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interest rate risk We issue debt in fixed and floating rate instruments. We are exposed to market risk due to changes in interest rates. Of our total long-term debt outstanding of $2,740 million at December 31, 2004 including current maturities, $2,547 million was fixed rate. Long-term debt that is exposed to interest rate risk at December 31, 2004 is listed below. 

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(1) LIBOR as of December 31, 2004 was 1.54%. 

(2) BNDES loans are Brazilian government industrial development loans. 

(3) IGPM is a Brazilian inflation index published by Fundação Getulio Vargas. The annualized rate for the year ended December 31, 2004 was 12.42%. 

An increase in the interest rates on our long-term variable rate debt based on a 10% change in the LIBOR and IGPM rates at December 31, 2004 would increase the interest rates on our variable rate debt between 12 to 98 basis points, which would have no material effect on our operating results. 

In addition to long-term debt, we have variable interest rate short- term debt and commercial paper with a balance of $541 million at December 31, 2004. The short-term debt is predominantly held with commercial banks and the interest rates are generally based on LIBOR plus a spread of 1% to 2%. 

Our commercial paper is rated “A-1” by Standard & Poor’s Rating Services and “P-1” by Moody’s Investors Service, Inc. and the interest rates on our commercial paper borrowings are indexed to this rating. An increase in interest rates on our short-term debt based on a 10% change in LIBOR and a 10% change in the commercial paper interest rate for A-1/P-1 rated commercial paper at December 31, 2004 would increase the interest rate on our variable rate short-term debt approximately 24 basis points, which would have no material effect on our operating results. 

## management’s discussion and analysis of financial condition and results of operations 

interest rate derivatives In September 2004, we entered into treasury rate lock agreements with an aggregate notional amount of $500 million at a 10-year treasury yield of 4.15% with a settlement date of March 2005. The treasury rate lock agree- ments were not designated as hedging instruments. In the fourth quarter of 2004, we terminated these treasury rate lock agree- ments. We recorded a gain in other income (expense)—net in the consolidated statements of income of approximately $10 million relating to the cash settlement received on these derivative agreements for the year ended December 31, 2004. 

In June 2004, we entered into various interest rate swap agree- ments to manage our interest rate exposure on a portion of our fixed rate debt. These swap agreements had an aggregate notional amount of $1 billion at weighted average fixed rates receivable of 4.375% and 5.35% and weighted average variable rates payable of 2.23% and 2.17%, with maturity dates of 2008 and 2014. These interest rate swap agreements were accounted for as fair value hedges. In September 2004, we terminated the June 2004 swap agreements and received $60 million in cash, which was comprised of $8 million of accrued interest and a $52 million gain on the net settlement of the June 2004 swap agreements. The $8 million of accrued interest was recorded as a reduction of interest expense for the year ended December 31, 2004 in the consolidated statements of income and the $52 million gain was recorded as an adjustment to the carrying amount of the related debt for the year ended December 31, 2004 in the consolidated balance sheet. The $52 million gain will be amortized to earnings over the remaining term of the debt, which ranges from four to nine years. 

Concurrent with the September 2004 termination of the June 2004 swap agreements, we entered into various new interest rate swap agreements to manage our interest rate exposure on a portion of our fixed rate debt. We have accounted for these new swap agreements as fair value hedges. 

The interest rate swaps used by us as derivative hedging instru- ments have been recorded at fair value in other liabilities in the consolidated balance sheets with changes in fair value recorded currently in earnings. Additionally, the carrying amount of the associated debt is adjusted through earnings for changes in the fair value due to changes in interest rates. Ineffectiveness is 

