any adjustments to the Plan will be reported as
an adjustment to purchase price during the one-year period following the
date of acquisition and as a component of net income after the allocation
period.
SAIPOL JOINT VENTURE - In November 2002, Bunge announced its
agreement to sell Lesieur, a French producer of branded bottled vegetable
oils, to Saipol, an oilseed processing joint venture between Cereol and
Sofiproteol (the financial arm of the French oilseed farmer's association).
In July 2003, Bunge completed the sale of Lesieur and received in cash $240
million for the sale, which included repayment of Lesieur intercompany debt
of $72 million owed to Cereol at closing and a note receivable from Saipol
of $31 million. The note receivable matures in July 2009 with interest
payable annually at a rate of 5.55%. Bunge did not recognize any gain or
loss on this transaction. In addition, as a result of this transaction,
Bunge has a 33.34% interest in the Saipol joint venture, which is accounted
for under the equity method.
DUPONT ALLIANCE - In January 2003, Bunge announced its agreement to
form an alliance with E.I. duPont de Nemours and Company (DuPont) to expand
its agribusiness and soy ingredients businesses. The alliance consists of
three components: a joint venture (The Solae Company, or Solae) for the
production and distribution of specialty food ingredients, such as soy
protein products and lecithins; a biotechnology agreement to jointly
develop and commercialize soybeans with improved quality traits; and an
alliance to develop a broader offering of services and products to farmers.
In April 2003, Bunge and DuPont signed definitive agreements and
formed Solae, a soy ingredients joint venture, with DuPont contributing its
Protein Technologies food ingredients business and Bunge contributing its
North American and European ingredients operations. In exchange, Bunge
received a 28% interest in Solae. As a result of this transaction, Bunge
recorded a long-term investment in Solae in its consolidated balance sheet
at June 30, 2003. The carrying value of net assets contributed, which also
7
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
4. BUSINESS COMBINATIONS (CONTINUED)
equals fair value, was $520 million. Bunge did not recognize any gain
or loss on this transaction. Bunge accounts for this investment under
the equity method.
In May 2003, Bunge sold its Brazilian soy ingredients operations to
Solae for $251 million in cash, net of expenses of approximately $5
million. Consequently, Bunge recognized a gain on sale of $111 million
in the second quarter of 2003 that was included in income from operations.
OTHER BUSINESS COMBINATIONS - In the nine months ended September 30,
2003, Bunge has completed certain smaller acquisitions in India and Eastern
Europe having an aggregate purchase price of approximately $33 million.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
At September 30, 2003, the changes in the carrying value of goodwill
by segment are as follows.
MILLING AND
EDIBLE OIL BAKING
(US$ IN MILLIONS) AGRIBUSINESS PRODUCTS PRODUCTS UNALLOCATED TOTAL
----------------- --------------------------------------------------------------------
Balance, December 31, 2002 ....................... $ 129 $ - $ 21 $ 89 $ 239
Goodwill acquired during the year ................ 17 1 - - 18
Foreign exchange translation ..................... 12 - - - 12
Tax benefit on goodwill amortization ............. (11) - - - (11)
Allocated acquisition purchase price ............. - - - (89) (89)
------------ ----------- ----------- ----------- -----------
Balance, September 30, 2003 ...................... $ 147 $ 1 $ 21 $ - $ 169
============ =========== =========== =========== ===========
Bunge's Brazilian subsidiary's tax deductible goodwill is in excess
of its book goodwill. For financial reporting purposes, the tax benefits
attributable to the excess tax goodwill are first used to reduce goodwill
and then intangible assets to zero, prior to recognizing any income tax
benefit in the statement of operations.
As a result of the Cereol acquisition, Bunge assigned to its edible
oil products segment approximately $53 million of intangible assets
attributable to product trademarks in Eastern Europe.
6. OTHER CURRENT ASSETS
Other current assets consist of the following:
SEPTEMBER 30, DECEMBER 31,
(US$ IN MILLIONS) 2003 2002
----------------- ------------- ------------
(UNAUDITED)
Prepaid commodity purchase contracts ...................................... $ 155 $ 173
Secured advances to suppliers ............................................. 196 205
Unrealized gain on derivative contracts ................................... 348 162
Assets of investment held for sale - Lesieur (Note 4) ..................... - 367
Marketable securities ..................................................... 14 12
Other ..................................................................... 312 319
------------- ------------
Total ..................................................................... $ 1,025 $ 1,238
============= ============
8
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
7. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
SEPTEMBER 30, DECEMBER 31,
(US$ IN MILLIONS) 2003 2002
----------------- ------------- ------------
(UNAUDITED)
Accrued liabilities ........................................................ $ 594 $ 456
Unrealized loss on derivative contracts .................................... 360 138
Advances on sales .......................................................... 136 89
Liabilities of investment held for sale - Lesieur (Note 4) ................. - 207
Other ...................................................................... 81 134
------------- ------------
Total ...................................................................... $ 1,171 $ 1,024
============= ============
8. RELATED PARTY TRANSACTIONS
In June 2003, Bunge received $55 million from its former sole
shareholder, Mutual Investment Limited, as final payment of a long-term
note receivable, relating to a capital contribution made in 2000. This $55
million note receivable was included in shareholders' equity at December
31, 2002. Bunge recorded interest income of $1 million and $3 million for
the nine months ended September 30, 2003 and 2002, respectively, and $1
million for the three months ended September 30, 2002, pertaining to the
receivable.
Bunge sells soybean meal and fertilizer products to Seara Alimentos
S.A., a subsidiary of Mutual Investment Limited engaged in the business of
meat and poultry production. These sales were $1 million for both the three
months ended September 30, 2003 and 2002 and $4 and $3 million for the nine
months ended September 30, 2003 and 2002, respectively.
In addition, Bunge sold soybeans and related soybean products to
Solae, which totaled $27 million and $57 million for the three and nine
months ended September 30, 2003, respectively. Bunge also purchased soybean
meal and soybean oil from Solae, which totaled $23 million and $36 million
for the three and nine months ended September 30, 2003, respectively.
9. LONG-TERM DEBT
In May 2003, Bunge completed an offering of $300 million aggregate
principal amount of unsecured senior notes bearing interest at a rate of
5.875% per year that mature in May 2013. The notes were issued by Bunge's
wholly owned finance subsidiary Bunge Limited Finance Corp. and fully and
unconditionally guaranteed by Bunge. Interest is payable semi-annually in
arrears in May and November of each year, commencing in November 2003.
Bunge used the net proceeds of this offering, approximately $296 million,
to reduce short-term borrowings and to finance the repayment of the
current portion of long-term debt coming due.
There are no significant restrictions on the ability of Bunge Limited
Finance Corp. or any other Bunge subsidiary to transfer funds to Bunge.
9
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES
Bunge is party to a number of claims and lawsuits, primarily tax and
labor claims, arising out of the normal course of business. After taking
into account liabilities recorded for all of the foregoing matters,
management believes that the ultimate resolution of such matters will not
have a material adverse effect on Bunge's financial condition, results of
operations or liquidity. Included in other non-current liabilities as of
September 30, 2003 and December 31, 2002 are the following accrued
liabilities:
SEPTEMBER 30, DECEMBER 31,
(US$ IN MILLIONS) 2003 2002
----------------- ------------- ------------
(UNAUDITED)
Tax claims ............................................... $ 104 $ 77
Labor claims ............................................. 63 54
Civil and other .......................................... 56 83
------------- ------------
Total .................................................... $ 222 $ 214
============= ============
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 1993 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.
SETTLEMENT OF DUCROS ARBITRATION - In April 2003, Cereol and
Cereol Holding France entered into a settlement agreement with McCormick
& Company, Incorporated, McCormick France SAS and Ducros S.A. relating
to a claim for EURO 155 million brought by McCormick over the purchase
price of Ducros, which was sold to McCormick in August 2000. Under the
settlement agreement, Bunge paid McCormick $57 million, which was
included in the opening balance sheet of Cereol. In connection with the
settlement, Bunge paid an additional purchase price to Edison S.p.A. and
Cereol's former public shareholders of approximately $42 million in the
aggregate.
In connection with Cereol's operations in Eastern Europe, Cereol
entered into a joint venture with the European Bank for Reconstruction and
Development, or EBRD, pursuant to which Cereol owns approximately 60% and
the EBRD owns approximately 40% of Polska Oil Investment B.V., or Polska
Oil. Polska Oil, in turn, owns 50% of Zaklady Thuszczowe Kruszwica S.A., or
Kruszwica, a Polish producer of bottled edible oils. Polska Oil and
Kruszwica are consolidated subsidiaries of Bunge. Pursuant to an amended
and restated shareholders agreement between Cereol and the EBRD, the EBRD
has the option to put its shares in Polska Oil to us at any time prior to
June 3, 2005 at the then current fair market value as determined by an
independent expert, subject to a floor and cap based on a contractual
formula. At September 30, 2003, the estimated fair value of the EBRD stake
in Polska Oil was approximately $25 million.
10
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
GUARANTEES - Bunge has issued or was a party to the following
guarantees at September 30, 2003:
MAXIMUM POTENTIAL
(US$ IN MILLIONS) FUTURE PAYMENTS
----------------- -----------------
Operating lease residual values......................... $ 70
Unconsolidated affiliates financing..................... 25
Customer financing...................................... 68
-----------------
Total................................................... $ 163
=================
Prior to January 1, 2003, Bunge entered into synthetic lease
agreements for barges and railcars originally owned by Bunge and
subsequently sold to third parties. The leases are classified as operating
leases in accordance with Statement of Financial Accounting Standards No.
