agribusiness Bunge's agribusiness segment is an integrated business involved in the purchase, processing, storage and sale of grains and oilseeds. Bunge's agribusiness operations and assets are primarily located in North and South America and Europe and it has international marketing offices throughout the world.

fertilizer Bunge's fertilizer segment is involved in every stage of the fertilizer business, from mining of raw materials to sales of fertilizer products. Bunge's fertilizer operations are primarily located in Brazil.

edible oil products Bunge's edible oil products segment consists of producing and selling edible oil products, such as edible oils, shortenings, margarine, mayonnaise and other products derived from refined vegetable oil. Bunge's edible oil products operations are located in North America, Europe, Brazil and India.

milling products Bunge's milling products segment includes the wheat and corn milling businesses. The wheat milling business consists of producing and selling flours. Bunge's wheat milling activities are located in Brazil. The corn milling business consists of producing and selling products derived from corn. Bunge's corn milling activities are located in the United States.

basis of presentation and principles of consolidation The accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and include the assets, liabilities, revenues and expenses of all subsidiaries over which Bunge exercises control. Bunge's consolidated financial statements include the accounts of all majority-owned subsidiaries where our ownership is more than 50% of common stock. Bunge has no non-consolidated majority-owned subsidiaries. All significant intercompany transactions and balances with consolidated subsidiaries are eliminated in the consolidated financial statements. Minority interest related to Bunge's ownership interests of less than 100% is reported as minority interest in subsidiaries in the consolidated balance sheets. The minority ownership interest of Bunge's earnings, net of tax, is reported as minority interest in its consolidated statements of income.

Investments in 20% to 50% owned affiliates in which Bunge has the ability to exercise significant influence are accounted for by the equity method of accounting whereby the investment is carried at acquisition cost, plus Bunge's equity in undistributed earnings or losses since acquisition. Investments in less than 20% owned affiliates are accounted for by the cost method unless such investments are marketable securities, which are carried at market value.

use of estimates and certain concentrations of risk The accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and require management to make certain estimates and assumptions. These may affect the reported amounts of assets and liabilities at the date of the financial statements. They may also affect the reported amounts of revenues and expenses during the reporting period. Amounts affected include, but are not limited to, allowances for doubtful accounts, inventories, allowances for recoverable taxes, impairment and restructuring charges, useful lives of property, plant and equipment and intangible assets, contingent liabilities, income tax valuation allowances and pension plan obligations. Actual amounts may vary from those estimates.

The availability and price of agricultural commodities used in Bunge's operations are subject to wide fluctuations due to unpredictable factors such as weather, plantings, government (domestic and foreign) farm programs and policies, changes in global demand and global production of similar and competitive crops.

translation of foreign currency financial statements Bunge's reporting currency is the U.S. dollar. The functional currency of the majority of Bunge's foreign subsidiaries is their local currency and, as such, amounts included in the consolidated statements of income are translated at the weighted average exchange rates for the period. Assets and liabilities are translated at year-end exchange rates and resulting foreign exchange translation adjustments are recorded in the consolidated balance sheets as a component of accumulated other comprehensive income (loss).

foreign currency transactions Monetary assets and liabilities denominated in currencies other than their functional currency are remeasured into their respective functional currencies at exchange rates in effect at the balance sheet date. The resulting exchange gains or losses are included in Bunge's consolidated statements of income as foreign exchange gain (loss).

cash and cash equivalents Cash and cash equivalents include time deposits and readily marketable securities with original maturity dates of three months or less.

inventories Inventories in the agribusiness segment, which consist of merchandisable agricultural commodities, are stated at market value (net realizable value). The merchandisable agricultural commodities are freely traded, have quoted market prices, may be sold without significant further processing and have predictable and insignificant disposal costs. Changes in the market values of merchandisable agricultural commodities inventories are recognized in earnings as a component of cost of goods sold.

