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 2005, we had total net sales of $24,275 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 also have operations in India and China and international marketing offices throughout the world. The segment operating profit of our agribusiness division was $296 million in 2005.

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 $ 81 million in 2005.

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 $ 16 million and $63 million, respectively, in 2005.

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 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.

Agribusiness

Overview.    Our agribusiness division is an integrated business involved in the purchase, storage, transport, processing and sale of agricultural commodities and commodity products. The principal

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agricultural commodities that we purchase, store and sell are grains and oilseeds, primarily soybeans, sunflower seed, rapeseed or canola, wheat and corn. We purchase these grains and oilseeds either directly from farmers or indirectly through intermediaries. The principal agricultural commodity products that we produce, store and sell in our oilseed processing operations are meal, hulls and crude and further processed oils. Of these products, the majority are soybean products, as soybean capacity accounted for approximately 89% of our total oilseed processing capacity in 2005. Our international marketing operations sell and distribute our agricultural commodities and commodity products to our international customers while managing our international commodity, financing and freight risks.

Customers.    We sell agricultural commodities and commodity products to customers in over 90 countries. The principal purchasers of our grains and oilseeds are feed manufacturers, wheat and corn millers and other oilseed processors. The principal purchasers of our oilseed meal and hull products are 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-half of our total crude oil production in 2005. These oils are used by our customers to produce a variety of edible oil products for the food service, food processor and retail markets. In addition, we have recently experienced increased sales of our oil products for non-food uses such as the production of biodiesel, which is used as a fuel additive or supplement.

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 pork 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 other 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 and improve our distribution and logistics capabilities.

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 typically carry local market interest rates. As of December 31, 2005, the total amount outstanding under prepaid commodity purchase contracts and secured advances to our suppliers, which primarily include farmers, was $924 million. We also 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. Major competitors in our agribusiness operations are The Archer Daniels Midland Co., or ADM, and Cargill Incorporated, or Cargill, and, to a lesser extent, large agricultural cooperatives and trading companies, such as Louis Dreyfus Group.

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Fertilizer

Overview.    We are the largest producer and supplier of fertilizer to farmers in South America and a major integrated fertilizer producer in Brazil, participating in all stages of the business, from mining of phosphate-based raw materials to selling of blended fertilizers. In the Brazilian retail market, we have approximately 30 % of the market share of “NPK” fertilizers. NPK refers to nitrogen (N), phosphate (P) and potash (K), 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 blending capacity and intend to expand our production capabilities at our phosphate 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 of intermediate phosphate-based products for sale to fertilizer blenders, cooperatives and to supply our own retail fertilizer production operations. We also produce phosphate-based animal feed ingredients in this business. The primary products we produce in our nutrients operations are phosphate rock, sulfuric acid, single super phosphate, phosphoric acid and dicalcium phosphate. Our retail operations consist of producing, distributing and selling blended NPK formulas and other fertilizer products directly to retailers, processing and trading companies and farmers, primarily in Brazil, as well as in Argentina and Paraguay. These fertilizers are used for a variety of crops, including soybeans, corn, sugar cane, wheat and coffee. We market our fertilizers under the IAP, Manah, Ouro Verde and Serrana brands.

Raw Materials.    The principal raw materials used in our fertilizer division are sulfur, sulfuric acid, phosphate rock and phosphate-based products in the phosphate chain, various nitrogen-based products in the nitrogen chain and various potash-based products in the potash chain. Through our phosphate mines, we were able to supply approximately 67% of our total phosphate requirements in 2005. We purchased the balance from third-party suppliers located in Brazil or internationally. Our sulfuric acid production capacity was sufficient to supply approximately 93% of our needs in 2005. In 2005, we purchased 83% of our demand for nitrogen-based and potash-based products from third-party suppliers located in Brazil or internationally.

The prices of fertilizer raw materials are determined by reference to international prices as a result of supply and demand factors. Each of these products 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 our fertilizer operations are Copebrás, Fertipar, The Mosaic Company, Abudos Trevo (Yara) 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 oil products 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 and our agribusiness operations through our raw material procurement activities, enabling us to benefit from being an integrated, global enterprise.

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Edible Oil Products

Products.    Our edible oil products include bottled, packaged and bulk oils, shortenings, margarine, mayonnaise and other products derived from the vegetable oil refining process. We primarily use soybean, sunflower, rapeseed or canola and cottonseed oil that we produce in our oilseed processing operations as raw materials in this business. We are a leading seller of bottled vegetable oils worldwide, based on sales, and we have edible oil refining and packaging facilities in North America, South America, Europe and Asia.

We sell our retail edible oil products in Brazil under a number of our own brands, including Soya , the leading bottled oil brand. We are also the market leader in the Brazilian margarine market with our brands Delicia and Primor . In addition, our brand Bunge Pro is the top foodservice shortening brand in Brazil. In the United States, our Elite brand is one of the leading foodservice brands of edible oil products. In addition, through our alliance with DuPont, we have begun to offer Nutrium™ Low Lin Soybean Oil , a new low linolenic soybean oil that is trans-fat free to food processors seeking to reduce or eliminate trans-fatty acids in their 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, Ideal and Oleina . In India, our primary brands include Dalda , Chambal and Masterline . In several markets we also sell bottled edible oil products to grocery store chains for sale under their own private labels.

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.

Milling Products

Products.    Our milling products include wheat flours sold primarily in Brazil and corn products sold in North America. Our 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. We also produce corn oil and corn feed products.

Distribution and Customers.    In Brazil, the primary customers for our wheat milling products are industrial  bakery and foodservice companies. In North America, the primary customers for our corn products are companies in the food processing sector and the U.S. government for humanitarian relief programs. 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 North American corn products business include Cargill and J.R. Short Milling Co.

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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 are determined based on the location of the subsidiary making the sale.

