-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q/MOI4JkPJtkWVrbOq3b78uwH53PVoYMwX/Gc1N4/2H9ySydjLTb+GyoWnWL4Ogh hguxxNOCRkK5vs+b3NA7uQ== 0000950123-00-002901.txt : 20000411 0000950123-00-002901.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950123-00-002901 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCAN ALUMINIUM LTD /NEW CENTRAL INDEX KEY: 0000004285 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03677 FILM NUMBER: 582556 BUSINESS ADDRESS: STREET 1: 1188 SHERBROOKE ST WEST CITY: MONTREAL QUEBEC CANA STATE: A8 BUSINESS PHONE: 5148488000 10-K405 1 ALCAN ALUMINUM CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended 31 December 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-3677 ALCAN ALUMINIUM LIMITED Incorporated in: I.R.S. Employer identification No.: CANADA NOT APPLICABLE 1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A 3G2 Telephone: (514) 848-8000
Securities registered pursuant to Section 12(b) of the Act: Title Name of each exchange on which registered Common Shares without nominal or par value Chicago Stock Exchange New York Stock Exchange Pacific Stock Exchange Common Share Purchase Rights Chicago Stock Exchange New York Stock Exchange Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days: Yes . X. No ... Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates: $8,367 million, as of 14 February 2000 Common Stock of Registrant outstanding 218,734,110 Common Shares, as of 14 February 2000 Documents incorporated by reference: Annual Report to security holders for the fiscal year ended 31 December 1999 (Parts I, II and IV) Management Proxy Circular for the Annual Meeting to be held on 27 April 2000 (Parts III and IV)
2 CONTENTS
PAGE ---- PART I Items 1 and 2 Business and Properties........................................................2 Overview of Segments/Divisions..........................................................2 History/Recent Developments.............................................................3 Bauxite and Alumina.....................................................................4 Primary Aluminum........................................................................8 Aluminum Conversion ...................................................................10 Recycling..............................................................................13 Research and Development...............................................................14 Environmental Regulations..............................................................15 Properties.............................................................................15 Employee Relations.....................................................................15 Patents, Licenses and Trademarks.......................................................15 Competition and Government Regulations.................................................16 Item 3 Legal Proceedings ..................................................................16 Environmental Matters..................................................................16 Other Matters..........................................................................18 Item 4 Submission of Matters to a Vote of Security Holders.................................19 PART II Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters...........19 Item 6 Selected Financial Data.............................................................20 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations...............................................................21 Item 7a Quantitative and Qualitative Disclosures about Market Risk..........................21 Item 8 Financial Statements and Supplementary Data.........................................22 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................................................22 PART III Item 10 Directors and Executive Officers of the Registrant..................................22 Item 11 Executive Compensation..............................................................23 Item 12 Security Ownership of Certain Beneficial Owners and Management......................23 Item 13 Certain Relationships and Related Transactions......................................24 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................24 Signatures..................................................................................28 Consent of Independent Accountants..........................................................30 Exhibit No. 21 Subsidiaries, Related Companies, etc........................................31
3 PART I In this report, unless the context otherwise requires, the following definitions apply: "Alcan", "Company" or "Registrant" means Alcan Aluminium Limited and, where applicable, one or more Subsidiaries, "Annual Report" means Alcan's Annual Report for the year ended 31 December 1999, "Board" or "Board of Directors" means the Board of Directors of Alcan, "Dollars" or "$" means U.S. Dollars, "Joint Venture" means an association (incorporated or unincorporated) of companies jointly undertaking some commercial enterprise and proportionately consolidated to the extent of Alcan's participation, "Management Proxy Circular" means the management proxy circular for Alcan's Annual Meeting of Shareholders to be held on 27 April 2000, "Related Company" means a company in which Alcan owns, directly or indirectly, 50% or less of the voting stock and in which Alcan has significant influence over management, but does not include a company in a Joint Venture, "Shares" or "Common Shares" means the Common Shares of Alcan, "Shareholder" means a holder of the Shares, "Subsidiary" means a company controlled, directly or indirectly, by Alcan, and "tonne" means a metric tonne of 1,000 kilograms or 2,204.6 pounds. Unless otherwise expressly indicated herein, the financial and other information given in this report is presented on a consolidated basis. Certain information called for by Items of this Form is incorporated by reference to the Annual Report and the Management Proxy Circular. Such information is specifically identified herein, including by the reference "See Annual Report..." or "See Management Proxy Circular...". With the exception of such information specifically incorporated by reference, the Annual Report and the Management Proxy Circular are not to be deemed filed as part of this Form 10-K Report. Cautionary Statement Written or oral statements made by Alcan or its representatives, including statements set forth herein, which describe the Company's or management's objectives, projections, estimates, expectations or predictions of the future may be "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "estimates," "anticipates" or the negative thereof or other variations thereon. The Company cautions that, by their nature, forward-looking statements involve risk and uncertainty and that the Company's actual results could differ 1 4 materially from those expressed or implied in such forward-looking statements or could affect the extent to which a particular projection is realized. Important factors which could cause the Company's actual performance to differ materially from projections or expectations included in forward-looking statements include global aluminum supply and demand conditions, aluminum ingot prices and changes in other raw materials costs and availability, cyclical demand and pricing within the principal markets for the Company's products, changes in government regulations, particularly those affecting environmental, health or safety compliance, economic developments and other factors within the countries in which the Company operates or sells its products and other factors relating to the Company's ongoing operations including, but not limited to, litigation, labour negotiations and fiscal regimes. Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements include, but are not necessarily limited to, those discussed under the heading "Risks and Uncertainties" in the Management's Discussion and Analysis section of Alcan's Annual Report, on pages 37 to 38 thereof. The text under such heading is incorporated herein by reference. ITEM 1 AND ITEM 2 BUSINESS AND PROPERTIES Alcan is the parent company of an international group involved in most aspects of the aluminum industry. Through Subsidiaries, Joint Ventures and Related Companies around the world, the activities of Alcan include bauxite mining, alumina refining, power generation, aluminum smelting, manufacturing and recycling as well as research and technology. Approximately 36,000 people are directly employed by Alcan. In the 98 years since it was established, Alcan has developed a unique combination of competitive strengths. Alcan is a multicultural and multilingual enterprise reflecting the differing corporate and social characteristics of the many countries in which it operates. Within a universal framework of policies and objectives, individual Subsidiaries conduct their operations with a large measure of autonomy. With operations and sales offices in more than 30 countries, Alcan is one of the most international aluminum companies and a leading producer of flat-rolled aluminum products. 1. OVERVIEW OF SEGMENTS/DIVISIONS In April 1999, Alcan was restructured into two business operating groups to better support the achievement of its Full Business Potential II ("FBP II") targets. Alcan's bauxite mining, alumina refining, power generation and primary aluminum activities are the responsibility of the Alcan Primary Metal Group. All downstream or fabrication activities, such as sheet, foil, flexible packaging, cable and extrusions as well as recycling activities and secondary metal production are the responsibility of the Alcan Global Fabrication Group. The two operating groups are self-sufficient, but operate within a universal framework of strategy and policies. The corporate office focuses on enterprise strategy and profitable growth, while overseeing governance, policy and compliance matters. 2 5 2. HISTORY/RECENT DEVELOPMENTS Alcan is a limited liability Canadian company, incorporated on 3 June 1902, with its headquarters and registered office in Montreal, Canada. It was formed as a subsidiary of the Pittsburgh Reduction Company, one of the founding companies of the aluminum industry, to establish a smelter and hydroelectric power facility in Shawinigan, Quebec. In 1928, the international operations and domestic U.S. operations were separated into two competing companies that became Alcan and Alcoa Inc., respectively. During the Second World War substantial expansion of hydroelectric and smelting capacity took place in Quebec to supply aluminum for the war effort. In the 1950s, Alcan added hydroelectric and smelting capacity in British Columbia. During the postwar period Alcan expanded internationally and invested in fabricating activities to stimulate demand for its primary metal production. Today, Alcan is a multinational company engaged in all aspects of the aluminum industry on an international scale. Since 1994, Alcan has divested several fabricating businesses which were not considered to be a strategic fit for the Company and which did not create long-term value for its Shareholders. As part of this process, in 1996, Alcan sold 12 non-strategic downstream businesses in the U.K. and in the U.S. During 1998 and 1999, Alcan also decreased its shareholding in Nippon Light Metal Company, Ltd. ("NLM") from 45.6% to 5.1%. In the first half of 1999, Alcan sold its Aughinish alumina refinery in Ireland and its piston business in Nuremberg, Germany. In July 1999, Alcan sold its wholly-owned Subsidiary, Alcan France, which produces building systems. On 30 September 1999, Alcan and South Korea's Taihan Electric Wire Co., Ltd. announced the formation of Alcan Taihan Aluminum Limited, a jointly-owned company with modern rolling assets to serve the growing market for aluminum rolled products throughout the Asia/Pacific region. For 1999, the Company reported a net income of $460 million. See the Annual Report "Management's Discussion and Analysis" on page 20. Setting aside the impact of changes in the market price for aluminum, Alcan improved its pre-tax profitability by $300 million during 1997 and 1998. In 1999, the Company announced a further profit improvement target (called its FBP II program), of $700 million pre-tax, to be achieved by the end of the year 2001. The achievement of this target will enable the Company to have the highest growth rate in terms of Economic Value Added ("EVA"(R)) for the industry. ("EVA" is a registered trademark of Stern Stewart & Co.) On 15 September 1999, the Company entered into a three-way combination agreement with Pechiney and Alusuisse Lonza Group AG ("algroup"). The structure of the proposed combination involves two independent exchange offers of the Company's Shares, one for all of the outstanding shares of Pechiney and the other for all of the outstanding shares of algroup. Upon completion of the combination (which is subject to regulatory approvals) and assuming that all of the Pechiney and algroup shares are exchanged for the Company's Shares, the Company's Shareholders would hold 44% of the Shares of the Company's on a fully diluted basis. On 22 November 1999, the Company's Shareholders approved the issuance of the Company's Shares under the two independent exchange offers. On 14 March 2000, in view of their inability to agree with the European Commission as to the undertakings satisfactory to respond to the European Commission's concerns with respect to the combined company's market share of certain European markets (including aluminum beverage can body stock and aluminum food can sheet), the three parties to the combination decided to withdraw their filing notification to the European Commission as regards those aspects of the combination which relate to transactions involving Pechiney. 3 6 For legal reasons relating to the functioning of the European Commission's merger review process, the withdrawal required that the three parties terminate the combination agreement, insofar as Pechiney is concerned. A substituting combination agreement in relation to the transactions relating to Pechiney was forthwith constituted. This new agreement is the same as its predecessor except that it provides that the parties shall seek to identify a form of undertakings to the European Commission which are mutually satisfactory to each of them and to the European Commission. If no such undertakings are agreed to by 30 April 2000 either Alcan or Pechiney may terminate the agreement such that there will be no further obligation to make the exchange offer in relation to Pechiney. On 23 March 2000, Alcan announced the sale of its 54.62% interest in Indian Aluminium Company, Limited ("Indal") to Hindalco Industries Limited ("Hindalco"), India's largest integrated aluminum producer. Alcan and Hindalco plan to complete this $169 million cash transaction following the approval of Indian authorities. 3. BAUXITE AND ALUMINA 3.1 Products Alumina (aluminum oxide) is produced from bauxite, the basic aluminum-bearing ore, by a chemical process. Depending upon quality, between four and five tonnes of bauxite are required to produce approximately two tonnes of alumina. A portion of the alumina produced by Alcan is sold in the metallurgical and chemical alumina markets. 3.2 Sales and Marketing/Customers Alcan produced in 1999 approximately 3.6 million tonnes of smelter-grade alumina, of which some 3 million tonnes is required by its current smelting operations. The remainder is sold to third parties. In addition, Alcan produced in 1999 approximately 400,000 tonnes of chemical-grade alumina which is sold to third parties in the form of various alumina chemicals. 3.3 Production Facilities 3.3.1 Canada Alcan owns an alumina facility with a capacity of about 1.2 million tonnes per year at Jonquiere (Quebec). Bauxite for this operation is obtained from Brazil (see below), Guinea (see below) and other sources. Alumina and alumina-based chemicals produced at Jonquiere supply, in part, the smelters in Quebec and are also sold in chemical markets. 3.3.2 Australia Alcan has a 21.4% interest in a company which operates an alumina plant at Gladstone (Queensland) which has a capacity of about 3.5 million tonnes per year. Each participant in that plant supplies bauxite for toll conversion. Alcan's bauxite is purchased from Comalco Limited ("Comalco") in Australia under a long-term contract. Alcan's share of production from Gladstone is used to supply the Alcan smelter at Kitimat (British Columbia) and is also sold to third parties. In 1998, Alcan and Comalco signed an agreement providing for the future development of Alcan's Ely bauxite mine in Cape York, Queensland, Australia, with Comalco's adjacent operations. This agreement becomes effective in 2000. 3.3.3 Brazil Alcan purchased close to 2 million tonnes of bauxite in 1999 from a 12.5%-owned company, Mineracao Rio do Norte S.A. ("MRN"). MRN's Trombetas mine in the Amazon region has an operating capacity of about 10 million tonnes per year. Bauxite purchased from MRN is processed at the Jonquiere plant (see above) and at the Alumar alumina refinery in Sao Luis 4 7 (Brazil) which has an annual capacity of about 1.2 million tonnes; Alcan owns a 10% interest and future expansion rights in the latter refinery. Alcan owns alumina facilities (and related bauxite mining facilities) with a capacity of about 150,000 tonnes of alumina per year at Ouro Preto which supply smelters in Brazil. 3.3.4 Ghana Alcan purchased about 400,000 tonnes of bauxite in 1999 from Ghana Bauxite Co. Ltd. ("GBC") in which it holds an interest of 80%. The bauxite purchased is used for processing at the Burntisland plant (see below) and the Jonquiere plant (see above). 3.3.5 Guinea Alcan purchased 4 million tonnes of bauxite in 1999 under contracts in effect through 2011 from Compagnie des Bauxites de Guinee S.A. ("CBG"). Alcan has a 33% interest in Halco (Mining) Inc.; Halco holds a 51% interest in CBG, the remaining 49% being held by the Republic of Guinea. CBG's mine in the Boke region of Guinea has an operating capacity of about 12 million tonnes per year. Bauxite purchased from CBG is processed at the Jonquiere plant (see above) and is also sold to third parties. 3.3.6 India In May 1998, Alcan acquired a 20% interest in the proposed Utkal alumina project in Orissa, India. A further 20% is held by Alcan's Subsidiary, Indal. The project consists of a one million tonne integrated alumina plant and bauxite mine, with potential to further expand production capacity. In February 1999, Alcan increased its direct interest in the project to 35%, subject to regulatory approval. Alcan's decision regarding the beginning of construction is expected to be made in mid-2001. Indal owns bauxite mining facilities at Chandgad and Lohardaga, as well as alumina facilities at Belgaum and Muri with a total capacity of 390,000 tonnes of alumina per year. 3.3.7 Jamaica Alcan has a 93% interest in alumina facilities (and related bauxite mining facilities) with an annual capacity of about 1.2 million tonnes. The Government of Jamaica owns the remaining 7% interest in these facilities. Alcan is responsible for management of the operations. In 1999, most of Alcan's share of the alumina produced was supplied to Alcan smelters in Canada and the United States but some alumina was sold to third parties. 3.3.8 United Kingdom Alcan operates an alumina plant in Burntisland (Scotland), which has an annual capacity of approximately 120,000 tonnes of special aluminas and other chemicals for sale to the chemical market. Bauxite for this operation is purchased from Ghana (see above). 5 8 ALUMINA CAPACITIES -- AS AT 31 DECEMBER 1999 (THOUSANDS OF TONNES)
% OF ALCAN OWNERSHIP ANNUAL SHARE OF LOCATIONS+ BY ALCAN CAPACITY CAPACITY ---------- --------- -------- -------- SMELTER-GRADE ALUMINA AUSTRALIA............... Gladstone 21.4 3,500 748(1) (Queensland) BRAZIL.................. Ouro Preto 100 150 150 (Saramenha, Minas Gerais) Alumar 10 1,200 120 (Sao Luis) CANADA.................. Vaudreuil 100 1,045 1,045 (Jonquiere, Quebec) INDIA................... Belgaum 54.6 (Karnataka) 270 270 Muri 54.6 (Bihar) JAMAICA................. Kirkvine 93 (Manchester) 1,175 1,093(1) Ewarton 93 (St. Catherine) TOTAL SMELTER-GRADE ALUMINA...................................................... 3,426 SPECIALTY CHEMICAL ALUMINAS AND HYDRATES CANADA.................. Vaudreuil 100 130 130 (Jonquiere, Quebec) INDIA................... Belgaum 54.6 (Karnataka) 120 120 Muri 54.6 (Bihar) UNITED KINGDOM.......... Burntisland 100 120 120 (Fife, Scotland) TOTAL SPECIALTY CHEMICAL ALUMINAS AND HYDRATES................................... 370 TOTAL............................................................................ 3,796
[FN] - ---------- + Includes Joint Ventures, proportionately consolidated. (1) Restated to better reflect the actual production levels achieved over a period of time. 3.4 Raw Materials 3.4.1 Bauxite Reserves Alcan obtains its bauxite from mining Subsidiaries, Joint Ventures, consortium companies and third-party suppliers. To meet its bauxite needs in 1999, Alcan used 6.2 million tonnes from its mines and purchased 3.5 million tonnes from third parties. Alcan has more than sufficient bauxite to meet its needs for the next 23 years. Alcan also has access to additional resources to meet its needs beyond this period. In 1998 and 1999, Alcan spent $2.9 million and $4.6 million, respectively, on exploration and development of bauxite reserves. 6 9
ALCAN BAUXITE As at 31 December 1999 RESERVES BY EQUITY INTEREST (millions of tonnes) --------------------------------------- EQUITY RESERVES INTEREST TOTAL ALCAN SHARE -------- ------ ----------- ALCAN JAMAICA COMPANY 0.930 51.12 * 51.12 ALCAN SOUTH PACIFIC PTY LTD. 1.000 56.11 56.11 ALCAN ALUMINIO DO BRASIL LTDA. 1.000 8.90 8.90 CBG (Guinea) 0.165 192.13 * 63.40 GBC (Ghana) 0.800 5.20 * 5.20 INDIAN ALUMINIUM LTD. 0.546 12.35 6.74 UTKAL ALUMINA INTERNATIONAL LIMITED 0.350 118.00 41.30 MRN (Brazil) 0.125 171.50 21.44 TOTAL........................................................................ 254.21
[FN] - --------- * Adjusted to reflect allocation. In recent years the world mining industry has moved towards standardizing the procedures and nomenclature in regard to the classification of mineral resources and ore reserves. The Australasian Code developed by the Joint Ore Reserve Committee ("JORC") has become an internationally accepted code and the general principles outlined in this code have been followed in compiling Alcan's reserves and resources. Resources encompass an area of known mineralisation that has been sampled to varying degrees and for which there are reasonable prospects for eventual economic extraction. Ore reserves have been sufficiently drilled off to allow for inclusion within a mining plan and the tonnage so defined has been subject to strict mining and economic criteria. In the case of CBG for example, the resources are vast but the actual reserves of exportable bauxite, as defined by current mining and economic criteria, are limited. The basis for classifying reserves varies from country to country. For example, in India and Brazil, a certain portion of the bauxite is mined from mineral properties owned by third parties. In this case only bauxite actually contracted for is included as ore reserves. Environmental constraints require that certain bauxite lands remain classifies as resources until such time as permits are obtained. 3.4.2 Chemicals and Other Materials Alcan, together with its Subsidiaries, Related Companies and Joint Ventures, produces a wide range of specialty aluminas and aluminum hydroxides for different uses, such as ceramics, refractories, water treatment chemicals, catalysts and coagulants. Its products are also used as flame retardants and smoke suppressants for plastics and resins. The principal manufacturing facilities for special aluminas and aluminum hydroxides are located in Canada, the U.K. and India. Certain chemicals and other materials, e.g., aluminum fluoride, required for the production of aluminum at Alcan's smelters, are also produced by its chemical operations. Other materials, e.g., caustic soda, fuel oil, fluorspar and petroleum coke, are purchased from third parties. 7 10 4. PRIMARY ALUMINUM 4.1 Products 4.1.1 Aluminum Aluminum is produced through the electrolytic reduction of alumina. Electrical energy is used to separate the aluminum from the oxygen in alumina. Approximately two tonnes of alumina yield one tonne of metal. 4.1.2 Other Aluminum Sources Other sources of aluminum include the following: purchases of primary aluminum under contracts and spot purchases, purchases of aluminum used beverage cans and aluminum scrap for recycling and purchases of customer scrap returned against ingot or semi-fabricated product sales contracts. In addition, some aluminum fabricated products are purchased for resale. Purchases in 1999 of aluminum of all types from all sources amounted to 1,297,000 tonnes, compared with 1,227,000 tonnes in 1998 and 1,254,000 tonnes in 1997. 4.2 Sales and Marketing/Customers In 1999, Alcan sold 667,000 tonnes of primary aluminum to third parties. Virtually all this ingot was in the form of value-added ingot, primarily billet, sheet ingot or foundry alloy. The remainder of the primary metal produced was sold to Alcan's own fabricating operations, primarily as sheet ingot, wire bar or molten metal, used for the continuous casting of rod or sheet. Approximately half of the primary aluminum produced in Alcan's North and South American smelters is consumed in Alcan's fabricating facilities, while the remaining half is sold to third party customers, primarily in North America and Asia. North American third party sales have been focused on both customized extrusion billet and foundry alloys. These markets have been very strong, supported by growth in automotive demand, and by a buoyant economy. Although Alcan has been short of metal in Europe, the duty barrier for aluminum from Canada and high logistics costs have made it impractical to ship significant tonnages of metal to Europe. Alcan is a major supplier of extrusion billet to independent extruders and foundry ingot to independent shape casting foundries. Alcan also sells alloys to independent foundries in Canada, Italy, the United Kingdom and the United States. Alcan's ingot product realizations were $1,511 per tonne in 1999 compared to $1,558 per tonne in 1998 and $1,739 per tonne in 1997. These figures relate to primary and secondary ingot and scrap. 4.3 Production Facilities 4.3.1 Smelting Alcan owns and operates 15 primary aluminum smelters with a total annual rated capacity of 1,583,000 tonnes. Seven of these smelters, having a total annual rated capacity of 1,068,000 tonnes, are located in Canada; the other smelters are located in Brazil, India, the U.K. and the U.S. During 1999, Alcan's smelters produced 1,518,000 tonnes of primary aluminum: 1,108,000 tonnes in Canada, 129,000 tonnes in the U.S., 132,000 tonnes in the United Kingdom, 102,300 tonnes in Brazil and 47,000 tonnes in India. Utilization of smelting capacities varies from time to time according to business conditions. Due to difficult industry and market conditions, and following the consolidation of Indian Aluminium Company, Limited in mid-1998, approximately 134,000 tonnes of capacity remain shut down at smelters in the U.S. and the U.K. In India, a decision was made to close permanently the 66,000 tonne smelter at Belgaum, which had been idle for over two years due to lack of affordable power. 8 11 For many years, Alcan has been engaged in smelter modernization and rebuilding programs to retrofit or replace some of its older facilities. It intends to continue these programs with a view to increasing productivity, improving working conditions and minimizing the impact of its operations on the environment. Construction of the new $1.8 billion, 375,000 tonnes annual capacity, aluminum smelter and casting center in Alma (Quebec) is expected to be completed in 2001. On 22 March 1999, Alcan announced the closure of the Isle-Maligne smelter to be completed by December 1999. That date has now been extended to March 2000 for the final 25,000 tonnes. It had been previously intended that the Isle-Maligne smelter be shut down when the new Alma smelter becomes operational. SMELTER CAPACITIES -- AS AT 31 DECEMBER 1999 (THOUSANDS OF TONNES)
% OF OWNERSHIP ANNUAL LOCATIONS BY ALCAN CAPACITY --------- --------- -------- CANADA.............. Arvida (Jonquiere, Quebec) 100 238 Grande-Baie (La Baie, Quebec) 100 186 Laterriere (Chicoutimi, Quebec) 100 210 Shawinigan (Quebec) 100 88 Isle-Maligne (Alma, Quebec) 100 25(1) Beauharnois (Melocheville, Quebec) 100 49 Kitimat (British Columbia) 100 272 TOTAL IN CANADA .................................................................... 1,068 BRAZIL.............. Ouro Preto (Saramenha, Minas Gerais) 100 51 Aratu (Bahia) 100 58 INDIA............... Hirakud (Orissa) 54.6 44(2) Alupuram (Kerala) 54.6 UNITED KINGDOM...... Lynemouth (Northumberland, England) 100 130 Lochaber (Inverness-shire, Scotland) 100 38 Kinlochleven (Argyll, Scotland) 100 8 UNITED STATES....... Sebree (Kentucky) 100 186 TOTAL OUTSIDE CANADA................................................................ 515 TOTAL............................................................................... 1,583
[FN] - ---------- (1) This facility will be permanently closed by 31 March 2000. (2) Reflects some potline shutdowns at Alupuram. 4.3.2 Other Aluminum Sources Alcan operates three specialized plants in the U.S., with a total 9 12 annual capacity of 481,000 tonnes, for the recycling of used beverage cans and process scrap returned from customers. A similar plant in the U.K. operates with a capacity of 70,000 tonnes per year. Alcan also operates a facility in the U.K. for the production of 70,000 tonnes per year of sheet ingot from aluminum scrap. In Brazil, Alcan operates a dedicated used beverage can recycling facility with an initial capacity of 40,000 tonnes per year. Alcan operates secondary aluminum smelters in Italy and India which have capacities of 56,000 and 25,000 tonnes per year, respectively, for the production of secondary aluminum from aluminum scrap. 4.4 Raw Materials 4.4.1 Electricity The smelting of one tonne of aluminum requires between 14 and 18.5 megawatt-hours of electric energy. Alcan produces low-cost electricity at its own hydroelectric generating plants. In Canada, these plants have an installed generating capacity of 3,600 megawatts, of which 2,700 megawatts may be considered to be hydraulically available over the long term. These facilities supply electricity to Alcan's Canadian smelters. All water rights pertaining to Alcan's hydroelectric installations are owned by Alcan except for those relating to the Peribonka River in Quebec. A Charge (Redevance Statutaire) is payable to the Quebec provincial government based on total energy generation, escalating at the same rate as the Consumer Price Index in Canada. In 1984, Alcan and the Quebec provincial government signed a lease extending the Company's water rights relating to the Peribonka River to 31 December 2033 against an annual payment based on sales realizations of aluminum ingot. In British Columbia, rentals and generation taxes for electricity used in smelting and related purposes are directly tied to the sales realizations of aluminum produced at Kitimat. For electricity sold to third parties within that province, Alcan pays provincial water rentals at rates which are fixed by the British Columbia provincial government, similar to those paid by B.C. Hydro, the provincially-owned electric utility. One-third of Alcan's installed hydroelectric capacity in Canada was constructed prior to the end of 1943, another third by the end of 1956 and the remainder by the end of 1959. All these facilities are expected to remain fully operational over the foreseeable future. In addition to electricity generated at its own plants, as described above, Alcan has agreed to purchase, under a long-term agreement, between one and three billion kilowatt-hour of electrical energy annually from Hydro-Quebec beginning in 2001. Any electricity which is surplus to Alcan's needs is sold to neighbouring utilities or customers under both long-term and short-term arrangements. For smelters located outside of Canada, electricity is obtained from a variety of sources. The smelters in England and Scotland operate their own coal-fired and hydroelectric generating plants, respectively. Indal operates its own coal-fired generating plant for one of its smelters, while the other smelter is dependent upon purchased electricity. The smelters in Brazil obtain some of their electricity requirements from owned hydroelectric generating plants and purchase the balance. The smelter in the U.S. purchases electricity under a long-term contract. 5. ALUMINUM CONVERSION 5.1 Products The conversion of aluminum ingot into semi-fabricated and finished products requires the 10 13 application of a variety of intermediate processes, known generally as fabricating. Many other producers of primary aluminum are also in the business of supplying those products. In addition, there are many independent fabricators which purchase primary and recycled aluminum from the primary producers and the post-consumer market. Nearly 90% of Alcan's fabricated aluminum products volume is composed of rolled products such as sheet and foil as well as flexible packaging. A major portion of Alcan sheet is can stock for beverage containers. Other important end-use markets for sheet include building and construction, transportation, the printing industry and the industrial distribution market. Alcan also rolls foil for household and commercial packaging applications and for industrial products. Since 1990, Alcan has made significant investments in the expansion, upgrade and acquisition of rolled products facilities in North and South America and in Europe. In 1998, Alcan undertook an expansion of its rolling mill at Pindamonhangaba in Brazil. The plant, which has an ultimate capacity of 280,000 tonnes per year, will support the rapidly growing South American can sheet market. In 1999, substantial progress was made by the Alcan Global Automotive Products Group with the signing of a strategic alliance and long-term supply agreement with General Motors Corporation ("GM"). In January 2000, Alcan signed another significant multi-year aluminum supply agreement with Ford Motor Company ("Ford"). Alcan continues to work with GM, Ford and other automakers in North America and Europe to develop lighter, more efficient vehicles. Through a number of selected downstream businesses, Alcan manufactures and sells other fabricated aluminum products such as rod, wire and cable for the electrical industry, and extrusions for the building and construction market. 5.2 Sales and Marketing/Customers In 1999, Alcan shipped 1,911,000 tonnes of fabricated products and manufactured another 315,000 tonnes from customer-owned metal, which together represented 72% of Alcan's total volume for the year. Alcan's fabricated aluminum products business is mainly composed of a number of large, capital-intensive rolling operations as well as some smaller downstream businesses, and represents over 67% of Alcan's total sales and operating revenues of $7.3 billion. Alcan, together with its Subsidiaries, Related Companies and Joint Ventures, carries out fabricating operations in more than 45 plants in 13 countries. 5.2.1 Flat-rolled Products In 1999, Alcan's shipments of rolled products, including conversion of customer-owned metal, amounted to 2,028,000 tonnes or 91% of its total fabricated products shipments. Principal markets are beverage can sheet, other packaging, transportation (including automotive), building products, lithographic sheet and other industrial applications. 5.2.2 Wire and Cable Aluminum is also cast and rolled into rod, which is then drawn into wire and stranded into cable for the transmission and distribution of electricity. Rod is also used for mechanical applications such as screen wire and cable armouring. 5.2.3 Castings Another method of fabrication is the casting of molten aluminum into components for machinery, automotive products and aircraft. 5.2.4 Extrusions Examples of end-products using extrusions include windows, doors and automotive components. Alcan is also a major supplier of extrusion ingot to third party extruders in many countries. 11 14 5.3 Production Facilities 5.3.1 Flat-rolled Products Alcan is the world's largest producer and marketer of flat-rolled aluminum products (sheet and foil). At the end of 1999, Alcan's annual sheet and foil manufacturing capacity in its principal fabricating markets was as follows: over 1,113,000 tonnes in North America; 170,000 tonnes in South America; over 980,000 tonnes in Europe; and 242,000 tonnes in Asia. A major portion of Alcan's sheet is in the form of can stock for beverage containers. Other important end-use markets for sheet include building and construction, transportation, the printing industry and the industrial distribution market. Alcan foil is used for household and commercial packaging applications and for industrial products. Alcan's project to expand capacity at its Pindamonhangaba, Brazil rolling mill to 280,000 tonnes is currently undergoing customer qualification trials. The rolling mill of Alcan Taihan Aluminum Limited will have a capacity of 300,000 tonnes. Alcan will invest $46 million to expand production of aluminum rolled sheet for the automotive and distribution markets at its Kingston, Ontario mill. The expansion is expected to be completed by the end of 2000. In April 1999, Alcan and Arco Aluminum, Inc. announced a $22 million expansion of their jointly-owned Logan aluminum rolling mill in Kentucky, U.S. ROLLING CAPACITIES BY REGION -- AS AT 31 DECEMBER 1999 (THOUSANDS OF TONNES) NORTH AMERICA EUROPE Saguenay Rogerstone (Quebec) (United Kingdom) Kingston Falkirk (Ontario) (United Kingdom) Logan Glasgow (Kentucky) (Scotland) Oswego Norf (New York) (Germany) Terre Haute Ludenscheid (Indiana) (Germany) Fairmont Ohle (West Virginia) (Germany) Louisville Nachterstedt (Kentucky) (Germany) TOTAL NORTH AMERICA.....1,113 Gottingen (Germany) Bresso ASIA (Italy) Youngju Pieve Emanuele (South Korea) (Italy) Bukit Raja TOTAL EUROPE ...........980 (Malaysia) Rangsit (Thailand) SOUTH AMERICA Taloja Pindamonhangaba (India) (Brazil) Belur Utinga (India) (Brazil) TOTAL ASIA................242 TOTAL SOUTH AMERICA.....170 5.3.2 Wire and Cable Alcan's main wire and cable businesses are located in Canada and the U.S. 5.3.3 Extrusions Alcan's Subsidiaries, Related Companies and Joint Ventures produce extruded products in several countries (including India, Italy, China, Malaysia and Thailand) and sell these products locally and in other countries for the building, construction, transportation and engineering markets. 12 15 6. RECYCLING 6.1 Products Alcan's annual recycling capacity is now 775,000 tonnes. Alcan operates two facilities for the production of foundry alloys primarily from recycled aluminum: one in India, the other in Italy. These plants serve domestic automotive markets. In addition, sheet ingot is produced from a variety of scrap in the U.K. In the case of used beverage cans ("UBCs"), Alcan has a well-established and growing North American recycling network. Alcan's U.S. plants processed more than 21.6 billion cans, or one-third of all UBCs recycled by Americans, in 1999. Alcan purchases UBCs throughout North America and remelts the UBCs, together with its customers' can production scrap, at three locations in the U.S., producing new can sheet ingot. 6.2 Sales and Marketing/Customers Recycled metal is primarily sold to Alcan's own rolling facilities to produce can sheet. 6.3 Production Facilities Alcan has a dedicated UBC recycling plant, which has an ultimate capacity of 80,000 tonnes per year, at Pindamonhangaba, Brazil. In addition to its UBC facilities at Latchford, Alcan has a growing infrastructure of 26 can recycling centres and over 500 independents in the United Kingdom. Alcan plays leading roles in joint industry programs to promote aluminum collection and recycling in many of the countries where it operates. Alcan also operates an environmentally advanced facility in Quebec for the recovery of aluminum from the dross that forms on the surface of molten metal. In Italy, the Borgofranco plant serves Alcan's fabricating plants in Germany, Switzerland and Italy as well as recycling customers' manufacturing scrap and post-consumer aluminum packaging material. As well, the plant recovers aluminum and salt from saline slag, a by-product of aluminum recycling. As a matter of course, Alcan operates facilities in many plants to recycle aluminum scrap generated internally by fabricating activities. 13 16 RECYCLING PLANT CAPACITIES -- AS AT 31 DECEMBER 1999 (THOUSANDS OF TONNES)
% OF OWNERSHIP ANNUAL LOCATIONS BY ALCAN CAPACITY FOUNDRY ALLOYS AND REMELT SCRAP INGOT INDIA...................................... Taloja 54.6 25 (Maharastra) ITALY...................................... Borgofranco di Ivrea 100 70(1) (Piemonte region) TOTAL FOUNDRY ALLOYS............................................................................. 95 SHEET INGOT FROM UBCS AND CUSTOMER PROCESS SCRAP BRAZIL..................................... Pinda 100 40* (Pindamonhangaba, Sao Paulo) UNITED KINGDOM............................. Warrington 100 70 (England) UNITED STATES.............................. Berea 100 (Kentucky) Greensboro 100 500(1) (Georgia) Oswego 100 (New York) SHEET INGOT FROM MISCELLANEOUS SCRAP UNITED KINGDOM............................. Warrington 100 70 (England) TOTAL SHEET INGOT............................................................................. 680 TOTAL......................................................................................... 775
- ----------- [FN] * Ultimate annual capacity is 80,000 tonnes per year. (1) Reflects the continued optimization of current assets. 7. RESEARCH AND DEVELOPMENT Alcan's research and technology efforts are managed by its two operating groups: Alcan Primary Metal (covering bauxite, alumina and chemicals as well as primary metal production) and Alcan Global Fabrication. Research and technology is a global system of three research laboratories, applied engineering centers and plant technical departments. The research laboratories, responsible for approximately 60% of the total R&D expenses for Alcan, play a major role in innovation through basic and applied research. Two laboratories are located in Canada (at Kingston, Ontario, and Jonquiere, Quebec) and one is in the U.K. (Banbury, Oxfordshire). Together, they employ about 475 people. In recent years, Alcan's R&D effort has been refocused on core processes and products. Close to 90% of the activities in the R&D centers are now directed towards improved product and process development programs for the mainstream businesses and focus on assisting operating units to achieve increased productivity, higher quality and reduced costs. Additionally, intellectual property management safeguards Alcan's process and product technologies and trademarks. Alcan's operating companies manage applied engineering centers and technical departments located close to key markets and operating divisions. These include the Applied Materials Center located in North America for canning technology, and technical centers in North America and Europe for automotive technologies. These centers are focused on major products and provide technical and product development support to customers, drawing extensively on the resources and scientific disciplines in the research centers. 14 17 RESEARCH AND DEVELOPMENT EXPENSES FOR ALCAN TOTAL FOR 1999 -- $67 MILLION* Alcan Global Fabrication Group 60% Alcan Primary Metal Group 40% - ---------- [FN] * Includes close to $4 million for environmental R&D projects. 8. ENVIRONMENTAL REGULATIONS Underlying Alcan's environmental commitment are two major components: a global environmental management system and product stewardship. The first is a commitment to ensuring that Alcan's manufacturing processes are compatible with the environment. The second is a commitment to ensuring that Alcan's products, in every stage of their life cycles, make the most of the inherent environmental value of aluminum. In most of the countries where Alcan operates production facilities, environmental control regulations have been established or are in the process of being established. Alcan believes that its existing and planned anti-pollution measures will enable it to satisfy statutory and regulatory demands without material effect on its competitive position. Alcan's capital expenditures to protect the environment and improve working conditions at the smelters and other locations were $85 million in 1999. Similar expenditures for 2000 and 2001 are expected to be $125 million and $82 million, respectively. In addition, expenditures charged against income for environmental protection were $84 million in 1999 and are expected to be $91 million in 2000 and $86 million in 2001. 9. PROPERTIES Alcan believes that its properties, most of which are owned, are suitable and adequate for its operations. 10. EMPLOYEE RELATIONS At 31 December 1999, the number of Alcan employees were located as follows: approximately 15,000 in North America, 7,000 in Europe, 3,000 in South America, 8,000 in Asia and Pacific areas and 3,000 in other areas. A majority of the hourly-paid employees is represented by labour unions. There are 24 collective labour agreements in effect in Canada, the majority of which expire in 2003 or later. 11. PATENTS, LICENSES AND TRADEMARKS The Company owns, directly or through Subsidiaries, a large number of patents in Canada, the United States and other countries which relate to the products, uses and processes of its businesses. The life of a patent is most commonly 20 years from the filing of the patent application. The Company is continually filing new patent applications. All significant patents will be maintained until their normal expiration. Therefore, at any point in time, the range of life of the Company's patents will be from one to 20 years. The Company owns a number of trademarks which are used to identify its businesses and products. The Company's trademarks have a term of three to ten years. As a result, at any point in time, the Company will have trademarks at the end of their term and others with a full ten-year term. At the end of their term, all significant trademarks will be renewed for a further three to ten years. 15 18 The Company has also acquired certain intellectual property rights under licenses from others for use in its businesses. The Company's patents, licenses and trademarks constitute valuable assets; however, the Company does not regard any single patent, license or trademark as being material to its sales and operations viewed as a whole. The Company has no material patents, licenses or trademarks the duration of which cannot in the judgment of management be extended or renewed as necessary. 12. COMPETITION AND GOVERNMENT REGULATIONS The aluminum business is highly competitive in price, quality and service. The Company experiences competition in the sale of aluminum from a large number of companies in all major markets. In addition, aluminum products face competition from products fabricated from several other materials such as plastic, steel, iron, copper, glass, wood, zinc, lead, tin, titanium, magnesium, cement and paper. The Company believes that its competitive standing is enhanced by its ability to supply virtually all its own power requirements for its Canadian and U.K. smelters at low cost. The operations of the Company, like those of other international companies, including its access to and cost of raw materials and repatriation of earnings, may be affected by such matters as fluctuations in monetary exchange rates, currency and investment controls, withholding taxes and changes in import duties and import restrictions. Imports of ingot and other aluminum products into certain markets may be subject to import regulations and import duties. These affect the Company's sales realizations and may affect the Company's competitive position. Shipments of the Company's products are also subject to anti-dumping laws of the importing country, which prohibit sales of imported merchandise at less than defined fair values. The Investment Canada Act provides that the acquisition of control of a Canadian business enterprise, such as Alcan, by a "non-Canadian" (as defined in the Act) is subject to review under the Act and may not be implemented unless the Minister of the Government of Canada responsible for the administration of the Act determines that the proposed acquisition is, or is likely to be, of net benefit to Canada. The acquisition by a non-Canadian of a majority of the voting shares of a Canadian company is deemed to constitute the acquisition of control of that company. The acquisition by a non-Canadian of more than one-third but less than the majority of the common shares of a Canadian company is, unless the contrary is established, deemed to constitute the acquisition of control. ITEM 3 LEGAL PROCEEDINGS ENVIRONMENTAL MATTERS LITIGATION The Company's U.S. Subsidiary (Alcan Aluminum Corporation, or "Alcancorp") and third parties are defendants in a lawsuit instituted in May 1983 before the Federal District Court for the Central District of California, by the U.S. Environmental Protection Agency ("EPA") and the State of California, involving the Stringfellow hazardous waste site. Alcancorp was held liable in that lawsuit. In January 1992, Alcancorp and the U.S. Justice Department entered into a four-year Partial Consent Decree. On the basis of that arrangement, Alcancorp has funded a total of $13,100,000 for a treatment plant designed to help clean up the site. In December 1998, Alcancorp and several other parties filed appeals with the Circuit Court on numerous counts including whether liability was correctly imposed on Alcancorp. In January 1999, Alcancorp entered into a structured settlement with the State of California whereby California will accept liability for all clean-up costs from 1 January 1999 onward and Alcancorp will accept responsibility for past clean-up costs; in the event that settlement becomes final, Alcancorp's liability would be limited to the amount it already has paid. In addition, Alcancorp is participating in a third party action against a Potentially Responsible Party ("PRP") seeking recovery of a portion of the amount paid. 16 19 In a lawsuit brought in July 1987 relating to the Pollution Abatement Services site in Oswego, New York, the Federal District Court for the Northern District of New York found (in January 1991) Alcancorp liable for a share of the clean-up costs for the site, and in December 1991 determined the amount of such share to be $3,175,683. Alcancorp appealed this decision to the United States Circuit Court of Appeals for the Second Circuit. In April 1993, the Second Circuit reversed the District Court and remanded the case for a hearing on what, if any, liability might be assigned to Alcancorp depending on whether Alcancorp can prove that its waste did not contribute to the response costs at the site. Furthermore, the case was consolidated with another case, instituted in October 1991, in which the EPA sued Alcancorp in the Federal District Court for the Northern District of New York seeking clean-up costs in regard to the Fulton Terminals site in Oswego County, New York. The remand hearing was held in October of 1999 and a judgment is still pending; however, in that hearing the United States disclosed it had obtained 100% of the remediation costs for the Fulton site from other PRPs and was limiting its claim against Alcancorp to unrecovered oversight costs. In an EPA lawsuit in 1989 before the Federal District Court for the Middle District of Pennsylvania involving the Butler Tunnel site, in which Alcancorp is a party, the Court in May 1991 granted summary judgment against Alcancorp in the amount of $473,790 for alleged disposal of hazardous waste. After unsuccessful appeals, Alcancorp paid $652,371 representing the judgment amount plus interest, and is disputing about $400,000 associated with that judgment representing additional enforcement costs incurred after the date of the initial judgment in a separate lawsuit . The EPA has filed a new action for additional sums for further remedial activities at the Butler Tunnel site. In February 1996, the Company's U.K. Subsidiary (British Alcan Aluminium plc ("British Alcan")) sold its investments in several of its Subsidiaries, including Magnesium Elektron, Inc. and Luxfer USA Limited, both located in the U.S. As part of the sale, British Alcan agreed to indemnify the purchaser for certain liabilities including those, inter alia, arising out of the following proceedings: (a) Magnesium Elektron, Inc. ("MEI"; at the time, a Subsidiary of British Alcan) was sued, together with approximately 70 other defendants, alleging that MEI is a former owner/operator of a site which the plaintiffs currently own and that MEI's activities contributed to environmental contamination on the site. British Alcan believes that it has legal defences and intends to pursue them vigorously. (b) Luxfer USA Limited ("Luxfer"; at the time, a Subsidiary of British Alcan) is a participant in a joint defence group with regard to waste Luxfer sent to the Omega hazardous waste site in Whittier, California. At various times during 1995, Luxfer contributed various amounts totalling $11,800 for defence group costs and the removal of waste from the site, and large generators are cleaning up the site. Luxfer, being a small contributor, is discussing settlement offers. (c) Luxfer is also a participant in a joint defence group formed to defend claims by numerous homeowners against various companies who allegedly disposed of industrial waste at a landfill in Monterey Park, California. There are many defendants and Luxfer was a minor contributor to the site. The discovery process is underway. 17 20 In connection with a property in New York State which was the site of an extrusion operation, Alcancorp retained liability for alleged contamination though the property was sold in 1996. The State has approved a Remedial Investigation Report negotiated between the New York State Department of Environmental Conservation ("NYDEC") and Alcancorp. A record of decision has been issued. The parties are negotiating a consent order to implement a modified record of decision. The clean-up costs are estimated to be $471,200. Under the terms of sale of its metal goods division, Alcancorp retains liability for defending, as a third party defendant, a suit initiated in December 1995 by the State of New Jersey alleging that a disposal company used by the division disposed of hazardous material in a landfill. Including Alcancorp, there are 277 third-party defendants in this action. Under the terms of sale of Alcan Building Products US, Alcancorp retains liability for defending against an administrative order and notice of civil penalty issued by the New Jersey EPA in October 1995 in connection with an alleged permit violation involving volatile organic compound emissions. In 1997, an administrative tribunal reduced the civil penalty by 40%. Both parties filed objections to the order, Alcancorp is seeking a reduction to 0% and New Jersey EPA is seeking 100%. An appeal by Alcancorp to the Court of Appeal was denied and Alcancorp has petitioned the Supreme Court of New Jersey. INVESTIGATIONS In certain government investigations of contamination by alleged hazardous wastes at sites in Kentucky, New York, Pennsylvania, Ohio, New Jersey, and Massachusetts (on which waste material is alleged to have been deposited by disposal contractors employed in the past directly or indirectly by Alcancorp and other industrial companies), Alcancorp has contested its liability. The EPA has responded that it may file lawsuits against Alcancorp as to these sites. Alcancorp was advised of additional sites being similarly investigated. Alcancorp has been advised by the various authorities that it may be liable to contribute to the cost of the investigations and any possible remedial action for such sites. There can be no assurance that Alcancorp will not incur material clean-up costs as a result of these investigations. At a plant site in Indiana, testing has revealed traces of trichloroethylene in the groundwater. Alcancorp investigated the matter with a third party who is believed to be responsible for the contamination and a voluntary remediation plan was filed with the State of Indiana. Under an interim settlement agreement, the third party agreed to assume 90% of the costs. The third party has refused to pay and Alcancorp has filed a lawsuit for indemnification and liability. REVIEWS AND REMEDIAL ACTIONS The Company has established procedures for reviewing, on a regular basis, environmental investigations and any possible remedial action. Although the Company cannot estimate the costs which may ultimately be borne by it, the Company has no reason to believe that any remedial action will materially impair its operations or materially affect its financial condition. OTHER MATTERS There are no proceedings which, according to management's belief, could have a material effect on the Company's financial position or results of operation. 18 21 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A Special Meeting of holders of the Common Shares of Alcan was held on 22 November 1999 in relation to the proposed combination of Alcan, Pechiney and algroup. Although Shareholder approval was not required by law, Alcan's Board of Directors had decided to consult Shareholders in respect of the issuance of Common Shares pursuant to each of the Share Exchange Offers as a matter of good corporate governance due to the significance of the combination and its strategic importance to Alcan. The Special Meeting was called to consider three resolutions. The first resolution was for approving the issuance of Common Shares under the terms of the Pechiney share exchange offer where Alcan offers to acquire all of the shares of Pechiney in exchange for Common Shares. The second resolution was for approving the issuance of Common Shares under the terms of the algroup share exchange offer where Alcan offers to acquire all the shares of algroup in exchange for Common Shares. The third resolution was to authorize the Board of Directors to change the name of the Company from 'Alcan Aluminium Limited/Alcan Aluminium Limitee' to another name determined by the Board of Directors. The number of votes cast in favour of all three resolutions exceeded 99% of the total votes cast by way of proxy. PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required is incorporated by reference to the Annual Report, the section titled "Common Shares" on page 69. The number of holders of record of Shares on 14 February 2000 was approximately 19,511. While the Company intends to pursue a policy of paying quarterly dividends, the level of future dividends will be determined by the Board of Directors in light of earnings from operations, capital requirements and the financial condition of the Company. The Company's cash flow is generated principally from operations and also by dividends and interest payments from Subsidiaries, Joint Ventures and Related Companies. These dividend and interest payments may be subject, from time to time, to regulatory or contractual restraints, withholding taxes (see Annual Report, page 56, note 16 to Consolidated Financial Statements) and foreign governmental restrictions affecting repatriation of earnings. (See section titled "Competition and Government Regulations" on page 16 of this report.) Dividends paid on Shares held by non-residents of Canada generally will be subject to Canadian withholding tax. This withholding tax is levied at the basic rate of 25%, although this rate may be reduced depending on the terms of any applicable tax treaty. For residents of the United States, the treaty-reduced rate is currently 15%. 19 22 ITEM 6 SELECTED FINANCIAL DATA SELECTED HISTORICAL FINANCIAL DATA