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 records interest expense attributable to readily marketable inventories based on the average interest rates incurred on the debt financing these inventories in interest expense in its consolidated statements of income.

Inventories that are not included in the agribusiness segment are principally stated at the lower of cost or market. Cost is determined using the weighted average cost method.

derivatives Bunge enters into derivatives that are related to its inherent business and financial exposure as a multinational agricultural commodities company.

Bunge uses exchange-traded futures and options contracts to minimize the effects of changes in the prices of agricultural commodities on its agribusiness inventories and agricultural commodities forward cash purchase and sales contracts. Exchange-traded futures and options contracts are valued at the quoted market prices. Forward purchase contracts and forward sale contracts are valued at the quoted market prices, which are based on exchange quoted prices adjusted for differences in local markets. Changes in the market value of forward purchase and sale contracts, and exchange-traded futures and options contracts, are recognized in earnings as a component of cost of goods sold. These contracts are predominantly settled in cash. Bunge is exposed to loss in the event of non-performance by the counter-party to forward purchase and forward sales contracts. The values of these contracts are reduced by a provision related to the potential loss in the event of non-performance.

In addition, Bunge hedges portions of its forecasted U.S. oilseed processing production requirements, including forecasted purchases of soybeans and sales of soy commodity products for quantities that usually do not exceed three months of processing capacity. The instruments used are exchange-traded futures contracts, which are designated as cash flow hedges. The changes in the market value of such futures contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. To the extent they provide effective offset, gains or losses arising from hedging transactions are deferred in accumulated other comprehensive income (loss), net of applicable taxes, and are reclassified to cost of goods sold in the consolidated statements of income when the products associated with the hedged item are sold. Bunge expects to reclassify approximately $5 million after tax net gains to cost of goods sold in the year ending December 31, 2005, relating to exchange-traded futures contracts designated as cash flow hedges. If at any time during the hedging relationship Bunge no longer expects the hedge to be highly effective, the changes in the market value of such futures contracts would prospectively be recorded in the consolidated statements of income.

Bunge also enters into derivative financial instruments, such as foreign currency forward contracts and swaps, to limit exposures to changes in foreign currency exchange rates with respect to its recorded foreign currency denominated assets and liabilities. These derivative instruments are marked-to-market, with changes in their fair value recognized as a component of foreign exchange in the consolidated statements of income. Bunge may also hedge other foreign currency exposures as deemed appropriate.

Bunge may also use derivative instruments, such as treasury rate locks, to reduce the risk of changes in interest rates on forecasted issuance of fixed-rate debt. To the extent they are designated as cash flow hedges and provide effective offset, gains and losses arising from these derivative instruments are deferred in accumulated other comprehensive income (loss) and recognized in the consolidated statements of income over the term of the underlying debt. In addition, Bunge enters into interest rate swaps to manage its interest rate exposure on a portion of its fixed rate debt. The derivatives used by Bunge as hedging instruments in association with its debt that are not designated as cash flow hedges have been recorded at fair value in other liabilities in the consolidated balance sheet with changes in fair value recorded currently in earnings. Additionally, the carrying amount of associated debt relating to interest rate swaps is adjusted through earnings for changes in the fair value due to changes in interest rates.

All derivative financial instruments are marked-to-market and any resulting unrealized gains and losses on such derivative contracts are recorded in other current assets or other current liabilities in Bunge's consolidated balance sheets.

recoverable taxes Recoverable taxes represent value-added taxes paid on the acquisition of raw materials and other services which can be recovered in cash or as compensation of outstanding balances against income taxes or certain other taxes Bunge may owe. Recoverable taxes are offset by allowances for uncollectible amounts if it is determined that collection is doubtful.

property, plant and equipment, net Property, plant and equipment, net is stated at cost less accumulated depreciation and depletion. Major renewals and improvements are capitalized, while maintenance and repairs are expensed as incurred. Costs related to legal obligations associated with the retirement of assets are capitalized and depreciated over the lives of the underlying assets. Depreciation is computed based on the straight-line method over the estimated useful lives of the assets. Useful lives for property, plant and equipment are as follows:

	Years
Buildings	10–50
Machinery and equipment	17–20
Furniture, fixtures and other	3–20

Included in property, plant and equipment are mining properties that are stated at cost less accumulated depletion. Depletion is calculated using the unit-of-production method based on proven and probable reserves. The useful lives of Bunge's mines operated in its fertilizer operations, relating to the reserve depletion, range from 18 to 58 years.

