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Bunge 10-K 2005

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


FORM 10-K


ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

or

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                to                                 

Commission File Number: 001-16625

BUNGE LIMITED
(Exact name of registrant as specified in its charter)


GRAPHIC

Bermuda
(Jurisdiction of incorporation or organization)
  98-0231912
(I.R.S. Employer Identification No.)

50 Main Street
White Plains, New York USA
(Address of principal executive offices)

 

10606
(Zip Code)

(914) 684-2800
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Name of each exchange on which registered

Common Shares, par value $.01 per share
Series A Preference Shares Purchase Rights

 

New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to Section 12 (g) of the Act: None

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

        The aggregate market value of registrant's common shares held by non-affiliates, based upon the closing price of our common shares on the last business day of the registrant's most recently completed second fiscal quarter, June 30, 2004, as reported by the New York Stock Exchange, was approximately $4,242 million. Common shares held by executive officers and directors and persons who own 10% or more of the issued and outstanding common shares have been excluded since such persons may be deemed affiliates. This determination of affiliate status is not a determination for any other purpose.

        As of December 31, 2004, 110,671,450 Common Shares, par value $.01 per share and 110,671,450 Series A Preference Shares Purchase Rights were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the proxy statement for the 2005 Annual General Meeting of Shareholders to be held on May 27, 2005 are incorporated by reference into Part III.





Table of Contents

 
  Page
Cautionary Statement Regarding Forward-Looking Statements   3
PART I   4
Item 1. Business   4
Item 2. Properties   16
Item 3. Legal Proceedings   17
Item 4. Submission of Matters to a Vote of Security Holders   18
PART II   19
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters   19
Item 6. Selected Financial Data   21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations   23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk   54
Item 8. Financial Statements and Supplementary Data   58
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   58
Item 9A. Disclosure Controls and Procedures   58
Item 9B. Other Information   58
PART III   59
Item 10. Directors and Executive Officers of the Registrant   59
Item 11. Executive Compensation   59
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
              Stockholders
  59
Item 13. Certain Relationships and Related Transactions   59
Item 14. Principal Accountant Fees and Services   59
PART IV   60
Item 15. Exhibits, Financial Statement Schedules   60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS   F-1
SIGNATURES   S-1

2



Cautionary Statement Regarding Forward-Looking Statements

        This annual report on Form 10-K includes forward-looking statements that 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," "continue" and similar expressions. These forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or implied by, these forward-looking statements. These factors include the risks, uncertainties, trends and other factors discussed under the headings "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 1. Business—Business Overview" and elsewhere in this annual report. Examples of forward-looking statements include all statements that are not historical in nature, including statements regarding:

    our operations, competitive position, strategy and prospects;

    industry conditions, including the cyclicality of the agribusiness industry and unpredictability of the weather;

    estimated demand for the commodities and other products that we sell and use in our business;

    the effects of economic, political or social conditions and changes in foreign exchange policy or rates;

    our ability to complete, integrate and benefit from acquisitions, joint ventures and strategic alliances;

    governmental policies affecting our business, including agricultural and trade policies and laws governing environmental liabilities;

    our funding needs and financing sources; and

    the outcome of pending regulatory and legal proceedings.

        In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. Additional risks that we may currently deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this annual report not to occur. Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this annual report.

        The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation. We are taking advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act in connection with the forward-looking statements included in this document.

3



PART I

Item 1.    Business

        References in this Annual Report on Form 10-K to "Bunge Limited," "Bunge," "we," "us" and "our" refer to Bunge Limited and its consolidated subsidiaries, unless the context otherwise indicates.

Business Overview

        We are an integrated, global agribusiness and food company operating in the farm-to-consumer food chain, with operations ranging from sales of raw materials such as grains and fertilizers to retail food products such as margarine and mayonnaise. In 2004, we had total net sales of $25,168 million. We believe we are:

    the world's leading oilseed processing company, based on processing capacity;

    the largest producer and supplier of fertilizer to farmers in South America, based on volume; and

    a leading seller of bottled vegetable oils worldwide, based on sales.

        We conduct our operations in three divisions: agribusiness, fertilizer and food products. These divisions include four reporting segments: agribusiness, fertilizer, edible oil products and milling products. Our agribusiness division is an integrated business involved in the purchase, processing, storage and sale of grains and oilseeds. Our agribusiness operations and assets are primarily located in North and South America and Europe, and we have international marketing offices throughout the world. The segment operating profit of our agribusiness division was $358 million in 2004.

        Our fertilizer division is involved in every stage of the fertilizer business, from mining of raw materials to the sale of fertilizer products. The activities of our fertilizer division are primarily located in Brazil. The segment operating profit of our fertilizer division was $372 million in 2004.

        Our food products division consists of two business segments: edible oil products and milling products. These segments include businesses that produce and sell food products such as edible oils, shortenings, margarine, mayonnaise and milled products such as wheat flours and corn products. The activities of our food products division are primarily located in North America, Europe, Brazil and India. The segment operating profit of our edible oil products segment and milling products segment was $79 million and $41 million, respectively, in 2004.

History and Development of the Company

        We are a limited liability company formed under the laws of Bermuda. We are registered with the Registrar of Companies in Bermuda under registration number EC20791. We were formed on May 18, 1995 under the name Bunge Agribusiness Limited, and we changed our name to Bunge Limited on February 5, 1999. We trace our history back to 1818 when we were founded as a grain trading company in Amsterdam, The Netherlands. During the second half of the 1800s, we expanded our grain operations in Europe and also entered the South American agricultural commodities market. In 1888, we entered the South American food products industry, and in 1938 we entered the fertilizer industry in Brazil. We started our U.S. operations in 1923, and in 1999 moved our corporate headquarters to the United States.

        Our principal executive offices and corporate headquarters are located at 50 Main Street, White Plains, New York 10606, and our telephone number is (914) 684-2800. Our registered office is located at 2 Church Street, Hamilton, HM 11, Bermuda.

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Agribusiness

        Overview.    Our agribusiness division is an integrated business involved in the purchase, processing, storage and sale of grains and oilseeds. The principal grains and oilseeds that we purchase are soybeans, sunflower seed, rapeseed or canola, wheat, corn and sorghum. Our oilseed processing operations crush oilseeds to produce meal and crude and further processed oils. Soybean processing accounted for approximately 83% of our total oilseed processing capacity in 2004. Our international marketing operations provide sales and distribution to our customers while managing commodity, financing and freight risks for our business.

        We obtain all of our grains and oilseeds from third parties, either directly through individual relationships and purchase contracts with farmers or indirectly through intermediaries. We do not engage in any farming operations.

        Customers.    We sell grains, oilseeds, meal and oil to both our own oilseed processing operations and our food products division, as well as to U.S. and international customers in over 90 countries. Our oilseed processing operations use a substantial majority of the oilseeds that we originate. The principal third- party purchasers of our grains and oilseeds are oilseed processors, feed manufacturers and wheat and corn millers. The principal purchasers of our oilseed meal and hulls include feed manufacturers and livestock, poultry and aquaculture producers that use these products as animal feed ingredients. The principal purchasers of our crude and further processed oils are edible oil processing companies, including our own food products division, which purchased approximately one-third of our total crude oil production in 2004.

        Our agribusiness operations supply, depending on their location, both domestic and export customers. For example, in Argentina, our customer base is primarily export. In Brazil and Canada, we produce oilseed meal and oil for both the domestic and export markets. In the United States and Europe, the market for these commodity products is primarily domestic. In the United States, Brazil and Europe, some of our agribusiness products, such as corn and oilseed meal, are used in the production of meat and poultry that is ultimately exported. As a result, our agribusiness operations benefit from global demand for poultry and pork products.

        Distribution and Logistics.    We use a variety of transportation modes to transport our products, including railcars, river barges, trucks and ocean-going vessels. We own and lease railcars and barges, and use transportation services provided by truck lines, railroads and barge companies to fulfill our logistics needs. We also contract with third parties for ocean freight services. We have made and will continue to make selective investments in port and storage facilities to better serve our customer base.

        Other Services.    In Brazil, where there are fewer third-party financing sources available to farmers, we provide financing services to farmers from whom we purchase soybeans and other agricultural commodities through prepaid commodity purchase contracts and advances to farmers, which are typically secured by the farmer's crop and a mortgage on the farmer's land and other assets. These loans carry local market interest rates and are repaid in soybeans or other agricultural commodities. As of December 31, 2004, the total amount outstanding under prepaid commodity purchase contracts and secured advances to our suppliers, which primarily include farmers, was $932 million. In addition to our crop financing program, we offer other financial services, such as trade structured finance and financial risk management services to customers. These services include assisting our customers with managing exposure to adverse price movements in the agricultural commodities used in their business and arranging for third-party financings with financial institutions or through government financing programs.

        Competition.    Markets for our agribusiness products are highly competitive. Our major competitors in our agribusiness operations are The Archer Daniels Midland Co., or ADM, and Cargill

5



Incorporated, or Cargill, and, to a lesser extent, local, large agricultural cooperatives and trading companies.

Fertilizer

        Overview.    We are the largest producer and supplier of fertilizer to farmers in South America and the only major integrated fertilizer producer in Brazil, participating in all stages of the business, from mining of raw materials to selling of mixed fertilizers. In the Brazilian retail market, we have approximately 30% of the market share of "NPK" fertilizers. NPK refers to nitrogen, phosphate and potassium, the main components of chemical fertilizers. As a result of expansion in the Brazilian agricultural sector and the related increase in demand for fertilizer, we have recently expanded our fertilizer mixing capacity and intend to expand our production capabilities at our existing mines.

        Products and Services.    Our fertilizer division is comprised of nutrients and retail operations. Our nutrients operations include the mining and processing of phosphate ore and the production and sale of intermediate products to fertilizer mixers, cooperatives and our own retail fertilizer production operations. We also produce phosphate-based animal feed ingredients. The primary products we produce in our nutrients operations are single super phosphate, dicalcium phosphate and phosphoric acid. Dicalcium phosphate is a major source of calcium used in animal feed for livestock production and is a principal alternative to meat and bone meal. We are the leading producer of dicalcium phosphate in Brazil. Our retail operations consist of producing, distributing and selling mixed NPK formulas, mixed nutrients and other fertilizer products directly to retailers, processing and trading companies and farmers, primarily in Brazil, as well as in Argentina and Paraguay. We market our fertilizers under the Serrana, Manah, Ouro Verde and IAP brands.

        Raw Materials.    Our basic raw materials in our fertilizer division are potash, phosphate, sulfuric acid and nitrogen-based products. We produced approximately 53% of our total phosphate requirements in 2004 and imported the balance from third-party suppliers. We produce enough sulfuric acid to fully satisfy our internal needs. In 2004, we supplied approximately 9% of our internal demand for nitrogen, and we purchased the remainder from third-party suppliers. Our internal need for potash is fully satisfied from third-party suppliers. Approximately 41% of our total raw material needs were imported in 2004. The prices of phosphate rock, sulfuric acid, nitrogen and potash are determined by reference to international prices as a result of supply and demand factors. Each of these raw materials is readily available in the international marketplace from multiple sources.

        Distribution and Logistics.    Our phosphate mining operations in Brazil allow us to lower our logistics costs by reducing our use of imported raw materials, thereby reducing the associated transportation expenses. In addition, we reduce our logistics costs by back-hauling agricultural commodities from our inland commodities storage and processing locations to export points after delivery of imported fertilizer raw materials to our inland processing plants.

        Competition.    Our main competitors in the fertilizer divisions are Copebras, The Mosaic Company (the company formed by the recent merger of Cargill Crop Nutrition and IMC Global Inc.), Norsk Hydro (Trevo) and Heringer.

Food Products

        Overview.    Our food products division consists of two business segments: edible oil products and milling products. We sell our products to three customer types or market channels: food processors, foodservice companies and retail outlets. The principal raw materials we use in our food products division are various crude and further processed oils in our edible oils segment, and corn and wheat in our milling products segment. As these raw materials are agricultural commodities, we expect supply to be adequate for our operational needs. We seek to realize synergies between our food products division

6


and our agribusiness operations through our raw material procurement activities, enabling us to benefit from being an integrated, global agribusiness enterprise. In addition, many of our oilseed processing facilities are located in close proximity to our edible oil refineries to reduce transportation costs.

        Products.    Our edible oil products include bottled oils, shortenings, margarine, mayonnaise and other products derived from the oil refining process. We primarily use soybean, sunflower, rapeseed or canola, corn, peanut, cottonseed and other oils that we produce in our oilseed processing operations. We are a leading seller of bottled vegetable oils in the world, based on sales, and have edible oil processing, refining and bottling facilities in North America, South America, Europe and India.

        We sell our retail edible oil products in Brazil under a number of our own brands, including Soya, the leading bottled oil brand, and Bunge Pro, the top foodservice shortening brand. We are also the market leader in the Brazilian margarine market with our brands Delicia and Primor. In the United States, our Elite brand is one of the leading foodservice brands of edible oil products. In Europe, we are the market leader in consumer bottled vegetable oils, which are sold in various local markets under brand names including Oli, Venusz, Floriol, Kujawski, Olek, Unisol and Oleina. In India, our primary brands include Dalda, Chambal and Masterline.

        Distribution and Customers.    Our customers include baked goods companies, snack food producers, restaurant chains, foodservice distributors and other food manufacturers who use vegetable oils and shortenings as inputs in their operations, as well as retail consumers.

        Competition.    In the United States, Brazil and Canada, our principal competitors in the edible oil products business include ADM, Cargill, Associated British Foods plc, Unilever and Ventura Foods, LLC, among others. In Europe, our consumer bottled oils compete with ADM, Cargill, Unilever and with various local companies in each country.

        Products.    Our milling products include wheat flours, sold primarily in Brazil, and corn products sold in the United States. Corn products consist of dry milled corn grits, meal and flours, as well as soy-fortified corn meal, corn-soy blend and other similar products that we sell to the U.S. government for humanitarian relief programs. We also produce corn oil and corn feed products. In 2004 and 2003, we had the leading market share of the U.S. corn dry milling industry, based on sales. We also have corn milling operations in Canada and Mexico. In Brazil, our wheat milling operation primarily sells industrial and foodservice flour products.

        In March 2004, our Brazilian subsidiary Bunge Alimentos S.A. exchanged its retail flour assets for J. Macêdo's wheat-based industrial, foodservice and bakery products businesses and related brands.

        Distribution and Customers.    We sell our wheat milling products, including a variety of commercial bakery flours, to food processors. Our corn products are predominantly sold into the U.S. food processing sector and to the U.S. government. Our corn grits and meal are used primarily in the cereal, snack food and brewing industries. Our corn oil and feed products are sold to edible oil processors and animal feed markets, respectively.

        Competition.    The wheat milling industry in Brazil is competitive, with many small regional producers. Our major competitors in Brazil are Pena Branca Alimentos, M. Dias Branco S.A. and Moinho Pacifico. Our major competitors in our U.S. corn products business include Cargill and J.R. Short Milling Co.

7



Bunge Brasil Transaction

        In September 2004, we acquired, through a tender offer in Brazil, an additional 15% of the outstanding capital stock of Bunge Brasil S.A. (Bunge Brasil), the holding company for our Brazilian operations, for approximately $282 million in cash. Following the completion of this tender offer, we delisted Bunge Brasil from the São Paulo Stock Exchange (BOVESPA). In the fourth quarter of 2004, we acquired the remaining shares of Bunge Brasil that we did not already own for approximately $32 million. As a result of these transactions, we increased our ownership of Bunge Brasil and its subsidiaries, Bunge Alimentos S.A., Bunge's Brazilian agribusiness and food products subsidiary and Bunge Fertilizantes S.A., Bunge's Brazilian fertilizer subsidiary, to 100%.

Operating Segments and Geographic Areas

        The following tables set forth our net sales by operating segment, net sales to external customers by geographic area and our long-lived assets by geographic area. Net sales to external customers by geographic area is determined based on the location of the subsidiary making the sale. Information for 2002 reflects our acquisition of Cereol S.A., which we acquired in October 2002.

 
  Year Ended December 31,
 
  2004
  2003
  2002
 
  (US$ in millions)

Net Sales to External Customers by Operating Segment(1):                  
Agribusiness   $ 17,911   $ 16,224   $ 10,483
Fertilizer     2,581     1,954     1,384
Edible oil products     3,872     3,184     1,279
Milling products     804     751     628
Other (soy ingredients)         52     108
   
 
 
  Total   $ 25,168   $ 22,165   $ 13,882
   
 
 
 
  Year Ended December 31,
 
  2004
  2003
  2002
 
  (US$ in millions)

Net Sales to External Customers by Geographic Area:                  
Europe   $ 8,777   $ 7,176   $ 4,232
United States     6,783     6,129     4,482
Brazil     4,939     3,894     3,253
Asia     3,225     3,451     1,229
Canada     1,160     1,216     203
Argentina     262     275     452
Rest of World     22     24     31
   
 
 
  Total   $ 25,168   $ 22,165   $ 13,882
   
 
 
 
  December 31,
 
  2004
  2003
  2002
 
  (US$ in millions)

Long-Lived Assets by Geographic Area(2):                  
Brazil   $ 1,759   $ 1,323   $ 1,002
United States     1,021     1,052     726
Europe     410     302     394
Argentina     113     80     53
Rest of world     120     110     98
Unallocated(3)             89
   
 
 
  Total   $ 3,423   $ 2,867   $ 2,362
   
 
 

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(1)
During the year ended December 31, 2004, we reclassified certain consumer product lines from the agribusiness segment to the edible oil products segment. As a result, amounts for the year ended December 31, 2003 have been reclassified to conform to the current presentation.

(2)
Long-lived assets include property, plant and equipment, net, goodwill and other intangible assets, net and investments in affiliates.

(3)
Unallocated purchase price relating to acquisition of Cereol S.A. (see Note 8 to the consolidated financial statements included as part of this Annual Report on Form 10-K).

        Please see Note 28 to our consolidated financial statements included as part of this Annual Report on Form 10-K for additional information on our total assets, segment operating profit, and our net sales and other financial information by operating segment.

Joint Ventures and Alliances

        We participate in several unconsolidated joint ventures, the most significant of which are described below. For additional information on our joint ventures see Note 11 to our consolidated financial statements included as part of this Annual Report on Form 10-K.

        Solae; Alliance with DuPont.    In April 2003, we entered into an alliance with E.I. du Pont de Nemours (DuPont). This alliance consists of a joint venture, The Solae Company, or Solae, of which we own 28% and DuPont owns 72%, that focuses on the global production and distribution of specialty food ingredients, including soy proteins 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 for farmers. In October 2004, together with DuPont, we announced the first new product developed under the biotechnology alliance, a new, low linolenic soybean oil that enables food service providers and food processors to reduce or eliminate trans-fatty acids in their products. The oil will be marketed as Nutrium(TM) Low Lin Soybean Oil and will be the first product sold under the Nutrium(TM) brand.

        Saipol S.A.S.    Saipol is a joint venture with Sofiproteol, the financial arm of the French oilseed farmer's association. Saipol is engaged in oilseed processing and the sale of branded bottled vegetable oils in France. We have a 33.34% interest in Saipol. In July 2003, we sold Lesieur, a French maker of branded bottled vegetable oils that we acquired through our acquisition of Cereol, to Saipol for $240 million in cash, which included the repayment of Lesieur's intercompany debt owed to us of $72 million, and a note receivable from Saipol with a carrying value of $39 million at December 31, 2004, which is payable in July 2009.

        Terminal 6 S.A. and Terminal 6 Industrial S.A.    We have a joint venture in Argentina with Aceitera General Deheza S.A., or AGD, for the operation of the Terminal 6 port facility located in the Santa Fe province. We are also party to a second joint venture with AGD that operates a crushing facility located adjacent to the Terminal 6 port facility. We own 40% and 50%, respectively, of these joint ventures.

        AGRI-Bunge, LLC.    In March 2004, we established the AGRI-Bunge, LLC joint venture with AGRI Industries, an Iowa farmer-owned cooperative. The joint venture originates grain and operates Mississippi river terminals. We have 50% voting power and a 34% interest in the equity and earnings of AGRI-Bunge LLC.

        EWICO S.p.o.o.    We have a 50% share of this joint venture in Poland with a local partner. In June 2004, the joint venture acquired Kama Foods, formerly a manufacturer of edible oils and margarines. Operations began at the newly renovated manufacturing facilities in August 2004 with production of crude oil and refined rapeseed oil sold in bulk.

9


        Fosbrasil S.A.    We are a party to this joint venture in Brazil, of which we own 44.25%, with Astaris Brasil Ltda. and Societé Chimique Prayon-Rupel S.A. Fosbrasil S.A. operates an industrial plant in Cajati, São Paulo, Brazil that converts phosphoric acid used in animal nutrition into phosphoric acid for human consumption.

        Harinera La Espiga, S.A. de C.V.    We are a party to this joint venture in Mexico with Grupo Neva, S.A. de C.V. and Cerrollera, S.A. de C.V. The joint venture has wheat milling and bakery dry mix operations in Mexico. We have a 31.5% interest in the joint venture.

Research and Development, Patents and Licenses

        Our research and development activities are focused on developing products and optimizing techniques that will drive growth or otherwise add value to our core business lines.

        In our food products division, we have established centers of excellence, located in the United States and Hungary, to develop and enhance technology and processes associated with food products and marketing.

        Our total research and development expenses were $14 million in 2004, $8 million in 2003 and $8 million in 2002. As of December 31, 2004, our research and development organization consisted of approximately 123 employees worldwide.

        We own trademarks on the majority of the brands we produce in our food products and fertilizer divisions. We typically obtain long-term licenses for the remainder. We have patents covering some of our products and manufacturing processes. However, we do not consider any of these patents to be material to our business.

        We believe we have taken appropriate steps to be the owner of or to be entitled to use all intellectual property rights necessary to carry out our business.

Seasonality

        In our agribusiness division, we do not experience material seasonal fluctuations in volume since we are geographically diversified in the global agribusiness market. The worldwide need for food is not seasonal and increases as populations grow. The geographic balance of our grain origination assets in the northern and southern hemispheres also assures us a more consistent supply of agricultural commodities throughout the year, although our overall supply of agricultural commodities can be impacted by adverse weather conditions such as flood, drought or frost. However, there is a degree of seasonality in our gross profit, as our higher margin oilseed processing operations experience increases in volumes in the second, third and fourth quarters due to the timing of the soybean harvests. In addition, price and margin variations and increased availability of agricultural commodities at harvest times often cause fluctuations in our inventories and short-term borrowings.

        In our fertilizer division, we are subject to seasonal trends based on the agricultural growing cycle in Brazil. As a result, our fertilizer sales are significantly higher in the third and fourth quarters of each year.

        In our food products division, there are no significant seasonal effects on our business.

Risk Management

        Effective risk management is a fundamental aspect of our business. Correctly anticipating market developments to optimize timing of purchases, sales and hedging is essential for maximizing the return on our assets. We engage in commodity price hedging in our agribusiness and food products divisions to reduce the impact of volatility in the prices of the principal agricultural commodities we use in those divisions. We also engage in foreign currency and interest rate hedging. In addition, we enter into

10



certain freight agreements relating to the transportation of our products in order to reduce our exposure to volatility in freight costs. Our risk management decisions take place in various markets but position limits are centrally set and monitored. For foreign exchange risk, we require our positions to be hedged in accordance with our foreign exchange policies. We have a finance and risk management committee of our board of directors that supervises and reviews our overall risk management policies and risk limits. In addition, we have a chief risk officer who focuses on managing our risk exposures. We also periodically review our risk management policies, procedures and systems with outside consultants. See "Item 7A. Quantitative and Qualitative Disclosures About Market Risk."

Government Regulation

        We are subject to regulation under U.S. federal, state and local laws and the laws of the other jurisdictions in which we operate. These regulations govern various aspects of our business, including storage, processing and distribution of our agricultural commodity products, food processing, handling and storage, mining and port operations and environmental matters. To operate our facilities, we must obtain and maintain numerous permits, licenses and approvals from governmental agencies. In addition, our facilities are subject to periodic inspection by governmental agencies, including the Department of Agriculture, the Food and Drug Administration and the Environmental Protection Agency in the United States and analogous governmental agencies in the other countries in which we do business throughout the world. Certain new regulations that had or are expected to have an impact on our industry are outlined below.

        GMO Regulation.    New regulations have been passed in Europe and Brazil related to the regulation of genetically modified organisms (GMOs). The European Parliament and the Council of the European Union (EU) have passed new regulations which require labeling and traceability criteria for GMOs. These regulations, which took effect on April 19, 2004, introduce the obligation to inform customers when marketing a GMO or GMO derivative, as well as the obligation to maintain systems of traceability at all levels in the food chain. Products derived from GMOs, including food and animal feed, must be labeled if they contain more than 0.9% genetically modified material.

        In Brazil, the government is expected to legalize the planting and sale of GMO soybeans after having temporarily legalized such planting and sale in certain regions for the past two years. However, certain Brazilian states have banned the planting, sale or transport of GMO crops, which has resulted in the disruption of certain GMO crop shipments. In addition, Brazilian law requires that all products intended for animal or human consumption be labeled if the GMO content of such product exceeds 1%.