13, ACCOUNTING FOR LEASES. Any gains on the sales have been deferred and
are being recognized ratably over the related lease terms. Bunge has the
option under each lease to purchase the barges or railcars at fixed amounts
based on estimated fair values or to sell the assets. If Bunge elects to
sell, it will receive proceeds up to fixed amounts specified in the
agreements. If the proceeds of such sales are less than the specified fixed
amounts, Bunge would be obligated under a guarantee to pay supplemental
rent for the deficiency in proceeds. The operating leases expire through
2007. There are no recourse provisions or collateral that would enable
Bunge to recover any amounts paid under this guarantee. Bunge has not
recorded any liability related to this guarantee at September 30, 2003.
Prior to January 1, 2003, Bunge has issued a guarantee to a financial
institution related to debt of its joint ventures in Argentina, its
unconsolidated affiliates. The term of the guarantee is equal to the term
of the related financing, which matures in six years. There are no recourse
provisions or collateral that would enable Bunge to recover any amounts
paid under this guarantee. Bunge has recorded a liability of $2 million
related to this guarantee at September 30, 2003.
Bunge has issued guarantees to a financial institution in Brazil
related to amounts owed the institution by certain of its customers. The
terms of the guarantees are equal to the terms of the related financing
arrangements, which can be as short as 120 days or as long as 360 days.
There are no recourse provisions or collateral that would enable Bunge to
recover any amounts paid under these guarantees. Bunge has not recorded any
liability related to these guarantees at September 30, 2003.
Bunge has provided parent level guarantees of the indebtedness
outstanding under certain senior credit facilities and senior notes, which
were entered into by its wholly owned subsidiaries. The debt under these
guarantees had a carrying amount of $1,415 million at September 30, 2003.
Debt related to these guarantees is included in Bunge's consolidated
balance sheet at September 30, 2003. In addition, certain subsidiaries of
Bunge have provided guarantees of the indebtedness of certain of their
subsidiaries under certain lines of credit with various institutions.
The total borrowing capacity under these lines of credit guarantees is
$230 million.
11
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
11. NON-OPERATING INCOME (EXPENSE) - NET
Non-operating income (expense) - net consists of:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
(US$ IN MILLIONS) 2003 2002 2003 2002
---------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Interest income ......................................... $ 46 $ 19 $ 104 $ 71
Interest expense ........................................ (54) (33) (157) (103)
Interest expense on debt financing readily
marketable inventories ................................ (3) (9) (11) (21)
Foreign exchange (losses) gains ......................... (1) (159) 76 (243)
Other income ............................................ - 5 4 13
----------- ----------- ----------- -----------
Total non-operating income (expense) - net .............. $ (12) $ (177) $ 16 $ (283)
=========== =========== =========== ===========
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.
12. COMPREHENSIVE INCOME (LOSS)
The following table summarizes the components of comprehensive income
(loss):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
(US$ IN MILLIONS) 2003 2002 2003 2002
----------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Net income .............................................. $ 89 $ 95 $ 311 $ 158
Other comprehensive income (loss):
Foreign exchange translation adjustment, net
of tax .............................................. 5 (282) 375 (565)
Unrealized gains on commodity futures
designated as cash flow hedges, net of tax of
$(4) and $1 (2003), $5 and $4 (2002) ................ 6 8 2 6
Loss on treasury rate lock contracts .................. - (22) - (22)
Reclassification of unrealized (gains) losses to
net income, net of tax of $(2) and $(1) (2003),
$3 and $4 (2002) .................................... 4 (5) 5 (7)
----------- ----------- ----------- -----------
Total comprehensive income (loss) ....................... $ 104 $ (206) $ 693 $ (430)
=========== =========== =========== ===========
12
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
13. STOCK-BASED COMPENSATION
Bunge has an employee equity incentive plan and a non-employee
directors' equity incentive plan. Awards under the employee equity
incentive plan may be in the form of stock options, restricted stock or
other awards. The non-employee directors' equity incentive plan provides
for awards of stock options to Bunge's non-employee directors. Bunge has
granted stock options, performance-based restricted stock awards and
regular restricted stock awards under its employee equity incentive plan
and stock options under its non-employee directors' plan. During the nine
months ended September 30, 2003, Bunge issued 168,432 shares underlying
performance-based restricted share grants and 379,117 shares upon the
exercise of stock options.
In accordance with the provisions of SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION (SFAS No. 123), Bunge has elected to continue to
account for stock-based compensation using the intrinsic value method under
Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES (APB 25) and FASB Interpretation No. 28, ACCOUNTING FOR
STOCK APPRECIATION RIGHTS AND OTHER VARIABLE STOCK OPTION OR AWARD PLANS
(FIN 28).
In accordance with APB 25, Bunge accrues costs for its restricted
stock awards granted over the vesting or performance period and adjusts
costs related to its performance-based restricted stock for subsequent
changes in the fair market value of the awards. These compensation costs
are recognized in Bunge's consolidated statements of income. There is no
compensation cost recorded for stock options granted under either plan,
since the exercise price is equal to the market value of the underlying
common shares on the date of grant. In accordance with SFAS No. 123, Bunge
discloses the pro forma effect of accounting for stock-based awards under
the fair value method.
The following table sets forth pro forma information as if Bunge had
applied the fair value recognition provisions of SFAS No. 123 to stock
options granted to determine its stock-based compensation cost.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
(US$ IN MILLIONS, EXCEPT PER SHARE DATA) 2003 2002 2003 2002
---------------------------------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Net income, as reported ................................. $ 89 $ 95 $ 311 $ 158
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for stock awards granted, net of
related tax effects ................................. 2 2 6 5
----------- ----------- ----------- -----------
Pro forma net income ................................. $ 87 $ 93 $ 305 $ 153
=========== =========== =========== ===========
Earnings per common share:
Basic- as reported ................................... $ .89 $ .96 $ 3.12 $ 1.67
=========== =========== =========== ===========
Basic- pro forma ..................................... $ .87 $ .94 $ 3.06 $ 1.61
=========== =========== =========== ===========
Diluted- as reported ................................. $ .88 $ .95 $ 3.08 $ 1.65
=========== =========== =========== ===========
Diluted- pro forma ................................... $ .86 $ .93 $ 3.02 $ 1.60
=========== =========== =========== ===========
13
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
14. INCOME TAXES
Bunge's annual effective tax rate is affected by the geographic
locations in which it does business, movements in foreign exchange and U.S.
tax incentives on export sales. In addition, Bunge's estimated effective
tax rate for the nine months ended September 30, 2003, excluding the
non-taxable $111 million gain on the sale of its Brazilian soy ingredients
business, reflects an increased effective tax rate, which was principally
attributable to the recent appreciation in the value of the Brazilian REAL.
In the three months ended September 30, 2003, Bunge recognized a $6 million
U.S. tax benefit relating to its export sales.
During the nine months ended September 30, 2002, Bunge recorded a $9
million tax benefit and a related $6 million in interest income relating to
the refund of prior years' U.S. Foreign Sales Corporation (FSC) benefits
resulting from the completion of a tax examination for the years up to and
including 1998. In addition, during this period, 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.
Bunge has obtained tax benefits under U.S. tax laws providing tax
incentives on export sales from the use of a U.S. FSC through 2001.
Beginning in 2002, due to the repeal of the FSC, Bunge was required to use
the tax provisions of the Extraterritorial Income (ETI) exclusion, which
was substantially similar to the FSC. The U.S. Congress is currently
considering legislation to repeal the ETI and propose a new tax incentive
for certain domestic manufacturers. Bunge will continue to monitor the new
legislation and determine its effects as the legislation continues to
develop.
15. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding, excluding any
dilutive effects of stock options and restricted stock awards during the
reporting period. Diluted earnings per share is computed similar to basic
earnings per share, except that the weighted average number of common
shares outstanding is increased to include additional shares from the
assumed exercise of stock options, restricted stock awards and convertible
securities, if dilutive. Bunge's convertible notes are convertible into
common shares only if certain conditions are met. Because these conditions
have not been met, the common shares to be issued upon conversion of these
notes are not included in the calculation of basic or diluted earnings per
share for the periods presented. The number of additional shares is
calculated by assuming that outstanding stock options were exercised and
that the proceeds from such exercises were used to acquire common shares at
the average market price during the reporting period. The following table
sets forth the computation of basic and diluted earnings per share for the
three and nine months ended September 30, 2003 and 2002.
14
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
15. EARNINGS PER SHARE (CONTINUED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
(US$ IN MILLIONS, EXCEPT FOR PER SHARE DATA) 2003 2002 2003 2002
-------------------------------------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Income before cumulative effect of change
in accounting principles:
Basic and diluted ................................... $ 89 $ 95 $ 311 $ 181
=========== =========== =========== ===========
Weighted average number of common shares
outstanding:
Basic ............................................... 99,812,000 99,250,814 99,699,001 94,743,716
Effect of dilutive shares ........................... 1,411,850 766,831 1,179,967 781,613
----------- ----------- ----------- -----------
Diluted ............................................. 101,223,850 100,017,645 100,878,968 95,525,329
=========== =========== =========== ===========
Income before cumulative effect of change
in accounting principles per share:
Basic ............................................... $ .89 $ .96 $ 3.12 $ 1.91
=========== =========== =========== ===========
Diluted ............................................. $ .88 $ .95 $ 3.08 $ 1.90
=========== =========== =========== ===========
In March 2002, Bunge sold 16,093,633 common shares in a public
offering. Net proceeds from this offering were $292 million.
