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quarters of the year. The results of this segment do not include Alcoa’s telecommunications business which was reclassified into discontinued operations. 

Third-party sales for the Other group declined 3% in 2004 compared with 2003 and 4% in 2003 compared with 2002 primarily at AFL, as the automotive business continued to rebalance the customer base. In 2004, the decline was partially offset by higher volumes in the residential building products business and favorable foreign currency exchange movements. In 2003, the disposition of distribution facilities in Europe also contributed to the sales decline. 

ATOI for this group decreased 17% in 2004 compared with 2003, principally due to decreased volumes and higher raw material costs, which were partially offset by higher equity income from Integris Metals and productivity improvements in the automotive parts business. ATOI for this group increased 22% in 2003 compared with 2002. The increase in ATOI is primarily due to productivity and purchasing cost savings recognized at AFL. 

During 2004, Alcoa focused on low cost sourcing by opening an automotive facility in Honduras. 

## Reconciliation of ATOI to Consolidated Net Income — 

The following table reconciles segment ATOI to consolidated net income. 

<img src='content_image/70314.jpg'>

Items required to reconcile segment ATOI to consolidated net income include: 

● Corporate adjustments to eliminate any remaining profit or loss between segments; 

● The after-tax impact of interest income and expense; 

● Minority interests; 

● Corporate expense, comprised of general administrative and selling expenses of operating the corporate headquarters and other global administrative facilities along with depreciation on corporate-owned assets; 

● Restructuring and other charges (excluding minority interests); 

● Discontinued operations; 

● Accounting changes for asset retirement obligations in 2003 andgoodwillin2002;and 

● Other, which includes the impact of LIFO,differences between estimated tax rates used in the segments and the corporate effective tax rate and other nonoperating items such as foreign currency translation gains/losses. 

The significant changes in the reconciling items between ATOI and consolidated net income for 2004 compared with 2003 consisted of: 

● A decrease in interest expense primarily due to lower average debt levels; 

● An increase in the loss from discontinued operations due to the reclassification of the protective packaging business, the telecommunications business, and a small casting business to discontinued operations, which resulted in an $89 impairment loss in 2004 to reflect the estimated fair values of these businesses; and 

● An increase in Other, principally caused by an increase in LIFO inventory adjustments due to the increase in the price of aluminum, as well as $79 lower proceeds from insurance settle- ments compared with 2003. Partially offsetting the increase are $49 in favorable foreign currency exchange movements and a $38 gain recognized on the restructuring of debt in 2004. See Note K to the Consolidated Financial Statements for additional information on this transaction. 

The significant changes in the reconciling items between ATOI and consolidated net income for 2003 compared with 2002 consisted of: 

● An increase in corporate expense, primarily due to an increase in deferred compensation costs. 

● A decrease in Other, primarily due to an increase in the cash surrender value of employee life insurance (which essentially offsets the increase in deferred compensation costs), insurance settlements of past environmental matters, and lower taxes related to differences between statutory tax rates applied and the overall corporate effective tax rate, and higher equity income, primarily Elkem. These increases were partly offset by the unfavorable impact of a higher LIFO benefit recognized in 2002, as well as foreign currency translation losses. 

## Market Risks and Derivative Activities 

In addition to the risks inherent in its operations, Alcoa is exposed to financial, market, political, and economic risks. The following discussion provides information regarding Alcoa’s exposure to the risks of changing commodity prices, foreign exchange rates, and interest rates. 

Alcoa’s derivative activities are subject to the management, direction, and control of the Strategic Risk Management Committee (SRMC).TheSRMC is composed of the chief execu- tive officer, the chief financial officer, and other officers and employees that the chief executive officer selects. The SRMC reports to the Board of Directors on the scope of its activities. 

All of the interest rate, foreign currency, aluminum and other commodity contracts are held for purposes other than trading. They are used primarily to mitigate uncertainty and volatility, and to cover underlying exposures. The company is not involved in energy-trading activities, weather derivatives, or other nonexchange commodity-trading activities. 