        Trans-Fatty Acids Labeling Requirements.    The U.S. Food and Drug Administration recently defined new labeling rules, which will be effective January 1, 2006, requiring food processors to disclose levels of trans-fatty acids contained in their products. Many of our soybean oil products that are sold in the United States contain trans-fatty acids as a result of being hydrogenated for use in processed and packaged foods to extend shelf life and stabilize flavor. As a result of the labeling requirement, several food processors have recently indicated an intention to switch to products with lower levels of trans-fatty acids. As a result, we have developed, together with DuPont, a new low linolenic soybean oil that is trans-fat free, and are working with customers to offer other trans-fat alternatives.

Competitive Position

        Markets for our products are highly price competitive and sensitive to product substitution. No single company competes with us in all of our markets. Please see the "Competition" section contained in the discussion of each of our operating segments above for a list of the primary competitors in each segment.

11



Environmental Matters

        We are subject to various environmental protection and occupational health and safety laws and regulations in the countries in which we operate. Our operations may create emissions of certain substances, which may be regulated or limited by applicable laws and regulations. In addition, we handle and dispose of materials and wastes classified as hazardous or toxic by one or more regulatory agencies in most of our business lines. Handling hazardous or toxic materials and wastes is inherently risky, and we incur costs to comply with health, safety and environmental regulations applicable to our operations.

        Our total environmental compliance expenses were approximately $26 million in 2004, $20 million in 2003 and $7 million in 2002. The increase in our environmental compliance expenses in 2003 was primarily due to a full year of combined operations with Cereol and $7 million of expenses associated with certain facilities in the United States that we sold in 1995, which we reported as discontinued operations. Compliance with environmental laws and regulations did not materially affect our capital expenditures, earnings or competitive position in 2004, and, based on current laws and regulations, we do not expect that they will do so in 2005.

Employees

        The following tables indicate the distribution of our employees by business division and geographic region as of the dates indicated.


Employees by Business Division

 
  December 31,
 
  2004
  2003
  2002
Agribusiness   9,120   8,797   7,736
Fertilizer   6,846   6,526   6,114
Food products   8,655   7,972   10,357
   
 
 
  Total   24,621   23,295   24,207
   
 
 


Employees by Geographic Region

 
  December 31,
 
  2004
  2003
  2002
North America   4,140   4,066   5,369
South America   14,904   14,594   14,533
Europe   4,390   3,707   3,993
Asia   1,187   928   312
   
 
 
  Total   24,621   23,295   24,207
   
 
 

        Many of our employees are represented by labor unions, and their employment is governed by collective bargaining agreements. In general, we consider our employee relations to be good.

Risks of Foreign Operations

        We are a global business with substantial assets located outside of the United States from which we derive a significant portion of our revenue. Our operations in South America and Europe are a fundamental part of our business. In addition, a key part of our strategy involves expanding our business in several emerging markets, including Eastern Europe, India and China. Volatile economic,

12



political and market conditions in these and other emerging market countries may have a negative impact on our operating results and our ability to achieve our business strategies. For additional information see the discussion under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors."

Available Information

        Our website address is www.bunge.com. Through the "About Bunge—Investor Information—SEC Filings" section of our website, it is possible to access all of our periodic report filings with the Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports. These reports are made available free of charge. Also, filings made pursuant to Section 16 of the Exchange Act with the SEC by our executive officers, directors and other reporting persons with respect to our common shares are made available, free of charge, through our website.

        Our periodic reports and amendments and the Section 16 filings are available through our website as soon as reasonably practicable after such report, amendment or filing is electronically filed with or furnished to the SEC. In addition, reports on Form 20-F and current reports on Form 6-K filed or furnished prior to July 27, 2004, are also available free of charge through our website.

        Through the "About Bunge—Investor Information—Corporate Governance" section of our website, it is possible to access copies of the charters for our audit committee, compensation committee, finance and risk management committee and corporate governance and nominations committee. Our corporate governance guidelines and our code of ethics are also available in this section of our website. Each of these documents is made available, free of charge, through our website and in print from us upon request.

        The foregoing information regarding our website and its content is for your convenience only. The information contained on or connected to our website is not deemed to be incorporated by reference in this report or filed with the SEC.

        In addition, you may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549 and may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically. The SEC website address is www.sec.gov.

13



Executive Officers and Key Employees of the Company

        Set forth below is certain information concerning the executive officers and key employees of the Company.

Name

  Positions
Alberto Weisser   Chairman of the Board of Directors and Chief Executive Officer
Andrew J. Burke   Managing Director, New Business Development, Bunge Limited
Archibald Gwathmey   Managing Director, Agribusiness Division, Bunge Limited, and Chief Executive Officer, Bunge Global Markets, Inc.
João Fernando Kfouri   Managing Director, Food Products Division, Bunge Limited
Flávio Sá Carvalho   Chief Personnel Officer
William M. Wells   Chief Financial Officer
Mario A. Barbosa Neto   Chief Executive Officer, Bunge Fertilizantes S.A.
Jean-Louis Gourbin   Chief Executive Officer, Bunge Europe
Carl L. Hausmann   Chief Executive Officer, Bunge North America, Inc.
Raul Padilla   Chief Executive Officer, Bunge Argentina S.A.
Sergio Roberto Waldrich   Chief Executive Officer, Bunge Alimentos S.A.

        Alberto Weisser, 49.    Mr. Weisser is the Chairman of our board of directors and our Chief Executive Officer. Mr. Weisser has been with Bunge since July 1993. He has been a member of our board of directors since 1995, was appointed our Chief Executive Officer in January 1999 and became Chairman of the Board of Directors in July 1999. Prior to that, Mr. Weisser held the position of Chief Financial Officer. Prior to joining Bunge, Mr. Weisser worked for the BASF Group in various finance-related positions for 15 years. Mr. Weisser is also a member of the board of directors of Ferro Corporation and a member of the North American Agribusiness Advisory Board of Rabobank. Mr. Weisser has a bachelor's degree in Business Administration from the University of São Paulo, Brazil and has participated in several post-graduate programs at Harvard Business School. He has also attended INSEAD's Management Development Program in France.

        Andrew J. Burke, 49.    Mr. Burke has been Managing Director, New Business Development since January 2002. Previously, Mr. Burke served as Chief Executive Officer of the U.S. subsidiary of Degussa AG, the German chemical company. He joined Degussa in 1983, where he held a variety of finance and marketing positions, including Chief Financial Officer and Executive Vice President of the chemical group. Prior to joining Degussa, Mr. Burke worked for Beecham Pharmaceuticals and Price Waterhouse & Company. Mr. Burke is a graduate of Villanova University, is licensed as a certified public accountant and earned an M.B.A. from Manhattan College.

        Archibald Gwathmey, 53.    Mr. Gwathmey has been the Managing Director of our agribusiness division since December 2002 and Chief Executive Officer of Bunge Global Markets, Inc., our international marketing division, since 1999. Mr. Gwathmey joined Bunge in 1975 as a trainee and has over 25 years experience in commodities trading and oilseed processing. During his career with Bunge, he has served as head of the U.S. grain division and head of the U.S. oilseed processing division. Mr. Gwathmey graduated from Harvard College with a B.A. in Classics and English. He has also served as a Director of the National Oilseed Processors Association.

        João Fernando Kfouri, 66.    Mr. Kfouri has been the Managing Director of our food products division since May 2001. Prior to that, Mr. Kfouri was employed for 18 years with Joseph E. Seagram and Sons Ltd., most recently as President of the Americas division, with responsibility for North and South American operations. Prior to that, Mr. Kfouri worked for General Foods Corp., where he served in numerous capacities, including General Manager of Venezuelan operations. Mr. Kfouri

14



received a degree in Business from the São Paulo School of Business Administration of the Getulio Vargas Foundation.

        Flávio Sá Carvalho, 61.    Mr. Sá Carvalho has been our Chief Personnel Officer since 1998. Prior to joining Bunge, he served as Vice President of Human Resources at Aetna International, Inc. since 1994. Prior to that, he was with Bank of America for 12 years in multiple capacities, including Director of Human Resources for their Latin American operations, International Compensation and Benefits, Corporate Staffing and Planning and Vice President of International Human Resources. Mr. Sá Carvalho studied Mass Communications in Brazil and holds an M.S. in Education Research and Development from Florida State University.

        William M. Wells, 44.    Mr. Wells has been our Chief Financial Officer since January 2000. Prior to that, Mr. Wells was with the McDonald's Corporation for ten years, where he served in numerous capacities, including chief executive of System Capital Corporation, the McDonald's System's dedicated finance company, Chief Financial Officer of McDonald's Brazil and Director of both U.S. and Latin American finance. Before McDonald's, Mr. Wells was with Citibank N.A. in Brazil and New York. He has a Master's Degree in International Business from the University of South Carolina.

        Mario A. Barbosa Neto, 58.    Mr. Barbosa Neto has been the Chief Executive Officer of Bunge Fertilizantes S.A. since 1996 with the formation of Fertilizantes Serrana S.A., the predecessor company of Bunge Fertilizantes S.A. Mr. Barbosa Neto has over 25 years experience in the Brazilian fertilizer industry. Prior to joining Serrana, he served as superintendent of Fosfertil S.A. from 1992 to 1996 and was the Chief Financial Officer of Manah S.A. from 1980 to 1992. Mr. Barbosa Neto has a B.S. in Engineering from the University of São Paulo and an M.B.A. from the Getulio Vargas Foundation. Mr. Barbosa Neto is Vice President of the International Fertilizer Association.

        Jean-Louis Gourbin, 57.    Mr. Gourbin has been the Chief Executive Officer of Bunge Europe since January 2004. Prior to that, Mr. Gourbin was with the Danone Group, where he served as Executive Vice President of Danone and President of its Biscuits and Cereal Products division since 1999. Before joining the Danone Group, Mr. Gourbin worked for more than 15 years with the Kellogg Company, where he last occupied the positions of President of Kellogg Europe and Executive Vice President of Kellogg. He has also held positions at Ralston Purina and Corn Products Company. Mr. Gourbin holds both a Bachelor's and a Master's degree in Economics from the Sorbonne.

        Carl L. Hausmann, 58.    Mr. Hausmann has been the Chief Executive Officer of Bunge North America, Inc. since January 2004. Prior to that, he served as the Chief Executive Officer of Bunge Europe since October 15, 2002. Prior to that, he was the Chief Executive Officer of Cereol S.A. Mr. Hausmann was Chief Executive Officer of Cereol since its inception in July 2001. Prior to that, Cereol was a 100%-owned subsidiary of Eridania Beghin-Say. Mr. Hausmann worked in various capacities for Eridania Beghin-Say beginning in 1992. From 1978 to 1992, he worked for Continental Grain Company. He has served as director of the National Oilseed Processors Association and as the President and Director of Fediol, the European Oilseed Processors Association. Mr. Hausmann has a B.S. degree from Boston College and an M.B.A. from INSEAD.

        Raul Padilla, 49.    Mr. Padilla is the Chief Executive Officer of Bunge Argentina S.A., our oilseed processing and grain origination subsidiary in Argentina. He joined the company in 1991, becoming Chief Executive Officer and Commercial Director in 1999. Mr. Padilla has over 23 years experience in the oilseed processing and grain handling industries in Argentina, beginning his career with La Plata Cereal in 1977. He serves as President of the Argentinean National Oilseed Crushers Association, Vice President of the International Association of Seed Crushers and is a director of the Buenos Aires Cereal Exchange and the Rosario Futures Exchange. Mr. Padilla is a graduate of the University of Buenos Aires.

15


        Sergio Roberto Waldrich, 47.    Mr. Waldrich has been the Chief Executive Officer of Bunge Alimentos S.A. since 2002. Prior to becoming the Chief Executive Officer of Bunge Alimentos, Mr. Waldrich was President of the Ceval Division of Bunge Alimentos for two years. He joined Ceval Alimentos, which was acquired by Bunge in 1997, as a trainee in 1972. Mr. Waldrich worked in various positions over his career with the company, eventually serving as head of the poultry division. When the poultry division was spun off by Bunge into a separate company, Mr. Waldrich was named Vice President and General Manager of that company. He rejoined Ceval Alimentos in August 2000. Mr. Waldrich has a degree in Chemical Engineering from the University of Blumenau and an M.B.A. from the University of Florianópolis. Mr. Waldrich is the former President of the Brazilian Pork Industry Association and the Brazilian Pork Export Association.

Item 2.    Properties

        The following tables provide information on our principal operating facilities as of December 31, 2004.

Facilities by Division

Division

  Aggregate
Size

  Aggregate
Daily
Production
Capacity

  Aggregate
Daily
Storage Capacity

 
  (square meters)
  (metric tons)
  (metric tons)
Agribusiness   2,790,483   136,229   10,434,931
Fertilizer   1,476,533   142,720   2,515,822
Food Products   1,140,157   25,193   531,932

Facilities by Geographic Region

Region

  Aggregate
Size

  Aggregate
Daily
Production
Capacity

  Aggregate
Daily
Storage Capacity

 
  (square meters)
  (metric tons)
  (metric tons)
North America   1,045,716   62,191   7,139,235
South America   2,549,885   196,926   4,451,231
Europe   1,811,572   45,025   1,892,219

        In addition, we have operations in various ports either directly or through alliances and joint ventures. Our corporate headquarters in White Plains, New York, occupy approximately 35,000 square feet of space under a lease that expires in February 2013. We also lease offices for our international marketing operations worldwide.

        We believe that our facilities are adequate to address our operational requirements.

        In our agribusiness operations, we have approximately 270 grain storage facilities that are located close to agricultural production areas and export locations. We also have approximately 50 oilseed processing plants and approximately 30 international marketing offices throughout the world.

16


        In our fertilizer division, we currently operate four phosphate mines in Brazil. In addition to our phosphate mines, we also operate approximately 22 processing plants that are strategically located in the key fertilizer consumption regions of Brazil, thereby reducing transportation costs to deliver our products to our customers. Our mines are operated under concessions from the Brazilian government. The following table sets forth information about the phosphate production of our mines:

Name

  Annual Phosphate Production
for the Year Ended
December 31, 2004

  Years Until
Reserve Depletion

 
 
  (millions of metric tons)

   
 
Araxá   0.83   23 (1)
Cajati   0.63   19 (1)
Catalão   1.05   34  
Tapira   1.93   56  

(1)
We operate our mines under concessions granted by the Brazilian Ministry of Mines and Energy. The Araxá and Cajati mines operate under concession contracts that expire in 2027 and 2023, respectively, but may be renewed at our option for consecutive ten-year periods thereafter through the useful life of the mines. The number of years until reserve depletion represents the number of years until the initial expiration of those concession contracts. The concessions for the other mines have no specified termination dates and are granted for the useful life of the mines.

        In addition to the mines listed above, we also have interests in two additional phosphate mines, Salitre and Anitápolis, with proven reserves where production has not yet commenced. The production capacity for the Salitre and Anitápolis mines is estimated to be approximately 1 million and 500,000 metric tons of phosphate per year, respectively. At this production level, the number of years until depletion of the phosphate reserves is expected to be 97 years for Salitre and 15 years for Anitápolis. We expect to commence production at Anitápolis in 2005. In 2004, we ceased production at a fifth mine, Patos de Minas, as its phosphate reserves have been substantially depleted.

        In our food products operations, we have approximately 44 refining and bottling facilities and 22 other facilities dedicated to our food products operations throughout the world.

Item 3.    Legal Proceedings

        We are party to various legal proceedings in the ordinary course of our business. Although we cannot accurately predict the amount of any liability that may arise with respect to any of these matters, we do not expect any proceeding, if determined adversely to us, to have a material adverse effect on our consolidated financial position, results of operations or cash flows. Although we vigorously defend all claims, we make provision for potential liabilities when we deem them probable and reasonably estimable. These provisions are based on current information and legal advice and are adjusted from time to time according to developments.

        Our Brazilian subsidiaries are subject to pending tax claims by Brazilian federal, state and local tax authorities. As of December 31, 2004, these claims numbered approximately 1,100 individual cases, represented in the aggregate approximately $630 million and averaged approximately $588,000 per claim. The Brazilian tax claims relate to income tax claims, value added tax claims and sales tax claims. The determination of the manner in which various Brazilian federal, state and municipal taxes apply to our operations is subject to varying interpretations arising from the complex nature of Brazilian tax laws and changes in those laws. We have reserved $153 million as of December 31, 2004 in respect of these claims. In addition, we have approximately 350 individual claims pending against Brazilian

17



federal, state and local tax authorities to recover taxes previously paid by us. As of December 31, 2004, these claims represented in the aggregate approximately $630 million and averaged approximately $1.7 million per claim.

        We are also a party to a number of labor claims relating to our Brazilian operations. Court rulings under labor laws in Brazil have historically ruled in favor of the employee-plaintiff. We have reserved $75 million as of December 31, 2004 in respect of these claims. The labor claims primarily relate to dismissals, severance, health and safety, salary adjustments and supplementary retirement benefits.

        We are involved in arbitration proceedings at the ICC International Court of Arbitration with Cereol's former joint venture partner over the final purchase price of Oleina Holding S.A. and related issues. Cereol purchased the 49% of Oleina it did not already own from its joint venture partner for $27 million in February 2002, the final purchase price to be determined by arbitration.

        In July 2004, the arbitration tribunal determined the purchase price to be approximately $108 million. We filed a recourse for annulment of the arbitral award issued in July 2004 with the Federal Court of Lausanne, Switzerland. In January 2005, the recourse for annulment of the arbitral award was denied by the federal court. Proceedings for enforcement of the arbitral award are currently pending in the Court of Appeal of the Hague in The Netherlands. We are entitled to be indemnified by Edison S.p.A., from whom we purchased Cereol, for any portion of the final purchase price that exceeds $39 million. As of December 31, 2004, we have recorded an obligation of $81 million to Cereol's former joint venture partner and a receivable in the amount of $74 million from Edison relating to its indemnity. Edison has informed us that it is currently evaluating whether the conditions precedent to this indemnification have been satisfied. We have assessed the collectibility of this receivable under the terms of our agreement with Edison and believe this amount is fully collectible under the agreement.

        Some employees of Lesieur at two of its former facilities in France have made claims for disability pensions from the French social security administration relating to illnesses potentially connected to asbestos exposure associated with production processes of certain discontinued product lines at the facilities. Lesieur is not named as a party to these claims. In addition, several cases are pending against Lesieur before the French social security courts to determine the extent of Lesieur's liability, if any, for asbestos exposure. In connection with the sale of Lesieur to Saipol described above under "Item 1. Business—Joint Ventures and Alliances," among other matters, we agreed to indemnify Saipol for asbestos-related claims relating to Lesieur pursuant to a contractual formula. In no event may our total liability for these claims exceed 23 million euros.

        The Brazilian securities commission had been investigating Bunge Alimentos (formerly, Ceval Alimentos S.A.) and its former and current management for possible non-compliance with Brazilian accounting rules that occurred prior to our acquisition of Ceval Alimentos in 1997. The investigation was initiated by minority shareholders of Ceval Alimentos after we, pursuant to applicable Brazilian accounting regulations, reduced the company's corporate capital after the acquisition. We renamed the company Bunge Alimentos after the acquisition. The investigation was concluded in November 2004 with no finding of liability or other action taken against Bunge Alimentos or its current management.

        In April 2000, we acquired Manah S.A., a Brazilian fertilizer company that had an indirect participation in Fosfertil. Fosfertil is the main Brazilian producer of phosphate used to produce NPK fertilizers. This acquisition was approved by the Brazilian antitrust commission in February 2004. The approval was conditioned on the formalization of an operational agreement between us and the antitrust commission relating to the maintenance of existing competitive conditions in the fertilizer market. Although the terms of the operational agreement have not been finalized, we do not expect them to have a material adverse impact on our business or financial results.

Item 4.    Submission of Matters to a Vote of Security Holders

        There were no matters submitted to a vote of security holders during the fourth quarter of 2004.

18



PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

        The following table sets forth, for the periods indicated, the high and low closing prices of our common shares, as reported on the New York Stock Exchange.

(US$)

  High
  Low
2005            
First quarter (to March 14)   $ 58.10   $ 49.40

2004

 

 

 

 

 

 
Fourth quarter   $ 57.08   $ 38.80
Third quarter   $ 40.98   $ 36.96
Second quarter   $ 41.27   $ 34.07
First quarter   $ 40.22   $ 32.99

2003

 

 

 

 

 

 
Fourth quarter   $ 33.00   $ 26.29
Third quarter   $ 30.95   $ 27.37
Second quarter   $ 30.35   $ 24.73
First quarter   $ 27.30   $ 23.90

        To our knowledge, based on information provided by Mellon Investor Services LLC, our transfer agent, 110,671,450 of our common shares were held by approximately 178 registered holders as of December 31, 2004.

Dividend Policy

        We intend to pay cash dividends to our shareholders on a quarterly basis. However, any future determination to pay dividends will, subject to the provisions of Bermuda law, be at the discretion of our board of directors and will depend upon then existing conditions, including our financial condition, results of operations, contractual and other relevant legal or regulatory restrictions, capital requirements, business prospects and other factors our board of directors deems relevant.

        Under Bermuda law, a company's board of directors may declare and pay dividends from time to time unless there are reasonable grounds for believing that the company is or would, after the payment, be unable to pay its liabilities as they become due or that the realizable value of its assets would thereby be less than the aggregate of its liabilities and issued share capital and share premium accounts. Under our bye-laws, each common share is entitled to dividends if, as and when dividends are declared by our board of directors, subject to any preferred dividend right of the holders of any preference shares. There are no restrictions on our ability to transfer funds (other than funds denominated in Bermuda dollars) in or out of Bermuda or to pay dividends to U.S. residents who are holders of our common shares.

        We paid quarterly dividends of $.11 per share in the first two quarters of 2004 and $.13 per share in the last two quarters of 2004. In addition, we paid a regular quarterly cash dividend of $.13 per share on February 28, 2005 to shareholders of record on February 14, 2005. On February 25, 2005, we announced that we will pay a regular quarterly cash dividend of $.13 per share on May 31, 2005 to shareholders of record on May 17, 2005.

Sales of Unregistered Securities

        None.

19



Equity Compensation Plan Information

        The following table sets forth certain information, as of December 31, 2004, with respect to our equity compensation plans.

 
   
   
  (c)
 
 
   
  (b)
 
 
  (a)
  Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))

 
 
  Weighted-average
exercise price
per share of
outstanding options,
warrants and rights

 
Plan
category

  Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights

 
Equity compensation plans approved by shareholders(1)   4,483,510 (2) $ 24.40 (3) 5,489,275 (4)
Equity compensation plans not approved by shareholders(5)   12,208 (6)   —   (7) —   (8)
   
 
 
 
Total   4,495,718   $ 24.40   5,489,275  
   
 
 
 

(1)
Includes our Equity Incentive Plan and our Non-Employee Directors' Equity Incentive Plan.

(2)
Includes non-statutory stock options outstanding as to 3,394,502 common shares, time-vested regular restricted stock unit awards outstanding as to 39,311 common shares (including dividend equivalents payable in common shares) and performance-based restricted stock unit awards outstanding as to 723,897 common shares (including dividend equivalents payable in common shares) under our Equity Incentive Plan. This number also includes non-statutory stock options outstanding as to 325,800 common shares under our Non-Employee Directors' Equity Incentive Plan. Participants in our Equity Incentive Plan may elect to have their performance-based restricted stock units paid out all in cash (in lieu of common shares), in common shares or in a combination thereof, subject to the discretion of our compensation committee. Participants may also receive dividend equivalent payments that are credited to each participant's account and paid in common shares of Bunge at the time the award is settled.

(3)
Calculated based on non-statutory stock options outstanding under our Equity Incentive Plan and our Non-Employee Directors' Equity Incentive Plan. This number excludes outstanding time-vested regular restricted stock unit and performance-based restricted stock unit awards under the Equity Incentive Plan.

(4)
Shares available under our Equity Incentive Plan may be used for any type of award authorized under the plan. Awards under the plan may be in the form of statutory or non-statutory stock options, restricted stock units (including performance-based) or other awards that are based on the value of our common shares. Our Equity Incentive Plan provides that the maximum number of common shares issuable under the plan may not exceed 10% of our issued and outstanding common shares at any time, except that the maximum number of common shares issuable pursuant to grants of statutory stock options may not exceed 5% of our issued and outstanding common shares as of the date the plan first received shareholder approval. This number also includes shares available for future issuance under our Non-Employee Directors' Equity Incentive Plan. Our Non-Employee Directors' Equity Incentive Plan provides that the maximum number of common shares issuable under the plan may not exceed 0.5% of our issued and outstanding common shares at any time. As of December 31, 2004, we had a total of 110,671,450 common shares issued and outstanding.

(5)
Includes our Non-Employee Directors' Deferred Compensation Plan.

(6)
Includes rights to acquire 12,208 common shares under our Non-Employee Directors' Deferred Compensation Plan pursuant to elections by our non-employee directors.

(7)
Not applicable.

(8)
Our Non-Employee Directors' Deferred Compensation Plan does not have an explicit share limit.

20


Purchases of Equity Securities by Registrant and Affiliated Purchasers

        None.

Item 6.    Selected Financial Data

        The following table sets forth our selected consolidated financial information for the periods indicated. You should read this information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the consolidated financial statements and notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

        Our consolidated financial statements are prepared in U.S. dollars and in accordance with generally accepted accounting principles in the United States (U.S. GAAP). The consolidated statements of income and cash flow data for each of the three years ended December 31, 2004 and the consolidated balance sheet data as of December 31, 2004 and 2003 are derived from our audited consolidated financial statements included in this annual report. The consolidated statements of income and cash flow data for the years ended December 31, 2001 and 2000 and the consolidated balance sheet data as of December 31, 2002, 2001 and 2000 are derived from our audited consolidated financial statements that are not included in this annual report.