16. ARGENTINA
The functional currency of Bunge's Argentine subsidiaries is the
PESO. In the nine months ended September 30, 2003, the PESO appreciated
relative to the U.S. dollar by 16%. 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) (see Note 12 of the notes
to the consolidated interim financial statements). Included in other
comprehensive income (loss) for the three and nine months ended September
30, 2003, were foreign exchange translation losses of $10 million and
gains of $22 million, respectively, and for the three and nine months
ended September 30, 2002, foreign exchange translation gains of $1 million
and losses of $81 million, respectively, representing the effect of the
translation of Bunge's Argentine assets and liabilities.
In 2002, Bunge commenced and continues to record allowances against
certain recoverable taxes owed to it by the Argentine government due to
delayed payment and uncertainty regarding the local economic environment.
The balance of these allowances fluctuates depending on the sales activity
of existing inventories, the purchase of new inventories, seasonality,
changes in applicable tax rates, cash payment by the Argentine government
and compensation of outstanding balances against income or certain other
taxes owed to the Argentine government. At September 30, 2003 and December
31, 2002, these allowances for recoverable taxes were $39 million and $64
million, respectively. In the three and nine months ended September 30,
2003, Bunge decreased this allowance for recoveries of these taxes in the
amount of $16 million and $25 million, respectively. In the three and nine
months ended September 30, 2002, Bunge increased the allowance for
provisions in the amount of $4 million and $32 million, respectively.
15
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
17. BRAZIL
The functional currency of Bunge's Brazilian subsidiaries is the
REAL. In the nine months ended September 30, 2003, the REAL appreciated
relative to the U.S. dollar by 21%. 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) (see Note 12 of the notes
to the consolidated interim financial statements). Included in other
comprehensive income (loss) for the three and nine months ended September
30, 2003, were foreign exchange translation losses of $20 million and
gains of $179 million, respectively, and foreign exchange translation
losses of $222 million and $448 million for the three and nine months
ended September 30, 2002, respectively, representing the effect of the
translation of Bunge's Brazilian assets and liabilities.
18. SEGMENT INFORMATION
Bunge's reporting segments are organized based on similar economic
characteristics and are similar in nature of products and services offered,
the nature of production processes, the type and class of customer and
distribution methods. The agribusiness segment is characterized by both
inputs and outputs being agricultural commodities and thus high volume and
low margin. The activities of the fertilizer segment include raw material
mining, mixing fertilizer components and marketing products. The edible oil
products segment involves the manufacturing and marketing of products
derived from vegetable oils. The milling and baking products segment
involves the manufacturing and marketing of products derived primarily from
wheat and corn. The other segment consisted of the soy ingredients business
until its assets were sold in May 2003 to Solae Bunge's joint venture with
DuPont. As a result of this sale, Bunge has four reporting segments.
The "Unallocated" column in the following table contains the
reconciliation between the totals for reportable segments and Bunge
consolidated totals, which consists primarily of corporate items not
allocated to the operating segments and intersegment eliminations.
Transfers between the segments are generally valued at market. The revenues
generated from these transfers are shown in the following table as
"Intersegment revenues."
16
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
18. SEGMENT INFORMATION (CONTINUED)
OPERATING SEGMENT INFORMATION
MILLING AND
EDIBLE OIL BAKING
(US$ IN MILLIONS) AGRIBUSINESS FERTILIZER PRODUCTS (1) PRODUCTS (1) (2) OTHER UNALLOCATED TOTAL
----------------- ------------ ---------- ------------ ---------------- ----- ----------- --------
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30, 2003
Net sales to external customers $ 4,422 $ 660 $ 505 $ 239 $ - $ - $ 5,826
Intersegment revenues ......... 145 - 20 - - (165) -
Gross profit (3) .............. 157 127 54 26 - - 364
Income from operations (4) .... 71 85 18 12 - (5) 181
Depreciation, depletion and
amortization .................. $ 19 $ 15 $ 5 $ 4 $ - $ - $ 43
THREE MONTHS ENDED
SEPTEMBER 30, 2002
Net sales to external customers $ 2,681 $ 444 $ 250 $ 207 $ 21 $ - $ 3,603
Intersegment revenues ......... 126 - - - - (126) -
Gross profit .................. 338 100 21 27 10 - 496
Income from operations ........ 284 72 2 10 9 (13) 364
Depreciation, depletion and
amortization .................. $ 16 $ 13 $ 3 $ 4 $ 2 $ - $ 38
NINE MONTHS ENDED
SEPTEMBER 30, 2003
Net sales to external customers $ 12,269 $ 1,361 $ 1,574 $ 680 $ 52 $ - $ 15,936
Intersegment revenues ......... 456 - 70 - - (526) -
Gross profit (3) .............. 350 275 187 68 18 - 898
Income from operations (4) .... 121 191 71 23 11 87 504
Depreciation, depletion and
amortization .................. $ 66 $ 41 $ 14 $ 12 $ - $ - $ 133
NINE MONTHS ENDED
SEPTEMBER 30, 2002
Net sales to external customers $ 6,982 $ 1,030 $ 709 $ 607 $ 62 $ - $ 9,390
Intersegment revenues ......... 307 - - - - (307) -
Gross profit .................. 624 214 68 72 22 - 1,000
Income from operations ........ 470 134 11 25 17 (28) 629
Depreciation, depletion and
amortization .................. $ 45 $ 45 $ 12 $ 9 $ 7 $ - $ 118
17
BUNGE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(1) In the third quarter of 2002, Bunge reclassified certain consumer
product lines from the edible oil products segment to the milling and
baking products segment.
(2) In the first quarter of 2003, Bunge changed the name of its "wheat
milling and bakery products" segment to "milling and baking products"
in connection with the reclassification of its corn milling products
business line from the "other" segment to the "milling and baking
products" segment. As a result of this change, the "other" segment
consists solely of Bunge's soy ingredients business for the nine months
ended September 30, 2003. In April 2003, Bunge contributed its North
American and European ingredients operations to Solae, its joint
venture with DuPont. With the completion of the sale of Bunge's
Brazilian ingredients operations to Solae, which occurred in May 2003
(see Note 4 of the notes to the consolidated interim financial
statements), Bunge has four reporting segments - agribusiness,
fertilizer, edible oil products and milling and baking products.
Amounts for the three and nine months ended September 30, 2002
presented herein have been reclassified to reflect this change.
(3) Agribusiness gross profit for the three months and nine months ended
September 30, 2003 included a pretax non-cash curtailment gain of $5
million and $15 million, respectively, reflecting a reduction of
postretirement healthcare benefits of U.S. salaried plant employees
recorded in cost of goods sold. Edible oil products and milling and
baking products gross profit included a pretax non-cash curtailment
gain of $1 million and $3 million, respectively, for both the three and
nine months ended September 30, 2003, relating to the reduction of
postretirement healthcare benefits of U.S. salaried plant employees
recorded in cost of goods sold.
(4) Unallocated income from operations for the nine months ended September
30, 2003 included a $111 million gain on the sale of Bunge's Brazilian
soy ingredients business to Solae. In addition, agribusiness income
from operations for the three months and nine months ended September
30, 2003 included pretax non-cash curtailment gains totaling $9 million
and $20 million, respectively, reflecting a reduction in postretirement
pension and healthcare benefit liabilities due to the transfer of
employees to Solae and a reduction of postretirement healthcare
benefits of U.S. salaried plant employees recorded in cost of goods
sold and non-plant employees recorded in SG&A. Edible oil products and
milling and baking products income from operations included total
pretax non-cash curtailment gains of $2 million and $4 million,
respectively, for both the three and nine months ended September 30,
2003 relating to the reduction of postretirement healthcare benefits of
U.S. salaried plant employees recorded in cost of goods sold and
non-plant employees recorded in SG&A.
19. SUBSEQUENT EVENTS
On October 24, 2003, Bunge announced that its Brazilian fertilizer
subsidiary, Bunge Fertilizantes S.A., acquired approximately 11% of the
total outstanding shares of Fertilizantes Fosfatados S.A. (Fosfertil). As a
result of the acquisition, Bunge Fertilizantes now directly owns over 12%
of the total outstanding shares of Fosfertil. In addition, Bunge
Fertilizantes also owns an indirect interest in Fosfertil through its 52%
majority-owned consolidated subsidiary, Fertifos, which owns 56% of the
outstanding shares of Fosfertil. The total purchase price paid for these
shares was R$240 million (approximately $84 million).
In October 2003, the Argentine government passed a new tax law
affecting exporters of certain products, including grains and oilseeds.
The law generally provides that in certain circumstances when an export
is made to a related party that is not the final purchaser of the
exported products, the income tax payable by the exporter with respect
to such sales must be based on the greater of the contract price of the
exported products or the market price of the products at the date of
shipment. The Argentine government has not yet issued interpretive
regulations regarding the application and scope of this law. Bunge will
continue to monitor developments with respect to this legislation and
any effect this may have on its consolidated financial statements.
