-----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, V7153rluzrYhVcXzXQE70l1r+t8ISjTs29vcxUhcGuwHT6Bi3Kzv0JLX+GhBc4uI NZZ7ksYQi7qRFr6+eMCf+g== 0000950123-01-002940.txt : 20010402 0000950123-01-002940.hdr.sgml : 20010402 ACCESSION NUMBER: 0000950123-01-002940 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCAN INC CENTRAL INDEX KEY: 0000004285 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 000000000 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03677 FILM NUMBER: 1586701 BUSINESS ADDRESS: STREET 1: 1188 SHERBROOKE ST WEST CITY: MONTREAL QUEBEC CANA STATE: A8 ZIP: 00000 BUSINESS PHONE: 5148488000 MAIL ADDRESS: STREET 1: 1188 SHERBROOKE STREET WEST CITY: MONTREAL QUEBEC CANA STATE: A8 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: ALCAN ALUMINIUM LTD /NEW DATE OF NAME CHANGE: 19930519 10-K405 1 m09446e10-k405.txt ALCAN ALUMINUM CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [(check)] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended 31 December 2000 OR [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-3677 ALCAN INC. 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 New York Stock Exchange par value Common Share Purchase Rights New York 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 [(check)] 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. [(check)] The aggregate market value of the voting stock held by non-affiliates: $10,657 million as of 12 February 2001 Common Stock of Registrant 318,116,813 Common Shares, outstanding as of 12 February 2001 Documents incorporated by reference: Annual Report to security holders for the fiscal year ended 31 December 2000 (Parts I, II and IV) Management Proxy Circular for the Annual Meeting to be held on 26 April 2001 (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........................................... 5 Primary Aluminum.............................................. 8 Aluminum Fabrication ......................................... 12 Recycling..................................................... 15 Packaging..................................................... 17 Research and Development...................................... 18 Environmental Regulations..................................... 19 Properties.................................................... 19 Employee Relations............................................ 19 Patents, Licenses and Trademarks.............................. 19 Competition and Government Regulations........................ 20 Item 3 Legal Proceedings ............................................ 21 Environmental Matters......................................... 21 Other Matters................................................. 23 Item 4 Submission of Matters to a Vote of Security Holders........... 24 PART II Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters......................................... 24 Item 6 Selected Financial Data....................................... 25 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 25 Item 7a Quantitative and Qualitative Disclosures about Market Risk.... 26 Item 8 Financial Statements and Supplementary Data................... 27 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 27 PART III Item 10 Directors and Executive Officers of the Registrant............ 27 Item 11 Executive Compensation........................................ 29 Item 12 Security Ownership of Certain Beneficial Owners and Management.............................................. 29 Item 13 Certain Relationships and Related Transactions................ 29 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................... 29 Signatures.............................................................. 34 Consent of Independent Accountants...................................... 36 Exhibit No. 21 Subsidiaries, Related Companies, etc. .................. 37 3 PART I In this report, unless the context otherwise requires, the following definitions apply: "Alcan", "Company" or "Registrant" means Alcan Inc. and, where applicable, one or more Subsidiaries, "Algroup" means Alusuisse Group Ltd. (a Subsidiary of Alcan following the Combination) and, where applicable, one or more of its subsidiaries, "Annual Report" means Alcan's Annual Report for the year ended 31 December 2000, "Board" or "Board of Directors" means the Board of Directors of Alcan, "Combination" means the process by which Algroup became a Subsidiary of Alcan on 18 October 2000, through the completion of a share exchange offer by Alcan for the shares of Algroup, "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 26 April 2001, "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. 