YEARS ENDED 31 DECEMBER -------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ------------ ----------- ----------- ----------- Sales and operating revenues 7,324 7,789 7,777 7,614 9,287 Net income from continuing operations before extraordinary item (Canadian GAAP) 460 399 468 410 543 Net income from continuing operations before extraordinary item (U.S. GAAP) 455 417 504 420 561 Net income (Canadian GAAP) 460 399 485 410 263 Net income (U.S. GAAP) 455 417 521 420 266 Total assets 9,849 9,901 9,374 9,228 9,736 Long-term debt (including current portion) 1,322 1,703 1,277 1,338 1,773 Net income per Share from continuing operations before extraordinary item (Canadian GAAP) 2.06 1.71 2.02 1.74 2.30 Net income per Share from continuing operations before extraordinary item (U.S. GAAP) 2.04 1.79 2.18 1.79 2.38 Net income per Share (Canadian GAAP) 2.06 1.71 2.09 1.74 1.06 Net income per Share (U.S. GAAP) 2.04 1.79 2.25 1.79 1.07 Cash dividends per Share 0.60 0.60 0.60 0.60 0.45
Commencing 1995, the Company adopted the recommendations of the Canadian Institute of Chartered Accountants ("CICA") concerning the accounting for Joint Ventures. Commencing 1996, the Company retroactively adopted the recommendations of the CICA concerning the disclosure and presentation of financial instruments. Commencing 1998, the Company retroactively adopted, without restating prior years, the recommendations of the CICA concerning accounting for income taxes. Commencing 1998, the Company retroactively adopted the recommendations of the CICA concerning segment disclosures. See Annual Report, pages 45 to 47, note 5 to Consolidated Financial Statements for a comparison, for certain items listed, of the amounts as reported by the Company under Generally Accepted Accounting Principles ("GAAP") in Canada with amounts that would have been reported under U.S. GAAP. 20 23 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required is incorporated by reference to the Annual Report, pages 20 through 38, the section titled "Management's Discussion and Analysis". As the Company follows Canadian GAAP, reference should be made to note 5 to the Consolidated Financial Statements on pages 45 to 47 of the Annual Report which compares, for certain items listed, the amounts as reported with the amounts that would have been reported under U.S. GAAP. Refer to the section titled "Competition and Government Regulations" on page 16 of this report for a brief description of the Investment Canada Act as it applies to the Company. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has estimated the impact on 2000 net income of a 10% adverse change in interest rates, in foreign currency exchange rates or in aluminum prices based upon its financial instrument and derivative commodity contract positions outstanding at 31 December 1999. INTEREST RATES The net income impact of a 10% movement in interest rates on the Company's invested surplus cash and time deposits at 31 December 1999 net of its variable rate debt outstanding at 31 December 1999 is immaterial. FOREIGN CURRENCY EXCHANGE RATES The effect of an adverse movement of 10% in foreign currency exchange rates on the Company's financial instruments (principally Canadian dollar forward and option contracts) outstanding at 31 December 1999 would be to reduce 2000 net income by approximately $8 million, of which $2 million relates to the cost of unexercised option premiums. Because all of the Company's foreign currency forward positions are taken out to hedge identifiable foreign currency commitments to purchase or sell goods and services, any negative impact of currency movements on the forward exchange contracts would be offset by an equal and opposite favourable exchange impact on the commitments being hedged. DERIVATIVE COMMODITY CONTRACTS The effect of a reduction of 10% in aluminum prices on the Company's aluminum forward purchase and options contracts outstanding at 31 December 1999 would be to reduce 2000 net income by approximately $27 million, of which $3 million relates to the net cost of unexercised option premiums and $24 million to forward purchase contracts. These results reflect a 10% reduction from the 1999 year-end, three-month LME aluminum closing price of $1,650 and assume an equal 10% drop has occurred throughout the aluminum forward price curve existing as at 31 December 1999. Because all of the Company's aluminum forward purchase contract positions are taken out to hedge future purchases of metal required for firm sales commitments to fabricated products customers, any negative impact of movements in the price of aluminum on the forward purchase contracts would be offset by an equal and opposite impact on the purchases being hedged. 21 24 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required is incorporated by reference to the Annual Report, Consolidated Financial Statements on pages 40 through 63 and the "Auditors' Report" on page 39 and the section titled "Quarterly Financial Data" on page 66. Location of Financial Statements and other material required under this Item is found under Item 14 of this report. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has nothing to report under this Item. PART III INFORMATION IN THIS PART IS BASED ON INFORMATION CONTAINED IN THE COMPANY'S MANAGEMENT PROXY CIRCULAR DATED 14 FEBRUARY 2000. ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (A) IDENTIFICATION OF DIRECTORS The information required is incorporated by reference to the Management Proxy Circular, pages 5 to 8. The term of office of each Director runs from the time of his or her election to the next succeeding annual meeting or until they cease to hold office as such. 22 25 (B) IDENTIFICATION OF EXECUTIVE OFFICERS The required particulars with respect to the Officers of the Issuer are as follows:
NAME AND MUNICIPALITY OF POSITION AGE RESIDENCE - --------------------------------- ------------------------------------------------- --- J. BOUGIE, O.C. President and Chief Executive Officer 52 Outremont, Quebec R.L. BALL Executive Vice President 53 Beaconsfield, Bucks., England R.B. EVANS Executive Vice President, President, Alcan Global 52 Shaker Heights, Ohio Fabrication Group E.P. LEBLANC Executive Vice President, President, Alcan Primary 58 Westmount, Quebec Metal Group B.W. STURGELL Executive Vice President, Corporate Development 50 Kiawah Island, South Carolina S. THADHANI Executive Vice President and Chief Financial Officer 60 Westmount, Quebec C. CARROLL Vice President, President, Alumina and Chemicals 44 Westmount, Quebec D. GAGNIER Vice President, Corporate Affairs, Environment, 53 Beaconsfield, Quebec Occupational Health & Safety D. McAUSLAND Vice President, Chief Legal Officer and Secretary 46 Beaconsfield, Quebec G. OUELLET Vice President, Human Resources 57 Montreal, Quebec G.R. LUCAS Treasurer 46 Westmount, Quebec
All of the Officers of the Company have held their present positions or other executive positions with the Company or its Subsidiaries during the past five years, except as hereinafter described: o prior to joining the Company in January 1997, Mr. Evans held senior management positions with the Kaiser Aluminum organization; o prior to joining the Company in January 1995, Mr. Gagnier was president of a manufacturers' association in Canada and, prior to that, had held senior administrative positions with the Government of Canada (including its Privy Council Office). o Prior to joining the Company in June 1999, Mr. McAusland was managing partner at the law firm Byers Casgrain and was President of the Montreal Board of Trade. ITEM 11 EXECUTIVE COMPENSATION The information required is incorporated by reference to the Management Proxy Circular, pages 15 to 26, the section titled "Executive Compensation". ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required is incorporated by reference to the Management Proxy Circular, page 11, the section titled "Holdings of Shares and Deferred Share Units by Directors". 23 26 Directors and Executive Officers as a group beneficially own 133,554 Shares (including Shares over which control or direction is exercised). This represents 0.06% of Shares issued and outstanding. In addition, Executive Officers as a group have Options (as defined in the Management Proxy Circular) to purchase 2,168,541 Shares. In the case of each of the Directors and Named Executive Officers of Alcan except for Mr. Bougie, percentage of Shares held amount to less than 0.01% of the outstanding Shares. Mr. Bougie held 38,333 Shares and options to purchase 947,900 Shares which together would equal 0.45% of the outstanding Shares. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS The information required is incorporated by reference to the Management Proxy Circular, page 27, the section titled "Indebtedness of Directors and Executive Officers". In addition, the rate of interest charged was 4% in the first quarter of 1999 and 5% for the remainder of the year. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS The information required is incorporated by reference to the Annual Report, pages 40 to 63 and the Auditors' Report on page 39 thereof. 2. FINANCIAL STATEMENT SCHEDULES The required information is shown in the consolidated financial statements or notes thereto. 3. EXHIBITS References to documents filed by the Company prior to April 1987 are to SEC File No. 1-3555. References to documents filed by the Company after April 1987 are to SEC File No. 1-3677. (3) Articles of Incorporation and By-laws: 3.1 Certificate of Amalgamation dated 1 January 1995, Certificate of Amendment dated 8 May 1995. (Incorporated by reference to exhibit 3.1 to the Annual Report on Form 10-K of the Company for 1996.) 3.2 By-law No. 1A. (Incorporated by reference to exhibit 3.5 to the Annual Report on Form 10-K of the Company for 1987.) 24 27 (4) Instruments defining the rights of security holders: 4.1 No long-term debt instrument is required to be filed herewith, and the Company agrees to furnish a copy of any such instrument to the Commission upon request. 4.2 Form of certificate for the Registrant's Common Shares. (Incorporated by reference to exhibit 4.2 to the Annual Report on Form 10-K of the Company for 1989.) 4.3 Shareholder Rights Agreement as amended and restated on 24 April 1995 between Alcan Aluminium Limited and The R-M Trust Company as Rights Agent, which Agreement includes the form of Rights Certificates. (Incorporated by reference to exhibit 4 to the Company's Report on Form 8-K filed on 5 May 1995.) (10) Material Contracts 10.1 Alcan Pension Plan (Canada), restated version, as of October 1990. (Incorporated by reference to exhibit 10.1 to the Annual Report on Form 10-K of the Company for 1990.) 10.1.1 Amendments dated 1 January 1992. (Incorporated by reference to exhibit 10.1.1 to the Annual Report on Form 10-K of the Company for 1991.) 10.1.2 Amendments dated 1 January 1990, Schedule 93-2. (Incorporated by reference to exhibit 10.1.2 to the Annual Report on Form 10-K of the Company for 1994.) 10.1.3 Amendments dated 1 January 1994, Schedule 93-3 and Schedule 93-4. (Incorporated by reference to exhibit 10.1.3 to the Annual Report on Form 10-K of the Company for 1994.) 10.1.4 Amendments dated 31 December 1994, for Schedule 95-1, 1 January 1996 for Schedule 95-2, 1 January 1992 for Schedule 95-3 and 1 January 1995 for Schedule 95-4. (Incorporated by reference to exhibit 10.1.4 to the Annual Report on Form 10-K of the Company for 1995.) 10.1.5 Amendments dated 1 July 1996 for Schedule 96-1, 1 November 1996 for Schedule 96-2, 1 January 1992 for paragraphs 1, 2 and 3 of Schedule 96-3 and 1 January 1996 for paragraph 4 of Schedule 96-3. (Incorporated by reference to exhibit 10.1.5 to the Annual Report on Form 10-K of the Company for 1996.) 10.1.6 Amendments dated 1 January 1998 in Schedule 97-1, 30 March 1998 in Schedule 98-1 and 1 November 1998 in Schedule 98-2. (Incorporated by reference to exhibit 10.1.6 to the Annual Report on Form 10-K of the Company for 1998.) 10.2 Alcan Executive Share Option Plan. (Incorporated by reference to the section titled "The Plan" on pages 3 through 8 and on pages 3 through 7 of the Prospectuses dated 30 April 1990 and 28 April 1993, respectively, filed as part of the Company's Registration Statements on Form S-8, Registration Nos. 33-34716 and 33-61790.) 25 28 10.3 Alcan Aluminium Limited Executive Performance Award Plan revised as of October 1994. (Incorporated by reference to exhibit 10.3 to the Annual Report on Form 10-K of the Company for 1994.) 10.4 Alcan Aluminium Limited Financial Counselling Plan. (Incorporated by reference to the exhibit of that name filed with the Annual Report on Form 10-K of the Company for 1981.) 10.5 Alcan Aluminium Limited Executive Automobile Programme revised as of 1 January 1992. (Incorporated by reference to exhibit 10.5 to the Annual Report on Form 10-K of the Company for 1991.) 10.6 Alcan Aluminium Limited Flexible Perquisites Program. (Incorporated by reference to exhibit 10.6 to the Annual Report on Form 10-K of the Company for 1995.) 10.7 Form of Supplemental Retirement Benefits Agreement. (Incorporated by reference to exhibit 10.6 filed with the Annual Report of the Company on Form 10-K for 1983.) 10.8 Alcan Supplemental Retirement Benefit Plan (Canada), February 1992 edition. (Incorporated by reference to exhibit 10.8 to the Annual Report on Form 10-K of the Company for 1991.) 10.8.1 Amendments dated 1 January 1994, Schedule 93-1. (Incorporated by reference to exhibit 10.7.1 to the Annual Report on Form 10-K of the Company for 1994.) 10.8.2 Amendments dated 23 September 1993. (Incorporated by reference to exhibit 10.8.2 to the Annual Report on Form 10-K of the Company for 1994.) 10.8.3 Amendments dated 1 November 1998 in Schedule 98-1. (Incorporated by reference to exhibit 10.8.3 to the Annual Report on Form 10-K of the Company for 1998.) 10.9 Indemnity Agreement with Jacques Bougie. Substantially similar agreements have been entered into with all current Directors of Alcan Aluminium Limited. (Incorporated by reference to exhibit 10.9 to the Annual Report on Form 10-K of the Company for 1995.) 10.10 Alcan Aluminium Limited Retirement Compensation Plan for Non-Executive Directors dated 27 April 1995. (Incorporated by reference to exhibit 10.10 to the Annual Report on Form 10-K of the Company for 1995.) 10.10.1 Amendment dated 1 January 1997. (Incorporated by reference to exhibit 10.10.1 to the Annual Report on Form 10-K of the Company for 1996.) 26 29 10.11 Alcan Aluminium Limited Deferred Share Unit Plan for Non-Executive Directors dated 1 January 1997. (Incorporated by reference to exhibit 10.11 to the Annual Report on Form 10-K of the Company for 1996.) 10.12 B.C./Alcan 1997 Agreement. (Incorporated by reference to exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company for the quarter ended 30 June 1997.) 10.13 Employment Agreement dated 24 July 1997 with Jacques Bougie. (Incorporated by reference to exhibit 10.13 to the Annual Report on Form 10-K of the Company for 1997.) 10.14 Employment Agreement dated 1 April 1999 with R.B. Evans. (Substantially similar agreements have been entered into with E.P. LeBlanc and S. Thadhani.) (Filed herewith.) 10.15 Change of Control Agreement dated 23 July 1999 with Jacques Bougie. (Substantially similar agreements have been entered into with B.W. Sturgell, R.B. Evans and E.P. LeBlanc.) (Filed herewith.) (13) Annual Report. (Filed herewith.) (21) Subsidiaries and Related Companies of the Company. (Filed herewith.) (23) Consent of Independent Accountants is on page 30. (24) Powers of Attorney. (Filed herewith.) 24.1 Power of attorney of J. Bougie 24.2 Power of attorney of W. Chippindale 24.3 Power of attorney of E.R. Clitheroe 24.4 Power of attorney of T. Engen 24.5 Power of attorney of J.R. Evans 24.6 Power of attorney of J.E. Newall 24.7 Power of attorney of P.H. Pearse 24.8 Power of attorney of G. Russell 24.9 Power of attorney of G. Saint-Pierre 24.10 Power of attorney of P.M. Tellier 24.11 Power of attorney of S. Thadhani 24.12 Power of attorney of R. Genest (27) Financial Data Schedule. (Filed herewith.) (99) Cautionary statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. (Incorporated by reference to exhibit 99 to the Annual Report on Form 10-K of the Company for 1997.) (99) Management Proxy Circular. (Filed herewith.) (B) REPORTS ON FORM 8-K The Company has filed no reports on Form 8-K during the quarter ended 31 December 1999 concerning Item 5 thereof: "Other Events". 27 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALCAN ALUMINIUM LIMITED 23 March 2000 By : /s/ John R. Evans ------------------------------------ John R. Evans, Chairman of the Board By: Serge Fecteau, as Attorney-in fact Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on 23 March 2000. /s/ Jacques Bougie - ---------------------------------------------- Jacques Bougie, Director, President and Chief Executive Officer (Principal Executive Officer) By: Serge Fecteau, as Attorney-in fact /s/ Warren Chippindale - ---------------------------------------------- Warren Chippindale, Director By: Serge Fecteau, as Attorney-in fact /s/ Eleanor R. Clitheroe - ---------------------------------------------- Eleanor R. Clitheroe, Director By: Serge Fecteau, as Attorney-in fact /s/ John R. Evans - ---------------------------------------------- John R. Evans, Chairman of the Board By: Serge Fecteau, as Attorney-in fact /s/ Travis Engen - ---------------------------------------------- Travis Engen, Director By: Serge Fecteau, as Attorney-in fact - ---------------------------------------------- Allan E. Gotlieb, Director 28 31 /s/ J. E. Newall - ------------------------------------------------------ J. E. Newall, Director By: Serge Fecteau, as Attorney-in fact /s/ Peter H. Pearse - ----------------------------------------------------- Peter H. Pearse, Director By: Serge Fecteau, as Attorney-in fact /s/ Sir George Russell - ----------------------------------------------------- Sir George Russell, Director By: Serge Fecteau, as Attorney-in fact /s/ Guy Saint-Pierre - ----------------------------------------------------- Guy Saint-Pierre, Director By: Serge Fecteau, as Attorney-in fact - ----------------------------------------------------- Gerhard Schulmeyer, Director /s/ Paul M. Tellier - ----------------------------------------------------- Paul M. Tellier, Director By: Serge Fecteau, as Attorney-in fact /s/ Suresh Thadhani - ----------------------------------------------------- Suresh Thadhani, Executive Vice President and Chief Financial Officer (Principal Financial Officer) By: Serge Fecteau, as Attorney-in fact /s/ Richard Genest - ----------------------------------------------------- Richard Genest, Corporate Controller (Principal Accounting Officer) By: Serge Fecteau, as Attorney-in fact 29 32 CONSENT OF INDEPENDENT ACCOUNTANTS To the Directors of Alcan Aluminium Limited: We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (Nos. 33-6070, 33-34716, 33-61790 and 333-89711) and on Form S-3 (Nos. 2-78568, 2-78713, 33-82754 and 333-76535) of Alcan Aluminium Limited of our Report, dated 10 February 2000 appearing on page 39 of the 1999 Annual Report to Shareholders. Our Report is incorporated by reference in this Annual Report on Form 10-K. We also consent to the reference to us under the caption "Experts" in such Prospectuses. Montreal, Canada 23 March 2000 /s/ PricewaterhouseCoopers LLP ------------------------------ PricewaterhouseCoopers LLP COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCES In the United States of America, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a change in accounting principles that has a material effect on the comparability of a company's financial statements, such as the change described in Note 3 to the Consolidated Financial Statements. Our report to the Shareholders dated 10 February 2000 is expressed in accordance with Canadian reporting standards which do not require a reference to such a change in accounting principles in the auditors' report when the change is properly accounted for and adequately disclosed in the financial statements. Montreal, Canada 23 March 2000 /s/ PricewaterhouseCoopers LLP ------------------------------ PricewaterhouseCoopers LLP 30 EX-10.14 2 EMPLOYMENT AGREEMENT: R.B. EVANS 1 EXHIBIT NO. 10.14 EMPLOYMENT CONTRACT BETWEEN RICHARD B. EVANS AND ALCAN ALUMINUM CORPORATION 2 THIS EMPLOYMENT AGREEMENT entered into at Cleveland, Ohio, as of the 1st day of April 1999. BETWEEN: Mr. Richard B. Evans AND: ALCAN ALUMINUM CORPORATION, a company incorporated under the laws of the United States of America, having its Head Office in Cleveland, Ohio (hereinafter referred to as "ALCAN"). AND WHEREAS ALCAN agrees to maintain Mr. Richard B. Evans in the position of President: Alcan Global Fabrication Group, evaluated at least at job grade 54A, or in another mutually agreed position which will carry at least job grade 54A, for the duration of this Agreement, subject to the terms and conditions of this Agreement. AND WHEREAS Mr. Richard B. Evans agrees to serve as President: Alcan Global Fabrication Group or in another position which will carry at least job grade 54A. THE PARTIES AGREE AS FOLLOWS: 1.0 TERM AND TERMINATION 1.1 The term of this agreement shall run from the 1st day of April 1999 to 31 December 2002 (3.75 years) and therewith terminate unless extended by mutual written agreement. 1.2 Both parties have the intention to extend this Agreement beyond the termination date at terms and conditions mutually acceptable to the parties. 1.3 On or about 1 July 2002 (6 months prior to expiry date), the parties intend to start outlining the terms and conditions of a new Agreement, should the mutual decision be to extend the current Agreement. 2.0 UNDERTAKING AND DECLARATIONS 2.1 For the Term of this Agreement, Mr. Richard B. Evans hereby agrees not to accept employment offers by any other Corporation. 2 3 3.0 COMPENSATION (all amounts are in US dollars unless stated otherwise) 3.1 BASE SALARY For the duration of this Agreement, the Base Salary is set as follows:
ESTIMATED ANNUAL FROM: E.R.* BASE SALARY ----- --------- ----------- 1 April 1999 to 31 March 2000 $470,000 $410,000 1 April 2000 to 31 March 2001 $494,000 $465,000 1 April 2001 to 31 March 2002 $518,000 $518,000 1 April 2002 to 31 December 2002 $545,000 $545,000
[FN] * estimated on basis of a 5% p.a. increase in mid-point. If the increase of the E.R. is significantly higher, the Annual Base Salary will be reviewed and adjusted accordingly. 3.2 EXECUTIVE PERFORMANCE AWARD (EPA) The total guideline amount defined under the Plan is set at 65% of the mid-point salary for grade 54A, based on Alcan's US Salary Scale, with each component as defined under the approved salary scale. 3.3 MEDIUM TERM INCENTIVE PLAN ("MTIP") Under the MTIP, two performance periods ("cycle") will be established. The first 3-year cycle will cover the period from 1 January 1999 to 31 December 2001. The payout, if at all, for the first 3-year cycle, will be made in February 2002 on the basis of achieving Alcan's Full Business Potential (FBP-II) and specific strategic initiatives and having completed the full 3-year term of employment. Performance objectives for the 3-year cycle is defined in Schedule-A. 3 4 The minimum, target and maximum payouts for the first performance cycle are shown in TABLE 1 below: TABLE 1 MEDIUM TERM INCENTIVE PERIOD 1 JANUARY 1999 TO 31 DECEMBER 2001 DEGREE OF ACHIEVEMENT OF "FBP-II" -------------------------------------------------------
LESS THAN US$215M US$290M US$330M US$350M US$380M ------- ------- ------- ------- ------- (1) (1) (1) (1) (1) Performance 0 125% 200% 250% 300% Rating Award US$'000 $0 $375 $600 $750 $900
Results between US$215 Million and US$380 Million will be prorated. (1) The target, as well as the payout formula, will be adjusted as outlined in Schedule A. For the second performance cycle covering the period from 1 January 2002 to 31 December 2002 (12 months), the CEO will establish, in December 2001, the objective to be achieved as well as the payout formula. The target amount will be set on the basis of the competitive Total Cash level (US market data), for the period. The target MTIP award when added to base salary and target epa will equal the total cash target for the period. the payout, if at all, for the 2nd cycle will be made in February 2003 on the basis of achieving the objective set by the CEO and having completed the full 45 month term of employment. In any event, the target amount of the MTIP for the 2nd cycle will not be less than $100,000 per year, which is the amount set for the first cycle. MTIP amounts paid are non pensionable earnings. 4 5 4.0 ALCAN EXECUTIVE SHARE OPTION PLAN (AESOP) During the term of this Agreement, Mr. Richard Evans will be granted annually, an option to purchase shares under the AESOP. The number of shares will be based on the regular yearly grant formula determined by the Option Committee. For the year 1999, an amount of 51,000 options will be granted. 5.0 TERMINATION OF EMPLOYMENT In the event that Alcan terminates this Agreement without cause, prior to the end of its term (31 March 2003), Mr. Richard Evans will be entitled to the following termination settlement. i. 36 MULTIPLIED BY ii. the monthly equivalent of the annual compensation described in paragraphs 3.1 (base salary), 3.2 (EPA at guideline amount) and 3.3 (MTIP at guideline amount, 100%). In addition, should Mr. Richard Evans not be a fully vested member under the Alcancorp Pension Plan (ACPP), at the time of termination of employment, the Company will pay Mr. Richard Evans a lump sum equal to the excess of (A) over (B) where: a) is the actuarial present value of the accrued pension at the time of his termination of employment, and b) is the actuarial present value of the actual pension entitlement under ACPP. 6.0 CHANGE OF CONTROL A separate "Change of Control Agreement" has been signed between Mr. Richard Evans and Alcan Aluminium Limited and forms part of this employment contract. 7.0 DISABILITY In the event that Mr. Evans becomes disabled prior to the end of the term and cannot perform the duties of his position, Alcan shall maintain full payment of the amounts under paragraph 3.1 for a period of 6 months after the date deemed disabled. Regular EPA amounts will also be payable during the period. After the period of pay continuance Mr. Evans will receive regular LTD benefits. 5 6 In addition to the pay continuation stated above, the CEO may at his discretion recommend that a portion of the MTIP payment (paragraph 3.3) be made even though through no fault on Mr. Evans' part, he was not able to complete the performance period. 8.0 DEATH In the event of death prior to the end of this Agreement, Mr. Evans' Estate will be entitled to, in addition to the regular benefits payable under the term of the life assurance program and the death benefits payable under the Alcancorp Pension Plan, the following amounts: 1. the EPA guideline amount prorated to the date of death; 2. a discretionary amount deemed by the CEO to be a just and equitable payment for the progress toward achieving the objectives under the MTIP program (paragraph 3.3). 9.0 OTHER EXECUTIVE BENEFITS AND PERQUISITES All other benefits and perquisites currently available to Mr. Richard B. Evans will continue as per the provisions of such programs, which are subject to change for all participants. 10.0 CHANGE IN RESPONSIBILITIES If during the term of this agreement your job grade is evaluated at a level higher than 54A as a result of an increase in your responsibilities, then the monetary provisions of this agreement (sections 3.0 and 4.0) will be reviewed and adjusted as appropriate by the CEO. 11.0 APPLICABLE LAW This contract is governed and interpreted according to the internal law of the State of Ohio without giving effect to any provisions relating to the conflict of laws. Any dispute arising under this contract shall be resolved in a court of competent jurisdiction in the Northern District of Ohio. Both parties consent to venue and jurisdiction in said district and agrees not to raise any challenge to such venue. 6 7 IN WITNESS WHEREOF the Parties have signed these presents as at the place and date first hereinabove written. ALCAN ALUMINIUM LIMITED BY: /s/ Jacques Bougie ----------------------- Jacques Bougie Chief Executive Officer WITNESS: /s/ Robert Maheu ----------------------- Robert Maheu /s/ Richard B. Evans ---------------------- Richard B. Evans 7 8 SCHEDULE A FOR RICHARD B. EVANS The CEO has the discretion, during a cycle, to adjust performance measures set for that period in order to reflect changes in accounting principles and practices, mergers, acquisitions or divestitures or extraordinary non-recurring or unusual items. FULL BUSINESS POTENTIAL (II) OBJECTIVES (GLOBAL FABRICATION GROUP) By the end of 2001, improve the run rate of pre-tax earnings by $310 Million over 3 years (EVA neutral). ASSUMPTIONS: (bullet) Base year: 1998 (bullet) Major strategic investment, acquisition or merger not included in FBPII plan TARGET: US$310 Million (pre-tax income) ADJUSTMENTS: (bullet) For major strategic initiatives 8 EX-10.15 3 CHANGE OF CONTROL AGREEMENT: BOUGIE 1 EXHIBIT NO. 10.15 AGREEMENT Agreement made as of the 23rd day of July 1999, by and between Alcan Aluminium Limited, a corporation incorporated under the laws of Canada with its registered office at 1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A 3G2 (the "Corporation") and Jacques Bougie, residing at 676, avenue Dunlop, Outremont, Quebec, H2V 2W4 (the "Executive"). WITNESSETH: WHEREAS, the Corporation believes that the establishment and maintenance of a sound and vital management of the Corporation is essential to the protection and enhancement of the interests of the Corporation and its shareholders; and WHEREAS, the Corporation also recognizes that the possibility of a Change of Control of the Corporation (as defined in Section 1 hereof), with the attendant uncertainties and risks, might result in the departure or distraction of key employees of the Corporation to the detriment of the Corporation and its shareholders; and WHEREAS, the Corporation has determined that it is appropriate to take steps to induce key employees to remain with the Corporation, and to reinforce and encourage their continued attention and dedication, when faced with the possibility of a Change of Control of the Corporation. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto hereby agree as follows: 1. CHANGE OF CONTROL shall mean any of the following: 1 2 1.1 the acquisition of direct or indirect beneficial ownership (as determined under Rule 13d-3 promulgated under the United States Securities Exchange Act of 1934), in the aggregate, of securities of the Corporation representing twenty percent (20%) or more of the total combined voting power of the Corporation's then issued and outstanding voting securities entitled to vote in the general election for directors, by any person or entity or group of associated persons or entities (within the meaning of Section 13(d)(3) or 14(d)(2) of the United States Securities Exchange Act of 1934) acting jointly or in concert (other than its subsidiaries or any employee benefit plan of either) (a "Person"), provided that, if a buyback of shares by the Corporation causes the Person to attain such limit, such limit shall not be deemed attained unless and until such Person acquires any such voting securities of the Corporation after the buyback that caused the level to be attained; 1.2 the amalgamation, merger, arrangement, reorganization or consolidation of the Corporation with a Person (including for the purposes of this Agreement any transaction or series of transactions such as share exchange transaction with the same stated or effective objective) other than: (a) an amalgamation, merger, arrangement, reorganization or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) two-thirds or more of the combined voting power (based on normal issue voting) of the voting securities of the Corporation or such surviving or parent entity outstanding immediately after such amalgamation, merger, arrangement, reorganization or consolidation in substantially the same proportion as immediately prior to such amalgamation, merger, arrangement, reorganization or consolidation, without there occurring as a result or in connection therewith any substantial change in the composition of the Corporation's Board; or 2 3 (b) an amalgamation, merger, arrangement, reorganization or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly (as determined under Rule 13-d-3 promulgated under the United States Securities Exchange Act of 1934), of securities representing more than the amounts set forth in paragraph 1.1 above; 1.3 the approval by shareholders of the Corporation of any plan or proposal for the complete liquidation or dissolution of the Corporation; 1.4 the issuance by the Corporation of shares (of the same or equivalent class as the principal class of publicly listed voted equity shares of the Corporation) in connection with an exchange offer acquisition (including, for the purposes of this Agreement, a series of connected exchange offer acquisitions), if such issuance results in the holders of the Corporation's principal class of publicly listed voting shares (immediately prior to the issuance) holding less than two-thirds of the total number outstanding (immediately following the issuance) and there occurs in connection therewith any substantial change in the composition of the Corporation's Board. 1.5 the sale or other disposition of all or substantially all of the assets of the Corporation other than the sale or other disposition of all or substantially all of the assets of the Corporation either (a) to a person or persons who beneficially own, directly or indirectly, at least fifty percent (50%) or more of the combined voting power (based on normal issue voting) of the voting securities of the Corporation at the time of the sale; or (b) in a manner such that after such sale or other disposition the ultimate parent entity of the acquirer is, directly or indirectly, owned (based on normal issue voting) at least fifty percent (50%) by shareholders who immediately prior to such transaction owned at least fifty percent (50%) of the voting power (based on normal issue voting) of the Corporation immediately prior to such 3 4 transaction in materially the same proportion as owned by such shareholders immediately prior to such transaction; provided that there does not occur in connection therewith any substantial change in the composition of the Corporation's Board. 1.6 the approval by the vote of the Corporation's holders voting shares of any amalgamation, merger, arrangement, reorganization or consolidation in which the Corporation will not survive as a publicly-owned corporation or should the Corporation for any reason become a subsidiary (as defined in the Canada Business Corporations Act) of any other corporation; 1.7 individuals who, as of the close of business on the effective date of this Agreement, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least two-thirds of the Board; provided that any person becoming a Director subsequent to the close of business on the effective date of this Agreement, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the Management Proxy Circular of the Corporation in which such person is named a nominee for Director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual elected or nominated as a Director of the Corporation initially as a result of an actual or threatened proxy or election contest with respect to Directors, as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board or as a result of or in connection with any amalgamation, merger, arrangement, reorganization, consolidation or share exchange acquisition transaction by the Corporation with any Person, shall be deemed to be an Incumbent Director; Only the first Change of Control after the date hereof shall be deemed a Change of Control hereunder. 2. TERM. This agreement shall commence on the date hereof and shall expire, unless previously terminated as provided herein, on the earliest of (i) 31st July 2002; 4 5 (ii) the date of the Executive's death or termination as a result of Disability, as defined below; (iii) subject to Section 3 hereof, the date of the retirement or other termination of the Executive's employment voluntarily or involuntarily) with the Corporation prior to a Change of Control; or (iv) if prior to a Change of Control, the entity for which the Executive is then working ceases to be a Subsidiary, as defined in Section 8 hereof, of Corporation. Notwithstanding anything in this Agreement to the contrary, if the Corporation becomes obligated to make any payment to the Executive pursuant to the terms hereof at or prior to the expiration of this Agreement, then this Agreement shall remain in effect for such purposes until all of the Corporation's obligations hereunder are fulfilled. Further, the provisions of paragraph 9.1 hereunder shall survive and remain in effect notwithstanding the termination of this Agreement, the termination of the Executive's employment or any breach or repudiation of alleged breach or repudiation by the Corporation of this Agreement or any one or more of his terms. Disability shall have the meaning ascribed to such term in the Corporation's long term disability plan in which the Executive participates. A termination for Disability shall be deemed to occur when the Executive is terminated by the Corporation by written notice after the disability is established and the Executive remains disabled. 5 6 3. TERMINATION FOLLOWING CHANGE OF CONTROL. 3.1 If, and only if, a Change of Control occurs and one of the following occurs: (i) the Executive's employment with the Corporation is terminated by the Corporation without Cause other than for Disability, or (ii) by the Executive for Good Reason, during the period running from the date of the Change of Control to twelve (12) months after the date of such Change of Control, then the Executive shall be entitled to the amounts provided in Section 4 upon such termination. In addition, notwithstanding the foregoing, in the event the Executive is either terminated without Cause or terminates employment for Good Reason (based on an event occurring within three (3) months prior the occurrence of a Change of Control) within three (3) months prior the occurrence of a Change of Control, such termination shall, upon the occurrence of a Change of Control, be deemed to be covered under the Agreement and the Executive shall be entitled to the amounts provided under Section 4 hereof reduced by any amounts otherwise received in connection with his termination of employment. 3.2 As used in this Agreement, termination for Good Reason shall mean a termination by the Executive within ninety (90) days after the occurrence of the Good Reason event, failing which such event shall not constitute Good Reason under this Agreement. For purposes of this Agreement, "Good Reason" shall mean the occurrence or failure to cause the occurrence of any of the following events without the Executive's express written consent: (i) any material diminution in the Executive's duties and responsibilities, authority (except in each case in connection with the termination of the Executive's employment for Cause or as a result of the Executive's death, or temporarily as a result of the Executive's illness or other absence,); (ii) a reduction in the Executive's annual base salary rate; 6 7 (iii) a relocation of the Executive's principal business location to an area outside the country of the Executive's principal business location at the time of the Change of Control; (iv) a failure by the Corporation after a Change of Control to continue any annual Executive Performance Award Plan, program or arrangement in which the Executive is then entitled to participate (the "Bonus Plans"), provided that any such plan(s) may be modified at the Corporation's discretion from time to time but shall be deemed terminated if (x) any such plan does not remain substantially in the form in effect prior to such modification and (y) if plans providing the Executive with substantially similar benefits are not substituted therefor ("Substitute Plans"), or a failure by the Corporation to continue the Executive as a participant in the Bonus Plans and Substitute Plans on at least the same basis as to potential amount of the bonus and the achievability thereof as the Executive participated immediately prior to any change in such plans of awards, in accordance with the Bonus Plans and the Substitute Plans; (v) a failure to permit the Executive after the Change of Control to participate in cash or equity based incentive plans and programs (i.e. the Corporation's Executive Deferred Share Unit Plan, Non-Qualified Deferred Compensation Plan, Executive Share Option Plan) other than Bonus Plans on a basis providing the Executive in the aggregate with an annualized award value in each fiscal year after the Change of Control at least equal to the aggregate annualized award value being provided by the Corporation to the Executive under such incentive plans and programs immediately prior to the Change of Control (with any awards intended not to be repeated on an annual basis allocated over the years the awards are intended to cover); (vi) the failure by the Corporation to continue in effect any employee benefit program such as a saving, pension, excess pension, medical, dental, disability, accident, life insurance plan or a 7 8 relocation plan or policy or any other material plan, program, perquisite or policy of the Corporation intended to benefit the Executive in which the Executive is participating at the time of a Change of Control (or programs providing the Executive with at least substantially similar benefits) other than as a result of the normal expiration of any such employee benefit program in accordance with its terms as in effect at the time of a Change of Control, or taking of any action, or the failure to act, by the Corporation which would adversely affect the executive's continued participation in any of such employee benefit programs on at least as favourable a basis to the Executive as is the case on the date of a Change of Control; or which would materially reduce the Executive's benefits in the future under any of such employee benefit programs or deprive him of any material benefit enjoyed by the Executive at the time of a Change of Control; (vii) a material breach by the Corporation of any other written agreement with the Executive that remains uncured for twenty-one (21) days after written notice of such breach is given to the Corporation; (viii)failure of any successor (as defined in Section 10 herein) to assume in a writing delivered to the Executive the obligations hereunder within twenty-one (21) days after written notice by the Executive, or (ix) should the Corporation not survive as a publicly owned corporation or become a subsidiary of any other corporation as hereinabove referred to in which case there shall be deemed to have been a material diminution in the Executive's duties. 3.3 As used in this Agreement, the term "Cause" shall mean (i) the failure by the Executive to attempt to substantially perform his or her duties and responsibilities with regard to the Corporation or any affiliate (other than any such failure resulting from the 8 9 Executive's incapacity due to physical or mental illness of any such actual or anticipated failure by the Executive for Good Reason, as defined in paragraph 3.2) after demand for substantial performance is delivered by the Corporation that specifically identifies the manner in which the Corporation believes the Executive has failed to attempt to substantially perform his or her duties and responsibilities and a reasonable time for the Executive to correct or remedy; (ii) the willful engaging by the Executive in misconduct in connection with the Corporation or its business which is materially injurious to the Corporation monetarily or otherwise (including but not limited to conduct which is prohibited by the provisions of Section 9.1 herein); or (iii) any misappropriation or fraud with regard to the Corporation or any of the assets of the Corporation (other than good faith expense account disputes). For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be considered "willful" unless done or omitted to be done, by him or her not in good faith and without reasonable belief that his or her action or omission was in the best interests of the Corporation. In the event that the Executive alleges that the failure to attempt to perform his or her duties and responsibilities is due to a physical or mental illness, and thus not "Cause" under paragraph 3.3, the Executive shall be required to furnish the Corporation with a written statement from a licensed physician who is reasonably acceptable to the Corporation which confirms the Executive's inability to attempt to perform due to such physical or mental illness. A termination for Cause after a Change of Control shall be based only on events occurring after such Change of Control; provided, however, the foregoing limitation shall not apply to an event constituting Cause which was not discovered by the Corporation prior to a Change of Control. 9 10 4. COMPENSATION UPON TERMINATION. 4.1 If the Executive's employment is terminated for Cause following a Change of Control or upon the occurrence of a Change of Control in a manner described in paragraph 3.1 the Corporation shall: (a) pay to the Date of Termination, the Executive's Base Salary, the prorated amount of the guideline award under the Corporation's Executive Performance Award Plan (EPA) and the cash value of any untaken and accrued vacations to the Date of Termination. The aggregate amount will be paid within five (5) days of the Date of Termination; (b) accrue service under the Corporation's pension plans to the Date of Termination; (c) maintain all other benefits and perquisites in which the Executive participates to the Date of Termination, but limited to the coverage in force under those benefit plans on the Date of Notice of Termination; and (d) not grant any options to purchase shares under the Alcan Executive Share Option Plan to the Executive between the date of Notice of Termination and the actual Date of Termination. 4.2 In the event of Termination for Cause following a Change of Control, the Corporation's obligations to the Executive shall be limited to those under paragraph 4.1. 4.3 If the Executive's employment is terminated after the first occurrence of a Change of Control in a manner described in paragraph 3.1 then, the Executive shall be entitled without regard to any contrary provisions of any benefit plan, to a severance pay, subject to the following paragraph, as provided below : (a) an amount equal to 36 times the Executive's monthly base salary on the Date of Termination; (b) an amount equal to 36 times the monthly EPA guideline amount in force on the Date of Termination; and 10 11 (c) an amount equal to 36 times the monthly Mid-Term Incentive Program (MTIP) guideline amount in force on the Executive's Date of Termination. If the Date of Termination is before the Executive's declared retirement date, the severance pay shall be calculated using a number, in lieu of 36, equal to the number of months remaining to such retirement date, in each of sub-paragraphs (a), (b) and (c) above. The Executive may, in writing, (in the Notice of Termination or otherwise) direct the Corporation that the severance pay pursuant to the paragraph 4.3 hereof shall be paid, either: (i) in a lump sum payable within five (5) days of the Date of Termination where in such case, all benefit plan coverage cease on such date, or (ii) in 36 equal monthly installments, (or for a period consistent with the Corporation's practices as approved by the Personnel Committee of the Board) after having the Executive transferred to the non-active payroll of the Corporation where in such case all benefit plan coverage continue at the previous level for that same number of months except coverage under the Corporation's short-term and long-term disability plans, vacation program, eligibility in the Alcan Share Option Plan and perquisite benefit (car, financial and tax counseling, club membership) which shall cease on Date of Termination. Monthly installments paid on the non-active payroll shall be excluded in the calculation of pensionable earnings while the duration on the non-active payroll shall be included as service for calculating years of service under the Corporation's pension plans. 4.4 Any loans owing by the Executive to the Corporation shall become due and payable as per the terms of the applicable loan agreement. 4.5 After the occurrence of a Change of Control, as defined in Section I, all options under the Corporation's Executive Share Option Plan shall become immediately exercisable and all waiting periods and holding periods, as defined in such plan, shall be waived. 11 12 5. NOTICE OF TERMINATION. After a Change of Control, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 13. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment. 6. DATE OF TERMINATION. "Date of termination", with respect to any purported termination of the Executive's employment after a Change of Control, shall mean the date specified in the Notice of Termination (which, in the case of a termination by the Corporation, shall not be less than thirty (30) days except in the case of a termination for Cause which shall be the date specified in the Notice of Termination and, in the case of a termination by the Executive for Good Reason, shall not be earlier than twelve (12) months after the Change of Control). In the event of Notice of Termination by the Corporation, the Executive may treat such notice as having a date of termination at any date between the date of the receipt of such notice and the date of termination indicated in the Notice of Termination by the Corporation; provided, that the Executive must give the Corporation written notice of the date of termination if he or she deems it to have occurred prior to the date of termination indicated in the notice. 