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The components of net deferred tax assets and liabilities follow. 

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Of the total deferred tax assets associated with the tax loss carryforwards, $194 expires over the next ten years, $63 over the next 20 years, and $241 is unlimited. Of the tax credit carryforwards, $161 is unlimited with the balance expiring over the next ten years. A substantial portion of the valuation allowance relates to the loss carryforwards because the ability to generate sufficient foreign taxable income in future years is uncertain. The net reduction in the valuation allowance for foreign net operating losses and tax credits resulted in the recognition of a tax benefit of $21 in 2004, and $49 in 2003. At December 31, 2004, approximately $31 of the valuation allowance related to acquired companies for which subsequently recognized benefits will reduce goodwill. 

The cumulative amount of Alcoa’s foreign undistributed net earnings for which no deferred taxes have been provided was $7,248 at December 31, 2004. Management has no plans to distribute such earnings in the foreseeable future. It is not practical to determine the deferred tax liability on these earnings. Alcoa is currently evaluating the American Job Creation Act of 2004 provision that 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. Alcoa will 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. 

## U. Lease Expense 

Certain equipment, warehousing and office space, and ocean- going vessels are under operating lease agreements. Total expense from continuing operations for all leases was $256 in 2004, $221 in 2003, and $204 in 2002. Under long-term operating leases, minimum annual rentals are $225 in 2005, $197in2006,$153in2007,$118in2008,$98in2009,and atotalof$356for2010andthereafter. 

## V. Interest Cost Components 

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## W. Pension Plans and Other Postretirement Benefits 

Alcoa maintains pension plans covering most U.S. employees and certain other employees. Pension benefits generally depend on length of service, job grade, and remuneration. Substantially all benefits are paid through pension trusts that are sufficiently funded to ensure that all plans can pay benefits to retirees as they become due. 

Alcoa maintains health care and life insurance benefit plans covering most eligible U.S. retired employees and certain other retirees. Generally, the medical plans pay a percentage of medical expenses, reduced by deductibles and other coverages. These plans are generally unfunded, except for certain benefits funded through a trust. Life benefits are generally provided by insurance contracts. Alcoa retains the right, subject to existing agreements, to change or eliminate these benefits. All U.S. salaried and certain hourly employees hired after January 1, 2002 will not have postretirement health care benefits. 

Alcoa uses a December 31 measurement date for the majority of its plans. 

The projected benefit obligation for all defined benefit pension plans was $10,751 and $10,268 at December 31, 2004 and 2003, respectively. 

The accumulated benefit obligation for all defined benefit pension plans was $10,326 and $9,771 at December 31, 2004 and 2003, respectively. 

The aggregate projected benefit obligation and fair value of plan assets for the pension plans with benefit obligations in excess of plan assets were $10,518 and $8,343, respectively, as of December 31, 2004, and $10,047 and $8,093, respectively, as of December 31, 2003. The aggregate accumulated benefit obligation and fair value of plan assets with accumulated benefit obligations in excess of plan assets were $10,086 and $8,320, respectively, as of December 31, 2004, and $9,554 and $8,087, respectively, as of December 31, 2003. 

At December 31, 2004 and 2003, the long-term accrued pension benefits on the Consolidated Balance Sheet were $1,513 and $1,568, respectively. The total accrued benefit liability was $1,587 in 2004 and $1,599 in 2003, which included the current portion of the liability of $57 in 2004 and $12 in 2003 and the amounts attributed to joint venture partners of $17 in 2004 and $19 in 2003. 

The benefit obligation for postretirement benefit plans and net amount recognized were $3,829 and $2,546, respectively, as of December 31, 2004, and $3,661 and $2,609, respectively, as of December 31, 2003. Of the net amount recognized, the long-term, current, and amounts attributed to joint venture partners were $2,150, $358, and $38, respectively, as of December 31, 2004, and $2,220, $344, and $45, respectively, as of December 31, 2003. 

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduced a prescription drug benefit under Medicare (Medicare Part D), as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. As of December 31, 2004 and 2003, Alcoa recognized the effects of the Act in the measure of its Accumulated Postretire- ment Benefit Obligation (APBO) for certain retiree groups in accordance with FASB Staff Position No. FAS 106-2. 