1 4 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 actions or results could differ 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 for aluminum and other products, aluminum ingot prices and changes in raw materials costs and availability, changes in the relative values of various currencies, 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, relationships with and financial and operating conditions of customers and suppliers, the effect of integrating acquired businesses and the ability to attain expected benefits, 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 42 to 44 thereof. The text under such heading is incorporated herein by reference. ITEMS 1 AND 2 BUSINESS AND PROPERTIES Alcan is the parent company of an international group involved in many aspects of the aluminum and packaging industries. Through Subsidiaries, Joint Ventures and Related Companies around the world, the activities of Alcan include bauxite mining, alumina refining, power generation, aluminum smelting, manufacturing, recycling and packaging, as well as research and development. Alcan employs approximately 53,000 people. 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 37 countries, Alcan is one of the most international aluminum and packaging companies and is a leading producer of flat-rolled aluminum products. 1. OVERVIEW OF SEGMENTS/DIVISIONS Alcan is composed of four business groups that are each responsible for the value creation of the different business units of which they are comprised. 2 5 1. Primary Metal, comprising Alcan's worldwide activities related to bauxite, alumina, smelting operations, power generation and specialty chemical products, is headquartered in Montreal, Canada. 2. Aluminum Fabrication, Americas and Asia, comprising fabrication activities, such as aluminum sheet, cable and extrusions, is headquartered in Cleveland, USA. 3. Aluminum Fabrication, Europe, comprising European fabrication activities, such as rolled products and engineered products including extrusions, automotive components and composites,is headquartered in Zurich, Switzerland. 4. Global Packaging, comprising Alcan's food flexible, specialty, pharmaceutical and cosmetics packaging businesses, is also headquartered in Zurich. Alcan's corporate head office, located in Montreal, focuses on enterprise strategy and profitable growth, while overseeing governance, policy and compliance matters. 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. Following the 2000 Combination with Algroup, Alcan is now also a significant manufacturer of packaging materials. 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%. Also in 1999, Alcan sold its Aughinish alumina refinery in Ireland, its piston business in Nuremberg, Germany and 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 ("ATA"), a jointly-owned company with modern rolling assets to serve the growing market for aluminum rolled products throughout the Asia/Pacific region. In May 2000, ATA announced the acquisition of Aluminium of Korea Limited ("Koralu"). The Koralu facility consists of top quality assets, including casting, hot rolling, cold rolling and extensive finishing operations, as well as aluminum foundry alloy and billet operations supported by a research and development centre. The product lines of the ATA rolling mills are complementary with high potential integration benefits through load balancing production between the two facilities. In July 2000 Alcan completed the $169 million sale of its 54.62% interest in Indian Aluminium Company, Limited ("Indal") to Hindalco Industries Limited, India's largest integrated aluminum 3 6 producer. In September 1999, the Company entered into a three-way Combination Agreement with Pechiney and Algroup. The structure of the proposed combination involved 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. On 22 November 1999, the Company's Shareholders approved the issuance of the Company's Shares under the two independent exchange offers. Following months of intensive work and negotiations with the European and U.S. competition authorities, the three companies withdrew the Pechiney related merger proposal from the Merger Task Force of the EU Commission in order to investigate alternative proposals to meet the 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). In March 2000, the companies concluded that the divestments that would ultimately be required to meet the objections would seriously undermine the strategic viability of the combined company's rolled products business in Europe. As a consequence, the combination agreement between Alcan and Pechiney was terminated, leaving the Alcan-Algroup portion in effect. The making of the exchange offer by Alcan for the Algroup shares remained subject to competition clearance from the European Commission competition authorities. Subject to the following conditions, the European Commission cleared the Alcan-Algroup Combination : - - the divestiture of the alumina tri-hydrate plant operated by Algroup's Subsidiary, Alusuisse Martinswerk GmbH, at Bergheim-Erft, Germany; - - the divestiture of the lithographic operation carried out by Algroup at Bridgnorth, UK; and - - the divestiture of certain machines that produce semi-rigid aluminum containers, all as more fully described in the European Commission's decision of 14 March 2000. As provided for in the Combination Agreement, Algroup has demerged its Lonza fine chemicals and specialities and Lonza intermediates and additives divisions and its energy business in the Chemicals Division Demerger. These activities were transferred to a new company, Lonza Group Ltd., prior to the