and Consumer segment have been reclassified to reflect the movement of this business into discontinued operations. ● In the fourth quarter of 2004, the telecommunicationsbusiness and a small casting business in the U.K. were reclassified to discontinued operations. Impairment charges of $63 (after tax and minority interests) for the telecommunications business and$10(aftertaxandminorityinterests)forthecasting business were recorded to reflect the current estimated fair values of these businesses. The results of the Other group have been reclassified to reflect the movement of these businesses into discontinued operations. Thelossof$92indiscontinuedoperationsin2004was comprised of impairment losses of $89 to reflect the current estimated fair values on businesses to be divested as described above, $8 of net operating losses of these businesses, and a net gain of $5 on businesses sold in 2004. The loss of $70 in discontinued operations in 2003 was comprised of an impair- ment loss of $45 related to the reduction in the estimated fair value of the automotive fasteners business and $25 of operating losses. The loss of $132 in discontinued operations in 2002 was comprised of an impairment loss of $59 to reduce the carrying values of certain businesses to be divested to their estimated fair values less costs to sell, $53 of operating losses, and $20 for the impairment of goodwill in the telecommunications business. Sales — Sales for 2004 were $23,478 compared with sales of $21,092 in 2003, an increase of $2,386, or 11%. The 21% increase in the realized price of aluminum and 23% increase in the realized price of alumina contributed significantly to the increase in sales over the prior year, as two-thirds of the increase in sales was due to higher realized prices for alumina and aluminum. Volume increased in downstream businesses serving the commercial transportation, building and construction, aerospace, and packaging markets. In addition, the acquisition of the remaining 50% of KAAL Australia in October 2003 provided $370 in additional revenue in 2004. Partly offsetting these increases were sales decreases due to divestitures of Alcoa’s specialty chemicals business, the Russellville, AR and St. Louis, MO foil facilities, the European and Brazilian extrusion facilities that were sold in 2004, as well as the Latin American PET business that was sold in 2003. Sales in 2003 were $21,092 compared with sales of $19,934 in 2002, an increase of $1,158, or 6%. Acquisitions accounted for $913 of the increase in sales in 2003. Sales in 2003 included the full-year results of Ivex Packaging Corporation (Ivex), acquired in July 2002, and Fairchild Fasteners (Fairchild), acquired in December 2002, and three months of activity for KAAL Australia, acquired in October 2003. In addition to the acquisition activity, sales increased in 2003 primarily in the upstream businesses, as realized prices for alumina rose 17% and realized prices for aluminum rose 6% from 2002. Partly offsetting the increases in the upstream businesses were the dispositions of distribution facilities in Europe and the Latin America PET business, as well as lower volumes in the downstream businesses, which were impacted by weak markets for industrial gas turbines and commercial building and construction. Research and Development Expenses — R&D expenses were $182 in 2004 compared with $190 in 2003 and $209 in 2002. The decreases in 2004 and 2003 were principally driven by Alcoa’s continued focus to reduce spending and control costs. SG&A expenses were $1,250, or 5.9% of sales, in 2003 compared with $1,108, or 5.6% of sales, in 2002. The increase of $142, or 0.3% as a percentage of sales, was primarily due to the full-year results related to the acquisitions of Ivex and Fairchild, which accounted for 60% of the change in 2003 compared with 2002. The remaining increase was primarily due to increased deferred compensation costs in 2003. Selling, General Administrative, and Other Expenses — SG&A expenses were $1,284, or 5.5% of sales, in 2004 compared with $1,250, or 5.9% of sales, in 2003. Expenses increased by $34 due to unfavorable foreign currency exchange movements, increased bad debt expense, and stock awards granted in 2004, somewhat offset by lower deferred compensa- tion costs. COGS as a percentage of sales was 79.4% in 2003, compared with 79.9% in 2002. Cost reductions as a result of procurement savings, productivity improvements, and headcount reductions from prior restructuring programs, as well as higher realized prices for alumina and aluminum, more than offset lower volumes, higher costs for energy, purchased raw materials and employee benefits, a weakened U.S. dollar against other curren- cies, and a benefit realized in 2002 as a result of a favorable last-in, first-out (LIFO) adjustment. Cost of Goods Sold — COGS as a percentage of sales was 79.3% in 2004 compared with 79.4% in 2003. Increased realized prices for alumina and aluminum, higher volumes, and cost savings were mostly offset by higher costs associated with energy and raw materials, the Be ´cancour strike, an increase of $42 in environmental reserves, and unfavorable foreign currency exchange movements. 26