bunge 2004 annual report management’s discussion and analysis of financial condition and results of operations Cost of goods sold increased 157% in 2003 from 2002 primarily due to the Cereol acquisition and higher raw material costs,  principally crude soybean oil. Included in cost of goods sold in 2003 was a non-cash curtailment gain of $1 million relating to the reduction of pension and postretirement healthcare benefits of certain U.S. employees. Included in 2002 was a $5 million non-cash impairment charge on U.S. long-lived operating assets attributable to the planned disposal of a bottling facility. Gross profit increased 88% primarily due to the Cereol acquisition  and a recovery of margins in our North and South American operations, principally in margarines and mayonnaise attributable to new branding and packaging strategies as well as portfolio rationalization measures. SG&A increased 34% due to the Cereol acquisition, partially offset by our cost reduction efforts in our South American operations. In addition, in 2003, SG&A included a non-cash curtailment gain of $1 million, relating to the reduction of pension and postretire- ment healthcare benefits of certain U.S. employees. Segment operating profit increased by $80 million primarily due to the Cereol acquisition and efficiency/cost reduction programs in North America and Brazil. Milling Products Segment Milling products segment net sales increased 20% due to higher average selling prices for wheat  and corn milling products and a 5% increase in volumes. The increase in average selling prices was primarily due to higher  raw material costs. Cost of goods sold increased 22% due to higher wheat costs. Included in cost of goods sold in 2003 was a non-cash curtailment gain of $1 million, relating to the reduction of pension and post- retirement healthcare benefits of certain U.S. employees. Gross profit increased 5% as a result of the higher average selling prices and volumes. SG&A decreased 16% due to cost savings programs. In addition, in 2003, SG&A included a non-cash curtailment gain of $1 million relating to the reduction of pension and postretirement health- care benefits of certain U.S. employees. Segment operating profit increased 67% as a result of the improvement in gross profit, lower SG&A and the October 2003 acquisition of a corn mill in the United States. 40 Income Tax Expense Income tax expense increased $97 million to $201 million in 2003 from $104 million in 2002 primarily due to the increase in pretax income. Our effective tax rate for 2003 increased to 28% compared to 22% in 2002. Excluding the tax- free gain on sale of Bunge’s Brazilian soy ingredients business to Other Income (Expense)—net Other income (expense)—net increased $13 million to $19 million in 2003 from $6 million of income in 2002 primarily due to higher earnings from our joint ventures in Argentina and the Saipol joint venture acquired in the acquisition of Cereol. Foreign exchange gains were $92 million in 2003 compared to losses of $179 million last year due primarily to the 22% appre- ciation in the value of the Brazilian  real in 2003 against the U.S. dollar. In contrast, in 2002 the value of the Brazilian  real declined by 34% resulting in foreign exchange losses. Interest income increased 44% in 2003 due to interest income on higher invested cash in Brazil where interest rates are higher. 2002 also included $6 million of interest income resulting from the completion of a tax examination relating to tax benefits associated with U.S. export sales. Interest expense increased 22% primarily due to higher average debt levels resulting from debt incurred to acquire Cereol and our assumption of Cereol’s debt, partially offset by a reduction in interest expense due to more efficient use of working capital. Also, in the latter half of 2002 and in May 2003 and December 2003, we issued long- term debt at relatively higher interest rates to reduce our reliance on short-term debt and finance the repayment of a portion of long-term debt coming due. Other Segment (Soy Ingredients) Our soy ingredients business was contributed to Solae, our joint venture with DuPont, in the second quarter of 2003. Therefore, historical results are presented herein for comparative purposes. Consolidated Financial Costs A summary of consolidated financial costs for the periods indicated follows. Year Ended December 31, Percent (US$ in millions, except percentages) 2003 2002 Change Interest income $ 102 $ 71 44% Interest expense (215) (176) 22% Foreign exchange gain (loss) 92 (179)