		Year Ended December 31,
		2005				2004				2003
		(US$ in millions)
Net Sales to External Customers by Operating Segment(1):
Agribusiness		$		17,437		$		17,983		$		16,307
Fertilizer		2,674				2,581				1,954
Edible oil products		3,305				3,800				3,101
Milling products		859				804				751
Other (soy ingredients)		—				—				52
Total		$	24,275			$	25,168			$	22,165

 

		Year Ended December 31,
		2005				2004				2003
		(US$ in millions)
Net Sales to External Customers by Geographic Area:
Europe		$		8,904		$		8,777		$		7,176
United States		6,076				6,783				6,129
Brazil		4,994				4,939				3,894
Asia		2,956				3,225				3,451
Canada		957				1,160				1,216
Argentina		362				262				275
Rest of world		26				22				24
Total		$	24,275			$	25,168			$	22,165

 

		Year Ended December 31,
		2005				2004				2003
		(US$ in millions)
Long-Lived Assets by Geographic Area(2):
Brazil		$		2,035		$		1,759		$		1,323
United States		963				1,021				1,052
Europe		505				410				302
Argentina		137				113				80
Rest of world		153				120				110
Total		$	3,793			$	3,423			$	2,867

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(1)           During the year ended December 31, 2005, 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, 2004 and 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.

Please see Note 26 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.

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Joint Ventures and Alliances

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

Solae; Alliance with DuPont.    We have 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.

Saipol S.A.S.    Saipol is a joint venture with Sofiproteol, the financial arm of the French oilseed farmers’ 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.

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 a 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.    We have a joint venture in the United States 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.

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.

EWICO S.p.z.o.o.    We have a 50% share of this joint venture in Poland with a local partner. The joint venture operates a manufacturing facility that produces crude oil and refined rapeseed oil sold in bulk.

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.

Terminal de Granéis do Guarujá S.A. (TGG).    We have a joint venture in Brazil with Ferronorte S.A. - Ferrovias Norte Brasil and Amaggi Exportacão e Importacão Ltda. for the construction of a terminal in the port of Guarujá. We have a 49% interest in TGG.

Diester Industries International S.A.S.    In December 2005, we along with Diester Industrie, a subsidiary of Sofiproteol, formed a joint venture specializing in the production and marketing of biodiesel. The new company is called Diester Industries International S.A.S. (DII). DII combines our and certain of Diester Industrie’s biodiesel assets in Europe. Diester Industrie owns 60% of the joint venture, and we own 40%. DII will produce biofuels in Marl, Germany, Bruck, Austria and Livorno, Italy.

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.

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Our total research and development expenses were $18 million in 2005, $14 million in 2004 and $8 million in 2003. As of December 31, 2005, our research and development organization consisted of approximately 128 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. 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 North and South American 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. Our manufacturing operations use substantial amounts of energy including natural gas, steam and fuel oil. We engage in energy cost hedging to reduce our exposure to volatility in energy costs. We also engage in foreign currency and interest rate hedging. In addition, we enter into 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 policy committee of our board of directors that supervises and reviews our overall risk management policies and risk limits. In addition, we have a risk management group which 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 a variety of laws in each of the countries in which we operate which 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.

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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 in each of the 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.    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 regulations which require labeling and traceability criteria for GMOs. 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 legalized the planting and sale of GMO soybeans in 2005. 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.    On January 1, 2006, new U.S. Food and Drug Administration labeling rules took effect which require 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 and other customers have either switched or 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 reduced trans-fat alternatives.

Biofuels Legislation.    In recent years, there has been increased interest throughout the world in the production of biofuels. Biofuels convert crops, such as sugar cane, corn, soybeans and other oilseeds, into ethanol or biodiesel to extend or substitute for fossil fuels, and reduce carbon dioxide emissions. Production of biofuels has been increasing significantly as incentives for the production of biofuels are being offered in many countries. For example, in the United States, ethanol and biodiesel production benefit from certain tax incentives, while in Europe, several countries provide tax incentives for the production of biodiesel. As such, the markets for agricultural commodities and commodity products used in the production of biofuels, such as soybean, rapeseed and canola oil, are becoming increasingly affected by the growth of the biofuel industry and related legislation.

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.

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. Compliance with environmental laws and regulations did not materially affect our capital expenditures, earnings or competitive position in 2005, and, based on current laws and regulations, we do not expect that they will do so in 2006.

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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,
		2005		2004		2003
Agribusiness		9,256		9,120		8,797
Fertilizer		6,508		6,846		6,526
Food products		7,731		8,655		7,972
Total		23,495		24,621		23,295

 

Employees by Geographic Region

		December 31,
		2005		2004		2003
North America		3,909		4,140		4,066
South America		13,762		14,904		14,594
Europe		5,094		4,390		3,707
Asia		730		1,187		928
Total		23,495		24,621		23,295

 

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 and Asia. 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. For additional information see the discussion under “Item 1A. 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 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.

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 policy committee and corporate governance and nominations committee. Our corporate

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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 100 F Street, N.E., 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.

Bunge’s Chief Executive Officer and Chief Financial Officer have provided certifications to the Securities and Exchange Commission as required by Section 302 of the Sarbanes-Oxley Act of 2002. These certifications are included as exhibits to this Annual Report on Form 10-K. As required by the New York Stock Exchange (NYSE), on June 20, 2005, our Chief Executive Officer submitted his certification to the NYSE that stated he was not aware of any violation of the NYSE corporate governance listing standards.

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, 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, 50.    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 International Paper Company and 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, 50.    Mr. Burke has been Managing Director, New Business 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

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joining Degussa, Mr. Burke worked for Beecham Pharmaceuticals and Price Waterhouse & Company. Mr. Burke is a graduate of Villanova University and earned an M.B.A. from Manhattan College.

Archibald Gwathmey, 54.    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, 67.    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 received a degree in Business from the São Paulo School of Business Administration of the Getulio Vargas Foundation.

Flávio Sá Carvalho, 62.    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, 45.    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. Mr. Wells is a member of the Board of Directors of Biovail Corporation. He is also a member of the Standard & Poor’s Corporate Issuer Advisory Board. He has a Master’s Degree in International Business from the University of South Carolina.