7. NO DUTY TO MITIGATE/SET-OFF. The Corporation agrees that if the Executive's employment with the Corporation is terminated pursuant to this Agreement during the term of this Agreement, the Executive shall not be required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Corporation pursuant to this Agreement. Further, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive or benefit provided to the Executive as the result of employment by another employer or otherwise. Except as otherwise provided herein and apart from any disagreement between the Executive and the Corporation concerning interpretation of this Agreement or any term or provision hereof, the Corporation's obligations to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, any set-off, counterclaim, recoupment, defense or other right which the Corporation may have against the Executive. 12 13 8. SERVICE WITH SUBSIDIARIES OR THE CORPORATION. For purposes of this Agreement, employment by the Corporation or a Subsidiary of the Corporation shall be deemed to be employment by the Corporation and references to the Corporation shall include all such entities, except that the payment obligation hereunder shall be solely that of the Corporation. A Change of Control, however, as used in this Agreement, shall refer only to a Change of Control of Alcan Aluminium Limited. For purposes of this Agreement a "Subsidiary" shall mean any entity in which the Corporation owns, directly or indirectly, at least fifty percent (50%) of the outstanding securities entitled to vote for the election of directors. 9. CONFIDENTIALITY -- NO NON-COMPETITION -- NO RESIGNATION. 9.1 The Executive shall not at any time during the term of this Agreement, or thereafter, directly or indirectly, for any reason whatsoever, communicate or disclose to any unauthorized person, firm or corporation, or use for the Executive's own account, without the prior written consent of the Board, any proprietary processes, trade secrets or other confidential data or information of the Corporation and its related and affiliated companies concerning their businesses or affairs, accounts, products, services or customers, it being understood, however, that the obligations of this Section shall not apply to the extent that the aforesaid maters (i) are disclosed in circumstances in which the Executive is legally required to do so, or (ii) become known to and available for use by the public other than by the Executive's wrongful act or omission. 13 14 9.2 Upon the occurrence of a Change of Control, any non-competition agreement between the Corporation and the Executive shall be considered null and void. 10. SUCCESSORS -- BINDING AGREEMENT. In addition to any obligations imposed by law upon any successor to the Corporation, the Corporation will require any successor (whether direct or indirect, by purchase, amalgamation, merger, arrangement, reorganization, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to expressly assume and agree in writing to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors and heirs. If the Executive shall die after termination of his employment while any amount would still be payable to the Executive hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. This Agreement is personal to the Executive and neither this Agreement nor any rights hereunder may be assigned by the Executive. 11. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement constitutes the entire Agreement between the parties hereto pertaining to the subject matter hereof. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. All references to any law shall be deemed also to refer to any successor provisions to such laws. 14 15 12. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13. NOTICES. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, or sent by registered mail, postage prepaid as follows: (i) If to the Corporation, to: Alcan Aluminium Limited 1188 Sherbrooke Street West Montreal, Quebec H3A 3G2 Attention: Corporate Secretary (ii) If to the Executive, to his last shown address on the books of the Corporation. Any such notice shall be deemed given when so delivered personally, or, if mailed, five days after the date of deposit in the Canadian mail. Any party may by notice given in accordance with this Section to the other parties, designate another address or person for receipt of notices hereunder. 14. SEVERABILITY. If any provisions of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect. 15 16 15. LEGAL FEES. In the event the Corporation does not make the payments due hereunder on a timely basis and the Executive collects any part or all of the payments provided for hereunder or otherwise successfully enforces the terms of this Agreement by or through a lawyer or lawyers, the Corporation shall pay all costs of such collection or enforcement, including reasonable legal fees and other reasonable fees and expenses which the Executive may incur. The Corporation shall pay to the Executive interest at the prime lending rate as announced from time to time by Royal Bank of Canada on all or any part of any amount to be paid to Executive hereunder that is not paid when due. The prime rate for each calendar quarter shall be the prime rate in effect on the first day of the calendar quarter. 16. NON-EXCLUSIVITY OF RIGHTS. Except as otherwise specifically provided therein, (i) nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive, equity or other plan or program provided by the Corporation and for which the Executive may qualify, nor (ii) shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other currently existing plan, agreement as to employment or severance from employment with the Corporation or statutory entitlements, provided, that to the extent such amounts are paid under paragraph 4.2(a) hereof or otherwise, they shall not be due under any such program, plan, agreement or statute. Amounts that are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Corporation, at or subsequent to the date of termination shall be payable in accordance with such plan or program, except as otherwise specifically provided herein. 17. NOT AN AGREEMENT OF EMPLOYMENT. This is not an agreement assuring employment and the Corporation reserves the right to terminate the Executive's employment at any time with or without cause, subject to the payment provisions hereof if such termination is after, or within three (3) months prior to, a Change of Control, as defined herein. The Executive acknowledges that he is aware that he shall have no claim against the Corporation hereunder or for deprivation of the right to receive the amounts hereunder as a result of any termination that does not specifically satisfy the requirements hereof or as a result of any other action taken by the Corporation. The foregoing shall not affect the Executive's rights under any other agreement with the Corporation. 16 17 18. GOVERNING LAW. This Agreement shall be construed, interpreted, and governed in accordance with the laws of the Province of Quebec. 19. ENGLISH LANGUAGE. The parties hereto declare that they require that this Agreement and any related documents be drawn up and executed in English. Les parties declarent qu'elles requierent que cette convention ainsi que tous documents relatifs a cette convention soient rediges et executes en anglais. IN WITNESS WHEREOF, the Corporation has caused this Agreement to be duly executed and the Executive has hereunto set his hand as of the date first set forth above. ALCAN ALUMINIUM LIMITED BY: /s/ Dr. John R. Evans __________________________ Dr. John R. Evans Chairman of the Board /s/ Jacques Bougie __________________________ Jacques Bougie 17 EX-13 4 ANNUAL REPORT 1 Exhibit 13 ANNUAL REPORT 1999 2 PROFILE Alcan Aluminium Limited, a Canadian corporation, is the parent company of an international group involved in most aspects of the aluminum industry. Through subsidiaries, joint ventures and related companies around the world, the activities of the Alcan Group include bauxite mining, alumina refining, power generation, aluminum smelting, manufacturing and recycling as well as research and technology. Approximately 36,000 people are directly employed by the company. Established in 1902, Alcan has developed a unique combination of competitive strengths. The Alcan Group is a multicultural and multilingual enterprise reflecting the differing corporate and social characteristics of the many countries in which it operates. Within a universal framework of policies and objectives, individual subsidiaries conduct their operations with a large measure of autonomy. With operations and sales offices in over 30 countries, the Alcan Group is one of the most international aluminum companies in the world. It is a leading producer of primary metal and a global producer and marketer of rolled aluminum products. Alcan Aluminium Limited has approximately 19,640 registered holders of its common shares and 780 registered holders of its preference shares. While traded internationally, the company's shares are held mostly in North America. The word Alcan and the Alcan symbol are registered trademarks in more than 100 countries and are synonymous with aluminum the world over. ANNUAL MEETING The annual meeting of the holders of common shares of Alcan Aluminium Limited will be held on Thursday, April 27, 2000. The meeting will take place at 10:00 a.m. (Montreal time) in the Assembly Hall, International Civil Aviation Organization, Atrium Entrance, 999 University Street, Montreal, Quebec, Canada. Highlights of the Year 1 Message to Shareholders 2 Paving the Way to a Bright Future 7 Corporate Social Responsibility 14 The Alcan Group's Businesses at a Glance 18 Management's Discussion and Analysis 20 Responsibility for the Annual Report, OECD Guidelines and Auditors' Report 39 Consolidated Financial Statements 40 Notes to Consolidated Financial Statements 43 Eleven-Year Summary 64 Quarterly Financial Data 66 Corporate Governance 67 Directors and Officers 68 Shareholder Information 69 3 COVER 3 GLOSSARY Alumina: most alumina is a white, powdery substance produced from bauxite by a chemical process during which aluminum oxide is extracted from the ore. Between four and five tonnes of bauxite are required to produce about two tonnes of alumina, which yield one tonne of aluminum. Aluminum: although aluminum is the most common metal on earth, constituting 8% of the planet's crust, it is never found in its pure form. Aluminum metal is produced by separating aluminum from oxygen in alumina. Bauxite: the most economic source of aluminum is bauxite, an ore or rock composed of hydrous aluminum oxides and aluminum hydroxides. It is predominantly found in tropical and sub-tropical regions. Chemicals: chemical-grade alumina (alumina hydrate) is the starting material for a wide variety of specialty chemical products. Fabricated products: generally, fabricated products are rolled products (sheet and foil) as well as rod, wire and cable, extruded and drawn products and castings. Litho sheet: aluminum sheet is widely used as the metal plate on which an image is produced for lithographic printing. London metal exchange (LME): the LME is a metals trading centre for the western world. The LME also determines the metal price (per tonne) for aluminum trading for current and future delivery. Rolled products: at rolling mills, sheet ingots are reduced in thickness by passing them between rollers in a series of reversing hot mills and, finally, in a cold mill. For example, a 30-tonne sheet ingot can be rolled into a coil of sheet up to 2.7 metres in diameter. Secondary (recycled) metal: aluminum ingot can be made by remelting used beverage cans (UBCS) or any other post-consumer scrap, as well as customer process scrap. Recycling aluminum only requires about 5% of the energy required to produce primary metal. Sheet and foil: sheet is flat-rolled metal primarily used for the container, lithography, transportation and building end-use markets. Foil is a thinner sheet of metal, usually less than 0.006 inch (0.15 millimeter) thick, and it is widely used in household and commercial packaging and industrial product applications. Smelting: primary aluminum is produced through the electrolytic reduction of alumina. The molten aluminum is cast into ingots and then fabricated into a variety of products. Tolling: The activity of rolling or converting customer-owned metal or alumina is called tolling. DEFINITIONS The word "Alcan" or "Company" means Alcan Aluminium Limited and, where applicable, one or more consolidated subsidiaries. A "Subsidiary" is a company controlled by Alcan. A "Joint Venture" is an association (incorporated or unincorporated) of companies jointly undertaking some commercial enterprise and proportionately consolidated to the extent of Alcan's participation. A "Related Company" is one in which Alcan has significant influence over management but owns 50% or less of the voting stock. The "Alcan Group" refers to Alcan Aluminium Limited, its subsidiaries, joint ventures and related companies. In this report, unless stated otherwise, all dollar amounts are stated in United States dollars and all quantities in metric tons, or tonnes. A tonne is 1,000 kilograms, or 2,204.6 pounds. The following abbreviations are used: /T per tonne KT thousand tonnes KT/Y thousand tonnes per year MT million tonnes MT/Y million tonnes per year 4 5 COVER 4 THE ALCAN GROUP'S GLOBAL PRESENCE (PICTURE) ALCAN PRIMARY METAL GROUP BAUXITE MINES/DEPOSITS ALUMINA REFINING SPECIALTY CHEMICALS PRIMARY ALUMINUM PRODUCTION SUPER PURITY ALUMINUM REFINING POWER GENERATION Alcan also has sales/marketing offices, research and technology facilities or other activities in Austria, Belgium, Bermuda, Denmark, Finland, Hungary, Japan, the Netherlands, Poland, Portugal, Russia and Sweden. ALCAN GLOBAL FABRICATION GROUP SHEET AND/OR FOIL ROLLING/FLEXIBLE PACKAGING OTHER FABRICATING RECYCLING ACTIVITIES/UBC RECOVERY 6 ALCAN ALUMINIUM LIMITED LETTERHEAD March 20, 2000 Dear Alcan Shareholders, Alcan's 1999 Annual Report discusses the proposed three-way merger between Alcan, Pechiney and algroup (provisionally called A.P.A.) and its status as of February 10, 2000. On March 14, the three companies issued a press release outlining recent developments in the European Commission approval process of the proposed merger. That press release read as follows: Following discussions with the European Commission's Merger Task Force (MTF), Alcan (NYSE, TSE : AL) , Pechiney (NYSE, Paris : PY) and algroup (SWX : ALUN) today announced that they will take the opportunity to review the Alcan - Pechiney application while proceeding with the Alcan - algroup application as presented. The European Commission is expected to rule on the Alcan - algroup application on or before March 22, 2000. The Parties have today advised the Commission of their intention to withdraw the Alcan - Pechiney application from the European Commission process and to terminate the three-way combination agreement as it relates to Pechiney. The companies' objective is to secure the necessary time to review the Commission's concerns in greater detail and investigate alternatives that would satisfy the Commission as well as the companies, and to enable the companies to submit a new application. The focus of the three companies remains on completing the three-way merger as it presents significant value to their shareholders, employees and customers. While neither the launch nor the completion of the algroup exchange offer is conditional upon the Pechiney exchange offer, Alcan's current intention is that the launch of both will be coordinated so that they will coincide to the extent practicable and in accordance with the required regulatory approvals. Submitting a new application is possible under European Commission regulations and has been done in other cases in order to address concerns raised by the Commission. We will continue to keep you informed. Yours sincerely, /s/ John R. Evans /s/ Jacques Bougie - ---------------------------------- ------------------------------------- John R. Evans Jacques Bougie Chairman of the Board President and Chief Executive Officer
7 HIGHLIGHTS OF THE YEAR
1999 1998 1997 ------ ------ ------ FINANCIAL DATA (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) Sales and operating revenues 7,324 7,789 7,777 Net income before extraordinary item 460 399 468 Net income 460 399 485 Economic value added (EVA(r))1 (111)2 (285) (285) Return (%) on average common shareholders' equity 9 7 10 Total assets (at year-end) 9,849 9,901 9,374 Capital expenditures 1,298 877 641 Ratio of borrowings to equity (at year-end) 21:79 24:76 23:77 Per common share (in US$) Net income before extraordinary item 2.06 1.71 2.02 Net income 2.06 1.71 2.09 Dividends 0.60 0.60 0.60 Price on NYSE (at year-end) 41.38 27.06 27.63 ------ ------ ------ OPERATING DATA (IN THOUSANDS OF TONNES) Fabricated products shipments3 2,226 2,112 1,970 Ingot products shipments4 859 829 858 Primary aluminum production 1,518 1,481 1,429 Secondary/recycled aluminum production 681 684 670 ------ ------ ------ AVERAGE THREE-MONTH LME PRICE (IN US$/TONNE) 1,388 1,379 1,620 ------ ------ ------
[FN] 1 EVA IS A REGISTERED TRADEMARK OF STERN STEWART & CO. 2 THE EVA IMPROVEMENT REFLECTS PRINCIPALLY A CHANGE IN COST OF CAPITAL AND ECONOMIC TAX ASSUMPTIONS. 3 INCLUDES PRODUCTS FABRICATED FROM CUSTOMER-OWNED METAL. 4 INCLUDES PRIMARY AND SECONDARY INGOT AND SCRAP. (GRAPH) (GRAPH) Net Income(1) and Average Fabricated Products Three-Month LME Price Shipments (1) Before extraordinary item Alcan continues to improve despite Alcan continues to grow fabricated low metal prices. Alcan's objective products shipments in its chosen is to earn its cost of capital at markets, achieving increased market progressively lower metal prices. share through superior service to customers. 1 8 MESSAGE TO SHAREHOLDERS OUR STRATEGIC PRIORITIES (PICTURE) CAPTION JOHN R. EVANS CHAIRMAN OF THE BOARD, AND JACQUES BOUGIE, PRESIDENT AND CHIEF EXECUTIVE OFFICER. (bullet) Finalize the proposed merger of Alcan, Pechiney of France and algroup of Switzerland (provisionally referred to as A.P.A.) to form a new global leader, and work to ensure that we quickly deliver the upside potential -- substantially increased revenues, earnings and Economic Value Added (EVA). (bullet) Position A.P.A. as the global partner of choice for customers in the aluminum and high value-added, flexible and specialty packaging sectors, while exercising industry leadership to enhance the position of our materials in the marketplace. (bullet) Aggressively seek out additional opportunities to maximize shareholder value. 2 9 Nineteen ninety-nine was truly a milestone year for Alcan. We experienced an improved trend in earnings, carried out a corporate reorganization that helped unlock further operational gains and culminated the year with shareholder approval of a dynamic, three-way merger that will ensure our role as a growth-oriented, global industry leader in the 21st century. 1999 ACHIEVEMENTS WERE RECOGNIZED BY INVESTORS WITH A 55% INCREASE IN ALCAN'S SHARE PRICE OVER THE COURSE OF THE YEAR. The year began on a difficult note, as commodity prices continued to fall and the London Metal Exchange (LME) aluminum price slumped to a five-year low of less than $1,200 per tonne in late February. However, business conditions began to improve during the second quarter. We ended 1999 on a more positive note with the metal price back at about $1,650 per tonne and Western World aluminum shipments 3.9% ahead of the previous year. Alcan's net income for 1999 was $460 million, including $193 million generated in the fourth quarter -- more than double the profit for the comparable 1998 period. RESPONDING TO THE CHALLENGE OF CHANGE Given the magnitude of events of 1999, we feel it appropriate to put things in perspective by taking a brief look back at some of the developments that have impacted the aluminum business over the past decade and set the stage for the current round of industry consolidation. Key influences included: (bullet) A declining trend in real aluminum prices and eroding margins; (bullet) The necessity to improve return on investment; (bullet) The need to meet the demands of global customers; (bullet) The maturing of terminal markets such as the LME; and (bullet) Intense competition from other materials such as steel and plastics. Never an organization to shy away from challenge, Alcan has been among the leaders in responding to the changing realities of our industry, particularly the long-term price/margin squeeze. First came a major cost-cutting program introduced back in 1991, which yielded cuts of $600 million. In 1993, following a comprehensive review, we tightened our strategic focus -- a decision that led to the phased divestiture of over 60 non-core businesses. Then, in 1997, we launched our ongoing Full Business Potential (FBP) program, aimed at reducing costs and enhancing productivity and revenue. Together, these measures have enabled us to dramatically reduce Alcan's cost base and increase our competitiveness, while becoming much more customer-oriented. That latter point is crucial. In today's intensely competitive global business environment, our relationships with customers are key to generating increased volumes and creating enhanced value. Our demonstrated ability to function as a true strategic partner, delivering innovative solutions that help customers become more competitive in their own right, has led to major breakthroughs in important market segments like beverage can and automotive. For example, in January 2000, a multi-year supply agreement with Ford Motor Company was announced. Along with an earlier strategic alliance with General Motors, this brings us a giant step closer to our vision of being the leading aluminum supplier, and strategic partner, to the global automotive industry. 3 10 FURTHER PROGRESS ON THE PRODUCTIVITY AND COST FRONT During 1999, we established aggressive new targets for the second phase of our Full Business Potential program and realigned the Company's operations into two core groups -- the Alcan Primary Metal Group and the Alcan Global Fabrication Group -- enabling us to further enhance service to customers while realizing additional gains in productivity and costs. FBP improvements amounting to $162 million (pre-tax) were achieved during 1999. With three years of FBP under our belt, we are now $462 million closer to our five-year target of $1 billion. When capacity additions scheduled for 2001/2002 are excluded, that cumulative three-year achievement represents 64% of our total target, so FBP is right on track. We should also note that -- in keeping with the undertaking outlined in last year's Message to Shareholders -- we structured the second phase of FBP so that the goals are based on Economic Value Added, or EVA. 1999 OPERATING HIGHLIGHTS The cumulative effect of these initiatives is evident in improvements throughout Alcan's 1999 operations. Major highlights were: (BULLET) Substantial improvements in safety; (BULLET) Reduced alumina and primary metal costs at the Alcan Primary Metal Group; (BULLET) Record output at six refineries and smelters, as well as record third-party sales of value-added ingot products; (BULLET) Record shipments of 2.2 million tonnes posted by the Alcan Global Fabrication Group; (BULLET) Significant improvement at European rolling operations, as well as record operating rates and shipments at North American sheet and light-gauge plants; (BULLET) New labour agreements concluded at four major Alcan plants; (BULLET) Successful completion of the $370-million expansion at our Pindamonhangaba (Pinda), Brazil rolling complex -- on budget and ahead of schedule; and (BULLET) The creation of Alcan Taihan Aluminum Limited (ATAL) in South Korea. With the inauguration of Pinda and the formation in September 1999 of ATAL, Alcan is in the enviable position of being the only aluminum producer with world-class rolling assets on four continents. CONTINUED PROGRESS ON WORKPLACE SAFETY AND THE ENVIRONMENT Workplace health and safety, as well as the environment, remain top priorities for Alcan. The year 1999 saw new performance benchmarks set in these vital areas. Safety programs in support of Behaviour Based Safety were initiated at Alcan facilities around the globe. This reflects our increased emphasis on employee involvement in the safety process, to help us achieve Alcan's ultimate goal of zero work-related injury and illness. In the environment area, we made considerable progress during 1999 in our goal to certify all Alcan facilities worldwide according to ISO-14001 standards. Other achievements ranged from further increases in beverage can recycling to advances in the use of aluminum for automotive applications that reduce CO2 emissions. 4 11 A.P.A.: KEY TO FUTURE GROWTH AND INCREASED SHAREHOLDER VALUE Thanks in large part to the positive results attained through the aforementioned initiatives, Alcan is strong and well-positioned for the new century. Nevertheless, we felt we had to ask ourselves how the Company could continue to grow while still increasing shareholder value. Our alternatives included settling for incremental growth that could essentially be achieved internally, or pursuing a bolder course of action by seeking out a suitable partner -- or partners -- for a significant merger or acquisition. Ultimately, we decided to take the future into our own hands by initiating the talks that led to the proposed combination of Alcan, Pechiney and algroup. The formation of A.P.A. is a unique opportunity to attain the scope required to achieve significant growth in sales and earnings. It will also enable us to provide superior service to both our global and our regional customers. With market capitalization of more than $20 billion and 1998 (pro forma) revenues of $21.6 billion, A.P.A. will be a global leader in aluminum with low-cost smelting capacity, the world's largest rolling system, and leadership positions in key fabricated products sectors such as aerospace, automotive and beverage can sheet. The new company will also enjoy global leadership in the high value-added, flexible and specialty segments of the packaging industry, which generated well over $4 billion in revenues last year. This sector represents an important new growth platform for Alcan shareholders -- a significant stream of revenues and profits that are not tied to commodity prices. The benefits our Company -- and hence our shareholders -- can expect to derive from the merger include: significant upside potential in revenue and earnings per share growth; at least $600 million in annual cost synergies, over and above existing FBP-type programs; and a strong balance sheet and cash flow. As we stated at the historic special meeting of Alcan shareholders last November, which overwhelmingly approved the merger plan, A.P.A. represents our ticket to the future growth of this business -- and to increased shareholder value. (Graph) RECORDABLE CASE RATE AND LOST-TIME INJURY/ILLNESS LTII RATE* *Based on 100 employees working one year (200,000 hours) CAPTION THANKS TO EMPLOYEE INVOLVEMENT AT LOCATIONS WORLDWIDE, ALCAN RECORDED ITS BEST RESULTS OVER TEN YEARS OF TRACKING SAFETY STATISTICS. 5 12 ACKNOWLEDGMENTS Special thanks are due to Alcan employees for their hard work and support during a very eventful, emotional year. The fact that we were able to maintain a "business-as-usual" focus to ensure success in 1999, while simultaneously preparing for a smooth merger, speaks to the remarkable capabilities and dedication of the entire Alcan family. We would also like to take this opportunity to formally welcome Ms. Eleanor Clitheroe, president and chief executive officer of Ontario Hydro Services, to the Alcan Board of Directors, and to express our appreciation to all members of the Board for their unstinting support during an exceptional year. Finally, we wish to pay tribute to the many outstanding men and women who have helped make Alcan the great company it is today -particularly the Davis family and former CEOs David Culver and David Morton. It was their vision and leadership that inspired us to take the bold step to ensure that this enterprise, its employees and its shareholders will continue in the forefront of the industry as the next century unfolds. OUTLOOK The year 2000 looks to be another promising one for us. The outlook is for continued improvement in business conditions and in aluminum industry fundamentals, with Western World aluminum demand forecast to increase by 3.3% and only limited additional supply in sight. This is a favourable context for the debut of our $1.8-billion Alma, Quebec, smelter, which is scheduled to come on stream during the fourth quarter of 2000. Needless to say, one of our top priorities for 2000 will be the formation of A.P.A., which will accelerate our growth potential and open a multitude of new opportunities as we remain focused on our Full Business Potential program. Overall -- for Alcan's shareholders, customers and employees -- the outlook is a promising one indeed. /s/ John R. Evans /s/ Jacques Bougie - ------------------------------- ------------------------------------ JOHN R. EVANS JACQUES BOUGIE Chairman of the Board President and Chief Executive Officer February 10, 2000 6 13 THE PROPOSED A.P.A. MERGER AND A CHANGING GLOBAL INDUSTRY PAVING THE WAY TO A BRIGHT FUTURE The sequence of events and strategic initiatives that is leading, ultimately, to the formation of Alcan-Pechiney-algroup -- provisionally called A.P.A. -- stretches back to the early 1990s. Like many other companies, Alcan has been implementing and refining its strategy over the past decade to reflect the changing economic environment and to address emerging global competitive realities. By reducing costs, sharpening its market focus and becoming decidedly more customer-oriented, Alcan has enhanced its competitiveness and substantially improved returns -- even when faced with the low metal price environment that prevailed during 1998 and much of 1999. By decade's end, Alcan had achieved significant results from its Full Business Potential (FBP) program, aimed at reducing cost and enhancing productivity and revenues. The Company could confidently assert that it was, in fact, moving to optimize the potential of its existing businesses, becoming an Economic Value Added (EVA(R)) driven company. The second phase of that program (FBP-II), which began in the spring of 1999 and is based on EVA, is designed to achieve additional earnings improvement of some $500 million after-tax, or $2.25 per share, by the end of 2001 -- equivalent to a 23% compound annual earnings growth rate. That the Company is on track to reach these aggressive new FBP targets attests to the fact that Alcan remains a fundamentally strong entity on its own. Nevertheless, as senior management looked 10 years down the road -- and took into account various forces impacting on the aluminum business -- it was evident that to remain in the forefront of the industry would entail attaining a certain scope and scale that could not likely be achieved through incremental change alone. Having identified this vision, Alcan sought out potential partners who shared it and proposed the formation of a global leader in aluminum and specialty packaging. With an intensely customer-focused approach at its core, A.P.A. promises to be an even stronger entity that will help pave the way to a bright future. 7 14 (Picture) ALCAN PECHINEY ALGROUP A.P.A. -- A CUSTOMER-FOCUSED GLOBAL LEADER GEARED FOR GROWTH With some 91,000 employees in nearly 60 countries, A.P.A. is set to become a global leader, well-positioned to deliver solutions to key customers in the aluminum and specialty packaging sectors alike -- anywhere in the world. Along with like-minded partners Pechiney and algroup, Alcan is determined to ensure that not only A.P.A.'s products but also its customer service and support are creating value for all stakeholders. The objective is simple: to be regarded by our customers as the partner of choice, thereby developing our markets and achieving superior revenue growth. CAPTION A.P.A.'S GLOBAL TRANSPORTATION GROUP WILL BE A LEADING SUPPLIER TO THE KEY AUTOMOTIVE AND TRANSPORT SECTORS 8 15 CREATING A GLOBAL LEADER The formation of A.P.A. promises to be one of those rare instances where the whole will actually be greater than the sum of its parts. The complementary assets of the merged organization provide A.P.A. with world-class know-how and facilities across the entire spectrum of operations. In particular, the merged organization will benefit from Alcan's world-class smelting and rolling assets; Pechiney's reduction cell technology and international trading expertise; and algroup's low-cost bauxite and alumina. Moreover, A.P.A. will be the unquestioned leader in the aluminum lightweighting of the automotive industry with Alcan's leading position in North America and algroup's leadership in Europe. (PICTURE) Caption A.P.A. will also be a major player on the worldwide market for food flexible and specialty packaging. A.P.A. will be a global leader in aluminum, with: (bullet) low-cost smelting capacity -- the majority of it in the lowest third of the industry cost curve; (bullet) the world's leading rolling system -- with technologically advanced assets positioned on four continents to meet the needs of both global and regional customers; and, (bullet) global leadership positions in key fabricated products sectors such as aerospace, automotive and beverage can sheet. A.P.A. also will enjoy global leadership in the high value-added, flexible and specialty packaging segments. It will become the leading supplier to customers in packaging for food (flexible), pharmaceuticals, personal care, and cosmetics. The merged company will enjoy very healthy positions in other key packaging categories as well -- standing out as a strong player in an otherwise-fragmented market. (PICTURE) Caption Aluminum beverage cans provide unique advantages such as recyclability and a high-value incentive for collection. A STRONG ORGANIZATION THAT'S TRULY GLOBAL IN NATURE As proposed, A.P.A. will be truly global in nature, with its legal headquarters located in Montreal, and the office of the CEO -- Alcan's Jacques Bougie -- in New York. The merger represents a unique opportunity to build a strong organization led by a dynamic management team with top talent drawn from all three A.P.A partners. The merged organization will encompass six business sectors. The bauxite & alumina as well as the primary metal, global trading & electro-metallurgy sectors will operate from A.P.A's Montreal head office. Aluminum fabrication -- Americas & Asia & global can sheet will be based in Cleveland, Ohio; Aluminum fabrication -- Europe & global transportation, along with health and beauty packaging, in Paris; and the food flexible and specialty packaging sector, in Zurich. 9 16 (PICTURE) ALCAN PRIMARY METAL GROUP Reduced costs and increased output -- including record production at six facilities -- contributed to a much-improved performance during 1999 by the Alcan Primary Metal Group (APMG). APMG is one of two business groups formed in March 1999, as part of an organizational streamlining designed to support the second phase of Alcan's Full Business Potential (FBP) program while better meeting the changing needs of customers. CAPTION RECORD BILLET SALES IN NORTH AMERICA AND RECORD OUTPUT AT THE QUEENSLAND ALUMINA LIMITED, AUSTRALIA, REFINERY TYPIFIED IMPROVE- MENTS AT APMG. 10 17 ALMA COMPLEX TO START UP IN 2000 At the end of 1999, the new $1.8-billion smelter project at Alma, Quebec, was on track with field construction progress at the 40% mark. The start-up of this state-of-the-art smelter, scheduled for the fall of 2000, will enable Alcan to meet increased customer demand for aluminum rod in the energy transmission market and for foundry ingot in the global automotive market. The early phase-out of the nearby 75,000-tonne capacity smelter in Isle-Maligne, Quebec, facilitated the implementation of a comprehensive training program for workers transferring to the Alma facility. This world-class aluminum complex promises to further enhance the Company's competitiveness by delivering quality primary metal at operating costs that will be among the lowest in the world. Moreover, this facility will meet the highest standards in environmental protection for both its employees and the surrounding community. U.K. SMELTER UPGRADE UNDER WAY A $25-million modernization and upgrade of the power station at Alcan's Lynemouth, U.K, smelter got under way during 1999. The project, which involves upgrading the turbines in all three of the plant's generating units, will reduce emissions by 13% for every megawatt of electricity produced while boosting generating capacity by 8%, to 420 megawatts. Work was successfully completed in September 1999 on the commissioning of the first upgraded generator. Meanwhile, amperage increases implemented at the Company's smelters in Grande-Baie and Laterriere, Quebec, as well as in Lynemouth in the U.K., have yielded improved output and increased labour and capital productivity. In addition, a major $105-million modernization program designed to ensure the long-term global competitiveness of Alcan's alumina plant in Jonquiere, Quebec, is proceeding on schedule for completion in 2002-2003. All these projects will help APMG deliver on its FBP commitments. THE WORLD-CLASS ALMA SMELTER COMPLEX PROMISES TO FURTHER ENHANCE THE COMPANY'S COMPETITIVENESS. IMPLEMENTATION OF ELY BAUXITE AGREEMENT SIGNIFICANTLY REDUCES QAL'S COSTS IMPLEMENTATION OF A BAUXITE MINING AND EXCHANGE AGREEMENT WITH COMALCO LIMITED, UNDER WHICH SHIPMENTS OF LOWER COST BAUXITE TO THE QUEENSLAND ALUMINA LIMITED REFINERY (21.4% OWNED BY ALCAN) BEGAN IN JANUARY 2000, WILL RESULT IN SIGNIFICANTLY REDUCED PRODUCTION COSTS. UNDER THE TERMS OF THE AGREEMENT, COMALCO WILL DEVELOP ALCAN'S ELY RESERVES IN AUSTRALIA WITHIN A TIME FRAME OF ITS CHOOSING. IN THE INTERIM, ALCAN WILL RECEIVE AN EQUIVALENT AMOUNT OF BAUXITE FROM COMALCO'S ADJACENT WEIPA MINES. THE AGREEMENT MAY ALSO ALLOW ALCAN TO EVENTUALLY SUPPLY ITS OTHER REFINERIES WITH ELY BAUXITE SO THAT THEY, TOO, MAY BENEFIT FROM REDUCED BAUXITE COSTS. 11 18 (PICTURE) ALCAN GLOBAL FABRICATION GROUP In its first year as a distinct business entity, the Alcan Global Fabrication Group (AGFG) generated record profitability, shipments and EVA, while establishing new milestones on each of the four continents where it operates. Among AGFG's most notable achievements was the dynamic turnaround in the financial and operational performance of its European businesses -- attaining improved lead times and delivery performances while substantially reducing the amount of working capital employed. CAPTION QUALITY ROLLED PRODUCTS MANUFACTURED AT KINGSTON WORKS, ONTARIO (TOP), AND AT ATAL, SOUTH KOREA, HELP MAKE AGFG A SUPPLIER OF CHOICE. 12 19 ATAL AND PINDA GIVE ALCAN WORLD-CLASS ROLLING CAPACITY ON FOUR CONTINENTS Within a two-week time frame during the autumn of 1999, events half a world apart confirmed Alcan's role as the only aluminum producer with high-quality rolled products capability -- including can sheet -- on four continents. On September 30, 1999, Alcan and South Korea-based Taihan Electric Wire Co., Ltd. (TEC) announced the formation of Alcan Taihan Aluminum Limited (ATAL), a jointly owned company to serve the growing market for aluminum rolled products in the Asia/Pacific region. Precisely two weeks later, on October 14, 1999, official inauguration ceremonies marked the successful completion of a $370-million expansion at subsidiary Alcanbrasil's Pindamonhangaba (Pinda), Brazil, rolling complex -- the single biggest investment Alcan has ever made in Latin America. Pinda is the only high-volume can sheet production facility operating anywhere south of the equator. Alcan has a 56% equity interest in, and has assumed management responsibility for, the South Korean subsidiary, which includes modern, low-cost rolling assets previously operated by TEC. Annual output of the plant, which is situated in Youngju and currently employs about 500 people, is expected to triple over the next five years from about 100,000 tonnes to a target level of 300,000 tonnes, without significant additional capital investment. PINDA AND ATAL STAND TO BE KEY ASSETS The expanded Pinda complex, which includes a large, modern aluminum beverage can recycling plant, came on stream several months ahead of schedule and right on budget. Furthermore, it achieved a remarkable health and safety performance, setting a record of 7.5 million construction hours without a lost-time accident. By providing world-class supply to global end-users, both Pinda and ATAL stand to be key assets of A.P.A., the new global industry leader being formed through the merger of Alcan, Pechiney and algroup. ALCAN'S "ALUMINEERING" SOLUTIONS EMBRACED BY GLOBAL AUTOMAKERS ALCAN'S ADVANCED ALUMINUM VEHICLE TECHNOLOGY AND HIGH-QUALITY COMPONENTS ARE A DRIVING FORCE BEHIND THE DEVELOPMENT OF STRONG, MORE FUEL-EFFICIENT AND ENVIRONMENTALLY FRIENDLY, ALUMINUM-INTENSIVE VEHICLES. INDEED, ALCAN'S PROPRIETARY 6111 ALLOY HAS BECOME THE STANDARD FOR DETROIT-BASED AUTOMAKERS, WHICH HAVE BEEN STEADILY EXPANDING THE USE OF ALUMINUM SHEET FOR BODY PANELS FROM HOODS AND DECK LIDS TO HIGHLY ENGINEERED LIFT GATES AND FENDERS. ALCAN GLOBAL AUTOMOTIVE PRODUCTS DOUBLED ITS NORTH AMERICAN SALES OF CLOSURE SHEET DURING 1999, AND JUST SIGNED A MILESTONE, LONG-TERM METAL-SUPPLY AGREEMENT WITH FORD MOTOR COMPANY. A SIMILAR STRATEGIC ALLIANCE WAS ALREADY IN PLACE WITH GENERAL MOTORS. CAPTION ALCAN ALUMINUM SHEET COVERS 40% OF THE SLEEK BODY SURFACE OF THE NEW LINCOLN LS, MOTOR TREND'S CAR OF THE YEAR. 13 20 (PICTURE) CORPORATE SOCIAL RESPONSIBILITY FROM COMMITMENT TO ACTION Responding to the needs of employees, being proactive in environmental initiatives and listening to our communities are all examples of how Alcan puts its commitments into action. Maximizing value in our operations goes hand in hand with excellence in corporate social responsibility. CAPTION IN 1999, THE EMPLOYEES OF THE PINDAMONHANGABA ROLLING MILL EXPANSION IN BRAZIL ACHIEVED 7.5 MILLION CONSTRUCTION HOURS WITHOUT A LOST-TIME, WORK-RELATED INJURY OR ILLNESS -- AN INDUSTRY FIRST AND A NATIONAL RECORD FOR BRAZILIAN CIVIL ENGINEERING. 14 21 OCCUPATIONAL HEALTH AND SAFETY In 1999, Alcan recorded its best results over ten years of tracking work-related injury and illness statistics. Throughout the year, the Company continued the development of programs aimed at improving occupational health, industrial hygiene and safety. Employee health studies were undertaken to gather comparative data in areas such as lung function, asthma and smoking, while leading-edge technologies were installed in Alcan plants to improve working conditions. For example, at the Ouro Preto smelter in Brazil, $15 million will be invested in new generation equipment, resulting in safer and more comfortable working conditions. On an industry scale, a cooperative effort with the 3M Company resulted in a new NIOSH (National Institute of Occupational Safety and Health in the U.S.)-approved safety mask that facilitates communication while maintaining safe procedures. Of special note in 1999 were employee vaccination programs for yellow fever and meningitis, as well as a community-wide black-fly control program at the Awaso bauxite mine in Ghana to counter the spread of river blindness. Following the introduction of the principles of Behaviour Based Safety (BBS) in late 1998, the Company took steps in 1999 to incorporate this employee-driven safety process in all operations. The principles of BBS are quite simple -- by enhancing employee involvement in the awareness of potentially "at-risk" behaviours, overall safety conditions can be improved. ALCAN RECORDED ITS BEST RESULTS OVER TEN YEARS OF TRACKING WORK-RELATED INJURY AND ILLNESS STATISTICS. In 1999, six Alcan facilities achieved one million hours without a lost-time accident, an impressive number in a heavy industry like aluminum production. But, rather than solely relying on statistics as the measure of success, BBS will focus on observable and controllable factors that lead to unsafe situations. In 1999, programs in support of BBS were initiated at Alcan facilities in Europe, North America, Brazil and Jamaica and are also now underway in Asian operations. VARIOUS INITIATIVES RESULTED IN MANY ALCAN PLANTS ACHIEVING RECORD SAFETY PERFORMANCE LEVELS IN 1999. AT THE TERRE HAUTE PLANT IN INDIANA, ALCAN'S FIRE BRIGADE REGULARLY ORGANIZES CONTROLLED "LIVE BURN" TRAINING SESSIONS THAT HAVE ALSO BEEN CONDUCTED FOR THE BENEFIT OF SOME 200 LOCAL FIREFIGHTERS. WITH THIS TYPE OF EFFORT, COUPLED WITH BBS AND FOLLOW-UPS TO A 1999 WORLDWIDE MOBILE EQUIPMENT SAFETY AUDIT, THE COMPANY STRIVES TO CONTINUALLY IMPROVE THE SAFETY RECORDS WITHIN EACH FACILITY. CAPTION DEVELOPED WITH ALCAN'S COOPERATION, THE NEW VERSION OF THE 3M 6000DD RESPIRATOR WILL HAVE INDUSTRY-WIDE APPLICATIONS 15 22 ENVIRONMENT AND COMMUNITY INITIATIVES Whether it's research into land rehabilitation or the promotion of can recycling, Alcan's environmental initiatives touch all stakeholders. Starting in 1996, when the Lochaber smelter in Scotland became our first facility to earn the ISO-14001 designation from the International Organization for Standardization, Alcan undertook a worldwide effort to achieve environmental certification in all operations. To date, we are approximately one-third of the way towards our goal. Milestones for 1999 include: Shawinigan Works in Quebec as Alcan's first North American smelter to gain certification; the Williamsport, Pennsylvania, cable plant as the Company's first in the United States; Alcan as the first company in Italy to have all its plants certified; and, throughout Europe, where Alcan conducted a series of environmental public forums, almost 100% of our facilities there now meet these rigorous standards. Most recently, Alcan's Aratu plant in Brazil is the first certified smelter in South America. In 1999, Alcan took a proactive approach to supporting climate change initiatives, through the actions of individual facilities and participation in national efforts. In addition, the unique properties of aluminum are a positive contribution to conserving energy and reducing greenhouse gas emissions. Aluminum was identified by the Partnership for a New Generation of Vehicles (PNGV) as the leading material for achieving the U.S. government's challenge to produce an 80-miles-per-gallon (2.9 litres/100 km) vehicle without compromising safety, performance, affordability or utility. Every tonne of aluminum used in place of steel in today's automobiles results in CO2 emissions being slashed by 20 tonnes over the life of the vehicles. Two of the world's largest automotive producers, GM and Ford, credited Alcan's support and technology as key factors in their development of concept cars that now meet the PNGV objectives. Environmental responsibility is equally prominent in used beverage cans (UBCs). The infinite recycling capability of aluminum UBCs requires only 5% of the energy used to make a can in the traditional primary metal process. With global recycling efforts on the rise, Alcan is an important force through its extensive UBC recycling operations in North America, Brazil and the U.K. ALCAN'S SUPPORT OF CHARITABLE ORGANIZATIONS AND COMMUNITY INITIATIVES IS ESPECIALLY VISIBLE THROUGH THE TREMENDOUS VOLUNTEER EFFORTS OF ALL EMPLOYEES. RECYCLING CANS IN THE U.K. TO REBUILD SCHOOLS IN WAR-TORN MOZAMBIQUE AND PARTICIPATING IN THE HABITAT FOR HUMANITY HOMES PROGRAM IN THE U.S. TO BUILD HOMES FOR WORKING FAMILIES IN NEED OF PROPER SHELTER ARE EXAMPLES OF HOW ALCAN PERSONNEL WERE INVOLVED. RESPONDING TO COMMUNITY CONCERNS HAS ALWAYS BEEN AN ALCAN TRAIT, AND 1999 WAS NO EXCEPTION. EXAMPLES INCLUDE INSTALLING STACK SILENCERS AT THE LATERRIERE SMELTER IN QUEBEC TO REDUCE COMMUNITY NOISE LEVELS AND COMPLETION OF A CAN$7-MILLION POWER LINE BYPASS PROJECT FOR THE HAISLA FIRST NATIONS' KITAMAAT VILLAGE IN BRITISH COLUMBIA. CAPTION SPONSORED BY ALCAN, THE MICRO-BUSINESS NETWORK, A SCHOOL ENTREPRENEURSHIP PROGRAM BEGUN TEN YEARS AGO IN QUEBEC, HAS EXPANDED TO NOW INCLUDE THREE SCHOOLS IN MALAYSIA. 16 23 (PICTURE) ALCAN'S ASSISTANCE TO THE EDUCATIONAL SECTOR INCLUDED SPONSORING AN UNDERGRADUATE PROGRAM TO STUDY ENVIRONMENTAL ISSUES RELATED TO THE GREAT LAKES (ON THE CANADA/U.S. BORDER) AS WELL AS CONTINUED SUPPORT OF SELECT UNIVERSITY RESEARCH INITIATIVES. OF SPECIAL SIGNIFICANCE IN 1999 -- AND CONSISTENT WITH OUR CONCERN FOR ENDANGERED SPECIES -- WAS THE COMPANY'S ANNOUNCEMENT OF A THREE-YEAR COMMITMENT TO THE WORLD WILDLIFE FUND (WWF). ALCAN'S SUPPORT OF THE WWF'S ENDANGERED SPECIES RECOVERY FUND WILL AID RESEARCHERS AND CONSERVATIONISTS IN CANADA WORKING WITH SPECIES AT RISK. ALCAN ALSO WORKS WITH THE WWF ON ITS ACTIVITIES IN BRAZIL BY ASSISTING WITH THE PUBLISHING AND DISSEMINATING OF ENVIRONMENTAL INFORMATION TO PRIMARY SCHOOL EDUCATORS. CAPTION ALCAN HAS RECOGNIZED THAT SOME ACTIVITIES CAN, DESPITE OUR BEST EFFORTS, POSE A RISK TO PLANTS AND ANIMALS. IN JAMAICA, WE HAVE TWO ORCHID SANCTUARIES WHERE INDIGENOUS SPECIES FOUND IN OUR MINING AREAS ARE TRANSPLANTED AND PRESERVED. THESE SANCTUARIES HAVE ALSO OPENED UP IMPORTANT OPPORTUNITIES FOR RESEARCHERS. CREDIT GREAT BLUE HERON 17 24 THE ALCAN GROUP'S BUSINESSES AT A GLANCE ALCAN PRIMARY METAL GROUP ...focuses Alcan's global bauxite, alumina, power generation and smelting assets on the efficient and effective production of value-added aluminum in the form of sheet ingot, billet, wire bar and foundry products. OPERATIONS (bullet) 15 SMELTERS in 5 countries with 1.6 Mt of annual capacity. (bullet) 9 ALUMINA PLANTS in 6 countries with 3.8 Mt of annual capacity, including specialty chemicals. (bullet) 10 BAUXITE MINES/DEPOSITS in 6 countries with 254* Mt of proved ore reserves. 1999 HIGHLIGHTS (bullet) 1.5 Mt of ingot produced. (bullet) 714 kt of ingot purchased. (bullet) $1.1 billion (667 kt) in ingot sales. (bullet) 4.0 Mt produced. (bullet) $394 million in third-party sales. (bullet) 9.7 Mt used. (bullet) $91 million in bauxite third-party sales. In addition to the sales of bauxite, alumina and specialty chemicals indicated above, Alcan's non-aluminum products account for $129 million in sales. * In 1999, Alcan adopted the internationally-accepted Australasian Code for Reporting of Mineral Resources and Ore Reserves. As a result, current Proved Ore Reserves are estimated to be 254 Mt, or the equivalent of 23 years of Alcan's refinery needs. STRATEGY (bullet) Optimize Alcan's alumina and bauxite asset base, while providing low-cost alumina to the primary metal business. (bullet) Be the best producer of low-cost primary aluminum in the world, while: - meeting customer needs and aggressively pursuing market value opportunities; - achieving industry leadership in occupational health and safety, environmental performance, community relations and corporate ethics. PRIMARY PRODUCTION (in thousands of tonnes) (GRAPH) Primary production continued to increase largely through improved output from existing smelters. OPERATING SEGMENT INCOME (1) (in millions of US$) (GRAPH) 1999 operating income was affected by lower realized prices, restructuring costs, and other non-recurring expenses. GROUP'S ECONOMIC VALUE ADDED (2) (in millions of US$) (GRAPH) EVA improved throughout 1999 and was positive in the second half of the year. ALCAN GLOBAL FABRICATION GROUP ...focuses on fully meeting the changing needs of its global and regional fabrication customers through rapid transfer and adoption of best technology and management practices worldwide. OPERATIONS (bullet) ROLLED PRODUCTS (bullet) OTHER FABRICATED PRODUCTS (bullet) TOTAL FABRICATED PRODUCTS Over 45 manufacturing plants in 13 countries and 2.7 Mt of annual capacity. (bullet) SECONDARY/RECYCLED ALUMINUM 8 recycling plants in 5 countries with 775 kt of annual capacity. 1999 HIGHLIGHTS (bullet) $4.2 billion (2,028 kt) in sales, including fabrication of customer-owned metal. (bullet) $0.7 billion (198 kt) in sales. (bullet) 2.2 Mt of aluminum fabricated in Alcan facilities, including 315 kt of customer-owned metal. (bullet) $4.9 billion in sales, including fabrication of customer-owned metal. (bullet) 681 kt produced. (bullet) 538 kt of scrap purchased. (bullet) $79 million (66 kt) in ingot sales. (bullet) $150 million (126 kt) in scrap sales. STRATEGY (bullet) Grow Alcan's leading position in differentiated, semi-fabricated products in our chosen markets through long-term customer partnerships and low-cost manufacturing excellence. FABRICATED PRODUCTS SHIPMENTS (in thousands of tonnes) (GRAPH) Alcan continued to grow its chosen fabricated products businesses. OPERATING SEGMENT INCOME (1) (in millions of US$) (GRAPH) In 1999, further improvements were achieved in North America and there was the beginning of a turnaround in Europe. GROUP'S ECONOMIC VALUE ADDED (2) (in millions of US$) (GRAPH) All North American businesses were EVA-positive and improvements were recorded elsewhere. ALCAN ALUMINIUM LIMITED In April 1999, Alcan set a new, additional Full Business Potential objective of $700 million, pre-tax, over a three-year period to the end of 2001. Together with the initial 1997 target, the FBP program is set for a $1-billion improvement over five years. 1999 ACHIEVEMENTS (bullet) Record year in safety performance, with regard to Lost-Time Injury and Illness as well as Recordable Case rates. (bullet) Improvements achieved in 1999 totalled $162 million, bringing the FBP three-year total to $462 million, on track to achieve its $1-billion, five-year target. (bullet) Lowered alumina and primary metal costs. (bullet) Achieved production records in three alumina plants and three smelters; attained record third-party sales for foundry alloys and billet products. (bullet) The $1.8-billion Alma, Quebec, smelter construction is scheduled for start-up by year-end 2000. (bullet) Building on the principles of operational stability, labour agreements were concluded at four major plants. (bullet) Fabricated products sales volumes continued to grow to a record level of 2.2 million tonnes, including significant improvements in Europe. (bullet) Successfully started up a $370-million can sheet expansion in Brazil, three months ahead of schedule. (bullet) Acquired majority interest in Alcan Taihan Aluminum Limited in South Korea -- part of our global strategy for first-tier supply of rolled products on four continents. (bullet) Continued to strengthen relationships with customers, as evidenced by the January 2000 announcement of a multi-year aluminum supply agreement with Ford and the 1998 signing of a ten-year aluminum supply agreement with GM. (bullet) Announced proposed merger with Pechiney and algroup. TOTAL ALUMINUM SHIPMENTS (in thousands of tonnes) (GRAPH) NET INCOME (in millions of US$) (GRAPH) ALCAN'S ECONOMIC VALUE ADDED (2) (in millions of US$) (GRAPH) 1 Some corporate office and certain other costs have been allocated to the respective operating segments. Comparative information has been restated to conform to the 1999 corporate structure. 2 The EVA improvements reflect principally a change in cost of capital and economic tax assumptions as well as strong operating results. 18-19 25 (GRAPH) (GRAPH) (GRAPH) PRIMARY PRODUCTION OPERATING SEGMENT INCOME(1) GROUP'S ECONOMIC VALUE ADDED(2) (in thousands of tonnes) (in millions of US$) (in millions of US$) PRIMARY PRODUCTION CONTINUED 1999 OPERATING INCOME WAS EVA IMPROVED THROUGHOUT 1999 TO INCREASE LARGELY THROUGH AFFECTED BY LOWER REALIZED AND WAS POSITIVE IN THE IMPROVED OUTPUT FROM PRICES, RESTRUCTURING COSTS, SECOND HALF OF THE YEAR. EXISTING SMELTERS. AND OTHER NON-RECURRING EXPENSES.
