2004 impacted margins. The Grocery Products segment was most significantly impacted by the higher costs, including increases on beef-based inputs. Changes in the product mix  have also contributed to a margin decrease in the Specialty Foods segment, as lower margined products are sold by Century Foods International, acquired late in fiscal 2003. The company believes the strong demand for protein will continue into the upcoming year. The price outlook for grain is also favorable, which is a key input for the JOTS segment. Additionally, the com- pany continues to expand sales of value-added product lines. These factors should all enhance gross profits during fiscal 2005. Selling and Delivery: Selling and delivery expenses for the fourth quarter and year were $166,196 and $621,694, respectively, compared to $144,083 and $583,964 last year. These increases were driven by increased tonnage volume over the prior year and $8,327 of early retirement, relocation, and other expenses related to the realignment of the company’s sales organization to provide better service and additional leverage with customers. As a percent of net sales, selling and delivery expenses increased to 12.4 per- cent for the quarter compared to 12.3 percent in 2003 and decreased to 13.0 percent for the year compared to 13.9 percent in 2003. The twelve month percentage decrease is primarily due to improved market conditions over fiscal 2003, which resulted in product price increases exceeding increases in selling and delivery expenses. Additionally, marketing expenses were not as high as anticipated during the fourth quarter, as the company evaluated some of its planned programs and adjusted the timing of field  initiatives planned to support new product launches late in fiscal 2004. As a percent of sales, the company expects selling and delivery expenses in fiscal 2005 to remain consistent with fiscal 2004 results. Administrative and General: Administrative and general expenses were $38,779 and $146,488 for the quarter and year, respectively, compared to $35,182 and $124,665 last year. As a percent of net sales, administrative and general expenses for the quarter and year were 2.9 and 3.1 percent, respectively, compared to 3.0 percent for the quarter and year in fiscal 2003. Changes in the discount rate and expected rate of return on pension plan assets, both of which were effective with the beginning of the fiscal year, resulted in higher pension and medical expenses for the fourth quarter and year of approximately $2,300 and $11,300, respectively, compared to fiscal 2003. These increases were partially offset by reductions in postretirement benefits of $1,504 and $3,903 for the quarter and year, respectively, related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. (See further discus- sion in Note F “Pension and Other Postretirement Health Care Benefits.”) Other items significantly impacting fiscal 2004 include an increase in amortization of intangibles of $2,424 and an Income Taxes: The company’s effective tax rate for the quarter  and year was 36.5 percent in fiscal 2004 compared to 37.0 and 35.8 percent for the quarter and year, respectively, in fiscal 2003. The decrease in the fourth quarter rate as compared to the prior year primarily reflects a decrease in foreign taxes. The company expects the effective tax rate in fiscal 2005 to be reasonably  consistent with fiscal 2004. increase in stock option expense of approximately $1,300, offset by a reduction in bad debt expenses of $5,244. The company expects administrative and general expenses, as a percent of sales, to approximate 3.1 percent in future periods.  Research and development expenses for the fourth quarter increased to $4,434 from $3,460 in the comparable quarter of 2003, and for the fiscal year increased to $15,944 from $13,165 in 2003. The acquisition of Century Foods International in July 2003, generated approximately $600 of the increase over the  prior year. The remainder of the increase was distributed across various Hormel Foods and Jennie-O Turkey Store product lines, supporting the company’s on-going initiatives to expand value- added product offerings and focus on new product development. As the company continues to support these strategies, research and development expenses are expected to continue increasing  at a similar rate in future periods.  Equity in Earnings of Affiliates: Equity in earnings of affiliates were $1,282 and $6,458 for the quarter and year, respectively, compared to $2,174 and $5,886 last year. The twelve month increase in fiscal 2004 is due to improved results of the company’s 49.0 percent owned joint venture, Carapelli USA, LLC. Minority interests in the company’s consolidated investments are also reflected in these figures but are not significant at this time. The company expects equity in earnings of affiliates to increase slightly in fiscal 2005. In conformity with U.S. generally accepted accounting principles, the company accounts for its majority-owned China and Australian operations under the consolidation method. Other international investments, such as Purefoods-Hormel and Hormel Alimentos,  in which the company owns a minority interest, are accounted for under the equity or cost method. These international investments, along with investments in and receivables from other affiliates, are included in the balance sheet line item “investments in and receiv- ables from affiliates.” The composition of this line item at October 30, 2004, was as follows: Country Investments/Receivables United States $13,803 Philippines 35,536 Mexico 5,893 Total $55,232 2004 Annual Report 19