Mario A. Barbosa Neto, 59.    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, 58.    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, 59.    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

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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, 50.    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.

Sergio Roberto Waldrich, 48.    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 1A.                 Risk Factors

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. See “Cautionary Statement Regarding Forward-Looking Statements.”

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.

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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 and Asia. 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 significant portion of our net sales and expenses are denominated in currencies other than the U.S. dollar. 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, affect farm economics in non-U.S. markets 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.

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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. In addition, international trade disputes can adversely affect agricultural commodity trade flows by limiting or disrupting trade between countries or regions. 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.

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, 2005, we had $3,146 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 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.”

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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. 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. 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, 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 retail 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

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competition as a result of adverse publicity and labeling requirements in the U.S. associated with trans-fatty acids. If our competitors are able to offer or develop low trans-fatty acid products more economically or quickly than we can, our competitive position could suffer and our edible oil products segment revenues and profits 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 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. Over the past two years, due to the higher costs of fertilizer, seed, crop chemicals and other farm inputs, as well as the growth of planted acreage in Brazil, we have advanced funds to farmers in greater amounts under these arrangements than we have in the past. At December 31, 2005 and 2004, we had approximately $924 million and $932 million in outstanding prepaid commodity purchase contracts and advances to the farmers, respectively. 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, any collateral held by us as part of these financing transactions may not be sufficient to fully protect us from loss. In addition, we sell fertilizer on credit to farmers in Brazil. At December 31, 2005 and 2004, our total fertilizer segment accounts receivable were $663 million and $548 million, respectively. During 2005, approximately 85% of our fertilizer sales were made on credit. 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 20 to our consolidated financial statements included as part of this Annual Report on Form 10-K. In the event that the customers default

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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.

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 at least 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

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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 U.S. investors owning shares of a “passive foreign investment company,” or PFIC, directly or indirectly. 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, 2005 and relying on certain exceptions in the applicable U.S. Treasury regulations, we do not believe that we are currently a PFIC. Characterization as a PFIC could result in adverse U.S. tax consequences to U.S. investors in our common shares. 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 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 1B.   Unresolved Staff Comments

We have no unresolved staff comments.

Item 2.   Properties

The following tables provide information on our principal operating facilities as of December 31, 2005.

Facilities by Division

				Aggregate Size				Aggregate Daily Production Capacity				Aggregate Daily Storage Capacity
Division				(square meters)				(metric tons)				(metric tons)
Agribusiness					2,798,171				154,937				10,477,102
Fertilizer					1,552,635				147,649				2,856,032
Food Products					1,413,548				27,961				547,101

 

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Facilities by Geographic Region

				Aggregate Size				Aggregate Daily Production Capacity				Aggregate Daily Storage Capacity
Region				(square meters)				(metric tons)				(metric tons)
North America					1,045,716				62,191				7,139,235
South America					2,832,412				223,381				4,782,871
Europe					1,886,226				44,975				1,958,129

 

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.

Agribusiness

In our agribusiness operations, we have approximately 275 grain storage facilities that are located close to agricultural production areas and export locations. We also have approximately 50 oilseed processing plants and approximately 25 international marketing offices throughout the world.

Fertilizer

In our fertilizer division, we currently operate four phosphate mines in Brazil. In addition to our phosphate mines, we also operate approximately 35 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, 2005				Years Unit Reserve Depletion
				(millions of metric tons)
Araxá					0.84				22	(1)
Cajati					0.58				18	(1)
Catalão (2)					1.03				33
Tapira (2)					1.58				55

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(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.

(2)          Bunge has a controlling interest in and consolidates the results of Fertilizantes Fosfatados S.A. - FOSFERTIL, which we refer to as Fosfertil. Fosfertil is a publicly traded phosphate and nitrogen producer in Brazil, and owns the Catalão and Tapira mines, as well as the Salitre mine described below.

In addition to the mines listed above, we also have interests in three additional phosphate mines, Salitre, Anitápolis and Araxá CBMM, with proven reserves where production has not yet commenced. Our interest in Anitápolis is through an unconsolidated joint venture. The production capacity for the Salitre,

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Anitápolis and Araxá CBMM mines is estimated to be approximately 1 million, 200,000 and 300,000 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, 15 years for Anitápolis and 20 years for Araxá CBMM.

Food Products

In our food products operations, we have approximately 50 refining and bottling facilities and 20 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, 2005, these claims numbered approximately 1,184 individual cases, represented in the aggregate approximately $883 million and averaged approximately $746,000 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 $173 million as of December 31, 2005 in respect of these claims. In addition, we have approximately 363 individual claims pending against Brazilian federal, state and local tax authorities to recover taxes previously paid by us. As of December 31, 2005, these claims represented in the aggregate approximately $1.1 billion and averaged approximately $3 million per claim.

We are also a party to a number of labor claims relating to our Brazilian operations. We have reserved $121 million as of December 31, 2005 in respect of these claims. The labor claims primarily relate to dismissals, severance, health and safety, salary adjustments and supplementary retirement benefits.

Several of our Brazilian subsidiaries have litigation pending in Brazil against Centrais Elétricas  Brasileiras S.A. (Electrobrás), a publicly traded, government controlled holding company for Brazilian electric companies. The litigation is seeking interest, including adjustments for inflation, on amounts deposited with Electrobrás that were required by law from 1977 to 1993. In 2005, a Brazilian court issued a judgment in favor of one of our subsidiaries in respect of its claims against Electrobrás. The judgment did not specify the amount which we can recover from Electrobrás. We are currently negotiating the final settlement amount with Electrobrás and expect to complete the negotiations during 2006. The negotiated settlement requires court approval. As of December 31, 2005, we have not recognized any amounts related to this claim in the consolidated financial statements pending the outcome of the negotiations with Electrobrás and the court approval. Although we expect to receive up to $45 million upon final settlement based on our subsidiary’s claims against Electrobrás for which a judgment has been issued, amounts ultimately negotiated and approved by the Brazilian court could be substantially less. Our other Brazilian subsidiaries’ claims have not yet been decided by the Brazilian courts.