        In October 2002, we acquired a controlling interest in Cereol, S.A., a French agribusiness company, and in April 2003 we acquired the remaining ownership interest in Cereol. As a result, we now own 100% of Cereol's share capital and voting rights. Cereol's results of operations have been included in our historical financial statements since October 1, 2002.

 
  Year Ended December 31,
 
 
  2004
  2003
  2002
  2001
  2000
 
 
  (US$ in millions)

 
Consolidated Statements of Income Data:                                
Net sales   $ 25,168   $ 22,165   $ 13,882   $ 11,302   $ 9,500  
Cost of goods sold     (23,282 )   (20,860 )   (12,544 )   (10,331 )   (8,812 )
   
 
 
 
 
 
Gross profit     1,886     1,305     1,338     971     688  
Selling, general and administrative expenses     (871 )   (691 )   (579 )   (423 )   (375 )
Gain on sale of soy ingredients business         111              
Interest income     103     102     71     91     114  
Interest expense     (214 )   (215 )   (176 )   (223 )   (252 )
Foreign exchange gains (losses)     (31 )   92     (179 )   (148 )   (116 )
Other income (expense)—net     31     19     6     (4 )   7  
   
 
 
 
 
 
Income from continuing operations before income tax and minority interest     904     723     481     264     66  
Income tax expense     (289 )   (201 )   (104 )   (68 )   (12 )
   
 
 
 
 
 
Income from continuing operations before minority interest     615     522     377     196     54  
Minority interest     (146 )   (104 )   (102 )   (72 )   (37 )
   
 
 
 
 
 
Income from continuing operations     469     418     275     124     17  
Discontinued operations, net of tax of $5 (2003), $1 (2002), $0 (2001), ($1) (2000)         (7 )   3     3     (5 )
   
 
 
 
 
 
Income before cumulative effect of change in accounting principles     469     411     278     127     12  
Cumulative effect of change in accounting principles, net of tax of $6 (2002) and $4 (2001)             (23 )   7      
   
 
 
 
 
 
Net income (loss)   $ 469   $ 411   $ 255   $ 134   $ 12  
   
 
 
 
 
 

21


 
  Year Ended December 31,
 
 
  2004
  2003
  2002
  2001
  2000
 
 
  (US$, except outstanding share data)

 
Per Share Data:                                
Earnings per common share—basic:                                
Income from continuing operations   $ 4.42   $ 4.19   $ 2.87   $ 1.73   $ .26  
Discontinued operations         (.07 )   .03     .04     (.07 )
Cumulative effect of change in accounting principles             (.24 )   .10      
   
 
 
 
 
 
Net income per share   $ 4.42   $ 4.12   $ 2.66   $ 1.87   $ .19  
   
 
 
 
 
 
Earnings per common share—diluted(1):                                
Income from continuing operations   $ 4.10   $ 3.89   $ 2.83   $ 1.72   $ .26  
Discontinued operations         (.06 )   .03     .04     (.07 )
Cumulative effect of change in accounting principles             (.23 )   .10      
   
 
 
 
 
 
Net income per share   $ 4.10   $ 3.83   $ 2.63   $ 1.86   $ .19  
   
 
 
 
 
 
Cash dividends per common share   $ .480   $ .420   $ .385   $ .095   $  
Weighted average common shares outstanding—basic     106,015,869     99,745,825     95,895,338     71,844,895     64,380,000  
Weighted average common shares outstanding—diluted(1)     115,674,056     108,654,027     97,395,005     72,004,754     64,380,000  
 
  Year Ended December 31,
 
 
  2004
  2003
  2002
  2001
  2000
 
 
  (US$ in millions)

 
Consolidated Cash Flow Data:                                
Cash provided by (used for) operating activities   $ 802   $ (41 ) $ 128   $ 205   $ (527 )
Cash provided by (used for) investing activities     (841 )   101     (1,071 )   (175 )   (85 )
Cash provided by (used for) financing activities     (74 )   (102 )   1,295     (224 )   709  
 
  December 31,
 
  2004
  2003
  2002
  2001
  2000
 
  (US$ in millions)

Consolidated Balance Sheet Data:                              
Cash and cash equivalents   $ 432   $ 489   $ 470   $ 199   $ 423
Inventories(2)     2,636     2,867     2,407     1,368     1,311
Working capital     2,766     2,481     1,655     938     681
Total assets     10,907     9,884     8,349     5,443     5,854
Short-term debt, including current portion of long-term debt     681     1,017     1,499     983     1,522
Long-term debt     2,600     2,377     1,904     830     1,003
Redeemable preferred stock(3)         171     171     171     170
Common shares and additional paid in capital, net of receivable from former sole shareholder     2,362     2,011     1,945     1,631     1,303
Shareholders' equity   $ 3,375   $ 2,377   $ 1,472   $ 1,376   $ 1,139

22


 
  Year Ended December 31,
 
  2004
  2003
  2002
  2001
  2000
 
  (in millions of metric tons)

Other Data:                    
Volumes:                    
  Agribusiness   88.6   87.0   69.6   57.5   46.3
  Fertilizer   11.6   11.5   10.7   9.0   9.1
Food products:                    
  Edible oil products   4.7   4.1   2.0   1.6   1.5
  Milling products   4.0   3.5   3.3   3.3   2.9
  Other     0.1   0.2   0.1   0.1
Total food products   8.7   7.7   5.5   5.0   4.5
  Total volume   108.9   106.2   85.8   71.5   59.9

(1)
The calculation of diluted earnings per common share for the years ended December 31, 2004, 2003 and 2002 includes the 7,748,425 weighted average common shares that are issuable upon conversion of our 3.75% convertible notes due 2022 issued in November 2002. In November 2004, the Financial Accounting Standards Board (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 should be included in diluted earnings per share computations (if dilutive) regardless of whether the market price triggers (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. We have applied Issue No. 04-8 to our consolidated statements of income and have restated diluted earnings per share for the years ended December 31, 2003 and 2002.

(2)
Included in inventories were readily marketable inventories of $1,264 million, $1,846 million, $1,517 million, $764 million and $799 million at December 31, 2004, 2003, 2002, 2001 and 2000, respectively. 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.

(3)
These shares were redeemed in November 2004.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following should be read in conjunction with "Cautionary Statement Regarding Forward-Looking Statements" and our combined consolidated financial statements and notes thereto included as part of this Annual Report on Form 10-K.

Operating Results

Factors Affecting Operating Results

        Our results of operations are affected by the following key factors in each of our business divisions:

        In the agribusiness division, we purchase, process, store, transport and sell agricultural commodities, principally oilseed products. In this division, profitability is principally affected by the relative prices of oilseed products which are, in turn, influenced by global supply and demand for agricultural commodities and industry oilseed processing capacity utilization, and the volatility of the prices for these products. Profitability is also affected by energy costs, as we use a substantial amount of energy in the operation of our facilities, and by the availability and cost of transportation and logistics services, including truck, barge and rail services. Availability of agricultural commodities is affected by weather conditions, governmental trade policies and agricultural growing patterns, including

23


substitution by farmers of other agricultural commodities for soybeans and other oilseeds. Demand is affected by growth in worldwide consumption of food products and the price of substitute agricultural products. Global soybean meal consumption grew by approximately 5% per year on average over the last 20 years. We expect that population growth and rising standards of living will continue to have a positive impact on global demand for our agribusiness products.

        From time to time, there may be imbalances between industry-wide levels of oilseed processing capacity and demand for oilseed products. Prices for oilseed products are affected by these imbalances, which in turn affects demand for them and our decisions regarding whether and when to purchase, process, store, transport or sell these commodities, including whether to reduce our own oilseed processing capacity.

        In the fertilizer division, demand for our products is affected by the profitability of the Brazilian agricultural sector, agricultural commodity prices, international fertilizer prices, the types of crops planted, the number of acres planted and weather-related issues affecting the success of the harvest. For the past 13 years, the Brazilian fertilizer industry has grown on average at a rate of 9% per year. The continued growth of the Brazilian agricultural sector has had, and we expect will continue to have, a positive impact on demand for our fertilizer products. In addition, our selling prices are influenced by international selling prices for imported fertilizers and raw materials, such as phosphate, ammonia and urea, as our products are priced to import parity.

        In the food products division, which consists of our edible oil products and milling products segments, our operations are affected by competition, changes in eating habits and changes in general economic conditions in Europe, the United States and Brazil, the principal markets for our food products division, as well as the prices of raw materials such as crude vegetable oils and grains. Competition in this industry has intensified in the past several years due to consolidation in the supermarket industry and attempts by our competitors to increase market share. Profitability in this division is also affected by the mix of products that we sell.

        In addition, our results of operations are affected by the following factors:

        Translation of Foreign Currency Financial Statements.    Our reporting currency is the U.S. dollar. However, the functional currency of the majority of our foreign subsidiaries is their local currency. We translate the amounts included in the consolidated statements of income of our foreign subsidiaries into U.S. dollars on a monthly basis at weighted average exchange rates, which we believe approximates the actual exchange rates on the dates of the transactions. Our foreign subsidiaries' assets and liabilities are translated into U.S. dollars from local currency at year-end exchange rates, and we record the resulting foreign exchange translation adjustments in our consolidated balance sheets as a component of accumulated other comprehensive income (loss).

        Included in other comprehensive income for the year ended December 31, 2004 and 2003 were foreign exchange net translation gains of $217 million and $489 million, respectively, representing the net gains from the translation of our foreign subsidiaries' assets and liabilities. Included in other comprehensive income (loss) for the year ended December 31, 2002 were foreign exchange net translation losses of $403 million representing the net loss from the translation of our foreign subsidiaries' assets and liabilities.

24



        Foreign Currency Transactions.    Certain of our foreign subsidiaries, most significantly those in Brazil and Argentina, have monetary assets and liabilities that are denominated in U.S. dollars. These U.S. dollar monetary items are remeasured into their respective functional currencies at exchange rates in effect at the balance sheet date. The resulting gain or loss is included in our consolidated statements of income as foreign exchange gain or loss.

        Due to the global nature of our operations, our operating results are vulnerable to currency exchange rate changes. However, our inventory of agricultural commodities, because of their international pricing in U.S. dollars, provides a natural hedge to our exposure to fluctuations in currency exchange rates. In addition, historically, our fertilizer and food products divisions also have been able to link sales prices to those of U.S. dollar-linked imported raw material costs, thereby minimizing the effect of currency exchange rate fluctuations in those segments.

        Argentina and Brazil.    The volatility of the Argentine peso and Brazilian real affects our financial performance. Devaluations of these currencies against the U.S. dollar generally have a positive effect on our results, as local currency-denominated costs are translated to U.S. dollars at weaker real or peso to U.S. dollar exchange rates resulting in lower U.S. dollar costs. In addition, commodity inventories in our agribusiness segment are stated at market value, which is generally linked to U.S. dollar-based international prices. As a result, devaluations cause gains based on the changes in the local currency value of the agribusiness inventories. Conversely, 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 foreign exchange losses in our consolidated statements of income. 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 on certain intercompany loans.

        Appreciations generally have a corresponding negative effect on our results when local currency costs are translated to U.S. dollars at stronger real or peso to U.S. dollar exchange rates and losses are generated based on changes in the local currency value of our agribusiness segment commodity inventories. Conversely, the appreciation of the real and peso generates offsetting net foreign exchange gains on the net U.S. dollar monetary position of our Brazilian and Argentine subsidiaries, which are reflected in foreign exchange gains in our consolidated statements 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 on certain intercompany loans. However, as management deems prudent, we use derivative instruments to offset the foreign exchange gains on intercompany loans, which reduces the income tax expense resulting from the appreciation of the Brazilian real.

        The real appreciated 9% and the peso devalued 2%, against the U.S. dollar in the year ended December 31, 2004, compared to an appreciation of the real and peso of 22% and 15%, respectively, in the same period in 2003.

        We use long-term intercompany loans to reduce our exposure to foreign currency fluctuations in Brazil, particularly their effects on our results of operations. These loans do not require cash payment of principal and are treated as analogous to equity for accounting purposes. As a result, the foreign exchange gains or losses on these intercompany loans are recorded in other comprehensive income (loss) in contrast to foreign exchange gains or losses on third-party debt and short-term intercompany debt, which are recorded in foreign exchange gains (losses) in our consolidated statements of income.

        European Operations.    We operate in countries that are members of the European Union and several countries that are not members of the European Union. Our risk management policy is to fully hedge our monetary exposures in those countries to minimize the financial effects of fluctuations in the euro and other European currencies.

25



        In 2004, we acquired the remaining 17% of the outstanding capital stock of Bunge Brasil that we did not already own for $314 million in cash. As a result of the acquisition, we now own 100% of Bunge Brasil and its subsidiaries, Bunge Alimentos S.A. and Bunge Fertilizantes S.A. We have consolidated the operating results of these entities since 1997. We accounted for the acquisition under the purchase method as a step acquisition of minority interest.

Income Taxes

        As a Bermuda exempted company, we are not subject to income taxes in our jurisdiction of incorporation. However, our subsidiaries, which operate in multiple tax jurisdictions, are subject to income taxes at various statutory rates.

        In 2003, the sale of our Brazilian soy ingredients business to Solae for a gain of $111 million did not result in taxable income and therefore no income tax was provisioned.

        We have obtained tax benefits under U.S. tax laws providing tax incentives on export sales from the use of a U.S. Foreign Sales Corporation, or FSC, through 2001. Beginning in 2002, due to the repeal of the FSC-related legislation, we were required to use the tax provisions of the Extraterritorial Income Act (ETI) legislation, which were substantially similar to the FSC-related legislation. The U.S. Congress has recently passed, and the President has signed, the American Jobs Creation Act of 2004 that ultimately repeals the ETI benefit. Under the new legislation, the ETI will be phased out with 100% of the otherwise available ETI benefit retained for 2004, 80% of the ETI benefit retained for 2005, 60% of the ETI benefit retained for 2006 and the ETI benefit phased out completely in 2007. The current tax legislation lowered our overall tax liabilities by approximately $17 million in 2004. The ETI benefit has been replaced with an income tax deduction intended to allocate benefits previously provided to U.S. exporters across all manufacturers when fully phased in. Although most of our U.S. operations qualify as "manufacturing," we expect that this new tax legislation will be less beneficial to us than the prior one primarily due to our U.S. tax position.

Inflation

        Inflation did not have a material impact on our business in 2004, 2003 or 2002.

Critical Accounting Policies and Estimates

        We believe that the application of the following accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. For a summary of all of our accounting policies, including the accounting policies discussed below, see Note 1 to our consolidated financial statements included in Part III of this annual report.

        We evaluate the collectibility of our trade accounts receivable and secured advances to farmers and record allowances for uncollectible accounts if we have determined that collection is doubtful. We base our determination of the allowance for uncollectible accounts on analyses of credit quality for specific accounts, historical trends of charge-offs and recoveries and market and other conditions. Different assumptions, changes in economic circumstances or the deterioration of the financial condition of our customers could result in additional provisions to the allowance for uncollectible accounts and an increase in bad debt expense.

26


        We evaluate the collectibility of our recoverable taxes and record valuation allowances if we determine that collection is doubtful. Recoverable taxes primarily 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 we may owe. We have recorded valuation allowances against certain recoverable taxes owed to us by the Argentine government due to uncertainty regarding the local economic environment. Management's assumption about the collectibility of recoverable taxes requires significant judgment because it involves an assessment of the ability and willingness of the Argentine government to refund the taxes. The balance of these allowances fluctuates depending on the sales activity of existing inventories, purchases 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 December 31, 2004 and 2003, our allowances for recoverable taxes in Argentina were $27 million and $25 million, respectively. We continue to monitor the economic environment and events taking place in Argentina and will adjust these reserves in the future depending upon significant changes in circumstances.

        To the extent we consider it prudent for minimizing risk, we use exchange-traded futures and options contracts to minimize the effect of price fluctuations on agricultural commodity transactions. The futures and options contracts that we use for hedging are purchased and sold through regulated commodity exchanges. We also manage risk by entering into fixed-price purchase contracts with pre-approved producers and establishing limits for individual suppliers. Fixed-price sales contracts are entered into with customers with acceptable creditworthiness, as determined by us. The fair values of futures and options contracts are determined primarily from quotes listed on the applicable commodity exchanges. Fixed-price purchase and sales contracts are with various counter-parties and the fair value of such contracts are determined from the market price of the underlying product. We are exposed to loss in the event of nonperformance by the counter-parties to these contracts. The risk of nonperformance is routinely monitored and provisions recorded if necessary to account for potential nonperformance. Different assumptions, changes in economic circumstances or the deterioration of the financial condition of the counter-parties to these contracts could result in additional provisions and increased expense reflected in cost of goods sold.

        Goodwill represents the excess of costs of businesses acquired over the fair market value of net tangible and identifiable intangible assets. Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), requires that goodwill be tested for impairment annually. In assessing the recovery of goodwill, projections regarding estimated discounted future cash flows and other factors are used to determine the fair value of the reporting units and the respective assets. These projections are based on historical data, anticipated market conditions and management plans. If these estimates or related projections change in the future, we may be required to record additional impairment charges. In the fourth quarter of 2004, we performed our annual impairment test and determined that there were no impairments of goodwill.

        Long-lived assets include property, plant and equipment and identifiable intangible assets. When facts and circumstances indicate that the carrying values of long-lived assets may be impaired, an evaluation of recoverability is performed by comparing the carrying value of the assets to the projected future cash flows to be generated by such assets. If it appears that the carrying value of our assets is

27


not recoverable, we recognize an impairment loss as a charge against results of operations. Our judgments related to the expected useful lives of long-lived assets and our ability to realize undiscounted cash flows in excess of the carrying amount of such assets are affected by factors such as the ongoing maintenance of the assets, changes in economic conditions and changes in operating performance. As we assess the ongoing expected cash flows and carrying amounts of our long-lived assets, changes in these factors could cause us to realize material impairment charges.

        In 2004, we recorded a pre-tax impairment charge in our agribusiness segment of $10 million relating to fixed assets in one of our Western European oilseed processing facilities and $7 million relating to certain of our North and South American edible oil facilities. Certain refining and packaging operations in our Western European oilseed processing facility are being closed and the North and South American edible oil facilities, which are older and less efficient, are being replaced by new facilities.

        We are a party to a large number of claims and lawsuits, primarily tax and labor claims in Brazil, arising in the normal course of business, and have accrued our estimate of the probable costs to resolve these claims. This estimate has been developed in consultation with in-house and outside counsel and is based on an analysis of potential results, assuming a combination of litigation and settlement strategies. Future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategies relating to these proceedings. For more information on tax and labor claims in Brazil, please see "Item 3. Legal Proceedings."

        We sponsor various pension and postretirement benefit plans. In connection with the plans, we make various assumptions in the determination of projected benefit obligations and expense recognition related to pension and postretirement obligations. Key assumptions include discount rates, rates of return on plan assets, asset allocations and rates of future compensation increases. Management develops its assumptions based on its experience and by reference to market related data. All assumptions are reviewed periodically and adjusted as necessary.

        In 2004, we lowered the weighted average discount rate assumption used to calculate projected benefit obligations under the plans from 6.0% at the September 30, 2003 measurement date to 5.7% at the September 30, 2004 measurement date, largely based on decreases in the market rates of U.S. Aa-rated corporate bonds with similar maturities. U.S.-based plans represent approximately 85% of total projected benefit obligations. The weighted average rate of return assumption on assets of funded plans declined from 8.4% to 8.0% as of the 2004 measurement date due to a reduction in the assumed rate of return for certain U.S.-based plans and the average targeted assumed asset allocations of 60% equity securities and 40% fixed income securities such as government and corporate debt securities for the significant plans.

        In 2004, we recognized an additional minimum pension liability, which reduced shareholders' equity by $2 million, net of tax benefit of $1 million due primarily to the reduction in the discount rate assumption. Future recognition of additional minimum pension liabilities will depend on the actual return on the plans' assets and the discount rate.

        A one percentage point decrease in the assumed discount rate on our defined benefit pension plans would increase annual expense and the projected benefit obligation by $4 million and $50 million, respectively. A one percentage point increase or decrease in the long-term return assumptions on our defined benefit pension plan assets would increase or decrease annual pension expense by $2 million.

28



        We record valuation allowances to reduce our deferred tax assets to the amount that we are likely to realize. We consider projections of future taxable income and prudent tax planning strategies to assess the need for and the size of the valuation allowances. If we determine that we can realize a deferred tax asset in excess of our net recorded amount, we decrease the valuation allowance, thereby increasing net income. Conversely, if we determine that we are unable to realize all or part of our net deferred tax asset, we increase the valuation allowance, thereby decreasing net income.

        Prior to recording a valuation allowance, our deferred tax assets were $856 million at December 31, 2004. However, we have recorded valuation allowances of $177 million as of December 31, 2004, primarily representing the uncertainty regarding the recoverability of certain net operating loss carryforwards.

Results of Operations

        Our agribusiness results for 2004 improved in most business lines and geographic regions compared to 2003. Effective freight and risk management and efficiency improvements in our logistics operations contributed to the improved results.

        Soybean prices were volatile during the first three quarters of 2004. Soybean prices began increasing in the third quarter of 2003 because of a poor U.S. crop and a 2004 South American soybean harvest that was unchanged compared to the prior year. However, the soybean market made a rapid transition from a period of shortage to one of ample supply during the third quarter of 2004 in response to the record 2004 soybean crop in the United States and forecasts of larger 2005 South American harvests compared to 2004. As a result, during the third quarter of 2004, soybean prices declined significantly to more normalized levels.

        Our agribusiness earnings are not directly tied to commodity prices, as segment operating profit is primarily determined by the relative difference between the price at which we buy commodities and the price at which we sell the derived commodity products, such as soybean meal and soybean oil, among other factors. We also minimize our exposure to price fluctuations through hedging transactions.

        Our agribusiness volumes in 2004 increased only 2% over 2003 as demand was hampered by record high commodity prices. However, the USDA is projecting an 8% increase in global soybean meal consumption in 2005. In addition, increased demand for biofuels in Europe, North America and Brazil should further stimulate demand for vegetable oil.

        Our fertilizer results in 2004 benefited from higher average selling prices for fertilizers. International selling prices for imported fertilizers and raw materials were higher than 2003, which helped to increase margins on locally produced fertilizer as it is priced to import parity.

        In our edible oil business, excluding the 2003 results of Lesieur which we sold in July 2003, our 2004 sales volumes increased primarily in North America and our operating profit increased in our softseed businesses in Eastern Europe.

29


    Segment Results

        In 2004, we reclassified certain consumer product lines from the agribusiness segment to the edible oil products segment. As a result, amounts for the year ended December 31, 2003 have been reclassified to conform to the current presentation.

        In the second quarter of 2003, we sold our Brazilian soy ingredients business to The Solae Company, our joint venture with DuPont. As a result, our "other (soy ingredients)" segment now reflects only the historical results of the soy ingredients business.

        A summary of certain items in our consolidated statements of income and volumes by reportable segment for the periods indicated is set forth below.