18
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. These 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. 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. These forward-looking statements 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 our business and
financial performance: our ability to complete, integrate and benefit from
acquisitions, divestitures, joint ventures and alliances; estimated demand
for commodities and other products that we sell and use in our business;
industry conditions, including the cyclicality of the agribusiness
industry; agricultural, economic and political conditions in the primary
markets where we operate; and other economic, business, competitive and/or
regulatory factors affecting our business generally. You should refer to
"Item 3. Key Information - Risk Factors" in our annual report on Form 20-F
for the year ended December 31, 2002 for a more detailed discussion of
these factors. The forward-looking statements included in this release are
made only as of the date of this release, 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.
EVENTS AFFECTING OPERATING RESULTS
ALLIANCE WITH DUPONT
On April 2, 2003, we signed definitive agreements with E.I. duPont
de Nemours and Company (DuPont) and together formed The Solae Company
(Solae) by contributing DuPont's Protein Technologies business and our
North American and European ingredients operations. We have a 28% interest
in Solae. Solae is a soy ingredients joint venture and a key component in
the broader strategic alliance with DuPont. On May 2, 2003, we sold our
Brazilian soy ingredients operations to Solae for $251 million in cash, net
of sale related expenses of approximately $5 million. We recognized a gain
on sale of $111 million in the second quarter of 2003 that is included in
income from operations. As a result of these transactions, our consolidated
balance sheet at September 30, 2003 reflects a long-term investment in
Solae, which is accounted for under the equity method.
ACQUISITION OF CEREOL S.A.
In 2002, we acquired 97.38% of the shares of Cereol S.A. and in
April 2003, we acquired the remaining 2.62% of the shares of Cereol
resulting in 100% ownership of Cereol. Cereol's results of operations have
been included in the consolidated financial statements of Bunge since
October 1, 2002.
FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATE
The volatility of the Argentine PESO and Brazilian REAL has affected
our 2003 and 2002 financial performance. Devaluations of these currencies
against the U.S. dollar generally have a positive effect on our income from
operations when local currency costs are translated to U.S. dollars at
weaker REAL or PESO to dollar exchange rates and gains are generated based
on changes in the market value of our readily marketable inventories, which
are priced in U.S. dollars. Conversely, the devaluations generate
offsetting net foreign exchange losses on the net U.S. dollar monetary
position of our Brazilian and Argentine subsidiaries, which are reflected
in non-operating income (expense)-net in our consolidated financial
statements. Our effective tax rate is also favorably affected by the
devaluation of the Brazilian REAL as we recognize tax benefits related to
foreign exchange losses.
Appreciations generally have a corresponding negative effect on our
income from operations when local currency costs are translated to U.S.
dollars at stronger REAL or PESO to dollar exchange rates and losses are
generated based on changes in the market value of our readily marketable
agricultural inventories, which are priced in U.S. dollars. Conversely, the
appreciation generates offsetting net foreign exchange gains on the
19
net U.S. dollar monetary position of our Brazilian and Argentine
subsidiaries, which are reflected in non-operating income (expense)-net in
our consolidated statement of income. Our effective tax rate is unfavorably
affected by the appreciation of the Brazilian REAL as we incur income taxes
related to foreign exchange gains.
The REAL and PESO devalued 2% and 4%, respectively, against the U.S.
dollar in the third quarter of 2003, compared to a devaluation of 27% and
2%, respectively, in the same period last year. During the first nine
months of 2003, the REAL and PESO appreciated 21% and 16%, respectively,
against the U.S. dollar compared to a devaluation of 40% and 56%,
respectively, in the same period last year.
AGRIBUSINESS OPERATIONS
Our agribusiness operations are affected by variations in global
supply for the primary agricultural commodity products that we sell and
use. Those variations have resulted in cyclical fluctuations in our
profitability. During the third quarter of 2003, market expectations
changed from anticipating one of the largest 2003/2004 U.S. soybean crops
on record, to one of the smallest in recent years. This was due to hot and
dry conditions during the critical period of soybean pod formation causing
substantial price volatility. As a result, third quarter 2003 income from
operations in the agribusiness segment declined from the third quarter of
2002.
RESULTS OF OPERATIONS
SEGMENT CHANGES - We have changed the name of our "wheat milling and
bakery products" segment to "milling and baking products" in connection
with the reclassification of our corn milling products business line from
the "other" segment to the "milling and baking products" segment. As a
result of this change, our "other" segment reflects only our soy
ingredients business line for the nine months ended September 30, 2003,
which we sold to Solae in May 2003. Accordingly, amounts for the three and
nine months ended September 30, 2002 presented herein have been
reclassified to reflect this change. We now have four reporting segments -
agribusiness, fertilizer, edible oil products and milling and baking
products. In the nine month period of 2002, we also reclassified certain
consumer product lines from the "edible oil products segment" to the
"milling and baking products" segment. As a result, amounts for the three
and nine months ended September 30, 2002 were reclassified to conform to
the three and nine months ended September 30, 2003 presentation.
Set forth below is a summary of certain items in our consolidated
statements of income and volumes by reportable segment.
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(US$ IN MILLIONS, EXCEPT VOLUMES)
NET SALES:
Agribusiness ........................................................ $ 4,422 $ 2,681 $ 12,269 $ 6,982
Fertilizer .......................................................... 660 444 1,361 1,030
Edible oil products ............................................... 505 250 1,574 709
Milling and baking products ....................................... 239 207 680 607
Other (soy ingredients) ........................................... - 21 52 62
----------- ----------- ----------- -----------
Food products total ................................................. 744 478 2,306 1,378
----------- ----------- ----------- -----------
Total .................................................... $ 5,826 $ 3,603 $ 15,936 $ 9,390
=========== =========== =========== ===========
COST OF GOODS SOLD:
Agribusiness ........................................................ $ 4,265 $ 2,343 $ 11,919 $ 6,358
Fertilizer .......................................................... 533 344 1,086 816
Edible oil products ............................................... 451 229 1,387 641
Milling and baking products ....................................... 213 180 612 535
Other (soy ingredients) ........................................... - 11 34 40
----------- ----------- ----------- -----------
Food products total ................................................. 664 420 2,033 1,216
----------- ----------- ----------- -----------
Total .................................................... $ 5,462 $ 3,107 $ 15,038 $ 8,390
=========== =========== =========== ===========
20
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(US$ IN MILLIONS, EXCEPT VOLUMES)
GROSS PROFIT:
Agribusiness ........................................................ $ 157 $ 338 $ 350 $ 624
Fertilizer .......................................................... 127 100 275 214
Edible oil products ............................................... 54 21 187 68
Milling and baking products ....................................... 26 27 68 72
Other (soy ingredients) ........................................... - 10 18 22
----------- ----------- ----------- -----------
Food products total ................................................. 80 58 273 162
----------- ----------- ----------- -----------
Total .................................................... $ 364 $ 496 $ 898 $ 1,000
=========== =========== =========== ===========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Agribusiness ........................................................ $ 86 $ 54 $ 229 $ 154
Fertilizer .......................................................... 42 28 84 80
Edible oil products ............................................... 36 19 116 57
Milling and baking products ....................................... 14 17 45 47
Other (soy ingredients) ........................................... - 1 7 5
----------- ----------- ----------- -----------
Food products total ................................................. 50 37 168 109
----------- ----------- ----------- -----------
Unallocated ......................................................... 5 13 24 28
----------- ----------- ----------- -----------
Total .................................................... $ 183 $ 132 $ 505 $ 371
=========== =========== =========== ===========
INCOME FROM OPERATIONS:
Agribusiness ........................................................ $ 71 $ 284 $ 121 $ 470
Fertilizer .......................................................... 85 72 191 134
Edible oil products ............................................... 18 2 71 11
Milling and baking products ....................................... 12 10 23 25
Other (soy ingredients) ........................................... - 9 11 17
----------- ----------- ----------- -----------
Food products total ................................................. 30 21 105 53
----------- ----------- ----------- -----------
Gain on sale of soy ingredients business ............................ - - 111 -
Unallocated other ................................................... (5) (13) (24) (28)
----------- ----------- ----------- -----------
Total .................................................... $ 181 $ 364 $ 504 $ 629
=========== =========== =========== ===========
NET INCOME .......................................................... $ 89 $ 95 $ 311 $ 158
=========== =========== =========== ===========
VOLUMES (IN THOUSANDS OF METRIC TONS):
Agribusiness ........................................................ 23,185 16,349 66,192 47,642
Fertilizer .......................................................... 4,065 3,708 8,343 7,999
Edible oil products ............................................... 769 401 2,451 1,150
Milling and baking products ....................................... 933 882 2,664 2,616
Other (soy ingredients) ........................................... - 34 140 93
----------- ----------- ----------- -----------
Food products total ................................................. 1,702 1,317 5,255 3,859
----------- ----------- ----------- -----------
Total .................................................... 28,952 21,374 79,790 59,500
=========== =========== =========== ===========
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2002
OVERVIEW
Our net sales increased 62% to $5,826 million in the third quarter
of 2003 from $3,603 million in the third quarter of 2002 primarily due to
volume increases in our business segments, except the other segment.
Agribusiness volumes increased 42%, fertilizer volumes 10% and food
products volumes increased 29% due to organic growth in our business and
the October 2002 acquisition of Cereol. Net sales also increased due to
21
higher average selling prices for soy commodity, fertilizer and food
products. Our cost of goods sold increased 76% due to the increase in sales
volumes, the acquisition of Cereol and higher agribusiness raw material
costs.