We had previously been involved in arbitration proceedings at the ICC International Court of Arbitration with the former joint venture partner of Cereol S.A. (we acquired Cereol in October 2002 from Edison SpA) over the final purchase price of Oleina Holding S.A. and related issues (collectively referred to as the Oleina Disputes). Cereol purchased the 49% of Oleina it did not already own from its former

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joint venture partner for $27 million in February 2002, with the final purchase price to be determined by arbitration. In June 2005, the parties agreed to settle all claims relating to the Oleina Disputes. In connection with the settlement, we paid Cereol’s former joint venture partner $90 million, $85 million of which was funded by Edison, pursuant to the terms of an agreement between Edison and us. Pursuant to our agreement with Edison relating to our acquisition of Cereol, we were entitled to be indemnified by Edison for certain amounts relating to the Oleina Disputes.

In April 2000, we acquired Manah S.A., a Brazilian fertilizer company that had an indirect participation in Fosfertil. 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 yet been approved, 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 2005.

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PART II

Item 5.                         Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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
2006
First quarter (to March 10)				$60.29							$51.29
2005
Fourth quarter				$					57.01		$					48.30
Third quarter				$					67.31		$					51.95
Second quarter				$				65.10			$					48.99
First quarter				$				57.75			$				50.84
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

 

To our knowledge, based on information provided by Mellon Investor Services LLC, our transfer agent, 119,184,696 of our common shares were held by approximately 177 registered holders as of December 31, 2005.

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 $.13 per share in the first two quarters of 2005 and $ .15 per share in the last two quarters of 2005. In addition, we paid a regular quarterly cash dividend of $.15 per share on February 28, 2006 to shareholders of record on February 14, 2006. On February 24, 2006, we announced that we will pay a regular quarterly cash dividend of $.15 per share on May 31, 2006 to shareholders of record on May 17, 2006.

Sales of Unregistered Securities

None.

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Equity Compensation Plan Information

The following table sets forth certain information, as of December 31, 2005, with respect to our equity compensation plans.

		(a)				(b)						(c)
Plan category		Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights				Weighted-Average Exercise Price Per Share of Outstanding Options, Warrants and Rights						Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity compensation plans approved by shareholders(1)			4,766,856	(2)			$		29.72	(3)			5,381,923	(4)
Equity compensation plans not approved by shareholders(5)			15,403	(6)			—			(7)			—	(8)
Total			4,782,259				$	29.72					5,381,923

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

(2)     Includes non-statutory stock options outstanding as to 3,286,890 common shares, time-vested regular restricted stock unit awards outstanding as to 132,057 common shares (including dividend equivalents payable in common shares) and performance-based restricted stock unit awards outstanding as to 983,309 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 364,600 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 our common shares 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)     Includes dividend equivalents payable in common shares. 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, 2005, we had a total of 119,184,696 common shares issued and outstanding.

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

(6)     Includes rights to acquire 15,403 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.

Purchases of Equity Securities by Registrant and Affiliated Purchasers

None.

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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, 2005 and the consolidated balance sheet data as of December 31, 2005 and 2004 are derived from our audited consolidated financial statements included in this Annual Report on Form 10-K. The consolidated statements of income and cash flow data for the years ended December 31, 2002 and 2001 and the consolidated balance sheet data as of December 31, 2003, 2002 and 2001 are derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K.

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,
		2005			2004			2003			2002			2001
		(US$ in millions)
Consolidated Statements of Income Data:
Net sales		$	24,275		$	25,168		$	22,165		$	13,882		$		11,302
Cost of goods sold		(22,704		)	(23,282		)	(20,860		)	(12,544		)	(10,331			)
Gross profit		1,571			1,886			1,305			1,338			971
Selling, general and administrative expenses		(956		)	(871		)	(691		)	(579		)	(423			)
Gain on sale of soy ingredients business		—			—			111			—			—
Interest income		104			103			102			71			91
Interest expense		(231		)	(214		)	(215		)	(176		)	(223			)
Foreign exchange (losses) gains		(22		)	(31		)	92			(179		)	(148			)
Other income (expense)—net		53			31			19			6			(4			)
Income from continuing operations before income tax and minority interest		519			904			723			481			264
Income tax benefit (expense)		82			(289		)	(201		)	(104		)	(68			)
Income from continuing operations before minority interest		601			615			522			377			196
Minority interest		(71		)	(146		)	(104		)	(102		)	(72			)
Income from continuing operations		530			469			418			275			124
Discontinued operations, net of tax of $5 (2003), $1 (2002), $0 (2001)		—			—			(7		)	3			3
Income before cumulative effect of change in accounting principles		530			469			411			278			127
Cumulative effect of change in accounting principles, net of tax of $6 (2002) and $4 (2001)		—			—			—			(23		)	7
Net income		$	530		$	469		$	411		$	255		$	134

 

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		Year Ended December 31,
		2005							2004							2003							2002						2001
		(US$, except outstanding share data)
Per Share Data:
Earnings per common share—basic:
Income from continuing operations		$					4.73		$					4.42		$					4.19		$				2.87		$					1.73
Discontinued operations		—							—							(.07						)	.03						.04
Cumulative effect of change in accounting principles		—							—							—							(.24					)	.10
Net income per share		$				4.73			$				4.42			$				4.12			$				2.66		$				1.87
Earnings per common share—diluted(1):
Income from continuing operations		$			4.43				$			4.10				$			3.89				$			2.83			$			1.72
Discontinued operations		—							—							(.06						)	.03						.04
Cumulative effect of change in accounting principles		—							—							—							(.23					)	.10
Net income per share		$		4.43					$		4.10					$		3.83					$		2.63				$		1.86
Cash dividends declared per common share		$	.560						$	.480						$	.420						$	.385					$	.095
Weighted average common shares outstanding— basic(1)		112,131,739							106,015,869							99,745,825							95,895,338						71,844,895
Weighted average common shares outstanding— diluted(1)		120,853,928							115,674,056							108,654,027							97,395,005						72,004,754