Bunge capitalizes interest on borrowings during the construction period of major capital projects. The capitalized interest is recorded as part of the asset to which it relates, and is depreciated over the asset's estimated useful life.

goodwill Goodwill relates to the excess of the purchase price over the fair value of tangible and identifiable intangible net assets acquired in a business acquisition. Prior to January 1, 2002, goodwill was amortized on a straight-line basis over its estimated useful life of 40 years. Effective January 1, 2002, Bunge adopted SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), which requires that goodwill and certain other intangible assets having indefinite lives no longer be amortized, but rather be tested annually for impairment based upon the fair value of the reporting unit with which it resides (see Notes 7 and 8). Impairment losses are included in cost of goods sold in the consolidated statements of income.

other intangible assets Other intangible assets that have finite useful lives include brands and trademarks recorded at fair value at the date of acquisition. Other intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives, ranging from 10 to 40 years. Other intangible assets with indefinite lives are not amortized but rather tested annually for impairment.

impairment of long-lived assets Bunge reviews for impairment its long-lived assets whenever events or changes in circumstances indicate that carrying amounts of an asset may not be recoverable. In performing the review for recoverability, Bunge estimates the future cash flows expected to result from the use of the asset and from its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized; otherwise, no impairment loss is recognized. Bunge records impairments related to long-lived assets used in the processing of its products in cost of goods sold, which is a component of income from continuing operations before income tax and minority interest, in the consolidated statements of income. The measurement of an impairment loss to be recognized for long-lived assets and identifiable intangibles that Bunge expects to hold and use is the excess of the carrying value over the fair value of the asset.

Long-lived assets and certain identifiable intangibles to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

stock-based compensation Bunge has an Equity Incentive Plan and a Non-Employee Directors' Equity Incentive Plan, which are described more fully in Note 25. 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 No. 25) and Financial Accounting Standards Board (FASB) Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans (FIN 28). Bunge has granted stock options, performance-based restricted stock unit awards and time-vested restricted stock unit awards under its Equity Incentive Plan and stock options under its Non-Employee Directors' Equity Plan. In accordance with APB No. 25, Bunge accrues costs for its restricted stock unit awards granted over the vesting or performance period, and adjusts costs related to its performance-based restricted stock units for subsequent changes in the fair market value of the awards as well as the number of shares issued upon settlement of the awards. These compensation costs are recognized in the 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 fair market value of the underlying common shares on the date of grant. In accordance with SFAS No. 123 and the disclosure provisions of SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, 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. The assumptions used to determine fair value are disclosed below.

Year Ended December 31,
(US$ in millions, except per share data)			2004			2003			2002
Net income, as reported		$	469		$	411		$	255
Deduct: Total stock-based
	employee compensation
	expense determined under
	fair value based method
	for stock options granted,
	net of related tax effects		(7	)		(7	)		(6	)
Pro forma net income		$	462		$	404		$	249
Earnings per common share
	(see Note 24):
Basic—as reported		$	4.42		$	4.12		$	2.66
Basic—pro forma		$	4.36		$	4.05		$	2.60
Diluted—as reported(1)		$	4.10		$	3.83		$	2.63
Diluted—pro forma(1)		$	4.04		$	3.76		$	2.57

(1)

The numerator for the calculation of diluted earnings per share as reported and diluted pro forma earnings per share for the years ended December 31, 2004, 2003 and 2002 includes interest expense, net of tax of $5 million, $5 million and $1 million, respectively, related to Bunge's convertible notes (see Note 24).