completion of the Combination. This new independent company was listed on the Swiss Stock Exchange in November 1999. On 17 October 2000, the Combination between Alcan and Algroup was complete, with Alcan acquiring over 99% of the shares of Algroup by virtue of its exchange offer, with former Algroup shareholders receiving 17.1 Alcan Shares for each Algroup share exchanged. Alcan intends to acquire the remaining shares in Algroup in 2001 by virtue of statutory right and cause Algroup to de-list from the Swiss Stock Exchange. In January 2001, because of an acute shortage of water in the Nechako reservoir in British Columbia and consequent reduced electrical generation capacity at its Kemano Power Station, Alcan adopted measures at its Kitimat smelter which involved shutting down individual pots and reducing amperage. These measures are expected to reduce production of aluminum at the Kitimat smelter by 40,000 tonnes over 16 months. On 1 February 2001, Alcan announced that it had completed the acquisition of the remaining 30% of the Gove alumina refinery and related bauxite mine in Australia (see section 3.3.2 below). On 7 February 2001, Alcan announced that it is in preliminary discussions regarding the sale of its bauxite and alumina operations in Jamaica. These assets comprise two alumina refineries and related bauxite reserves and mine sites (see section 3.3.7 below). 4 7 For 2000, the Company reported a net income of $618 million. See the Annual Report "Management's Discussion and Analysis" on page 25. In 1999, Alcan established aggressive new targets for its Full Business Potential ("FBP") program. The five-year objective of a $1 billion improvement in pre-tax income by 2001 included $150 million to be realized from the new smelter at Alma in Quebec, which will only be in full operation later in 2001. By the end of 2000, with four years of the FBP program completed, the Company had achieved an improvement of $580 million pre-tax (68% of the target of $850 million excluding Alma) of which $150 million was achieved during 2000. The remainder of Alcan's FBP program, together with the benefits to be realized from the new smelter at Alma and improvements expected from the Company's operations in Korea, have now been incorporated into a new earnings improvement program for 2001 and 2002 which includes similar initiatives for the former Algroup businesses. This new target, which also includes the benefits of synergies to be realized from the merger with Algroup, is to achieve earnings before interest, taxes, depreciation and amortization (EBITDA) of $3 billion for the year 2002 based upon a London Metal Exchange price for aluminum of $1500 per tonne and a normal economic environment, with the Euro currency approximately at par with the U.S. dollar. Following Jacques Bougie's resignation on 10 January 2001, the Board of Directors appointed W.R.C. (Bill) Blundell as interim President and CEO. On 23 February 2001, the Board appointed Travis Engen, previously chairman and chief executive of ITT Industries, Inc. and a non-executive Director of the Company, as President and CEO of Alcan, to take effect on 12 March 2001. On 1 March 2001, Alcan changed its corporate name from Alcan Aluminium Limited to Alcan Inc. to reflect the Company's increasingly diversified product mix and global character. 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. 3.2 Sales and Marketing/Customers Alcan produced in 2000 approximately 3.7 million tonnes of smelter-grade alumina, of which some 3.0 million tonnes are required by its current smelting operations. The remainder is sold to third parties. In addition, Alcan produced in 2000 approximately 300,000 tonnes of chemical-grade alumina, which is sold to third parties in the form of various alumina chemicals. 3.3 Production and Facilities 3.3.1 Canada Alcan owns an alumina facility 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. 5 8 3.3.2 Australia In 2000, through the Combination, Alcan acquired a 70% interest in the Gove bauxite mine and refinery plant. The facilities, which are located on the Gove peninsula in the Northern Territory of Australia, started operation in 1971-72. In 2000 following the Combination, the amount of bauxite mined at the Gove joint venture was 1.7 million tonnes, of which 0.5 million tonnes were exported and the remainder used to produce 0.5 million tonnes of alumina. Design capacity at the start-up of the Gove refinery was 1 million tonnes of alumina and has since expanded to 1.8 million tonnes per year. In January 2001, the Company acquired the remaining 30% of the Gove refinery and related bauxite mine at a cost of $362 million, subject to certain post-closing adjustments which would require the payment of additional amounts of up to $30 million. Also in Australia, Alcan has a 21.4% interest in a company which operates an alumina plant at Gladstone (Queensland). 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. 