 

		Year Ended December 31,
		2005			2004			2003			2002			2001
		(US$ in millions)
Consolidated Cash Flow Data:
Cash provided by (used for) operating activities		$	382		$	802		$	(41	)	$	128		$	205
Cash (used for) provided by investing activities		(480		)	(824		)	101			(1,071		)	(175		)
Cash provided by (used for) financing activities		21			(91		)	(102		)	1,295			(224		)

 

		December 31,
		2005			2004				2003				2002				2001
		(US$ in millions)
Consolidated Balance Sheet Data:
Cash and cash equivalents		$	354		$		432		$		489		$		470		$		199
Inventories(2)		2,769			2,636				2,867				2,407				1,368
Working capital		2,947			2,766				2,481				1,655				938
Total assets		11,446			10,907				9,884				8,349				5,443
Short-term debt, including current portion of long-term debt		589			681				1,017				1,499				983
Long-term debt		2,557			2,600				2,377				1,904				830
Redeemable preferred stock(3)		—			—				171				171				171
Common shares and additional paid in capital, net of receivable from former sole shareholder		2,631			2,362				2,011				1,945				1,631
Shareholders’ equity		$	4,226		$	3,375			$	2,377			$	1,472			$	1,376

 

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		Year Ended December 31,
		2005		2004		2003		2002		2001
		(in millions of metric tons)
Other Data:
Volumes:
Agribusiness		98.5		89.1		87.6		69.6		57.5
Fertilizer		11.5		11.6		11.5		10.7		9.0
Food products:
Edible oil products		4.8		4.7		3.5		2.0		1.6
Milling products		3.9		4.0		3.5		3.3		3.3
Other		—		—		0.1		0.2		0.1
Total food products		8.7		8.7		7.1		5.5		5.0
Total volume		118.7		109.4		106.2		85.8		71.5

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(1)           In October 2005, Bunge Limited announced its intent to redeem on November 22, 2005 for cash the remaining approximately $242 million principal amount outstanding of its 3.75% convertible notes. Substantially all of the then outstanding convertible notes were converted into 7,532,542 common shares of Bunge Limited prior to the redemption date. The calculation of diluted earnings per common share for the year ended December 31, 2005 includes the weighted average common shares that were issuable upon conversion of the convertible notes through the date of redemption. The calculation of diluted earnings per common share for the years ended December 31, 2004, 2003 and 2002 includes the weighted average common shares that were issuable upon conversion of the convertible notes during this period.

(2)           Included in inventories were readily marketable inventories of $1,534 million, $1,264 million, $1,846 million, $1,517 million and $764 million at December 31, 2005, 2004, 2003, 2002 and 2001, 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:

Agribusiness

In the agribusiness division, we purchase, store, process, transport and sell agricultural commodities and commodity products. Profitability in this division is principally affected by volatility in the prices of agricultural commodities and commodity products and the availability and cost of transportation and logistics services, including truck, barge, rail and ocean freight. Additionally, profitability in the division is also affected by the relative prices of processed oilseed products and the raw materials necessary to produce them, which are influenced by the global supply and demand for each. Our oilseed processing profitability is also impacted by industry capacity utilization and energy costs. Availability of agricultural commodities is affected by weather conditions, governmental policies and agricultural growing patterns. Demand is affected by growth in worldwide consumption of food products, population growth, changes in per capita incomes and the relative prices of substitute agricultural products. We expect that population growth and rising standards of living will continue to have a positive impact on global demand for our agribusiness products.

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From time to time, imbalances may exist between oilseed processing capacity and demand for oilseed products, which impacts our decisions regarding whether and when to purchase, store, process, transport or sell these commodities, including whether to reduce our own oilseed processing capacity.

Fertilizer

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, the quality of the land under cultivation and weather-related issues affecting the success of the harvest. 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.

Profitability in our fertilizer division is also affected by the cost of imported raw materials since we do not produce locally all of our raw material requirements. A significant portion of our raw material needs are met with imports. The Brazilian fertilizer business is also a seasonal business with fertilizer sales concentrated in the third and fourth quarters of the year. As a result, we generally import and mine raw materials and produce finished goods during the first half of the year in preparation for the main Brazilian cultivation season that occurs during the second half of the year.

Food Products

In the food products division, which consists of our edible oil products and milling products segments, our operations are affected by changes in the prices of raw materials, such as crude vegetable oils and grains, the mix of products we sell, changes in eating habits, changes in per capita incomes, consumer purchasing power levels and changes in general economic conditions and the competitive environment in Europe, North America and Brazil, the principal markets of our food products division. 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.

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

Foreign Currency Exchange Rates

Due to the global nature of our operations, our operating results can be materially impacted by fluctuations in currency exchange rates. Both translation of our foreign subsidiary financial statements and foreign currency transactions affect our results as described below.

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 and cash flows 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. Translations of the local currency income statement and cash flow amounts to U.S. dollars are affected by fluctuations of the local currency during a quarter versus the U.S. dollar. Further, comparisons of results between quarters are affected by the differences in the average exchange rates during one quarter versus another quarter.

Our foreign subsidiaries’ assets and liabilities are translated into U.S. dollars from local currency at period 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, 2005, 2004 and 2003 were foreign exchange net translation gains of $101 million, $217 million and $489 million, respectively, representing the net gains from the translation of our foreign subsidiaries’ assets and liabilities.

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

We also enter into derivative financial instruments, such as foreign currency forward contracts, swaps and options, to limit exposures to changes in foreign currency exchange rates with respect to our foreign currency denominated assets and liabilities and our local currency operating expenses. These derivative instruments are marked-to-market, with changes in their fair value recognized as a component of foreign exchange in our consolidated statements of income. We may also hedge other foreign currency exposures as deemed appropriate.