(GRAPH) (GRAPH) (GRAPH) FABRICATED PRODUCTS SHIPMENTS OPERATING SEGMENT INCOME(1) GROUP'S ECONOMIC VALUE ADDED(2) (in thousands of tonnes) (in millions of US$) (in millions of US$) ALCAN CONTINUED TO GROW ITS IN 1999, FURTHER IMPROVEMENTS ALL NORTH AMERICAN BUSINESSES CHOSEN FABRICATED BUSINESSES. WERE ACHIEVED IN NORTH AMERICA WERE EVA-POSITIVE AND AND THERE WAS THE BEGINNING OF IMPROVEMENTS WERE RECORDED A TURNAROUND IN EUROPE. ELSEWHERE.
(GRAPH) (GRAPH) (GRAPH) TOTAL ALUMINUM SHIPMENTS NET INCOME ALCAN'S ECONOMIC VALUE ADDED(2) (in thousands of tonnes) (in millions of US$) (in millions of US$)
[FN] 1 Some corporate office and certain other costs have been allocated to the respective operating segments. Comparative information has been restated to conform to the 1999 corporate structure. 2 The EVA improvements reflect principally a change in cost of capital and economic tax assumptions as well as strong operating results. 19 26 MANAGEMENT'S DISCUSSION AND ANALYSIS (GRAPH) WESTERN WORLD PRIMARY ALUMINUM SUPPLY AND DEMAND SUPPLY CONTINUED TO GROW AT A MODERATE PACE, UP ALMOST 2.5% OVER 1998, THROUGH BOTH RESTARTS AND EXPANSIONS. DEMAND GROWTH ACCELERATED THROUGH 1999, UP OVER 3% FROM THE PREVIOUS YEAR. (GRAPH) TOTAL ALUMINUM INVENTORIES AND INGOT PRICES TOTAL INVENTORIES WERE LITTLE CHANGED FROM THE END OF 1998. PRICES BOTTOMED IN MARCH, THEN ROSE STRONGLY THROUGH THE REMAINDER OF THE YEAR. THE AVERAGE PRICE OF $1,388 WAS UP ONLY MARGINALLY FROM $1,379 IN 1998. INDUSTRY FUNDAMENTALS IMPROVED PROGRESSIVELY FROM THE WEAK FIRST QUARTER AND THE OUTLOOK FOR 2000 IS POSITIVE. 20 27 WORLD MARKET REVIEW PRIMARY ALUMINUM Western World* total consumption of aluminum grew by a respectable 3.9% in 1999, a rate substantially higher than early forecasts suggested. North America led the rest of the world in demand, with a growth rate of 6.8%. Despite a weak economy and fears of a recession in the first half of the year, Europe recovered in later months, closing the year with 2.2% growth. France, in particular, distinguished itself from the rest of the continent, offsetting the lacklustre performance of the U.K., Germany and Italy. Latin America was the only region with a negative growth rate, namely -2%, but it performed considerably better than was expected at the end of the disappointing first quarter. Asia, with an increase in demand of 2.8%, has clearly begun its recovery. Japan lagged behind the rest of the region, though it fared much better than expected, ending the year with positive growth. Western World consumption for 1999 totalled 27.1 Mt, of which 19.6 Mt comprised demand for primary metal, with the balance for recycled metal. Aluminum consumption has grown continuously since 1982, apart from a brief lull in 1998. Primary aluminum production in the Western World increased 3.2% in 1999 to 16.95 Mt, with some previously idled capacity being restarted and some brownfield and greenfield capacity being brought on stream. During the year, much of the capacity idled by labour, technical and weather-related problems was restarted. Approximately 650 kt remained voluntarily idled. Most of this likely will be restarted in 2000 and 2001. C.I.S. primary aluminum exports increased substantially in 1999, but this was offset by a large increase in Chinese imports. As a result, there was a small decline in net exports to the Western World. In 1999, the growth of consumption translated into a 3.7% increase in the demand for primary aluminum and supply increased by 2.4%. This brought the market more or less into equilibrium after being in surplus in 1998. Inventories with aluminum producers and on the London Metal Exchange (LME) decreased slightly to approximately 3,775 kt, equivalent to 10 weeks of consumption. These are expected to decline further by the end of 2000. Ingot prices (LME three-month) were at $1,245/t at the beginning of 1999, then declined dramatically to a low of $1,159/t in March. However, prices improved substantially in the second half of 1999, climbing to a high of $1,655/t in December. The average LME price for the year was $1,388/t, almost unchanged from 1998. WESTERN WORLD CONSUMPTION VS. ALCAN SALES Alcan's total shipments increased 4.9% to 3.1 Mt. Ingot shipments rose 3.6% and fabricated products shipments increased 5.4%, reflecting the achievement of increased market share in a number of key segments. Higher volumes were offset by weak metal prices for the better part of the year, resulting in a slight decline in revenues. Revenues for 1999 were $7.3 billion, a decrease of 6% from the previous year. * Defined as the world excluding the Commonwealth of Independent States (C.I.S.), Eastern Europe and China. 21 28 Transportation, the largest and fastest growing market for aluminum, increased by 9% to 7.9 Mt. This substantial increase is due in large part to the growing automotive sector, particularly in the United States, Canada and Mexico, where each country posted record highs for car production, as well as to aluminum's growing penetration into that sector. Alcan's revenues from the transportation market decreased by 0.5%, reflecting higher volumes but lower prices. This market accounted for 8% of its total revenues. Consumption levels in the containers and packaging market grew slightly by 1.5% to 4.9 Mt. Demand for beverage can stock in North America and Europe was flat, but was compensated by stronger demand in Latin America, up 10.7% from the previous year. Alcan's revenues from the containers and packaging market increased by 2%, accounting for 47% of total revenues. Demand from the building and construction sector grew by 2.4%, to 5.0 Mt. The sector started out the year on a strong note in the U.S., but abated somewhat later in the year as a result of higher mortgage rates. Demand rebounded from low levels in Asia, driven by strong economic growth in South Korea and tax incentives in Japan. Alcan's revenues from building and construction decreased by 2%, accounting for 15% of Company revenues. The electrical market grew a healthy 4.2% to 2.4 Mt. Growth was almost entirely due to strong demand in the United States and Canada. Alcan's revenues from the electrical market increased by 1%, accounting for 10% of total revenues. THE TRANSPORTATION SECTOR GREW 9%, DRIVEN BY STRONG AUTOMOTIVE DEMAND. Demand from other markets, including machinery and equipment, and durable goods, grew by 1.2% to 6.8 Mt. Alcan's revenues from alumina and chemicals, which are also included in this category, declined in 1999, reflecting the sale of the Aughinish alumina refinery early in the year. Alcan's revenues from these other markets comprised 20%, the same proportion as in 1998. (GRAPH) 1999 WESTERN WORLD ALUMINUM CONSUMPTION BY END-USE MARKET (27.1 MILLION TONNES) ALCAN'S 1999 FABRICATED AND NON-ALUMINUM SALES BY MARKET (US$5.5 BILLION) (PICTURE) (CAPTION) THE LIGHTWEIGHT DESIGN AND FUEL EFFICIENCY OF THE GM PRECEPT TECHNOLOGY DEMONSTRATION VEHICLE SHOWCASE THE GROWING IMPORTANCE OF ALUMINUM IN THE AUTOMOTIVE SECTOR. 22 29 RESULTS OF OPERATIONS Alcan reported consolidated net income for 1999 of $460 million compared to $399 million in 1998 and $485 million in 1997. While average metal prices were little changed, at an average LME three-month price of $1,388/t compared to $1,379/t in 1998, the trend was rising for most of 1999 from a low point of $1,159/t to end the year at $1,655/t. Both years were sharply lower than the $1,620/t that prevailed in 1997. This rising price trend in 1999 resulted in a temporary squeeze on product margins as there is a time lag in passing on price changes to customers. This lag varies from about one month for ingot products to over six months for certain can sheet contracts that are priced by reference to a retrospective ingot price. This lag had a favourable impact on product margins in 1998. Further increases in fabricated products sales volume as well as cost reductions had a favourable impact on earnings in 1999. Also included in the results for 1999 are non-operating items totalling a net gain of $88 million after tax. These include gains on business disposals of $90 million, principally the sales of further shares in Nippon Light Metal Company, Ltd. (NLM) in Japan, the Company's pistons business in Germany, the building products business in France and property in the U.K. In addition, there was a favourable tax adjustment of $31 million in Canada, relating to prior years, which was offset by rationalization costs of $33 million in a number of businesses. Moreover, the currency revaluation of deferred taxes resulted in a non-cash charge of $26 million. In terms of Economic Value Added (EVA), the Company set for itself a target to be EVA positive (i.e. to earn an after-tax return in excess of its weighted average cost of capital) by the end of the year 2001 for its two business segments as follows: (bullet) Alcan Primary Metal Group: at a LME three-month price of $1,380/tonne; (bullet) Alcan Global Fabrication Group: at all times, irrespective of metal prices. To achieve this EVA target, the Company needed to improve its 1998 profitability by $700 million pre-tax over a three-year period, in addition to the $300-million improvement achieved in 1997 and 1998. The Company is on schedule in its progress towards achieving that objective. Of the total of $1 billion, $275 million will arise from capacity-related projects, such as the Alma, Quebec, smelter and Pindamonhangaba (Pinda), Brazil, rolled products expansion. These projects are on schedule and their profit contributions are virtually assured by the end of the year 2001. Of the remaining $725 million, the Company has already taken actions which, on a cumulative basis, are contributing $462 million at an annual run rate. (GRAPH) 1999 ECONOMIC VALUE ADDED (EVA) (ON A QUARTERLY BASIS) (CAPTION) AS WELL AS BENEFITING FROM HIGHER METAL PRICES, MUCH OF THE IMPROVEMENT IN EVA ARISES FROM PRODUCTIVITY GAINS. 23 30 The remaining $263 million will be achieved by the end of 2001. The improvement in EVA is demonstrated in the chart on the preceding page, which shows EVA for each quarter of 1999. Although part of the improvement is attributable to rising metal prices, the Company would have had a positive EVA in the fourth quarter of 1999, even at its benchmark price of $1,380/tonne. For the full year, EVA was $(111) million compared to $(285) million in 1998 and 1997. Although most of the improvement in 1999 over 1998 was due to changes in cost of capital and economic tax rates, the improvement in the trend during 1999 is expected to be sustained and to further improve in 2000 and 2001. For 1998, there were a number of offsetting items totalling a net after-tax loss of $9 million. Losses at NLM of $53 million and restructuring costs elsewhere in Asia and Europe of $15 million were incurred. As a result of the sale, completed in early 1999, of the Company's alumina refinery in Ireland, the book value of that asset was written down to the level of the expected sale proceeds, resulting in an after-tax charge of $120 million. These charges were offset by gains on the sale of assets of $148 million after taxes, and a gain on currency revaluation of deferred income taxes of $31 million that resulted from the adoption of a new accounting standard. The 1997 results included an extraordinary gain of $17 million arising from the sale of a portion of a contract to supply power to B.C. Hydro, net of additional write-downs of remaining Kemano Completion Project assets as well as other non-operating net gains of $6 million. REVENUES
1999 1998 1997 ------ ----- ----- Sales and operating revenues (millions of US$) 7,324 7,789 7,777 Total aluminum shipments (kt) 3,085 2,941 2,828 Average sales price realizations (US$/t) Ingot products 1,511 1,558 1,739 Fabricated products 2,593 2,923 2,999 ----- ----- -----
Sales and operating revenues, at $7,324 million, were some 6% lower than the level of 1998 and 1997, despite higher volumes for both ingot and fabricated products, reflecting lower average price realizations. For ingot products, this reflects the time lag of approximately one month for changes in LME prices to be reflected in selling prices. For fabricated products, a similar, though generally longer, time lag applies and, in addition, realizations were affected by weaker European currencies against the dollar and changes in product mix that resulted from business divestments. The latter two factors, though reducing reported dollar realizations, had little impact on profit margins. Other income, which comprises interest income and other non-operating gains, was $179 million in 1999 compared to $231 million in 1998 and $88 million in 1997. Other than interest received on cash and time deposits, the main items included here were gains on disposal of assets, which amounted to $110 million before taxes in 1999 and $156 million in 1998. 24 31 COSTS AND EXPENSES Despite higher sales volumes, cost of sales and operating expenses fell by 6.3% in 1999 after an increase of only 1.2% in 1998. This improvement in unit costs reflects higher capacity utilization, cost reductions and a shift in product mix, offset in part by the increased volume of ingot purchases.
kt 1999 1998 1997 - -- ------ ----- ----- Purchases of aluminum Ingot products 714 648 732 Scrap 538 535 482 Fabricated products 45 44 40 ----- ----- ----- 1,297 1,227 1,254 ===== ===== =====
Purchases of primary ingot increased in 1999 to support the higher level of fabricated products sales volumes, resulting in an increase in the cost of purchased metal. Oil and caustic soda prices started the year at historically low levels but increased during the course of the year in line with the general tightening of commodity markets. The impact of oil price increases was not significant due to forward purchases. Depreciation expense was $477 million compared to $462 million in the previous year and $436 million in 1997. The increase primarily reflects the start-up, in the second half of 1999, of the expansion of rolling capacity at Pinda in Brazil. Total employment cost for 1999 was $1,514 million, a reduction of 5% from 1998. After adjustments for acquisitions, disposals and exchange rate variations, there was a 1% increase in employment costs, below the rate of inflation. This, combined with higher shipments, demonstrates the improvement in productivity. Selling, administrative and general expenses, at $375 million, declined 16.3% from the 1998 level of $448 million and a similar level in 1997. This resulted from the savings arising from the reorganization implemented in the first half of the year as well as the divestment of businesses in France and Germany with relatively high levels of selling expense. As a percentage of sales, these expenses fell to 5.1%, an 11% improvement over 1998. Research and development expenses were $67 million for 1999 compared to $70 million and $72 million in 1998 and 1997 respectively. Alcan's R & D activities are closely aligned with the needs of its core businesses, principally, raw materials, smelting and rolling. The Company is continuing to maintain a strong effort in developing sheet applications and technology for the automotive industry and is working closely with a number of automotive companies in this regard. In addition, opportunities for process optimization to improve EVA are continuing to be explored and implemented in all technology streams. Other expenses were $127 million compared to $219 million in 1998 and $54 million in 1997. In 1999, this includes rationalization costs of $55 million. The 1998 figure includes the write-down of the Aughinish alumina refinery in anticipation if its sale, of $143 million before taxes. INTEREST COSTS
(millions of US$) 1999 1998 1997 - ----------------- ------ ----- ----- Interest expense 76 92 101 Interest capitalized 41 15 2 ------ ----- ----- Total interest costs 117 107 103 Effective average interest rate 6.9% 6.7% 6.7% ====== ===== =====
Alcan's interest expense declined 17% in 1999 following a 9% decline the year earlier. Total interest rose $10 million as a result of higher average debt during the year. In 1999, $41 million of interest was capitalized, compared to $15 million in 1998, relating to the Pinda, Brazil, 25 32 and Alma, Quebec, projects. Interest is no longer being capitalized on the Pinda project, which was commissioned during the year. The Alma project will commence production late in 2000, at which time interest will cease to be capitalized and interest expense will increase. The pre-tax interest expense coverage ratio was 5.5 times in 1999 compared to 6.3 times in 1998 and 7.4 times in 1997. INCOME TAXES Income taxes of $211 million for 1999 represent an effective rate of 31%, compared to 32% in 1998 and 1997. This compares to a composite statutory rate of 40.4%. In 1999, the difference in the rates is due primarily to prior years' tax adjustments, reduced rate or exempt items and investment and other allowances. Similar factors accounted for the difference in rates in 1998 and 1997. In addition, a non-cash loss of $26 million was recorded on the currency revaluation of deferred tax balances, due to the stronger Canadian dollar. In 1998, a gain of $31 million for currency revaluation was recorded. EQUITY COMPANIES Alcan no longer has equity-accounted affiliates which have a material impact on its financial performance. In 1998, Indian Aluminium Company, Limited (Indal) became a consolidated subsidiary and the residual holding in NLM, Japan, a portfolio investment. For 1998, Alcan's share of losses of equity-accounted companies was $48 million compared to $33 million in 1997. OPERATING SEGMENT REVIEW The following information is reported by major operating segment, viewing each segment on a stand-alone basis. Transactions between segments are conducted on an arm's-length basis and reflect market prices. Thus, income from primary metal operations includes profit on metal produced by the Company, whether sold to third parties or used in the Company's fabricating operations. Income from the fabricated products sector represents only the fabricating profit from rolled products and downstream businesses. Additional operating segment information is presented in note 24 to the financial statements. PRIMARY METAL GROUP
(Millions of US$) 1999 1998 1997 ------ ------ ------ Sales and operating revenues Third parties 1,689 1,813 2,023 Intersector 1,317 1,405 1,486 Operating income 325 402 666 ------ ------ ------ Shipments - third-parties (kt) Smelter - grade alumina 1,153 1,641 1,679 Alumina chemicals 467 433 399 Primary aluminum 667 648 661 Shipments - intersector (kt) Primary aluminum 892 904 867 ------ ------ ------ Production (kt) Alumina hydrate 3,991 5,013 4,727 Primary aluminum 1,518 1,481 1,429 ------ ------ ------
Profits from this sector declined 19% from the 1998 level reflecting lower realized prices, rationalization, pre-operating and closure costs and the sale of the Aughinish alumina refinery in Ireland. Although the average LME aluminum price was little changed in 1999 compared to 1998, the time lag in passing on price changes to customers, of approximately one month for metal and three months for alumina, resulted in realized prices being lower. Rationalization costs of $38 million before tax, relating to a number of operations as well as pre-operating costs for Alma and closure costs at the Isle-Maligne, Quebec, smelter, also contributed to the reduction in 1999 operating income. 26 33 BAUXITE In 1999, Alcan adopted the Australasian Code for Reporting of Mineral Resources and Ore Reserves, an internationally accepted reporting standard. On this basis, Alcan's current proven ore reserves are estimated to be 254 Mt and measured mineral resources are estimated to be 208 Mt. The Company has more than sufficient bauxite to meet its needs for the next 23 years. In February 1998, Alcan entered into a bauxite mining and exchange agreement with Comalco Limited, an Australian company, for the development of its Ely bauxite reserves in Australia. In 1999, the fieldwork defining the Ely reserves was completed. Commencing in 2000, shipments of bauxite will be made to the Queensland Alumina Limited (QAL) refinery, providing Alcan with a lower cost source of bauxite. ALUMINA At the end of February 1999, the sale of the Aughinish alumina refinery in Ireland to Glencore AG of Switzerland was completed. Alumina hydrate production reached 4.0 Mt in 1999, an 8% increase over 1998, excluding the impact of the Aughinish sale. For the third consecutive year, a new record for hydrate production was established. Third-party sales of 1.2 Mt declined from the 1998 level primarily due to the disposal of the Aughinish refinery. Production costs (net of bauxite profits) continue to be lowered as part of the Full Business Potential program and, for 1999, were 22% lower than the 1996 base year for that program. In May 1998, Alcan acquired a 20% interest in the proposed Utkal alumina project in Orissa, India. During 1999, an additional 15% interest in this joint venture was acquired, bringing Alcan's direct interest to 35% and, in addition, 54.6%-owned Indal has a 20% interest in the enterprise. This project consists of a one-million tonne integrated alumina plant with a potential for further capacity expansion. This plant has the potential to be the world's lowest cost producer. The detailed feasibility study and most of the environmental clearances, licenses, land acquisitions and shareholders' agreements have been completed. A decision regarding the commencement of construction is expected by mid-2001. The anticipated start of operations would be early 2005. (PICTURE) (CAPTION) CUTTING-EDGE TECHNOLOGY WILL BE EMPLOYED AT THE US$1,8-BILLION, 375,000-TONNE CAPACITY SMELTER IN ALMA, QUEBEC, WHICH IS RIGHT ON SCHEDULE FOR START-UP IN LATE 2000. 27 34 A $105-million modernization program announced in December 1998 for the alumina plant in Jonquiere, Quebec, is progressing on schedule and within cost budgets. This modernization is expected to be completed in 2002-2003 and will result in a leaner, more productive workforce, improved operating efficiencies and better environmental, health and safety working conditions. CHEMICALS Operating income in 1999 was lower than in prior years. Considerable improvement was reported in the North American operations as continued progress was made on shifting Alcan's position to specialty alumina chemicals. However, losses from European operations, caused by depressed prices, more than offset the gains made by the North American division. A restructuring initiative was announced in the last quarter of 1999 and resulted in a 20% reduction of the European workforce by year-end. In June 1999, Alcan concluded the sale of its Canadian alum business in accordance with its strategy to focus on specialty alumina chemicals. PRIMARY ALUMINUM Primary aluminum production increased 2.5% in 1999 to 1,518 kt. The accelerated closure of the Isle-Maligne smelter in Quebec, which reduced production by 27 kt in the year, was offset by the consolidation of Indal for the full year (29 kt), as well as increased efficiencies. Profits from this segment arise not only from third-party sales but also from the sale of metal at market prices to the Company's own fabricating operations. Intersegment shipments increased further in 1999 reflecting higher demand from Alcan's North American fabricating operations. Alcan continues to have 134 kt/y of production capacity temporarily idled, representing 8% of its capacity. This capacity will be restarted only when warranted by industry conditions. The remaining 25 kt of annual capacity at Isle-Maligne will be closed during 2000 as will a small 8-kt smelter at Kinlochleven in the U.K. In India, a decision was made to permanently close the 66-kt smelter at Belgaum, which had been idle for over two years due to lack of affordable power. Almost all smelter production is in value-added form, such as sheet ingot, extrusion billet and foundry alloy ingot. Despite improving business conditions in Asia, it remained necessary to divert ingot production to feed the strong growth in demand in the North American market, where sales records were set in 1999 for extrusion billet and foundry alloy. Alcan's automotive strategy was supported by production from a number of North American smelters and a strong automotive market has been developed for the new Alma smelter. Increased sales have been facilitated by a new foundry ingot casting facility at the Sebree, Kentucky, smelter and an extrusion scrap recycling facility will be operational in 2000. The average realized price on third-party sales of primary ingot was $1,569/t compared to $1,618/t in 1998 and $1,803/t in 1997. Alcan's average cost of production of primary aluminum (mainly in the form of sheet ingot and extrusion billet), including alumina at market prices, was $1,275/t compared to $1,327/t in 1998 and $1,352/t in 1997. Hot metal costs continue to benefit from the initiatives undertaken as part of the Full Business Potential program and are now some 8% below the level of the 1996 base year. Construction of the new $1.8-billion, 375-kt/y smelter and casting centre in Alma, Quebec, is proceeding on schedule and in line with budget. The total investment includes an additional $136 million for a casting centre to produce value-added ingot products for the automotive and electrical markets. The first metal will be produced in late 2000 and full capacity will be reached by the middle of 2001. The Alma smelter will employ state-of-the-art technology and is one of the lowest-cost greenfield smelter projects in the world. 28 35 36 FABRICATED PRODUCTS OPERATIONS
(Millions of US$) 1999 1998 1997 ------ ----- ----- Sales and operating revenues Third parties 5,607 5,963 5,737 Intersector 34 -- -- Operating income 301 231 209 ----- ----- ----- Shipments (kt) 1,911 1,823 1,694 Fabrication of customer-owned metal 315 289 276 Total volume 2,226 2,112 1,970 ----- ----- -----
Alcan's fabricated products volume, including fabrication of customer-owned metal, grew 5% in 1999 to a record level of 2.2 Mt, consolidating growth of 7% and 10% in 1998 and 1997 respectively. This represents a substantial increase in market share in the Company's chosen segments, while divesting non-core businesses. Improved profitability, despite the impact of a time lag in passing on metal price increases, is the result of increased volumes and cost reductions. ROLLED PRODUCTS
1999 1998 1997 ----- ------ ----- Shipments (kt) 1,713 1,604 1,476 Fabrication of customer-owned metal 315 289 276 Total volume 2,028 1,893 1,752 ----- ----- ----- Average price realizations (US$/t) 2,387 2,599 2,637
Alcan continues to consolidate its position of leadership in rolled products markets in North and South America and Europe following capacity expansions and modernization in recent years and, through its acquisition in South Korea, has established a platform for growth in Asian markets. The decline in the average price realized on shipments of rolled products reflects the time lag in passing on changes in metal prices in a rising market in 1999 compared to a declining market in 1998. In addition, realizations on sales denominated in European currencies declined in dollar terms in 1999 as the Euro weakened against the U.S. dollar. In 1998, European currencies generally strengthened against the dollar. Alcan's North American rolled products operations achieved another record shipment year with a 3% increase over 1998. Reduced exports following the Brazilian economic crisis were offset by strong North American industry demand, which resulted in growth of some 5% in Alcan's shipments in North America. Alcan's can sheet shipments exceeded the record level reached in 1998, despite a small decline in industry can shipments. Gains in industrial sheet products (14% year-over-year) earned additional market participation. Shipments to distributors were up sharply, totalling a 20% increase over 1998 levels, following a 22% increase in 1998. During the year, Alcan initiated a $46-million upgrade project at Kingston Works in Ontario, which will enable increased participation in the distribution and automotive sheet markets beginning in the second half of 2000. In light gauge products, shipments increased 7% against an estimated industry growth rate of 5%. (GRAPH) ALUMINUM SHIPMENTS AND PURCHASES (CAPTION) INCREASED SHIPMENTS OF PRIMARY AND FABRICATED PRODUCTS OUTSTRIPPED PRIMARY PRODUCTION LEADING TO HIGHER METAL PURCHASES. 29 37 In Europe, demand was flat overall in 1999, although the second half of the year showed a recovery from the declining demand experienced in the first half. This pattern was mirrored in Alcan's shipments, which showed good year-over-year increases in the second half. During the year, supply chain planning and bottleneck management across the system led to improved customer service. Lean manufacturing concepts have been introduced to the supply chain, including the deployment of Kaizen and other methodologies to reduce lead times from order to delivery. These initiatives have led to substantial operating improvements throughout European operations and a resultant improvement in profitability and EVA. In South America, the economic crisis in Brazil at the beginning of the year had a severe impact on the first quarter but conditions steadily improved as the year progressed. Shipments were up 18% over the previous year as new capacity from the Pinda rolling mill expansion began to come on stream towards the end of the year. Customer qualification trials are substantially complete and commercial shipments have begun. Utilization is expected to approach 80% of capacity by the end of 2000. In Asia, operations in Malaysia and Thailand continue to improve as their markets recover from the economic downturn. In India, faced with competitive market conditions, Indal focussed its activities on high value-added products. During 1999, Alcan acquired an interest in Alcan Taihan Aluminum Limited in South Korea for $129 million and the assumption of $58 million in debt. This 56%-owned subsidiary, operated by Alcan, has a modern, high-quality rolling mill capable of producing first tier products. It currently produces approximately 100 kt/y of rolled products for the domestic market but it is intended to grow output towards its capacity of 300 kt/y and to export throughout the region. FABRICATING OPERATIONS IN EUROPE ACHIEVED SUBSTANTIAL PROGRESS IN APPLYING LEAN MANUFACTURING CONCEPTS. AUTOMOTIVE The year 1999 saw further advances for Alcan's automotive sheet business, with sales of closure sheet more than double the 1998 level. Alcan's proprietary alloy 6111 has rapidly become the North American standard and has been placed in applications on 8 million vehicles over the past five years. Demand for aluminum closures and structures is driven by the material's proven ability to reduce weight without compromise to safety and performance. Reduced vehicle weight translates into improved fuel economy and a significant reduction in harmful CO2 emissions. Not only were volume and penetration records set in 1999, but major milestones in strategic alliances, program commitments and industry leadership were also attained. Alcan Global Automotive Products secured, in January 2000, a long-term metal supply agreement with Ford Motor Company providing a stable source of supply for Ford and a volume commitment to Alcan for both foundry ingot and sheet products. This, together with the 1998 strategic alliance with General Motors, will underpin Alcan's leadership position in North America. (PICTURE) (CAPTION) CONTINUING HIGH LEVELS OF HOUSING STARTS COUPLED WITH INCREASED COMMERCIAL CONSTRUCTION PAVED THE WAY FOR INCREASED SALES OF INSULATED CABLE. 30 38 OTHER FABRICATED PRODUCTS
1999 1998 1997 ----- ----- ----- Shipments (kt) 198 219 218 ----- ----- ----- Average price realizations (US$/t) 4,282 5,292 5,445 ===== ===== =====
The reduction in shipments and average price realizations in 1999 reflects the divestment in the first half of the year of the Company's pistons business in Germany and building systems business in France. In North America, shipments of Alcan Cable products increased nearly 5% in 1999, continuing the positive trend of the past four years. Continuing high levels of housing starts coupled with increased commercial construction paved the way for increased sales of insulated cable. Sales of bare transmission and distribution cables for high voltage power supply were also strong throughout 1999. Benefiting from the 1998 addition of capacity, Alcan Cable established a new record for aluminum strip sales. Increased sales, together with the implementation of cost reduction programs, helped to offset the impact on profitability from a highly competitive market environment during 1999, due to depressed copper prices. In Brazil, long-term agreements with key flexible packaging customers and substantial reductions in working capital contributed to improved earnings. RECYCLING ACTIVITIES Alcan's aluminum can recycling operations in the United States increased throughput to establish a new record of 21.6 billion Used Beverage Cans (UBCs). This represents an estimated one-third the number of aluminum beverage cans recycled by Americans in the year. Early in 1999, Alcan Sheet Products completed the divestment of a non-core secondary recycling facility in Tennessee primarily devoted to the die cast foundry market. In 1998, Alcan commissioned a UBC recycling plant at Pinda in Brazil, the first of its kind in South America. Today, Alcan remelts and processes 27% of the aluminum cans recycled in Brazil, and along with metal received from a third-party recycler, casts 50% of the UBCs recycled in Brazil. (PICTURE) (CAPTION) AN ESTIMATED ONE-THIRD OF ALUMINUM USED BEVERAGE CANS RECYCLED BY AMERICANS WERE PROCESSED AT ALCAN PLANTS, SUCH AS THIS ONE IN OSWEGO, NEW YORK. 31 39 GEOGRAPHIC REVIEW Economic conditions gradually improved during 1999 as the recovery in Southeast Asia gathered pace, South America improved from the first quarter downturn and most European economies improved in the second half. North American demand remained strong and Japan's decline was arrested. Net income data included in this Geographic Review relate to Alcan's operations in each region, whereas the shipment data are classified according to third-party customer location. CANADA
(Millions of US$) 1999 1998 1997 - ----------------- ---- ---- ---- Net income* 111 133 245 Net income excluding special items* 105 103 219 ---- ---- ---- Shipments (kt) Ingot products 134 110 101 Fabricated products 122 115 110 ==== ==== ====
[FN] * NET INCOME IN 1997 IS BEFORE EXTRAORDINARY GAIN. SPECIAL ITEMS INCLUDE: 1999 GAIN ON BUSINESS SALE, RATIONALIZATION COSTS AND PRIOR PERIOD TAX ADJUSTMENT, 1998 CURRENCY REVALUATION OF DEFERRED INCOME TAXES AND GAIN ON SALE OF A BUSINESS, 1997 PRIOR PERIOD TAX ADJUSTMENTS. Operating earnings from Canadian operations, principally primary metal and alumina, declined in 1999 due to lower aluminum ingot realizations more than offsetting cost reductions achieved. The Canadian economy continued to grow and aluminum demand increased an estimated 6%, led by strong automotive demand for castings. The 375-kt/y Alma smelter project in Quebec, commenced in 1998, is on schedule for start-up in late 2000. UNITED STATES
(Millions of US$) 1999 1998 1997 - ----------------- ----- ----- ----- Net income 178 144 136 Net income excluding special items 178 144 136 ---- ---- ---- Shipments (kt)** Ingot products 413 388 379 Fabricated products 1,081 1,016 905 ===== ===== ====
[FN] ** INCLUDES FABRICATION OF CUSTOMER-OWNED METAL. The increasing trend in U.S. net income reflects continued improvements in profitability of the fabricated products business due to increased volumes and lower unit costs. These businesses all generated positive EVA in 1999. The U.S. economy remained strong but some slowing of the growth rate is anticipated for 2000 as interest rates are expected to increase in an effort to cool the economy. Aluminum consumption rose 6.8% led by the transportation and electrical sectors. Despite anticipated slowing in the U.S. economy, Alcan's fabricated products operations are expecting strong shipments in 2000. (GRAPH) 1999 ALUMINUM SHIPMENTS BY REGION (CAPTION) WITH NEW INVESTMENTS IN SOUTH AMERICA AND ASIA, ALCAN WILL CONTINUE TO PARTICIPATE IN HIGH-GROWTH MARKETS WITH FIRST-TIER ROLLING CAPABILITY ON FOUR CONTINENTS. 32 40 SOUTH AMERICA
(Millions of US$) 1999 1998 1997 - ----------------- ---- ---- ---- Net income 5 13 27 Net income excluding special items* 5 13 17 --- --- --- Shipments (kt) Ingot products 17 26 27 Fabricated products 150 162 146 --- --- ---
[FN] * SPECIAL ITEMS INCLUDE 1997 GAIN ON SALE OF BUSINESS. Operating results in 1999 were affected by the impact of the economic crisis early in the year as well as depreciation and start-up costs for the Pinda expansion. In Brazil, the substantial devaluation of the domestic currency in January triggered a sharp downturn in demand and a temporary cessation of can sheet shipments. Aluminum demand, for the year as a whole, declined by just 5% as the subsequent recovery was much stronger than previously expected. Further improvements are anticipated in 2000. The Pinda rolling mill expansion was completed some three months ahead of schedule and achieved a remarkable 7.5 million construction hours without a lost-time accident. Customer qualification trials are substantially complete and commercial shipments have begun. EUROPE GDP growth in the European Union 15 countries was a little over 2% in 1999, slightly lower than the previous year. Economic activity picked up in the second half of the year following the slowdown at the end of 1998 and early 1999. Operating profits and net income from the European fabricating businesses showed an increase in 1999 mostly due to the benefits of Alcan's Full Business Potential program underway across Europe, but this was offset by lower earnings from primary operations. The fabricating business has been restructured on a product line basis, following which the focus is on improving operating performance. GERMANY
(Millions of US$) 1999 1998 1997 - ----------------- ---- ---- ---- Net income 30 7 -- Net income excluding special items* 5 10 -- --- --- --- Shipments (kt)** Ingot products 21 19 10 Fabricated products 187 180 183 --- --- ---
[FN] * SPECIAL ITEMS INCLUDE 1999 GAIN ON SALE OF BUSINESS, 1998 RATIONALIZATION COSTS. ** INCLUDES FABRICATION OF CUSTOMER-OWNED METAL. Alcan's fabricating operations in Germany remain EVA-negative, but are expected to improve as the benefits of operational improvement are realized. Sales into the German market increased some 4% in 1999. (PICTURE) (CAPTION) THE FULL BUSINESS POTENTIAL PROGRAM LED TO INCREASED OPERATING PROFITS AND NET INCOME FROM EUROPEAN FABRICATING BUSINESSES. SHOWN HERE IS RORSCHACH WORKS, SWITZERLAND. 33 41 UNITED KINGDOM
(Millions of US$) 1999 1998 1997 ------ ------ ------ Net income 18 2 22 Net income excluding special items* 6 8 22 ------ ------ ------ Shipments (kt)** Ingot products 19 25 25 Fabricated products 135 151 152 ------ ------ ------
[FN] * SPECIAL ITEMS INCLUDE 1999 GAIN ON SALE OF PROPERTY AND RATIONALIZATION COSTS AND 1998 RATIONALIZATION COSTS. ** INCLUDES FABRICATION OF CUSTOMER-OWNED METAL. Operating earnings in the U.K. continue to be depressed. The loss-making alumina chemicals business was affected by depressed prices and the strength of sterling against the Euro. Rationalization costs were also incurred to reduce total employment. Metal shipments into the U.K. market declined and were close to the 1997 level. OTHER EUROPE
(Millions of US$) 1999 1998 1997 ------ ------ ------ Net income 16 (98) 33 Net income excluding special items* 8 25 33 ------ ------ ------ Shipments (kt)** Ingot products 69 64 71 Fabricated products 386 366 391 ------ ------ ------
[FN] * SPECIAL ITEMS INCLUDE 1999 GAINS ON BUSINESS DISPOSALS AND 1998 WRITE-DOWN OF ASSETS AND RATIONALIZATION COSTS. ** INCLUDES FABRICATION OF CUSTOMER-OWNED METAL. The decline in earnings resulted primarily from the sale of the alumina refinery in Ireland in January 1999. Shipments into the rest of Europe increased 20 kt but remained below the 1997 level. ASIA AND PACIFIC
(Millions of US$) 1999 1998 1997 ------ ------ ------ Net income 82 117 (1) Net income excluding special items* 43 8 29 ------ ------ ------ Shipments (kt) Ingot products 186 196 245 Fabricated products 161 119 76 ------ ------ ------
[FN] * SPECIAL ITEMS INCLUDE: 1999 AND 1998 GAIN ON SALE OF NLM SHARES, 1998 AND 1997 CONSTRUCTION CONTRACT LOSSES AND RATIONALIZATION EXPENSES. Shipments of ingot products declined in 1999, due to the slow pace of recovery in key markets and to the constrained supply resulting from a strong demand in North America. Fabricated products increases reflect the consolidation of Indal for the full year 1999 and an acquisition in South Korea. Net income for the region includes the consolidation of Indal from the middle of 1998. In order to promote future growth and to streamline fabrication operations, a 56%-owned subsidiary -- Alcan Taihan Aluminum Limited -- has been formed in South Korea. The new company, with modern rolling assets, will serve the growing market for aluminum rolled products throughout the Asia/Pacific region. With financial and corporate restructuring efforts taking place, 1999 saw Asian economies come back to life. However, economic recovery in Japan has lagged behind other Asian countries. The Southeast Asian countries registered in 1999 gradual and visible economic recovery. As a result, demand increased by 2.8% in the region, following the previous year's decline of more than 13%. (PICTURE) (CAPTION) THE GROWING MARKET FOR ALUMINUM ROLLED PRODUCTS WILL BE SERVED BY ALCAN TAIHAN ALUMINUM LIMITED IN SOUTH KOREA, USING MODERN FACILITIES SUCH AS THIS FOUR-HIGH, NON-REVERSING COLD ROLLING MILL. 34 42 In India, domestic demand increased an estimated 6% to 7% but competition was severe due to overcapacity. Indal's strategy was increasing volumes in alumina, a focus on high value-added products in the fabricated segments and an emphasis on cost reductions, recoveries and efficiencies for better margins. Alcan's Southeast Asian operations continue to face a difficult competitive environment and to focus on restructuring and cost reduction. In Australia, earnings from raw materials operations declined due to lower alumina prices. OTHER AREAS
(Millions of US$) 1999 1998 1997 ---- ---- ---- Net income 33 39 35 Net income excluding special items* 35 41 35 ---- ---- ---- Shipments (kt Fabricated products 4 3 7 ---- ---- ----