3.3.3 Brazil Alcan purchased approximately two million tonnes of bauxite in 2000 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 11 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 (Brazil), which has an annual capacity of about 1.2 million tonnes; Alcan owns a 10% interest in the Alumar refinery. Alcan also 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 500,000 tonnes of bauxite in 2000 from Ghana Bauxite Co. Ltd. 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 about four million tonnes of bauxite in 2000 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 Alcan holds a 35% interest in the proposed Utkal alumina project in Orissa, India. The project includes a one million tonne integrated alumina plant and bauxite mine, with potential to further expand production capacity. 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 2000, 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. As mentioned above, the Company is in preliminary discussions regarding the sale of its bauxite and alumina operations in Jamaica. 6 9 3.3.8 United Kingdom Alcan operates an alumina plant in Burntisland (Scotland), which has an annual capacity of approximately 100,000 tonnes of special aluminas and other chemicals for sale to the chemical market. Bauxite for this operation is purchased from Ghana (see above). Alumina capacities -- As at 31 December 2000 (thousands of tonnes)
% of Alcan ownership Annual share of Locations(dagger) by Alcan Capacity capacity - --------------------------------------------- ---------- ---------- ---------- Smelter-grade alumina Australia..........Gladstone 21.4 3,740 800 (Queensland) Gove (Northern Territories) 100 1,800 1,800 Brazil.............Ouro Preto 100 150 150 (Saramenha, Minas Gerais) Alumar 10 1,200 120 (Sao Luis) Canada.............Vaudreuil 100 1,050 1,050 (Jonquiere, Quebec) Jamaica............Kirkvine 93 ) (Manchester) ) 1,175 1,093 Ewarton 93 ) (St. Catherine) Total smelter-grade alumina 5,013 Specialty chemical aluminas and hydrates Canada.............Vaudreuil 100 150 150 (Jonquiere, Quebec) United Kingdom.....Burntisland 100 100 100 (Fife, Scotland) Total specialty chemical aluminas and hydrates 250 Total 5,263
[FN] - ---------- (dagger) Includes Joint Ventures, proportionately consolidated. 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 2000, Alcan used 8.4 million tonnes from its mines and purchased 1.0 million tonnes from third parties. Alcan has more than sufficient bauxite to meet its needs for the next 30 years. Alcan also has access to additional resources to meet its needs beyond this period. In 1999 and 2000, Alcan spent $4.6 million and $1.7 million, respectively, on exploration and development of bauxite reserves. 7 10
Alcan Bauxite As at 31 December 2000 Reserves by Equity Interest (millions of tonnes) Equity Total Alcan Interest Reserves Share Alcan Jamaica Company 0.930 50.3 *50.3 Alcan South Pacific Pty Ltd. (Australia) 1.000 56.1 56.1 Alcan Aluminio do Brasil Ltda. 1.000 7.6 7.6 CBG (Guinea) 0.165 180.1 *59.4 GBC (Ghana) 0.800 4.9 *4.9 Gove (Australia) 1.000 182.6 182.6 Utkal Alumina International Limited (India) 0.350 118.0 41.3 MRN (Brazil) 0.125 160.3 20.0 Total 759.9 422.2
[FN] * Adjusted to reflect allocation. 3.4.2 Chemicals and Other Materials 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. 3.5 Special Alumina 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. Alcan's principal manufacturing facilities for special aluminas and aluminum hydroxides are located in Canada and the U.K. 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 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 2000 of aluminum of all types from all sources amounted to 1,670,000 tonnes, compared with 1,297,000 tonnes in 1999 and 1,227,000 tonnes in 1998. 4.2 Sales and Marketing/Customers In 2000, Alcan sold 820,000 tonnes of primary aluminum to third parties. Virtually all this ingot was in the form of value-added ingot, primarily extrusion billet, sheet ingot or foundry ingot. The remainder of the primary metal produced was transferred to Alcan's own fabricating operations, 8 11 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 remainder 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 ingot. Although Alcan has been short of metal in Europe, the duty barrier for aluminum from Canada and high logistics costs have made it uneconomical to ship significant tonnages of metal to Europe. Alcan covers its metal production shortfalls in Europe with purchases of aluminum. Alcan's ingot product realizations were $ 1,667 per tonne in 2000 compared to $1,511 per tonne in 1999 and $1,558 per tonne in 1998. 4.3 Production and Facilities 4.3.1 Smelting Alcan owns and operates 15 primary aluminum smelters with a total ultimate annual rated capacity of 2,252,000 tonnes. Seven of these smelters, having a total ultimate annual rated capacity of 1,481,000 tonnes, are located in Canada; the other smelters are located in Brazil, Iceland, Norway, Switzerland, the U.K. and the U.S. During 2000, Alcan's smelters produced 1,562,000 tonnes of primary aluminum: 1,081,000 tonnes in Canada, 141,000 tonnes in the U.S., 161,000 tonnes in the United Kingdom, 107,000 tonnes in Brazil, 43,000 tonnes in Iceland, 16,000 tonnes in Norway and 9,000 tonnes in Switzerland. Indal produced 4,000 tonnes in 2000 prior to it being sold. Alcan added three smelters in 2000 through the Combination. These are: the Icelandic Aluminium Company Ltd. ("ISAL") smelter located near Reykjavik, Iceland; the Sor-Norge Aluminium A/S ("SOERAL") smelter located at Husnes, Norway (50%-owned); and Algroup's smelter at Steg, Switzerland. Utilization of smelting capacities varies from time to time according to business conditions. The re-start of idle capacity at the Sebree, US (60 Kmt) and Lynemouth, UK (50 Kmt) smelters commenced in May 2000. 