 
   
   
  Year Ended December 31,
 
 
  Year Ended December 31,
 
 
  Percent
Change

   
  Percent
Change

 
 
  2004
  2003
  2002
 
 
  (US$ in millions, except percentages)

 

Volumes (in thousands of metric tons):

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Agribusiness     88,619     86,962   2 %   69,606   25 %
Fertilizer     11,589     11,538       10,708   8 %
Edible oil products     4,728     4,100   15 %   1,946   111 %
Milling products     3,987     3,468   15 %   3,303   5 %
Other (soy ingredients)         140   (100 )%   226   (38 )%
   
 
     
     
  Total     108,923     106,208   3 %   85,789   24 %
   
 
     
     

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Agribusiness   $ 17,911   $ 16,224   10 % $ 10,483   55 %
Fertilizer     2,581     1,954   32 %   1,384   41 %
Edible oil products     3,872     3,184   22 %   1,279   149 %
Milling products     804     751   7 %   628   20 %
Other (soy ingredients)         52   (100 )%   108   (52 )%
   
 
     
     
  Total   $ 25,168   $ 22,165   14 % $ 13,882   60 %
   
 
     
     

Costs of goods sold:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Agribusiness   $ (16,975 ) $ (15,675 ) 8 % $ (9,700 ) 62 %
Fertilizer     (1,980 )   (1,581 ) 25 %   (1,091 ) 45 %
Edible oil products     (3,615 )   (2,900 ) 25 %   (1,128 ) 157 %
Milling products     (712 )   (670 ) 6 %   (551 ) 22 %
Other (soy ingredients)         (34 ) (100 )%   (74 ) (54 )%
   
 
     
     
  Total   $ (23,282 ) $ (20,860 ) 12 % $ (12,544 ) 66 %
   
 
     
     

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Agribusiness   $ 936   $ 549   70 % $ 783   (30 )%
Fertilizer     601     373   61 %   293   27 %
Edible oil products     257     284   (10 )%   151   88 %
Milling products     92     81   14 %   77   5 %
Other (soy ingredients)         18   (100 )%   34   (47 )%
   
 
     
     
  Total   $ 1,886   $ 1,305   45 % $ 1,338   (3 )%
   
 
     
     

30



Selling, general and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Agribusiness   $ (471 ) $ (332 ) 42 % $ (284 ) 17 %
Fertilizer     (197 )   (129 ) 53 %   (100 ) 29 %
Edible oil products     (157 )   (180 ) (13 )%   (134 ) 34 %
Milling products     (46 )   (43 ) 7 %   (51 ) (16 )%
Other (soy ingredients)         (7 ) (100 )%   (10 ) (30 )%
   
 
     
     
  Total   $ (871 ) $ (691 ) 26 % $ (579 ) 19 %
   
 
     
     

Foreign exchange gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Agribusiness   $ (17 ) $ 89       $ (171 )    
Fertilizer     (32 )   (20 )       9      
Edible oil products     5             3      
Milling products                      
Other (soy ingredients)         (1 )       3      
   
 
     
     
  Total   $ (44 ) $ 68       $ (156 )    
   
 
     
     
 
  Year Ended December 31,
  Year Ended December 31,
 
 
  Percent
Change

   
  Percent
Change

 
 
  2004
  2003
  2002
 
 
  (US$ in millions, except percentages)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Agribusiness   $ 21   $ 26   (19 )% $ 22   18 %
Fertilizer     50     53   (6 )%   36   47 %
Edible oil products     6     6       1   500 %
Milling products     3       100 %   2   (100 )%
Other (soy ingredients)                  
   
 
     
     
  Total   $ 80   $ 85   (6 )% $ 61   39 %
   
 
     
     

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Agribusiness   $ (111 ) $ (80 ) 39 % $ (67 ) 19 %
Fertilizer     (50 )   (35 ) 43 %   (46 ) (24 )%
Edible oil products     (32 )   (24 ) 33 %   (15 ) 60 %
Milling products     (8 )   (8 )     (10 ) (20 )%
Other (soy ingredients)         (2 ) (100 )%   (5 ) (60 )%
   
 
     
     
  Total   $ (201 ) $ (149 ) 35 % $ (143 ) 4 %
   
 
     
     

Segment operating profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Agribusiness   $ 358   $ 252   42 % $ 283   (11 )%
Fertilizer     372     242   54 %   192   26 %
Edible oil products     79     86   (8 )%   6   1,333 %
Milling products     41     30   37 %   18   67 %
Other (soy ingredients)         8   (100 )%   22   (64 )%
   
 
     
     
  Total(1)   $ 850   $ 618   38 % $ 521   19 %
   
 
     
     

31



Depreciation, depletion and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Agribusiness   $ 89   $ 77   16 % $ 75   3 %
Fertilizer     70     57   23 %   56   2 %
Edible oil products     41     37   11 %   18   106 %
Milling products     12     13   (8 )%   9   44 %
Other (soy ingredients)               10   (100 )%
   
 
     
     
  Total   $ 212   $ 184   15 % $ 168   10 %
   
 
     
     
Net income   $ 469   $ 411   14 % $ 255   61 %
   
 
     
     

(1)
Total segment operating profit is our consolidated income from continuing operations before income tax and minority interest that includes an allocated portion of the foreign exchange gains and losses relating to debt financing operating working capital, including readily marketable inventories. Also included in total segment operating profit is an allocation of interest income and interest expense attributable to the financing of operating working capital.

        Total segment operating profit is a non-GAAP measure and is not intended to replace income from continuing operations before income tax and minority interest, the most directly comparable GAAP measure. Total segment operating profit is a key performance measurement used by our management to evaluate whether our operating activities cover the financing costs of our business. We believe total segment operating profit is a more complete measure of our operating profitability, since it allocates foreign exchange gains and losses and the cost of debt financing working capital to the appropriate operating segments. Additionally, we believe total segment operating profit assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses before non-operating factors that affect net income. Total segment operating profit is not a measure of consolidated operating results under GAAP and should not be considered as an alternative to income from continuing operations before income tax and minority interest or any other measure of consolidated operating results under GAAP.

        Below is a reconciliation of income from continuing operations before income tax and minority interest to total segment operating profit:

 
  Year Ended
December 31,

 
  2004
  2003
  2002
 
  (US$ in millions)

Income from continuing operations before income tax and minority interest   $ 904   $ 723   $ 481
Unallocated (income) expense—net(1)     (54 )   6     40
Gain on sale of soy ingredients business         (111 )  
   
 
 
Total segment operating profit   $ 850   $ 618   $ 521
   
 
 

(1)
Unallocated (income) expense—net includes interest income, interest expense, foreign exchange gains and losses and other income and expense not directly attributable to our operating segments.

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2004 Compared to 2003

        Agribusiness Segment.    Agribusiness segment net sales increased 10% due to higher average selling prices for soy commodity products and a 2% increase in volumes. Selling prices for soy commodity products increased compared to last year primarily due to the shortage associated with the reduced 2003/2004 U.S. soybean crop. Prices of our softseed products also increased following the trend of soybean product prices. Volume increases were driven mainly by higher origination volumes in North America and South America.

        Cost of goods sold increased 8% due to higher raw material costs, increased volumes and provisions related to the values of certain forward sales contracts for agricultural commodity products due to nonperformance by counter-parties. Included in cost of goods sold in 2004 were $10 million of non-cash impairment charges on long-lived assets and $7 million of restructuring charges relating to our Western European oilseed processing operations. Included in cost of goods sold in 2003 were $56 million of non-cash impairment charges on long-lived assets in our European oilseed processing operations, a $39 million decline in our allowance for recoverable taxes as a result of either cash received by us or compensation against taxes owed by us to the Argentine government and a curtailment gain of $15 million relating to the reduction of pension and postretirement healthcare benefits of certain U.S. employees.

        Gross profit increased 70% due to improvements in margins which resulted from effective freight and risk management, strong softseed profitability, efficiency improvements in logistics and higher volumes.

        Selling, general and administrative expenses (SG&A) increased 42% primarily due to increases in bad debt expense associated with higher commodity prices, increased variable employee compensation expense relating to the improved financial results, increased legal and tax provisions and an increase in the work force in our international marketing business. SG&A in 2003 benefited from a $5 million curtailment gain relating to certain postretirement healthcare benefit plans.

        Foreign exchange losses for 2004 were $17 million compared to foreign exchange gains of $89 million in 2003. Through the first six months of 2004, the Brazilian real devalued against the U.S. dollar, resulting in exchange losses on our U.S. dollar net monetary liability position in Brazil. Our U.S. dollar monetary exposure in Brazil is typically at its highest level during the first half of the year. During the second half of 2004, the Brazilian real appreciated, resulting in exchange gains on our U.S. dollar net monetary liability position in Brazil. However, the exposure to the U.S. dollar was lower and thus the related exchange gains recorded in the second half of 2004 were not enough to offset the exchange losses recorded through the first six months of 2004. The exchange gains in 2003 resulted from the appreciation of the Brazilian real. Foreign exchange gains and losses are substantially offset by inventory mark-to-market adjustments, which are included in cost of goods sold.

        Interest expense increased 39% primarily due to higher average levels of operating working capital, as a result of the higher commodity prices experienced during most of the year.

        Segment operating profit increased 42% primarily due to the improvements in margins and volume growth.

        Fertilizer Segment.    Fertilizer segment net sales increased 32% due to higher average selling prices. Selling prices benefited from higher international selling prices for imported fertilizers and raw materials, which helped increase local sales prices as local fertilizer products are priced to import parity. Although volumes in 2004 were flat versus 2003, retail fertilizer sales volumes increased 7% as a result of a slight increase in market share. However, the retail fertilizer volume growth in 2004 was offset by a decrease in sales volumes of lower margin fertilizer byproducts, such as gypsum.

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        Cost of goods sold increased 25% due to higher imported raw material costs mitigated in part by lower local production costs as we are able to source much of our raw materials from our own mines.

        Gross profit increased 61% as a result of higher fertilizer selling prices, partially offset by increases in imported raw material costs.

        SG&A increased 53% primarily due to bad debt provisions associated with the higher selling prices, increases in employee compensation expense because of higher salaries and certain other labor and legal provisions. In addition, 2003 benefited from non-recurring credits relating to social health and welfare taxes in Brazil and lower bad debt expense.

        Segment operating profit increased 54% primarily due to the increase in gross profit, partially offset by the increase in SG&A, higher foreign exchange losses as a result of costs associated with managing foreign exchange exposure and higher interest expense associated with increases in working capital levels.

        Edible Oil Products Segment.    The table below outlines our edible oil products segment results for 2004 and 2003. The results for 2003 include the results of Lesieur, a French bottled oil producer, which we sold to our Saipol joint venture in July 2003. In addition, for comparative purposes, the 2003 results of our edible oil products segment excluding Lesieur and the results of Lesieur alone are also presented.

 
  Year Ended December 31,
  Year Ended December 31,
 
 
  2003
   
 
 
  2004
  2003
  2003
 
 
  Excluding
Lesieur

 
 
  Actual
  Actual
  Lesieur
 
 
  (US$ in millions, except volumes)

 
Volumes (in thousands of metric tons)     4,728     4,100     3,845     255  
Net sales   $ 3,872   $ 3,184   $ 2,909   $ 275  
Cost of goods sold     (3,615 )   (2,900 )   (2,660 )   (240 )
   
 
 
 
 
Gross profit     257     284     249     35  
Selling, general and administrative expenses     (157 )   (180 )   (158 )   (22 )
Foreign exchange gain     5              
Interest income     6     6     6      
Interest expense     (32 )   (24 )   (22 )   (2 )
   
 
 
 
 
  Segment operating profit   $ 79   $ 86   $ 75   $ 11  
   
 
 
 
 

        Edible oil products segment net sales, excluding Lesieur, increased 33% primarily due to a 23% increase in sales volumes and higher average selling prices. Increases in selling prices were primarily due to higher raw material costs, principally crude soybean oil. The increase in soybean oil prices also resulted in higher selling prices for other softseed products as they follow the trend of soybean oil prices primarily in North America and Eastern Europe. Volumes increased primarily in North America as a result of stronger demand.

        Cost of goods sold, excluding Lesieur, increased 36% primarily due to increases in sales volumes and higher raw material costs. Included in cost of goods sold in 2004 were $7 million of impairment charges relating to write-downs of certain refining and packaging facilities in our North and South American edible oil operations and in 2003, a $1 million curtailment gain relating to certain postretirement healthcare benefit plans.

        Gross profit, excluding Lesieur, increased 3% primarily due to increases in sales volumes and margin expansion in Eastern Europe and Canada as a result of the higher average selling prices. In

34



Europe and Canada, softseed product selling prices increased in response to higher soy commodity prices.

        SG&A, excluding Lesieur, decreased 1% primarily due to lower marketing expenses. SG&A in 2003 benefited from a $1 million curtailment gain relating to certain postretirement healthcare benefit plans.

        Segment operating profit, excluding Lesieur, increased 5% primarily due to the improvement in gross profit margins and increases in sales volumes.

        Milling Products Segment.    Milling products segment net sales increased 7% primarily due to a 15% increase in sales volumes. Corn milling volumes increased primarily due to higher sales to U.S. commercial customers, higher sales under the U.S. government food aid program and the addition of a corn milling facility acquired in the latter half of 2003. The increase in wheat milling volumes was primarily due to the addition of our industrial flour business which resulted from the asset exchange of Bunge's Brazilian retail flour assets for J. Macêdo S.A.'s industrial flour assets and $7 million in cash in March 2004.

        Cost of goods sold increased 6% due to the increase in sales volumes and higher raw material costs. Gross profit increased 14% primarily due to the increase in sales volumes.

        Segment operating profit increased by 37% as a result of the improvement in gross profit.

        Consolidated Financial Costs.    The following is a summary of consolidated financial costs for the periods indicated:

 
  Year Ended December 31,
   
 
 
  Percent
Change

 
 
  2004
  2003
 
 
  (US$ in millions, except percentages)

 
Interest income   $ 103   $ 102   1 %
Interest expense     (214 )   (215 )  
Foreign exchange gains (losses)     (31 )   92      

        Included in interest income for 2004 was $10 million of interest income earned on the cash invested in Brazil from the net proceeds of the June 2004 public equity offering, which was used in the third and fourth quarters of 2004 to acquire the remaining equity interest in Bunge Brasil that we did not already own. Excluding this $10 million, interest income decreased 9% due to lower interest rates earned on invested cash in Brazil, partially offset by an increase in the average balance of invested cash. Interest expense decreased $1 million primarily due to lower interest rates on our debt portfolio and $14 million of benefits from interest rate hedges, partially offset by higher average borrowings.

        Foreign exchange losses of $31 million included costs associated with managing foreign exchange exposure related to our monetary exposure in Brazil and exchange losses on our Brazilian-U.S. dollar net monetary liability position primarily due to the 7% devaluation of the Brazilian real in the first six months of 2004. The first half of the year is usually when our U.S. dollar net monetary liability exposure in Brazil is at its highest level because of our acquisition of crops harvested in April, May and June. During the six months ended December 31, 2004, the Brazilian real appreciated 17% resulting in exchange gains on the U.S. dollar net monetary liability position in Brazil in that period. However, the exposure to the U.S. dollar was lower and thus the related exchange gains recorded in the six months ended December 31, 2004 were not enough to offset the exchange losses recorded in the first six months of 2004. The 8% appreciation in the value of the euro during 2004 also resulted in exchange gains on our European-U.S. dollar monetary liability position. The exchange gains in 2003 resulted from the 22% appreciation in the value of the Brazilian real versus the U.S. dollar and a gain on a net

35



U.S. dollar-denominated monetary asset in Argentina. Foreign exchange gains and losses are substantially offset by inventory marked-to-market adjustments, which are included in cost of goods sold.

        Other Income (Expense)—net.    Other income (expense)—net increased $12 million to $31 million in 2004 from $19 million of income in 2003 primarily due to $10 million of gains on interest rate derivatives and the pre-tax gain of $5 million on the asset exchange transaction with J. Macêdo, offset by a decrease in our earnings from Solae. Solae's results declined primarily due to lower margins on product sales caused by the high commodity costs that existed during most of 2004.

        Income Tax Expense.    Income tax expense increased $88 million to $289 million in 2004 from $201 million in 2003 primarily due to an increase in pretax income. Our annual effective tax rate for 2004 was 32%, compared to an annual effective tax rate of 28% in 2003. Excluding the tax-free gain on the sale of our Brazilian soy ingredients business to Solae, the 2003 annual effective tax rate was 33%. The primary cause of the decrease in the effective tax rate was due to increased earnings in 2004 in lower tax jurisdictions.

        Minority Interest.    Minority interest expense increased $42 million to $146 million in 2004 from $104 million in 2003 primarily due to increased earnings at our less than wholly owned subsidiaries.

        Net Income.    Net income increased $58 million to $469 million in 2004 from $411 million in 2003. Net income for 2004 included $15 million of after tax impairment and restructuring charges on long-lived assets in Europe and a $3 million after tax gain on the asset exchange transaction with J. Macêdo. Net income for 2003 included the $111 million gain on the asset sale of our Brazilian soy ingredients business to Solae, an after tax gain of $16 million relating to the curtailment of certain pension and postretirement healthcare benefit plans, $40 million of after tax impairment charges on long-lived assets in Europe and a loss on discontinued operations of $7 million related to operations we sold in 2003.

2003 Compared to 2002

        Fiscal 2003 was the first full year of combined operations with Cereol, which we acquired in October 2002. We increased sales volumes and net sales between 2003 and 2002 primarily due to the Cereol acquisition and through organic growth.

        Agribusiness Segment.    Agribusiness segment net sales increased 55% due to a 25% increase in volumes and higher average selling prices for soy commodity products. Volumes increased 10% due to organic growth and 15% due to the acquisition of Cereol. Soy commodity product prices increased sharply during the third and fourth quarters of 2003 driven by the reduced U.S. soybean crop. Heightened concerns relating to mad cow disease late in the fourth quarter of 2003 also contributed to price increases.

        Cost of goods sold increased 62% in 2003 from 2002 due to the increased volumes, increased raw material costs due to the tight 2002/2003 United States old crop carryover, higher energy costs due to increases in gas prices and the October 2002 acquisition of Cereol. Cost of goods sold in 2003 reflected commodity inventory marked-to-market losses in our Brazilian and Argentine subsidiaries that resulted from the appreciation of the real and peso of 22% and 15%, respectively, versus a devaluation of 34% and 51%, respectively, in 2002 which resulted in marked-to-market gains. Included in cost of goods sold in 2003 were $56 million of non-cash impairment charges on long-lived assets in our European oilseed processing operations, a $39 million decline in our allowances for recoverable taxes as a result of either cash received by us or compensation against taxes owed by us to the Argentine government and a curtailment gain of $15 million relating to the reduction of pension and postretirement healthcare benefits of certain U.S. employees. Cost of goods sold in 2002 included a $44 million charge relating to reserves for recoverable taxes from the Argentine government.

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        Gross profit in 2003 decreased 30% due to the increase in cost of goods sold. Agribusiness gross profit through the third quarter of 2003 lagged behind the prior year primarily because of weaknesses in North American and European oilseed processing margins and a return to more normal margins in South America. These results were offset in part by improved margins in the fourth quarter of 2003 relating to effective risk management strategies, including ocean freight results. The decline in gross profit was more than offset by changes in the foreign exchange results from a loss of $171 million in 2002 to a gain of $89 million in 2003 on the net monetary U.S. dollar liability positions of our Brazilian and Argentine subsidiaries.

        SG&A increased 17% in 2003 primarily due to our acquisition of Cereol and higher costs associated with the increase in sales volumes. Also included in SG&A in 2003 was a non-cash curtailment gain of $5 million, relating to the reduction of pension and postretirement healthcare benefit liabilities for employees transferred to Solae and the reduction of pension and postretirement healthcare benefit of certain U.S. employees.

        Segment operating profit declined 11% primarily due to the decrease in gross profit and increase in SG&A partially offset by foreign exchange gains.

        Fertilizer Segment.    Fertilizer segment net sales increased 41% due to higher average selling prices and an 8% increase in volumes. Selling prices benefited from higher international selling prices for imported fertilizers and raw materials, such as phosphate, ammonia and urea, which helped boost local prices as products are priced to import parity. International selling prices of phosphate, ammonia and urea increased 23%, 47% and 58%, respectively, during 2003. Our sales of retail fertilizer products were robust, as South American farmers increased their plantings of soybeans in reaction to higher soybean prices. Our nutrient sales volumes increased 20% due to the increased demand for fertilizer raw materials.

        Cost of goods sold increased 45% due to higher sales volumes and imported raw material costs. However, the higher costs of imported raw materials were mitigated by our subsidiary, Fosfertil's, lower raw material costs since Fosfertil produces urea from raw materials not linked to international natural gas prices. Gross profit increased 27% as a result of higher fertilizer selling prices and volumes offset partially by increases in imported raw material costs and the sale of lower margin products.

        SG&A increased 29% due to certain labor contingencies, increases in information technology and institutional advertising expenses, appreciation in the value of the Brazilian real and increases in transactional taxes.

        Segment operating profit increased 26% primarily due to the increase in gross profit. 2002 included an extra month of segment operating profit of $5 million from Fosfertil, which had been reporting its results one month in arrears.

        Edible Oil Products Segment.    Edible oil products segment net sales increased 149% primarily due to a 111% increase in volumes as a result of the Cereol acquisition and 4% organic growth in our South American operations.

        Cost of goods sold increased 157% in 2003 from 2002 primarily due to the Cereol acquisition and higher raw material costs, principally crude soybean oil. Included in cost of goods sold in 2003 was a non-cash curtailment gain of $1 million relating to the reduction of pension and postretirement healthcare benefits of certain U.S. employees. Included in 2002 was a $5 million non-cash impairment charge on U.S. long-lived operating assets attributable to the planned disposal of a bottling facility. Gross profit increased 88% primarily due to the Cereol acquisition and a recovery of margins in our North and South American operations, principally in margarines and mayonnaise attributable to new branding and packaging strategies as well as portfolio rationalization measures.

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        SG&A increased 34% due to the Cereol acquisition, partially offset by our cost reduction efforts in our South American operations. In addition, in 2003, SG&A included a non-cash curtailment gain of $1 million, relating to the reduction of pension and postretirement healthcare benefits of certain U.S. employees.

        Segment operating profit increased by $80 million primarily due to the Cereol acquisition and efficiency/cost reduction programs in North America and Brazil.

        Milling Products Segment.    Milling products segment net sales increased 20% due to higher average selling prices for wheat and corn milling products and a 5% increase in volumes. The increase in average selling prices was primarily due to higher raw material costs.

        Cost of goods sold increased 22% due to higher wheat costs. Included in cost of goods sold in 2003 was a non-cash curtailment gain of $1 million, relating to the reduction of pension and postretirement healthcare benefits of certain U.S. employees. Gross profit increased 5% as a result of the higher average selling prices and volumes.

        SG&A decreased 16% due to cost savings programs. In addition, in 2003, SG&A included a non-cash curtailment gain of $1 million relating to the reduction of pension and postretirement healthcare benefits of certain U.S. employees.

        Segment operating profit increased 67% as a result of the improvement in gross profit, lower SG&A and the October 2003 acquisition of a corn mill in the United States.

        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.

        Consolidated Financial Costs.    A summary of consolidated financial costs for the periods indicated follows:

 
  Year Ended December 31,
 
 
  2003
  2002
  Percent
Change

 
 
  (US$ in millions, except percentages)

 
Interest income   $ 102   $ 71   44 %
Interest expense     (215 )   (176 ) 22 %
Foreign exchange gain (loss)     92     (179 )    

        Interest income increased 44% in 2003 due to interest income on higher invested cash in Brazil where interest rates are higher. 2002 also included $6 million of interest income resulting from the completion of a tax examination relating to tax benefits associated with U.S. export sales. Interest expense increased 22% 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 in May 2003 and December 2003, we issued long-term debt at relatively higher interest rates to reduce our reliance on short-term debt and finance the repayment of a portion of long-term debt coming due.

        Foreign exchange gains were $92 million in 2003 compared to losses of $179 million in 2002 due primarily to the 22% appreciation in the value of the Brazilian real in 2003 against the U.S. dollar. In contrast, in 2002 the value of the Brazilian real declined by 34% resulting in foreign exchange losses.

        Other Income (Expense)—net.    Other income (expense)—net increased $13 million to $19 million in 2003 from $6 million of income in 2002 primarily due to higher earnings from our joint ventures in Argentina and the Saipol joint venture acquired in the acquisition of Cereol.

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        Income Tax Expense.    Income tax expense increased $97 million to $201 million in 2003 from $104 million in 2002 primarily due to the increase in pretax income. Our effective tax rate for 2003 increased to 28% compared to 22% in 2002. Excluding the tax-free gain on sale of Bunge's Brazilian soy ingredients business to Solae, the 2003 effective tax rate was 33%. Our effective tax rate is affected by the geographic locations in which we do business, movements in foreign exchange rates and U.S. tax incentives on export sales. The primary causes of the increased effective tax rate in 2003 were the effect of a stronger Brazilian real, and increased net tax expense of $23 million due to new tax laws in South America and reduced tax benefits on U.S. export sales. In 2002, our income tax expense was reduced by a $20 million tax credit relating to the refund of prior years' tax benefits on U.S. export sales.

        Net Income.    Net income increased $156 million to $411 million in 2003 from $255 million in 2002. Net income for 2003 includes the $111 million gain on sale of our Brazilian soy ingredients business to Solae. Net income for 2003 also included an after tax gain of $16 million relating to the curtailment of certain pension and postretirement healthcare benefit plans and $40 million of after tax impairment charges on long-lived assets in Europe.

        In 2003, discontinued operations included a loss of $7 million, which included an environmental expense of $3 million, net of tax, related to discontinued operations we sold in 1995 and a $2 million, net of tax gain, on the U.S. bakery business sold in December 2003. In 2002, discontinued operations included income of $3 million related to the 2003 bakery sale.

        Net income in 2002 included $5 million of after tax impairment charges on long-lived assets and 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 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

        Our primary financial objective is to maintain sufficient liquidity through a conservative balance sheet that provides flexibility to pursue our growth objectives. Our current ratio, defined as current assets divided by current liabilities, was 1.71 and 1.63 at December 31, 2004 and 2003, respectively.

        Cash and Readily Marketable Inventories.    Cash and cash equivalents were $432 million at December 31, 2004 and $489 million at December 31, 2003.

        Included in our inventories were readily marketable inventories of $1,264 million at December 31, 2004 and $1,846 million at December 31, 2003. Readily marketable inventories are agricultural commodity inventories, financed primarily with debt, which are readily convertible to cash because of their commodity characteristics, widely available markets and international pricing mechanisms. The decrease in readily marketable inventories was primarily due to lower levels of inventory and a decrease in commodity prices compared to December 31, 2003.

        Secured Advances to Suppliers and Prepaid Commodity Contracts.    We provide financing services to farmers from whom we purchase soybeans and other agricultural commodities through prepaid commodity purchase contracts and advances to farmers. These arrangements are typically secured by the farmer's crop and mortgages on the farmer's land and other assets, carry a market interest rate, and are typically settled through the delivery of the related crop to us upon harvest. At December 31, 2004, we had $932 million in prepaid commodity purchase contracts and advances to farmers compared to $611 million at December 31, 2003. The increase is primarily due to the growth in Brazilian crop production and higher cost of fertilizer, seed, crop chemicals and other inputs. The allowance for uncollectible advances totaled $43 million and $31 million at December 31, 2004 and 2003.