* SPECIAL ITEMS INCLUDE 1999 RATIONALIZATION EXPENSES, 1998 LOSS ON SALE OF BUSINESS. Activities in other areas include bauxite and alumina operations in Jamaica, Guinea and Ghana, and trading, shipping and insurance activities in Bermuda. Alcan also sells products in other parts of the world such as the Middle East and Africa. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Cash generation in 1999 was $157 million better than 1998 reflecting higher earnings and higher tax deferrals in the year. Calculated by taking the net income for the year and adding back depreciation and deferred income taxes, cash generation was $1,047 million compared to $890 million in 1998 and $913 million in 1997. Net operating working capital was reduced by $239 million in 1999 compared to increases of $106 million in 1998 and $125 million in 1997. Despite higher metal prices at year-end, substantial improvements in inventory turnover and receivables days outstanding contributed to the improvement in addition to higher payables resulting from the Alma project. INVESTMENT ACTIVITIES Capital investment in the year was $1.3 billion, an increase from the previous two years, which were $877 million and $641 million, respectively. On an ongoing basis approximately $450 to $500 million is required annually to maintain the integrity and competitiveness of the Company's assets. Additional investment during 1999 principally comprised the Alma smelter project in Quebec, the remaining expenditure on the rolling expansion in Brazil and the acquisition of a controlling interest in a rolling mill in South Korea. (GRAPH) CASH FLOWS (CAPTION) STRONG CASH FLOW FROM OPERATING ACTIVITIES AND PROCEEDS FROM ASSET DISPOSALS FINALES THE CAPITAL INVESTMENT PROGRAM IN 1999. 35 43 In 2000, total investment is anticipated to be approximately $1.25 billion including, in addition to projects to maintain existing assets, the completion of the Alma smelter construction. Disposal of assets in 1999 mainly comprised the sale of further shares in NLM, Japan, the Aughinish alumina refinery in Ireland, fabricating operations in Germany and France, and a recycling facility in Tennessee. FINANCING ACTIVITIES Alcan reduced borrowings in 1999 by $289 million. At the end of 1999, total borrowings fell to $1.5 billion compared to $1.8 billion in 1998. The debt-to-equity level improved to 21:79 compared to 24:76 at the end of 1998. In July of 1999, the Company called $132 million of the 9.625% sinking fund debentures due in 2019. In December, the $100 million 7.25% Alcan Aluminum Corporation debentures matured and were repaid. Other debt repayments during the year totalled $57 million, net. In January 2000, $100 million 9.5% debentures were redeemed at a price of 103.5%. Alcan purchased 8.8 million common shares for $219 million in 1999 under its normal course issuer bid program that terminated on September 28, 1999. During the twelve-month period that the program was in place, Alcan purchased a total of 10.6 million shares at a cost of $265 million. The quarterly common share dividend remained at 15 cents per common share in 1999. Total dividends paid to common shareholders were $131 million in 1999 compared to $136 million in 1998. Dividends paid to preference shareholders were $9 million in 1999 and $10 million in 1998. Cash and time deposits totalled $315 million at the end of 1999 compared to $615 million at the end of 1998. The Company continues to have a $1-billion global, multi-year and multi-currency credit facility with a syndicate of major international banks. At December 31, 1999, no funds had been borrowed under this facility and the full amount continues to be available, aside from $30 million allocated to back up outstanding commercial paper. The Company's investment grade rating also provides Alcan with access to global capital markets through the issuance of debt and equity instruments. The Company expects that cash generated from operations, combined with the above resources, will be more than sufficient to meet the cash requirements of operations, planned capital expenditures and dividends. In addition, ready access to capital markets should provide adequate liquidity to meet unforeseen events. MERGER WITH PECHINEY AND ALGROUP In August 1999, Alcan announced its intention to merge with Pechiney of France and algroup of Switzerland. The transaction is to be executed by means of exchange offers of Alcan shares for those of Pechiney and algroup. Assuming full acceptance, the merged company, provisionally referred to as A.P.A., will be owned 44% by Alcan shareholders, 29% by Pechiney shareholders and 27% by algroup shareholders. Following the exchange offers, approximately 500 million A.P.A. shares will be outstanding. The proposed merger is currently undergoing reviews by competition authorities in Europe and the United States. (GRAPH) TOTAL BORROWINGS AND EQUITY (AT YEAR-END) (CAPTION) ALCAN'S BORROWINGS-TO-EQUITY RATIO CONTINUED ITS IMPROVING TREND TO REACH THE LOWEST LEVEL IN DECADES. 36 44 ENVIRONMENTAL MATTERS Alcan is committed to the continued environmental improvement of its operations and products. The Company has devoted, and will continue to devote, significant resources to control air and water pollutants, to dispose of wastes and to remediate sites of past waste disposal. Alcan estimates that annual environment-related spending, both capital and expense, will average about $165 million per year over the next several years and is not expected to have a material effect on its competitive position. While the Company does not anticipate a material increase in the projected level of such expenditures, there is always a possibility that such increases may occur in the future in view of the uncertainties associated with environmental exposures, including new information concerning sites with identified environmental liabilities and changes in laws and regulations and their application. Included in total operating costs and expenses for the year are amounts for safeguarding the environment and improving working conditions in plants. In 1999, such expenses totalled $84 million. This amount was largely for costs associated with reducing air emissions and mitigating the impact of waste and by-products. In 1997 and 1998, these expenses totalled $88 million and $91 million, respectively. Included in capital spending in 1999 was $85 million for environment-related projects. Such spending was largely on equipment designed to reduce or contain air emissions generated by Alcan plants. Spending in 1997 and 1998 was $84 million and $71 million, respectively. These actions have led to reductions in PAHs (Polycyclic Aromatic Hydrocarbons) of up to 80% since the mid-1980s at installations that employ Soderberg technology, such as Arvida Works in Jonquiere, Quebec. They have also contributed to reductions of up to 60% in the emission of global warming gases, including PFCs (Polyfluorocarbons), at smelters such as Grande-Baie, Quebec. RISKS AND UNCERTAINTIES RISK MANAGEMENT As a multinational company engaged in a commodity-related business, Alcan's financial performance is heavily influenced by fluctuations in metal prices and exchange rates. In order to reduce the associated risks, the Company uses a variety of financial instruments and commodity contracts. All risk management activities are governed by clearly defined policies and management controls. Transactions in financial instruments for which there is no underlying exposure are prohibited. The decision whether and when to commence a hedge, along with the duration of the hedge, can vary from period to period depending on market conditions and the relative costs of various hedging instruments. The duration of a hedge is always linked to the timing of the underlying transaction, with the connection between the two being constantly monitored to ensure effectiveness. FOREIGN CURRENCY EXCHANGE Exchange rate movements, particularly between the Canadian dollar and U.S. dollar, have an impact on Alcan's results. For example, on an annual basis, each US$0.01 permanent change in the value of the Canadian dollar has an after-tax impact of approximately $11 million on the Company's long-term profitability. Alcan benefits from a weakening in the Canadian dollar, but, conversely, is disadvantaged if it strengthens. In 1999, the Company revised its currency risk management strategy for its ongoing Canadian dollar operating cost exposure. The Company used to hedge a portion of such ongoing Canadian dollar requirements for future periods up to a maximum of three years. This deferred the impact of changes in exchange rate, without adding value over the longer term. The Company no longer hedges these exposures, thus eliminating the cost 37 45 of hedging instruments and program administration. This change in approach does not affect the Company's hedging of its Canadian dollar capital commitments for the construction of the new smelter at Alma, Quebec. For further details, refer to note 18 of the financial statements. From the beginning of 1998, following a change to the accounting standards of the Canadian Institute of Chartered Accountants on accounting for income taxes, the Company's deferred income tax liability is translated into U.S. dollars at current rates. The resultant exchange gains or losses are included in income. The impact of a US$0.01 movement in the value of the Canadian dollar on deferred income taxes is approximately $6 million. During 1999, a loss of $26 million was recorded in this regard, compared to a gain of $31 million in 1998. ALUMINUM PRICES Depending on market conditions and logistical considerations, Alcan may sell primary aluminum to third parties and may purchase primary aluminum and secondary aluminum, including scrap, on the open market to meet the requirements of its fabricating businesses. In addition, depending on pricing arrangements with fabricated products customers, Alcan may hedge some of its purchased metal supply in support of those sales. Through the use of forward purchase and sale contracts and options, Alcan seeks to limit the impact of lower metal prices, while retaining the ability to benefit from higher prices. The Company may also, through a combination of hedging instruments, establish a range of sales prices for a certain portion of its future revenues. Alcan estimates that on an annual basis, each $100 per tonne change in the price of aluminum has an after-tax impact of approximately $100 million on the Company's profitability. For further details, refer to note 18 of the financial statements. THE YEAR 2000 ISSUE No Alcan operating location has experienced a material disruption to planned production levels caused by a Year 2000-related problem associated with its systems hardware and related software used in business applications or manufacturing processes. Information received subsequent to December 31, 1999, from suppliers and customers indicates that no major supplier or customer has experienced a Year 2000-related disruption that could have a significant impact on Alcan. In view of the complexities and unknown factors associated with the Year 2000 problem it is possible that problems may still arise subsequent to December 31, 1999. However, Alcan believes that based on the performance of its operating locations to date and information from customers and suppliers, the possibility that Alcan will experience material interruptions in normal operations is minimal. Costs of Alcan's Year 2000 program are expensed as incurred and are estimated at less than $50 million. Costs from the beginning of the project to December 31, 1999, were $45 million. The information contained in this Year 2000 update is a "Year 2000 Readiness Disclosure" under the Year 2000 Information and Readiness Disclosure Act of 1998. CAUTIONARY STATEMENT Statements in this report that describe the Company's objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. The Company cautions that such statements involve risk and uncertainty and that actual results could differ materially from those expressed or implied. Important factors that could cause differences include global aluminum supply and demand conditions, aluminum ingot prices and other raw materials' costs or availability, cyclical demand and pricing in the Company's principal markets, changes in government regulations, economic developments within the countries in which the Company conducts business, and other factors relating to the Company's operations, such as litigation, labour negotiations and fiscal regimes. 38 46 RESPONSIBILITY FOR THE ANNUAL REPORT Alcan's management is responsible for the preparation, integrity and fair presentation of the financial statements and other information in the Annual Report. The financial statements have been prepared in accordance with generally accepted accounting principles in Canada and include, where appropriate, estimates based on the best judgement of management. A reconciliation with generally accepted accounting principles in the United States is also presented. Financial and operating data elsewhere in the Annual Report are consistent with that contained in the accompanying financial statements. Alcan's policy is to maintain systems of internal accounting and administrative controls of high quality consistent with reasonable cost. Such systems are designed to provide reasonable assurance that the financial information is accurate and reliable and that Company assets are adequately accounted for and safeguarded. The Board of Directors oversees the Company's systems of internal accounting and administrative controls through its Audit Committee, which is comprised of directors who are not employees. The Audit Committee meets regularly with representatives of the shareholders' independent auditors and management, including internal audit staff, to satisfy themselves that Alcan's policy is being followed. The Audit Committee has recommended the appointment of PricewaterhouseCoopers LLP as the independent auditors, subject to approval by the shareholders. The financial statements have been reviewed by the Audit Committee and, together with the other required information in this Annual Report, approved by the Board of Directors. In addition, the financial statements have been audited by PricewaterhouseCoopers LLP, whose report is provided below. /s/ Jacques Bougie /s/ Suresh Thadhani - ---------------------------- --------------------------- Jacques Bougie, Suresh Thadhani, Chief Executive Officer Chief Financial Officer February 10, 2000 OECD GUIDELINES The Organization for Economic Cooperation and Development (OECD), which consists of 29 industrialized countries including Canada, has established guidelines setting out an acceptable framework of reciprocal rights and responsibilities between multinational enterprises and host governments. Alcan supports and complies with the OECD guidelines, and the Company's own statement, Alcan, Its Purpose, Objectives and Policies, is consistent with them. To that original document, a Code of Conduct was added in 1996 to reinforce it with more detailed guidelines. AUDITORS' REPORT TO THE SHAREHOLDERS OF ALCAN ALUMINIUM LIMITED We have audited the consolidated balance sheets of Alcan Aluminium Limited as at December 31, 1999, 1998 and 1997 and the consolidated statements of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1999, 1998 and 1997 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1999 in accordance with Canadian generally accepted accounting principles. /s/ PricewaterhouseCoopers LLP ------------------------------- PricewaterhouseCoopers LLP Montreal, Canada Chartered Accountants February 10, 2000 39 47 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (IN MILLIONS OF US$, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31 1999 1998 1997 ------- ------- ------- REVENUES Sales and operating revenues $ 7,324 $ 7,789 $ 7,777 Other income (notes 10 and 11) 179 231 88 ------- ------- ------- 7,503 8,020 7,865 ======= ======= ======= COSTS AND EXPENSES Cost of sales and operating expenses 5,695 6,076 6,005 Depreciation (NOTE 2) 477 462 436 Selling, administrative and general expenses 375 448 444 Research and development expenses 67 70 72 Interest 76 92 101 Other expenses (NOTES 6, 10 AND 11) 127 219 54 ------- ------- ------- 6,817 7,367 7,112 ======= ====== ======= Income before income taxes and other items 686 653 753 Income taxes (NOTES 3 AND 7) 211 210 248 ------- ------- ------- Income before other items 475 443 505 Equity loss (NOTE 9) (1) (48) (33) Minority interests (14) 4 (4) ------- ------- ------- Net income before extraordinary item $ 460 $ 399 $ 468 Extraordinary gain (NOTE 4) -- -- 17 ------- ------- ------- Net income $ 460 $ 399 $ 485 Dividends on preference shares 9 10 10 Net income attributable to common shareholders $ 451 $ 389 $ 475 ======= ======= ======= Net income per common share before extraordinary item (NOTE 2) $ 2.06 $ 1 .71 $ 2.02 Extraordinary gain per common share (NOTE 4) -- -- 0.07 ======= ======= ======= Net income per common share (NOTE 2) $ 2.06 $ 1.71 $ 2.09 ======= ======= ======= Dividends per common share $ 0.60 $ 0.60 $ 0.60 ======= ======= =======
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (IN MILLIONS OF US$)
YEAR ENDED DECEMBER 31 1999 1998 1997 ------- ------- ------- Retained earnings - beginning of year (RESTATED IN 1998 - SEE NOTE 3) $ 4,078 $ 3,862 $ 3,217 Net income 460 399 485 ------- ------- ------- 4,538 4,261 3,702 Amount related to common shares purchased for cancellation 171 37 -- Dividends - Common 131 136 136 - Preference 9 10 10 ------- ------- ------- RETAINED EARNINGS - END OF YEAR (NOTE 16) $ 4,227 $ 4,078 $ 3,556 ======= ======= =======
40 48 CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) Consolidated Balance Sheet (IN MILLIONS OF US$)
December 31 1999 1998 1997 ------- -------- ------- ASSETS CURRENT ASSETS Cash and time deposits $ 315 $ 615 $ 608 Receivables (net of allowances of $31 in 1999, $43 in 1998 and $35 in 1997) 1,299 1,401 1,292 Inventories Aluminum 778 826 800 Raw materials 298 345 307 Other supplies 200 242 234 ------ ----- ----- 1,276 1,413 1,341 ------ ----- ----- 2,890 3,429 3,241 ====== ====== ===== Deferred charges and other assets (NOTE 9) 525 575 675 Property, plant and equipment (NOTE 10) Cost (excluding construction work in progress) 11,771 11,758 11,133 Construction work in progress 1,220 911 582 Accumulated depreciation 6,557 6,772 6,257 ------ ------ ----- 6,434 5,897 5,458 ------ ------ ------ Total assets $ 9,849 $ 9,901 $ 9,374 ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Payables $ 1,237 $ 1,104 $ 1,052 Short-term borrowings 167 86 238 Income and other taxes 31 28 98 Debt maturing within one year (NOTE 13) 311 166 36 ------- ------- ------ $ 1,746 $ 1,384 $ 1,424 ======= ======= ====== Debt not maturing within one year (NOTES 13 AND 18) 1,011 1,537 1,241 Deferred credits and other liabilities (NOTE 12) 563 604 623 Deferred income taxes (NOTES 3 AND 7) 781 747 969 Minority interests 207 110 43 SHAREHOLDERS' EQUITY Redeemable non-retractable preference shares (NOTE 14) 160 160 203 Common shareholders' equity Common shares (NOTE 15) 1,230 1,251 1,251 Retained earnings (NOTE 16) 4,227 4,078 3,556 Deferred translation adjustments (NOTE 17) (76) 30 64 ----- ----- ----- 5,381 5,359 4,871 ----- ----- ------ 5,541 5,519 5,074 ===== ====== ======= Commitments and Contingencies (notes 19 and 20) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,849 $ 9,901 $ 9,374 ====== ======= =======
Approved by the Board: /s/ Jacques Bougie /s/ Guy Saint-Pierre - --------------------------- ----------------------------- Jacques Bougie, Director Guy Saint-Pierre, Director 41 49 CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS OF US$)
YEAR ENDED DECEMBER 31 1999 1998 1997 ------ ------ ------ OPERATING ACTIVITIES Net income $460 $399 $485 Adjustments to determine cash from operating activities: Depreciation 477 462 436 Deferred income taxes 110 29 (8) Equity loss - net of dividends 2 53 39 Change in operating working capital Change in receivables 101 (109) (30) Change in inventories 137 (72) (37) Change in payables 133 52 44 Change in income and other taxes payable 4 (70) -- Changes in operating working capital due to: Deferred translation adjustments (82) 46 (93) Acquisitions, disposals and consolidations/deconsolidations (54) 47 (9) ------ ------ ------ 239 (106) (125) Change in deferred charges, other assets, deferred credits and other liabilities - net (26) (113) (139) Gain on sales of businesses - net (110) (156) (12) Impairment in value of property, plant and equipment -- 143 -- Other - net 30 28 43 ------ ------ ------ CASH FROM OPERATING ACTIVITIES 1,182 739 719 ====== ====== ====== FINANCING ACTIVITIES New debt 13 359 22 Debt repayments (347) (57) (25) ------ ------ ------ (334) 302 (3) Short-term borrowings - net 45 (169) 90 Common shares purchased for cancellation (219) (46) -- Common shares issued 27 9 16 Redemption of preference shares -- (43) -- Dividends - Alcan shareholders (including preference) (140) (146) (146) - Minority interests (8) (2) (3) ------ ------ ------ CASH USED FOR FINANCING ACTIVITIES (629) (95) (46) ====== ====== ====== INVESTMENT ACTIVITIES Property, plant and equipment (1,169) (805) (641) Business acquisitions (129) (72) -- ------ ------ ------ (1,298) (877) (641) Net proceeds from disposal of businesses, investments and other assets 460 221 54 ------ ------ ------ CASH USED FOR INVESTMENT ACTIVITIES (838) (656) (587) ====== ====== ====== Effect of exchange rate changes on cash and time deposits (11) 2 (12) ------ ------ ------ Increase (decrease) in cash and time deposits (296) (10) 74 Cash of companies consolidated (deconsolidated) - net (4) 17 (12) Cash and time deposits - beginning of year 615 608 546 ------ ------ ------ Cash and time deposits - end of year $ 315 $ 615 $ 608 ====== ====== ======
42 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 1 NATURE OF OPERATIONS Alcan is engaged, together with subsidiaries, joint ventures and related companies, in most aspects of the aluminum business on an international scale. Its operations include the mining and processing of bauxite, the basic aluminum ore; the refining of bauxite into alumina; the generation of electric power for use in smelting aluminum; the smelting of aluminum from alumina; the recycling of used and scrap aluminum; the fabrication of aluminum, aluminum alloys and non-aluminum materials into semi-fabricated and finished products; the distribution and marketing of aluminum and non-aluminum products; and, in connection with its aluminum operations, the production and sale of industrial chemicals. Alcan, together with its subsidiaries, joint ventures and related companies, has bauxite holdings in six countries, produces alumina in six, smelts primary aluminum in five, operates aluminum fabricating plants in 13 and has sales outlets and maintains warehouse inventories in the larger markets of the world. Alcan also operates a global transportation network that includes bulk cargo vessels, port facilities and freight trains. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Unless otherwise stated, these financial statements conform with generally accepted accounting principles (GAAP) in Canada. Note 5 provides an explanation and reconciliation of differences in Canadian and U.S. GAAP. USE OF ESTIMATES The preparation of financial statements in conformity with GAAP in Canada and the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION These consolidated financial statements include the accounts of subsidiaries that are controlled by Alcan, all of which are majority owned. Joint ventures, irrespective of percentage of ownership, are proportionately consolidated to the extent of Alcan's participation. Companies subject to significant influence are accounted for using the equity method. Under the equity method, Alcan's investment is increased or decreased by Alcan's share of the undistributed net income or loss and deferred translation adjustments since acquisition. Investments in companies in which Alcan does not have significant influence are accounted for using the cost method. Under the cost method, dividends received are recorded as income. Intercompany balances and transactions, including profits in inventories, are eliminated. FOREIGN CURRENCY The financial statements of self-sustaining foreign operations (located principally in Europe and Asia) are translated into U.S. dollars at prevailing exchange rates. Revenues and expenses are translated at average exchange rates for the year while assets and liabilities are translated at exchange rates in effect at year-end. Differences arising from exchange rate changes are included in the Deferred translation adjustments (DTA) component of Common shareholders' equity. If there is a reduction in the Company's ownership in a foreign operation, the relevant portion of DTA is recognized in Other income or Other expenses at that time. All other operations, including those in Canada, are considered to be integrated foreign operations. Gains or losses on forward exchange contracts or currency options, all of which serve to hedge certain future identifiable foreign currency exposures, are included, together with related hedging costs, in Sales and operating revenues, Cost of sales and operating expenses or Property, plant and equipment, as applicable, concurrently with recognition of the underlying items being hedged. Unrealized gains or losses on currency swaps, all of which are used to hedge certain identifiable foreign currency debt obligations, are recorded concurrently with the unrealized gains or losses on the debt obligations being hedged. Other gains and losses from foreign currency denominated items are included in Other income or Other expenses. 43 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [cont'd] REVENUE RECOGNITION The Company recognizes revenue when goods are shipped or services performed and when significant risks and benefits of ownership are transferred. COMMODITY CONTRACTS AND OPTIONS Gains or losses on forward metal contracts and options, all of which serve to hedge certain future identifiable aluminum price exposures, are included, together with related hedging costs, in Sales and operating revenues or Cost of sales and operating expenses, as applicable, concurrently with recognition of the underlying items being hedged. INTEREST RATE SWAPS Amounts receivable or payable under interest rate swaps are recorded in Interest concurrently with the interest expense on the underlying debt. INVENTORIES Aluminum, raw materials and other supplies are stated at cost (determined for the most part on the monthly average method) or net realizable value, whichever is lower. CAPITALIZATION OF INTEREST COSTS The Company capitalizes interest costs associated with the financing of major capital expenditures. DEPRECIATION Depreciation is calculated on the straight-line method using rates based on the estimated useful lives of the respective assets. The principal rates are 2 1/2% for buildings and range from 1% to 4% for power assets and 3% to 12 1/2% for chemical, smelter and fabricating assets. ENVIRONMENTAL COSTS AND LIABILITIES Environmental expenses are accrued when it is probable that a liability for past events exists. For future removal and site restoration costs, provision is made in a systematic manner by periodic charges to income, except for assets that are no longer in use, in which case full provision is charged immediately to income. Environmental expenses are normally included in Cost of sales and operating expenses except for large, unusual amounts which are included in Other expenses. Accruals related to environmental costs are included in Payables and Deferred credits and other liabilities. Environmental expenditures of a capital nature that extend the life, increase the capacity or improve the safety of an asset or that mitigate or prevent environmental contamination that has yet to occur are included in Property, plant and equipment and are depreciated generally over the remaining useful life of the underlying asset. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The costs of postretirement benefits other than pensions are recognized on an accrual basis over the working lives of employees. INCOME TAXES Since 1998, the Company uses the liability method for income taxes, under which deferred income tax liabilities are revalued for all changes in tax rates and exchange rates (see note 3). Prior to 1998, the Company used the deferral method. CASH AND TIME DEPOSITS All time deposits have maturities of 90 days or less and qualify as cash equivalents. NET INCOME PER COMMON SHARE Net income per common share is calculated by dividing Net income attributable to common shareholders by the average number of common shares outstanding (1999: 219.1 million; 1998: 227.4 million; 1997: 227.0 million). Net income attributable to common shareholders is computed by subtracting Preference dividends from Net income. 44 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (in millions of us$, except where indicated) 3 ACCOUNTING CHANGES In 1998, the Company adopted the new recommendations of the Canadian Institute of Chartered Accountants (CICA) dealing with accounting for income taxes. The principal change under the new recommendations is the requirement to revalue deferred income taxes for changes in tax rates and exchange rates. The Company adopted the new recommendations retroactively without restating prior years. The cumulative effect of adopting the new recommendations at January 1, 1998, was to decrease Deferred income taxes by $285, to increase retained earnings by $306 and to decrease Deferred translation adjustments by $21. In 1998, the Company adopted, retroactively, the new recommendations of the CICA dealing with segment disclosures (see note 24). 4 EXTRAORDINARY ITEMS -- KEMANO COMPLETION PROJECT An extraordinary gain of $26 ($17 after tax or $0.07 per common share) in the fourth quarter of 1997 arose from the sale of a portion of a contract to supply power to B.C. Hydro, net of additional write-downs of remaining Kemano Completion Project ("KCP") assets. In addition to the commitment by the government of British Columbia to supply replacement power at attractive rates for a possible smelter expansion, the settlement of the dispute regarding the cancellation of KCP allowed the Company to sell to a third party the right to supply a specified amount of power to B.C. Hydro under an ongoing contract. An extraordinary loss of $420 ($280 after tax or $1.24 per common share) was recorded in 1995 following the cancellation of the project. 5 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) CURRENCY TRANSLATION Under Canadian GAAP, unrealized exchange gains and losses on translation of long-term monetary items are deferred and amortized over the life of those items, whereas, under U.S. GAAP, such gains and losses are absorbed in income immediately. DEFERRED INCOME TAXES Beginning in 1998, the Company adopted the new accounting standards approved by the CICA dealing with accounting for income taxes. These new standards are substantially identical to U.S. GAAP as contained in the Financial Accounting Standards Board (FASB) Statement No. 109. Prior to 1998, under Canadian GAAP, deferred income taxes were measured at tax rates prevailing at the time the provisions for deferred income taxes were made. Deferred income taxes for U.S. GAAP were revalued each period using currently enacted tax rates. Also, prior to 1998, under Canadian GAAP, deferred income taxes of operations using the temporal method were translated at historical exchange rates, while under U.S. GAAP, deferred income taxes of all operations were translated at current exchange rates. INVESTMENTS Under U.S. GAAP, certain portfolio investments which are considered to be "available-for-sale" securities are measured at market value, with the unrealized gains or losses included in Comprehensive income. Under Canadian GAAP, these investments are measured at cost. COMPREHENSIVE INCOME Beginning in 1998, U.S. GAAP requires the disclosure of Comprehensive income which, for the Company, is Net income under U.S. GAAP plus the movement in Deferred translation adjustments under U.S. GAAP plus the unrealized gains or losses for the period less gains or losses realized during the period on "available-for-sale" securities. The concept of Comprehensive income does not exist under Canadian GAAP. 45 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 5 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)[CONT'D] JOINT VENTURES Under Canadian GAAP, joint ventures are accounted for using the proportionate consolidation method, while under U.S. GAAP, joint ventures are accounted for under the equity method. Under an accommodation of the U.S. Securities and Exchange Commission, accounting for joint ventures need not be reconciled from Canadian to U.S. GAAP. The different accounting treatment affects only the display and classification of financial statement items and not net income or shareholders' equity. See note 8 for summarized financial information about joint ventures. STATEMENT OF CASH FLOWS Under U.S. GAAP, separate subtotals within operating, financing and investment activities would not be presented. RECONCILIATION OF CANADIAN AND U.S. GAAP
1999 1998 1997 ------------ ------------ ------------ $ PER $ PER $ PER COMMON COMMON COMMON $ SHARE $ SHARE $ SHARE ------------ ------------ ------------ Net income from continuing operations before extraordinary item - as reported 460 399 468 Differences due to: Foreign currency translation (9) 14* (5) Income taxes -- -- 37** Other 4 4 4 ------------ ------------ ------------ Net income from continuing operations before extraordinary item - U.S. GAAP 455 2.04 417 1.79 504 2.18 ------------ ------------ ------------ Net income - as reported 460 399 485 ------------ ------------ ------------ Net income - U.S. GAAP 455 417 521 ------------ ------------ ------------ Net income attributable to common shareholders as reported 451 2.06 389 1.71 475 2.09 ------------ ------------ ------------ Net income attributable to common shareholders - U.S. GAAP 446 2.04 407 1.79 511 2.25 ============ ============ ============
[FN] * $13 RELATES TO A DIFFERENCE IN THE REALIZED EXCHANGE GAIN ON THE SALE OF SHARES IN AN EQUITY INVESTMENT. **$23 RELATES TO CHANGES IN TAX RATES AND REGULATIONS ENACTED DURING THE YEAR.
1999 1998 1997 ---------------- --------------- --------------- AS U.S. AS U.S. AS U.S. REPORTED GAAP REPORTED GAAP REPORTED GAAP ---------------- ---------------- ---------------- Deferred charges and other assets - December 31 $ 525 $ 534 $ 575 $ 622 $ 675 $ 677 ---------------- ---------------- ---------------- Deferred income taxes - December 31 $ 781 $ 781 $ 747 $ 747 $ 969 $ 684 ---------------- ---------------- ---------------- Retained earnings - December 31 $ 4,227 $ 4,273 $ 4,078 $ 4,129 $ 3,556 $ 3,895 ---------------- ---------------- ---------------- Deferred translation adjustments (DTA) - December 31 $ (76) $ (132) $ 30 $ (24) $ 64 $ 3 ================ ================ ================
46 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 5 DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (CONT'D) RECONCILIATION OF CANADIAN AND U.S. GAAP (CONT'D)
1999 1998 1997 ----- ----- ----- Comprehensive income (U.S. GAAP only) Net income $455 $417 $521 Net change in deferred translation adjustments* (108) (27) (138) Net change in market value of available-for-sale securities* (26) 45 n/a ----- ----- ----- Comprehensive income $ 321 $ 435 $ 383 ===== ===== ===== * IN 1999, $8 OF DEFERRED TRANSLATION ADJUSTMENTS AND $24 OF THE EXCESS OF MARKET VALUE OVER BOOK VALUE OF AVAILABLE-FOR-SALE SECURITIES WERE TRANSFERRED TO NET INCOME ($41 AND NIL, RESPECTIVELY IN 1998).
1999 1998 1997 ----- ----- ----- Accumulated other comprehensive income (U.S. GAAP only) Accumulated other comprehensive income - beginning of year $ 21 $ 3 $ 141 Change in deferred translation adjustments (108) (27) (138) Change in excess of market value over book value of available-for-sale securities (26) 45 n/a ----- ----- ----- Accumulated other comprehensive income - end of year $(113) $ 21 $ 3 ===== ===== ===== For 1997, the principal items included in Deferred income taxes under U.S. GAAP were:
DECEMBER 31 1997 ----------- Liabilities: Property, plant and equipment $767 Undistributed earnings 29 Inventory valuation 52 Other 64 ---- 912 ==== Assets: Tax benefit carryovers 114 Accounting provisions not currently deductible for tax 164 Other 26 ---- 304 Valuation allowance (amount not likely to be recovered) 76 ---- 228 ---- NET DEFERRED INCOME TAX LIABILITY $684 ====
The difference between DTA under Canadian GAAP and U.S. GAAP arises from the different treatment of exchange on long-term debt at January 1, 1983, resulting from the adoption of accounting standards on foreign currency translation. Beginning in 2001, the Company will be implementing, for U.S. GAAP only, FASB Statement No. 133, Accounting for Derivatives and Hedging Activities. The Company is currently assessing the impact of the new standard, which will affect how the Company measures and reports the various financial instruments that it uses in its risk management activities. 47 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 6 REORGANIZATION COSTS In 1999, the Company announced a new organization to better enable it to meet the financial objectives contained in its "Full Business Potential" program. This reorganization included the implementation of a number of early retirement and severance programs resulting in a reduction of approximately 570 employees in the Company's workforce. As a result of this reorganization and other restructuring programs, the Company has incurred costs of $49 which are included in Other expenses. At December 31, 1999, there remains approximately $38 of accrued liabilities, most of which will be spent in 2000. 7 INCOME TAXES
1999 1998 1997 ----- ----- ----- INCOME BEFORE INCOME TAXES AND OTHER ITEMS Canada $ 174 $ 175 $ 360 Other countries 512 478 393 ----- ----- ----- 686 653 753 ===== ===== ===== CURRENT INCOME TAXES Canada (78) 65 251 Other countries 179 116 5 ----- ----- ----- 101 181 256 ===== ===== ===== DEFERRED INCOME TAXES Canada 48 (22) (28) Other countries 62 51 20 ----- ----- ----- 110 29 (8) ----- ----- ----- INCOME TAX PROVISION $ 211 $ 210 $ 248 ===== ===== =====
The composite of the applicable statutory corporate income tax rates in Canada is 40.4% (1998: 40.4%; 1997: 40.3%). The following is a reconciliation of income taxes calculated at the above composite statutory rates with the income tax provision:
1999 1998 1997 ----- ----- ----- Income taxes at the composite statutory rate $ 277 $ 264 $ 303 Differences attributable to: Exchange translation items (12) 46 13 Exchange revaluation of deferred income taxes 26 (31) n/a Effect of tax rate changes on deferred income taxes -- (4) n/a Unrecorded tax benefits on losses - net (1) (3) (12) Investment and other allowances (29) (21) (32) Large corporations tax 5 4 3 Withholding taxes 7 5 5 Reduced rate or tax exempt items (31) (47) (3) Foreign tax rate differences (4) (16) (5) Prior years' tax adjustments (40) 3 (31) Other - net 13 10 7 ----- ----- ----- INCOME TAX PROVISION $ 211 $ 210 $ 248 ===== ===== =====
48 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 7 INCOME TAX (CONT'D) At December 31, the principal items included in Deferred income taxes are:
1999 1998 ---- ---- LIABILITIES: Property, plant and equipment $ 796 $ 773 Undistributed earnings 19 20 Inventory valuation 47 49 Other 97 77 ----- ----- 959 919 ===== ===== ASSETS: Tax benefits carryovers 105 103 Accounting provisions not currently deductible for tax 173 167 Other 4 13 ===== ===== 282 283 VALUATION ALLOWANCE (AMOUNT NOT LIKELY TO BE RECOVERED) 104 111 ----- ----- 178 172 ----- ----- NET DEFERRED INCOME TAX LIABILITY $ 781 $ 747 ===== =====
The valuation allowance relates principally to loss carryforward benefits and tax credits where realization is not likely due to uncertain economic conditions in certain countries, principally Brazil, as well as time and other limitations in the tax legislation giving rise to the potential benefits. In 1999, $13 of the valuation allowance was reversed when it became more likely than not that benefits would be realized due to higher than expected taxable income in the United States. In 1997, $19 of benefits related to income tax loss carryforwards were recorded in deferred income tax expense. Based on rates of exchange at December 31, 1999, tax benefits of approximately $57 relating to prior and current years' operating losses and $33 of benefits related to capital losses and tax credits carried forward will be recognized in income when it is more likely than not that such benefits will be realized. In 1997, income taxes on Canadian operations for the years 1988 to 1991 were reassessed by the Canadian tax authorities. Most of the additional taxes and interest related to transfer pricing issues and are recoverable in other countries (see note 23). The process to obtain recoveries from other countries is under way. During 1999, the Canadian tax authorities indicated their intention not to proceed with the reassessments made in 1997 in respect of the years 1988 and 1989. As a result of these favourable prior year tax adjustments, in 1999 the Company received a total of $108 from the Canadian tax authorities and the Company's 1999 income tax provision has been reduced by $31, of which $18 relates to interest. 8 JOINT VENTURES The activities of the Company's major joint ventures are the procurement and processing of bauxite in Australia, Brazil, Guinea and Jamaica, as well as aluminum rolling operations in Germany and the United States. Alcan's proportionate interest in all joint ventures is included in the consolidated financial statements. Summarized financial information relating to Alcan's share of these joint ventures is provided below. Because most of the activities of the Company's joint ventures relate to supplying the Company's other operations, the portion of the Company's third-party revenues, and related costs and expenses, conducted through joint ventures is insignificant. Accordingly, summarized income statement information as well as cash flow from operating activities would not provide meaningful information. 49 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED)
8 JOINT VENTURES (CONT'D) 1999 1998 1997 ------ ------ ----- FINANCIAL POSITION AT DECEMBER 31 Inventories $ 103 $ 174 $ 189 Property, plant and equipment - net 688 959 943 Other assets 90 101 60 ------ ------ ----- Total assets $ 881 $1,234 $1,192 ====== ====== ====== Short-term debt $ 27 $ 19 $ 38 Debt not maturing within one year 117 123 100 Other liabilities 150 167 156 ------ ------ ------ Total liabilities $ 294 $ 309 $ 294 ====== ====== ====== CASH FLOW INFORMATION FOR THE YEAR ENDED DECEMBER 31 Cash from (used for) financing activities $ 2 $ (1) 10 Cash used for investment activities $ (61) $ (85) $ (78) ====== ======= ======
9 DEFERRED CHARGES AND OTHER ASSETS Deferred charges and other assets comprise the following elements:
1999 1998 1997 ------ ------ ----- Prepaid pension costs $ 189 $ 171 $ 170 Income taxes recoverable 59 116 116 Marketable securities 53 38 36 Prepaid mining expenses 62 44 -- Investments 32 58 251 Costs related to proposed combination (note 26) 20 -- -- Premiums on currency and metal options 10 39 16 Amount receivable on currency swap of debt 6 25 18 Other 94 84 68 ------ ------ ------ $ 525 $ 575 $ 675 ====== ====== ======
INVESTMENTS
1999 1998 1997 ------ ------ ----- Companies accounted for under the equity method $ 11 $ 13 $ 245 Portfolio investments - at cost, less amounts written off 21 45 6 ------ ------ ------ $ 32 $ 58 $ 251 ======= ====== ======
As described in note 11, in 1998 the Company reduced its 45.6% interest in Nippon Light Metal Company, Ltd. (NLM) in Japan to 11.2% and further reduced its interest to 5.1% in 1999. With the reduction in Alcan's interest to below 20%, the Company no longer has significant influence over the investment. Accordingly, NLM is no longer accounted for on an equity basis but is treated as a portfolio investment. As described in note 11, in 1998 the Company acquired a controlling interest in Indian Aluminium Company, Limited (Indal), the accounts of which are consolidated with those of the Company. Indal was previously treated as an equity investment. For 1997, the combined results of operations and financial position for NLM and Indal are included in the following summary. For 1998, the combined results of operations include information for NLM and Indal to the dates these entities ceased to be equity accounted investments. In 1998, the Company recorded a special after-tax charge of $27 ($30 in 1997) included in Equity loss, reflecting the Company's share of construction contract losses and restructuring provisions in NLM. 50 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 9 DEFERRED CHARGES AND OTHER ASSETS (CONT'D) Investments (cont'd)
1998 1997 ------- ------- RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31 Revenues $ 3,626 $ 5,572 Costs and expenses 3,719 5,622 ------- ------- Income (Loss) before income taxes (93) (50) Income taxes 12 35 ------- ------- Net loss $ (105) $ (85) ======= ======= Alcan's share of Net loss $ (48) $ (33) ======= ======= Dividends received by Alcan $ 5 $ 6 ======= ======= FINANCIAL POSITION AT DECEMBER 31 Current assets n/a $ 2,600 Current liabilities n/a 2,519 ------- ------- Working capital n/a 81 Property, plant and equipment - net n/a 1,737 Other assets - net n/a 335 ------- ------- n/a 2,153 Debt not maturing within one year n/a 1,376 ------- ------- Net assets n/a $ 777 ======= ======= Alcan's equity in net assets n/a $ 245 ======= =======
10 PROPERTY, PLANT AND EQUIPMENT
1999 1998 1997 ------- ------- ------- COST (EXCLUDING CONSTRUCTION WORK IN PROGRESS) Land and property rights $ 220 $ 236 $ 219 buildings, machinery and equipment 11,551 11,522 10,914 ------- ------ ------ $11,771 $11,758 $11,133 ======= ======= =======
Accumulated depreciation relates primarily to Buildings, machinery and equipment. In 1999, the Company completed the sale of a property in the United Kingdom for a gain of $19 included in Other income. In early 1999, the Company sold the Aughinish alumina refinery. Negotiations of the sale began in late 1998 and, as a result of that process, the Company determined that the value of these assets was impaired as at December 31, 1998. In 1998, a charge of $143 reflecting the impairment was included in Other expenses. Excluding the impairment charge, these assets contributed approximately $27 of income before taxes in 1998. On an ongoing basis, capital expenditures of the Company are estimated at $450 to $500 per year. In addition, the Company expects to spend approximately $700 in 2000 on the construction of a new smelter at Alma, Quebec. 11 SALES AND ACQUISITIONS OF BUSINESSES AND INVESTMENTS JAPAN In 1999, the Company sold a portion of its investment in Nippon Light Metal Company, Ltd. (NLM), reducing its holdings to 5.1%, for net cash proceeds of $38. Included in Other income is a gain of $37 ($37 after tax). The after-tax gain includes a previously deferred gain of $17 related to the sale in 1996 of Toyo Aluminium K.K. (Toyal) to NLM. In 1998, the Company reduced its 45.6% investment in NLM to 11.2%. The net cash proceeds from the sale of shares were approximately $193 with a corresponding gain, included in Other income, of approximately $146 ($140 after tax), including a previously deferred gain of $87 after tax related to the sale in 1996 of Toyal to NLM. 51 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 11 SALES AND ACQUISITIONS OF BUSINESSES AND INVESTMENTS (CONT'D) INDIA In 1998, the Company acquired an additional 20% of Indian Aluminium Company, Limited (Indal) for $70 in cash. As a result, Alcan obtained a controlling interest of 54.6% in Indal. The accounts of Indal have been consolidated with effect from July 1998. Prior to that date, Alcan accounted for its investment in Indal under the equity method. Included in the Company's balance sheet at the date of acquisition were the following assets and liabilities of Indal:
Working capital $ 40 Property, plant and equipment 212 Other assets - net (5) ----- 247 Long-term debt 75 Minority interest 58 ----- Net assets $ 114 =====
EUROPE In 1999, the Company completed the sale of the Aughinish alumina refinery in Ireland. The net book value of the assets sold had been written down to net realizable value in 1998 in anticipation of completion of the sale in 1999. The write-down in 1998 of $143 was included in Other expenses. In 1999, the Company completed the sale of businesses in Germany and France for gains of $44 and $8, respectively, included in Other income. SOUTH KOREA In 1999, the Company purchased a 56% interest in a newly created company based in South Korea, Alcan Taihan Aluminum Limited. Total cash consideration paid by the Company for its equity interest was $129. In addition, the Company assumed total debt of $58. Included in the Company's balance sheet at the date of acquisition were the following assets and liabilities:
Working capital $ (19) Property, plant and equipment 237 Other assets - net 1 ----- 219 Long term debt 2 Minority interest 88 ----- Net assets $ 129 =====
12 DEFERRED CREDITS AND OTHER LIABILITIES Deferred credits and other liabilities comprise the following elements:
1999 1998 1997 ----- ----- ----- Deferred revenues $ 43 $ 56 $ 56 Postretirement and post-employment benefits 378 395 390 Environmental liabilities 44 40 37 Rationalization costs 36 23 32 Claims 39 43 40 Other 23 47 68 ----- ----- ----- $ 563 $ 604 $ 623 ===== ===== =====
52 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 13 DEBT NOT MATURING WITHIN ONE YEAR
1999 1998 1997 ------ ------ ------ ALCAN ALUMINIUM LIMITED Deutschmark bank loans, due 2000/2005 (DM340 million) (a) $ 175 $ 218 $ 213 5.875% Debentures, due 2000 150 150 150 5.375% Swiss franc bonds, due 2003 (b) 111 130 123 CARIFA loan, due 2006 (c) 60 60 60 6.25% Debentures, due 2008 200 200 -- 9.5% Debentures (d) 100 100 100 9.625% Sinking fund debentures, due 2019 (d) 18 150 150 8.875% Debentures, due 2022 (e) 150 150 150 7.25% Debentures, due 2028 100 100 -- Other debt, due 2001 7 7 7 ALCAN ALUMINUM CORPORATION 7.25% Debentures (f) -- 100 100 Other debt, due 2000/2004 2 2 3 ALCAN DEUTSCHLAND GMBH AND SUBSIDIARY COMPANIES 5.65% Bank loans, due 2001 (DM15 million) 8 9 8 Bank loans, due 2008/2009 (DM16 million) (a) 8 64 56 INDIAN ALUMINIUM COMPANY, LIMITED 6.71% Bank loan, due 2004/2006 40 51 -- 6.51% Bank loan, due 2000/2002 18 18 -- Other debt, due 2000/2006 21 28 -- QUEENSLAND ALUMINA LIMITED Bank loans, due 2001/2003 (a) 70 78 79 Other debt, due 2000 9 -- -- OTHER COMPANIES Bank loans, due 2000/2011 (a) 59 71 51 4% Eurodollar exchangeable debentures, due 2003 (g) 14 14 24 Other debt, due 2000/2011 2 3 3 ------ ------ ------ 1,322 1,703 1,277 Debt maturing within one year included in current liabilities (311) (166) (36) ------ ------ ------ $1,011 $1,537 $1,241 ====== ====== ======
[FN] (a) Interest rates fluctuate principally with the lender's prime commercial rate, the commercial bank bill rate, or are tied to LIBOR rates. (b) The Swiss franc bonds were issued as SFr178 million and were swapped for $105 at an effective interest rate of 8.98%. (c) The Caribbean Basin Projects Financing Authority (CARIFA) loan bears interest at a rate related to U.S. LIBOR. (d) In 1999, $132 of the 9.625% debentures were redeemed at a price of 104.64%. The loss on redemption of $6 is included in Other expenses. The 9.5% debentures were redeemed in January 2000 at a price of 103.494%. The loss on redemption of $3 will be included in Other expenses in 2000. 53 61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (in millions of US$, except where indicated) 13 DEBT NOT MATURING WITHIN ONE YEAR[CONT'D] (e) The Company has the right to redeem the debentures during the years 2002 to 2012 at amounts declining from 104% to 100% of the principal amount. (f) The following is summarized consolidated financial information for Alcan Aluminum Corporation, a wholly owned subsidiary which consolidates virtually all of the Company's operations in the United States:
1999 1998 1997 ------ ------ ------ RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31 Revenues $3,713 $3,766 $3,624 Costs and expenses 3,446 3,482 3,438 ------ ------ ------ Income before income taxes 267 284 186 Income taxes 81 110 81 ------ ------ ------ Net income $ 186 $ 174 $ 105 ====== ====== ====== FINANCIAL POSITION AT DECEMBER 31 Current assets $ 863 $ 883 $ 801 Current liabilities 516 483 376 ------ ------ ------ Working capital 347 400 425 Property, plant and equipment - net 681 714 736 Other assets (liabilities) - net 205 (67) (199) ------ ------ ------ 1,233 1,047 962 Debt not maturing within one year 1 2 102 ------ ------ ------ Net assets $1,232 $1,045 $ 860 ====== ====== ======
The above figures are prepared using the accounting principles followed by the Company (see note 2), except that inventories have been valued principally by the last-in, first-out (LIFO) method. (g) Debenture holders are entitled to receive at their option 1,772 common shares held by the Company in NLM, a portfolio investment, in exchange for each ten thousand dollar principal amount of debentures. The Company can redeem the debentures at 100% of the principal. The Company had swapped, to 1998, the interest payments on $100 of its floating rate debt in exchange for fixed interest payments. Based on rates of exchange at year-end, debt repayment requirements over the next five years amount to $311 in 2000, $108 in 2001, $78 in 2002, $181 in 2003 and $63 in 2004. The Company has a $1,000 global, multi-year and multi-currency facility, which expires in tranches at various dates in 2005 and 2006, with a syndicate of major international banks. At December 31, 1999, no funds had been borrowed under this facility and the full amount was available. 14 PREFERENCE SHARES AUTHORIZED An unlimited number of preference shares issuable in series. All shares are without nominal or par value. AUTHORIZED AND OUTSTANDING In each of the years 1999, 1998 and 1997, there were authorized and outstanding 5,700,000 series C and 3,000,000 series E, redeemable non-retractable preference shares with stated values of $106 and $54, respectively. The 1,700,000 series D redeemable non-retractable preference shares with stated value of $43, authorized and outstanding throughout 1997, were redeemed in June 1998. Preference shares, series C and E are eligible for quarterly dividends based on an amount related to the average of the Canadian prime interest rates quoted by two major Canadian banks for stated periods. Preference shares, series C and E may be called for redemption at the option of the Company on 30 days' notice at CAN$25.00 per share. Any partial redemption of preference shares must be made on a pro rata basis or by lot. 54 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 15 COMMON SHARES The authorized common share capital is an unlimited number of common shares without nominal or par value. Changes in outstanding common shares are summarized below:
NUMBER (in thousands) STATED VALUE ------------------------- ------------------------- 1999 1998 1997 1999 1998 1997 ------- ------- ------- ------ ------ ------ OUTSTANDING - BEGINNING OF YEAR 226,003 227,344 226,620 $1,251 $1,251 $1,235 ISSUED FOR CASH: Executive share option plan 886 135 550 19 2 11 Dividend reinvestment and share purchase plans 271 254 174 8 7 5 PURCHASED FOR CANCELLATION (8,845) (1,730)* -- (48) (9) -- ------- ------- ------- ------ ------ ------- OUTSTANDING - END OF YEAR 218,315 226,003 227,344 $1,230 $1,251 $1,251 ======= ======= ======= ====== ====== ======
[FN] * 1,645 WERE CANCELLED IN 1998 AND 85 IN 1999. Under the executive share option plan, certain employees may purchase common shares at market value on the effective date of the grant of each option. The vesting period for options granted beginning in 1998 is linked to Alcan's share price performance, but does not exceed nine years. Options granted before 1998 vest generally over a fixed period of four years from the grant date and expire at various dates during the next 10 years. Changes in the number of shares under option as well as average exercise price are summarized below:
AVERAGE EXERCISE PRICE (CAN$) NUMBER (in thousands) ---------------------------- ------------------------- 1999 1998 1997 1999 1998 1997 ------- ------- ------- ------- ------- ------- OUTSTANDING - BEGINNING OF YEAR $38.16 $38.64 $33.87 5,156 4,193 3,715 Granted $45.41 $34.91 $48.52 1,315 1,122 1,100 Exercised $32.76 $26.96 $27.49 (886) (135) (550) Cancelled $31.80 $33.23 $28.51 (113) (24) (72) ------- ------- ------- ------- ------- ------- OUTSTANDING - END OF YEAR $40.91 $38.16 $38.64 5,472 5,156 4,193 ======= ======= ======= ======= ======= =======
Range of exercise prices for options outstanding at December 31, 1999
RANGE OF EXERCISE PRICES (CAN$) NUMBER OF OPTIONS (in thousands) ------------------------------ ------------------------------- $21.94 - $34.00 455 $34.01 - $40.00 1,399 $40.01 - $46.00 2,509 $46.01 - $48.98 1,109 --------------- ----- 5,472 =====
At December 31, 1999, approximately 3,099,000 of outstanding options with an average exercise price of CAN$38.12 were vested. During 1998, the Company also granted 774,700 options, which grants become effective, subject to certain restrictions, upon the exercise of options previously granted. Upon consummation of the combination with Pechiney and Alusuisse Lonza Group Ltd., described in note 26, all options granted under the Company's executive share option plan would vest. At December 31, 1999, the Company had reserved for issue under the executive share option plan 18,380,024 shares. The Company does not recognize compensation expense for options granted under the executive share option plan. If the Company had elected to recognize compensation expense for these options in accordance with the methodology prescribed by Statement No. 123 of the U.S. Financial Accounting Standards Board (FASB), net income would have been lower by $13, or $0.06 per share, ($9, or $0.04 per share, in 1998 and $10, or $0.04 per share, in 1997). The FASB provides the choice of either recognizing the compensation expense in the financial statements or disclosing it in the notes to the financial statements. To compute the notional compensation expense, the Black-Scholes valuation model was used to determine the fair value of the options granted. Using the model, the fair value of options averages approximately 31% to 34% of the exercice price. 55 63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 15 COMMON SHARES (CONT'D) Under a normal course issuer bid, which terminated on September 28, 1999, the Company was authorized to repurchase up to 22,700,000 common shares, representing approximately 10% of the outstanding shares. In 1999, 8,845,000 common shares for an amount of $219 were purchased and cancelled under this authorization (1998: 1,730,000 common shares for an amount of $46). SHAREHOLDER RIGHTS PLAN In 1990, shareholders approved a plan whereby each common share of the Company carries one right to purchase additional common shares. The plan, with certain amendments, was reconfirmed at the 1995 Annual Meeting and further amendments were approved at the 1999 Annual Meeting. The rights under the plan are not currently exercisable but may become so upon the acquisition by a person or group of affiliated or associated persons ("Acquiring Person") of beneficial ownership of 20% or more of the Company's outstanding voting shares or upon the commencement of a takeover bid. Holders of rights, with the exception of an Acquiring Person, in such circumstances will be entitled to purchase from the Company, upon payment of the exercise price (currently $100.00), such number of additional common shares as can be purchased for twice the exercise price based on the market value of the Company's common shares at the time the rights become exercisable. The plan has a permitted bid feature which allows a takeover bid to proceed without the rights under the plan becoming exercisable, provided that it meets certain minimum specified standards of fairness and disclosure, even if the Board does not support the bid. The plan expires in 2008, subject to reconfirmation at the Annual Meeting of Shareholders in 2002 and 2005 but may be redeemed earlier by the Board, with the prior consent of the holders of rights or common shares, for $0.01 per right. In addition, should a person or group of persons acquire outstanding voting shares pursuant to a permitted bid or a share acquisition in respect of which the Board has waived the application of the plan, the Board shall be deemed to have elected to redeem the rights at $0.01 per right. 16 RETAINED EARNINGS Consolidated retained earnings at December 31, 1999, include $2,563 of undistributed earnings of subsidiaries and joint ventures, some part of which may be subject to certain taxes and other restrictions on distribution to the parent company; no provision is made for such taxes because these earnings are reinvested in the businesses. 17 CURRENCY GAINS AND LOSSES The following are the amounts recognized in the financial statements:
1999 1998 1997 ------ ------ ------ CURRENCY GAINS (LOSSES) EXCLUDING REALIZED DEFERRED TRANSLATION ADJUSTMENTS: Forward exchange contracts and currency options $ (23) $ (58) $ 22 Other (15) 4 1 ----- ----- ----- $ (38) $ (54) $ 23 ===== ===== ===== DEFERRED TRANSLATION ADJUSTMENTS - BEGINNING OF YEAR $ 30 $ 43 $ 209 Effect of exchange rate changes (100) 28 (143) Gains realized* (6) (41) (2) ----- ----- ----- BALANCE - END OF YEAR $ (76) $ 30 $ 64 ===== ===== =====
[FN] * THE GAINS REALIZED IN 1999 AND 1998 RELATE PRINCIPALLY TO THE SALE OF A PORTION OF THE COMPANY'S INVESTMENT IN NIPPON LIGHT METAL COMPANY, LTD. In 1999, $25 ($5 in 1998) of exchange losses related to hedging of Canadian dollar construction costs of the new smelter at Alma, Quebec, are included in Construction work in progress. 56 64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 18 FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS In conducting its business, the Company uses various instruments, including forward contracts and options, to manage the risks arising from fluctuations in exchange rates, interest rates and aluminum prices. All such instruments are used for risk management purposes only. FINANCIAL INSTRUMENTS - CURRENCY In 1999, the Company revised its currency risk management strategy for its ongoing Canadian dollar operating cost exposure. The Company used to hedge a portion of such ongoing Canadian dollar requirements for future periods up to a maximum of three years. This deferred the impact of changes in exchange rates, without adding value over the longer term. The Company no longer hedges these exposures, thus eliminating the cost of hedging instruments and program administration. This change in approach does not affect the Company's hedging of its Canadian dollar capital commitments for the construction of the new smelter at Alma, Quebec, as disclosed below. At December 31, 1999, the contract amount of forward exchange contracts outstanding used to hedge future firm operating cost commitments was $463 ($426 in 1998 and $1,296 in 1997) while the contract amount of purchased options outstanding used to hedge future firm operating cost commitments was $199 ($1,499 in 1998 and $1,512 in 1997). At December 31, 1999, the contract amount of outstanding forward exchange contracts used to hedge future revenues was $44 ($47 in 1998 and $268 in 1997). At December 31, 1999, the contract amount of forward exchange contracts outstanding used to hedge future commitments (principally Canadian dollar) for the construction of a new smelter at Alma, Quebec, was $490 ($281 in 1998 and nil in 1997) while the contract amount of purchased options outstanding used to hedge the Canadian dollar commitments for the new smelter was $55 ($315 in 1998 and nil in 1997). The market value of outstanding forward exchange contracts related to hedges of operating costs or revenues at December 31, 1999 was such that if these contracts had been closed out, the Company would have received $29 (paid $18 in 1998 and paid $24 in 1997). Based on prevailing market prices, if the currency option contracts related to operating cost commitments had been closed out on December 31, 1999, the Company would have received $4 (paid $33 in 1998 and paid $36 in 1997). The market value at December 31, 1999 of outstanding forward exchange contracts related to hedges of cost commitments for the new smelter at Alma, Quebec, was such that if these contracts had been closed out, the Company would have received $8 (paid $8 in 1998). Based on prevailing market prices, if the currency option contracts relating to smelter construction cost commitments had been closed out at December 31, 1999, the Company would have received $1 (paid $2 in 1998). Unrealized gains and losses on outstanding forward contracts and options are not recorded in the financial statements until maturity of the underlying transactions. In addition, certain intercompany foreign currency denominated loans are hedged through the use of forward exchange contracts. At December 31, 1999, the contract amount of such forward contracts was $204 ($212 in 1998 and $220 in 1997) and the market value was such that if these contracts had been closed out, the Company would have received nil ($4 in 1998 and $16 in 1997). Included in Deferred charges and other assets and Receivables is an amount of $42 ($71 in 1998) consisting of net losses on terminated forward exchange contracts and options, as well as the net cost of outstanding options, used to hedge future costs, including costs related to the construction of the new smelter at Alma. These deferred charges are included in the cost of the items being hedged at the same time as the underlying transactions being hedged are recognized. FINANCIAL INSTRUMENTS - DEBT NOT MATURING WITHIN ONE YEAR As explained in note 13, the 5.375% Swiss franc bonds of principal amount SFr178 million have been swapped for $105 at an effective interest rate of 8.98%. If the swap had been closed out at December 31, 1999, the Company would have received a net amount of $6 ($24 in 1998 and $15 in 1997), of which an amount of $6 related to the swap of the principal ($25 in 1998 and $18 in 1997) has been recorded in Deferred charges and other assets. 57 65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 18 FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS (CONT'D) FINANCIAL INSTRUMENTS - INTEREST RATES The Company sometimes enters into interest rate swaps to manage funding costs as well as the volatility of interest rates. Amounts receivable or payable related to swaps are recorded in Interest concurrently with the interest expense on the underlying debt. Changes in the fair value of the interest rate swaps are not recognized on a mark to market basis since these relate specifically to interest costs on identifiable debt. There were no significant interest rate swap agreements outstanding at December 31, 1999 and 1998. If all interest rate swap agreements had been closed out on December 31, 1997, the Company would have paid $2 based on prevailing interest rates. COMMODITY CONTRACTS - METAL Depending on supply and market conditions, as well as for logistical reasons, the Company may sell primary metal to third parties and may purchase primary and secondary aluminum on the open market to meet its fabricated products requirements. In addition, the Company may hedge certain commitments arising from pricing arrangements with some of its customers. Through the use of forward purchase and sales contracts and options, the Company seeks to limit the negative impact of low metal prices whilst retaining most of the benefit from higher metal prices. At December 31, 1999, the Company had outstanding forward contracts (principally forward purchase contracts) covering 326,800 tonnes (465,600 tonnes at December 31, 1998 and 418,800 tonnes at December 31, 1997), maturing at various dates principally in 2000, 2001 and 2002 (1999, 2000 and 2001 at December 31, 1998 and 1998, 1999 and 2000 at December 31, 1997). In addition, the Company held call options outstanding for 135,500 tonnes (346,000 tonnes at December 31, 1998 and 657,800 tonnes at December 31, 1997) maturing at various dates in 2000 and 2001 (1999 and 2000 at December 31, 1998 and 1998 and 1999 at December 31, 1997). At December 31, 1999, the Company held put options outstanding for 27,300 tonnes, maturing in 2000 and 2001 (20,000 tonnes maturing in 1999 at December 31, 1998 and 60,000 tonnes maturing in 1998 and 1999 at December 31, 1997). Included in Receivables or Deferred charges and other assets is $7 ($22 in 1998 and $33 in 1997) representing the net cost of outstanding options. The option premiums paid and received, together with the realized gains or losses on the contracts, are included in Sales and operating revenues or Cost of sales and operating expenses, as applicable, concurrently with recognition of the underlying items being hedged. Based on metal prices prevailing on December 31, 1999, if all commodity forward purchase and sale contracts and options had been closed out, the Company would have received $64 (paid $39 in 1998 and paid $9 in 1997). COUNTERPARTY RISK As exchange rates, interest rates and metal prices fluctuate, the above contracts will generate gains and losses that will be offset by changes in the value of the underlying items being hedged. The Company may be exposed to losses in the future if the counterparties to the above contracts fail to perform. However, the Company is satisfied that the risk of such non-performance is remote, due to its controls on credit exposures. FINANCIAL INSTRUMENTS - MARKET VALUE On December 31, 1999, the fair value of the Company's long-term debt totalling $1,322 ($1,703 in 1998 and $1,277 in 1997) was $1,323 ($1,762 in 1998 and $1,321 in 1997), based on market prices for the Company's fixed rate securities and the book value of variable rate debt. At December 31, 1999, the quoted market value of the Company's portfolio investments having a book value of $21 ($45 in 1998) was $39 ($90 in 1998). Prior to 1998, portfolio investments held by the Company were not significant. At December 31, 1999, the market value of the Company's preference shares having a book value of $160 ($160 in 1998) was $139 ($140 in 1998). (In 1997, the market value was approximately equal to book value.) The market values of all other financial assets and liabilities are approximately equal to their carrying values. 58 66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 19 COMMITMENTS AND CONTINGENCIES The Company has guaranteed the repayment of approximately $14 of indebtedness by third parties. Alcan believes that none of these guarantees is likely to be invoked. Commitments with third parties and certain related companies for supplies of goods and services are estimated at $734 in 2000, $151 in 2001, $109 in 2002, $97 in 2003, $92 in 2004, and $520 thereafter. Most of the commitments in 2000 and 2001 relate to the construction of the new smelter at Alma, Quebec. Total fixed charges from these entities, excluding $605 in relation to the smelter at Alma, were $18 in 1999, $23 in 1998 and $9 in 1997. Minimum rental obligations are estimated at $26 in 2000, $19 in 2001, $15 in 2002, $13 in 2003, $11 in 2004 and $55 thereafter. Total rental expenses amounted to $57 in 1999, $83 in 1998 and $70 in 1997. Alcan, in the course of its operations, is subject to environmental and other claims, lawsuits and contingencies. The Company has environmental contingencies relating to approximately 30 existing and former Alcan sites and third-party sites. Accruals have been made in specific instances where it is probable that liabilities will be incurred and where such liabilities can be reasonably estimated. Although it is possible that liabilities may arise in other instances for which no accruals have been made, the Company does not believe that such an outcome will significantly impair its operations or have a material adverse effect on its financial position. In addition, see reference to income taxes in note 7, capital expenditures in note 10, debt repayments in note 13, financial instruments and commodity contracts in note 18, year 2000 compliance in note 20, and combination agreement in note 26. 20 YEAR 2000 COMPLIANCE The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in possible errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. Although the change in date has occurred, it is not possible to conclude that all aspects of the Year 2000 Issue affecting the Company, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved. Generally, costs associated with the Year 2000 Issue are being expensed as incurred. 21 SUPPLEMENTARY INFORMATION
1999 1998 1997 ------ ------ ------ INCOME STATEMENT Interest on long-term debt $ 104 $ 93 $ 91 Capitalized interest $ (41) $ (15) $ (2) ----- ----- ----- BALANCE SHEET Payables Accrued employment costs $ 205 $ 196 $ 170 Short-term borrowings $ 167 $ 86 $ 238 ----- ----- ----- At December 31, 1999, the weighted average interest rate on short-term borrowings was 6.7% (4.7% in 1998 and 5.3% in 1997). STATEMENT OF CASH FLOWS Interest paid $ 128 $ 96 $ 101 Income taxes paid $ 96 $ 298 $ 261 ===== ===== =====
59 67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 22 POSTRETIREMENT BENEFITS Alcan and its subsidiaries have established pension plans in the principal countries where they operate, for the greater part contributory and generally open to all employees. Most plans provide pension benefits that are based on the employee's highest average eligible compensation during any consecutive 36-month period before retirement. Plan assets consist primarily of listed stocks and bonds. Alcan's funding policy is to contribute the amount required to provide for benefits attributed to service to date, with projection of salaries to retirement, and to amortize unfunded actuarial liabilities for the most part over periods of 15 years or less, generally corresponding to the expected average remaining service life of the employees. The Company provides life insurance benefits under some of its retirement plans. Certain early retirement arrangements also provide for medical benefits, generally only until the age of 65. These plans are not funded.
PENSION BENEFITS OTHER BENEFITS ----------------------------- --------------------------- 1999 1998 1997 1999 1998 1997 ------- ------- ------- ----- ----- ----- CHANGE IN BENEFIT OBLIGATION Benefit obligation at January 1 $ 3,827 $ 3,550 $ 3,506 $ 176 $ 172 $ 178 Service cost 99 84 73 4 4 4 Interest cost 241 236 231 11 11 12 Members' contributions 21 20 20 -- -- -- Benefits paid (209) (200) (189) (10) (9) (9) Amendments 66 80 47 3 -- -- Acquisitions/divestitures (5) (1) (176) -- -- -- Actuarial (gain) loss 59 45 63 2 (2) (13) Currency (gains) losses (52) 13 (25) -- -- -- ------- ------- ------- ----- ----- ------ Benefit obligation at December 31 $ 4,047 $ 3,827 $ 3,550 $ 186 $ 176 $ 172 ======= ======= ======= ===== ===== ====== CHANGE IN MARKET VALUE OF PLAN ASSETS (ASSETS) Assets at January 1 $ 4,298 $ 4,231 $ 3,986 $ -- $ -- $ -- Actual return on assets 800 204 566 -- -- -- Members' contributions 21 20 20 -- -- -- Benefits paid (209) (200) (189) -- -- -- Company contributions 44 36 38 -- -- -- Acquisitions/divestitures -- -- (176) -- -- -- Currency gains (losses) (37) 7 (14) -- -- -- ------- ------- ------- ------ ------ ------ Assets at December 31 $ 4,917 $ 4,298 $ 4,231 $ -- $ -- $ -- ======= ======= ======= ====== ====== ===== Assets in excess of Benefit obligation $ 870 $ 471 $ 681 $ (186) $ (176) $(172) Unamortized - Actuarial (gains) losses (1,110) (736) (943) (18) (24) (24) - Prior service cost 246 263 276 2 (5) (9) - Net initial (surplus) liability (5) (27) (48) 1 2 2 ------- ------- ------- ------ ------ ------ NET ASSET (LIABILITY) IN BALANCE SHEET $ 1 $ (29) $ (34) $ (201) $ (203) $ (203) ======= ======= ======= ======= ======= ======
The accumulated benefit obligation (ABO) of pension plans is $3,661 ($3,414 in 1998 and $3,156 in 1997). For certain plans, the ABO exceeds the market value of the assets. For these plans, the ABO is $158 ($1,239 in 1998 and $1,086 in 1997) while the market value of the assets is $28 ($1,041 in 1998 and $951 in 1997).
PENSION BENEFITS OTHER BENEFITS ----------------------------- --------------------------- 1999 1998 1997 1999 1998 1997 ------- ------- ------- ----- ----- ----- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 99 $ 84 $ 73 $ 4 $ 4 $ 4 Interest cost 241 236 231 11 11 12 Expected return on assets (301) (293) (274) -- -- -- Amortization - Actuarial (gains) losses (65) (74) (67) (3) (2) (2) - Prior service cost 76 94 83 (4) (4) (4) - Net initial (surplus) liability (21) (21) (22) -- -- -- ------- ------- ------ ------ ------ ------ NET PERIODIC BENEFIT COST $ 29 $ 26 $ 24 $ 8 $ 9 $ 10 ======= ======= ====== ====== ====== ======
60 68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 22 POSTRETIREMENTS BENEFITS [CONT'D]
PENSION BENEFITS OTHER BENEFITS 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- WEIGHTED AVERAGE ASSUMPTIONS AT DECEMBER 31 Discount rate 6.5% 6.3% 6.8% 6.9% 6.4% 6.7% Average compensation growth 4.3% 4.3% 4.9% 5.0% 4.5% 4.9% Expected return on assets 7.3% 7.2% 7.3% n/a n/a n/a ==== ==== ==== ==== ==== ====
The assumed health care cost trend rate used for measurement purposes was 8.5% for 2000, decreasing gradually to 5.25% in 2006 and remaining at that level thereafter. A one percentage point change in assumed health care cost trend rates would have the following effects:
OTHER BENEFITS 1% 1% INCREASE DECREASE -------- -------- SENSITIVITY ANALYSIS Effect on service and interest costs 1 (1) Effect on benefit obligation 9 (8) ======== ========
23 INFORMATION BY GEOGRAPHIC AREAS
LOCATION 1999 1998 1997 ---------------- ------ ------ ------ SALES AND OPERATING REVENUES Canada $ 620 $ 580 $ 658 - THIRD PARTIES (BY DESTINATION) United States 3,067 3,073 2,946 South America 371 473 464 United Kingdom 450 548 596 Germany 641 769 693 Other Europe 1,249 1,556 1,522 Asia and Pacific 877 748 848 All other 49 42 50 ------ ------ ------ Total $7,324 $7,789 $7,777 ====== ====== ====== SALES AND OPERATING REVENUES Canada $1,852 $1,980 $1,926 - INTERCOMPANY (BY ORIGIN) United States 528 504 541 South America 56 37 41 United Kingdom 327 294 369 Germany 147 143 203 Other Europe 109 301 318 Asia and Pacific 72 70 68 All other 260 358 350 ------ ------ ------ Sub-total 3,351 3,687 3,816 consolidation eliminations (3,351) (3,687) (3,816) ------ ------ ------ Total $ -- $ -- $ -- ====== ====== ====== Sales to subsidiary companies are made at fair market prices recognizing volume, continuity of supply and other factors. SALES AND OPERATING REVENUES Canada $ 941 $1,004 $1,169 - THIRD PARTIES (BY ORIGIN) United States 3,119 3,229 3,063 South America 334 369 395 United Kingdom 445 515 538 Germany 1,196 1,379 1,291 Other Europe 520 777 780 Asia and Pacific 671 491 515 All other 98 25 26 ------ ------ ------ Total $7,324 $7,789 $7,777
61 69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (in millions of US$, except where indicated) 23 INFORMATION BY GEOGRAPHIC AREAS (CONT'D)
LOCATION 1999 1998 1997 -------- ------- ------- ------- NET INCOME* Canada $ 111 $ 133 $ 245 United States 178 144 136 South America 5 13 27 United Kingdom 18 2 22 Germany 30 7 -- Other Europe 16 (98)** 33 Asia and Pacific 82 117 *** (1) All other 33 39 35 Consolidation eliminations (13) 42 (29) ------- ------- ------- Net income before extraordinary item 460 399 468 Extraordinary gain - Canada -- -- 17 ------- ------- ------- Total $ 460 $ 399 $ 485 ======= ======= ======= PROPERTY, PLANT AND Canada $ 3,050 $ 2,376 $ 2,095 EQUIPMENT - NET United States 681 714 736 AT DECEMBER 31 South America 743 710 567 United Kingdom 444 462 406 Germany 499 650 631 Other Europe 147 349 609 Asia and Pacific 575 339 134 All other 295 297 280 ------- ------- ------- Total $ 6,434 $ 5,897 $ 5,458 ======= ======= ======= CAPITAL EXPENDITURES Canada $ 845 $ 326 $ 186 AND INVESTMENTS United States 63 62 71 South America 86 188 118 United Kingdom 41 85 97 Germany 49 44 55 Other Europe 21 35 54 Asia and Pacific 158 84 21 All other 35 53 39 ------- ------- ------- Total $ 1,298 $ 877 $ 641 ======= ======= ======= AVERAGE NUMBER OF Canada 11 11 11 EMPLOYEES (IN THOUSANDS) United States 4 4 4 South America 3 3 3 United Kingdom 3 3 3 Germany 4 5 5 Other Europe 2 3 3 Asia and Pacific 8 5 2 All other 3 2 2 ------- ------- ------- Total 38 36 33 ======= ======= =======
* IF PRESENTED TO REFLECT THE EFFECT OF PRIOR YEARS'INCOME TAX REASSESSMENTS DESCRIBED IN NOTE 7, IN ADDITION TO THE NET BENEFIT OF $31 RECORDED IN CANADA IN 1999, NET INCOME IN CANADA IN 1999 WOULD BE INCREASED BY A FURTHER $68 AND DECREASED BY $52 IN THE UNITED STATES, $8 IN THE UNITED KINGDOM AND $8 IN GERMANY. IN 1997, NET INCOME IN CANADA WOULD HAVE BEEN REDUCED BY $109 AND INCREASED BY $93 IN THE UNITED STATES, $8 IN THE UNITED KINGDOM AND $8 IN GERMANY. ** INCLUDES WRITE-DOWN OF $120 AFTER TAX RELATED TO THE AUGHINISH ALUMINA REFINERY. *** INCLUDES GAIN OF $140 AFTER TAX RELATED TO THE SALE OF A PORTION OF THE COMPANY'S INVESTMENT IN NIPPON LIGHT METAL COMPANY, LTD. 24 INFORMATION BY OPERATING SEGMENT The following presents selected information by operating segment, viewed on a stand-alone basis and as viewed by the Chief Executive Officer who is the Company's chief operating decision maker. In March 1999, the Company announced the creation of two global operating segments, the Primary Metal Group and the Global Fabrication Group. Transactions between operating segments are conducted on an arm's-length basis and reflect market prices. Thus, income from the Primary Metal Group is mainly profit on metal produced by the Company, whether sold to third parties or used in the Company's Global Fabrication Group. Income from the Global Fabrication Group represents only the fabricating profit on rolled products and downstream businesses. The accounting principles used to prepare the information by operating segment are the same as those used to prepare the consolidated financial statements of the 62 70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) (IN MILLIONS OF US$, EXCEPT WHERE INDICATED) 24 INFORMATION BY OPERATING SEGMENT (CONT'D) Company except that the pension costs for the operating segments are based on the normal current service cost with all actuarial gains, losses and other adjustments being included in Intersector and other items. Some Corporate office and certain other costs have been allocated to the respective operating segments. Comparative information has been restated to conform to the 1999 corporate structure.
SALES AND OPERATING REVENUES OPERATING INCOME INTERSECTOR THIRD PARTIES ----------------------------- ----------------------------- --------------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 -------- -------- -------- ------- ------- ------- ------- ------- ------- Primary metal group $ 1,317 $ 1,405 $ 1,486 $ 1,689 $ 1,813 $ 2,023 $ 325 $ 402 $ 666 Global Fabrication Group 34 -- -- 5,607 5,963 5,737 301 231 209 Intersector and other items $(1,351) (1,405) (1,486) 28 13 17 159 153 7 ------- ------- ------- ------- ------- ------- ------- ------- ------- $ -- $ -- $ -- $ 7,324 $ 7,789 $ 7,777 785 786 882 ======= ======= ======= ======= ======= ======= ======= ======= =======
RECONCILIATION TO NET INCOME BEFORE EXTRAORDINARY ITEM
Equity loss (1) (48) (33) Corporate offices (37) (37) (32) Interest (76) (92) (101) Income taxes (211) (210) (248) ------ ------ ------- NET INCOME BEFORE EXTRAORDINARY ITEM $460 $399 $468 ====== ====== =======
Included in 1999 Intersector and other items are a gain of $44 from the sale of the Company's piston operations in Germany, a gain of $37 from the sale of a portion of the Company's portfolio investment in NLM, a gain of $19 from the sale of property in the U.K. and a gain of $8 from the sale of a subsidiary in France. Included in 1998 Intersector and other items are a gain of $146 from the sale of a portion of the Company's interest in NLM and a loss of $143 related to the impairment of the Aughinish alumina refinery assets sold in 1999. Included in 1999 Operating income for the Primary Metal Group is $38 related to rationalization costs. Included in 1998 Operating income for the Global Fabrication Group is $16 related to rationalization costs in Europe and Asia.
TOTAL ASSETS AT DECEMBER 31 1999 1998 1997 ------- ------- ------- Primary Metal Group $4,793 $4,351 $4,239 Global Fabrication Group 4,507 4,706 4,318 Cash and other corporate items 549 844 817 ------- ------- ------- $9,849 $9,901 $9,374 DEPRECIATION CAPITAL EXPENDITURES 1999 1998 1997 1999 1998 1997 --------------------------------- ------------------------------- Primary Metal Group $ 232 $ 227 $ 216 $ 907 $ 475 $ 346 Global Fabrication Group 235 225 210 383 395 282 Intersector and other items 10 10 10 8 7 13 -------- ------ ------ ------- ------ ------ $ 477 $ 462 $ 436 $1,298 $ 877 $ 641 ======== ====== ====== ======= ====== ======
25 PRIOR YEAR AMOUNTS Certain prior year amounts have been reclassified to conform with the 1999 presentation. 26 COMBINATION AGREEMENT WITH PECHINEY AND ALUSUISSE LONZA GROUP LTD. On September 15, 1999, the Company entered into a combination agreement with Pechiney and Alusuisse Lonza Group Ltd. (algroup). The proposed combination will be accomplished through two independent exchange offers of the Company's shares, one for all of the outstanding shares of Pechiney and the other for all of the outstanding shares of algroup. Upon completion of the combination, which is subject to regulatory approvals, assuming that all of the Pechiney and algroup shares are exchanged for the Company's shares, the Company's shareholders would hold 44% of the shares of the Combined Company on a fully diluted basis. On November 22, 1999, the Company's shareholders approved the issuance of the Company's shares under the two independent exchange offers. 63 71 72 ELEVEN-YEAR SUMMARY
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- CONSOLIDATED REVENUES INCOME Sales and operating revenues 7,324 7,789 7,777 7,614 9,287 8,216 7,232 7,596 7,748 8,757 8,839 STATEMENT Other income 179 231 88 75 100 109 75 69 82 162 208 ITEMS --------------------------------------------------------------------------------------------------------------------- (in millions TOTAL REVENUES 7,503 8,020 7,865 7,689 9,387 8,325 7,307 7,665 7,830 8,919 9,047 of US$) ===================================================================================================================== COSTS AND EXPENSES Cost of sales and operating expenses 5,695 6,076 6,005 5,919 7,247 6,740 6,002 6,300 6,455 6,996 6,682 Depreciation 477 462 436 431 447 431 443 449 429 393 333 Selling, administrative and General expenses 375 448 444 422 484 528 551 596 635 659 600 Research and development expenses 67 70 72 71 76 72 99 125 131 150 136 Interest 76 92 101 125 204 219 212 254 246 197 130 Other expenses 127 219 54 88 61 95 106 118 163 65 62 Income taxes 211 210 248 212 326 112 (13) (17) (104) 126 350 Equity income (loss) (1) (48) (33) (10) (3) (29) (12) 53 89 211 97 Minority interests (14) 4 (4) (1) 4 (3) 1 (5) -- (1) (16) --------------------------------------------------------------------------------------------------------------------- Net income (Loss) before extraordinary item 460 399 468 410 543 96 (104) (112) (36) 543 835 Extraordinary gain (loss) -- -- 17 -- (280) -- -- -- -- -- -- --------------------------------------------------------------------------------------------------------------------- Net income (loss) 460 399 485 410 263 96 (104) (112) (36) 543 835 Preference dividends 9 10 10 16 24 21 18 23 20 22 21 --------------------------------------------------------------------------------------------------------------------- Net income (Loss) attributable to common shareholders 451 389 475 394 239 75 (122) (135) (56) 521 814 =================================================================================================================================== CONSOLIDATED Operating working capital 1,307 1,682 1,483 1,461 1,731 1,675 1,314 1,460 1,717 1,842 1,774 BALANCE Property, plant and SHEET ITEMS equipment - net 6,434 5,897 5,458 5,470 5,672 5,534 6,005 6,256 6,525 6,167 5,260 (in millions Total assets 9,849 9,901 9,374 9,228 9,736 10,003 9,812 10,154 10,843 10,681 9,518 of US$) Total debt 1,489 1,789 1,515 1,516 1,985 2,485 2,652 2,794 3,024 2,648 1,734 Deferred income taxes 781 747 969 996 979 914 888 955 1,126 1,092 1,044 Preference shares 160 160 203 203 353 353 353 353 212 212 212 Common shareholders' equity 5,381 5,359 4,871 4,661 4,482 4,308 4,096 4,266 4,730 4,942 4,610 =================================================================================================================================== PER COMMON Net income (Loss) before SHARE extraordinary item 2.06 1.71 2.02 1.74 2.30 0.34 (0.54) (0.60) (0.25) 2.33 3.58 (in US$) Net income (Loss) 2.06 1.71 2.09 1.74 1.06 0.34 (0.54) (0.60) (0.25) 2.33 3.58 Dividends paid 0.60 0.60 0.60 0.60 0.45 0.30 0.30 0.45 0.86 1.12 1.12 Common shareholders' equity 24.65 23.71 21.43 20.57 19.84 19.17 18.28 19.06 21.17 22.19 20.30 Market price - NYSE close 41.38 27.06 27.63 33.63 31.13 25.38 20.75 17.63 20.00 19.50 22.88 =================================================================================================================================== OPERATING CONSOLIDATED ALUMINUM SHIPMENTS DATA Ingot products* 859 829 858 810 801 897 887 870 866 857 743 (in thousands Fabricated products 1,911 1,823 1,694 1,539 1,733 1,763 1,560 1,389 1,333 1,488 1,518 of tonnes Fabrication of except customer-owned metal 315 289 276 258 225 189 91 206 145 81 75 LME price) --------------------------------------------------------------------------------------------------------------------- Total aluminum shipments 3,085 2,941 2,828 2,607 2,759 2,849 2,538 2,465 2,344 2,426 2,336 Consolidated primary aluminum production 1,518 1,481 1,429 1,407 1,278 1,435 1,631 1,612 1,695 1,651 1,643 Consolidated aluminum purchases 1,297 1,227 1,254 1,003 1,365 1,350 865 675 591 646 718 Consolidated aluminum inventories (end of year) 477 469 451 408 449 435 403 418 463 447 539 Primary aluminum capacity** Consolidated subsidiaries 1,583 1,706 1,558 1,561 1,561 1,561 1,711 1,711 1,676 1,685 1,685 Total consolidated subsidiaries and related companies 1,583 1,706 1,695 1,698 1,712 1,712 1,862 1,862 1,827 1,836 1,836 Average three-month LME price (US$ per tonne) 1,388 1,379 1,620 1,536 1,830 1,500 1,161 1,278 1,333 1,636 1,916 =================================================================================================================================== OTHER Cash from operating activities STATISTICS (in millions of US$) 1,182 739 719 981 1 044 65 444 465 659 760 970 Cash from (used for) financing activities (in millions of US$) (629) (95) (46) (700) (744) (191) (172) (44) 197 433 (67) Cash from (used for) investment activities (in millions of US$) (838) (656) (587) 178 (273) 71 (339) (450) (857) (1,245) (1,329) Capital expenditures (in millions of US$) 1,298 877 641 482 441 356 370 474 880 1,367 1,466 Ratio of total borrowings to equity (%) 21:79 24:76 23:77 23:77 29:71 35:65 37:63 37:63 37:63 33:67 26:74 Average number of employees (in thousands) 38 36 33 34 39 42 46 49 54 57 57 Common shareholders - registered (in thousands at end of year) 20 20 21 22 23 26 28 32 34 38 40 Common shares outstanding (in millions at end of year) 218 226 227 227 226 225 224 224 223 223 227 Registered in Canada (%) 61 60 61 61 61 55 59 69 68 54 44 Registered in the United States (%) 39 39 39 39 38 44 40 30 31 44 54 Registered in other countries (%) -- 1 -- -- 1 1 1 1 1 2 2 Return on average common shareholders' equity (%) 9 7 10 9 5 2 (3) (3) (1) 11 19 Before extraordinary item (%) 10 11 ===================================================================================================================================
[FN] * INCLUDES PRIMARY AND SECONDARY INGOT AND SCRAP. ** PRIMARY ALUMINUM CAPACITY HAS BEEN RESTATED TO REFLECT BETTER THE ACTUAL PRODUCTION LEVELS ACHIEVED OVER A PERIOD OF TIME. SEE NOTE 5 TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR U.S. GAAP INFORMATION. 64-65 73 QUARTERLY FINANCIAL DATA (IN MILLIONS OF US$, EXCEPT WHERE INDICATED)
(unaudited) First Second Third Fourth Year ------ ------ ------ ------ ------ 1999 Revenues $1,841 $1,835 $1,884 $1,943 $7,503 Cost of sales and operating expenses 1,468 1,396 1,390 1,441 5,695 Depreciation 118 117 116 126 477 Income taxes 34 69 71 37 211 Other items 183 182 149 146 660 ------ ------ ------ ------ ------ Net income(1) $ 38 $ 71 $ 158 $ 193 $ 460 Dividends on preference shares 3 1 3 2 9 ------ ------ ------ ------ ------ Net income attributable to common shareholders $ 35 $ 70 $ 155 $ 191 $ 451 ------ ------ ------ ------ ------ Net income per common share (IN US$)(2) $ 0.16 $ 0.32 $ 0.71 $ 0.87 $ 2.06 Net income under U.S. GAAP(3) $ 38 $ 67 $ 160 $ 190 $ 455 ====== ====== ====== ====== ====== 1998 Revenues 1,971 $2,005 $1,960 $2,084 $8,020 Cost of sales and operating expenses 1,497 1,549 1,514 1,516 6,076 Depreciation 110 113 116 123 462 Income taxes 78 76 44 12 210 Other items 169 181 179 344 873 ------ ------ ------ ------ ------ Net income(1) $ 117 $ 86 $ 107 $ 89 $ 399 Dividends on preference shares 3 2 3 2 10 ------ ------ ------ ------ ------ Net income attributable to common shareholders $ 114 $ 84 $ 104 $ 87 $ 389 ------ ------ ------ ------ ------ Net income per common share (IN US$)(2) $ 0.50 $ 0.37 $ 0.46 $ 0.38 $ 1.71 Net income under U.S. GAAP(3) $ 117 $ 94 $ 103 $ 103 $ 417 ====== ====== ====== ====== ====== 1997 Revenues $1,898 $2,030 $1,965 $1,972 $7,865 Cost of sales and operating expenses 1,453 1,555 1,506 1,491 6,005 Depreciation 107 110 106 113 436 Income taxes 42 69 76 61 248 Other items 153 180 197 178 708 ------ ------ ------ ------ ------ Net income before extraordinary item 143 116 80 129 468 Extraordinary gain -- -- -- 17 17 ------ ------ ------ ------ ------ Net income(1) $ 143 $ 116 $ 80 $ 146 $ 485 Dividends on preference shares 3 2 2 3 10 ------ ------ ------ ------ ------ Net income attributable to common shareholders $ 140 $ 114 $ 78 $ 143 $ 475 ------ ------ ------ ------ ------ Net income before extraordinary item per common share (IN US$)(2) $ 0.62 $ 0.50 $ 0.34 $ 0.56 $ 2.02 Extraordinary gain per common share (IN US$) -- -- -- 0.07 0.07 ------ ------ ------ ------ ------ Net income per common share (IN US$)(2) $ 0.62 $ 0.50 $ 0.34 $ 0.63 $ 2.09 Net income before extraordinary item under U.S. GAAP(3) $ 142 $ 141 $ 90 $ 131 $ 504 Net income under U.S. GAAP(3) $ 142 $ 141 $ 90 $ 148 $ 521 ====== ====== ====== ====== ======
(1) THE SECOND QUARTER OF 1999 INCLUDES AN AFTER-TAX GAIN OF $26 ON THE SALE OF THE COMPANY'S PISTON OPERATIONS IN GERMANY AND A RESTRUCTURING CHARGE OF $20 RELATING TO THE COMPANY'S FULL BUSINESS POTENTIAL PROGRAM. THE THIRD QUARTER OF 1999 INCLUDES AFTER-TAX GAINS ON THE SALE OF BUSINESSES, PRINCIPALLY A FURTHER SALE OF SHARES IN NLM IN JAPAN AND THE COMPANY'S BUILDING PRODUCTS BUSINESS IN FRANCE, TOTALLING $47, AS WELL AS RATIONALIZATION OF $5 IN THE PRIMARY METAL GROUP. THE FOURTH QUARTER OF 1999 INCLUDES A FAVOURABLE TAX ADJUSTMENT IN CANADA RELATING TO PRIOR PERIODS OF $31, A GAIN ON DISPOSAL OF PROPERTY, PRINCIPALLY IN THE U.K. OF $17, OFFSET IN PART BY $8 FROM RATIONALIZATION COSTS IN THE U.K. AND JAMAICA. THE FIRST QUARTER OF 1998 INCLUDED AN AFTER-TAX CHARGE OF $11 RELATED TO ALCAN'S SHARE OF CONSTRUCTION CONTRACT LOSSES AND RESTRUCTURING COSTS AT NLM IN JAPAN. THE SECOND QUARTER OF 1998 INCLUDED AN AFTER-TAX CHARGE OF $16 RELATED TO ALCAN'S SHARE OF RESTRUCTURING COSTS AT NLM. THE THIRD QUARTER OF 1998 INCLUDED AN AFTER-TAX GAIN OF $20 FOR EXCHANGE REVALUATION OF THE COMPANY'S ACCUMULATED DEFERRED TAX LIABILITY AND AFTER-TAX CHARGES OF $7 FOR RATIONALIZATION COSTS IN EUROPE. THE FOURTH QUARTER OF 1998 INCLUDED AN AFTER-TAX GAIN OF $140 FROM THE SALE OF A PORTION OF THE COMPANY'S INVESTMENT IN NLM, AN AFTER-TAX LOSS OF $120 FROM THE WRITE-DOWN FOR IMPAIRMENT OF THE AUGHINISH ALUMINA REFINERY ASSETS SOLD IN 1999, AN AFTER-TAX GAIN OF $8 PRINCIPALLY FROM THE SALE OF HANDY CHEMICALS LTD., AND $9 FROM RATIONALIZATION COSTS IN EUROPE AND ASIA. THE FIRST QUARTER OF 1997 INCLUDED AN AFTER-TAX GAIN OF $10 FROM THE SALE OF A BUSINESS AND $26 FROM A FAVOURABLE TAX ADJUSTMENT RELATED TO PRIOR YEARS. THE THIRD QUARTER OF 1997 INCLUDED A SPECIAL CHARGE OF $30 AFTER TAX RELATED TO ALCAN'S SHARE OF CONTRACT LOSSES AND RESTRUCTURING PROVISIONS AT 45.6%-OWNED NLM. (2) NET INCOME PER COMMON SHARE CALCULATIONS ARE BASED ON THE AVERAGE NUMBER OF COMMON SHARES OUTSTANDING IN EACH PERIOD. (3) SEE NOTE 5 TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR EXPLANATION OF DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP. 66 74 CORPORATE GOVERNANCE The business and affairs of Alcan are managed by its Board of Directors acting through the Management of the Company. The Directors and Officers of Alcan are named on the following page. In discharging its duties and obligations, the Alcan Board acts in accordance with the provisions of the Canada Business Corporations Act, the Company's constituting documents and by-laws and other applicable legislation and Alcan policies. Alcan does not have a controlling shareholder nor do any of the Directors represent the investment of any minority shareholder. Corporate governance has traditionally received the active attention of Alcan's Board. For instance, an intensive review of the guiding principles of Alcan conducted by the Board in the 1970s led to the publication in 1978 of a policy statement entitled ALCAN, ITS PURPOSE, OBJECTIVES AND POLICIES, which has remained fundamentally unchanged. This statement represents the basic business principles that guide Alcan employees in conducting a widespread international enterprise and has helped Alcan achieve public understanding and trust. To that original document, a CODE OF CONDUCT was added in 1996 to reinforce it with more detailed guidelines for Alcan employees as well as consultants and contractors engaged by Alcan. The Toronto Stock Exchange now requires a formal description of corporate governance practices by all listed companies. Alcan's disclosure in this regard is published in the Management Proxy Circular issued in connection with the forthcoming Annual Meeting; a copy is available from Shareholder Services at the address on the back cover. Committees of the Board (described briefly at right) assist the Board in carrying out its functions and make recommendations to it on various matters. Membership of these Committees is indicated on the following page. THE CORPORATE GOVERNANCE COMMITTEE has the responsibility for reviewing Board practices and performance, candidates for directorship and Board Committee membership. It also considers recommendations from the Personnel Committee regarding Board compensation and the appointments of the Chairman of the Board and the Chief Executive Officer. THE AUDIT COMMITTEE assists the Board in fulfilling its functions relating to corporate accounting and reporting practices as well as financial and accounting controls, in order to provide effective oversight of the financial reporting process; it also reviews financial statements as well as proposals for issues of securities. THE ENVIRONMENT COMMITTEE has the responsibility for reviewing policy, management practices and performance of Alcan in environmental matters. THE PERSONNEL COMMITTEE has the responsibility for reviewing all personnel policy and employee relations matters (including compensation), and for making recommendations to the Corporate Governance Committee on Board compensation and on the appointments of the Chairman of the Board and the Chief Executive Officer. A special committee composed of members of the Personnel Committee administers the Alcan Executive Share Option Plan. 67 75 DIRECTORS AND OFFICERS (AS AT FEBRUARY 10, 2000) DIRECTORS OFFICERS JOHN R. EVANS, C.C.1, 3, 8 JACQUES BOUGIE Chairman of the Board of Alcan Aluminium Limited, President and Chief Executive Officer Montreal AGE 70, DIRECTOR SINCE 1986 ROBERT L. BALL JACQUES BOUGIE, O.C. Executive Vice President President and Chief Executive Officer of Alcan Aluminium Limited, Montreal RICHARD B. EVANS AGE 52, DIRECTOR SINCE 1989 Executive Vice President, PRESIDENT, ALCAN GLOBAL FABRICATION GROUP WARREN CHIPPINDALE, F.C.A., C.M.1, 4, 7 Director of various companies, Montreal EMERY P. LEBLANC AGE 71, DIRECTOR SINCE 1986 Executive Vice President, PRESIDENT, ALCAN PRIMARY METAL GROUP ELEANOR R. CLITHEROE1, 7 President and Chief Executive Officer BRIAN W. STURGELL of Ontario Hydro Services Company, Toronto Executive Vice President, Corporate Development AGE 46, DIRECTOR SINCE 1999 SURESH THADHANI TRAVIS ENGEN3, 5, 7 Executive Vice President and Chief Financial Officer Chairman, President and Chief Executive Officer of ITT Industries, Inc., New York CYNTHIA CARROLL AGE 55, DIRECTOR SINCE 1996 Vice President, PRESIDENT, ALUMINA AND CHEMICALS ALLAN E. GOTLIEB, C.C.3, 5, 7 Director of various companies, Toronto DANIEL GAGNIER AGE 71, DIRECTOR SINCE 1989 Vice President, Corporate Affairs, Environment, Occupational Health & Safety J. E. NEWALL, O.C.3, 6, 7 Chairman and Director DAVID MCAUSLAND of NOVA Chemicals Corporation, Calgary Vice President, Chief Legal Officer and Secretary AGE 64, DIRECTOR SINCE 1985 GASTON OUELLET DR. PETER H. PEARSE, C.M.5, 7 Vice President, Human Resources Natural resources consultant, Vancouver AGE 67, DIRECTOR SINCE 1989 GLENN R. LUCAS Treasurer SIR GEORGE RUSSELL, C.B.E.1, 3, 7 Chairman of 3i Group plc, London 1 MEMBER OF AUDIT AGE 64, DIRECTOR SINCE 1987 COMMITTEE 2 CHAIRMAN OF AUDIT GUY SAINT-PIERRE, O.C.2, 7 COMMITTEE Chairman of SNC-Lavalin Group Inc., Montreal 3 MEMBER OF PERSONNEL AGE 65, DIRECTOR SINCE 1994 COMMITTEE 4 CHAIRMAN OF PERSONNEL GERHARD SCHULMEYER1, 7 COMMITTEE President and Chief Executive Officer 5 MEMBER OF ENVIRONMENT of Siemens Corp., New York COMMITTEE AGE 61, DIRECTOR SINCE 1996 6 CHAIRMAN OF ENVIRONMENT COMMITTEE PAUL M. TELLIER, C.C.1, 5, 7 7 MEMBER OF CORPORATE President and Chief Executive Officer GOVERNANCE COMMITTEE of Canadian National Railway Company, Montreal 8 CHAIRMAN OF CORPORATE AGE 60, DIRECTOR SINCE 1998 GOVERNANCE COMMITTEE
68 76 SHAREHOLDER INFORMATION COMMON SHARES The principal markets for trading in Alcan's common shares are the New York and Toronto stock exchanges. The common shares are also traded on the Chicago, Pacific, London, Paris, Brussels, Amsterdam, Frankfurt and Swiss stock exchanges. The transfer agents for the common shares are CIBC Mellon Trust Company in Montreal, Toronto, Winnipeg, Regina, Calgary and Vancouver, Chase Mellon Shareholder Services, L.L.C. in New York, and CIBC Mellon Trust Company in England. Common share dividends are paid quarterly on or about the 20th of March, June, September and December to shareholders of record on or about the 20th of February, May, August and November, respectively. PREFERENCE SHARES The preference shares are listed on the Toronto Stock Exchange. The transfer agent for the preference shares is CIBC Mellon Trust Company. INVESTMENT PLANS The Company offers holders of common shares two convenient ways of buying additional Alcan common shares without payment of brokerage commissions. These are known as the Dividend Reinvestment Plan and the Share Purchase Plan. Copies of the prospectus describing these Plans may be obtained from Shareholder Services at the address on the back cover. SECURITIES REPORTS FOR 1999 The Company's Annual Information Form, to be filed with the Canadian securities commissions, and the annual 10-K report, to be filed with the Securities and Exchange Commission in the United States, will be available to shareholders after April 1, 2000. Copies of both may be obtained from Shareholder Services at the address on the back cover.
