Results of Operations Earnings Summary or similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of Alcoa to be different from those expressed or implied in the forward-looking statements. For a discussion of some of the specific factors that may cause such a difference, see Notes N and Y to the Consolidated Financial Statements and the disclo- sures included below under Segment Information and Market Risks. For additional information on forward-looking statements and risk factors, see Alcoa’s Form 10-K, Part I, Item 1. Alcoa’s income from continuing operations for 2004 was $1,402, or $1.60 per diluted share, compared with $1,055, or $1.22 per share, in 2003. The highlights for 2004 include: higher realized prices for alumina due to a tightening of the world alumina market, as well as higher realized prices for aluminum as LME prices increased by 20% over 2003 levels; increased sales across five of six segments; higher volumes in downstream businesses serving the commercial transportation, building and construc- tion, aerospace, and packaging markets; improved profitability across four of six segments; a $38 gain related to the retirement of debt and associated interest rate swap settlement; a $37 gain on the sale of a portion of Alcoa’s interest in the Juruti bauxite project to Alcoa World Alumina and Chemicals (AWAC);a$15 gain on the termination of an alumina tolling arrangement; and continued focus on completion of divestitures, which included a $61 gain on the sale of the specialty chemicals business. Partially offsetting these positive contributions in 2004 were: significant cost increases for energy and raw materials; the impact of a weakened U.S. dollar against other currencies, primarily the Australian and Canadian dollars and the Euro; the impact of a strike at the Be ´cancour smelter; a $41 increase in environmental and legal reserves, principally related to the Grasse River site and El Campo; and the absence of $79 in insurance settlements that occurred in 2003. Net income for 2004 was $1,310, or $1.49 per diluted share, compared with $938, or $1.08 per share, in 2003. Net income of $1,310 in 2004 included a loss of $92 in discontinued operations, comprised of $89 in impairment charges to reflect the estimated fair values of the protective packaging business, the telecommunications business, and a small casting business; net operating losses of $8; slightly offset by a net gain of $5 on divested businesses. See details of the divestiture plan below. Alcoa’s income from continuing operations for 2003 was $1,055, or $1.22 per diluted share, compared with $518, or $.61 per share, in 2002. The increase in income from continuing operations was primarily due to higher realized prices foralumina and aluminum; improved profitability across all segments; significant restructuring charges that were recognized in 2002; higher equity income; recognition of insurance settlements of a series of environmental matters in the U.S.; and a lower effective tax rate. Partially offsetting these increases were higher energy, employee benefits and raw materials costs, as well as the unfavorable impact of the U.S. dollar against foreign currencies. Divestiture Plan — Alcoa’s financial statements for all periods presented were significantly impacted by activities relating to the planned divestiture of a number of Alcoa’s businesses. In 2002, Alcoa performed a portfolio review of its businesses and the markets they serve. As a result of this review, Alcoa committed to a plan to divest certain noncore businesses that did not meet internal growth and return measures. This plan was substantially completed in 2004 with the divestitures of the following businesses: specialty chemicals, automotive fasteners, packaging equipment, South American flexible packaging, foil facilities in Russellville, AR and St. Louis, MO, and extrusion facilities in Europe and Brazil. In the second quarter of 2004, certain architectural products businesses in North America were reclassified from assets held for sale to assets held and used as management discontinued the plan of sale due to market conditions. The financial state- ments for prior periods have been reclassified to reflect this change. The reclassification did not impact the Statement of Consolidated Income, and the results of operations of these architectural products businesses continue to be presented in the Engineered Products segment. Also in 2004, Alcoa identified additional businesses to be divested to better focus on its core capabilities. As a result, the following businesses have been reclassified from assets held and used to discontinued operations for all periods presented. See Notes A and B to the Consolidated Financial Statements for additional information on reclassifications for discontinued operations. ● In the third quarter of 2004, the protective packaging business was reclassified to discontinued operations. A $16 after-tax impairment charge was recorded to reflect the current estimated fair value of the business. The results of the Packaging 25 The company also experienced volume declines in businesses serving the commercial building and construction and industrial gas turbine markets. Net income for 2003 was $938, or $1.08 per diluted share, compared with $420, or $.49 per share, in 2002. Net income of $938 in 2003 included a charge of $47 representing the cumulative effect of the accounting change for asset retirement obligations upon adoption of Statement of Financial Accounting Standards (SFAS) No. 143, ‘‘Accounting for Asset Retirement Obligations.’’ Net income in 2003 also included a loss of $70 from discontinued operations, comprised of a $45 impairment charge for the automotive fasteners business, as well as $25 of net operating losses from businesses to be divested.