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 $1.98 billion, 400,000 tonnes ultimate annual capacity aluminum smelter and casting center in Alma (Quebec) is expected to be completed in 2001. Production at the Alma smelter has begun with a capacity of 52,000 tonnes per year as at 31 December 2000. The closure of the Isle-Maligne smelter was completed in March 2000. The Kinlochleven smelter in Scotland was closed in June 2000 and its power was transferred to the Lochaber smelter. 9 12
Smelter capacities -- As at 31 December 2000 (thousands of tonnes) % of Ownership Annual Locations by Alcan capacity Canada..................... Arvida 100 246(248*) (Jonquiere, Quebec) Grande-Baie 100 196 (La Baie, Quebec) Laterriere 100 219 (Chicoutimi, Quebec) Shawinigan 100 91 (Quebec) Alma 100 52(400*) (Quebec) Beauharnois 100 50 (Melocheville, Quebec) Kitimat 100 275(277*) (British Columbia) Total in Canada 1,129 Brazil..................... Ouro Preto 100 51 (Saramenha, Minas Gerais) Aratu 100 58 (Bahia) Iceland.....................ISAL 100 168 (Reykjavik) Norway......................SOERAL 50 62 (Husnes) Switzerland.................Steg 100 36 (Valais) United Kingdom............. Lynemouth 100 160 (Northumberland, England) Lochaber 100 40 (Inverness-shire, Scotland) United States.............. Sebree 100 196 (Kentucky) Total outside Canada 771 Total 1,900
__________*: ultimate annual capacity 4.3.2 Other Aluminum Sources Alcan operates recycling plants in Brazil, Italy, the U.S. and the U.K. (See section 6 on page 15 hereof). 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. An annual charge 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. 10 13 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-hours of electrical energy annually from Hydro-Quebec beginning in 2001. Any electricity that 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. 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 and a short-term contract. The smelter in Iceland is supplied with hydroelectric power from Iceland's national power company. The supply is under contract through 2014 at rates that vary, subject to certain limits, based on metal prices. The Norwegian smelter has a number of contracts for energy supply, the most important of which expire in 2006. The smelter in Switzerland is supplied with power from Lonza Group's energy division (the former Algroup energy division) under medium-term contracts. 4.4.2 Anodes Alcan produces anodes in a facility in The Netherlands ("Aluchemie"). Alcan holds 66% of Aluchemie directly while SOERAL, its 50% joint venture, owns a further 13%. Aluchemie, the largest anode plant in the world, enables Alcan to exploit economies of scale as well as the harbour of Rotterdam which permits favorable logistics for importing raw materials and dispatching baked anodes. The main raw materials for anode production are calcined petroleum coke and pitch. Smaller amounts of burned-off anodes from smelters are also added. The production process is subdivided into two steps: mixing of the raw materials followed by cold shaping of the anode and baking of the anode at elevated temperature. Each of the three shareholders of Aluchemie is entitled to a volume of anodes corresponding to their shareholding at prices determined by formulae. Alcan's share of anodes produced by Aluchemie is used at the ISAL and SOERAL smelters and is sold to third-party customers. 4.5 Engineering Subsidiary Alesa Alusuisse Engineering AG provides engineering services on a global basis internally as well as to third parties. Alesa maintains engineering offices in Switzerland, Canada and Australia. The Australian office also provides technical services to the Gove alumina refinery on an ongoing basis. Its main areas of activity are: - -- Raw Materials Technologies, including alumina refining, anode production and smelter technology; 11 14 - -- Materials Handling Technologies, including shiploaders and unloaders, silo systems, airlifts and air gravity conveyors, dense phase conveying systems, flyash handling and special applications; and - -- Process Automation, including electrolytic cell control systems and general purpose automation. 4.6 Trading In 2000 Algroup, through its trading arm Alusuisse Trading AG, traded on behalf of its aluminum and packaging activities. It also engaged in aluminum and related trading activities for third parties. Trading services included four main activities: sales of excess raw materials such as alumina and anodes, purchases of metal and other raw materials to cover requirements that exceed internal supplies, managing risk exposures through London Metal Exchange transactions and managing the supply logistics between smelters and fabricating plants. Algroup's third party trading function has a focus on metal and alumina transactions. Alcan is in the process of integrating this function to bring it in line with Alcan's current practices. 