DIVIDEND PRICES* AND AVERAGE DAILY TRADING VOLUMES - ------------------------------------------------------------------------------------------------------------------ NEW YORK STOCK EXCHANGE (US$) TORONTO STOCK EXCHANGE (CAN$) - ------------------------------------------------------------------------------------------------------------------ 1999 US$ HIGH LOW CLOSE AVG. DAILY HIGH LOW CLOSE AVG. DAILY QUARTER VOLUME VOLUME - ------------------------------------------------------------------------------------------------------------------ FIRST 0.150 30 14/16 22 15/16 25 13/16 548,364 46.45 34.15 38.85 657,380 SECOND 0.150 33 12/16 25 15/16 31 15/16 806,756 49.50 38.80 46.75 819,628 THIRD 0.150 36 15/16 29 3/16 31 4/16 806,492 54.90 43.05 46.10 632,561 FOURTH 0.150 42 30 12/16 41 6/16 913,348 61.00 45.25 59.40 614,803 - ------------------------------------------------------------------------------------------------------------------ YEAR 0.600 - ------------------------------------------------------------------------------------------------------------------ 1998 QUARTER - ------------------------------------------------------------------------------------------------------------------ FIRST 0.150 34 1/2 24 1/2 31 1/4 371,616 48.50 35.10 44.25 563,447 SECOND 0.150 33 7/16 25 15/16 27 10/16 400,443 47.95 38.25 40.50 482,864 THIRD 0.150 28 3/16 18 11/16 23 7/16 322,500 41.60 28.30 36.15 486,748 FOURTH 0.150 28 15/16 21 3/4 27 1/16 456,005 44.85 33.60 41.50 585,815 - ----------------------------------------------------------------------------------------------------------------- YEAR 0.600 - -----------------------------------------------------------------------------------------------------------------
[FN] * THE SHARE PRICES ARE THOSE REPORTED AS "NEW YORK STOCK EXCHANGE - CONSOLIDATED TRADING" AND REPORTED BY THE TORONTO STOCK EXCHANGE. FURTHER INFORMATION CONTACT FOR SHAREHOLDER ACCOUNT INQUIRIES: Linda Burton Manager, Shareholder Services Telephone: (514) 848-8050 or 1-888-252-5226 (toll free) shareholder.services@alcan.com INVESTOR CONTACT: Alan G. Brown Director, Investor Relations Telephone: (514) 848-8368 investor.relations@alcan.com MEDIA CONTACT: Mathieu Bouchard General Manager, Corporate Affairs and Communications Telephone: (514) 848-8186 media.relations@alcan.com VERSION FRANCAISE Pour obtenir la version francaise de ce rapport, veuillez ecrire aux Services aux actionnaires dont l'adresse figure a l'endos du present rapport annuel. VISIT ALCAN'S WEB SITE: www.alcan.com Further information on Alcan and its activities is available on Alcan's World Wide Web site and contained in various Company Publications. These publications, such as A COMMITMENT TO CONTINUAL ENVIRONMENTAL IMPROVEMENT as well as Alcan's Environmental and Health and Safety policies, are available by writing to the address on the back cover. (LOGO) THIS REPORT WAS PRINTED USING VEGETABLE-BASED INKS AND IS RECYCLABLE. 69 77 [PICTURE] PAVING THE WAY TO A BRIGHT FUTURE [ALCAN LOGO] 1188 Sherbrooke Street West Montreal, Quebec, Canada H3A 3G2 www.alcan.com Mailing Address: P.O. Box 6090 Montreal, Quebec, Canada H3C 3A7 Telephone: (514) 848-8000 Telecopier: (514) 848-8115 Printed in Canada EX-21 5 SUBSIDIARIES 1 EXHIBIT NO. 21.: SUBSIDIARIES, RELATED COMPANIES, ETC. With the exception of a number of Subsidiaries which, considered in the aggregate, would not constitute a significant Subsidiary, the Subsidiaries of Alcan, as of 25 February 2000, are listed below. All Subsidiaries and Joint Ventures named below are consolidated in the financial statements incorporated by reference in this report. The list also includes several Related Companies for which Alcan reports its interest in the net income or loss of such companies. Alcan is the direct owner of the stock of each Subsidiary or Related Company, except where the name is indented. Indentation signifies that the principal ownership by Alcan is through the company under which the indentation is made; where there is additional ownership through another company also listed below, that additional ownership is described in the end-note on page 34.
SUBSIDIARIES, RELATED COMPANIES, ETC. ORGANIZED UNDER % OF VOTING THE LAWS OF SHARES HELD BY IMMEDIATE OWNER Alcan Adminco (2000) Inc. Canada 100 Alcan Aluminio (America Latina) Inc. Canada 100 Alcan Aluminum Corporation Ohio 100 Alcan Automotive Castings, Inc. Ohio 100 Altek Automotive Castings Partnership Delaware 50 Alcan Cable (Mexico), Inc. Georgia 100 Alcan Management Services U.S.A. Inc. Ohio 100 Erieview Cartage, Inc. Ohio 100 Logan Aluminum Inc. Delaware 40 Alcan Asia Pacific Limited Canada 100 Alcan Empreendimentos Ltda. Brazil 100 Alcan Aluminio do Brasil Ltda. Brazil 100 CONSORCIO DE ALUMINIO DO MARANHAO ("CONSORCIO ALUMAR") (UNINCORPORATED) Brazil 10 Petrocoque S.A. - Industria e Comercio Brazil 25 Mineracao Rio do Norte S.A. Brazil 12.5 Alcan Europe Limited England 100 Alcan Finances (Bda) Ltd. Bermuda 100 Alcan Asia Limited Hong Kong 100 Alcan (Bermuda) Limited Bermuda 100 Alcan Shipping (Bermuda) Limited Bermuda 100 Alcan Nikkei Asia Holdings Ltd. Bermuda 60 Alcan Nikkei Siam Limited Thailand 33 (1) Alcan Nikkei Thai Limited Thailand 75 (2) Alcom Nikkei Specialty Coatings Sdn. Bhd. Malaysia 50 (3) Aluminium Company of Malaysia Berhad Malaysia 59.2 Aluminium Development Company (Thailand) Limited Thailand 16 (4) Nikkei Holdings Pte. Limited Singapore 100 Nonfemet International (China-Canada-Japan) Aluminium Company Limited China 45 Alcan Nikkei China Limited China 49 Champlain Insurance Company Ltd. Bermuda 100 Halco (Mining) Inc. Delaware 33 Compagnie des Bauxites de Guinee Delaware 51 Alcan Finances B.V. Netherlands 100 Alcan Finances (Ireland) Limited Canada 100 Alcan Aluminium AG Switzerland 100 Alcan Rorschach AG Switzerland 100 Alcan Finances (Ireland) Company Ireland 100 Alcan Finances (U.K.) England 100
1 2
SUBSIDIARIES, RELATED COMPANIES, ETC. ORGANIZED UNDER % OF VOTING THE LAWS OF SHARES HELD BY IMMEDIATE OWNER Alcan International Limited Canada 100 Alcan Ireland Limited Ireland 100 Alcan Luxembourg S.A. Luxembourg 100 Alcan Alluminio S.p.A. Italy 100 Alcanital Services S.r.l. Italy 100 Alcan Deutschland GmbH Germany 98.6 (5) Alcan Austria GmbH Austria 100 Alcan Lamines France France 40 (6) Aluminium Norf GmbH Germany 50 Isytec GmbH Germany 25 Alcan Iberica, S.A. Spain 100 BAA Holdings S.A. Luxembourg 100 British Alcan Aluminium plc England 100 Alcan Automotive Structures (UK) Ltd. England 100 Alcan BAP Limited England 100 Alcan BAS Limited England 100 Alcan Chemicals Europe Limited England 100 Alcan Chemicals Limited England 100 Alcan Colwick Holdings Limited England 100 Alcan Colwick Limited England 100 Alcan Contracts Limited England 100 Alcan Farms Limited England 100 Alcan Metal Centres (Midlands) Limited England 100 Alcan Metal Centres Limited Scotland 100 Alcan Shipping Services (UK) Limited England 100 Alcan Speciality and Aerospace Limited England 100 Alcan St Helens Limited England 100 Alcan Stockists South Limited England 100 Alcan Swinton Limited England 100 Alcan Systems and Conservatories Limited England 100 Alcan Systems Limited England 100 Alcan Windows Limited England 100 Alliance Aluminium Holdings Limited England 100 Aluminium Corporation Limited England 100 Aluminium Sulphate Limited England 50 Aluminium Supply (Aerospace) Limited England 100 Aylesford (Packaging) Limited England 100 BA Chemicals Limited England 100 BA Finance Limited England 100 BA Metals Limited England 100 Belfast Aluminium Limited Northern Ireland 100 British Alcan Conductor Limited England 100 British Alcan Consumer Products Limited England 100 British Alcan Extrusions Limited England 100 British Alcan Highland Estates Limited England 100 British Alcan Primary and Recycling Limited England 100 British Alcan Rolled Products Limited England 100 British Alcan Snappies Limited England 100 British Alcan Wire and Conductor Limited England 100 Four County Windows Limited England 100
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SUBSIDIARIES, RELATED COMPANIES, ETC. ORGANIZED UNDER % OF VOTING THE LAWS OF SHARES HELD BY IMMEDIATE OWNER ALCAN LUXEMBOURG S.A. (Continued) BAA HOLDINGS S.A. (Continued) BRITISH ALCAN ALUMINIUM PLC (Continued) Gentrin Limited England 100 Pearhouse Limited England 100 Pentagon Radiator (Stafford) Limited England 100 Propax Packaging Products Limited England 100 Saguenay Shipping (U.K.) Limited England 100 TBAC Limited England 100 Alcan Aluminium UK Limited England 90 (7) British Alcan Overseas Investments Limited England 100 Saratoga Resources N.V. Netherland Antilles 20 Vigelands Metal Refinery A/S Norway 50 Ghana Bauxite Company Limited Ghana 80 Isleburn Limited Scotland 21.7 MacKay & MacLeod Engineering Limited Scotland 100 Kinlochleven Road Transport Company Limited Scotland 25 The Lochaber Power Company Scotland 100 Venesta Foils Limited England 100 Vigelands Brug A/S Norway 100 Thames Alum Limited England 100 The Bowling Back Land Company England 50 Ulster Aluminium Stockists Limited Northern Ireland 100 Westbro Welding Wire Limited England 100 Alcan Management Services Canada Limited Canada 100 Alcan Nikkei Asia Company Ltd. Bermuda 60 Alcan Nikkei Korea Limited China 49 Alcan Realty Limited Canada 100 Alcan Shannon Company Ireland 100 Alcan Shipping Services Limited Canada 100 Alcan Smelters and Chemicals Limited Canada 100 Alcan-Sprostons Limited Jamaica 100 Alcan Taihan Aluminum Limited Korea 56 Alpac Aluminium Inc. Canada 50 Aluminio de Venezuela, C.A. Venezuela 49 Aluminium Management, Inc. New York 100 Aluminum Company of Canada, Limited Canada 100 Cable Alcan de Mexico, S.A. de C.V. Mexico 100 Indian Aluminium Company, Limited India 54.62 JAMALCAN (UNINCORPORATED) Jamaica 93 N.V. Alcan Aluminium Products Benelux S.A. Belgium 100 Societe des Alumines et Bauxites de Provence France 100 The Roberval and Saguenay Railway Company Quebec 100 3088405 Canada Inc. Canada 100 Alcan South Pacific Pty Ltd. Australia 100 Alcan Queensland Smelter Pty Ltd. Australia 100 Queensland Alumina Limited Australia 21.4 Queensland Alumina Security Corporation Delaware 20 Wenlock Bauxite Pty Limited Australia 100 3712001 Canada Inc. Canada 100 Utkal Alumina International Limited India 35 (8)
3 4
% OF VOTING NOTE ADDITIONAL OWNERSHIP THROUGH SHARES HELD ---- ----------------------------- ----------- (1) Nikkei Holdings Pte. Limited 37.0 (2) Nikkei Holdings Pte. Limited 2.6 (3) Aluminium Company of Malaysia Berhad 50.0 (4) Alcan Nikkei Thai Limited 84.0 (5) Alcan Aluminium AG 1.4 (6) British Alcan Aluminium plc 30.0 Alcan Alluminio S.p.A. 30.0 (7) British Alcan Aluminium plc 10.0 (8) Indian Aluminium Company, Limited 20.0
4 EX-24.1 6 POWER OF ATTORNEY: BOUGIE 1 EXHIBIT 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN ALUMINIUM LIMITED, a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints Serge Fecteau, D. McAusland and R. Millington and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March 2000. /s/ Jacques Bougie ------------------------------- Name: Jacques Bougie Title: Director EX-24.2 7 POWER OF ATTORNEY: CHIPPINDALE 1 EXHIBIT 24.2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN ALUMINIUM LIMITED, a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints Serge Fecteau, D. McAusland and R. Millington and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March 2000. /s/ W. Chippindale ---------------------------- Name: W. Chippindale Title: Director EX-24.3 8 POWER OF ATTORNEY: CLITHEROE 1 EXHIBIT 24.3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN ALUMINIUM LIMITED, a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints Serge Fecteau, D. McAusland and R. Millington and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March 2000. /s/ E. R. Clitheroe ---------------------------- Name: E.R. Clitheroe Title: Director EX-24.4 9 POWER OF ATTORNEY: ENGEN 1 EXHIBIT 24.4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN ALUMINIUM LIMITED, a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints Serge Fecteau, D. McAusland and R. Millington and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March 2000. /s/ T. Engen ------------------------------- Name: T. Engen Title: Director EX-24.5 10 POWER OF ATTORNEY: EVANS 1 EXHIBIT 24.5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN ALUMINIUM LIMITED, a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints Serge Fecteau, D. McAusland and R. Millington and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March 2000. /s/ J.R. Evans ------------------------------- Name: J.R. Evans Title: Director EX-24.6 11 POWER OF ATTORNEY: NEWALL 1 EXHIBIT 24.6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN ALUMINIUM LIMITED, a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints Serge Fecteau, D. McAusland and R. Millington and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March 2000. /s/ J.E. Newall ------------------------------- Name: J.E. Newall Title: Director EX-24.7 12 POWER OF ATTORNEY: PEARSE 1 EXHIBIT 24.7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN ALUMINIUM LIMITED, a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints Serge Fecteau, D. McAusland and R. Millington and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March 2000. /s/ P.H. Pearse ------------------------------- Name: P.H.Pearse Title: Director EX-24.8 13 POWER OF ATTORNEY: RUSSELL 1 EXHIBIT 24.8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN ALUMINIUM LIMITED, a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints Serge Fecteau, D. McAusland and R. Millington and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March 2000. /s/ Sir G. Russell ------------------------------- Name: Sir G. Russell Title: Director EX-24.9 14 POWER OF ATTORNEY: SAINT-PIERRE 1 EXHIBIT 24.9 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN ALUMINIUM LIMITED, a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints Serge Fecteau, D. McAusland and R. Millington and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March 2000. /s/ G. Saint-Pierre ------------------------------- Name: G. Saint-Pierre Title: Director EX-24.10 15 POWER OF ATTORNEY: TELLIER 1 EXHIBIT 24.10 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN ALUMINIUM LIMITED, a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints Serge Fecteau, D. McAusland and R. Millington and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March 2000. /s/ P.M. Tellier ------------------------------- Name: P.M. Tellier Title: Director EX-24.11 16 POWER OF ATTORNEY: THADHANI 1 EXHIBIT 24.11 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN ALUMINIUM LIMITED, a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints Serge Fecteau, D. McAusland and R. Millington and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March 2000. /s/ Suresh Thadhani ------------------------------- Name: Suresh Thadhani Title: Executive Vice President and Chief Financial Officer EX-24.12 17 POWER OF ATTORNEY: GENEST 1 EXHIBIT 24.12 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN ALUMINIUM LIMITED, a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints Serge Fecteau, D. McAusland and R. Millington and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of March 2000. /s/ R. Genest ------------------------------- Name: R. Genest Title: Corporate Controller EX-27 18 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-K OF ALCAN ALUMINIUM LIMITED FOR YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 315 0 1,299 31 1,276 2,890 12,991 6,557 9,849 1,746 1,011 0 160 1,230 4,151 9,849 7,324 7,503 5,695 5,695 477 0 76 686 211 460 0 0 0 460 2.06 2.06
EX-99 19 MANAGEMENT PROXY CIRCULAR 1 EXHIBIT 99 [Alcan LOGO] Notice of Annual Meeting 27 April 2000 Management Proxy Circular [2000 LOGO] Please complete, sign and date your proxy and return it promptly in the enclosed postage-paid envelope. 2 CONTENTS Page NOTICE OF ANNUAL MEETING .................................. 1 MANAGEMENT PROXY CIRCULAR ................................. 2 Proxy Solicitation........................................ 3 Voting Shares and Record Date ........................... 3 Voting by Shareholders .................................. 3 Voting by Proxyholders .................................. 3 Appointment of Proxyholders and Revocation of Proxies ............................................. 3 Confidential Proxy Voting Procedures ................. 4 Business at Annual Meeting .............................. 4 Financial Statements and Auditors' Report ............... 4 Election of Directors ................................... 5 The Combined Company .................................... 9 Directors of the Combined Company .................... 9 Committees of the Board of Directors of the Combined Company ............................ 10 Holdings of Shares and Deferred Share Units by Directors ............................................ 11 Corporate Governance Practices .......................... 11 Board Meetings and Board Committees ..................... 13 Corporate Governance Committee ....................... 13 Audit Committee ...................................... 13 Environment Committee ................................ 13 Personnel Committee .................................. 13 Options Committee .................................... 14 Executive Compensation .................................. 15 Report on Executive Compensation ..................... 15 Performance Graph .................................... 19 Summary Compensation Table ........................... 20 Executive Performance Award .......................... 21 Other Compensation ................................... 21 Alcan Executive Share Option Plan .................... 22 Retirement Benefits .................................. 25 Retiring Allowances .................................. 26 Board Fees ........................................... 26 Employment Agreements ................................... 26 Compensation of Non-Executive Directors ................. 26 Fees and Expenses .................................... 26 Share Investment Plan for Directors .................. 26 Retirement Arrangements .............................. 26 Indebtedness of Directors and Executive Officers ........ 27 Directors' and Officers' Liability Insurance ............ 27 Appointment of Auditors ................................. 28 Approval of Board of Directors .......................... 28
La version francaise du present document ainsi que la formule de procuration qui l'accompagne seront envoyees aux actionnaires sur demande. Veuillez communiquer avec Alcan Aluminium Limitee -- Services aux actionnaires, en appelant au 1-888-252-5226 (sans frais). 3 LOGO LOGO NOTICE OF ANNUAL MEETING The 98th Annual Meeting of the holders of the Common Shares of Alcan Aluminium Limited will be held on Thursday, 27 April 2000 at 10:00 a.m. in the Assembly Hall, International Civil Aviation Organization, 999 University Street, Atrium entrance, Montreal, Quebec, Canada, for the following purposes: 1. receiving the financial statements and the Auditors' Report for the year ended 31 December 1999, 2. electing Directors, and 3. appointing Auditors and authorizing the Directors to fix their remuneration. Shareholders who cannot attend the Annual Meeting may submit their proxies in accordance with the procedures set out in the attached Management Proxy Circular. By order of the Board of Directors, /s/ David McAusland ------------------------- David McAusland Montreal, Canada Vice President, 8 March 2000 Chief Legal Officer and Secretary 1 4 LOGO LOGO 14 February 2000 MANAGEMENT PROXY CIRCULAR THIS MANAGEMENT PROXY CIRCULAR IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS AND MANAGEMENT OF ALCAN ALUMINIUM LIMITED FOR USE AT THE ANNUAL MEETING TO BE HELD IN MONTREAL ON 27 APRIL 2000 (AND ANY ADJOURNMENT THEREOF) FOR THE PURPOSES SET OUT IN THE ATTACHED NOTICE OF ANNUAL MEETING. Unless stated otherwise, the following expressions used in this Management Proxy Circular have the meanings indicated: "Alcan" or "Company" means Alcan Aluminium Limited, "Algroup" means Alusuisse Lonza Group AG, a company incorporated under the laws of Switzerland and, where applicable, one or more subsidiaries, "Algroup Share Exchange Offer" means the offer to be made by Alcan to acquire, on and subject to the terms and conditions set forth in the Combination Agreement, all of the Algroup shares in exchange for Common Shares, the whole as contemplated by the resolution passed by the Shareholders at the Special Meeting on 22 November 1999, "Board" or "Board of Directors" means the Board of Directors of Alcan, "Chief Executive Officer" means the Chief Executive Officer of Alcan, "Combination" means the proposed combination of Alcan, Pechiney and Algroup as provided for in the Combination Agreement and described in the Management Proxy Circular in connection with the Special Meeting held on 22 November 1999, "Combination Agreement" means the combination agreement dated 15 September 1999 among Alcan, Pechiney and Algroup, as it may be amended from time to time, "Combined Company" means Alcan following the completion of the Combination, "Director" means a Director of Alcan or of the Combined Company, as the case may be, "Executive Officers" means the President and Chief Executive Officer, the Executive Vice Presidents, the Vice Presidents (including the Secretary) and the Treasurer of Alcan, "Meeting" means the Annual Meeting of Shareholders to be held on 27 April 2000 and any adjournment thereof, "Non-Executive Director" means a Director of Alcan who is not an employee of Alcan or its Subsidiaries or Related Companies, "Notice" means the attached Notice of Annual Meeting, "Pechiney" means Pechiney, a corporation incorporated under the laws of France and, where applicable, one or more subsidiaries, "Pechiney Share Exchange Offer" means the offer to be made by Alcan to acquire, on and subject to the terms and conditions set forth in the Combination Agreement, all of the Pechiney shares in exchange for Common Shares, the whole as contemplated by the resolution passed by the Shareholders at the Special Meeting on 22 November 1999, 2 5 "Related Company" means a company in which Alcan owns, directly or indirectly, 50% or less of the voting stock and in which Alcan has significant influence over management, but does not include a company in a joint venture, "Shareholder" means a holder of the Shares, "Share Exchange Offers" means the Pechiney Share Exchange Offer and the Algroup Share Exchange Offer, "Shares" or "Common Share" means a common share in the capital of Alcan, "Subsidiary" means a company controlled, directly or indirectly, by Alcan, and "$" means U.S. Dollars. PROXY SOLICITATION The solicitation of proxies will be made primarily by mail, but may also be made by electronic means, by telephone or in person. The cost of soliciting proxies will be borne by Alcan. CIBC Mellon Trust Company and Morrow & Co., Inc. have been retained by Alcan in Canada and the United States of America, respectively, to assist in the solicitation of proxies from Shareholders. For these services, CIBC Mellon Trust Company and Morrow & Co., Inc. are expected to receive, from Alcan, fees of approximately Can. $15,000 and $10,000, respectively, plus reimbursement of reasonable expenses. In addition, employees of Alcan may solicit proxies without compensation. CIBC Mellon Trust Company is responsible for the tabulation of proxies. VOTING SHARES AND RECORD DATE The Shares are the only class of outstanding shares of Alcan which entitle holders to vote at the Meeting. Each Share entitles the holder to one vote at the Meeting. As at 14 February 2000, there were 218,734,110 Shares outstanding. Only Shareholders of record at the close of business on 8 March 2000 are entitled to receive the Notice. They will also be entitled to vote unless their Shares have been transferred and the transferee has produced a properly-endorsed certificate(s) representing the transferred Shares or has otherwise established ownership of the transferred Shares and has requested, at least 10 days before the Meeting, that such transferee's name be included on the list of Shareholders, in which case the transferee will be entitled to vote such Shares instead of the transferor. VOTING BY SHAREHOLDERS A vote at the Meeting may be given by the Shareholder attending in person. The participation by a Shareholder in such a vote will automatically revoke any proxy which has been previously given by the Shareholder in respect of business covered by that vote. VOTING BY PROXYHOLDERS APPOINTMENT OF PROXYHOLDERS AND REVOCATION OF PROXIES A vote at the Meeting may, instead, be given by proxy, and the proxyholder need not be a Shareholder. If the Shareholder is a body corporate or association, the form of proxy must be signed by a person duly authorized by that body corporate or association. The authority granted by a proxy may be revoked by the Shareholder with a letter of revocation or another proxy with a later date. 3 6 All proxies or letters of revocation must be delivered NO LATER THAN THE CLOSE OF BUSINESS (5:00 P.M. E.D.T.) ON 26 APRIL 2000: to Alcan at Maison Alcan 1188 Sherbrooke Street West Montreal, Quebec, Canada H3A 3G2 Telecopier: (514) 848-8115, or to CIBC Mellon Trust Company at 200 Queen's Quay East, Unit 6 Toronto, Ontario, Canada M5A 4K9 Telecopier: (416) 368-2502, or to Morrow & Co., Inc. at 445 Park Avenue New York, N.Y. 10022, U.S.A. Telecopier: (212) 754-8300,
or hand-delivered on 27 APRIL 2000 to the Chairman prior to the commencement of the Meeting. CONFIDENTIAL PROXY VOTING PROCEDURES The accompanying form of proxy represents all Shares registered in the Shareholder's name, including any whole Shares which the Shareholder may own as a participant in Alcan's Dividend Reinvestment Plan and/or Share Purchase Plan. Three persons, who are not Directors or employees of Alcan or its Subsidiaries or Related Companies, are proposed in the accompanying form of proxy as proxyholders to attend the Meeting and vote the Shares represented by the proxy. Their names are printed on the form of proxy. If the form of proxy is signed and returned, these proxyholders will vote in accordance with the instructions the Shareholder marks on it. IF NO INSTRUCTIONS ARE MARKED, THEY WILL VOTE THE SHARES FOR THE ELECTION OF DIRECTORS (SEE PAGES 5 TO 8), AND FOR THE APPOINTMENT OF AUDITORS (SEE PAGE 28). A Shareholder may appoint any other person as proxyholder either by writing that person's name in the blank space provided for that purpose on the form of proxy or by completing another appropriate form of proxy. In either of these cases, the Shareholder is advised in his or her own interest to specify a choice with respect to each of the matters to be presented for action at the Meeting. Proxies will not be submitted to Management except where they contain comments clearly intended for Management or in the event of a proxy contest or in order to meet legal requirements. BUSINESS AT ANNUAL MEETING Only the business described in the Notice may be presented for action at the Meeting. The form of proxy provides discretionary authority to vote only on matters concerning the conduct of the Meeting. FINANCIAL STATEMENTS AND AUDITORS' REPORT The consolidated financial statements of Alcan and the Auditors' Report for 1999 will be submitted to Shareholders at the Meeting, but no vote with respect thereto is required or proposed to be taken. 4 7 ELECTION OF DIRECTORS Twelve Directors are to be elected to serve until the close of the 2001 Annual Meeting or until they cease to hold office as such, including in connection with the completion of either Share Exchange Offer (see page 9). The Board has amended the Director's Standing Resolution in relation to the retirement age of Directors in order to be able to recommend the election of Messrs. Chippindale and Gotlieb as Directors. The Board feels that due to the strategic significance of the Combination which has yet to be completed, and the familiarity of Messrs. Chippindale and Gotlieb with this transaction, it is in the best interest of Shareholders to benefit from their continuing contribution. The Board of Directors and Management recommend the election of the nominees named below.
Director since -------- LOGO JACQUES BOUGIE, O.C. 1989 Jacques Bougie, 52, has been President and Chief Executive Officer of Alcan since November 1993, having served earlier as President and Chief Operating Officer since July 1989. Mr. Bougie joined Alcan in 1979 and held a number of senior management positions until 1989, including having responsibility for all of Alcan's fabricating operations in North America other than rolling. LOGO WARREN CHIPPINDALE, F.C.A., C.M. 1986 Warren Chippindale, 71, was chairman and chief executive partner of Coopers & Lybrand (Canada) from 1971 to 1986 and chairman of Coopers & Lybrand (International) for five years during that period. Mr. Chippindale is a director of The Spectrum United Funds. Mr. Chippindale is a member of the Corporate Governance Committee and the Audit Committee, and is Chairman of the Personnel Committee. LOGO ELEANOR R. CLITHEROE 1999 Eleanor Clitheroe, 46, is president and chief executive officer of Ontario Hydro Services Company. Ms. Clitheroe had earlier served as managing director and chief financial officer of Ontario Hydro. Prior to joining Ontario Hydro in 1993, Ms. Clitheroe served as deputy minister of finance for the Province of Ontario, before which she was a vice president of Canadian Imperial Bank of Commerce. She is a director of The Toronto-Dominion Bank, Dofasco Inc. and Inco Limited. She is also a director of St. Joseph's Hospital Foundation, Nature Conservancy, Wildlife Preservation Trust, Association of Edison Illuminating Companies and is a member of the Federal Standards Advisory Board. Ms. Clitheroe is a member of the Corporate Governance Committee and the Audit Committee.
5 8
Director since -------- LOGO TRAVIS ENGEN 1996 Travis Engen, 55, is chairman and chief executive officer of ITT Industries, Inc. in the United States of America and has held several important positions within the ITT organization, including that of executive vice president of ITT Corporation from 1991 to 1995. Mr. Engen is a member of the U.S. President's National Security Telecommunications Advisory Committee. He is a director of Fundacion Chile. He is also a director of Lyondell Chemical Company and a member of the Business Roundtable and the Manufacturers Alliance Board of Trustees, all of which are located in the United States of America. Mr. Engen is a member of the Corporate Governance Committee, the Personnel Committee and the Environment Committee. LOGO DR. JOHN R. EVANS, C.C. 1986 John Evans, 70, is Chairman of Alcan as well as chairman of Torstar Corporation. Dr. Evans was chairman and chief executive officer of Allelix Inc. from 1983 to 1989, president of the University of Toronto from 1972 to 1978 and director of the Population, Health and Nutrition Department of the World Bank from 1979 to 1983. He is past chairman of the Rockefeller Foundation. He is also a director of MDS Health Group Ltd. and vice chairman of NPS Allelix. Dr. Evans is Chairman of the Corporate Governance Committee and a member of the Audit Committee and the Personnel Committee. LOGO ALLAN E. GOTLIEB, C.C. 1989 Allan Gotlieb, 71, was Ambassador of Canada to the United States of America from 1981 to 1989 and chairman of the Canada Council from 1989 to 1994. Mr. Gotlieb is a director of Hollinger Inc., Champion International Corporation, a senior consultant with the law firm of Stikeman, Elliott, a member of the advisory boards of Nestle Canada Inc., Hollinger International Inc., Investment Co. of America, HCL Technologies Limited, senior advisor to Julius Baer Investment Advisory (Canada) Ltd., and chairman of the Donner Canadian Foundation and Ontario Heritage Foundation. Mr. Gotlieb is a member of the Corporate Governance Committee, the Environment Committee and the Personnel Committee.
6 9
Director since -------- LOGO J.E. NEWALL, O.C. 1985 Ted Newall, 64, is chairman and a director of NOVA Chemicals Corporation. He was chief executive officer of NOVA Corporation from 1991 to 1998. He was also chairman and chief executive officer of Du Pont Canada Inc. from 1980 to 1991. Mr. Newall is a director of BCE Inc., Bell Canada, Canadian Pacific Ltd., Maple Leaf Foods Inc., Royal Bank of Canada and Rio Algom Ltd. He is also a chairman of the Board of Governors of the University of Calgary. Mr. Newall is a member of the Corporate Governance Committee and the Personnel Committee and is Chairman of the Environment Committee. LOGO DR. PETER H. PEARSE, C.M. 1989 Peter Pearse, 67, is a consultant on natural resources management and president of a private investment company. He is a Professor Emeritus at the University of British Columbia where he was a member of the faculty from 1962 to 1996. Dr. Pearse has served on the Economic Council of Canada, the Canadian Consumer Council, the Board of Governors of the University of British Columbia, the executive board of the Law of the Sea Institute and the board of directors of World Wildlife Fund Canada. Dr. Pearse has conducted two Royal Commissions on natural resources policies and has been an advisor on natural resources matters to Canadian and foreign governments and to the World Bank. Dr. Pearse is a member of the Corporate Governance Committee and the Environment Committee. LOGO SIR GEORGE RUSSELL, C.B.E. 1987 Sir George Russell, 64, is chairman of 3i Group plc, an industrial investment bank in the United Kingdom. Sir George had previously served with Alcan from 1972, becoming managing director of British Alcan Aluminium plc, a Subsidiary of Alcan, in 1981. He resigned from that company in 1986, but rejoined its board in 1997. He is also chairman of Camelot plc and a director of Northern Rock Building Society and Taylor Woodrow, all of which are located in the United Kingdom. Sir George is a member of the Corporate Governance Committee, the Audit Committee and the Personnel Committee.
7 10
Director since -------- LOGO GUY SAINT-PIERRE, O.C. 1994 Guy Saint-Pierre, 65, is chairman and a director of SNC-Lavalin Group Inc., having served as president and chief executive officer from 1989 to 1996. From 1970 to 1976, he served with the Government of Quebec, first as Minister of Education and then as Minister of Industry and Commerce. Between 1978 and 1989, he was president and chief executive officer of Ogilvie Mills Ltd. Mr. Saint-Pierre is a director of BCE Inc., Bell Canada, General Motors of Canada and Royal Bank of Canada. Mr. Saint-Pierre is a member of the Corporate Governance Committee and is Chairman of the Audit Committee. LOGO GERHARD SCHULMEYER 1996 Gerhard Schulmeyer, 61, is president and chief executive officer of Siemens Corporation in the United States of America, having been president and chief executive officer of Siemens Nixdorf Informationssysteme AG and chairman of its managing board since 1994. Prior to joining Siemens Nixdorf, Mr. Schulmeyer was executive vice president and a member of the executive committee of Asea Brown Boveri Ltd. as well as president and chief executive officer of ABB Inc., U.S.A. From 1980 to 1989, he held various senior positions with Motorola Inc., culminating with that of executive vice president, deputy to the chief executive officer, responsible for European business. He is chairman of the supervisory board of Alcan Deutschland GmbH, a member of the supervisory board of Thyssen-Bornemisza Holding N.V. and a member of the boards of Zurich Financial Services and A.D. Little, Inc. He is also a member of the board of trustees of MIT Corporation and a member of the German American Chamber of Commerce. Mr. Schulmeyer is a member of the Corporate Governance Committee and the Audit Committee. LOGO PAUL M. TELLIER, C.C. 1998 Paul M. Tellier, 60, has been president and chief executive officer of the Canadian National Railway Company since October 1992. From 1985 to 1992, Mr. Tellier held the position of Canada's most senior civil servant as Clerk of the Privy Council Office and Secretary to the Cabinet of the Government of Canada. During his service in the Canadian civil service since 1967, Mr. Tellier held several senior positions including deputy minister of Indian Affairs and Northern Development, deputy minister of Energy, Mines and Resources, directorships of Petro Canada and Atomic Energy of Canada Limited and chairman of the International Energy Agency. Mr. Tellier is a director of Bombardier Inc., BCE Inc., Bell Canada and McCain Foods, and is past chairman of the Conference Board of Canada. Mr. Tellier is a member of the Corporate Governance Committee, the Environment Committee and the Audit Committee.