Brazil.    The functional currency of our Brazilian subsidiaries is the Brazilian real. As such, exchange rate changes between the U.S. dollar and the real affect our operating profitability. The real appreciated 13% against the U.S. dollar at December 31, 2005 compared to the rate at December 31, 2004, and the real appreciated 9% against the U.S. dollar at December 31, 2004 when compared to the rate at December 31, 2003. In 2005, the average real -U.S. dollar exchange rate was R$2.435, compared to R$2.926 in 2004, which represents a 20% strengthening in the value of the real versus the U.S. dollar in 2005.

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). This is 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.

Agribusiness Segment—Brazil.    Our agribusiness sales are U.S dollar-denominated or U.S. dollar-linked. 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, these commodity inventories provide a natural hedge to our exposure to fluctuations in currency exchange rates in our agribusiness segment. Devaluations of the real against the U.S. dollar generally have a positive effect on our agribusiness segment results in Brazil, as real -denominated industrial and selling, general and administrative (SG&A) costs are translated to U.S. dollars at weaker real to U.S. dollar exchange rates, which results in lower U.S. dollar costs. Devaluations of the real generate gains based on the changes in the local currency value of these commodity inventories, which are reflected in cost of goods sold in our consolidated statements of income. However, devaluations of the real will also generate offsetting net foreign exchange losses on the net U.S. dollar monetary liability position of our Brazilian agribusiness subsidiaries, which are reflected in foreign exchange losses in our consolidated statements of income. As our Brazilian subsidiaries are primarily funded with intercompany, U.S. dollar-denominated debt, the mark-to-market gains on the commodity inventories generally offset the foreign exchange losses on the intercompany U.S. dollar-denominated debt. Our effective tax rate is also favorably affected by the devaluation of the real, as we recognize tax benefits related to foreign exchange losses on certain intercompany loans. The foreign exchange losses eliminate in our consolidated statements of income but the related tax effects remain.

Appreciations generally have a corresponding negative effect on our results when local currency-denominated costs are translated to U.S. dollars at stronger real to U.S. dollar exchange rates resulting in higher U.S. dollar costs and losses based on changes in the local currency value of our agribusiness segment commodity inventories. At the same time, appreciations of the real generate offsetting net foreign exchange gains on the net U.S. dollar monetary position of our Brazilian 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 real , as we incur income taxes related to foreign exchange gains on certain intercompany loans. However, we use derivative instruments to offset the foreign exchange gains

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on certain intercompany loans, which reduce the income tax expense resulting from the appreciation of the real .

Fertilizer Segment—Brazil.    Our fertilizer segment sales prices are linked to U.S. dollar-priced imported and domestic raw materials. Mining, industrial and SG&A expenses are real- denominated costs. Inventories in our fertilizer segment are accounted for on the historical cost basis and are not marked-to-market. These inventories are generally financed with U.S. dollar-denominated intercompany loans. Appreciations of the real against the U.S. dollar result in higher mining, industrial and SG&A expenses when translated into U.S. dollars and net foreign exchange gains on the net U.S. dollar monetary liability position of our fertilizer segment. In addition, our gross profit margins are adversely affected by appreciations of the real as our local currency revenues are linked to U.S.-dollar priced imported and domestic raw materials, and we are selling higher cost inventories acquired and produced when the real was weaker. Inventories are typically acquired and produced in the first half of the year, while products are typically sold in the second half of the year. Thus, the recording of the exchange gains on the net U.S. dollar monetary liability position and the effects of the appreciating real on our gross profit margins generally do not occur in the same quarterly reporting period. As such, the foreign exchange impact on the intercompany debt is reflected monthly in our results while the impact on gross profit margins is reflected at the time products are sold. The converse is true for devaluations of the real and their effects on our financial statements.

Edible Oil and Milling Products Segment—Brazil.    Our food products businesses are generally local currency businesses. The costs of raw materials, principally wheat and soybean oil, are largely U.S.-dollar linked and changes in the costs of these raw materials have historically been passed through to the customer in the form of higher or lower selling prices. However, delays or difficulties in passing through changes in raw materials costs into local currency selling prices can affect margins.

Other Operations.    We operate in countries that are members of the European Union and several European 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. We also operate in Argentina, where we are exposed to the peso. Our risk management policy is to fully hedge our monetary exposure to the financial effects of fluctuations in the value of the peso relative to the U.S. dollar.

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 2005, we received a favorable U.S. tax ruling with respect to the tax status of certain entities acquired in the 2002 acquisition of Cereol S.A. (Cereol). We had recorded a $125 million deferred tax liability in the opening balance sheet of Cereol in 2002, related to unremitted earnings of a subsidiary that were not considered to be permanently reinvested. Based upon the final ruling received in 2005, we determined that the subsidiary could be liquidated without generating tax on the unremitted earnings. As a result of receipt of the favorable U.S. tax ruling, and in accordance with EITF Issue No. 93-7, Uncertainties Related to Income Taxes in a Purchase Business Combination , we reduced certain indefinite lived intangible assets acquired in the Cereol acquisition by $39 million, net of deferred tax liabilities, to zero and then recognized a $86 million non-cash tax benefit in our consolidated statements of income. In conjunction with this transaction, we incurred $9 million of tax expense in 2005, related to the repatriation of the post-acquisition unremitted earnings of a foreign subsidiary under the provisions of the American Jobs Creation Act of 2004 (the Jobs Act).

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We have in the past obtained tax benefits under U.S. tax laws providing incentives under the provisions of the Extraterritorial Income Act (ETI) legislation. However, the Jobs Act ultimately repeals the ETI benefit. Under the Jobs Act, 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 our U.S. operations qualify as “manufacturing,” we do not expect to receive significant benefits from this new tax legislation as we have from the prior one primarily due to our U.S. tax position.

Inflation

Inflation did not have a material impact on our business in 2005, 2004 or 2003.

