bunge 2004 annual report notes to the consolidated  financial statements revenue recognition Sales of agricultural commodities, fertiliz- ers and all other products are recognized when title to the product and risk of loss transfer to the customer, which is dependent on the agreed upon sales terms with the customer. These sales terms provide for passage of title either at the time shipment is made or at the time of the delivery of product. Net sales are gross sales less discounts related to promotional programs and sales taxes. Shipping and handling costs are included as a component of cost of goods sold. research and development Research and development costs are expensed as incurred. Research and development expenses were $14 million, $8 million and $8 million in 2004, 2003 and 2002, respectively. adoption of new accounting pronouncements In 2004, the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) issued EITF Issue No. 04-2,  Whether Mineral Rights Are Tangible or Intangible Assets  (Issue No. 04-2) and the proposed Staff Position (FSP) No. FAS 141-a and 142-a,  Interaction of FASB Statements No.141, Business Combinations and No. 142, Goodwill and Other Intangible Assets and EITF Issue No. 04-2, Whether Mineral Rights Are Tangible or Intangible Assets (FSP No. FAS 141-a and 142-a). FSP No. FAS 141-a and 142-a were issued to eliminate the inconsistency between EITF Issue No. 04-2 and Statement of Financial Accounting Standards (SFAS) No.141 and SFAS No.142 that mineral rights are tangible assets under EITF Issue No. 04-2 and the characterization of mineral rights as intangible assets in SFAS No.141 and No.142. Bunge has applied EITF Issue No. 04-2 and the proposed FSP No. FAS 141-a and 142-a to its consolidated balance sheets beginning in the first quarter of 2004 and has reclassified the prior period consolidated balance sheet to conform to the 2004 presentation. The reclas- sification at December 31, 2003 was $208 million, resulting in an increase to property, plant and equipment, net and a corre- sponding decrease in other intangible assets in the consolidated balance sheets.  In January 2004, the FASB issued FSP No. FAS 106-1,  Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003 (FSP No. FAS 106-1). The Medicare Prescription Drug Improvement and Modern- ization Act of 2003 (the Act) to which FSP No. FAS 106-1 relates, which was signed in to law in December 2003, introduces a pre- scription drug benefit under Medicare as well as a federal subsidy, under certain conditions, to sponsors of retiree healthcare benefit new accounting pronouncements In December 2004, the FASB issued SFAS No.123R,  Share-Based Payment  (SFAS No. In 2004, the FASB Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 04-08,  The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share  (Issue No. 04-8), that contingently convertible instruments, which generally become convertible into common stock only if one or more events occur, such as the underlying common stock achieving a specified market price target, should be included in diluted earnings per share computations (if dilutive) regardless of whether the market price target (or other contingent features) have been met. The EITF concluded that Issue No. 04-8 would be applied by restating diluted earnings per share for all prior periods presented. Issue No. 04-8 is effective for periods ending after December 15, 2004. Bunge has applied Issue No. 04-8 to its consolidated statements of income for the year ended December 31, 2004 and has restated diluted earnings per share for the years ended December 31, 2003 and 2002 to include the weighted average common shares that are issuable upon the conversion of Bunge’s convertible notes (see Note 24). plans. Bunge has elected a one-time deferral of the accounting for the effects of the Act, as permitted by FSP No. FAS 106-1. In May 2004, the FASB issued FSP No. FAS 106-2, which superseded FSP No. FAS 106-1. FSP No. FAS 106-2 is effective for Bunge  for the year ended December 31, 2004 and allows two alternate methods of transition, retroactive application to the date of enactment of the Act or prospective application from the date of adoption of this statement. FSP No. FAS 106-2 requires a remea- surement of the applicable plans’ assets and benefit obligations at the applicable date. Bunge has determined that the effects of the Act are not a significant event for Bunge and not material to its financial position or results of operations. Using the guidance issued in January 2005 on the definition of “actuarially equivalent,” Bunge believes that the prescription drug benefits it provides will be actuarially equivalent. Based on this assumption, the estimated subsidy resulting from the Act is incorporated prospectively into Bunge’s postretirement healthcare benefit plan obligation as  of the 2004 measurement date as an actuarial gain. The effect of the federal subsidy on the accumulated benefit obligation of Bunge’s postretirement healthcare benefit plans was approxi- mately $1 million, which was reflected in the benefit obligation as of December 31, 2004. The effect of the federal subsidy on future annual expense of Bunge’s postretirement healthcare benefit plans is insignificant. 60