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## Cash from Operations 

Cash from operations in 2004 was $2,199 compared with $2,434 in 2003. The decrease of $235, or 10%, was primarily due to increases in inventories due to higher metal prices and the absence of proceeds from a $440 advance payment against a long-term aluminum supply contract that occurred in 2003. Partially offsetting these items were stronger earnings in 2004 compared with 2003 and an increase in taxes payable and accounts payable. Cash from operations in 2003 was $2,434 compared with $1,844 in 2002. The increase of $590, or 32%, was primarily due to higher earnings after adjustments for noncash items, as well as proceeds of $440 from an advance payment against a long-term aluminum supply contract. Partially offsetting these increases were higher working capital requirements, primarily attributed to an increase in accounts receivable due to higher sales. See the Results of Operations discussion for further details. 

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## Financing Activities 

Cash used for financing activities was $1,525 in 2004 compared with $1,714 in 2003. The change of $189 was primarily due to an increase in short-term borrowings related to accounts payable arrangements and lower dividends paid to minority interests. 

Cash used for financing activities was $1,714 in 2003 compared with cash provided from financing activities of $591 in 2002, resulting in a change of $2,305, primarily due to borrowing activities. Net cash used to pay down short-term borrowings, commercial paper, and long-term debt was $1,089 in 2003 compared with net cash provided from borrowing activities of $1,466 in 2002, primarily used to fund the acquisi- tions of Ivex and Fairchild. In August 2002, Alcoa issued $1,400 of notes. Of these notes, $800 mature in 2007 and carry a coupon rate of 4.25%, and $600 mature in 2013 and carry a coupon rate of 5.375%. 

During 2004, Standard and Poor’s Rating Services (S&P) maintained its long-term debt rating of Alcoa at A ‒ and its short-term rating at A-2. In January 2005, S&P revised its outlook for Alcoa to negative from stable, citing higher capital expenditures in 2005 and future years. There was no change to either Alcoa’s long-term or short-term ratings. Moody’s Investors Service long-term debt rating of Alcoa and its rated subsidiaries is A2 and its short-term debt rating of Alcoa is Prime ‒ 1. 

Alcoa maintains $3,000 of revolving-credit agreements with varying expiration dates as backup to its commercial paper program. In April 2004, Alcoa refinanced its $2,000 revolving- 

credit agreement that expired in April 2004 into a $1,000 revolving-credit agreement that will expire in April 2005, with an option to extend the maturity of any borrowings outstanding on the April 2005 expiration date for one year. Additionally, Alcoa refinanced its $1,000 revolving-credit agreement that was to expire in April 2005 into a $1,000 revolving-credit agreement that will expire in April 2009. Alcoa also has a $1,000 revolving- credit agreement that will expire in April 2008. Alcoa intends to refinance the April 2005 agreement in April 2005. Debt of $57 will mature in 2005. 

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## Investing Activities 

Cash used for investing activities was $802 in 2004 compared with $526 in 2003, resulting in a change of $276. The increase was caused primarily by an increase in capital spending of $273 as Alcoa invested in alumina and smelting expansions, as well as the greenfield smelter construction in Iceland in 2004. Cash proceeds from the sales of assets were $228 higher in 2004, due to the substantial completion of the company’s 2002 divestiture plan, partially offset by a $129 decrease in cash received on the sale of investments. 

Cash used for investing activities was $526 in 2003 compared with $2,547 in 2002, resulting in a change of $2,021. The decrease in cash used in 2003 was primarily due to disciplined capital spending, which drove a reduction of $403 in capital expenditures. Cash proceeds from sales of assets and investments was$166higherin2003,primarilyduetothesalesofthe PET business and Latasa. Additionally, acquisitions used $1,244 more cash in 2002 compared with 2003 as a result of the acquisitions of Ivex and Fairchild. 

Capital expenditures were $1,143 in 2004 compared with $870 and $1,273 in 2003 and 2002, respectively. Of the total capital expenditures in 2004, approximately 36% related to growth projects, including alumina refinery expansions in Australia, Jamaica, and Suriname, as well as the construction of a smelter in Iceland. Also included are costs of new and expanded facilities for environmental control in ongoing operations totaling $70 in 2004, $37 in 2003, and $115 in 2002. Capital expenditures related to environmental control are anticipated to be approxi- mately $112 in 2005. Total capital expenditures are anticipated to be approximately $2,500 in 2005. 

Alcoa added $69, $11, and $112 to its investments in 2004, 2003, and 2002, respectively. In January of 2004, Alcoa paid $32 to acquire approximately 44 million additional shares of Chalco to maintain its 8% ownership interest. Cash paid for 