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        Long-Term and Short-Term Debt.    We conduct most of our financing activities through a centralized financing structure, designed to act as our central treasury, which enables us and our subsidiaries to borrow long-term and short-term debt more efficiently. This structure includes a master trust facility, the primary assets of which consist of intercompany loans made to Bunge Limited and its subsidiaries. Bunge Limited's wholly owned financing subsidiaries fund the master trust with long and short-term debt obtained from third parties, including through our commercial paper program.

        To finance working capital, we use cash flows generated from operations and short-term borrowings, including our commercial paper program, and various long-term bank facilities and bank credit lines, which are sufficient to meet our business needs. At December 31, 2004, we had approximately $1,900 million of committed borrowing capacity under our commercial paper program, other short-term lines of credit and long-term credit facilities, all of which are with a number of lending institutions. Of this committed capacity, $1,496 million was unused and available at December 31, 2004. In June 2004, we renewed our $460 million three-year U.S. revolving credit facility, increasing the facility to $850 million with a five-year term. In addition, in July 2004 we renewed our $455 million European revolving credit facility with a one-year term.

        At December 31, 2004, we had $401 million outstanding under our commercial paper program. Our commercial paper program is our least expensive available short-term funding source. We maintain back-up bank credit lines equal to the maximum capacity of our commercial paper program of $600 million. In June 2004, we renewed these lines for a three-year term expiring in June 2007. If we were unable to access the commercial paper market, we would use these bank credit lines, which would be at a higher cost than our commercial paper. At December 31, 2004, no amounts were outstanding under these back-up bank credit lines.

        Our short-term and long-term debt decreased by $113 million at December 31, 2004 from December 31, 2003 primarily due to repayments from cash flows provided by operations.

        In April 2004, we completed an offering of $500 million aggregate principal amount of unsecured senior notes bearing interest at a rate of 5.35% per year that mature in April 2014. The notes were issued by our wholly owned finance subsidiary, Bunge Limited Finance Corp. and are fully and unconditionally guaranteed by us. Interest on these unsecured senior notes is payable semi-annually in arrears in April and October of each year, commencing in October 2004. We used the net proceeds of this offering of $496 million for the repayment of other outstanding indebtedness.

        Through our subsidiaries, we have various other long-term debt facilities at fixed and variable interest rates denominated in both U.S. dollars and Brazilian reais, most of which mature between 2005 and 2008. At December 31, 2004, we had $383 million outstanding under these long-term debt facilities. Of this amount, at December 31, 2004, $178 million was secured by certain land, property, plant and equipment and investments in our consolidated subsidiaries, having a net carrying value of $633 million.

        Our credit facilities and certain senior notes require us to comply with specified financial covenants related to minimum net worth, working capital and a maximum debt to capitalization ratio. We were in compliance with these covenants as of December 31, 2004.

        We do not have any ratings downgrade triggers that would accelerate the maturity of our debt. However a downgrade in our credit ratings could adversely affect our ability to renew existing or to obtain access to new credit facilities in the future and would increase the cost of such facilities to us.

        Our credit ratings on our unsecured guaranteed senior notes by Moody's Investors Service, Inc. (Moody's) at December 31, 2004 were "Baa3" with "outlook positive," and "BBB" by Standard & Poor's Rating Services and Fitch Rating Services. Our commercial paper is rated "A-1" by Standard & Poor's Rating Services, and "P-1" by Moody's Investors Service, Inc. and the interest rates on our commercial paper borrowings are indexed to this rating. On March 7, 2005, Moody's upgraded our credit rating on our unsecured guaranteed senior notes to "Baa2—outlook stable."

40



        In June 2004, we entered into various interest rate swap agreements maturing in 2008 and 2014 for the purpose of managing our interest rate exposure on a portion of our fixed rate debt. In September 2004, these interest rate swaps were terminated and we received cash of $60 million, comprised of $8 million of accrued interest and a $52 million gain on the net settlement of the interest rate swap agreements. The $8 million of interest was included as a reduction to interest expense in 2004 in the consolidated statements of income and the $52 million gain resulted in an adjustment to the carrying value of the associated debt in the consolidated balance sheets. The $52 million gain will be amortized to earnings over the remaining term of the debt, which ranges from four to nine years. The $60 million of cash received was included in the consolidated statements of cash flows as cash provided by operating activities.

        Concurrent with the September 2004 termination of certain of our interest rate swap agreements, we entered into new interest rate swap agreements maturing in 2008 and 2014 for the purpose of managing our interest rate exposure on a portion of our fixed rate debt. Under the terms of the new interest rate swaps, we make payments based on six-month LIBOR in arrears, and we will receive fixed interest rates based on our $500 million aggregate principal amount 5.35% senior notes due 2014 and our $500 million aggregate principal amount 4.375% senior notes due 2008. The interest rate swaps settle every six months until expiration. Accrued interest of $6 million relating to these swaps was recorded as a reduction to interest expense in 2004 in the consolidated statements of income.

        Redeemable Preferred Stock.    Minority interest in subsidiaries on the consolidated balance sheets at December 31, 2003 included $170 million of cumulative variable rate redeemable preferred shares issued by our consolidated subsidiary, Bunge First Capital Limited. On November 1, 2004 we redeemed the preferred shares for their face value of $170 million plus accrued dividends of $1 million.

        Shareholders' Equity.    In June 2004, we sold 9,775,000 common shares in a public offering, which resulted in net proceeds of $331 million, after underwriting discounts, commissions and expenses. We used $314 million to acquire an additional 17% interest in the capital stock of Bunge Brasil in the third and fourth quarters of 2004.

        Shareholders' equity increased to $3,375 million at December 31, 2004 from $2,377 million at December 31, 2003 as a result of the net proceeds of $331 million from the public offering of common shares, net income of $469 million, other comprehensive income of $229 million, which includes foreign exchange gains of $217 million, and $20 million attributable to the issuance of our common shares upon the exercise of employee stock options and the vesting of restricted stock units. This increase was partially offset by dividends paid to shareholders of $51 million.

        We have issued or were party to the following third-party guarantees at December 31, 2004:

(US$ in millions)

  Maximum
Potential
Future
Payments

Operating lease residual values(1)   $ 69
Unconsolidated affiliates financing(2)     22
Customer financing(3)     166
   
Total   $ 257
   

(1)
Prior to January 1, 2003, we entered into synthetic lease agreements for barges and railcars originally owned by us and subsequently sold to third parties. The leases are classified as operating leases in accordance with SFAS No. 13, Accounting for Leases. Any gains on the sales were

41


    deferred and are being recognized ratably over the initial lease terms. We have 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 we elect to sell, we receive proceeds up to fixed amounts specified in the agreements. If the proceeds of such sales are less than the specified fixed amounts, we would be obligated under a guarantee to pay supplemental rent for the deficiency in proceeds up to a maximum of approximately $69 million at December 31, 2004. The operating leases expire through 2007. There are no recourse provisions or collateral that would enable us to recover any amounts paid under this guarantee.

(2)
Prior to January 1, 2003, we issued a guarantee to a financial institution related to debt of our joint ventures in Argentina, which are our unconsolidated affiliates. The term of the guarantee is equal to the term of the related financing, which matures in 2009. There are no recourse provisions or collateral that would enable us to recover any amounts paid under this guarantee.

(3)
We issued guarantees to a financial institution in Brazil related to amounts owed the institution by certain of our 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. In the event that the customers default on their payments to the institutions and we would be required to perform under the guarantees, we have obtained collateral from the customers. At December 31, 2004, $64 million of these financing arrangements were collateralized by tangible property. We have determined the fair value of these guarantees to be immaterial at December 31, 2004.

        In addition, we have issued parent level guarantees for the repayment of certain senior notes and senior credit facilities which were issued or entered into by our wholly owned subsidiaries, with a carrying amount of $2,278 million at December 31, 2004. All outstanding debt related to these guarantees is included in the consolidated balance sheets at December 31, 2004. There are no significant restrictions on the ability of Bunge Limited Finance Corp. or any of our other subsidiaries to transfer funds to us.

        Also, certain of our subsidiaries have provided guarantees of indebtedness of certain of their subsidiaries under certain lines of credit with various institutions. The total borrowing capacity under these lines of credit was $327 million as of December 31, 2004, of which $6 million was outstanding as of such date.

        Our capital expenditures were $437 million in 2004, $304 million in 2003 and $240 million in 2002. In 2004, major capital projects included the expansion of our Brazilian fertilizer mixing and phosphoric acid production capacity, expansion of our grain origination operations in Brazil (including additional investments in logistics), investments in export terminal operations in Argentina, expansion of our oilseed processing capacity in Eastern Europe and acquisitions of port facilities.

        In 2003, major projects included expansion of our edible oil products facilities in Europe, the construction of a new margarine plant and an oilseed processing plant in Brazil, logistics investments, primarily in Brazil, expansion of our grain origination facilities in Brazil and expansion of our fertilizer mixing capacity. In addition, we expanded our Indian operations through the buyout of a joint venture partner in India and the purchase of a small crushing and refining facility. In 2002, we completed upgrades to several of our oilseed processing and corn dry milling facilities in Brazil and the United States and the modernization of an acidulation plant for fertilizers in Brazil.

        Although we have no specific material commitments for capital expenditures, we intend to invest approximately $410 million to $460 million in 2005. The majority will be used to improve oilseed processing logistics and plant operating efficiencies in Europe, expand and upgrade our mining and port facilities in Brazil, expand or acquire grain origination facilities in the United States and Europe

42



and modernize certain of our edible oil refineries in the United States and Europe. We intend to fund these capital expenditures with cash flows from operations and available borrowings.

        2004 Compared to 2003.    In 2004, our cash and cash equivalents balance decreased by $57 million, reflecting the net impact of cash flows from operating, investing and financing activities, compared to a $19 million increase in our cash and cash equivalents balance in 2003.

        Cash flow provided by operating activities for 2004 was $802 million compared to cash used for operating activities of $41 million in 2003.

        Our cash flow from operations has varied depending on the timing of the acquisition of, and the market prices for, agricultural commodity inventories, as well as the timing of when such inventories were sold. In addition, the growth of our business has resulted in the need to increase working capital levels which reduces our cash flow from operations.

        The second and third quarters of the year are typically the periods when most of our cash flows from operations are provided. It is during this period that North American and European "old" crop inventories harvested and purchased in September, October and November of the previous year are at their lowest level. In addition, most of the South American inventories acquired during the March, April and May harvest period have been sold.

        Cash flows from operations during the first and fourth quarters will vary depending upon the amount of advances made to farmers in Brazil and the amount of North American and European "new" crops purchased during the September, October and November harvest period.

        Cash flow from operations in 2004 was favorably affected by the strong operating results and the return of soybean prices to more normalized levels in the latter part of the year. Soybean prices increased significantly beginning in the third quarter of 2003 and continued their increase into 2004. During the latter half of the third quarter of 2004, agricultural prices declined, which resulted in a reduction in working capital levels.

        Cash flow provided by operating activities for 2004 also included $60 million received from the net settlement of various interest rate derivatives entered into and terminated in 2004. Cash flow from operations for the 2003 included $57 million paid in connection with the settlement of an arbitration.

        Cash used by investing activities was $841 million 2004, compared to cash provided of $101 million in 2003. Investments in property, plant and equipment under our capital expenditure plan were $437 million for 2004. Of this amount, $136 million represented maintenance capital expenditures in 2004, compared to $98 million in 2003. Maintenance capital expenditures are expenditures made to replace existing equipment in order to maintain current production capacity and expenditures for equipment required to comply with environmental regulations. The majority of non-maintenance capital expenditures in the 2004 related to efficiency improvements to reduce costs, equipment upgrades and business expansion.

        During the third and fourth quarters of 2004, we acquired the remaining 17% interest in Bunge Brasil that we did not already own for $314 million in cash. In April 2004, we acquired the remaining 40% of Polska Oil, a Polish producer of bottled edible oils, for $27 million. In addition, we invested approximately $38 million in existing and new business joint ventures during 2004 primarily in South America and Eastern Europe and we loaned $14 million to our joint venture in Poland. Also included in cash flow from investing activities in 2004 is $7 million received in the asset exchange transaction with J. Macêdo.

        In 2003, we received net proceeds of $532 million from the sale of our Brazilian soy ingredients business to Solae, the sale of Lesieur to our Saipol joint venture and the sale of our U.S. bakery

43



operations. We used $23 million to acquire the remaining 2.62% of Cereol's outstanding shares we did not already own and we paid an additional purchase price of $42 million to Edison S.p.A., Cereol's former controlling shareholder, and Cereol's former public shareholders. In addition, in 2003, we acquired additional shares in Fosfertil for $84 million, and we completed certain smaller acquisitions in India and Eastern Europe having an aggregate purchase price of approximately $37 million. In 2003, we received $41 million relating to Lesieur's intercompany debt owed to us.

        Cash used for financing activities was $74 million in 2004, compared to cash used of $102 million in 2003. In 2004, we reduced our borrowings of short-term debt by using cash flow provided by operating activities. In April 2004, our wholly owned finance subsidiary, Bunge Limited Finance Corp., issued $500 million of unsecured senior notes, which are unconditionally guaranteed by us, for net proceeds of $496 million, and in June 2004, we sold 9,775,000 common shares in a public offering for net proceeds of $331 million. In November 2004, we redeemed preferred shares of a subsidiary for $170 million. Dividends paid to our shareholders in 2004 were $51 million.

        In 2003, we used cash flow from the net proceeds from the sales of businesses to reduce borrowings on short and long-term debt. In 2003, we issued $800 million of senior notes. In 2003, Mutual Investment Limited repaid in full a $55 million note owed to us. Dividends paid to our shareholders during 2003 were $42 million.

        2003 Compared to 2002.    In 2003, our cash and cash equivalents balance increased $19 million, reflecting the net impact of cash flows from operating, investing and financing activities, compared to a $271 million increase in our cash and cash equivalents balance in 2002.

        Our operating activities used cash of $41 million in 2003, compared to cash generated of $128 million in 2002. Through the third quarter of 2003, our cash flows provided by operations were $638 million. However, the increase in soy commodity market prices in the latter half of December 2003 resulted in significant farmer selling, which increased our use of cash that was needed to acquire inventories. Also reflected in the cash flow from operations was the $57 million paid in 2003 in connection with the settlement of an arbitration relating to the sale of Ducros by Cereol.

        Cash generated by investing activities was $101 million for 2003, compared to cash used of $1,071 million in 2002. Investments in property, plant and equipment of $304 million consisted primarily of additions under our normal capital expenditure plan. Of this amount, $98 million represented maintenance capital expenditures in 2003, compared to $117 million in 2002. Maintenance capital expenditures are expenditures made to replace existing equipment in order to maintain current production capacity. The majority of non-maintenance capital expenditures in 2003 related to efficiency improvements to reduce costs, equipment upgrades and business expansion. The increase in capital expenditures in 2003 over 2002 was primarily due to the acquisition of Cereol.

        In 2003, we received net proceeds of $532 million from the sale of our Brazilian soy ingredients business, Lesieur and our U.S. bakery operations. We also received $41 million relating to Lesieur's intercompany debt due us. We used $23 million to acquire the remaining 2.62% of Cereol's outstanding shares that we did not already own and we paid an additional purchase price of $42 million to Edison and Cereol's former public shareholders. In addition, in 2003, we acquired additional shares in Fosfertil for $84 million, and we completed certain smaller acquisitions in India and Eastern Europe having an aggregate purchase price of approximately $37 million. In 2002, we used cash of $741 million (net of cash acquired) to acquire Cereol and $94 million to acquire shares held by minority shareholders in connection with the corporate restructuring of our Brazilian subsidiaries and to acquire La Plata Cereal in Argentina.

        Cash used in financing activities was $102 million in 2003, compared to cash generated of $1,295 million in 2002. In 2003, we used cash flow from the net proceeds from the sales of businesses to reduce borrowings on short and long-term debt. In 2003, we issued $800 million of senior notes and,

44



in 2002, we issued $686 million of senior notes and $250 million of convertible notes. In 2003, Mutual Investment Limited repaid in full the $55 million note owed to us. Dividends paid to our shareholders during 2002 were $37 million. In 2002, we generated cash by selling common shares in a public offering for net proceeds of $293 million.

Recent Accounting Pronouncements

        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. We have applied EITF Issue No. 04-2 and the proposed FSP No. FAS 141-a and 142-a to our consolidated balance sheets beginning in the first quarter of 2004 and have 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 into 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. We have 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 superceded FSP No. FAS 106-1. FSP No. FAS 106-2 is effective for us 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. We have determined that the effects of the Act are not a significant event for us and not material to our financial position or results of operations. Using the guidance issued in January 2005 on the definition of "actuarially equivalent," we believe that the prescription drug benefits we provide will be actuarially equivalent. Based on this assumption, the estimated subsidy resulting from the Act is incorporated prospectively into our 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 our 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 our postretirement healthcare benefit plans is insignificant.

        In 2004, the FASB 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. We have applied Issue No. 04-8 to our consolidated statements of income for the year ended December 31, 2004 and have restated diluted earnings per

45



share for the years ended December 31, 2003 and 2002 to include the weighted average common shares that are issuable upon the conversion of our convertible notes.

        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. 123 to the beginning of the fiscal year that includes the effective date would be permitted. We currently report stock compensation based on APB 25, Accounting for Stock Issued to Employees, with pro forma disclosures.

        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 will 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. We are currently evaluating the proposed provisions of this amendment to determine the impact on our 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. 109-b is intended to provide limited relief in the application of the indefinite reinvestment criterion of APB 23, Accounting for Income Taxes—Special Areas, due to ambiguities surrounding the implementation of the Act and is effective upon issuance. We are currently reviewing this provision of the Act and have not completed our evaluation of the provision's effect on us.

        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. We have determined that SFAS No. 151 will not have a material effect on our consolidated financial statements.

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Off-Balance Sheet Arrangements

        We have two accounts receivable securitization facilities. Through agreements with certain financial institutions, we may sell, on a revolving basis, undivided percentage ownership interests in designated pools of our accounts receivable, without recourse, up to a maximum amount of approximately $150 million as of December 31, 2004. Collections reduce accounts receivable included in the pools, and are used to purchase new receivables, which become part of the pools. One of the facilities expires in 2005, with an option for renewal, and the other facility expires in 2007. The effective yield rates approximate the 30-day commercial paper rate plus annual commitment fees ranging from 29.5 to 40 basis points. During 2004 and 2003, the outstanding undivided interests averaged $115 million and $125 million, respectively. We retain collection and administrative responsibilities for the accounts receivable in the pools. In 2004 and 2003, we recognized $2 million and $3 million, respectively, in related charges, which are included in selling, general and administrative expenses in our consolidated statements of income.

        In addition, we retain interests in the pools of accounts receivable not sold. Due to the short-term nature of the accounts receivable, our retained interests in the pools are valued at historical cost, which approximate fair value. The full amount of the allowance for doubtful accounts has been retained in our consolidated balance sheets since collections of all pooled accounts receivable are first used to reduce the outstanding undivided interests. At December 31, 2004, there were no undivided interests in the pooled receivables outstanding. Accounts receivable at December 31, 2003 were net of $125 million, representing the outstanding undivided interests in pooled accounts receivable.

Tabular Disclosure of Contractual Obligations

        The following table summarizes our scheduled contractual obligations and their expected maturities at December 31, 2004, and the effect such obligations are expected to have on our liquidity and cash flows in the future periods indicated.

 
  December 31, 2004
Contractual Obligations (1)

  Total
  Less than
1 Year

  1-3 Years
  4-5 Years
  After 5
Years

 
  (US$ in millions)

Commercial paper borrowings(1)   $ 401   $ 401   $   $   $
Other short-term borrowings(1)     140     140            
Long-term debt(1)     2,740     140     850     70     1,680
Freight supply agreements(2)     5,883     547     871     575     3,890
Non-cancelable lease obligations     456     92     202     102     60
Inventory purchase commitments     193     193            
   
 
 
 
 
Total contractual obligations   $ 9,813   $ 1,513   $ 1,923   $ 747   $ 5,630
   
 
 
 
 

(1)
We also have interest obligations on our outstanding borrowings.

(2)
In the ordinary course of business, we enter into purchase commitments for time on ocean freight vessels and freight service on railroad lines for the purpose of transporting agricultural commodities. In addition, we sell time on these ocean freight vessels when excess freight capacity is available. These agreements range from two months to six years in the case of ocean freight vessels and 10 to 23 years in the case of railroad services. Actual amounts paid under these contracts may differ due to the variable components of these agreements and the amount of income earned by us on the sale of excess capacity. The cost of our freight supply agreements is passed through to our customers in the ordinary course of business, and as a result, such amounts are expected to be fully recovered.

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        We expect to contribute $17 million to our defined benefit pension plans and $2 million to our postretirement healthcare benefit plans in 2005.

Risk Factors

Our business, financial condition or results of operations could be materially adversely affected by any of the risks and uncertainties described below. Additional risks not presently known to us, or that we currently deem immaterial, may also impair our financial condition and business operations.

Risks Relating to Our Business and Industries

The availability and demand for the agricultural commodities and agricultural commodity products that we use and sell in our business can be affected by weather, disease and other factors beyond our control.

        Weather conditions have historically caused volatility in the agricultural commodities industry and consequently in our operating results by causing crop failures or significantly reduced harvests, which can affect the supply and pricing of the agricultural commodities that we sell and use in our business, reduce the demand for our fertilizer products and negatively affect the creditworthiness of our customers and suppliers. Reduced supply of agricultural commodities due to weather-related factors could adversely affect our profitability. In addition, the supply of agricultural commodities can be affected by other factors such as plant disease, including Asian soybean rust, which has recently affected soybean crops in Brazil and the United States. Our operating results can also be influenced by sudden shifts in demand for our primary products due to factors such as livestock and other animal disease, including avian influenza.

We are vulnerable to cyclicality in the oilseed processing industry and increases in raw material prices.

        In the oilseed processing industry, the lead time required to build an oilseed processing plant can make it difficult to time capacity additions with market demand for oilseed products such as soybean meal and oil. When additional processing capacity becomes operational, a temporary imbalance between the supply and demand for oilseed processing capacity might exist, which until it is corrected, negatively impacts oilseed processing margins. Oilseed processing margins will continue to fluctuate following industry cycles, which could negatively impact our profitability.

        Our food products and fertilizer divisions may also be adversely affected by increases in the price of agricultural commodities and fertilizer raw materials that are caused by market fluctuations outside of our control. As a result of competitive conditions in our food products businesses, we may not be able to recoup increases in the cost of raw materials through increases in sales prices for our products, which would adversely affect our profitability. In addition, increases in fertilizer prices due to higher raw material costs could adversely affect demand for our products.

We are subject to economic and political instability and other risks of doing business globally and in emerging markets.

        We are a global business with substantial assets located outside of the United States from which we derive a significant portion of our revenue. Our operations in South America and Europe are a fundamental part of our business. In addition, a key part of our strategy involves expanding our business in several emerging markets, including Eastern Europe, India and China. Volatile economic, political and market conditions in these and other emerging market countries may have a negative impact on our operating results and our ability to achieve our business strategies.

        We are exposed to currency exchange rate fluctuations because a portion of our net sales and expenses are denominated in currencies other than the U.S. dollar. Our financial performance may be

48



negatively or positively affected by currency fluctuations. For example, changes in exchange rates between the U.S. dollar and other currencies, particularly the Brazilian real, the Argentine peso and the European euro, affect our expenses that are denominated in local currencies and may have a negative impact on the value of our assets located outside of the United States.

        We are also exposed to other risks of international operations, including:

    increased governmental ownership, including through expropriation, and regulation of the economy in the markets where we operate;

    inflation and adverse economic conditions resulting from governmental attempts to reduce inflation, such as imposition of higher interest rates and wage and price controls;

    trade barriers on imports or exports, such as higher tariffs and taxes on imports of agricultural commodities and commodity products;

    changes in the tax laws or inconsistent tax regulations in the countries where we operate;

    exchange controls or other currency restrictions; and

    civil unrest or significant political instability.

        The occurrence of any of these events in the markets where we operate or in other markets where we plan to expand or develop our business could jeopardize or limit our ability to transact business in those markets and could adversely affect our revenues and operating results.

Government policies and regulations affecting the agricultural sector and related industries could adversely affect our operations and profitability.

        Agricultural production and trade flows are significantly affected by government policies and regulations. Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies and import and export restrictions on agricultural commodities and commodity products, can influence industry profitability, the planting of certain crops versus other uses of agricultural resources, the location and size of crop production, whether unprocessed or processed commodity products are traded and the volume and types of imports and exports. For example, in mid-2004, a trade dispute between China and Brazil temporarily halted soybean trade between the two countries, which adversely affected our sales to Asia. Future government policies may adversely affect the supply, demand for and prices of our products, restrict our ability to do business in our existing and target markets and could cause our financial results to suffer.

We are dependent on access to external sources of financing to acquire and maintain the inventory, facilities and equipment necessary to run our business.

        We require significant amounts of capital to operate our business and fund capital expenditures. We require significant working capital to purchase, process and market our agricultural commodities inventories. An interruption of our access to short-term credit or a significant increase in our cost of credit could materially increase our interest expense and impair our ability to compete effectively in our business.

