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## Options Exercisable 

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Share Activity (number of shares) 

In addition to stock option awards, there are 1 million unvested stock awards and 500,000 unvested performance share awards (targeted amount) as of December 31, 2004. There are 10.5 million shares reserved for future grants. Compensation expense recognized on these awards in 2004 was $9 (after tax). 

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## S. Earnings Per Share 

Basic earnings per common share (EPS) amounts are computed by dividing earnings after the deduction of preferred stock dividends by the average number of common shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive equivalents outstanding. 

The information used to compute basic and diluted EPS on income from continuing operations follows. (shares in millions) 

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Options to purchase 56 million shares of common stock at an average exercise price of $38 per share were outstanding as of December 31, 2004 but were not included in the computa- tion of diluted EPS because the option exercise price was greater than the average market price of the common shares. 

## T. Income Taxes 

The components of income from continuing operations before taxes on income were: 

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The provision for taxes on income from continuing operations consisted of: 

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*Includes U.S. taxes related to foreign income 

Included in discontinued operations is a tax benefit of $24 in 2004, $39 in 2003, and $75 in 2002. 

The exercise of employee stock options generated a tax benefit of $21 in 2004, $23 in 2003, and $34 in 2002. This amount was credited to additional capital and reduced current taxes payable. 

Reconciliation of the U.S. federal statutory rate to Alcoa’s effective tax rate for continuing operations follows. 

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