The estimated fair value of Bunge's options on the date of grant was calculated using the Black-Scholes option-pricing model. The weighted average fair value of each stock option granted during 2004, 2003 and 2002 was approximately $14.17, $9.82 and $8.77, respectively. The following assumptions were used for the years ending December 31, 2004, 2003 and 2002:

	2004		2003		2002
Assumptions:
Expected option life (in years)	8.96		8.79		9.60
Expected dividend yield	1.30	%	1.57	%	1.60	%
Expected volatility of market price	29	%	34	%	35	%
Risk-free interest rate	3.70	%	4.10	%	3.80	%

income taxes Income tax expenses are recognized based on the tax jurisdictions in which Bunge's subsidiaries operate. Under Bermuda law, Bunge is not required to pay taxes in Bermuda on either income or capital gains. The provision for income taxes includes income taxes currently payable and deferred income taxes arising as a result of temporary differences between financial and tax reporting. Deferred tax assets are reduced by valuation allowances if it is determined that realization is doubtful.

revenue recognition Sales of agricultural commodities, fertilizers and all other products are recognized when title to the product and risk of loss transfer to the customer, which is dependent on the agreed upon sales terms with the customer. These sales terms provide for passage of title either at the time shipment is made or at the time of the delivery of product. Net sales are gross sales less discounts related to promotional programs and sales taxes. Shipping and handling costs are included as a component of cost of goods sold.

research and development Research and development costs are expensed as incurred. Research and development expenses were $14 million, $8 million and $8 million in 2004, 2003 and 2002, respectively.

adoption of new accounting pronouncements In 2004, the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) issued EITF Issue No. 04-2, Whether Mineral Rights Are Tangible or Intangible Assets (Issue No. 04-2) and the proposed Staff Position (FSP) No. FAS 141-a and 142-a, Interaction of FASB Statements No. 141, Business Combinations and No. 142, Goodwill and Other Intangible Assets and EITF Issue No. 04-2, Whether Mineral Rights Are Tangible or Intangible Assets (FSP No. FAS 141-a and 142-a). FSP No. FAS 141-a and 142-a were issued to eliminate the inconsistency between EITF Issue No. 04-2 and Statement of Financial Accounting Standards (SFAS) No. 141 and SFAS No. 142 that mineral rights are tangible assets under EITF Issue No. 04-2 and the characterization of mineral rights as intangible assets in SFAS No. 141 and No. 142. Bunge has applied EITF Issue No. 04-2 and the proposed FSP No. FAS 141-a and 142-a to its consolidated balance sheets beginning in the first quarter of 2004 and has reclassified the prior period consolidated balance sheet to conform to the 2004 presentation. The reclassification at December 31, 2003 was $208 million, resulting in an increase to property, plant and equipment, net and a corresponding decrease in other intangible assets in the consolidated balance sheets.

In January 2004, the FASB issued FSP No. FAS 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003 (FSP No. FAS 106-1). The Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act) to which FSP No. FAS 106-1 relates, which was signed in to law in December 2003, introduces a prescription drug benefit under Medicare as well as a federal subsidy, under certain conditions, to sponsors of retiree healthcare benefit plans. Bunge has elected a one-time deferral of the accounting for the effects of the Act, as permitted by FSP No. FAS 106-1. In May 2004, the FASB issued FSP No. FAS 106-2, which superseded FSP No. FAS 106-1. FSP No. FAS 106-2 is effective for Bunge for the year ended December 31, 2004 and allows two alternate methods of transition, retroactive application to the date of enactment of the Act or prospective application from the date of adoption of this statement. FSP No. FAS 106-2 requires a remeasurement of the applicable plans' assets and benefit obligations at the applicable date. Bunge has determined that the effects of the Act are not a significant event for Bunge and not material to its financial position or results of operations. Using the guidance issued in January 2005 on the definition of "actuarially equivalent," Bunge believes that the prescription drug benefits it provides will be actuarially equivalent. Based on this assumption, the estimated subsidy resulting from the Act is incorporated prospectively into Bunge's postretirement healthcare benefit plan obligation as of the 2004 measurement date as an actuarial gain. The effect of the federal subsidy on the accumulated benefit obligation of Bunge's postretirement healthcare benefit plans was approximately $1 million, which was reflected in the benefit obligation as of December 31, 2004. The effect of the federal subsidy on future annual expense of Bunge's postretirement healthcare benefit plans is insignificant.