        We operate an extensive network of storage facilities, processing plants, refineries, mills, mines, ports, transportation assets and other facilities as part of our business. We are required to make substantial capital expenditures to maintain, upgrade and expand these facilities to keep pace with competitive developments, technological advances and changing safety standards in our industry. Significant unbudgeted increases in our capital expenditures could adversely affect our operating results. In addition, if we are unable to continue devoting substantial resources to maintaining and enhancing our infrastructure, we may not be able to compete effectively.

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        Our future funding requirements will depend, in large part, on our working capital requirements and the nature of our capital expenditures. In addition, the expansion of our business and pursuit of business opportunities may require us to have access to significant amounts of capital. As of December 31, 2004, we had $3,281 million in total indebtedness. Our indebtedness could limit our ability to obtain additional financing, limit our flexibility in planning for, or reacting to, changes in the markets in which we compete, place us at a competitive disadvantage compared to our competitors that are less leveraged than we are and require us to dedicate more cash on a relative basis to servicing our debt and less to developing our business. This may limit our ability to run our business and use our resources in the manner in which we would like.

Our risk management strategy may not be effective.

        Our business is affected by fluctuations in agricultural commodities prices, freight rates, energy prices, interest rates and in foreign currency exchange rates. We engage in hedging transactions to manage these risks. However, our hedging strategy may not be successful in minimizing our exposure to these fluctuations. In addition, our control procedures and risk management policies may not successfully prevent our traders from entering into unauthorized transactions that have the potential to impair our financial position. See "Item 7A. Quantitative and Qualitative Disclosures About Market Risk."

The expansion of our business through acquisitions and strategic alliances poses risks that may reduce the benefits we anticipate from these transactions.

        We have been an active acquirer of other companies, and we have strategic alliances and joint ventures with several partners. Part of our strategy involves acquisitions, alliances and joint ventures designed to expand and enhance our business. Our ability to benefit from acquisitions and alliances depends on many factors, including our ability to identify acquisition or alliance prospects, access capital markets at an acceptable cost of capital, negotiate favorable transaction terms and successfully integrate any businesses we acquire.

        Integrating businesses we acquire into our operational framework may involve unanticipated delays, costs and other operational problems. If we encounter unexpected problems with one of our acquisitions or alliances, our senior management may be required to divert attention away from other aspects of our businesses to address these problems.

        Acquisitions also pose the risk that we may be exposed to successor liability relating to actions by an acquired company and its management before the acquisition. The due diligence we conduct in connection with an acquisition, and any contractual guarantees or indemnities that we receive from the sellers of acquired companies, may not be sufficient to protect us from, or compensate us for, actual liabilities. A material liability associated with an acquisition could adversely affect our reputation and results of operations and reduce the benefits of the acquisition.

We could lose customers and incur liability if we fail to properly label or separate products that contain genetically modified organisms from those that do not.

        The use of genetically modified organisms (GMOs) in food and animal feed has been met with varying acceptance in the different markets in which we operate. The United States and Argentina have approved the use of GMOs in food products and animal feed, and GMO and non-GMO grain are frequently commingled during the grain origination process. However, in some of the markets where we sell our products, most significantly the European Union and Brazil, government regulations limit sales or require labeling of GMO products. In Brazil, the government is expected to legalize the planting and sale of GMO soybeans after having temporarily legalized such planting and sale in certain regions for the past two years. However, certain Brazilian states have banned the planting, sale or transport of

50



GMO crops, which has resulted in the disruption of certain GMO crop shipments. We may inadvertently deliver products that contain GMOs to customers that request GMO-free products. As a result, we could lose customers, incur liability and damage our reputation.

We face intense competition in each of our divisions, particularly in our agribusiness and food products divisions.

        We face significant competition in each of our divisions, particularly in our agribusiness and food products divisions. We have numerous competitors, some of which may be larger and have greater financial resources than we have. In addition, we face significant competitive challenges outlined below.

        Agribusiness.    The markets for our products are highly price-competitive and are sensitive to product substitution. We compete against large multinational, regional and national suppliers, processors and distributors and farm cooperatives. Our principal competitors are ADM, Cargill and, to a lesser extent, local, large agricultural cooperatives and trading companies, such as Louis Dreyfus Group. Competition with these and other suppliers, processors and distributors is based on price, service offerings and geographic location.

        Food Products.    Several of the markets in which our food products division operates, particularly those in which we sell consumer products, are mature and highly competitive. In addition, consolidation in the supermarket industry has resulted in our retail customers demanding lower prices and reducing the number of suppliers with which they do business. To compete effectively in our food products division, we must establish and maintain favorable brand recognition, efficiently manage distribution, gain sufficient market share, develop products sought by consumers and other customers, implement appropriate pricing, provide marketing support and obtain access to retail outlets and sufficient shelf space for our retail products. In addition, sales of our soybean oil products could be subject to increased competition as a result of the recent adverse publicity associated with trans-fatty acids. If our customers switch to products that do not contain trans-fatty acids or our competitors are able to offer or develop additional low trans-fatty acid products more economically or quickly than we can, our competitive position could suffer and our edible oil segment revenues could be negatively affected.

        Competition could cause us to lose market share, exit certain lines of business, increase expenditures or reduce pricing, each of which could have an adverse effect on our revenues and profitability.

We are subject to regulation in numerous jurisdictions and may be exposed to liability as a result of our handling of hazardous materials and commodities storage operations.

        Our business involves the handling and use of hazardous materials. The use of such materials in processing our products can cause the emission of certain regulated substances. In addition, the storage and processing of our products may create hazardous conditions. For example, we use hexane in our oilseed processing operations, and hexane can cause explosions that could harm our employees or damage our facilities. Our agricultural commodities storage operations also create dust that has caused explosions in our grain elevators. In addition, our mining operations and manufacturing of fertilizers require compliance with environmental regulations. Our operations are regulated by environmental laws and regulations in the countries where we operate, including those governing the labeling, use, storage, discharge and disposal of hazardous materials. These laws and regulations require us to implement procedures for the handling of hazardous materials and for operating in potentially hazardous conditions, and they impose liability on us for the cleanup of any environmental contamination. In addition, Brazilian law allocates liability for noncompliance with environmental laws by an acquired company to the acquiror for an indefinite period of time. Because we use and handle hazardous substances in our business, changes in environmental requirements or an unanticipated significant

51



adverse environmental event could have a material adverse effect on our business. See "Item 1. Business—Government Regulation" and "Item 1. Business—Environmental Matters."

We advance significant capital and provide other financing arrangements to farmers in Brazil and, as a result, our business and financial results may be adversely affected if these farmers are unable to repay the capital we have advanced to them.

        In Brazil, where there are fewer third-party financing sources available to farmers, we provide financing services to farmers from whom we purchase soybeans and other agricultural commodities through prepaid commodity purchase contracts and advances to farmers, which are typically secured by the farmer's crop and a mortgage on the farmer's land and other assets. The purchase contracts and advances are typically settled through the delivery of the related crop to us upon harvest. In 2004, due to the higher costs of fertilizer, seed, crop chemicals and other inputs, as well as the growth in Brazilian soybean production, we advanced funds to farmers in greater amounts under these arrangements than we have in the past. At December 31, 2004 we had approximately $932 million in prepaid commodity purchase contracts and advances to the farmers, as compared to approximately $611 million at December 31, 2003. As our exposure under these financial arrangements increases, we will be increasingly exposed to the risks that the underlying crop will be unable to satisfy a farmer's obligation under the financing arrangements as a result of weather and crop growing conditions, fluctuations in commodity prices and other factors that influence the price, supply and demand for agricultural commodities. In addition, we sell fertilizer on credit to farmers in Brazil. During 2004, approximately 80% of our fertilizer sales were made on credit, which represents an approximate 15% increase compared to 2003. Furthermore, in connection with our fertilizer sales, we issue guarantees to a financial institution in Brazil related to amounts owed the institution by certain of our farmer customers. For additional information on our guarantees see Note 21 to our consolidated financial statements included as part of this Annual Report on Form 10-K. In the event that the customers default on their payments to us or the financial institution under these financing arrangements, we would be required to recognize the associated bad debt expense or perform under the guarantees, as the case may be. Although our prior loss experience has been small, significant defaults by farmers under these financial arrangements could adversely affect our financial condition and results of operations.

Risks Relating to Our Common Shares

We are a Bermuda company, and it may be difficult for you to enforce judgments against us and our directors and executive officers.

        We are a Bermuda exempted company. As a result, the rights of holders of our common shares will be governed by Bermuda law and our memorandum of association and bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies or corporations incorporated in other jurisdictions. Most of our directors and some of our officers are not residents of the United States, and a substantial portion of our assets and the assets of those directors and officers are located outside the United States. As a result, it may be difficult for you to effect service of process on those persons in the United States or to enforce in the U.S. judgments obtained in U.S. courts against us or those persons based on civil liability provisions of the U.S. securities laws. We have been advised by our Bermuda counsel, Conyers Dill & Pearman, that uncertainty exists as to whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.

52


Our bye-laws restrict shareholders from bringing legal action against our officers and directors.

        Our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.

We have anti-takeover provisions in our bye-laws and have adopted a shareholder rights plan that may discourage a change of control.

        Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. These provisions provide for:

    a classified board of directors with staggered three-year terms;

    directors to be removed without cause only upon the affirmative vote of at least 66% of all votes attaching to all shares then in issue entitling the holder to attend and vote on the resolution;

    restrictions on the time period in which directors may be nominated;

    our board of directors to determine the powers, preferences and rights of our preference shares and to issue the preference shares without shareholder approval; and

    an affirmative vote of 66% of all votes attaching to all shares then in issue entitling the holder to attend and vote on the resolution for some business combination transactions, which have not been approved by our board of directors.

        In addition, we have a shareholder rights plan which will entitle shareholders to purchase our Series A Preference Shares if a third party acquires beneficial ownership of 20% or more of our common shares. In some circumstances, shareholders are also entitled to purchase the common stock of a company issuing shares in exchange for our common shares in a merger, amalgamation or tender offer or a company acquiring most of our assets.

        These provisions could make it more difficult for a third party to acquire us, even if the third party's offer may be considered beneficial by many shareholders. As a result, shareholders may be limited in their ability to obtain a premium for their shares.

We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.

        Adverse U.S. federal income tax rules apply to individuals owning shares of a "passive foreign investment company," or PFIC, directly or indirectly (including by holding an option to acquire shares of a PFIC, such as a debt security convertible into shares). We will be classified as a PFIC for U.S. federal income tax purposes if 50% or more of our assets, including goodwill (based on an annual quarterly average), are passive assets, or 75% or more of our annual gross income is derived from passive assets. The calculation of goodwill will be based, in part, on the then market value of our common shares, which is subject to change. Based on certain estimates of our gross income and gross assets available as of December 31, 2004 and relying on certain exceptions in the applicable U.S. Treasury regulations, we do not believe that we are currently a PFIC. Such a characterization could result in adverse U.S. tax consequences to U.S. investors in our common shares and our 3.75% convertible notes due 2022. In particular, absent an election described below, a U.S. investor would be subject to U.S. federal income tax at ordinary income tax rates, plus a possible interest charge, in respect of gain derived from a disposition of our shares, as well as certain distributions by us. In addition, a step-up in the tax basis of our shares would not be available upon the death of an individual

53



shareholder, and the preferential U.S. federal income tax rates generally applicable to qualified dividend income of certain U.S. investors would not apply. Since PFIC status is determined by us on an annual basis and will depend on the composition of our income and assets and the nature of our activities from time to time, we cannot assure you that we will not be considered a PFIC for the current or any future taxable year. If we are treated as a PFIC for any taxable year, U.S. investors may desire to make an election to treat us as a "qualified electing fund" with respect to shares owned (a "QEF election"), in which case U.S. investors will be required to take into account a pro rata share of our earnings and net capital gain for each year, regardless of whether we make any distributions. As an alternative to the QEF election, a U.S. investor may be able to make an election to "mark-to-market" our shares each taxable year and recognize ordinary income pursuant to such election based upon increases in the value of our shares.

Item 7A.    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, interest rates and energy and transportation costs 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, foreign exchange, interest rates and transportation costs. 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 counter-parties 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 board of directors' 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 are also subject to the risk of counter-party defaults under forward purchase or sale contracts.

        We enter into various derivative contracts, primarily exchange-traded futures, 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

54



hypothetical 10% adverse change in prices. The results of this analysis, which may differ from actual results, are as follows:

 
  Year Ended
December 31, 2004

  Year Ended
December 31, 2003

 
(US$ in millions)

  Fair Value
  Market Risk
  Fair Value
  Market Risk
 
Highest long position   $ 414   $ 41   $ 517   $ 52  
Highest short position     (13 )   (1 )   (50 )   (5 )

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 and Asia. To minimize the adverse impact of currency movements, we enter into foreign exchange swaps and option contracts to hedge currency exposures.

        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 $961 million as of December 31, 2004 and $681 million as of December 31, 2003. The balance of permanently invested intercompany borrowings increased $280 million in September 2004 as a result of the acquisition of an additional 15% interest in the outstanding shares of Bunge Brasil. Included in other comprehensive income (loss) are foreign exchange gains of $96 million in the year ended December 31, 2004 and foreign exchange gains of $118 million in the year ended December 31, 2003, 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 positions, including currency derivatives, and our market risk, which is the potential loss from an adverse 10% change in foreign currency exchange rates, are set forth in the following table. In addition, we have provided an analysis of our foreign currency exposure after

55



reducing the exposure for our agricultural commodities inventory. Actual results may differ from the information set forth below.

(US$ in millions)

  December 31,
2004

  December 31,
2003

 
Brazilian Operations (primarily exposure to U.S. dollar):              
Net currency short position, from financial instruments, including derivatives   $ (1,091 ) $ (1,080 )
Market risk     (109 )   (108 )
Agricultural commodities inventories     988     1,063  
Net currency short position, less agricultural commodities inventories     (103 )   (17 )
Market risk   $ (10 ) $ (2 )

Argentine Operations (primarily exposure to U.S. dollar):

 

 

 

 

 

 

 
Net currency short position, from financial instruments, including derivatives   $ (81 ) $ (32 )
Market risk     (8 )   (3 )
Agricultural commodities inventories     93     71  
Net currency long position, less agricultural commodities inventories     12     39  
Market risk   $ 1   $ 4  

European Operations (primarily exposure to U.S. dollar):

 

 

 

 

 

 

 
Net currency short position, from financial instruments, including derivatives   $ (320 ) $ (239 )
Market risk     (32 )   (24 )
Agricultural commodities inventories     283     254  
Net currency (short) long position, less agricultural commodities inventories     (37 )   15  
Market risk   $ (4 ) $ 2  

Interest Rate Risk

        We issue debt in fixed and floating rate instruments. We are exposed to market risk due to changes in interest rates. Of our total long-term debt outstanding of $2,740 million at December 31, 2004 including current maturities, $2,547 million was fixed rate. Long-term debt that is exposed to interest rate risk at December 31, 2004 is listed below.

(US$ in millions)

  December 31,
2004

Payable in U.S. Dollars:      
  Long-term debt, variable interest rates indexed to LIBOR (1) plus 1.38% to 4.02%   $ 36
Payable in Brazilian Reais:      
  BNDES (2) loans, variable interest rate indexed to IGPM (3) plus 6.5% to 7.9%     134
  Other     23
   
    Total variable rate long-term debt, including current maturities   $ 193
   

(1)
LIBOR as of December 31, 2004 was 1.54%.

(2)
BNDES loans are Brazilian government industrial development loans.

(3)
IGPM is a Brazilian inflation index published by Fundacão Getulio Vargas. The annualized rate for the year ended December 31, 2004 was 12.42%.

        An increase in the interest rates on our long-term variable rate debt based on a 10% change in the LIBOR and IGPM rates at December 31, 2004 would increase the interest rates on our variable rate debt between 12 to 98 basis points, which would have no material effect on our operating results.

56



        In addition to long-term debt, we have variable interest rate short-term debt and commercial paper with a balance of $541 million at December 31, 2004. The short-term debt is predominantly held with commercial banks and the interest rates are generally based on LIBOR plus a spread of 1% to 2%.

        Our commercial paper is rated "A-1" by Standard & Poor's Rating Services and "P-1" by Moody's Investors Service, Inc. and the interest rates on our commercial paper borrowings are indexed to this rating. An increase in interest rates on our short-term debt based on a 10% change in LIBOR and a 10% change in the commercial paper interest rate for A-1/P-1 rated commercial paper at December 31, 2004 would increase the interest rate on our variable rate short-term debt approximately 24 basis points, which would have no material effect on our operating results.

Interest Rate Derivatives

        In September 2004, we entered into treasury rate lock agreements with an aggregate notional amount of $500 million at a 10-year treasury yield of 4.15% with a settlement date of March 2005. The treasury rate lock agreements were not designated as hedging instruments. In the fourth quarter of 2004, we terminated these treasury rate lock agreements. We recorded a gain in other income (expense)-net in the consolidated statements of income of approximately $10 million relating to the cash settlement received on these derivative agreements for the year ended December 31, 2004.

        In June 2004, we entered into various interest rate swap agreements to manage our interest rate exposure on a portion of our fixed rate debt. These swap agreements had an aggregate notional amount of $1 billion at weighted average fixed rates receivable of 4.375% and 5.35% and weighted average variable rates payable of 2.23% and 2.17%, with maturity dates of 2008 and 2014. These interest rate swap agreements were accounted for as fair value hedges. In September 2004, we terminated the June 2004 swap agreements and received $60 million in cash, which was comprised of $8 million of accrued interest and a $52 million gain on the net settlement of the June 2004 swap agreements. The $8 million of accrued interest was recorded as a reduction of interest expense for the year ended December 31, 2004 in the consolidated statements of income and the $52 million gain was recorded as an adjustment to the carrying amount of the related debt for the year ended December 31, 2004 in the consolidated balance sheet. The $52 million gain will be amortized to earnings over the remaining term of the debt, which ranges from four to nine years.

        Concurrent with the September 2004 termination of the June 2004 swap agreements, we entered into various new interest rate swap agreements to manage our interest rate exposure on a portion of our fixed rate debt. We have accounted for these new swap agreements as fair value hedges.

        The interest rate swaps used by us as derivative hedging instruments have been recorded at fair value in other liabilities in the consolidated balance sheets with changes in fair value recorded currently in earnings. Additionally, the carrying amount of the associated debt is adjusted through earnings for changes in the fair value due to changes in interest rates. Ineffectiveness is recognized to the extent that these two adjustments do not offset. As of December 31, 2004, we recognized no ineffectiveness related to the interest rate swap hedging instruments. The derivatives we entered into for hedge purposes are assumed to be perfectly effective under the shortcut method of SFAS No. 133. The differential to be paid or received on changes in interest rates is recorded as an adjustment to interest expense. The interest rate swaps settle every six months until expiration. We recorded $6 million of accrued interest as a reduction of interest expense in the consolidated statements of income for the year ended December 31, 2004.

57



        The following table summarizes our outstanding interest rate swap agreements as of December 31, 2004.

 
   
   
   
  Fair Value
 
 
  Maturity
   
 
(US$ in millions)

   
  December 31,
2004

 
  2008
  2014
  Total
 
Receive fixed/pay variable notional amount   $ 500   $ 500   $ 1,000   $ (12 )
Weighted average variable rate payable (1)     3.28 %   3.15 %            
Weighted average fixed rate receivable     4.375 %   5.35 %            

(1)
Interest is payable in arrears based on a forecasted rate of six-month LIBOR plus a spread.

Item 8.    Financial Statements and Supplementary Data

        Our financial statements and related schedule required by this item are contained on pages F-2 through F-54 and on page E-2 of this Annual Report on Form 10-K. See Item 15(a) for a listing of financial statements provided.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

Item 9A.    Disclosure Controls and Procedures

        As of December 31, 2004, 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 that term is defined in Exchange Act Rule 13a-15(b), as of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Bunge (including our consolidated subsidiaries) required to be included in our SEC filings.

        The Management's Report on Internal Control Over Financial Reporting and Report of Independent Registered Public Accounting Firm required to be furnished pursuant to this item are set forth on pages F-2 and F-3 of this Annual Report on Form 10-K.

        There has been no change in our internal control over financial reporting during the fourth fiscal quarter ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information

        None.

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PART III

        Information required by Items 10, 11, 12, 13 and 14 of Part III is omitted from this Annual Report on Form 10-K and will be filed in a definitive proxy statement for our 2005 Annual General Meeting of Shareholders.

Item 10.    Directors and Executive Officers of the Registrant

        We will provide information that is responsive to this Item 10 in our definitive proxy statement for our 2005 Annual General Meeting of Shareholders under the captions "Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance," "Corporate Governance—Board Meetings and Committees—Audit Committee," "Report of Audit Committee," "Corporate Governance—Corporate Governance Guidelines and Code of Ethics" and possibly elsewhere therein. That information is incorporated in this Item 10 by reference. The information required by this item with respect to our executive officers and key employees is found in Part I of this Annual Report on Form 10-K under the caption "Executive Officers and Key Employees of the Company," which information is incorporated herein by reference.

Item 11.    Executive Compensation

        We will provide information that is responsive to this Item 11 in our definitive proxy statement for our 2005 Annual General Meeting of Shareholders under the caption "Executive Compensation," "Compensation Committee Report," "Comparative Performance of Our Common Shares" and possibly elsewhere therein. That information is incorporated in this Item 11 by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholders

        We will provide information that is responsive to this Item 12 in our definitive proxy statement for our 2005 Annual General Meeting of Shareholders under the caption "Share Ownership of Directors, Executive Officers and Principal Shareholders" and possibly elsewhere therein. That information is incorporated in this Item 12 by reference. The information required by this item with respect to our equity compensation plan information is found in Part II of this Annual Report on Form 10-K under the caption "Equity Compensation Plan Information," which information is incorporated herein by reference.

Item 13.    Certain Relationships and Related Transactions

        We will provide information that is responsive to this Item 13 in our definitive proxy statement for our 2005 Annual General Meeting of Shareholders under the caption "Certain Relationships and Related Party Transactions" and possibly elsewhere therein. That information is incorporated in this Item 13 by reference.

Item 14.    Principal Accountant Fees and Services

        We will provide information that is responsive to this Item 14 in our definitive proxy statement for our 2005 Annual General Meeting of Shareholders under the caption "Appointment of Independent Auditor" and possibly elsewhere therein. That information is incorporated in this Item 14 by reference.

59



PART IV

Item 15. Exhibits, Financial Statement Schedules

    a.
    (1)-(2)  Financial Statements and Financial Statement Schedules

      See "Index to Consolidated Financial Statements" on page F-1 of this Annual Report on Form 10-K.

    a.
    (3) Exhibits

      See "Index to Exhibits" set forth below.