Our gross profit decreased 27% to $364 million in the third quarter
of 2003 from $496 million in the third quarter of 2002 primarily due to
lower agribusiness gross profit margins partially offset by increases in
our fertilizer and edible oil products segments.
Our selling, general and administrative expenses (SG&A) increased
39% primarily due to the acquisition of Cereol and included approximately
$6 million of expenses related to the integration of Cereol. Our income
from operations decreased 50% in the third quarter of 2003 from the third
quarter of last year primarily due to lower agribusiness segment
profitability partially offset by improved fertilizer, edible oil and
milling and baking segment results.
The variations in our net sales, gross profit and income from
operations by segment are described in more detail below.
AGRIBUSINESS SEGMENT
In our agribusiness segment, net sales increased 65% to $4,422
million in the third quarter of 2003 from $2,681 million in the third
quarter of last year due to a 42% increase in volumes and higher average
selling prices for soy commodity products. Volumes increased in the grain
origination, oilseed processing and the international marketing business
lines driven primarily by increased sales to Asia and Europe and the
acquisition of Cereol. Volumes in international marketing increased 36%
compared to the same period last year. Cost of goods sold increased 82% in
the third quarter of 2003 from the third quarter of last year due to the
increased volumes, higher raw material costs due to the tight 2002/2003
U.S. old crop carryover, reduced capacity utilization and the acquisition
of Cereol. In addition, cost of goods sold in the third quarter of 2003 was
adversely affected by mark-to-market losses on forward sales entered into
with the expectation of a normal 2003/2004 U.S. crop, as a sharp reduction
in the outlook for the U.S. soybean harvest caused higher commodity prices.
Included in cost of goods sold also in the third quarter of 2003 was a
pretax non-cash gain of $5 million, relating to the curtailment of certain
postretirement healthcare benefit plans of U.S. salaried plant employees.
Cost of goods sold in the third quarter of 2002 benefited from
significantly higher commodity inventory mark-to-market gains that resulted
from the 27% devaluation of the REAL versus a devaluation of 2% in the
third quarter of 2003.
Gross profit decreased 54% in the third quarter of 2003 from the
third quarter of 2002 due to the increase in cost of goods sold.
Agribusiness gross profit margins were negatively affected by lower
commodity inventory mark-to-market gains in our Brazilian subsidiary
substantially offset by exchange losses on U.S. dollar denominated debt
financing commodity inventories, included in non-operating income (expense)
- net. Margins in North America and Southern Europe were affected by the
sharply reduced outlook for the U.S soybean harvest and competitive export
pressure from South America. Gross profit margins in South America also
returned to more normal levels in 2003 from the higher levels experienced
in the third quarter of last year caused by the 27% devaluation of the
REAL. Partially offsetting the decline were increases in gross profit
margin due to the acquisition of Cereol.
SG&A increased 59% in the third quarter of 2003 from the third
quarter of 2002 primarily due to our acquisition of Cereol. Included in
SG&A in the third quarter of 2003 was a pretax non-cash gain of $4 million,
relating to the curtailment of certain postretirement healthcare benefit
plans of U.S. salaried non-plant employees.
Income from operations in our agribusiness segment decreased 75% in
the third quarter of 2003 from the third quarter of last year due to the
decrease in gross profit and higher SG&A expenses.
FERTILIZER SEGMENT
In our fertilizer segment, net sales increased 49% to $660 million
in the third quarter of 2003 from $444 million in the third quarter of 2002
primarily due to a 10% increase in volumes and higher average selling
prices. Selling prices benefited from increases in international selling
prices for imported fertilizers and raw materials, such as ammonia and
urea, which helped boost local prices, as products are priced to import
parity. Sales of retail fertilizer products were robust, as South American
farmers increased their acreage in reaction to higher soybean prices. Our
nutrient sales volumes increased 12% due to the increased demand for
fertilizer raw materials. Cost of goods sold increased 55% in the third
quarter of 2003 from the third quarter of
22
last year primarily due to increased volumes and higher imported raw
materials costs. However, the higher costs of imported raw materials were
mitigated by Fosfertil's lower raw material costs since Fosfertil produces
urea from raw materials not linked to international natural gas prices.
Approximately 38% of the raw materials we use to produce the retail
fertilizer and nutrient products are supplied by Fosfertil.
Gross profit increased 27% in the third quarter of 2003 from the
third quarter of 2002 as a result of the increase in sales volumes and
higher selling prices. SG&A increased 50% primarily due to certain labor
and revenue tax contingencies and information technology expenses.
Income from operations increased 18% in the third quarter of 2003
from the third quarter of 2002 primarily due to the increase in gross
profit partially offset by an increase in SG&A.
EDIBLE OIL PRODUCTS SEGMENT
In our edible oil products segment, net sales increased 102% or $255
million to $505 million in the third quarter of 2003 from $250 million in
the third quarter of 2002 primarily due to a 92% increase in volumes as a
result of the acquisition of Cereol, higher average selling prices and
organic growth in our South American operations. Cost of goods sold
increased 97% in the third quarter of 2003 from the third quarter of 2002
primarily due to the acquisition of Cereol and higher raw material costs,
primarily crude soybean oil. Included in cost of goods sold in the third
quarter of 2003 was a pretax non-cash gain of $1 million, relating to the
curtailment of certain postretirement healthcare benefit plans of U.S.
salaried plant employees.
Gross profit increased 157% in the third quarter of 2003 from the
third quarter of 2002 primarily due to the acquisition of Cereol and higher
margins in our South American operations, principally in margarines and
mayonnaise attributable to new branding and packaging strategies as well as
portfolio rationalization measures. SG&A increased 89% in the third quarter
of 2003 from the third quarter of last year due to our acquisition of
Cereol, the effects of which more than offset our cost reduction efforts.
Included in SG&A in the third quarter of 2003 was a pretax non-cash gain of
$1 million, relating to the curtailment of certain postretirement
healthcare benefit plans of U.S. salaried non-plant employees.
Income from operations increased $16 million in the third quarter of
2003 from the third quarter of 2002 primarily due to the acquisition of
Cereol and improvements in South American margins.
MILLING AND BAKING PRODUCTS SEGMENT
In our milling and baking products segment, net sales increased 15%
to $239 million in the third quarter of 2003 from $207 million in the third
quarter of 2002 due to a 6% increase in volumes and higher average selling
prices. The increase in average selling prices was primarily due to higher
raw material costs. Cost of goods sold increased 18% due to higher wheat
costs. Included in cost of goods sold in the third quarter of 2003 was a
pretax non-cash gain of $3 million, relating to the curtailment of certain
postretirement healthcare benefit plans of U.S. salaried plant employees.
Gross profit decreased 4% in the third quarter of 2003 from the
third quarter of 2002 as a result of weakness in our U.S bakery operations
caused by margin pressure in the in-store bakery market partially offset by
higher volumes and margins in the Brazilian wheat milling operations. SG&A
decreased 18% in the third quarter of 2003 from the third quarter of 2002
due to cost savings programs. In addition, in the third quarter of 2003,
SG&A in the third quarter of 2003 included a pretax non-cash gain of $1
million, relating to the curtailment of certain postretirement healthcare
benefit plans of U.S. salaried non-plant employees.
Income from operations increased 20% in the third quarter of 2003
from the third quarter of 2002 primarily due to the reduction in SG&A
partially offset by weaknesses in our U.S. bakery operations.
23
NON-OPERATING INCOME (EXPENSE) - NET
A summary of significant non-operating items for the periods
indicated follows.
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
2003 2002
----------------------
(US$ IN MILLIONS)
Interest income...................................................... $ 46 $ 19
Interest expense..................................................... (54) (33)
Interest expense on debt financing readily marketable inventories.... (3) (9)
Foreign exchange losses ............................................. (1) (159)
Other income......................................................... - 5
----------------------
Total.............................................. $ (12) $ (177)
======================
Interest income increased $27 million in the third quarter of 2003
from the third quarter of 2002 due to interest income on higher average
cash balances and higher interest rates in Brazil. Interest expense
increased 64% primarily due to higher average debt levels resulting from
debt incurred to acquire Cereol and our assumption of Cereol's debt,
partially offset by a reduction in interest expense due to more efficient
use of working capital. Also, in the latter half of 2002 and May 2003, we
issued long-term debt at relatively higher interest rates to reduce our
reliance on short-term debt and finance the repayment of the current
portion of long-term debt coming due. Interest expense on debt financing
readily marketable inventory decreased $6 million due to lower average
short-term interest rates.
Foreign exchange losses were $1 million in the third quarter of 2003
compared to losses of $159 million in the third quarter of last year. In
the third quarter of 2003, the value of the REAL declined 2% relative to
the U.S. dollar. In contrast, in the third quarter of 2002, the value of
the REAL declined by 27% relative to the U.S. dollar.
INCOME TAX EXPENSE
Income tax expense decreased to $47 million in the third quarter of
2003 from $65 million in the third quarter of 2002 primarily due to lower
taxable income and a $6 million U.S. tax benefit relating to our export
sales. Our effective tax rate is affected by the geographic locations in
which we do business, movements in foreign exchange and U.S. tax incentives
on export sales. Our estimated tax rate for the third quarter of 2003
reflects an increase from the annual 2002 effective tax rate predominantly
due to the appreciation in the value of the Brazilian REAL.
