bunge 2004 annual report management’s discussion and analysis of financial condition and results of operations Consolidated Financial Costs The following is a summary of consolidated financial costs for the periods indicated: Other Income (Expense)—net Other income (expense)—net increased $12 million to $31 million in 2004 from $19 million of income in 2003 primarily due to $10 million of gains on interest rate derivatives and the pretax gain of $5 million on the asset exchange transaction with J. Macêdo, offset by a decrease in our earnings from Solae. Solae’s results declined primarily due to lower margins on product sales caused by the high commodity costs that existed during most of 2004. Income Tax Expense Income tax expense increased $88 million to $289 million in 2004 from $201 million in 2003 primarily due to an increase in pretax income. Our annual effective tax rate  for 2004 was 32%, compared to an annual effective tax rate  of 28% in 2003. Excluding the tax-free gain on the sale of our Brazilian soy ingredients business to Solae, the 2003 annual effective tax rate was 33%. The primary cause of the decrease  in the effective tax rate was due to increased earnings in 2004 in lower tax jurisdictions. Included in interest income for 2004 was $10 million of interest income earned on the cash invested in Brazil from the net proceeds of the June 2004 public equity offering, which was used in the third and fourth quarters of 2004 to acquire the remaining equity interest in Bunge Brasil that we did not already own. Excluding this $10 million, interest income decreased 9% due to lower interest rates earned on invested cash in Brazil, partially offset by an increase in the average balance of invested cash. Interest expense decreased $1 million primarily due to lower interest rates on our debt portfolio and $14 million of benefits from interest rate hedges, partially offset by higher average borrowings. Minority Interest Minority interest expense increased $42 million to $146 million in 2004 from $104 million in 2003 primarily due to increased earnings at our less than wholly owned subsidiaries. Foreign exchange losses of $31 million included costs associated with managing foreign exchange exposure related to our monetary exposure in Brazil and exchange losses on our Brazilian-U.S. dollar net monetary liability position primarily due to the 7% devaluation of the Brazilian  real in the first six months of 2004. The first half of the year is usually when our U.S. dollar net monetary liability exposure in Brazil is at its highest level because of our acquisition of crops harvested in April, May and June. During the six months ended December 31, 2004, the Brazilian  real appreciated 17% resulting in exchange gains on the U.S. dollar net monetary liability position in Brazil in that period. However, the exposure to the U.S. dollar was lower and thus the related exchange gains recorded in the six months ended December 31, 2004 were not enough  to offset the exchange losses recorded in the first six months of 2004. The 8% appreciation in the value of the  euro during 2004 also resulted in exchange gains on our European-U.S. dollar monetary liability position. The exchange gains in 2003 resulted from the 22% appreciation in the value of the Brazilian  real versus the U.S. dollar and a gain on a net U.S. dollar-denominated mon- etary asset in Argentina. Foreign exchange gains and losses are substantially offset by inventory marked-to-market adjustments, which are included in cost of goods sold. Fiscal 2003 was the first full year of combined operations with Cereol S.A. (Cereol), which we acquired in October 2002. We increased sales volumes and net sales between 2003 and 2002 primarily due to the Cereol acquisition and through organic growth. Agribusiness Segment Agribusiness segment net sales increased 55% due to a 25% increase in volumes and higher average selling Net Income Net income increased $58 million to $469 million in 2004 from $411 million in 2003. Net income for 2004 included $15 million of after tax impairment and restructuring charges  on long-lived assets in Europe and a $3 million after tax gain  on the asset exchange transaction with J. Macêdo. Net income for 2003 included the $111 million gain on the asset sale of our Brazilian soy ingredients business to Solae, an after tax gain of $16 million relating to the curtailment of certain pension and postretirement healthcare benefit plans, $40 million of after tax impairment charges on long-lived assets in Europe and a loss on discontinued operations of $7 million related to operations we sold in 2003. Year Ended December 31, Percent (US$ in millions, except percentages) 2004 2003 Change Interest income $ 1 10 03 3 $ 102 1% Interest expense ((2 21 14 4)) (215) – Foreign exchange gains (losses) ((3 31 1)) 92 2003 compared to 2002 38