Exhibit
Number

  Description

3.1

 

Memorandum of Association (incorporated by reference from the Registrant's Form F-1 (No. 333-65026) filed July 13, 2001)

3.2

 

Bye-laws, as amended and restated (incorporated by reference from the Registrant's Form 20-F filed May 31, 2003)

4.1

 

Form of Common Share Certificate (incorporated by reference from the Registrant's Form F-1 (No. 333-65026) filed July 13, 2001)

4.2

 

Amended and Restated Shareholder Rights Plan between Bunge Limited and Mellon Investor Services LLC, as Rights Agent, dated as of May 30, 2003 (incorporated by reference from the Registrant's Form 20-F filed March 15, 2004)

4.3

 

The instruments defining the rights of holders of the long-term debt securities of Bunge and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. Bunge hereby agrees to furnish copies of these instruments to the Securities and Exchange Commission upon request

10.1

 

Registration Rights Agreement dated as of June 25, 2001 between Bunge Limited and the shareholders of Bunge International Limited (incorporated by reference from the Registrant's Form F-1 (No. 333-65026) filed July 13, 2001)

10.2

 

Pooling Agreement, dated as of August 25, 2000, between Bunge Funding Inc., Bunge Management Services Inc., as Servicer, and The Chase Manhattan Bank, as Trustee (incorporated by reference from the Registrant's Form F-1 (No. 333-65026) filed July 13, 2001)

10.3

 

Second Amended and Restated Series 2000-1 Supplement, dated as of February 26, 2002, between Bunge Funding Inc, Bunge Management Services, Inc., as Servicer, Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank International," New York branch, as Letter of Credit Agent, JPMorgan Chase Bank, as Administrative Agent, The Bank of New York, as Collateral Agent and Trustee, and Bunge Asset Funding Corp., as Series 2000-1 Purchaser, amending and restating the First Amended and Restated Series 2000-1 Supplement, dated July 12, 2001 (incorporated by reference from the Registrant's Form F-1 (No. 333-81322) filed March 8, 2002)
     

60



10.4

 

Second Amended and Restated Revolving Credit Agreement, dated as of June 28, 2004, among Bunge Limited Finance Corp., as Borrower, the several lenders from time to time parties thereto, Citibank, N.A., as Syndication Agent, BNP Paribas, as Documentation Agent, Credit Suisse First Boston, as Documentation Agent, Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank International," New York Branch, as Documentation Agent and JPMorgan Chase Bank, as Administrative Agent (incorporated by reference from the Registrant's Form 10-Q filed on August 9, 2004)

10.5

 

Multicurrency Revolving Facilities Agreement, dated May 28, 2003, among Bunge Finance Europe B.V., as Borrower, BNP Paribas, CCF and Société Générale, as mandated lead arrangers and HSBC Bank plc, as Agent (incorporated by reference from the Registrant's Form 20-F filed March 15, 2004)

10.6

 

Amendment Agreement, dated May 26, 2004, among Bunge Finance Europe B.V., as Borrower and HSBC Bank plc, as Agent, to Multicurrency Revolving Facilities Agreement, dated May 28, 2003, among Bunge Finance Europe B.V., as Borrower, BNP Paribas, CCF and Société Générale, as mandated lead arrangers and HSBC Bank plc, as Agent (incorporated by reference from the Registrant's Form 10-Q filed August 9, 2004)

10.7

 

Sixth Amended and Restated Liquidity Agreement, dated as of June 28, 2004, among Bunge Asset Funding Corp., the financial institutions party thereto, Citibank N.A., as Syndication Agent, BNP Paribas, as Documentation Agent, Credit Suisse First Boston, as Documentation Agent, Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank International," New York Branch, as Documentation Agent and JPMorgan Chase Bank, as Administrative Agent (incorporated by reference from the Registrant's Form 10-Q filed August 9, 2004)

10.8

 

Employment Agreement, dated as of May 27, 2003, between Bunge Limited and Alberto Weisser (incorporated by reference from the Registrant's Form 10-K filed July 27, 2004)

10.9

 

Bunge Limited Equity Incentive Plan, Amended and Restated as of March 5, 2004 (incorporated by reference from the Registrant's Form 10-K filed July 27, 2004)

10.10

 

Form of Nonqualified Stock Option Award Agreement under the Amended and Restated Bunge Limited Equity Incentive Plan (incorporated by reference from the Registrant's Form 10-K filed July 27, 2004)

10.11

 

Form of Restricted Stock Unit Award Agreement under the Bunge Limited Equity Incentive Plan, Amended and Restated as of March 5, 2004 (incorporated by reference from the Registrant's Form 10-K filed July 27, 2004)

10.12

 

Form of Performance-Based Restricted Stock Unit Award Agreement under the Bunge Limited Equity Incentive Plan, Amended and Restated as of March 5, 2004 (incorporated by reference from the Registrant's Form 10-K filed July 27, 2004)

10.13*

 

Bunge Limited Non-Employee Directors' Equity Incentive Plan (Amended and Restated as of February 25, 2005)

10.14

 

Bunge Limited Deferred Compensation Plan for Non-Employee Directors (Amended and Restated as of March 12, 2003) (incorporated by reference from the Registrant's Form 10-K filed July 27, 2004)

10.15

 

Excess Benefit Plan of Bunge Management Services Inc. (incorporated by reference from the Registrant's Form 10-K filed July 27, 2004)
     

61



10.16

 

Excess Contribution Plan of Bunge Management Services Inc. (incorporated by reference from the Registrant's Form 10-K filed July 27, 2004)

10.17

 

Excess Benefit Plan of Bunge Global Markets Inc. (incorporated by reference from the Registrant's Form 10-K filed July 27, 2004)

10.18

 

Excess Contribution Plan of Bunge Global Markets Inc. (incorporated by reference from the Registrant's Form 10-K filed July 27, 2004)

10.19*

 

Bunge Management Services Inc. Deferred Compensation Plan for Certain Employees

10.20*

 

Bunge Global Markets Deferred Compensation Plan for Certain Employees

10.21*

 

Bunge Limited Annual Incentive Plan (to be submitted for shareholder approval at Bunge Limited's 2005 Annual General Meeting of Shareholders)

10.22*

 

Description of Non-Employee Directors' Compensation

12.1*

 

Computation of Ratio of Earnings to Fixed Charges

21.1*

 

Subsidiaries of the Registrant

23.1*

 

Consent of Deloitte & Touche LLP

31.1*

 

Certifications of Bunge Limited's Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

32.1*

 

Certifications of Bunge Limited's Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

*
Filed herewith.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
  Page
Consolidated Financial Statements    
Management's Report on Internal Control Over Financial Reporting   F-2
Reports of Independent Registered Public Accounting Firm   F-3
Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and 2002   F-5
Consolidated Balance Sheets at December 31, 2004 and 2003   F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002   F-7
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2004, 2003 and 2002   F-8
Notes to the Consolidated Financial Statements   F-10
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule II   E-1
Financial Statement Schedule II   E-2

F-1



MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

        Bunge Limited's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Bunge Limited's internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

        A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to further periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

        Under the supervision and with the participation of management, including its principal executive officer and principal financial officer, Bunge Limited's management assessed the design and operating effectiveness of internal control over financial reporting as of December 31, 2004 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

        Based on Bunge Limited's assessment under the framework in Internal Control—Integrated Framework issued by COSO, management concluded that Bunge Limited's internal control over financial reporting was effective as of December 31, 2004. Management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included herein.

     
/s/  ALBERTO WEISSER      
Alberto Weisser
Chief Executive Officer
   
     

/s/  
WILLIAM M. WELLS      
William M. Wells
Chief Financial Officer

 

 

March 7, 2005

F-2



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Bunge Limited

        We have audited management's assessment, included in the accompanying "Management's Report on Internal Control Over Financial Reporting," that Bunge Limited and its Subsidiaries (the "Company") maintained effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

        A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of December 31, 2004 and for the year then ended of the Company and our report dated March 7, 2005 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP
New York, NY
March 7, 2005

F-3



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Bunge Limited

        We have audited the accompanying consolidated balance sheets of Bunge Limited and Subsidiaries (the "Company") as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Bunge Limited and Subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

        As discussed in Note 7 and 13 to the financial statements, effective January 1, 2002 the Company changed its method of accounting for goodwill and certain intangible assets to conform to Statement of Financial Accounting Standards Board No. 142 and changed its method of accounting for asset retirement obligations to conform to Statement of Financial Accounting Standards No. 143.

        We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 7, 2005 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/  DELOITTE & TOUCHE LLP     
New York, NY
March 7, 2005

F-4



BUNGE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(U.S. dollars in millions, except per share data)

 
  Year Ended December 31,
 
 
  2004
  2003
  2002
 
Net sales   $ 25,168   $ 22,165   $ 13,882  
Cost of goods sold (Notes 8 and 10)     (23,282 )   (20,860 )   (12,544 )
   
 
 
 
Gross profit     1,886     1,305     1,338  
Selling, general and administrative expenses     (871 )   (691 )   (579 )
Gain on sale of soy ingredients business         111      
Interest income     103     102     71  
Interest expense     (214 )   (215 )   (176 )
Foreign exchange (loss) gain     (31 )   92     (179 )
Other income (expense)—net     31     19     6  
   
 
 
 
Income from continuing operations before income tax and minority interest     904     723     481  
Income tax expense     (289 )   (201 )   (104 )
   
 
 
 
Income from continuing operations before minority interest     615     522     377  
Minority interest     (146 )   (104 )   (102 )
   
 
 
 
Income from continuing operations     469     418     275  
Discontinued operations, net of tax benefit (expense) of $5 (2003) and $(1) (2002) (Note 3)         (7 )   3  
   
 
 
 
Income before cumulative effect of change in accounting principles     469     411     278  
Cumulative effect of change in accounting principles, net of tax benefit of $6 (2002) (Note 7 and 13)             (23 )
   
 
 
 
Net income   $ 469   $ 411   $ 255  
   
 
 
 

Earnings per common share (Note 24):

 

 

 

 

 

 

 

 

 

 
Basic                    
Income from continuing operations   $ 4.42   $ 4.19   $ 2.87  
Discontinued operations         (.07 )   .03  
Cumulative effect of change in accounting principles             (.24 )
   
 
 
 
Net income per share   $ 4.42   $ 4.12   $ 2.66  
   
 
 
 

Diluted

 

 

 

 

 

 

 

 

 

 
Income from continuing operations   $ 4.10   $ 3.89   $ 2.83  
Discontinued operations         (.06 )   .03  
Cumulative effect of change in accounting principles             (.23 )
   
 
 
 
Net income per share   $ 4.10   $ 3.83   $ 2.63  
   
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

F-5



BUNGE LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in millions, except share data)

 
  December 31,
 
 
  2004
  2003
 
ASSETS              

Current assets:

 

 

 

 

 

 

 
  Cash and cash equivalents   $ 432   $ 489  
  Trade accounts receivable (less allowance of $133 and $100) (Note 18)     1,928     1,495  
  Inventories (Note 4)     2,636     2,867  
  Deferred income taxes     95     93  
  Other current assets (Note 5)     1,577     1,474  
   
 
 
Total current assets     6,668     6,418  
Property, plant and equipment, net (Note 6)     2,536     2,090  
Goodwill (Note 8)     167     148  
Other intangible assets, net (Note 9)     156     92  
Investments in affiliates (Note 11)     564     537  
Deferred income taxes     273     233  
Other non-current assets     543     366  
   
 
 
Total assets   $ 10,907   $ 9,884  
   
 
 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 
  Short-term debt (Note 16)   $ 541   $ 889  
  Current portion of long-term debt (Note 17)     140     128  
  Trade accounts payable     1,898     1,678  
  Deferred income taxes     38     42  
  Other current liabilities (Note 12)     1,285     1,200  
   
 
 
Total current liabilities     3,902     3,937  
Long-term debt (Note 17)     2,600     2,377  
Deferred income taxes     232     206  
Other non-current liabilities     518     433  

Commitments and contingencies (Note 21)

 

 

 

 

 

 

 

Minority interest in subsidiaries

 

 

280

 

 

554

 
Shareholders' equity:              
  Common shares, par value $.01; authorized—240,000,000 shares; issued and outstanding: 2004—110,671,450 shares, 2003—99,908,318 shares     1     1  
  Additional paid-in capital     2,361     2,010  
  Retained earnings     1,440     1,022  
  Accumulated other comprehensive loss     (427 )   (656 )
   
 
 
Total shareholders' equity     3,375     2,377  
   
 
 
Total liabilities and shareholders' equity   $ 10,907   $ 9,884  
   
 
 

The accompanying notes are an integral part of these consolidated financial statements.

F-6



BUNGE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)

 
  Year Ended December 31,
 
 
  2004
  2003
  2002
 
OPERATING ACTIVITIES                    
Net income   $ 469   $ 411   $ 255  
Adjustment to reconcile net income to cash provided by (used for) operating activities:                    
Gain on sale of soy ingredients business         (111 )    
Foreign exchange (gain) loss on debt     (85 )   (120 )   126  
Impairment of assets     17     56     5  
Bad debt expense     54     6     37  
Provision for recoverable taxes     2     (38 )   44  
Depreciation, depletion and amortization     212     184     168  
Deferred income taxes     (56 )   (17 )   (4 )
Discontinued operations         7     (3 )
Minority interest     146     104     102  
Changes in operating assets and liabilities, excluding the effects of acquisitions:                    
  Trade accounts receivable     (398 )   (129 )   (116 )
  Inventories     328     (249 )   (728 )
  Recoverable taxes     (86 )   34     (106 )
  Prepaid commodity purchase contracts     211     (76 )   (60 )
  Advances to suppliers     (341 )   (30 )   (110 )
  Trade accounts payable     164     174     469  
  Arbitration settlement (Note 21)         (57 )    
  Unrealized loss (gain) on derivative contracts     17     (63 )   (40 )
  Margin deposits     54     (86 )   (6 )
  Accrued liabilities     89     (41 )   117  
  Other—net     5         (22 )
   
 
 
 
    Cash provided by (used for) operating activities     802     (41 )   128  
INVESTING ACTIVITIES                    
Payments made for capital expenditures     (437 )   (304 )   (240 )
Business acquisitions, net of cash acquired     (355 )   (196 )   (856 )
Investments in affiliates     (24 )        
(Investments in) proceeds from related parties     (13 )   41      
Investment in notes receivable     (26 )        
Proceeds from disposal of property, plant and equipment     14     28     9  
Proceeds from sale of assets held for sale         450     16  
Proceeds from sale of discontinued operations         82      
   
 
 
 
    Cash (used for) provided by investing activities     (841 )   101     (1,071 )
FINANCING ACTIVITIES                    
Net change in short-term debt     (348 )   (381 )   (185 )
Proceeds from long-term debt     860     851     1,937  
Repayment of long-term debt     (678 )   (529 )   (706 )
Proceeds from sale of common shares     348     7     293  
Redemption of redeemable preferred stock     (170 )        
Dividends paid to shareholders     (51 )   (42 )   (37 )
Dividends paid to minority interest     (35 )   (63 )   (28 )
Proceeds from receivable from former shareholder         55     21  
   
 
 
 
    Cash (used for) provided by financing activities     (74 )   (102 )   1,295  
Effect of exchange rate changes on cash and cash equivalents     56     61     (81 )
   
 
 
 
Net (decrease) increase in cash and cash equivalents     (57 )   19     271  
Cash and cash equivalents, beginning of period     489     470     199  
   
 
 
 
Cash and cash equivalents, end of period   $ 432   $ 489   $ 470  
   
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

F-7



BUNGE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(U.S. dollars in millions, except share data)

 
   
   
   
   
   
  Accumulated
Other
Comprehensive
Income (Loss)
(Note 23)

   
   
 
 
  Common Shares
   
   
   
   
   
 
 
  Additional
Paid-in
Capital

  Receivable
from Former
Shareholder

  Retained
Earnings

  Total
Shareholders'
Equity

  Comprehensive
Income (Loss)

 
 
  Shares
  Amount
 
Balance, January 1, 2002   83,155,100   $ 1   $ 1,706   $ (76 ) $ 435   $ (690 ) $ 1,376        
Comprehensive income—2002:                                                
Net income                   255         255   $ 255  
Other comprehensive income (loss):                                                
  Foreign exchange translation adjustment, net of tax expense of $17                       (403 )       (403 )
  Unrealized loss on commodity futures, net of tax benefit of $8                       13         13  
  Loss on treasury rate lock contracts, net of tax of $0                       (22 )       (22 )
  Unrealized gain on investments, net of tax of $1                       (1 )       (1 )
  Reclassification of realized net (gains) to net income, net of tax expense of $8                       (12 )       (12 )
  Minimum pension liability, net of tax benefit of $5                       (11 )       (11 )
                               
       
 
Total comprehensive income (loss)                       (436 )   (436 ) $ (181 )
                               
       
 
Collection of former shareholder receivable               21             21        
Dividends paid                   (37 )       (37 )      
Issuance of common shares:                                                
—public offering   16,093,633         292                 292        
—employee stock plan   83,500         1                 1        
   
 
 
 
 
 
 
       
Balance, December 31, 2002   99,332,233   $ 1   $ 1,999   $ (55 ) $ 653   $ (1,126 ) $ 1,472        
Comprehensive income—2003:                                                
Net income                   411         411   $ 411  
Other comprehensive income (loss):                                                
  Foreign exchange translation adjustment, net of tax expense of $8                       489         489  
  Unrealized loss on commodity futures, net of tax benefit of $6                       (9 )       (9 )
  Unrealized gain on investments, net of tax of $0                       1         1  
  Reclassification of realized net (gains) to net income, net of tax expense of $2                       (1 )       (1 )
  Minimum pension liability, net of tax benefit of $7                       (10 )       (10 )
                               
       
 
Total comprehensive income (loss)                       470     470   $ 881  
                               
       
 
Collection of former shareholder receivable               55             55        
Dividends paid                   (42 )       (42 )      
Issuance of common shares:                                                
—employee stock plan   576,085         11                 11        
   
 
 
 
 
 
 
       
Balance, December 31, 2003   99,908,318   $ 1   $ 2,010   $   $ 1,022   $ (656 ) $ 2,377        

(Continued on the following page)

 

F-8


Comprehensive income—2004:                                                
Net income     $   $   $   $ 469   $   $ 469   $ 469  
Other comprehensive income (loss):                                                
  Foreign exchange translation adjustment, net of tax expense of $3                       217         217  
  Unrealized losses on commodity futures, net of tax benefit of $3                       (5 )       (5 )
  Reclassification of realized net losses to net income, net of tax benefit of $10                       19         19  
  Minimum pension liability, net of tax benefit of $1                       (2 )       (2 )
                               
       
 
Total comprehensive income (loss)                       229     229   $ 698  
                               
       
 
Dividends paid                   (51 )       (51 )      
Issuance of common shares:                                                
—public offering   9,775,000         331                 331        
—employee stock plan   988,132         20                 20        
   
 
 
 
 
 
 
       
Balance, December 31, 2004   110,671,450   $ 1   $ 2,361   $   $ 1,440   $ (427 ) $ 3,375        
   
 
 
 
 
 
 
       

The accompanying notes are an integral part of these consolidated financial statements.

F-9



BUNGE LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.    Basis of Presentation and Significant Accounting Policies

        Description of Business—Bunge Limited is a Bermuda holding company. Bunge Limited, together with its consolidated subsidiaries through which Bunge's businesses are conducted (collectively, "Bunge"), is an integrated, global agribusiness and food company. Bunge Limited's shares trade on the New York Stock Exchange under the ticker symbol "BG". Bunge operates in three divisions, which include four reporting segments: agribusiness, fertilizer, edible oil products and milling products.

        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

F-10



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

F-11



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

F-12



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   7-20
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.

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        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 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 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—as reported earnings per share 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

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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 into law in December 2003, introduces a prescription drug benefit under Medicare as well as a federal subsidy, under certain conditions, to

F-15



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 superceded 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 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.

F-16



BUNGE LIMITED AND SUBSIDIARIES

NOTES TO THE 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 in to 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. 109-b is intended to provide limited relief in the application of the indefinite reinvestment criterion of APB 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.

2. Business Combinations

        Acquisition of Bunge Brasil Minority Interest—In the second half of 2004, Bunge acquired the remaining 17% of the outstanding capital stock of Bunge Brasil S.A. that it did not already own for $314 million in cash. The acquisition was funded with net proceeds of a public offering of Bunge's common shares in June 2004 (see Note 23). As a result of the acquisition, Bunge directly owns 100% of Bunge Brasil and its subsidiaries, Bunge Alimentos S.A., Bunge's Brazilian agribusiness and food products subsidiary, and Bunge Fertilizantes S.A., Bunge's Brazilian fertilizer subsidiary. Bunge has been consolidating Bunge Alimentos and Bunge Fertilizantes since 1997. The acquisition was accounted for under the purchase method as a step acquisition of minority interest.

        The following table summarizes the preliminary allocation of $137 million, which is the excess of the cost to acquire the minority interest in Bunge Brasil over the historical book value of the acquired

F-17



minority interest, to certain intangible assets and segments. This allocation is subject to adjustments based on the finalization of the fair value of these intangible assets.

(US$ in millions)

  Agribusiness
  Fertilizer
  Edible Oil
Products

  Milling
Products

  Total
 
Property, plant and equipment   $ 15   $ 101   $ 6   $ 4   $ 126  
Trademarks/brands         25     4     4     33  
Licenses         5             5  
Goodwill     29                 29  
Deferred income tax liabilities     (5 )   (45 )   (3 )   (3 )   (56 )
   
 
 
 
 
 
Total   $ 39   $ 86   $ 7   $ 5   $ 137  
   
 
 
 
 
 

        The weighted average useful life of the $38 million other intangible assets acquired in 2004 is approximately 21 years.

        The following unaudited pro forma summary financial information sets forth Bunge's results of operations as if the above acquisition had been consummated as of January 1, 2003. The pro forma results are not necessarily indicative of what would have occurred had the acquisition been in effect for the periods presented.

 
  Year Ended
December 31,

(US$ in millions, except per share data)

  2004
  2003
Net sales   $ 25,168   $ 22,165
Net income   $ 498   $ 438
Earnings per common share—basic:            
Net income   $ 4.70   $ 4.39
Earnings per common share—diluted:            
Net income   $ 4.35   $ 4.07

        Polska Oil—In April 2004, Bunge acquired the remaining 40% of Polska Oil Investment B.V., a holding company for certain of Bunge's operations in Poland that it did not already own from the European Bank for Reconstruction and Development (EBRD), pursuant to the terms of an amended and restated shareholders agreement between the parties. The purchase price of the EBRD stake in Polska Oil was approximately $27 million. Bunge did not recognize any goodwill on this transaction.

        J. Macêdo Exchange Transaction—In the quarter ended March 31, 2004, Bunge completed an asset exchange transaction with J. Macêdo S.A., whereby Bunge exchanged its Brazilian retail flour assets for J. Macêdo's industrial flour assets and approximately $7 million in cash. The assets exchanged were comprised primarily of brands. Bunge recognized a pretax gain of $5 million as a result of this transaction, which is included in other income (expense)—net in the consolidated statement of income for the year ended December 31, 2004.

        Other Business Acquisitions—In 2004, Bunge completed additional acquisitions having an aggregate purchase price of $15 million, primarily in Europe. Bunge recognized goodwill totaling approximately $2 million related to these acquisitions, which was assigned to its edible oil products segment.

F-18



3. Discontinued Operations

        On December 31, 2003, Bunge sold its U.S. bakery business to a third party. The sale includes the facilities that manufactured, marketed and sold dry mixes, frozen bakery products, syrups and toppings that were historically reported in the milling and baking products segment until its sale. The proceeds from the sale were $82 million, net of expenses. The divestiture resulted in a gain to Bunge of $2 million, net of tax expense of $1 million, which has been reported as discontinued operations in the consolidated statements of income. In addition, in 2003, discontinued operations in the consolidated statements of income included an environmental expense of $3 million, net of tax benefit of $3 million, related to discontinued operations Bunge sold in 1995.

 
  Year Ended
December 31,

(US$ in millions)

  2003
  2002
Net sales   $ 180   $ 192
(Loss) income before income taxes   $ (15 ) $ 3

4. Inventories

        Inventories consist of the following:

 
  December 31,
(US$ in millions)

  2004
  2003
Agribusiness—Readily marketable inventories at market value(1)   $ 1,264   $ 1,846
Fertilizer     522     316
Edible oils     489     330
Milling     58     68
Other(2)     303     307
   
 
Total   $ 2,636   $ 2,867
   
 

(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.

5. Other Current Assets

        Other current assets consist of the following:

 
  December 31,
(US$ in millions)

  2004
  2003
Prepaid commodity purchase contracts   $ 37   $ 247
Secured advances to suppliers     697     280
Unrealized gains on derivative contracts     310     418
Margin deposits     43     95
Recoverable taxes     138     70
Marketable securities     14     13
Other     338     351
   
 
Total   $ 1,577   $ 1,474
   
 

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        Prepaid commodity purchase contracts—Prepaid commodity purchase contracts represent payments to producers in advance of delivery of the underlying commodities. Prepaid commodity purchase contracts are recorded at market.

        Secured advances to suppliers—Bunge provides cash advances to suppliers, which primarily include farmers of soybeans and other agricultural commodities, to finance a portion of the suppliers' production cost. The advances are generally collateralized by physical assets of the supplier, carry a market interest rate and are repaid through the delivery of soybeans and other agricultural commodities. Secured advances to suppliers are stated at the original value of the advance plus accrued interest, less allowances for uncollectible advances. In addition to the current secured advances, Bunge has long-term secured advances to suppliers, primarily farmers, in the amount of $198 million and $84 million at December 31, 2004 and 2003, respectively. The allowances for uncollectible advances totaled $43 million and $31 million at December 31, 2004 and 2003.

        Marketable securities—These securities are classified as trading securities and recorded at fair value based on quoted market prices. The related gains or losses are recognized in other income
(expense)—net in the consolidated statements of income.

6. Property, Plant and Equipment, Net

        Property, plant and equipment consist of the following:

 
  December 31,
 
(US$ in millions)

 
  2004
  2003
 
Land   $ 140   $ 114  
Mining properties     206     136  
Buildings     917     936  
Machinery and equipment     2,482     2,078  
Furniture, fixtures and other     224     158  
   
 
 
      3,969     3,422  
Less: accumulated depreciation and depletion     (1,810 )   (1,556 )
Plus: construction in process     377     224  
   
 
 
Total   $ 2,536   $ 2,090  
   
 
 

        Bunge capitalized interest on construction in progress in the amount of $6 million, $8 million and $6 million in 2004, 2003 and 2002, respectively. Depreciation and depletion expense was $208 million, $182 million and $166 million in 2004, 2003 and 2002, respectively.

F-20



BUNGE LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7.    Change in Accounting Principles

        Effective January 1, 2002, Bunge adopted SFAS No. 142. SFAS No. 142 supercedes APB Opinion No. 17, Intangible Assets, and changes the accounting for goodwill and other intangible assets with indefinite lives acquired individually or with a group of other assets, and those acquired in a business combination, by eliminating prospectively the amortization of all existing and newly acquired goodwill and other intangible assets with indefinite lives. SFAS No. 142 requires goodwill and other intangible assets to be tested at least annually for impairment. Separable other intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of SFAS No. 142 apply immediately to goodwill and intangible assets acquired after June 30, 2001. SFAS No. 142 also requires that companies complete a transitional goodwill impairment test within six months from the date of adoption.

        In accordance with the transitional guidance and the adoption of SFAS No. 142, Bunge completed a transitional impairment test computed based on a discounted cash flow and recorded a charge of $14 million, net of tax of $1 million as of January 1, 2002 for goodwill impairment losses. This impairment was related mainly to goodwill in the bakery mixes business line of its former wheat milling and bakery products segment. The goodwill impairment losses are recorded as a cumulative effect of a change in accounting principle in Bunge's consolidated statement of income for the year ended December 31, 2002. Bunge's other intangible assets were not affected by the adoption of SFAS No. 142.

8. Goodwill

        In the fourth quarter of 2004, Bunge performed its annual impairment test and has determined that there was no goodwill impairment for the year ended December 31, 2004.