8 11 THE COMBINED COMPANY DIRECTORS OF THE COMBINED COMPANY In accordance with the terms of the Combination Agreement, if both Share Exchange Offers are completed, the Board of the Combined Company will consist of 12 members, four of whom will be nominees of Alcan, four of whom will be nominees of Pechiney and four of whom will be nominees of Algroup. If only the Pechiney Share Exchange Offer is completed, the Algroup nominees will not be appointed and the nominees of Alcan will appoint two additional Directors and the nominees of Pechiney will appoint one additional Director. If only the Algroup Share Exchange Offer is completed, the Pechiney nominees will not be appointed and the nominees of Alcan will appoint two additional Directors and the nominees of Algroup will appoint one additional Director. It is anticipated that up to eight of the Directors of Alcan, other than the Alcan nominees referred to below, will resign to facilitate the nomination of the Pechiney nominees and the Algroup nominees. The following sets out the names of the proposed nominees of Alcan, Pechiney and Algroup. Alcan nominees Jacques Bougie Dr. John R. Evans Travis Engen Guy Saint-Pierre Pechiney nominees Etienne Davignon Jean-Francois Dehecq Yves Mansion Jean-Pierre Rodier Algroup nominees Martin Ebner Rupert Gasser Willi Kerth Sergio Marchionne
Etienne Davignon (67) is a member of the Pechiney board and is chairman of Compagnie des Wagons-Lits, Sibeka, Societe Generale de Belgique and Union Miniere (all from Belgium). He also serves as a vice president of Accor (France), Petrofina, Fortis AG and Tractebel (all from Belgium) and Arbed (Luxembourg). He is a director of Sofina SA, Solvay SA and Compagnie Maritime Belge (all from Belgium), ICL (United Kingdom) and Gilead, IDG and Foamex International (all from the United States). He is a member of the supervisory boards of BASF (Germany) and of Suez Lyonnaise des Eaux (France). Jean-Francois Dehecq (60) is a member of the Pechiney board and is chairman and chief executive officer of Sanofi-Synthelabo and holds various other positions in this group. He is also a director of Air France and Ecole Nationale Superieure des Mines de Paris. He is chairman of Conservatoire National des Arts et Metiers de Paris (France). Yves Mansion (49) is a member of the Pechiney board and is chief executive officer of Assurances Generales de France and holds various other positions in this group. He is chairman of the supervisory board of Euler, a director of Comptoir des Entrepreneurs and an alternate director of Entreprise de Recherches et d'Activites Petrolieres (ERAP) (all from France). Jean-Pierre Rodier (52) has been chairman of the board and chief executive officer of Pechiney since July 1994. Until the completion of the American National Can Group, Inc. initial offering on 2 August 1999, Mr. Rodier served as chairman and chief executive officer of American National Can Company. Before joining Pechiney in 1994, Mr. Rodier served as chairman and chief executive officer of Penarroya and managing director of Penarroya's parent company, Imetal. He has also held the positions of chairman of the executive board for Metaleurop France and head of Union Miniere, the Belgian affiliate of Groupe Suez. 9 12 Martin Ebner (54) has been chairman of the Algroup board since April 1999. He is also chairman of the board of directors of BZ Group Holding Limited and president of BZ Bank Limited, as well as chairman of the board of directors of Lonza Group Ltd. and a member of the board of directors of ABB Ltd. BZ Group Holding Limited held, as of 31 December 1999, 1,797,492 shares in Algroup, directly and indirectly, representing an aggregate of approximately 28% of the share capital of Algroup. Rupert Gasser (61) is an executive vice president of Nestle S.A. He has been a member of the Algroup board since 1993 and is also a member of the board of directors of Lonza Group Ltd. Willi Kerth (63) joined Algroup in 1967 and retired from Algroup in 1999. Mr. Kerth held a number of management positions in Algroup's German, U.S. and Swiss subsidiaries before being appointed managing director of Alusuisse Swiss Aluminium Ltd., the principal Swiss operating company in Algroup's aluminium business. Since his retirement, Mr. Kerth has continued to act as a member of the board of directors of Alusuisse Swiss Aluminium Ltd. and as a consultant to the Algroup Alusuisse division. Sergio Marchionne (47) has been chief executive officer (managing director) of Algroup since 1997 and a member of the Algroup board since April 1999. He is chief executive officer (managing director) and a member of the board of directors of Lonza Group Ltd. Mr. Marchionne joined Algroup in July 1994 with responsibility for corporate development and became chief financial officer in 1995. Prior to joining Algroup, he worked for Lawson Mardon Group Ltd. in a number of positions, the last of which was as chief financial officer and legal counsel. Mr. Marchionne, who is a Canadian citizen, has agreed with Alcan to seek to qualify as a "Canadian resident" for the purposes of the Canada Business Corporations Act if necessary for the Combined Company's board to be validly constituted following the completion of the Algroup Share Exchange Offer. In return for this undertaking, Alcan has agreed to indemnify Mr. Marchionne in respect of any incremental costs or liabilities he may incur arising from this action. COMMITTEES OF THE BOARD OF DIRECTORS OF THE COMBINED COMPANY In accordance with usual practice, the Board of the Combined Company may delegate certain of its responsibilities to committees of the Board, including the following committees. These committees are expected to have mandates as substantially set out below and will report to the Board accordingly: (a) Audit Committee. The Audit Committee will be composed of Messrs. Saint-Pierre, Mansion (chairman) and Marchionne and will assist the Board in fulfilling its functions relating to corporate accounting and reporting practices as well as financial and accounting controls, provide oversight of the financial reporting process and review financial statements as well as proposals for the issuance of securities. (b) Governance Committee. The Governance Committee will be composed of Messrs. Evans (chairman), Davignon and Ebner and will be responsible for reviewing corporate governance practices (including practices and performance of the Board), maintaining an overview of the composition of the Board and reviewing candidates for nomination as directors and committee members and considering recommendations from the Human Resources and Compensation Committee with respect to the compensation of Non-Executive Directors and the appointment of the Chairman of the Board and the Chief Executive Officer of the Combined Company. (c) Human Resources and Compensation. The Human Resources and Compensation Committee will be composed of Messrs. Engen, Dehecq and Marchionne (chairman) and will be responsible for reviewing and making recommendations with respect to all personnel policy and employee relations matters and reviewing and approving the Combined Company's executive compensation policy and making recommendations to the Corporate Governance Committee with respect to the compensation of Non-Executive Directors and the appointment of the Chairman of the Board and the Chief Executive Officer of the Combined Company. 10 13 HOLDINGS OF SHARES AND DEFERRED SHARE UNITS BY DIRECTORS All Directors named below are present Directors and are nominees for election as Directors at the Meeting, there being no other nominees. The second column in the table below shows Shares which are beneficially owned (including Shares over which control or direction is exercised) as well as Shares subject to Options granted under the Alcan Executive Share Option Plan described on page 22. The third column shows Units held under the Deferred Share Unit Plans described on pages 16 and 26; these Units do not carry voting rights. - ---------------------------------------------------------------------------------------------------------------------------- Number of Name Number of Shares Deferred Share Units - ---------------------------------------------------------------------------------------------------------------------------- J. Bougie 986,233(1) 124,933(2) - ---------------------------------------------------------------------------------------------------------------------------- W. Chippindale 1,126 1,425(3) - ---------------------------------------------------------------------------------------------------------------------------- E.R. Clitheroe 590 265(3) - ---------------------------------------------------------------------------------------------------------------------------- T. Engen 5,500 1,238(3) - ---------------------------------------------------------------------------------------------------------------------------- J.R. Evans 3,902 3,717(3) - ---------------------------------------------------------------------------------------------------------------------------- A.E. Gotlieb 1,759 1,239(3) - ---------------------------------------------------------------------------------------------------------------------------- J.E. Newall 7,127 1,425(3) - ---------------------------------------------------------------------------------------------------------------------------- P.H. Pearse 2,642 1,084(3) - ---------------------------------------------------------------------------------------------------------------------------- G. Russell 5,094 1,239(3) - ---------------------------------------------------------------------------------------------------------------------------- G. Saint-Pierre 10,983 1,129(3) - ---------------------------------------------------------------------------------------------------------------------------- G. Schulmeyer 1,409 1,071(3) - ---------------------------------------------------------------------------------------------------------------------------- P.M. Tellier 1,571 611(3) - ----------------------------------------------------------------------------------------------------------------------------
(1) Made up as follows: 38,333 Shares and Options to purchase 947,900 Shares. (2) Held as EDSUs described on page 16 and as deferred share units described in paragraph 3 on page 17. (3) Held as DDSUs described on page 26. A trust in which Sir George Russell's children have an interest owns 10,853 Shares. Sir George disclaims beneficial ownership in the Shares owned by his children. Mr. Engen owns his Shares jointly with his wife. CORPORATE GOVERNANCE PRACTICES The following description of corporate governance practices in Alcan is made in response to regulations of The Toronto Stock Exchange. The Guidelines referred to below are the Guidelines set out in the aforesaid regulations. The mandate of the Board is to "manage the business and affairs" of the Company through the Company's Management and to discharge its duties and obligations in accordance with the provisions of (a) the Canada Business Corporations Act, (b) the Company's constituting documents and by-laws, and (c) other applicable legislation and Company policies. The Company's system of corporate governance covers the items listed in Guideline 1. An unrelated Director is a Director who is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director's ability to act with a view to the best interests of the Company, other than interests and relationships arising from shareholding. Of the present Board of 12 Directors, J. Bougie is the President and Chief Executive Officer of the Company, Sir George Russell is a former employee of Alcan (having retired in 1986) and is also a director of British Alcan Aluminium plc (a wholly-owned Subsidiary of Alcan), and Gerhard Schulmeyer is chairman of the supervisory board of Alcan Deutschland GmbH (a wholly-owned Subsidiary of Alcan). 11 14 The majority of Directors are unrelated Directors. As Alcan does not have a controlling Shareholder, none of the Directors represents the investment of minority Shareholders. The composition of the Board, accordingly, meets the test in Guidelines 2 and 3. The Board is satisfied that the number of Directors should range from between 11 to 15 in order to have an efficient Board. This meets the criteria in Guideline 7. The Board's prime stewardship responsibility is to ensure the viability of the Company and to ensure that it is managed in the interest of the Shareholders as a whole while taking into account the interests of other stakeholders. In addition, the Board sets out, at least once a year, objectives for the Chief Executive Officer and so, the items in Guideline 11 are covered. The Board has a Chairman (J.R. Evans) who is not a member of Management; this structure allows the Board to function independently of Management. This is in accordance with Guideline 12. Alcan's Secretary prepares a Directors' Manual for new and existing Directors, which is updated from time to time. Visits by Directors are made to Alcan plant and business locations to give additional insight into Alcan's business. This is in accordance with Guideline 6. In relation to Guideline 14, the Board does not have a formal system where Directors can engage outside advisors at any time; however the Board has in the past sought out separate advice. The Board has appointed five committees as described on pages 13 and 14. Each Committee is made up Non-Executive Directors and a majority of unrelated Directors and, therefore, the requirements in Guideline 9 are met. The mandate of the Audit Committee, which is composed entirely of Non-Executive Directors, is described on page 13. The Committee has direct discussions with external and internal auditors. This is in accordance with Guideline 13. The mandate of the Corporate Governance Committee includes Directors' compensation. In determining Directors' compensation, the Committee considers time commitment, risks and responsibilities. This is in accordance with Guideline 8. The mandate of the Committee also includes the review of corporate governance practices in general and, therefore, meets the requirements in Guideline 10. The Corporate Governance Committee recommends candidates to the Board for appointment as Directors. Nominees are selected as potential representatives of Shareholders as a whole and not as representatives of any particular Shareholder or group of Shareholders. Care is taken to ensure that the Board of Directors is constituted with a majority of individuals who qualify as unrelated Directors. The requirement in Guideline 4 has been met. The Corporate Governance Committee is also responsible for assessing the performance of the Board. The Committee ensures the adequacy of the time commitment of individuals to Alcan matters. This is in accordance with Guideline 5. In addition to the statutory duties under the Canada Business Corporations Act, the Company's corporate governance practices require that the following matters be subject to Board approval: (1) capital expenditure budgets and significant investments and divestments (over $50 million), (2) at the discretion of the Chief Executive Officer, any matter which may have the potential for important impact on the Company, (3) the number of Directors within the minimum (9) and maximum (20) limits provided in the Company's Articles of Incorporation, (4) the terms of appointment of Non-Executive Directors, and (5) the appointment and remuneration of Officers of the Company. In order to receive Shareholder feedback and respond to Shareholder concerns, Alcan maintains an experienced investor relations staff whose primary responsibility is to provide information and analysis to the investing community in accordance with Alcan's policy on public disclosures. This policy has been established in compliance with applicable legal disclosure requirements in Canada and in the U.S.A. and is reviewed periodically. The investor relations staff meets periodically with investors and analysts and is 12 15 accessible to Shareholders by telephone during business hours. These services facilitate the receiving of Shareholder comments. The Management of Alcan is responsible for conducting the business and operations of the Company in accordance with a business strategy approved by the Board. Management's authority to act in certain matters which may have the potential for important impact on the Company, including decisions by the Chief Executive Officer, is subject to prior Board approval as described above. However, before being submitted to the Board, certain matters (e.g. dividends, securities issues, proxy circulars, annual reports and significant investment/divestment proposals) are prepared and reviewed by Management with external professional advice, as necessary. BOARD MEETINGS AND BOARD COMMITTEES The Board held 11 meetings during 1999, two of which were held by telephone conference. The Board has appointed the Committees described below but has not appointed an executive committee of the Board. CORPORATE GOVERNANCE COMMITTEE This Committee is composed of Directors who are not officers or employees of Alcan or its Subsidiaries or Related Companies. W. Chippindale, E.R. Clitheroe, T. Engen, J.R. Evans (Committee Chairman), A.E. Gotlieb, J.E. Newall, P.H. Pearse, Sir George Russell, G. Saint-Pierre, G. Schulmeyer and P.M. Tellier serve on this Committee. It met four times in 1999. As mentioned above (page 12), the Committee has the broad responsibility of reviewing corporate governance within Alcan (including Board practices and performance) and of making recommendations with respect to such matters to the Board. The Committee also maintains an overview of the composition of the Board and reviews candidates for nomination as Directors as well as membership of all Board Committees. It also considers recommendations from the Personnel Committee regarding compensation of Non-Executive Directors as well as the appointments of the Chairman of the Board and the Chief Executive Officer of Alcan. AUDIT COMMITTEE This Committee consists of not less than three Directors who are not officers or employees of Alcan or its Subsidiaries or Related Companies. W. Chippindale, E.R. Clitheroe, J.R. Evans, Sir George Russell, G. Saint-Pierre (Committee Chairman), G. Schulmeyer and P.M. Tellier serve on this Committee. It met three times in 1999. The objective of the Committee is to assist the Board in fulfilling its functions relating to corporate accounting and reporting practices as well as financial and accounting controls, to provide effective oversight of the financial reporting process, and to review financial statements as well as proposals for issues of securities. This Committee is established in accordance with the provisions of the Canada Business Corporations Act. ENVIRONMENT COMMITTEE This Committee is composed of not less than three Directors who are not officers or employees of Alcan or its Subsidiaries or Related Companies. T. Engen, A.E. Gotlieb, J.E. Newall (Committee Chairman), P.H. Pearse and P.M. Tellier serve on this Committee. It met twice in 1999. The Committee has the broad responsibility of reviewing the policy, management practices and performance of Alcan in environmental matters and of making recommendations to the Board with respect to such matters. PERSONNEL COMMITTEE This Committee is composed of the Chairman and not less than three Directors who are not officers or employees of Alcan or its Subsidiaries or Related Companies. W. Chippindale (Committee Chairman), 13 16 T. Engen, J.R. Evans, A.E. Gotlieb, J.E. Newall and Sir George Russell serve on this Committee. It met four times in 1999. As mentioned on page 11, Sir George Russell is a former officer of a Subsidiary. The Committee has the broad responsibility of reviewing any and all personnel policy and employee relations matters and of making recommendations with respect to such matters to the Board or the Chief Executive Officer, as appropriate. It also reviews and approves Alcan's executive compensation policy. The Committee also makes recommendations to the Corporate Governance Committee on compensation of Non-Executive Directors as well as on the appointments of the Chairman of the Board and the Chief Executive Officer of Alcan. OPTIONS COMMITTEE A Committee whose members are the same as the members of the Personnel Committee administers the Alcan Executive Share Option Plan described on page 22. 14 17 EXECUTIVE COMPENSATION REPORT ON EXECUTIVE COMPENSATION General Alcan's executive compensation policies cover cash compensation and benefits, including pensions, and are designed to enable Alcan to attract, motivate and retain highly qualified people to carry out the objectives of the organization. The Personnel Committee (the "Committee"), all of whose members are Non-Executive Directors, has the duty and responsibility to review and approve these policies periodically and to make recommendations with respect to such matters either to the Board or to the Chief Executive Officer, as may be appropriate. The policies provide a compensation package that is internally equitable, externally competitive and reflects individual efforts and achievements. The cash compensation structure and benefits programs, including short- and long-term incentive plans, are designed to be competitive with the median of selected comparator groups of companies. These companies, identified as a "Compensation Peer Group", are comparable in size, are involved in cyclical industries as is Alcan, and have a global presence. In the case of the Canada-based Executive Officers, the Compensation Peer Group includes both Canada-based (13) and U.S.-based (13) enterprises. When establishing the level of compensation, weight is given to U.S. compensation practices. For Canada-based Executive Officers, the weight given to U.S. compensation practices ranges from 20% to 100%. These different weightings reflect the increasing global importance of the senior management level positions in the organization. At all other levels in the Company worldwide, the policies governing the compensation of executives are generally related solely to their relevant national markets; the competitiveness of senior employees' compensation in countries other than Canada is derived from consultant surveys of the Compensation Peer Group in their respective countries. Alcan retains external consultants to assist its Human Resources Department and the Committee in collecting the required comparative data and providing advice concerning all aspects of compensation of its senior employees. From time to time, the Committee has retained the services of its own consultant to assist it in its deliberations, and may do so again in the future. Compensation of the Executive Officers Annual compensation of the Executive Officers comprises base salaries, incentive plans and benefits programs. Base salaries for Executive Officers are reviewed annually. Any proposed changes are reviewed and approved by the Committee before implementation and are based on an evaluation of each Executive Officer's current performance. A substantial proportion of the Executive Officers' compensation is related to the performance of Alcan. Alcan's short-term incentive plan, known as the Executive Performance Award ("EPA") Plan, has three components, each based on a different aspect of performance: (1) the overall profitability of Alcan, (2) the performance of Alcan against key strategic corporate objectives, and (3) the performance of Alcan's business units. These are explained in the numbered paragraphs below. 1. The award for overall profitability of Alcan is called the Value Creation Award ("VCA"). The VCA is related to Economic Value Added ("EVA(R)"). The VCA for the Executive Officers has a guideline payment range of 12% to 35% of salary grade mid-point against which actual performance is measured. The minimum VCA payment can be nil and the maximum, in a year of exceptionally strong improvement in EVA, could be up to three times the guideline amount. The Committee establishes a threshold corporate EVA performance target which must be met before any VCA payment will be made. All Executive Officers received an award from this component of the EPA Plan for the year 1999. ("EVA" is a registered trademark of Stern Stewart & Co.) 2. The award for achieving corporate objectives, called the Corporate Objectives Award ("COA"), focuses on Alcan's critical corporate objectives. These objectives are established as part of the annual business planning process by the Chief Executive Officer and are submitted to the Committee for approval at the start of each year. The COA is independent of the VCA objective. For Executive Officers, the COA has a 15 18 guideline payment range of 12% to 30% of salary grade mid-point. The minimum COA payment is nil and the maximum could be up to twice the guideline amount. All Executive Officers received an award from this component of the EPA Plan for the year 1999. 3. The award for business unit performance is called the Business Unit Award ("BUA"). The BUA provides for an award based on the business unit's performance measured against pre-established objectives for the year. The BUA is independent of the VCA and COA objectives. For Executive Officers, the BUA has a guideline payment range of 15% to 20% of salary grade mid-point. The minimum BUA payment is nil and the maximum could be up to twice the guideline amount. However, the Committee may, at its discretion, approve the payment of a BUA award in excess of the maximum in cases of exceptional individual performance. The criteria for rewards under this aspect of the EPA Plan are set annually by management at various levels and their respective superiors. There are 17 major business units within Alcan world-wide. All Executive Officers received awards from this component of the EPA Plan for the year 1999. An exception to the practice described in the preceding paragraphs is made in the case of termination of employment (retirement, resignation or death). In that year, the employee receives guideline VCA, COA and BUA amounts, prorated for the number of months actually employed. Under the Executive Deferred Share Unit Plan, Canada-based Executive Officers may elect, prior to the beginning of any particular year, to receive Executive Deferred Share Units ("EDSUs") with a value equal to 50% or 100% of their EPA in respect of that year, instead of a cash payment. The number of EDSUs is determined by dividing the amount so elected by the average price of a Share on the Toronto and New York stock exchanges at the end of the year preceding the year in question. Additional EDSUs are credited to each holder thereof corresponding to dividends declared on Shares. The EDSUs are redeemable only upon termination of employment (retirement, resignation or death). The amount to be paid by Alcan upon redemption (which must be on or before 15 December of the calendar year next following the termination) will be calculated by multiplying the accumulated balance of EDSUs by the average price of a Share on the said exchanges at the time of redemption. Under the terms of a Non-Qualified Deferred Compensation Plan, the Executive Officers based in the U.S. may elect, prior to the beginning of any particular year, to defer up to 75% of their base salary and up to 100% of their EPA award in respect of that year, instead of cash payments. The deferral period elected by a participant in the plan must not be less than three years from the date of deferral nor extend more than five years beyond the date of normal retirement. The deferral amount is allocated to one or more of nine investment vehicles chosen by the participant. Final distribution of the accumulated balance is made within 90 days after either the end of the last year of the elected period or the end of the year of the participant's death, resignation or retirement. The Alcan Executive Share Option Plan (described on page 22), which is administered by the Options Committee, composed of Non-Executive Directors, is a long-term incentive plan closely aligned with the interests of Shareholders and forms part of the Executive Officers' total compensation. The purpose of the Option Plan is to attract and retain employees and to encourage them to contribute to growth in the price of Alcan Shares. When determining the competitiveness of senior employees' total compensation, the compensation value of Option grants is taken into account. For Executive Officers, the number of Options granted annually generally produces annual compensation values which, when expressed as a multiple of annual base salary, are much lower than those provided by U.S.-based companies within the Compensation Peer Group but higher than those of Canada-based companies within the Compensation Peer Group. At the beginning of 1999, a Medium-Term Incentive Plan ("MTIP") was introduced for two Executive Officers (R.B. Evans and E.P. LeBlanc) which provides a cash award if, over the three year period (1999-2001), their business unit achieves specific financial targets based on the objective of a sustainable improvement in pre-tax income over 1998. At the end of 1999, the MTIP was suspended. The Committee approved the award of $100,000 for R.B. Evans and $125,000 for E.P. LeBlanc. 16 19 Compensation of the Chief Executive Officer The Chief Executive Officer's annual compensation is administered by the Committee according to the policies described above. The companies forming the Compensation Peer Group for the Chief Executive Officer are specifically selected because they and Alcan have chief executive officers with responsibilities of similar magnitude. Alcan's Chief Executive Officer participates in the EPA Plan, and the relationship between his compensation and Alcan's performance is based on the same criteria as those discussed generally for other participants in the EPA Plan. Given the uniqueness of Alcan as one of the largest global Canadian corporations with two-thirds of its assets and employees located outside Canada, the Committee has decided to set the total annual compensation of its Chief Executive Officer, beginning in 1997, at the level of his U.S.-based peers (15 similar enterprises). In making this change, the Committee has also increased the proportion of his compensation which is variable and "at risk" and, more importantly, has placed greater emphasis on long-term performance linked directly to total Shareholder return. With this change, the Committee has decided to administer the Chief Executive Officer's total compensation on a longer term perspective rather than through annual adjustments. To this end, the Chief Executive Officer's compensation is now covered by an agreement with a three-year term (1997-1999). Under this modified approach, the fixed portion of his total compensation (the base salary and the value of pension benefits) will represent some 33% thereof while the "at risk" portion, comprising the short-term, medium-term and long-term incentive plans, will represent 67% thereof. The "at risk" portion is linked directly to improved long-term Shareholders' value through a combination of grants under the Option Plan and the Executive Deferred Share Unit Plan. The three-year agreement, referred to above, with the Chief Executive Officer provides for compensation as set out below: 1. A base salary of $740,700 per annum, commencing 1 March 1997. 2. An annual short-term incentive grant using the formula under the EPA Plan and based on a guideline of 85% of salary mid-point but to be received in the form of EDSUs. For the year 1999, the Chief Executive Officer received 41,205 EDSUs (the figure being determined by dividing the value he would have received under the EPA Plan by the average price of a Share at the end of 1998, $26.89). 3. The three-year agreement provided a MTIP whereby the Chief Executive Officer would be entitled to receive a further award (by way of deferred share units issued under an arrangement that generally parallels the Executive Deferred Share Unit Plan) if, over the three-year period (1997-1999), Alcan achieved specific financial targets based on the objective of a sustainable improvement of $300 million in net income over 1996, subject to adjustment if certain underlying assumptions changed. The achievement of this objective over a three-year cycle gives rise to an award of 19,400 deferred share units; lower and higher awards are to be made if the income improvement falls short or surpasses that objective. The maximum would be 58,200 deferred share units for an income improvement of $600 million over 1996. The grant, if any, of deferred share units under the MTIP was to be made in the year 2000. In 1999, the Board set new stretched financial objectives for the Company. As a result, the MTIP was terminated early, as at 31 December 1998. The Committee approved the award of 18,200 deferred share units for the performance realized in 1997 and 1998. In addition, the Board set up a new plan with effect from 1 January 1999. The new plan, referred to as the Full Business Potential -- phase II ("FBP II"), was originally designed to cover the three-year period (1999-2001). At the end of 1999, the Committee decided to suspend the plan and awarded 12,550 deferred share units in respect of the financial performance of Alcan in 1999 measured against the objectives set for the first year of the FBP II. 17 20 4. As a long-term incentive in respect of the three-year period (1997-1999) under the agreement, the Chief Executive Officer was granted 312,800 Options on 28 May 1997 at an exercise price of Can. $48.91 per Share, exercisable during the period from 1 January 2000 up to 28 May 2007 (10 years from the date of grant). In September 1999, the Option Committee approved the grant of 200,000 Options to the Chief Executive Officer. The waiting periods and other provisions attached to these Options are as for C Options described on page 22. 5. Pensions under the Canadian Plans (see page 25) for eligible Alcan employees are calculated on the basis of salary plus the EPA Plan guideline amount but, in view of the increases in the Chief Executive Officer's direct compensation described above, the pensionable portion of his EPA was reduced from 85% of salary to 40% thereof. This change results in a reduction of about 25% in the pension which would otherwise have accrued to him under the Canadian Plans. However, under certain conditions of termination of employment, his pension will be subject to a minimum guaranteed amount once again based on salary and pensionable EPA at 75% of salary. Approval of this Report on Executive Compensation The Committee, whose members are set out below, has approved the issue of this Report and its inclusion in this Management Proxy Circular. W. Chippindale, Chairman of the Committee T. Engen J.R. Evans A.E. Gotlieb J.E. Newall G. Russell
18 21 PERFORMANCE GRAPH The following graph compares the cumulative total Shareholder return on Can. $100 invested in Shares with the cumulative total return of the Toronto Stock Exchange 300 Stock Index, assuming reinvestment of all dividends. Additional comparisons, which the Personnel Committee believes to be appropriate, are provided with respect to two U.S. Dollar-based indices, the Standard & Poor's 500 Index and the Standard & Poor's Aluminum Index. LOGO 19 22 SUMMARY COMPENSATION TABLE Compensation paid to the Chief Executive Officer, the four other most highly compensated Executive Officers and J.-P. Ergas (who was Executive Vice President until 1 April 1999 and retired at the end of 1999) for each of the three most recently completed financial years is set out in the table below. These individuals are hereinafter collectively referred to as the "Named Executive Officers". SUMMARY COMPENSATION TABLE - ------------------------------------------------------------------------------------------------------------------------------- Annual Compensation Long-term Compensation ------------------------------------------ ---------------------------- Bonus (Executive Shares Under Restricted Performance Other Annual Options Share All Other Salary Award) Compensation Granted Units Compensation Name and (1) (2) (3) (4) (2) Principal Position Year ($) ($) ($) (#) (#) ($) - ------------------------------------------------------------------------------------------------------------------------------- J. Bougie 1999 740,700 See Note (7) 426,486 200,000 (5) 71,955 (6)(7) 27,173 President and 1998 739,906 See Note (8) 52,914 0 29,732 (8) 20,475 Chief Executive Officer 1997 728,543 See Note (9) 31,786 312,800 (10) 21,676 (9) 20,900 - ------------------------------------------------------------------------------------------------------------------------------- B.W. Sturgell 1999 395,000 484,550 175,092 51,000 (5) 0 13,771 Executive Vice President 1998 336,667 308,786 813,612 32,100 (11) 0 15,670 1997 284,500 246,780 345,210 20,000 (12) 0 18,099 - ------------------------------------------------------------------------------------------------------------------------------- J.-P. Ergas (13) 1999 530,500 314,600 21,737 20,100 (5) 0 14,100 Executive Vice President 1998 524,042 312,863 20,521 20,100 (11) 0 22,667 1997 508,750 296,125 2,000 20,000 (12) 0 21,301 - ------------------------------------------------------------------------------------------------------------------------------- S. Thadhani 1999 334,520 488,310 26,624 39,000 (5) 0 15,084 Executive Vice President 1998 286,296 219,523 26,510 32,100 (11) 0 14,295 1997 279,577 189,875 23,034 18,200 (12) 0 14,136 - ------------------------------------------------------------------------------------------------------------------------------- E.P. LeBlanc 1999 393,438 418,815 23,523 51,000 (5) 0 141,583 (14) Executive Vice President 1998 273,994 126,842 (15) 22,408 51,000 (11) 4,848 (15) 13,287 1997 235,781 96,017 (16) 23,245 18,200 (12) 2,874 (16) 11,720 - ------------------------------------------------------------------------------------------------------------------------------- R.B. Evans 1999 388,750 398,057 32,957 51,000 (5) 0 122,835 (14) Executive Vice President 1998 308,333 298,377 64,748 32,100 (11) 0 17,707 1997 177,818 115,164 (17) 184,182 33,200 (12) 689 (17) 6,814 - -------------------------------------------------------------------------------------------------------------------------------
(1) See page 15 for description of the Executive Performance Award Plan. (2) See Other Compensation on page 21. (3) See page 22 for description of the Alcan Executive Share Option Plan. (4) See page 16 for description of the Executive Deferred Share Unit Plan. (5) Granted as C Options. (6) Received in the form of 30,750 deferred share units under the Medium-Term Incentive Plan (see paragraph 3 on page 17). (7) Received 100% of the EPA in the form of 41,205 EDSUs under the Executive Deferred Share Unit Plan (see page 16 for description) based on the Share price ($26.89) at the end of 1998; these qualify for additional EDSUs corresponding to dividends declared subsequently (see page 16 for description). (8) Received 100% of the EPA in the form of 29,732 EDSUs, based on the Share price ($27.16) at the end of 1997; these qualify for additional EDSUs corresponding to dividends declared subsequently (see page 16 for description). (9) Received 100% of the EPA in the form of 21,767 EDSUs, based on the Share price (Can. $46.40) at the end of 1996; these qualify for additional EDSUs corresponding to dividends declared subsequently (see page 16 for description). (10) Granted as B Options. In 1998, 208,000 associated D Options were granted in addition. (11) Granted as C Options together with the same number of associated D Options. (12) Granted as B Options. In 1998, 10,000 associated D Options were granted in addition. (13) J.-P. Ergas retired on 31 December 1999. (14) See page 16 for description of the Medium-Term Incentive Plan. (15) Received 50% of the EPA in cash ($126,842) and 50% in the form of 4,848 EDSUs, based on the Share price ($27.16) at the end of 1997; these qualify for additional EDSUs corresponding to dividends declared subsequently (see page 16 for description). (16) Received 50% of the EPA in cash ($96,017) and 50% in the form of 2,874 EDSUs, based on the Share price (Can. $46.40) at the end of 1996; these qualify for additional EDSUs corresponding to dividends declared subsequently (see page 16 for description). (17) Received 100% of the EPA for 5 1/2 months in the form of 689 EDSUs, based on the Share price (Can. $46.40) at the end of 1996; these qualify for additional EDSUs corresponding to dividends declared subsequently (see page 16 for description). 20 23 Unless otherwise indicated, all compensation payments reported in this Management Proxy Circular are stated in U.S. Dollars converted, where necessary, from the currency of disbursement to U.S. Dollars at the average exchange rates for the respective year. The currency and exchange rate details are given in the table below: CURRENCY AND EXCHANGE RATE TABLE - ------------------------------------------------------------------------------------------------------------------------------ Currency of Average Exchange Rate Name Disbursement Year to convert to U.S. Dollars - ------------------------------------------------------------------------------------------------------------------------------ J. Bougie U.S. Dollars 1999 1.0000 Canadian Dollars 1998 0.6710 Canadian Dollars 1997 0.7199 - ------------------------------------------------------------------------------------------------------------------------------ B.W. Sturgell U.S. Dollars 1999 1.0000 U.S. Dollars 1998 1.0000 U.S. Dollars 1997 1.0000 - ------------------------------------------------------------------------------------------------------------------------------ J.-P. Ergas U.S. Dollars 1999 1.0000 British Pounds 1999 1.6132 U.S. Dollars 1998 1.0000 British Pounds 1998 1.6625 U.S. Dollars 1997 1.0000 British Pounds 1997 1.6404 - ------------------------------------------------------------------------------------------------------------------------------ S. Thadhani U.S. Dollars 1999 1.0000 Canadian Dollars 1999 0.6740 Canadian Dollars 1998 0.6710 Canadian Dollars 1997 0.7199 - ------------------------------------------------------------------------------------------------------------------------------ E.P. LeBlanc U.S. Dollars 1999 1.0000 Canadian Dollars 1999 0.6740 Canadian Dollars 1998 0.6710 Canadian Dollars 1997 0.7199 - ------------------------------------------------------------------------------------------------------------------------------ R.B. Evans U.S. Dollars 1999 1.0000 U.S. Dollars 1998 1.0000 U.S. Dollars 1997 1.0000 Canadian Dollars 1997 0.7199 - ------------------------------------------------------------------------------------------------------------------------------
EXECUTIVE PERFORMANCE AWARD The Executive Performance Award Plan and the related Executive Deferred Share Unit Plan are described on pages 15 and 16. OTHER COMPENSATION Compensation benefits made available to senior employees under various plans included those under (a) the Executive Performance Award Plan mentioned above, (b) the Alcan Executive Share Option Plan described on page 22, (c) retirement benefit plans described on pages 25 and 26, (d) life insurance plans, (e) savings plans, (f) plans for the use and parking of automobiles, for professional financial advice through independent organizations, for deemed interest on loans and for the reimbursement of club membership fees, and (g) in applicable cases, expatriate benefits, foreign taxes, housing assistance, and directors' fees from Subsidiaries and Related Companies. In the Summary Compensation Table on page 20, the amounts indicated for the year 1999 under the column titled Other Annual Compensation include benefits paid to the Named Executive Officers under these plans: automobile usage (S. Thadhani, $12,132 and E.P. LeBlanc, $12,132), club membership fees (R.B. Evans, $9,248), expatriate benefits (B.W. Sturgell, $159,344), financial advice (J.-P. Ergas, $20,242), foreign taxes (R.B. Evans, $11,229) and housing assistance (J. Bougie, $274,165). 21 24 ALCAN EXECUTIVE SHARE OPTION PLAN The Alcan Executive Share Option Plan ("Option Plan") provides for the granting to senior employees of non-transferable options ("Options") to purchase Shares (see REPORT ON EXECUTIVE COMPENSATION -- Compensation of the Executive Officers on page 16). The Option Plan is administered by the Options Committee referred to on page 14. A Options Prior to 22 April 1993, the Option Plan provided for the granting of Options hereinafter referred to as "A Options". No further A Options have been, or may be, issued after that date. The exercise price per Share under A Options was initially set in 1981 at not less than 90% of the market value on the effective date of each grant of an A Option, but all A Options granted after 1985 were set at 100% of the market value on their effective dates. The effective date was fixed at the time of each grant. Each A Option is exercisable in whole or in part during a period commencing not less than three months after the effective date and ending not later than 10 years after that date. In the event of retirement or death of the employee, any remainder of this 10-year period in excess of five years is reduced to five years. Alcan may make loans ("Option Loans"), at such interest rate, if any, as the above-mentioned committee may determine, to assist in financing the purchase of Shares through the exercise of A Options, but not in the case of the other Options hereinafter described (see INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS on page 27). The interest rate is currently nil on all outstanding Option Loans. The Option Loans have terms of up to 9 3/4 years. After exercise of an A Option, the employee may not dispose of the Shares during a one-year period ("Holding Period"). In the event of retirement or resignation or other termination of the employee, the Holding Period terminates upon repayment of the Option Loan. Each A Option has connected therewith stock appreciation rights ("SARs") in respect of one-half of the Shares covered by the A Option. Each SAR entitles the optionee to surrender unexercised the right to subscribe for one Share in return for a cash payment in an amount equal to the excess of the market value of such Share at the time of surrender over the subscription price. B Options Since 22 April 1993, the Option Plan provided for Options hereinafter referred to as "B Options". The exercise price per Share under B Options is set at not less than 100% of the market value on the effective date of the grant of each B Option. The effective date is fixed at the time of the grant. Each B Option is exercisable (not less than three months after the effective date) in respect of 25%, 50%, 75% or 100% of the grant after a Waiting Period of 12, 24, 36 and 48 months, respectively, following the effective date. The Options expire 10 years after the effective date; in the event of retirement or death of the employee, any remainder of this 10-year period in excess of five years is reduced to five years. The B Options do not have SARs connected therewith. C Options Since 23 September 1998, the Option Plan has provided for Options hereinafter referred to as "C Options". The exercise price per Share under C Options is set at not less than 100% of the market value of the Share on the effective date of the grant of each C Option. The effective date is fixed at the time of the grant. Each C Option is exercisable (not less than three months after the effective date) in respect of one-third of the grant when the market value of the Share has increased by 20% over the exercise price, two-thirds of the grant when the market value of the Share has so increased by 40% and the entire amount of the grant when the market value of the Share has so increased by 60%. The said market values must exceed those thresholds for at least 21 consecutive trading days. The said thresholds are waived 12 months prior to the expiry date which is 10 years after the effective date. In the event of death or retirement, any remainder of this 10-year period in excess of five years is reduced to five years, and the said thresholds are waived. The C Options do not have SARs connected therewith. 22 25 D Options In respect of B and C Options granted to certain senior executives, Alcan has granted further Options, hereinafter referred to as "D Options", which grant shall become effective upon the exercise of associated B or C Options and upon the executive placing at least one-half of the Shares resulting from the exercise of the B or C Option, as the case may be, in trust with an agency named by Alcan for a minimum period of five years. The exercise price per Share of each D Option is set at not less than 100% of the market value on the exercise date of the associated B or C Option. D Options are exercisable in the same manner as the associated B or C Option. The option period for the D Option will terminate on the same date as the associated B or C Option. In the event of death or retirement, any remainder of this Option period in excess of five years is reduced to five years. The vesting provisions of the D Option are identical to those of the associated B or C Option. The D Options do not have SARs connected therewith. In 1998, Alcan has granted D Options to certain executives associated with each of the 1996 and 1997 option grants, up to a maximum of 10,000 D Options for each grant. Limits on Grants of B, C and D Options As stated above, no further A Options may be issued. Alcan may issue in any year B, C or D Options in respect of a Yearly Allotment, as defined in the Option Plan, in aggregate not exceeding 0.75% of the Shares outstanding as at the end of the previous calendar year. In addition, the unused portion of any previous Yearly Allotment may be carried forward. The cumulative maximum number of Shares which can be issued under the Option Plan after 31 December 1995 is 20,500,000. Exercise of all Options The Personnel Committee has determined that upon the completion of either Share Exchange Offer, all Options granted under the Option Plan shall become immediately exercisable in accordance with the terms of the Option Plan. Grants and Exercises during 1999 The following table provides information pertaining to Options granted to the Named Executive Officers during 1999: OPTION GRANTS DURING 1999 - ----------------------------------------------------------------------------------------------------------------------------- Shares Under Exercise Price Options Percent of Total and Market Value Granted Options Granted on Date of Grant Name (#)(1) to Employees in 1999 (Can. $/Share) Expiration Date - ----------------------------------------------------------------------------------------------------------------------------- J. Bougie 200,000(2) 15.2 45.43 21 September 2009 - ----------------------------------------------------------------------------------------------------------------------------- B.W. Sturgell 51,000(2) 3.9 45.43 21 September 2009 - ----------------------------------------------------------------------------------------------------------------------------- J.-P. Ergas 20,100(2) 1.5 45.43 21 September 2009 - ----------------------------------------------------------------------------------------------------------------------------- S. Thadhani 39,000(2) 3.0 45.43 21 September 2009 - ----------------------------------------------------------------------------------------------------------------------------- E.P. LeBlanc 51,000(2) 3.9 45.43 21 September 2009 - ----------------------------------------------------------------------------------------------------------------------------- R.B. Evans 51,000(2) 3.9 45.43 21 September 2009 - -----------------------------------------------------------------------------------------------------------------------------
(1) Date of grant: 22 September 1999. (2) C Option grant. 23 26 The following table provides certain required information pertaining to Options exercised by the Named Executive Officers during 1999 as well as year-end values: AGGREGATED OPTION EXERCISES DURING 1999 AND YEAR-END OPTION VALUES - -------------------------------------------------------------------------------------------------------------------------------- Shares Underlying Value of Shares Aggregate Unexercised Unexercised Acquired Value Options at in-the-Money Options at on Exercise Realized 31 December 1999 (1) 31 December 1999 (1) Name (#) (Can. $) (#) (Can. $) - -------------------------------------------------------------------------------------------------------------------------------- J. Bougie 0 0 E: 200,850 E: 4,682,675 U: 529,050 U: 6,589,206 - -------------------------------------------------------------------------------------------------------------------------------- B.W. Sturgell 0 0 E: 44,150 E: 917,423 U: 73,400 U: 1,148,698 - -------------------------------------------------------------------------------------------------------------------------------- J.-P. Ergas 0 0 E: 74,400 E: 1,488,390 U: 41,800 U: 663,502 - -------------------------------------------------------------------------------------------------------------------------------- S. Thadhani 0 0 E: 99,350 E: 2,194,254 U: 63,350 U: 1,017,543 - -------------------------------------------------------------------------------------------------------------------------------- E.P. LeBlanc 0 0 E: 88,050 E: 1,995,966 U: 81,350 U: 1,343,106 - -------------------------------------------------------------------------------------------------------------------------------- R.B. Evans 0 0 E: 41,437 E: 760,709 U: 74,863 U: 1,151,468 - --------------------------------------------------------------------------------------------------------------------------------
(1) E: Exercisable U: Unexercisable The following table provides certain required information pertaining to SARs exercised by the Named Executive Officers during 1999 as well as year-end values: AGGREGATED SAR EXERCISES DURING 1999 AND YEAR-END SAR VALUES - -------------------------------------------------------------------------------------------------------------------------------- Shares Underlying Value of Shares Aggregate Unexercised Unexercised Acquired Value SARs at in-the-Money SARs at on Exercise Realized 31 December 1999 (1) 31 December 1999 (1) Name (#) (Can. $) (#) (Can. $) - -------------------------------------------------------------------------------------------------------------------------------- J. Bougie 0 0 E: 0 E: 0 U: 0 U: 0 - -------------------------------------------------------------------------------------------------------------------------------- B.W. Sturgell 0 0 E: 0 E: 0 U: 0 U: 0 - -------------------------------------------------------------------------------------------------------------------------------- J.-P. Ergas 0 0 E: 0 E: 0 U: 0 U: 0 - -------------------------------------------------------------------------------------------------------------------------------- S. Thadhani 0 0 E: 0 E: 0 U: 0 U: 0 - -------------------------------------------------------------------------------------------------------------------------------- E.P. LeBlanc 3,500 82,183 E: 0 E: 0 U: 0 U: 0 - -------------------------------------------------------------------------------------------------------------------------------- R.B. Evans 0 0 E: 0 E: 0 U: 0 U: 0 - --------------------------------------------------------------------------------------------------------------------------------
(1) E: Exercisable U: Unexercisable 24 27 RETIREMENT BENEFITS Canadian Plans During 1999, J. Bougie, S. Thadhani and E.P. LeBlanc participated in the Alcan Pension Plan (Canada) and the Alcan Supplemental Retirement Benefits Plan (Canada), together herein referred to as the "Canadian Plans". Pensions up to a statutory limit are payable under the former and, in excess thereof, under the latter. The Canadian Plans provide for pensions calculated on pensionable service and annual average earnings during the 36 consecutive months when they were the greatest, which earnings consist of salary and the Executive Performance Award at its guideline amount up to a maximum (for J. Bougie, see page 18). The following table shows estimated annual retirement benefits, expressed as a percentage of annual average earnings during the said 36 months, payable upon normal retirement at age 65 to persons in the indicated earnings and pensionable service classifications. CANADIAN PLANS - ----------------------------------------------------------------------------------------------------------------------------- Average Annual Years of Pensionable Service Earnings ------------------------------------------------------------------------------------------- ($) 10 15 20 25 30 35 - ----------------------------------------------------------------------------------------------------------------------------- 400,000 17% 25% 33% 42% 50% 58% - ----------------------------------------------------------------------------------------------------------------------------- 500,000 17% 25% 33% 42% 50% 59% - ----------------------------------------------------------------------------------------------------------------------------- 600,000 -- 800,000 17% 25% 34% 42% 50% 59% - ----------------------------------------------------------------------------------------------------------------------------- 900,000 -- 2,000,000 17% 25% 34% 42% 51% 59% - -----------------------------------------------------------------------------------------------------------------------------
The Alcan Supplemental Retirement Benefits Plan also provides for an additional pension to J. Bougie which increases the percentages in the table above by 4%. Non-Canadian Plans During 1999, B.W. Sturgell and R.B. Evans participated in an Alcan-sponsored pension plan in the U.S.A. ("U.S. Plan") which provides for retirement benefits which are generally comparable with the Canadian Plans, but with a ceiling of 60% of annual average earnings and a maximum pensionable service of 35 years. The following table shows estimated annual retirement benefits, expressed as a percentage of annual average earnings during the three consecutive calendar years when they were the greatest, payable upon normal retirement at age 65 to persons in the indicated earnings and pensionable service classifications. U.S. PLAN - ----------------------------------------------------------------------------------------------------------------------------- Average Annual Years of Pensionable Service Earnings ------------------------------------------------------------------------------------------- ($) 10 15 20 25 30 35 - ----------------------------------------------------------------------------------------------------------------------------- 500,000 -- 900,000 17% 25% 34% 42% 51% 59% - ----------------------------------------------------------------------------------------------------------------------------- 1,000,000 -- 2,000,000 17% 26% 34% 43% 51% 60% - -----------------------------------------------------------------------------------------------------------------------------
J.-P. Ergas participated in an Alcan-sponsored pension plan in the United Kingdom and also in a supplemental retirement benefit agreement which provides for a pension based on the terms of the U.S. Plan. Deductions for Social Security In the Canadian Plans, the retirement benefits described above are reduced by the excess (if any) of retirement benefits payable from non-Canadian social security and the Canada Pension Plan or the Quebec Pension Plan ("C/QPP") over the maximum retirement benefits under the C/QPP. The normal 25 28 form of payment of pensions is a lifetime annuity with a guaranteed minimum of 60 monthly payments or a 50% lifetime pension to the surviving spouse. Pensionable Earnings and Years of Pensionable Service The 1999 pensionable earnings and estimated years of pensionable service on normal retirement at age 65 (subject to a maximum of 35 years where applicable) for the Named Executive Officers were as follows: J. Bougie, $1,036,980 and 33 years; B.W. Sturgell, $626,300 and 25 years; S. Thadhani, $453,634 and 31 years; E.P. LeBlanc, $535,731 and 33 years; R.B. Evans, $620,050 and 16 years; at his retirement date, average earnings of J.-P. Ergas were $776,931 and his pensionable service was 5 years. RETIRING ALLOWANCES Upon his retirement, R.B. Evans will be paid a retiring allowance equal to $38,700 increased by 7% per annum from 31 December 1999. BOARD FEES An employee of Alcan who is a Director is not entitled to receive fees for serving on the Board or on any Committee thereof. EMPLOYMENT AGREEMENTS Alcan has entered into employment and/or change of control agreements with various employees including the following Named Executive Officers: J. Bougie, B.W. Sturgell, S. Thadhani, E.P. LeBlanc and R.B. Evans. COMPENSATION OF NON-EXECUTIVE DIRECTORS FEES AND EXPENSES During 1999, every Non-Executive Director was paid an annual fee of $25,000 and an additional annual fee of $5,000 for serving on a Committee of the Board, except for the Options Committee. If such Director also served as Chairman of a Committee, a further annual fee of $6,000 was paid. J.R. Evans, as Non-Executive Chairman of the Board, was paid a fee of $155,000 during 1999 in lieu of the above fees. Non-Executive Directors are reimbursed for transportation and other expenses actually incurred in attending Board/Committee meetings. A travel fee of $1,000 is also payable to those Non-Executive Directors who require an extra day of travel to attend any Board/Committee meeting; during 1999, travel fees were paid as follows: P.H. Pearse, $9,000; Sir George Russell, $7,000; and G. Schulmeyer, $3,000. Non-Executive Directors who are not Canadian resident are entitled to paid tax advice. During 1999 the expenses were paid as follows: T. Engen, $1,500; Sir George Russell, $1,500 and G. Schulmeyer, $1,500. SHARE INVESTMENT PLAN FOR DIRECTORS Non-Executive Directors may invest all or part of their fees in Shares through the Share Investment Plan for Directors. RETIREMENT ARRANGEMENTS Under the Non-Executive Directors' Deferred Share Unit Plan, each Non-Executive Director is credited with a number of Directors' Deferred Share Units ("DDSUs"), as determined by the Board. At present, this number has been set at the equivalent of one DDSU for every $100 of Directors' fees (as described above, but excluding the travel fees) received by the Director. Until redemption, additional DDSUs are credited to each Director corresponding to dividends declared on the Shares. The DDSUs are redeemable only upon termination (retirement, resignation or death). The amount to be paid by Alcan upon redemption (which must be on or before 15 December of the calendar year next following the termination) will be calculated by multiplying the accumulated balance of DDSUs by the average price of a Share on the Toronto and New York stock exchanges at the time of redemption. 26 29 INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS Non-Executive Directors Non-Executive Directors and former Non-Executive Directors are not indebted to Alcan. Option Loans to Executive Officers The required details with regard to Option Loans given to Executive Officers are shown in the following table. The aggregate indebtedness of all Executive Officers and employees and former Executive Officers and employees of Alcan and its Subsidiaries (including the Named Executive Officers) to Alcan in respect of Option Loans at 14 February 2000 was $2,965,528. The terms of Option Loans are described on page 22. TABLE OF INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS UNDER OPTION PLAN - ------------------------------------------------------------------------------------------------------------------------------ Name and Principal Position Involvement Largest Amount Financially Security for of Alcan Amount Outstanding Assisted Indebtedness Outstanding as at Share During 1999 14 February Purchases ($) 2000 During 1999 ($) (1) (#) - ------------------------------------------------------------------------------------------------------------------------------ R.L. Ball Executive Vice Lender 66,900 63,419 0 (2) President - ------------------------------------------------------------------------------------------------------------------------------ J. Bougie (3) President and Chief Lender 436,592 411,792 0 (2) Executive Officer - ------------------------------------------------------------------------------------------------------------------------------ C. Chamberland Former Executive Vice Lender 23,226 0 0 (2) President - ------------------------------------------------------------------------------------------------------------------------------ E.P. LeBlanc Executive Vice Lender 51,489 48,721 0 (2) President - ------------------------------------------------------------------------------------------------------------------------------ G.R. Lucas Treasurer Lender 61,934 56,817 2,500 (2) - ------------------------------------------------------------------------------------------------------------------------------ G. Ouellet Vice President Lender 54,426 51,561 0 (2) - ------------------------------------------------------------------------------------------------------------------------------ E.N. Santos (4) Former Executive Vice Lender 252,217 238,205 0 (2) President - ------------------------------------------------------------------------------------------------------------------------------ B.W. Sturgell Executive Vice Lender 43,559 40,224 0 (2) President - ------------------------------------------------------------------------------------------------------------------------------ S. Thadhani Executive Vice Lender 111,572 105,700 0 (2) President - ------------------------------------------------------------------------------------------------------------------------------
(1) In respect of A Options only. (2) Security for the indebtedness is provided by the deposit of the certificates representing the relevant Shares with CIBC Mellon Trust Company, as trustee, which holds the certificates registered in its name until full repayment of the particular Option Loan has been made to Alcan. (3) J. Bougie is a nominee proposed for election as Director. (4) E.N. Santos retired during 1999. Other Loans to Executive Officers The aggregate indebtedness of all Executive Officers and employees and former Executive Officers and employees of Alcan and its Subsidiaries (including the Named Executive Officers) to Alcan in respect of loans other than Option Loans at 14 February 2000 was $2,543,426. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE Alcan carries insurance covering liability, including defence costs, of directors and officers of Alcan and its Subsidiaries, incurred as a result of their acting as such, except in the case of failure to act honestly and in good faith. The policy provides coverage against certain risks in situations where Alcan may be prohibited by law from indemnifying the directors or officers. The policy also reimburses Alcan for certain 27 30 indemnity payments made by Alcan to such director or officer, subject to a $10 million deductible in respect of each insured loss. The premium paid by Alcan for coverage in 1999 was $345,000 and the limit of insurance is $100 million per occurrence and in the aggregate per year. APPOINTMENT OF AUDITORS At the Meeting, Shareholders will be called upon to appoint Auditors to serve until the next Annual Meeting of Alcan and to authorize the Directors to fix the remuneration of the Auditors so appointed. The Board of Directors and Management, on the advice of the Audit Committee, recommend that PricewaterhouseCoopers LLP, Montreal, Canada, be appointed as Auditors. PricewaterhouseCoopers LLP and its predecessor, Price Waterhouse, have been the Auditors of Alcan since 1936. A representative of PricewaterhouseCoopers LLP will be present at the Meeting and will have the opportunity to make a statement should he desire to do so. He will also be available to answer questions. APPROVAL OF BOARD OF DIRECTORS The Board of Directors has approved the contents of this Management Proxy Circular and its issue to Shareholders. /s/ David McAusland ------------------------- David McAusland Vice President, Chief Legal Officer and Secretary 28 31 LOGO M - Official mark of Environment Canada. M - Marque officielle d'Environnement Canada.
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