Massena, New York. Alcoa has been conducting investi- gations and studies of the Grasse River, adjacent to Alcoa’s Massena, NY plant site, under order from the U.S. Environ- mental Protection Agency (EPA) issued under the Comprehensive Environmental Response, Compensation and Liability Act, also known as Superfund. Sediments and fish in the river contain varying levels of polychlorinated biphenyl (PCB). In 2002, Alcoa submitted an Analysis of Alternatives Report that detailed a variety of remedial alternatives with estimated costs ranging from $2 and $525. Because the selection of the $2 alternative (natural recovery) was considered remote, Alcoa adjustedthereservefortheGrasseRiverin2002to$30 representing the low end of the range of possible alternatives, as no single alternative could be identified as more probable than the others. In June of 2003, based on river observations during the spring of 2003, the EPA requested that Alcoa gather additional field data to assess the potential for sediment erosion from winter river ice formation and breakup. The results of these additional studies, submitted in a report to the EPA in April of 2004, suggest that this phenomenon has the potential to occur approximately every 10 years and may impact sediments in certain portions of the river under all remedial scenarios. The EPA informed Alcoa that a final remedial decision for the river could not be made without substantially more information, including river pilot studies on the effects of ice formation and breakup on each of the remedial techniques. The EPA requested that Alcoa consider a Remedial Options Pilot Study (ROPS) to gather this information. The scope of this study includes sediment removal and capping, the installation of an ice control structure, and significant monitoring. In May of 2004, Alcoa agreed to perform the study at an estimated cost of $35. Most of the work should be completed by the fourth quarter of 2005. It is anticipated that a report offindingswillbeissuedtothe EPA in 2006. Subsequent to this submittal, a revised Analysis of Alternatives Report will be submitted to the EPA at a date to be determined. This information will be used by the EPA to propose a remedy for the entire river. Alcoa adjusted the reserves in the second quarter of 2004 to include the $35 for the ROPS. This is in addition to the $30 previously reserved. With the exception of the natural recovery remedy, none of the existing alternatives in the 2002 Analysis of Alternatives Report is currently more probable than the others, and the results of the ROPS are necessary to revise the scope and estimated cost of many of the current alternatives. The EPA’s ultimate selection of a remedy could result in additional liability. Alcoa may be required to record a subsequent reserve adjustment at the time the EPA’s Record of Decision is issued. Sherwin, Texas. In connection with the sale of the Sherwin alumina refinery in Texas, which was required to be divested as part of the Reynolds merger in 2000, Alcoa has agreed to retain responsibility for the remediation of then existing environ- mental conditions, as well as a pro rata share of the final closure of the active waste disposal areas, which remain in use. Alcoa’s share of the closure costs is proportional to the total period of operation of the active waste disposal areas. Alcoa estimated its liability for the active disposal areas by making certain assumptions about the period of operation, the amount of material placed in the area prior to closure, and the appropriate technology, engineering, and regulatory status applicable to final closure. The most probable cost for remediation has been reserved. It is reasonably possible that an additional liability, not expected to exceed $75, may be incurred if actual experience varies from the original assumptions used. Based on the foregoing, it is possible that Alcoa’s results of operations, in a particular period, could be materially affected by matters relating to these sites. However, based on facts currently available, management believes that adequate reserves have been provided and that the disposition of these matters will not have a materially adverse effect on the financial position or liquidity of the company. Alcoa’s remediation reserve balance at the end of 2004 and 2003was$391and$395(ofwhich$73and$65wereclassified as a current liability), respectively, and reflects the most probable costs to remediate identified environmental conditions for which costs can be reasonably estimated. Remediation expenses charged to the reserve were approximately $46 in 2004, $32 in 2003, and $50 in 2002. These amounts include expenditures currently mandated, as well as those not required by any regulatory authority or third party. The reserve balance was increased by $42 in 2004, primarily for the additional reserve recorded for the Grasse River site. In 2003, the reserve balance was reduced by approximately $9, primarily for adjustments based on recent assessments of remaining work required at certain sites. Included in annual operating expenses are the recurring costs of managing hazardous substances and environmental programs. These costs are estimated to be about 2% of cost of goods sold. On January 4, 2005, Alcoa and BHP Billiton completed the sale of their interests in Integris Metals Inc., a metals distribution joint venture in which Alcoa and BHP Billiton each owned a 50%interest.Theinvestmentwassoldfor$410incashplus assumption of Integris’ debt, which was approximately $234. Alcoa received cash of $205. There was no material gain or loss recorded on the transaction. On January 31, 2005, Alcoa completed its acquisition of two fabricating facilities in Samara and Belaya Kalitva in the Russian Federation. The facilities were purchased from RUSAL for $257 in cash. These assets provide a wide product breadth that supports Alcoa’s growth plans in the commercial transportation, aerospace, automotive, and packaging markets. On February 8, 2005, Alcoa received a tender offer from Orkla ASA to purchase its 46.5% stake in Norwegian metal group Elkem ASA. Alcoa is currently in the process of evaluating the offer, which remains open through March 8, 2005. Z. Subsequent Events 62