        In the fourth quarter of 2003, Bunge performed its annual impairment test and recorded in cost of goods sold in the consolidated statements of income a pretax goodwill impairment charge of $16 million relating to its Austrian oilseed processing operations. The write-down resulted from a weak operating environment in this region causing the fair value of the reporting unit to be lower than its carrying value. No other impairment charges resulted from the required impairment evaluations on the rest of Bunge's reporting units. In assessing the recovery of goodwill, projections regarding estimated discounted future cash flows and other factors are made to determine the fair value of the reporting units and the respective assets. These projections are based on historical data, anticipated market conditions and management plans. If these estimates or related projections change in the future, we may be required to record additional impairment charges.

        Subsequent to the initial adoption of SFAS No. 142, in the fourth quarter of 2002, Bunge recorded an additional goodwill impairment charge of $4 million in cost of goods sold in the consolidated statements of income. The impairment charge was based on the discounted cash flow and related reduction in value, which resulted from the loss of a customer in the bakery mixes business line of its milling products segment. As result of the 2003 sale of the U.S. bakery business (see Note 3), this amount was reclassified to discontinued operations to conform to the 2003 presentation.

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        The changes in the carrying amount of goodwill by segment at December 31, 2004 and 2003 are as follows:

(US$ in millions)

  Agribusiness
  Edible Oil
Products

  Milling
  Unallocated
  Total
 
Balance, January 1, 2003   $ 129   $   $ 21   $ 89   $ 239  
Goodwill acquired (Note 2)     24     5     3         32  
Impairment losses     (16 )               (16 )
Sale of bakery business (Note 3)             (19 )       (19 )
Tax benefit on goodwill amortization(1)     (13 )               (13 )
Allocated acquisition purchase price(2)                 (89 )   (89 )
Foreign exchange translation     14                 14  
   
 
 
 
 
 
Balance, December 31, 2003     138     5     5         148  
Goodwill acquired     29     2             31  
Tax benefit on goodwill amortization(1)     (10 )               (10 )
Allocation of acquired goodwill(3)     (3 )       (3 )       (6 )
Foreign exchange translation     3     1             4  
   
 
 
 
 
 
Balance, December 31, 2004   $ 157   $ 8   $ 2   $   $ 167  
   
 
 
 
 
 

(1)
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 associated goodwill and then intangible assets to zero, prior to recognizing any income tax benefit in the consolidated statements of income.

(2)
In 2003, Bunge assigned $89 million of the 2002 acquisition purchase price of Cereol S.A. to Lesieur, its French edible oil subsidiary that was sold by Bunge in 2003, and its ingredients assets.

(3)
In 2004, upon completion of the final valuation on certain smaller acquisitions, Bunge has assigned $3 million of goodwill acquired in its agribusiness segment to property, plant and equipment and $3 of goodwill acquired in its milling products segment to intangible assets.

9. Other Intangible Assets

        Bunge's other intangible assets consist of trademarks/brands, licenses, software technology and unamortized prior service costs relating to Bunge's employee defined benefit plans (see Note 19). The aggregate amortization expense for other intangible assets was $4 million and $2 million for the year ended December 31, 2004 and 2003, respectively. The annual estimated amortization and depletion expense for 2005 to 2009 is approximately $4 million per year.

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        Intangible assets consist of the following:

 
  December 31,
 
(US$ in millions)

 
  2004
  2003
 
Trademarks/brands-finite lived   $ 87   $ 33  
Licenses     5     2  
Other     18     8  
   
 
 
      110     43  

Less: accumulated amortization:

 

 

 

 

 

 

 
  Trademarks/brands     (3 )   (1 )
  Licenses     (2 )   (1 )
  Other     (1 )    
   
 
 
      (6 )   (2 )

Trademarks/brands-indefinite lived

 

 

40

 

 

40

 
Unamortized prior service costs of defined benefit plans (Note 19)     12     11  
   
 
 
Intangible assets, net of accumulated amortization   $ 156   $ 92  
   
 
 

        In 2004, as a result of the acquisition of the Bunge Brasil minority interest, Bunge preliminarily assigned to its fertilizer segment $25 million of intangible assets attributable to product trademarks/brands (20-year weighted average useful life) and $5 million related to licenses (38-year weighted average useful life). Bunge also assigned to its edible oil products and milling products segments $4 million and $4 million, respectively, of intangible assets attributable to trademarks/brands (20-year weighted useful life) relating to this acquisition (see Note 2). In connection with the J. Macêdo asset exchange transaction, Bunge assigned to its milling products segment $15 million of intangible assets attributable to product trademarks/brands with a 20-year weighted average useful life.

        In 2003, as a result of the Cereol acquisition, Bunge assigned to its edible oil products segment $53 million of intangible assets attributable to product trademarks/brands in Eastern Europe. Of this amount, approximately $34 million of these trademarks/brands have an average finite life of 30 years and the remainder of $19 million have an indefinite life, which is not subject to amortization. In addition, as a result of certain other 2003 acquisitions Bunge recognized finite lived assets of $3 million and indefinite lived intangible assets of $15 million.

10. Long-Lived Asset Impairment and Restructuring Charges

        Impairment—In 2004, Bunge recorded pretax non-cash impairment charges of $17 million relating to write-downs of its refining and bottling facilities in the agribusiness segment in Western Europe attributable to planned closing of these facilities in response to changed market conditions and competition in Western Europe and to the write-downs of refining and packaging facilities in the edible oil products segment in North and South America. These impairment charges were a result of planned closings of older less efficient plants with planned replacement of new more efficient refining facilities in South America. The carrying value of these assets was written down to their estimated fair value.

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        In 2003, Bunge recorded a pretax non-cash impairment charge of $40 million relating to its fixed assets at its European oilseed processing facilities. These facilities were older, less efficient crushing facilities, and these operations were dependent on soybeans imported from North and South America for production. The European operations experienced operating losses during 2003. During the fourth quarter of 2003, Bunge updated its operating forecast, which included the effects of certain events occurring in the fourth quarter, such as the shortfall in the North American soy crop, increased export tariffs for Brazilian soy exports, and increased freight rates. Furthermore, Bunge determined that maintenance capital expenditures for the facilities would be substantially higher than previously forecasted. As a result of these factors, Bunge tested the assets for impairment based upon an undiscounted cash flow model and determined that these cash flows would not recover the carrying value of the assets. The impairment was measured based upon the amount by which the carrying value exceeded the discounted cash flows.

        In 2002, Bunge recorded pre tax non-cash impairment charge of $5 million relating to its North American edible oil bottling facilities. The impairment charge was attributable to a planned disposal of a facility in the edible oil products segment. The carrying value of these assets was written down to their estimated fair value at December 31, 2002.

        Bunge has recorded these impairment charges in cost of goods sold in the consolidated statements of income for the years ended December 31, 2004, 2003 and 2002.

        Restructuring—In connection with the 2004 impairment charges in its agribusiness segment, Bunge recorded $7 million of restructuring charges related to employee termination benefit obligations for 62 plant and administrative employees in the oilseed processing operations as part of its restructuring plan. These restructuring charges were included in cost of goods sold for the year ended December 31, 2004 and in other current liabilities on the consolidated balance sheet at December 31, 2004. The restructuring plan is designed to streamline Bunge's costs and simplify its oilseed processing operations in Western Europe. Bunge's restructuring plan is expected to be finalized in 2005. Payments related to employee termination obligations are expected to be paid in 2005. The plan is expected to be funded by cash flows from operations. No significant unresolved issues exist related to the restructuring plan.

11. Investments in Affiliates

        Bunge has investments in affiliates that are accounted for on the equity method of accounting. The most significant of these affiliates are the following companies:

        The Solae Company—Bunge owns 28% of The Solae Company (Solae), a soy ingredients joint venture with E.I. duPont de Nemours and Company (DuPont). In 2003, Bunge formed an alliance with DuPont to expand its agribusiness and soy ingredients businesses. In connection with the formation of Solae, DuPont contributed its Protein Technologies food ingredients business and Bunge contributed its North American and European ingredients operations. In exchange, Bunge received a 28% interest in Solae based on the fair value of its contribution. The carrying value of net assets contributed also equaled the fair value of $520 million. Bunge did not recognize any gain or loss on this transaction. In addition, in 2003, Bunge sold its Brazilian soy ingredients operations to Solae for $251 million in cash, net of expenses of $5 million. Consequently, Bunge recognized a non-taxable gain on sale of $111 million in the second quarter of 2003 that was included in net income. Bunge did not recognize any additional ownership percentage in Solae as a result of this sale. Bunge has recorded a long-term investment in Solae in its consolidated balance sheets, which includes a deferred gain of $43 million,

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representing Bunge's 28% interest in Solae, as a reduction in the carrying value of the investment in Solae. The deferred gain will only be recognized upon the sale or partial sale of the investment in Solae. During 2004, Bunge received capital returns of $17 million from Solae.

        In May 2003, Solae was organized as a U.S. limited liability company that has elected to be taxed as a partnership. As a result, the parent companies, Bunge and DuPont are responsible for U.S. income taxes applicable to their share of Solae's U.S. taxable income. Therefore, net income for Solae does not reflect any provision for income taxes that would be incurred by its parents.

        Saipol S.A.S.—Bunge has a 33.34% ownership interest in this joint venture which is engaged in oilseed processing and production of branded bottled vegetable oils in France.

        Terminal 6 S.A. and Terminal 6 Industrial S.A.—Bunge has a 40% and 50% ownership interest, respectively, in these joint ventures, which operate a port facility and oilseed processing facility in Argentina. In 2004, Bunge invested $16 million in Terminal 6 Industrial to build a new oilseed processing facility.

        AGRI-Bunge, LLC—Bunge has a 50% voting interest and a 34% interest in the equity and earnings of this joint venture, which originates grain and operates Mississippi river terminals in the U.S.

        Fosbrasil S.A.—Bunge has a 44.25% ownership interest in this joint venture, which operates a phosphoric acid production facility in Brazil.

        EWICO S.p.o.o.—Bunge has a 50% ownership interest in this joint venture, which manufactures edible oils in Poland. This joint venture was created in 2004 and Bunge invested $8 million.

        Harinera La Espiga, S.A. de C.V.—Bunge has a 31.5% ownership interest in this joint venture which has wheat milling and bakery dry mix operations in Mexico.

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BUNGE LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

        Summarized unaudited combined financial information reported for all equity method affiliates and a summary of the amounts recorded in Bunge's consolidated financial statements as of December 31, 2004 and 2003 follows:

(US$ in millions)

  2004
  2003
Amounts recorded by Bunge:            
Investments(1)   $ 564   $ 537
Equity income     12     16

Combined results of operations:

 

 

 

 

 

 
Revenues   $ 2,600   $ 2,070
Income before income tax and minority interest     42     60
Net income     39     58

Combined financial position:

 

 

 

 

 

 
Current assets   $ 934   $ 767
Non-current assets     2,177     2,050
   
 
Total assets   $ 3,111   $ 2,817
   
 
Current liabilities   $ 582   $ 472
Non-current liabilities     682     569
Stockholders' equity     1,847     1,776
   
 
Total liabilities and stockholders' equity   $ 3,111   $ 2,817
   
 

(1)
At December 31, 2004 and 2003, Bunge's investment exceeded its underlying equity in the net assets of Solae by $12 million and $16 million, respectively. Straight-line amortization of this excess against equity income amounted to $4 million and $3 million in 2004 and 2003, respectively. Amortization of the excess has been attributed to intangible assets of Solae, which are being amortized over five years.

12. Other Current Liabilities

        Other current liabilities consist of the following:

 
  December 31,
(US$ in millions)

  2004
  2003
Accrued liabilities   $ 729   $ 608
Unrealized loss on derivative contracts     242     336
Advances on sales     158     146
Other     156     110
   
 
Total   $ 1,285   $ 1,200
   
 

13. Asset Retirement Obligations

        Effective January 1, 2002, Bunge adopted the provisions of SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143). As a result of the adoption, Bunge recorded a $9 million

F-26



charge, net of tax of $5 million, as a cumulative effect of a change in accounting principle relating to its mining assets assigned to the fertilizer segment and certain of its edible oil refining facilities assigned to the edible oil segment. Asset retirement obligations in Bunge's fertilizer segment relate to restoration of land used in its mining operations and asset retirement obligations in its edible oil products segment relate to the removal of certain storage tanks associated with its edible oil refining facilities.

        The carrying amount of the asset retirement obligation was $30 million and $25 million at December 31, 2004 and 2003, respectively. The change related to $2 million of accretion and $3 million of currency translation adjustment.

14. Income Taxes

        Bunge has elected to use the U.S. income tax rates to reconcile the actual provision for income taxes with the income tax provision computed by applying the U.S. statutory rates.

        The components of pretax income (loss) before minority interest and discontinued operations are as follows:

 
  Year Ended December 31,
(US$ in millions)

  2004
  2003
  2002
United States   $ (44 ) $ (23 ) $ 45
Non-United States     948     746     436
   
 
 
Total   $ 904   $ 723   $ 481
   
 
 

        The components of the income tax (expense) benefit are:

 
  Year Ended December 31,
 
(US$ in millions)

 
  2004
  2003
  2002
 
Current:                    
United States   $ (6 ) $ (7 ) $ 13  
Non-United States     (339 )   (211 )   (121 )
   
 
 
 
      (345 )   (218 )   (108 )
   
 
 
 

Deferred:

 

 

 

 

 

 

 

 

 

 
United States     23     20     1  
Non-United States     33     (3 )   3  
   
 
 
 
      56     17     4  
   
 
 
 
Total   $ (289 ) $ (201 ) $ (104 )
   
 
 
 

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        Reconciliation of the income tax expense at the U.S. statutory rate to the effective rate is as follows:

 
  Year Ended December 31,
 
(US$ in millions)

 
  2004
  2003
  2002
 
Income from continuing operations before income tax and minority interests   $ 904   $ 723   $ 481  
Income tax rate     35 %   35 %   35 %
   
 
 
 
Income tax expense at the statutory rate     (316 )   (253 )   (168 )
Adjustments to derive effective rate:                    
Other:                    
Recognition of tax loss benefits on merger of foreign subsidiaries     60          
Change in valuation allowance     (60 )   16     (33 )
Effect of tax free gain on sale of soy ingredients business         39      
Adjustment resulting from the finalization of prior years' tax returns         3     20  
Foreign exchange (expense) benefit     (22 )   (40 )   86  
Earnings of subsidiaries taxed at different statutory rates     31     45     (16 )
Benefits from U.S. export incentive     17     16     9  
Basis difference in determining foreign taxable income     (17 )   (23 )    
Foreign tax benefits     17     14      
Other     1     (18 )   (2 )
   
 
 
 
Income tax expense   $ (289 ) $ (201 ) $ (104 )
   
 
 
 

        In 2003, the sale of Bunge's Brazilian soy ingredients business to Solae for a gain of $111 million did not result in taxable income and therefore no income tax was provisioned. However, Bunge recorded a net tax expense of $23 million relating to new tax laws in South America.

        Bunge has obtained tax benefits under U.S. tax laws providing tax incentives on export sales from the use of a U.S. Foreign Sales Corporation (FSC) through 2001. Beginning in 2002, due to the repeal of the FSC-related legislation, Bunge was required to use the tax provisions of the Extraterritorial Income Act (ETI) legislation, which were substantially similar to the FSC-related legislation. The U.S. Congress has recently passed and the President has signed the American Jobs Creation Act of 2004 that ultimately repeals the ETI benefit. Under the new legislation, the ETI will be phased out with 100% of the otherwise available ETI benefit retained for 2004, 80% of the otherwise available ETI benefit retained for 2005, 60% of the otherwise available ETI benefit retained for 2006 and the ETI benefit phased out completely in 2007. The ETI benefit has been replaced with an income tax deduction intended to allocate benefits previously provided to U.S. exporters across all manufacturers when fully phased in. Although most of Bunge's U.S. operations qualify as "manufacturing," Bunge expects that this new tax legislation will be less beneficial to it than the prior one primarily due to Bunge's U.S. tax position.

        In 2003, a new tax law was enacted in South America affecting exporters of certain products, including grains and oilseeds. The tax 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

F-28



price of the exported products or the market price of the products at the date of shipment. The tax effect of this new tax law was reflected in income tax expense in the consolidated statements of income for the years ended December 31, 2004 and 2003.

        Certain Bunge subsidiaries had undistributed earnings amounting to approximately $541 million and $519 million at December 31, 2004 and 2003. These are considered to be permanently reinvested and, accordingly, no provision for income taxes has been made. It is not practicable to determine the deferred tax liability for temporary differences related to these undistributed earnings. Deferred taxes are provided for subsidiaries having undistributed earnings not considered to be permanently invested. The primary components of the deferred tax assets and liabilities and the related valuation allowance are as follows:

 
  December 31,
 
(US$ in millions)

 
  2004
  2003
 
Deferred income tax assets:              
Net operating loss carry-forwards   $ 482   $ 386  
Excess of tax basis over financial statement basis of property, plant and equipment     55     65  
Accrued retirement costs (pension and postretirement cost) and other accrued employee compensation     59     43  
Other accruals and reserves not currently deductible for tax purposes     194     161  
Tax credit carry-forwards     15     12  
Other     51     63  
   
 
 
Total deferred tax assets     856     730  
Less valuation allowance     (177 )   (107 )
   
 
 
Net deferred tax assets     679     623  
   
 
 
Deferred tax liabilities:              
Excess of financial statement basis over tax basis of property, plant and equipment     366     344  
Undistributed earnings of affiliates     129     125  
Other     86     76  
   
 
 
Total deferred tax liabilities     581     545  
   
 
 
Net deferred tax assets   $ 98   $ 78  
   
 
 

        At December 31, 2004, Bunge's gross tax loss carry-forwards totaled $1,510 million, of which $272 million have no expiration. However, applicable income tax regulations limit some of these tax losses available for offset of future taxable income to 30% of annual pretax income. The remaining tax loss carry-forwards expire at various periods beginning in 2005 through the year 2024.

        Bunge continually reviews the adequacy of its valuation allowance and recognizes tax benefits only as reassessment indicates that it is more likely than not that the benefits will be realized. The majority of the valuation allowances relate to net operating loss carry-forwards in certain of its non-U.S. subsidiaries where there is an uncertainty regarding their realization and will more likely than not expire unused. In 2004, Bunge merged several European subsidiaries, which generated statutory tax losses and the recognition of $60 million of net operating loss carry-forwards. Bunge increased its valuation allowance by $60 million as it is more likely than not that the assets will not be realized. In

F-29



2003, Bunge decreased its valuation allowance by $16 million, which resulted from the utilization of net operating loss carry-forwards by its Brazilian and Argentine subsidiaries. Bunge was able to recognize these net operating carry-forwards because of increased statutory taxable income of these subsidiaries caused by effects of the real and peso appreciation and a change in South American tax law.

        In 2004, 2003 and 2002, Bunge paid income taxes, net of refunds, of $210 million, $112 million and $14 million, respectively. In addition, in 2004 Bunge offset income taxes payable of $95 million against recoverable taxes receivable in certain South American jurisdictions in accordance with the applicable local tax laws.

15. Financial Instruments

        Bunge uses various financial instruments in its operations, including certain components of working capital such as cash and cash equivalents, trade accounts receivable and accounts payable. Additionally, Bunge uses short-term and long-term debt to fund operating requirements and derivative financial instruments to manage its foreign exchange and commodity price risk exposures. The counter-parties to these debt financial instruments are primarily major financial institutions and Banco Nacional de Desenvolvimento Econômico e Social ("BNDES") of the Brazilian government, or in the case of commodity futures and options, a commodity exchange. Cash and cash equivalents, trade accounts receivable and accounts payables, marketable securities, short-term debt and all derivative instruments are carried at fair value. The fair values of all of Bunge's derivative instruments are based on quoted market prices and rates and are reflected as marked-to-market adjustments to the carrying value in the consolidated financial statements.

        Fair Value of Financial Instruments—The carrying amounts and fair values of financial instruments were as follows:

 
  December 31,
 
  2004
  2003
(US$ in millions)

  Carrying Value
  Fair Value
  Carrying Value
  Fair Value
Marketable securities   $ 14   $ 14   $ 13   $ 13
Long-term debt, including current portion     2,740     2,895     2,505     2,746

        Cash and cash equivalents, trade accounts receivable, accounts payable and short-term debt—The carrying value approximates the fair value because of the short-term maturity of these instruments. All investment instruments with a maturity of three months or less are considered cash equivalents.

        Marketable securities—The fair value was determined based on quoted market prices.

        Long-term debt—The fair value of long-term debt was calculated based on interest rates currently available to Bunge for similar borrowings.

        Derivative instruments—In September 2004, Bunge entered into treasury rate lock agreements with an aggregate notional amount of $500 million at a 10-year treasury yield of 4.15% with a settlement date of March 2005. The treasury rate lock agreements were not designated as hedging instruments. In the fourth quarter of 2004, Bunge terminated these treasury rate lock agreements. Bunge recorded a gain in other income (expense)-net in the consolidated statements of income of approximately

F-30



$10 million relating to the cash settlement received on these derivative agreements for the year ended December 31, 2004.

        In June 2004, Bunge entered into various interest rate swap agreements to manage its interest rate exposure on a portion of its fixed rate debt. These swap agreements had an aggregate notional amount of $1 billion at weighted average fixed rates receivable of 4.375% and 5.35% and weighted average variable rates payable of 2.23% and 2.17%, with maturity dates of 2008 and 2014. These interest rate swap agreements were accounted for as fair value hedges. In September 2004, Bunge terminated the June 2004 swap agreements and received $60 million in cash, which was comprised of $8 million of accrued interest and a $52 million gain on the net settlement of the June 2004 swap agreements. The $8 million of accrued interest was recorded as a reduction of interest expense for the year ended December 31, 2004 in the consolidated statement of income and the $52 million gain was recorded as an adjustment to the carrying amount of the related debt in the consolidated balance sheet. The $52 million gain will be amortized to earnings over the remaining term of the debt, which ranges from four to nine years.

        Concurrent with the September 2004 termination of the June 2004 swap agreements, Bunge entered into various new interest rate swap agreements to manage its interest rate exposure on a portion of its fixed rate debt. Bunge has accounted for these new swap agreements as fair value hedges.

        The interest rate swaps used by Bunge as derivative hedging instruments 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 the associated debt is adjusted through earnings for changes in the fair value due to changes in interest rates. Ineffectiveness is recognized to the extent that these two adjustments do not offset. As of December 31, 2004, Bunge recognized no ineffectiveness related to the interest rate swap hedging instruments. The derivatives Bunge entered into for hedge purposes are assumed to be perfectly effective under the shortcut method of SFAS No. 133. The differential to be paid or received on changes in interest rates is recorded as an adjustment to interest expense. The interest rate swaps settle every six months until expiration. Bunge recorded $6 million of accrued interest as a reduction of interest expense in the consolidated statement of income for the year ended December 31, 2004.

        The following table summarizes Bunge's outstanding interest rate swap agreements as of December 31, 2004.

 
  Maturity
   
  Fair Value
 
(US$ in millions)

   
 
  2008
  2014
  Total
  December 31, 2004
 
Receive fixed/pay variable notional amount   $500   $500   $ 1,000   $ (12 )
Weighted average variable rate payable(1)   3.28 % 3.15 %            
Weighted average fixed rate receivable   4.375 % 5.35 %            

(1)
Interest is payable in arrears based on a forecasted rate of six-month LIBOR plus a spread.

        In connection with obtaining debt financing in 2002, Bunge entered into treasury rate lock contracts to hedge interest rate variability risk associated with changes in U.S. Treasury rates. Bunge accounted for these derivative contracts in other comprehensive income (loss) as cash flow hedges of forecasted issuances of debt. These hedges were terminated upon issuance of the related debt. The

F-31


$17 million remaining in accumulated other comprehensive income (loss) is commensurate with the actual debt issued and is being amortized over 10 years. In 2004 and 2003, Bunge reclassified approximately $2 million in both years from other comprehensive income (loss) to interest expense in the consolidated statements of income, relating to these derivative contracts. Bunge expects to reclassify approximately $2 million to interest expense in 2005.

16. Short-Term Debt and Credit Facilities

        Short-term borrowings consist of the following:

 
  December 31,
(US$ in millions)

  2004
  2003
Commercial paper with an average interest rate of 2.37% at December 31, 2004   $ 401   $ 426
Lines of credit:            
Unsecured variable interest rates from 1.39% to 10.5%     140     460
Other         3
   
 
Total short-term debt   $ 541   $ 889
   
 

        Bunge's short-term borrowings, predominantly held with commercial banks, are primarily used to fund readily marketable inventories and other working capital requirements. The weighted average interest rate on short-term borrowings at December 31, 2004 and 2003 was 4.2% and 2.36%, respectively.

        In connection with the financing of readily marketable inventories, Bunge recorded interest expense on debt financing readily marketable inventories of $46 million, $34 million and $31 million for the years ended December 31, 2004, 2003 and 2002, respectively.

        At December 31, 2004, Bunge had a $600 million commercial paper program facility to fund working capital requirements. At December 31, 2004, Bunge had approximately $199 million of unused and available borrowing capacity under its commercial paper program facility and other committed short-term lines of credit with a number of lending institutions.

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17.    Long-Term Debt

            Long-term obligations are summarized below:

 
  December 31,
 
(US$ in millions)

 
  2004
  2003
 
Payable in U.S. Dollars: