Income Taxes — Alcoa’s effective tax rate was 25.3% in 2004 compared with the statutory rate of 35% and Alcoa’s effective tax rates of 24.4% in 2003 and 31.5% in 2002. The effective tax rate in 2004 reflects a number of discrete tax items that are required to be excluded from management’s estimate of the annual effective tax rate: Management anticipates that the tax rate in 2005 will be similar to the tax rates for 2004 and 2003 excluding the impact of discrete tax items. In October of 2004, the American Job Creation Act of 2004 (AJCA) was signed into law. The AJCA allows companies to repatriate earnings from foreign subsidiaries at a reduced U.S. tax rate. Alcoa is evaluating the consequences of repatriating up to $1,000 with a related potential range of income tax effects of zero to $90. The company expects to complete its review by December 31, 2005, and will recognize the income tax effect, if any, in the period when a decision whether to repatriate is made. Alcoa has also considered the impact of the Qualified Domestic Production Deduction provision of the AJCA and believes that the 2005 impact will be immaterial. Minority Interests — Minority interests’ share of income from operations was $245 in 2004 compared with $238 in 2003. The $7 increase in 2004 was due to higher earnings at AWAC, attributed to higher realized prices, increased volumes, and the gain associated with the termination of an alumina tolling arrangement. This increase was partially offset by Alcoa’s acquisition of the minority interest in Alcoa Aluminio in August 2003 and the sale of the specialty chemicals business in 2004. Minority interests’ share of income from operations was $238 in 2003 compared with $172 in 2002. The increase of $66, or 38%, in 2003 was primarily due to higher earnings at AWAC, due to higher realized prices and higher volumes. This increase was somewhat offset by lower minority interests’ share of income at Alcoa Aluminio resulting from Alcoa’s acquisition of the remaining 40.9% shareholding from Camargo Correa Group in August 2003. Loss From Discontinued Operations — Loss from discontin- ued operations was $92 in 2004 compared with $70 in 2003 and$132in2002.Thelossof$92wascomprisedofanimpair- ment of $89 related to a reduction in the estimated fair values of the telecommunications business, the protective packaging business, and a small casting business; $8 of net operating losses; and a net gain of $5 on divested businesses in 2004. The loss of $70 in 2003 was comprised of an impairment of $45 related to a 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 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. See Note B to the Consolidated Financial Statements for further information. Cumulative Effect of Accounting Change — The cumulative effect of accounting changes resulted in a charge of $47 in 2003 compared with income of $34 recognized in 2002. The adoption of SFAS No. 143, ‘‘Accounting for Asset Retirement Obligations’’ in 2003 resulted in a cumulative effect adjustment of $47, consisting primarily of costs to establish assets and liabilities related to spent pot lining disposal for pots currently in operation. The adoption of SFAS No. 141, ‘‘Business Combi- nations’’ and SFAS No. 142, ‘‘Goodwill and Other Intangibles’’ in 2002 resulted in a cumulative effect adjustment of $34, consisting of income from the write-off of negative goodwill from prior acquisitions of $49, offset by a $15 write-off for the impairment of goodwill in the automotive business resulting from a change in measurement criteria for impairments. See Notes A, C, and E to the Consolidated Financial Statements for further information. Alcoa’s operations consist of five worldwide segments: Alumina and Chemicals, Primary Metals, Flat-Rolled Products, Engineered Products, and Packaging and Consumer. Alcoa businesses that are not reported to management as part of one of these five segments are combined and reported as ‘‘Other.’’ Alcoa’s management reporting system measures the after-tax operating income (ATOI) of each segment. Certain items, such as interest income, interest expense, foreign currency trans- lation gains/losses, the effects of LIFO inventory accounting, minority interests, restructuring and other charges, discontin- ued operations, and accounting changes are excluded from segment ATOI. In addition, certain expenses, such as corporate general administrative expenses and depreciation and amorti- zation on corporate assets, are not included in segment ATOI. Segment assets exclude cash, cash equivalents, short-term investments, and all deferred taxes. Segment assets also exclude items such as corporate fixed assets, LIFO reserves, goodwill allocated to corporate, assets held for sale, and other amounts. ATOI for all segments totaled $2,169 in 2004, $1,740 in 2003, and$1,549in2002.SeeNoteQtotheConsolidatedFinancial Statements for additional information. The following discussion provides shipment, sales, and ATOI data for each segment for each of the three years in the period ended December 31, 2004. The financial information and data on shipments of all prior periods have been adjusted to remove the results of discontinued operations. Effective January 2005, Alcoa realigned its organization structure, creating global groups to better serve customers and increase the ability to capture efficiencies. Alcoa is currently evaluating the effect, if any, upon its segment reporting. Segment Information ● Reversal of valuation reserves on foreign net operating losses resulted in a reduction of the rate by approximately 1.0%; ● An agreement to sell a portion of Alcoa’s interest in the Juruti bauxite reserves resulted in a reduction of the rate by .6%; ● The sale of the specialty chemicals business in the first quarter of 2004 resulted in a reduction of the rate by .5%. and 28