We have obtained tax benefits under U.S. tax laws providing tax
incentives on export sales from the use of a U.S. FSC through 2001.
Beginning in 2002, due to the repeal of the FSC, we were required to use
the tax provisions of the Extraterritorial Income (ETI) exclusion, which
was substantially similar to the FSC. The U.S. Congress is currently
considering legislation to repeal the ETI and propose a new tax incentive
for certain domestic manufacturers. We will continue to monitor the new
legislation and determine its effects as the legislation continues to
develop.
MINORITY INTEREST
Minority interest expense increased to $33 million in the third
quarter of 2003 from $27 million in the third quarter of 2002 primarily due
to the acquisition of Cereol.
NET INCOME
Net income decreased $6 million to $89 million in the third quarter
of 2003 from $95 million in the third quarter of 2002.
24
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2002
OVERVIEW
Our net sales increased 70% to $15,936 million in the first nine
months of 2003 from $9,390 million in the first nine months of 2002.
Agribusiness volumes increased 39%, fertilizer volumes increased 4% and
food products volumes increased 36% due to organic growth in our business,
higher average selling prices and the October 2002 acquisition of Cereol.
Our cost of goods sold increased 79% primarily due to the increase in sales
volumes, the acquisition of Cereol and higher agribusiness raw material
costs.
Gross profit decreased 10% in the first nine months of 2003 from the
first nine months of 2002 due to lower agribusiness gross profit partially
offset by increases in our fertilizer and edible oil products segments.
SG&A increased 36% in the first nine months of 2003 from the first nine
months of 2002 primarily due to our acquisition of Cereol and included
approximately $19 million of expenses related to the integration of Cereol.
Income from operations decreased 20% in the first nine months of
2003 from the first nine months of 2002 as a result of the lower
profitability of the agribusiness segment partially offset by increases in
income from operations in fertilizer and edible oil products and the $111
million gain on sale of the Brazilian soy ingredients business.
The variations in our net sales, gross profit and income from
operations by segment are described in more detail below.
AGRIBUSINESS SEGMENT
In our agribusiness segment, net sales increased 76% to $12,269
million in the first nine months of 2003 from $6,982 million in the first
nine months of last year due to a 39% increase in volumes and higher
average selling prices for soy commodity products. Volumes increased in all
three business lines due to global demand for soy commodity products,
continued growth in our international marketing business and the
acquisition of Cereol. Volumes in our international marketing operation
increased 29% compared to the same period last year. Cost of goods sold
increased 87% in the first nine months of 2003 from the first nine months
of last year due to the increased volumes, increased raw material costs due
to the tight 2002/2003 U.S. old crop carryover, reduced capacity
utilization, mark-to-market losses on forward product sales entered into
with the expectation of a normal 2003/2004 U.S. crop, commodity inventory
mark-to-market losses in our Brazil and Argentine subsidiaries that
resulted from the appreciation in the value of the REAL and PESO, higher
energy costs and the acquisition of Cereol. Included in cost of goods sold
in the first nine months of 2003 was a pretax non-cash gain of $5 million,
relating to the curtailment of certain postretirement healthcare benefit
plans of U.S. salaried plant employees. Cost of goods sold in the first
nine months of last year reflected commodity inventory mark-to-market gains
in our Brazilian subsidiary that resulted from the 40% devaluation of the
REAL versus an appreciation of 21% in the first nine months of 2003 which
resulted in mark-to-market losses.
Gross profit decreased 44% in the first nine months of 2003 from the
first nine months of 2002 due to the increase in cost of goods sold.
Agribusiness gross profit margins were negatively affected by the
appreciation in the value of the Brazilian REAL and Argentine PESO.
However, net foreign exchange gains on U.S. dollar denominated debt
financing commodity inventories, included in non-operating income
(expense), almost entirely offset the reduction in gross profit. Oilseed
processing margins were affected by weaknesses in North America and Western
Europe caused by the reduced U.S. soybean crop, weaker domestic soy meal
demand, strong demand for soybeans and competitive export pressure from
South America. To address imbalances in U.S. supply and demand, we idled
two of our U.S. oilseed processing facilities. SG&A increased 49% in the
first nine months of 2003 from the first nine months of 2002 primarily due
to our acquisition of Cereol. In addition, included in SG&A in the first
nine months of 2003 was a pretax non-cash gain of $15 million, relating to
a reduction in postretirement pension and healthcare benefit liabilities
for employees transferred to Solae and the curtailment of certain
postretirement healthcare benefit plans of salaried U.S. employees.
Income from operations in our agribusiness segment decreased 74% in
the first nine months of 2003 from the first nine months of last year due
primarily to the lower gross profit.
FERTILIZER SEGMENT
In our fertilizer segment, net sales increased 32% to $1,361 million
in the first nine months of 2003 from $1,030 million in the first nine
months of 2002 primarily due to higher average selling prices and a 4%
25
increase in volumes. Selling prices benefited from higher international
selling prices for imported fertilizers and raw materials, such as ammonia
and urea, which helped boost local prices as products are priced to import
parity. Sales of retail fertilizer products were robust, as South American
farmers increased their acreage in reaction to higher soybean prices. Our
nutrient sales volumes increased 16% due to the increased demand for
fertilizer raw materials. The first nine months of 2002 included an extra
month of results from Fosfertil, which had been reporting its results one
month in arrears. Excluding Fosfertil's extra month from the first nine
months of 2002, net sales and sales volumes would have increased 34% and
7%, respectively. Cost of goods sold increased 33% in the first nine months
of 2003 from the first nine months of last year due to higher sales volumes
and higher imported raw material costs. However, the higher costs of
imported raw materials were mitigated by Fosfertil's lower raw material
costs since Fosfertil produces urea from raw materials not linked to
international natural gas prices. Approximately 38% of the raw materials we
use to produce the retail fertilizer and nutrient products are supplied by
Fosfertil.
Gross profit increased 29% in the first nine months of 2003 from the
first nine months of 2002 as a result of higher fertilizer selling prices
and volumes. Excluding Fosfertil's extra month from the first nine months
2002, gross profit would have increased 34%. SG&A increased 5% due to
certain labor and revenue tax contingencies and information technology
expenses.
Income from operations increased 43% in the first nine months of
2003 from the first nine months of 2002 primarily due to the increase in
gross profit. Excluding Fosfertil's extra month from the first nine months
of 2002, income from operations would have increased 50%.
EDIBLE OIL PRODUCTS SEGMENT
In our edible oil products segment, net sales increased 122% to
$1,574 million in the first nine months of 2003 from $709 million in the
first nine months of 2002 primarily due to significantly increased volumes
as a result of the Cereol acquisition, organic growth in our South American
operations and higher average selling prices caused by higher raw material
costs. Cost of goods sold increased 116% in the first nine months of 2003
from the first nine months of 2002 primarily due to the Cereol acquisition
and higher raw material costs, principally crude soybean oil. Included in
cost of goods sold in the first nine months of 2003 was a pretax non-cash
gain of $1 million, relating to the curtailment of certain postretirement
healthcare benefit plans of U.S. salaried plant employees.
Gross profit increased 175% in the first nine months of 2003 from
the first nine months of 2002 primarily due to the Cereol acquisition and a
recovery of margins in our North and South American operations. SG&A
increased $59 million in the first nine months of 2003 from the first nine
months of last year due to the Cereol acquisition partially offset by our
cost reduction efforts in our South American operations. In addition, in
the first nine months of 2003, SG&A included a pretax non-cash gain of $1
million, relating to the curtailment of certain postretirement healthcare
benefit plans of salaried U.S. employees.
Income from operations increased to $71 million in the first nine
months of 2003 from $11 million in the first nine months of 2002 primarily
due to the Cereol acquisition and a recovery of margins in North and South
America.
MILLING AND BAKING PRODUCTS SEGMENT
In our milling and baking products segment, net sales increased 12%
to $680 million in the first nine months of 2003 from $607 million in the
first nine months of 2002 due to higher average selling prices for wheat
and corn milling products. The increase in average selling prices was
primarily due to higher raw material costs. Cost of goods sold increased
14% due to higher wheat costs. Included in cost of goods sold in the first
nine months of 2003 was a pretax non-cash gain of $3 million, relating to
the curtailment of certain postretirement healthcare benefit plans of U.S.
salaried plant employees.
Gross profit decreased 6% in the first nine months of 2003 from the
first nine months of 2002 as a result of the higher raw material costs and
weaknesses in our U.S. bakery mix and frozen bakery operations partially
offset by higher volumes and margins in the Brazilian wheat milling
operations. SG&A decreased 4% in the first nine months of 2003 from the
first nine months of 2002 due to cost savings programs. In addition, in the
first nine months of 2003, SG&A included a pretax non-cash gain of $1
million relating to the curtailment of certain postretirement healthcare
benefit plans of salaried U.S. employees.
26
Income from operations decreased 8% in the first nine months of 2003
from the first nine months of 2002 as a result of weaknesses in our U.S.
bakery operations partially offset by higher results in our Brazilian wheat
milling operations.
OTHER SEGMENT (SOY INGREDIENTS)
Our soy ingredients business was contributed to Solae, our joint
venture with DuPont, in the second quarter of 2003. Therefore, historical
results are presented herein for comparative purposes.
NON-OPERATING INCOME (EXPENSE) - NET
A summary of significant non-operating items for the periods
indicated follows.