Results of Operations

2005 Overview

Our agribusiness results for 2005 were lower than 2004 despite higher volumes. Overall, agribusiness volumes for 2005 increased over 2004 as customers continued to respond to lower agricultural commodity prices and lower ocean freight prices as compared to 2004’s higher prices. Soybean prices declined significantly in the second half of 2004,  in response to a record U.S. soybean crop and for most of 2005 remained lower than 2004. Spot market prices for ocean freight have declined primarily due to an increase in vessel availability resulting from new capacity and a reduction in Chinese demand for ocean freight. As a result, our agribusiness margins have suffered, as it is more difficult to fully recover our freight costs for shipments to customers. Our 2006 agribusiness results will continue to be pressured by freight costs.

In Brazil, farm economics in 2005 deteriorated due to a drought, lower soybean prices and a steadily appreciating real. Brazilian farmers reacted to these conditions by withholding crop sales which negatively affected our results in this region. Our agribusiness results also suffered from the effects of a stronger real on local currency costs when these costs were translated into U.S. dollars. Our European agribusiness margins improved as a result of our European biodiesel operations, which were contributed to a joint venture in the fourth quarter of 2005. See “—Liquidity and Capital Resources—Formation of European Biodiesel Joint Venture” below. Softseed operations benefited from ample commodity supplies and strong demand for vegetable oil from the biodiesel sector.

Our fertilizer results for 2005 were lower than 2004 due to higher costs and lower margins. Margins suffered primarily due to a stronger real which contributed to higher inventory carrying costs and operating expenses, which are real- based. In anticipation of stronger demand later in 2005, we purchased and manufactured excess fertilizer inventories early in the year which resulted in increased inventory carrying costs as these inventories were purchased when the real was weaker but sold later at a stronger real -U.S. dollar exchange rate, which pressured our margins when translated into U.S. dollars. Additionally, as a result of lower 2004 retail fertilizer sales in the soybean sector, our fertilizer inventory levels were higher than necessary going into 2005. By the end of 2005, we sold a significant portion of these higher priced excess fertilizer inventories at lower prices, reducing our inventories to more appropriate levels. Margins were further pressured by the inability of farmers to absorb higher selling prices, which was in contrast to 2004, when farmers purchased fertilizer earlier in the year to take advantage of lower prices. Fertilizer results were also negatively impacted by increases in bad debt expenses.

As a result of these industry conditions in Brazil, and our efforts to reduce costs and improve capacity utilization, we have reduced our workforce in Brazil by approximately 10%, permanently closed two oilseed processing plants and idled seven fertilizer facilities and initiated other cost-savings measures in 2005. We have also expanded our risk management program to lower our exposure to the real by hedging

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both balance sheet and income statement exposures. Our 2005 agribusiness and fertilizer results included impairment and restructuring charges of $40 million and $2 million, respectively, reflecting the costs of the plant closures and workforce reductions in Brazil. We estimate that these steps will save $60 million to $80 million in 2006. In addition, we are expanding our phosphate mining capacity in Brazil by over 10% allowing us to substitute more expensive imported fertilizer raw materials with domestic supply at lower costs.

We expect the recovery in the Brazilian farm sector to be slow in 2006 largely due to the continued strengthening of the real. As a result, we expect that retail fertilizer volumes in the Brazilian market will be flat in 2006. We also expect a more competitive oilseed processing environment in Argentina, as the industry expands capacity in that country. In addition, we expect to close three additional oilseed processing plants in Brazil in the first quarter of 2006, which will result in asset impairment and restructuring charges related to those closures, the amount of which has not yet been determined. We will continue to monitor market conditions in South America, and additional future restructuring and asset impairment charges may result if conditions improve slower than expected or not to the extent expected.

Although edible oil results improved in North America and Brazil in 2005, these increases were more than offset by declines in profitability in Eastern Europe. Brazil and the United States benefited from higher margins primarily due to lower raw material costs. In addition, the increased demand for low and reduced trans-fat products boosted our canola oil margins. Results in Eastern Europe were negatively affected by lower average selling prices and the high cost of raw materials we had purchased in 2004 in Romania and the Ukraine, higher selling and marketing expenses for repositioned and new margarine brands in Poland and higher selling expenses in Russia due to the establishment of a new sales group. Until the completion of a new sunseed crushing plant in Voronezh, Russia, which is expected by the end of 2006, we will continue to supply our Russian bottled oil business with imports at higher costs compared to domestic supply. In 2005, we also incurred $2 million of restructuring charges relating to workforce reductions in Brazil and Europe.

Our milling product segment results for 2005 were higher than 2004. Wheat milling products benefited from improved product mix resulting in higher volumes and selling prices in Brazil. Corn milling results declined primarily due to lower margins.

Segment Results

In 2005, we reclassified certain agribusiness product lines from the edible oil products segment to the agribusiness segment. As a result, amounts for the years ended December 31, 2004 and 2003 have been reclassified to conform to the current period 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 this 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,
		2005		2004		Percent Change				2003		Percent Change
		(US$ in millions, except percentages)
Volumes (in thousands of metric tons):
Agribusiness		98,534		89,132			11	%		87,580			2	%
Fertilizer		11,478		11,589			(1	)%		11,538			—
Edible oil products		4,760		4,678			2	%		3,482			34	%
Milling products		3,890		3,987			(2	)%		3,468			15	%
Other (soy ingredients)		—		—			—			140			(100	)%
Total		118,662		109,386			8	%		106,208			3	%

 