In 2004, the FASB Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 04-08, The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share (Issue No. 04-8), that contingently convertible instruments, which generally become convertible into common stock only if one or more events occur, such as the underlying common stock achieving a specified market price target, should be included in diluted earnings per share computations (if dilutive) regardless of whether the market price target (or other contingent features) have been met. The EITF concluded that Issue No. 04-8 would be applied by restating diluted earnings per share for all prior periods presented. Issue No. 04-8 is effective for periods ending after December 15, 2004. Bunge has applied Issue No. 04-8 to its consolidated statements of income for the year ended December 31, 2004 and has restated diluted earnings per share for the years ended December 31, 2003 and 2002 to include the weighted average common shares that are issuable upon the conversion of Bunge's convertible notes (see Note 24).

new accounting pronouncements In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment (SFAS No. 123R), that requires all share-based payments, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123R is effective for the first interim or annual periods beginning July 1, 2005. Retroactive application of the requirements of SFAS No. 123R to the beginning of the fiscal year that includes the effective date would be permitted. Bunge currently reports stock compensation based on APB No. 25 with pro forma disclosures regarding fair value.

In December 2004, the FASB deferred the issuance of their final standard on earnings per share SFAS No. 128R, Earnings per Share, an amendment to FAS 128. The final standard is expected to be effective in 2005 and will require retrospective application for all prior periods presented. The significant proposed changes to the EPS computation are changes to the treasury stock method and contingent share guidance for computing year-to-date diluted EPS, removal of the ability to overcome the presumption of share settlement when computing diluted EPS when there is a choice of share or cash settlement and inclusion of mandatorily convertible securities in basic EPS. Bunge is currently evaluating the proposed provisions of this amendment to determine the impact on its consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29. APB Opinion No. 29, Accounting for Nonmonetary Transactions, provided an exception to its basic measurement principle (fair value) for exchanges of similar productive assets. Under APB Opinion No. 29, an exchange of a productive asset for a similar productive asset was based on the recorded amount of the asset relinquished. SFAS No. 153 eliminates this exception and replaces it with an exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 is effective prospectively for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.

In December 2004, the FASB issued proposed FSP No. FAS 109-b, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision Within the American Jobs Creation Act of 2004. The American Jobs Creation Act of 2004 (the Act) was signed into law by the President and includes a provision that allows U.S. corporations, in certain circumstances, to repatriate cumulative non-U.S. earnings at tax rates that may be below the 35% U.S. statutory rate. FSP No. FAS 109-b is intended to provide limited relief in the application of the indefinite reinvestment criterion of APB No. 23, Accounting for Income Taxes—Special Areas, due to ambiguities surrounding the implementation of the Act and is effective upon issuance. Bunge is currently reviewing this provision of the act and has not completed its evaluation of the provision's effect on Bunge.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (SFAS No. 151), to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) relating to inventory pricing. SFAS No. 151 requires that such items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal" and requires that the allocation of fixed production overheads to inventory be based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Bunge has determined that SFAS No. 151 will not have a material effect on its consolidated financial statements.

reclassifications Certain reclassifications were made to the prior years' consolidated financial statements to conform to the current year's presentation.