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2003 2002
---------------------
(US$ IN MILLIONS)
Interest income...................................................... $ 104 $ 71
Interest expense..................................................... (157) (103)
Interest expense on debt financing readily marketable inventories.... (11) (21)
Foreign exchange gains (losses)...................................... 76 (243)
Other income......................................................... 4 13
---------------------
Total.............................................. $ 16 $ (283)
=====================
Interest income increased 46% in the first nine months of 2003 from
the first nine months of 2002 due to interest income on higher average cash
balances and higher interest rates in Brazil. The first nine months of last
year also included $6 million of interest income resulting from the
completion of a tax examination. Interest expense increased 52% primarily
due to higher average debt levels resulting from debt incurred to acquire
Cereol and our assumption of Cereol's debt, partially offset by a reduction
in interest expense due to more efficient use of working capital. Also, in
the latter half of 2002 and May 2003, Bunge issued long-term debt at
relatively higher interest rates to reduce our reliance on short-term debt
and finance the repayment of the current portion of long-term debt coming
due. Interest expense on debt financing readily marketable inventories
decreased $10 million due to lower average short-term interest rates.
Foreign exchange gains were $76 million in the first nine months of
2003 compared to losses of $243 million in the first nine months of last
year due to the 2003 first nine months 21% appreciation in the value of the
Brazilian REAL against the U.S. dollar. In contrast, in the third quarter
of 2002, the value of the REAL declined by 40% relative to the U.S. dollar
resulting in foreign exchange losses.
INCOME TAX EXPENSE
Income tax expense increased to $131 million in the first nine
months of 2003 from $104 million in the first nine months of 2002. Our
effective tax rate is affected by the geographic locations in which we do
business, movements in foreign exchange and U.S. tax incentives on export
sales. Our estimated effective tax rate for the first nine months of 2003,
excluding the $111 million gain on the sale of the Brazilian soy
ingredients business, reflects an increase from the annual 2002 effective
tax rate predominantly due to the recent appreciation in the value of the
Brazilian REAL. However, in the third quarter of 2003, we recognized a $6
million U.S. tax benefit relating to our export sales. In the first nine
months of 2002, our income tax expense was reduced by a $9 million tax
credit relating to the refund of prior years' U.S. Foreign Sales
Corporation benefits and a $6 million decrease in the deferred tax asset
valuation allowance resulting from changes in the realization of certain
net operating loss carry-forwards.
MINORITY INTEREST
Minority interest expense increased to $78 million in the third
quarter of 2003 from $61 million in the third quarter of 2002 primarily due
to the increase in income before taxes.
NET INCOME
Net income increased $153 million to $311 million in the first nine
27
months of 2003 from $158 million in the first nine months of 2002. Net
income for the nine months ended September 30, 2003 was increased by the
$111 million, or $1.10 per fully diluted share, gain on the sale of the
Brazilian soy ingredients business. Excluding the gain on sale, net income
increased $42 million in the first nine months of 2003 compared to the
first nine months of 2002.
Net income in the first nine months of 2002 also included charges
recorded as cumulative effects of changes in accounting principles of $14
million, net of tax, representing the write-off of goodwill in the milling
and baking products segment as a result of the adoption of SFAS No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS, and $9 million, net of tax, related
to the adoption of SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS.
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
have used a combination of equity and debt to finance non-current assets
and working capital needs. At September 30, 2003, our balance sheet
continued to show solid liquidity with a current ratio, defined as current
assets divided by current liabilities, of 1.47. Our current ratio at
December 31, 2002 was 1.44. 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.
To finance working capital, we use cash flows generated from
operations and short-term (usually 30-60 days maturity) borrowings,
including our commercial paper program and various bank facilities and
credit lines. At September 30, 2003, we had $444 million outstanding under
our commercial paper program, which has a maximum available borrowing
capacity of $600 million. We maintain back-up bank credit lines at least
equal to our outstanding commercial paper borrowings. If we were unable to
access the commercial paper market, we would use our bank credit lines,
which would be at a higher cost than our commercial paper. In addition to
our commercial paper program, as of September 30, 2003, we had over $1
billion of available borrowing capacity under various credit facilities and
credit lines with a number of lending institutions. We expect our
borrowings under these credit facilities and credit lines to increase in
connection with our financing of commodity inventories due to higher
prices.
Our short-term and long-term debt decreased $816 million from
December 31, 2002 primarily due to the use of $251 million in net proceeds
received from the sale of the Brazilian soy ingredients business, the $240
million net proceeds received from the sale of Lesieur in July 2003, the
repayment in June 2003 by Mutual Investment Limited of the remaining $55
million principal amount of a note owed to us and cash flow from operations
to reduce outstanding indebtedness.
On May 15, 2003, we completed an offering of $300 million aggregate
principal amount of unsecured senior notes bearing interest at a rate of
5.875% per year that mature on May 15, 2013, to reduce further reliance on
short-term borrowings and to finance the repayment of the current portion
of long-term debt coming due. The notes were issued by our wholly owned
finance subsidiary, Bunge Limited Finance Corp., and are guaranteed by us.
Interest is payable semi-annually in arrears on November 15 and May 15 of
each year, commencing on November 15, 2003.
In May 2003, Moody's Investor Services assigned a Baa3 to our $300
million, 5.875% senior unsecured notes and changed the ratings status from
"Stable" to "Outlook Positive." Fitch assigned a BBB corporate rating to
us, and also changed our rating status from "Stable" to "Outlook Positive."
On May 28, 2003, we entered into a $455 million 364-day revolving
credit facility and a $195 million 3-year revolving credit facility to
replace a EURO 600 million credit facility previously held by a subsidiary.
This credit facility was entered into by a subsidiary and is guaranteed by
us. There were no amounts outstanding under the credit facility at
September 30, 2003.
Cash and cash equivalents were $501 million at September 30, 2003
and $470 million at December 31, 2002. Included in our inventories were
readily marketable commodities inventories of $1,563 million at September
30, 2003 and $1,517 million at December 31, 2002.
28
Shareholders' equity increased to $2,200 million at September 30,
2003 from $1,472 million at December 31, 2002 as a result of net income of
$311 million, $55 million received from Mutual Investment Limited as a
result of the repayment of a note owed to us, foreign exchange translation
gains of $375 million primarily generated by our European, Brazilian and
Argentine subsidiaries, $11 million attributable to the exercise of
employee stock options and other comprehensive gains of $7 million. This
increase was partially offset by dividends paid to shareholders of $31
million.
On July 3, 2003, we sold Lesieur, a French producer of branded
bottled vegetable oils, to Saipol, an oilseed processing joint venture
between Bunge and Sofiproteol. We received in cash $240 million for the
sale and the repayment of Lesieur's intercompany loan due to Cereol at
closing of $72 million, and a note receivable from Sofiproteol of $31
million. The proceeds from the sale were used to reduce outstanding
indebtedness. The note receivable is due July 2009 with interest payable
annually at a rate of 5.55%.
In connection with the Cereol acquisition, we have accrued
termination benefits and facility related exit costs as part of acquisition
integration plan, which is designed to streamline personnel and close
surplus and unprofitable facilities. These costs, which totaled $35
million, have been accrued as part of the Cereol acquisition purchase
price.
In connection with Cereol's operations in Eastern Europe, Cereol
entered into a joint venture with the European Bank for Reconstruction and
Development, or EBRD, pursuant to which Cereol owns approximately 60% and
the EBRD owns approximately 40% of Polska Oil Investment B.V., or Polska
Oil. Polska Oil, in turn, owns 50% of Zaklady Thuszczowe Kruszwica S.A., or
Kruszwica, a Polish producer of bottled edible oils. Polska Oil and
Kruszwica are our consolidated subsidiaries. Pursuant to an amended and
restated shareholders agreement between Cereol and the EBRD, the EBRD has
the option to put its shares in Polska Oil to us at any time prior to June
3, 2005 at the then current fair market value as determined by an
independent expert, subject to a floor and cap based on a contractual
formula. At September 30, 2003, the estimated fair value of the EBRD stake
in Polska Oil was approximately $25 million.
CASH FLOWS
In the first nine months of 2003, our cash balance increased $31
million, reflecting the net impact of cash flows from operating, investing
and financing activities, compared to a $32 million increase in our cash
balance in the first nine months of 2002.
Our operating activities generated cash of $638 million in the first
nine months of 2003, compared to cash generated of $154 million in the
first nine months of 2002. The increase in net income for the first nine
months of 2003 compared to the same period last year and lower inventory
purchases in Brazil increased cash flow from operating activities in 2003.
Also reflected in the cash flow from operations is the $57 million paid to
McCormick in connection with the settlement agreement relating to the sale
of Ducros in April 2003.
Cash generated by investing activities was $184 million for the
first nine months of 2003, compared to cash used of $211 million in the
first nine months of 2002. Investments in property, plant and equipment
consisted primarily of additions under our normal capital expenditure plan.
In the first nine months of 2003, we received net proceeds of $251 million
from the sale of our Brazilian soy ingredients business and $240 million
from the sale of Lesieur. We used $23 million to acquire the remaining
2.62% of Cereol's outstanding shares that we did not already own and, in
connection with the settlement of the Ducros arbitration, we paid an
additional purchase price to Edison and Cereol's former public shareholders
of $42 million. In addition, in the first nine months of 2003, we have
completed certain smaller acquisitions in India and Eastern Europe having
an aggregate purchase price of approximately $33 million. In the first nine
months of 2002, we used cash to acquire shares held by minority
shareholders in connection with the corporate restructuring of our
Brazilian subsidiaries and to acquire La Plata Cereal.