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		Year Ended December 31,
		2005							2004								Percent Change				2003								Percent Change
		(US$ in millions, except percentages)
Net sales:
Agribusiness		$					17,437		$						17,983			(3	)%		$						16,307			10	%
Fertilizer		2,674							2,581									4	%		1,954									32	%
Edible oil products		3,305							3,800									(13	)%		3,101									23	%
Milling products		859							804									7	%		751									7	%
Other (soy ingredients)		—							—									—			52									(100	)%
Total		$					24,275		$						25,168			(4	)%		$						22,165			14	%
Costs of goods sold:
Agribusiness		$					(16,584	)	$					(17,008		)		(2	)%		$						(15,735	)		8	%
Fertilizer		(2,333						)	(1,980							)		18	%		(1,581							)		25	%
Edible oil products		(3,053						)	(3,582							)		(15	)%		(2,840							)		26	%
Milling products		(734						)	(712							)		3	%		(670							)		6	%
Other (soy ingredients)		—							—									—			(34							)		(100	)%
Total		$					(22,704	)	$					(23,282		)		(2	)%		$						(20,860	)		12	%
Gross profit:
Agribusiness		$				853			$					975				(13	)%		$						572			70	%
Fertilizer		341							601									(43	)%		373									61	%
Edible oil products		252							218									16	%		261									(16	)%
Milling products		125							92									36	%		81									14	%
Other (soy ingredients)		—							—									—			18									(100	)%
Total		$				1,571			$					1,886				(17	)%		$						1,305			45	%
Selling, general and administrative expenses:
Agribusiness		$			(462			)	$				(477			)		(3	)%		$					(337		)		42	%
Fertilizer		(229						)	(197							)		16	%		(129							)		53	%
Edible oil products		(209						)	(151							)		38	%		(175							)		(14	)%
Milling products		(56						)	(46							)		22	%		(43							)		7	%
Other (soy ingredients)		—							—									—			(7							)		(100	)%
Total		$			(956			)	$				(871			)		10	%		$					(691		)		26	%
Foreign exchange gain (loss):
Agribusiness		$			30				$			(17				)					$				89
Fertilizer		(47						)	(32							)					(20							)
Edible oil products		(1						)	5												—
Milling products		(1						)	—												—
Other (soy ingredients)		—							—												(1							)
Total		$		(19				)	$			(44				)					$			68
Interest income:
Agribusiness		$		22					$		21							5	%		$		26							(19	)%
Fertilizer		57							50									14	%		53									(6	)%
Edible oil products		2							6									(67	)%		6									—
Milling products		2							3									(33	)%		—									100	%
Other (soy ingredients)		—							—									—			—									—
Total		$	83						$	80								4	%		$	85								(6	)%

 

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		Year Ended December 31,
		2005					2004							Percent Change				2003								Percent Change
		(US$ in millions, except percentages)
Interest expense:
Agribusiness		$			(147	)	$					(111	)		32	%		$						(82	)		35	%
Fertilizer		(41				)	(50						)		(18	)%		(35							)		43	%
Edible oil products		(28				)	(32						)		(13	)%		(22							)		45	%
Milling products		(7				)	(8						)		(13	)%		(8							)		—
Other (soy ingredients)		—					—								—			(2							)		(100	)%
Total		$			(223	)	$					(201	)		11	%		$						(149	)		35	%
Segment operating profit:
Agribusiness		$			296		$					391			(24	)%		$					268				46	%
Fertilizer		81					372								(78	)%		242									54	%
Edible oil products		16					46								(65	)%		70									(35	)%
Milling products		63					41								54	%		30									37	%
Other (soy ingredients)		—					—								—			8									(100	)%
Total		$			456		$				850				(46	)%		$				618					38	%
Depreciation, depletion and amortization:
Agribusiness		$		113			$			90					26	%		$			77						17	%
Fertilizer		104					70								49	%		57									23	%
Edible oil products		47					40								18	%		37									8	%
Milling products		14					12								17	%		13									(8	)%
Other (soy ingredients)		—					—								—			—									—
Total		$		278			$		212						31	%		$		184							15	%
Net income		$	530				$	469							13	%		$	411								14	%

 

(1)           Total segment operating profit is our consolidated income from 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 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 operations before income tax and minority interest or any other measure of consolidated operating results under GAAP .

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

		Year Ended December 31,
		2005				2004				2003
		(US$ in millions)
Income from continuing operations before income tax and minority interest		$		519		$		904		$		723
Unallocated (income) expense—net(1)		(63			)	(54			)	6
Gain on sale of soy ingredients business		—				—				(111			)
Total segment operating profit		$	456			$	850			$	618

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(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.

2005 Compared to 2004

Agribusiness Segment.    Agribusiness segment net sales decreased 3% due to lower average selling prices for agricultural commodity products, partially offset by an 11% increase in volumes. The decrease in average selling prices was primarily due to increased global supply of grains and oilseeds. Agribusiness volumes increased as customers responded to lower prices in 2005 for agricultural commodities compared to 2004’s higher prices.

Cost of goods sold decreased 2% primarily due to lower raw material costs, partially offset by an increase in volumes. Included in cost of goods sold in 2005 was $40 million of impairment and restructuring charges relating to two oilseed processing plants in Brazil, which were closed in 2005, and the impairment of one plant in India, a $27 million decrease in the remaining balance of our allowance for recoverable taxes in Argentina, primarily as a result of payments being received without delays and the significant improvement in the Argentine government’s financial condition, and a reversal of a $14 million provision for a transactional tax resulting from a favorable U.S. tax ruling. 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.

Gross profit decreased 13% primarily due to lower results in our Brazilian agribusiness operations caused by the slower pace of farmer selling, which reduced margins and capacity utilization in Brazil, freight costs and higher operational expenses due to the impact of the stronger real on local currency costs when translated into U.S. dollars.

SG&A decreased 3% primarily due to a reduction in bad debt expense as a result of recoveries on advances to farmers and lower variable compensation expense, offset in part by the impact of the stronger Brazilian real on local currency costs when translated into U.S. dollars. SG&A included $5 million of restructuring charges relating to a workforce reduction in our Brazilian and European operations.

Segment operating profit decreased 24% primarily due to the decrease in gross profit.

Fertilizer Segment.    Fertilizer segment net sales increased 4% primarily due to an increase in average selling prices offset in part by a 1% decrease in volumes. Retail volumes declined as farmers reduced their fertilizer purchases due to reduced plantings of soybeans and a reduction in the use of fertilizers. Partially offsetting the volume decline was an increase in nitrogen-based fertilizer sales volumes in 2005 compared to 2004 as Brazilian farmers responded to attractive sugar cane prices by increasing their sugar cane plantings. Selling prices benefited from higher international prices primarily for nitrogen-based fertilizer raw materials.

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