partnering for the future the use of the asset and from its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized; otherwise, no impairment loss is recognized. Bunge records impairments related to long-lived assets used in the processing of its products in cost of goods sold, which is a component of income from continuing operations before income tax and minority interest, in the consolidated statements of income. The measurement of an impairment loss to be recognized for long-lived assets and identifiable intangibles that Bunge expects to hold and use is the excess of the carrying value over the fair value of the asset. Long-lived assets and certain identifiable intangibles to be  disposed of are reported at the lower of carrying amount or fair value less cost to sell. stock-based compensation Bunge has an Equity Incentive Plan and a Non-Employee Directors’ Equity Incentive Plan,  which are described more fully in Note 25. In accordance with the provisions of SFAS No.123,  Accounting for Stock-Based Compensation (SFAS No.123), Bunge has elected to continue  to account for stock-based compensation using the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25,  Accounting for Stock Issued to Employees (APB No. 25) and Financial Accounting Standards Board (FASB) Interpretation No. 28,  Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans (FIN 28). Bunge has granted stock options, performance-based restricted stock unit awards and time-vested restricted stock unit awards under its Equity Incentive Plan and stock options under its Non-Employee Directors’ Equity Plan. In accordance with APB No. 25, Bunge accrues costs for its restricted stock unit awards granted over the vesting or perform- ance period, and adjusts costs related to its performance-based restricted stock units for subsequent changes in the fair market value of the awards as well as the number of shares issued upon settlement of the awards. These compensation costs are recog- nized in the consolidated statements of income. There is no compensation cost recorded for stock options granted under either plan, since the exercise price is equal to the fair market value of the underlying common shares on the date of grant. In accordance with SFAS No.123 and the disclosure provisions of SFAS No. 148,  Accounting for Stock-Based Compensation Transition and Disclosure, Bunge discloses the pro forma effect of account- ing for stock-based awards under the fair value method. income taxes Income tax expenses are recognized based on the tax jurisdictions in which Bunge’s subsidiaries operate. Under Bermuda law, Bunge is not required to pay taxes in Bermuda on either income or capital gains. The provision for income taxes includes income taxes currently payable and deferred income taxes arising as a result of temporary differences between financial and tax reporting. Deferred tax assets are reduced by valuation allowances if it is determined that realization is doubtful. The estimated fair value of Bunge’s options on the date of grant was calculated using the Black-Scholes option-pricing model. The weighted average fair value of each stock option granted during 2004, 2003 and 2002 was approximately $14.17, $9.82 and $8.77, respectively. The following assumptions were used for the years ending December 31, 2004, 2003 and 2002: (1) The numerator for the calculation of diluted earnings per share as reported and diluted pro forma earnings per share for the years ended December 31, 2004, 2003 and 2002 includes interest expense, net of tax of $5 million, $5 million and $1 million, respectively, related to Bunge’s convertible notes (see Note 24). The following table sets forth pro forma information as if Bunge had applied the fair value recognition provisions of SFAS No.123 to stock options granted to determine its stock-based compen- sation cost. The assumptions used to determine fair value are disclosed below. Year Ended December 31, (US$ in millions, except per share data) 2004 2003 2002 Net income, as reported $ 4 46 69 9 $ 411 $ 255 Deduct: Total stock-based  employee compensation  expense determined under  fair value based method  for stock options granted,  net of related tax effects ((7 7)) (7) (6) Pro forma net income $ 4 46 62 2 $ 404 $ 249 Earnings per common share  (see Note 24):  Basic—as reported $ $ 4 4..4 42 2 $ 4.12 $ 2.66 Basic—pro forma $ $ 4 4..3 36 6 $ 4.05 $ 2.60 Diluted—as reported (1) $ $ 4 4..1 10 0 $ 3.83 $ 2.63 Diluted—pro forma (1) $ $ 4 4..0 04 4 $ 3.76 $ 2.57 2004 2003 2002 Assumptions:  Expected option life (in years) 8 8..9 96 6 8.79 9.60 Expected dividend yield 1 1..3 30 0%% 1.57% 1.60% Expected volatility of market price 2 29 9%% 34% 35% Risk-free interest rate 3 3..7 70 0%% 4.10% 3.80% 59