Cash used in financing activities was $842 million in the first nine
months of 2003, compared to cash generated of $184 million in the first
nine months of 2002. In the first nine months of 2003, we used cash flow
from operations, the net proceeds from the sales of our Brazilian soy
ingredients business and Lesieur and the $300 million unsecured senior
notes issued on May 15, 2003 to reduce borrowings on short and long-term
debt. Mutual Investment Limited repaid in full the $55 million note owed to
us. Dividends paid during the
29
first nine months of 2003 were $31 million. In the first nine months of
2002, we generated cash by selling common shares for net proceeds of $292
million.
RECENT DEVELOPMENTS
On October 24, 2003, Bunge announced that its Brazilian fertilizer
subsidiary, Bunge Fertilizantes S.A., has acquired approximately 11% of the
total outstanding shares of Fertilizantes Fosfatados S.A. (Fosfertil). As a
result of the acquisition, Bunge Fertilizantes now directly owns over 12%
of the total outstanding shares of Fosfertil. In addition, Bunge
Fertilizantes also owns an indirect interest in Fosfertil through its 52%
majority-owned consolidated subsidiary, Fertifos, which owns 56% of the
outstanding shares of Fosfertil. The total purchase price paid for these
shares was R$240 million (approximately $84 million).
In October 2003, the Argentine government passed a new tax law
affecting exporters of certain products, including grains and oilseeds.
The law generally provides that in certain circumstances when an export
is made to a related party that is not the final purchaser of the
exported products, the income tax payable by the exporter with respect
to such sales must be based on the greater of the contract price of the
exported products or the market price of the products at the date of
shipment. The Argentine government has not yet issued interpretive
regulations regarding the application and scope of this law. We will
continue to monitor developments with respect to this legislation and
any effect this may have on our consolidated financial statements.
DIVIDENDS
On October 8, 2003, we announced that our board of directors had
declared a regular quarterly cash dividend of $0.11 per share. The dividend
is payable on December 1, 2003 to shareholders of record on November 14,
2003.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those policies that are
both important to the portrayal of our financial condition and results of
operations and require management to exercise significant judgment. For a
complete discussion of our accounting policies, see our annual report on
Form 20-F for the year ended December 31, 2002, filed with the Securities
and Exchange Commission. There have been no significant changes in our
critical accounting policies since December 31, 2002.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 150 (SFAS No. 150),
ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY. SFAS No. 150 establishes standards for how a
company classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 requires that
a company classify a financial instrument, which is within the scope of
SFAS No. 150 as a liability (or an asset in some circumstances). SFAS No.
150 is effective for financial instruments entered into or modified after
May 31, 2003, and to certain other instruments that existed prior to May
31, 2003 as of the beginning of the first interim period beginning after
June 15, 2003. The adoption of SFAS No. 150 did not have a material impact
on Bunge's consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
CONSOLIDATION OF VARIABLE INTEREST ENTITIES (FIN 46), an interpretation of
Accounting Research Bulletin No. 51, CONSOLIDATED FINANCIAL STATEMENTS (ARB
51). FIN 46 addresses consolidation by business enterprises of variable
interest entities, which are entities that are subject to consolidation
according to the provisions of FIN 46. For interests acquired on or after
February 1, 2003, FIN 46 applies immediately. For existing interests as of
January 31, 2003, FIN 46 is effective in the fourth quarter of 2003. Bunge
does not believe the adoption of FIN 46 will impact the accounting for its
accounts receivable securitizations. Bunge is evaluating the effect, if
any, that FIN 46 will have on its consolidated financial statements.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
RISK MANAGEMENT
As a result of our global operating and financing activities, we are
exposed to changes in agricultural commodity prices, foreign currency
exchange rates and interest rates, which may affect our results of
operations and financial position. We use derivative financial instruments
for the purpose of managing the risks and/or costs associated with
fluctuations in commodity prices and foreign exchange rates. While these
hedging instruments are subject to fluctuations in value, those
fluctuations are generally offset by the value of the underlying exposures
being hedged. The counterparties to these contractual arrangements are
primarily major financial institutions or, in the case of commodity futures
and options, a commodity exchange. As a result, credit risk arising from
these contracts is not significant and we do not anticipate any significant
losses. Our finance and risk management committee supervises, reviews and
periodically revises our overall risk management policies and risk limits.
We only enter into derivatives that are related to our inherent business
and financial exposure as a global agribusiness company.
COMMODITIES RISK
We operate in many areas of the food industry from agricultural raw
materials to the production and sale of branded food products. As a result,
we use and produce various materials, many of which are agricultural
commodities, including soybeans, soybean oil, soybean meal, wheat and corn.
Agricultural commodities are subject to price fluctuations due to a number
of unpredictable factors that may create price risk. We enter into various
derivative contracts, primarily exchange traded futures and options, with
the objective of managing our exposure to adverse price movements in the
agricultural commodities used for our business operations. We have
established policies that limit the amount of unhedged fixed price
agricultural commodity positions permissible for our operating companies,
which are a combination of quantity and value at risk limits. We measure
and review our sensitivity to our net commodities position on a daily
basis.
We use a sensitivity analysis to estimate our daily exposure to
market risk on our agricultural commodity position. The daily net
agricultural commodity position consists of inventory, related purchase and
sale contracts, and exchange-traded contracts, including those used to
hedge portions of our production requirements. The fair value of that
position is a summation of the fair values calculated for each agricultural
commodity by valuing each net position at quoted average futures prices for
the period. Market risk is estimated as the potential loss in fair value
resulting from a hypothetical 10% adverse change in prices. The results of
this analysis, which may differ from actual results, are as follows:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2003 DECEMBER 31, 2002
------------------------ ------------------------
(US$ IN MILLIONS) FAIR VALUE MARKET RISK FAIR VALUE MARKET RISK
----------------- ---------- ----------- ---------- -----------
Highest long position............. $ 389 $ 39 $ 529 $ 53
Highest short position............ (50) (5) (10) (1)
Average long position............. $ 56 $ 6 $ 162 $ 16
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 and
transactions 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 swaps and option
contracts to hedge currency exposures.
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When determining our exposure, we exclude intercompany loans that
are deemed to be permanently invested. The repayments of permanently
invested intercompany loans are not planned or anticipated in the
foreseeable future 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 $597
million and $699 million as of September 30, 2003 and December 31, 2002,
respectively. Included in other comprehensive income (loss) are exchange
gains of $112 million in the nine months ended September 30, 2003 and
exchange losses of $215 million in the year ended December 31, 2002,
related to permanently invested intercompany loans.
For risk management purposes and to determine the overall level of
hedging required, we further reduce the foreign exchange exposure
determined above by the value of our agricultural commodities inventories.
Our agricultural commodities inventories, because of their international
pricing in U.S. dollars, provide a natural hedge to our currency exposure.
Our net currency position, including cross-currency swaps and
currency options, and our market risk, which is the potential loss from an
adverse 10% change in foreign currency exchange rates, is set forth in the
following table. In addition, we have provided an analysis of our foreign
currency exposure after reducing the exposure for our agricultural
commodities inventory. Actual results may differ from the information set
forth below.
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
(US$ IN MILLIONS) 2003 2002
----------------- ------------------- ------------------
BRAZILIAN OPERATIONS:
Net currency short position, from financial instruments,
including derivatives .............................................. $ (577) $ (843)
Market risk .......................................................... (58) (84)
Agricultural commodities inventories ................................. 602 870
Net currency long position, less agricultural commodities
inventories ........................................................ 25 27
Market risk .......................................................... $ 3 $ 3
ARGENTINE OPERATIONS:
Net currency long position, from financial instruments,
including derivatives............................................... $ (31) $ 112
Market risk .......................................................... 3 11
Agricultural commodities inventories ................................. 108 38
Net currency long position, less agricultural commodities
inventories ........................................................ 77 150
Market risk .......................................................... $ 8 $ 15
INTEREST RATE RISK
In May 2003, we completed an offering of $300 million aggregate
principal amount of unsecured senior notes bearing interest at a rate of
5.875% per year that mature in May 2013. The notes were issued by our
wholly owned finance subsidiary, Bunge Limited Finance Corp., and
guaranteed by us. Interest is payable semi-annually in arrears in May and
November of each year, commencing in November 2003. We used the net
proceeds of approximately $296 million to reduce short-term borrowings and
finance the repayment of the current portion of long-term debt coming due.
There have been no significant changes in our interest rate market risk
since December 31, 2002.
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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, as amended.
CONTROLS AND PROCEDURES
As of September 30, 2003, we carried out an evaluation under the
supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are adequate and
effective in timely alerting them to material information relating to Bunge
(including its consolidated subsidiaries) required to be included in the
reports we file or submit under the Exchange Act.
During the quarterly period covered by this report, there were no
changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to affect, our internal
control over financial reporting.
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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: November 14, 2003 By: /s/ William M. Wells
--------------------
William M. Wells
Chief Financial Officer
/s/ T.K. Chopra
---------------
T.K. Chopra
Controller and Principal
Accounting Officer
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EXHIBIT INDEX
Exhibit 99.1 Certifications of Bunge Limited's Chief Executive Officer
and Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certifications of Bunge Limited's Chief Executive Officer
and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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