5. ALUMINUM FABRICATION 5.1 Products The conversion of aluminum ingot into semi-fabricated and finished products requires the 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 that purchase primary and recycled aluminum from the primary producers and the post-consumer market. 5.1.1 Rolled Products Approximately 93 % of Alcan's fabricated aluminum product volume is composed of rolled products. A major portion of this is can stock for beverage containers. Other important end-use markets for sheet include transportation, the printing industry, building and construction and a variety of durable goods markets. 5.1.2 Engineered Products Through a number of downstream businesses, Alcan manufactures and sells other fabricated aluminum products such as: - -- Wire and Cable Aluminum is 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. - -- Castings Another method of fabrication is the casting of molten aluminum into components for machinery, automotive products and aircraft. - -- Extrusions The extrusion process involves forcing hot metal through a die to create profiled shapes. Examples of end-products using extrusions include windows, doors and automotive components. - -- Automotive and other transportation Among the product lines included in this business area are extrusion-based safety systems and other structural automotive components, airfreight containers, suspension parts, forgings, and diecastings. 5.2 Sales and Marketing/Customers In 2000, Alcan shipped 1,855,000 tonnes of rolled products and used 352,000 tonnes in 12 15 engineered products and packaging. Alcan manufactured another 328,000 tonnes from customer-owned metal. 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 63% of Alcan's total sales and operating revenues of $9.2 billion. Principal markets are beverage can sheet, other packaging, transportation (including automotive), building products, lithographic sheet, electrical and other industrial applications. In January 2000, Alcan signed a significant multi-year aluminum supply agreement with Ford Motor Company ("Ford"). Alcan continues to work with GM, Ford, Audi, DaimlerChrysler, BMW and other auto-makers in North America and Europe to develop lighter, more efficient vehicles. 5.3 Production and Facilities Alcan, together with its Subsidiaries, Related Companies and Joint Ventures, carries out fabricating operations in more than 65 plants in 16 countries. 5.3.1 Rolled Products At the end of 2000, Alcan's annual rolled products manufacturing capacity in its principal fabricating markets was as follows: 1,199,000 tonnes in North America; 230,000 tonnes in South America; 1,600,000 tonnes in Europe; and 460,000 tonnes in Asia. Alcan's project to expand capacity at its Pindamonhangaba, Brazil rolling mill has been completed; ultimate annual capacity will be 290,000 tonnes. The recently-acquired rolling mills of Alcan Taihan Aluminum Limited will have a total ultimate annual capacity of 600,000 tonnes, expected by 2005. Alcan has invested $35 million to expand production of aluminum rolled sheet for the automotive and industrial products markets at its Kingston, Ontario facility. This expansion is now complete, bringing the total annual capacity of the plant to 185,000 tonnes. Alcan and Arco Aluminum, Inc. have completed a $22 million expansion of their jointly-owned Logan aluminum rolling mill in Kentucky, U.S., bringing the total annual capacity of the plant to 725,000 tonnes. Alcan added the following rolling operations in 2000, through the Combination with Algroup. Algroup had, over the past several years, focused on higher value-added product lines and sought to limit production of commodity-like products. - -- Singen, Germany, which produced 168,000 tonnes in 2000, approximately half of which represented foilstock (the intermediate product for aluminum foil); and - -- Sierre, Switzerland, which produced 102,000 tonnes in 2000, with the two main product lines being automotive sheet and industrial plates. In automotive sheet, the Sierre rolling mill, meets demanding requirements for surface quality, formability and adaptation to car body production lines. In the area of plates, the Sierre mill serves industrial markets such as mold-making, tooling and machinery. 13 16 Rolling capacities by region -- As at 31 December 2000 (thousands of tonnes) Europe Rogerstone North America (United Kingdom) Saguenay Falkirk (Quebec) (United Kingdom) Kingston Norf (Ontario) (Germany) Logan Singen (Kentucky) (Germany) Oswego Nachterstedt (New York) (Germany) Terre Haute Gottingen (Indiana) (Germany) Fairmont Sierre (West Virginia) (Switzerland) Louisville Bresso (Kentucky) (Italy) Warren Pieve Emanuele (Ohio) (Italy) Total North America 1,199 Asia Total Europe 1,600 Yeongju (South Korea) South America Ulsan Pindamonhangaba (South Korea) (Brazil) Bukit Raja Utinga (Malaysia) (Brazil) Rangsit (Thailand) Total South America 230 Total Asia 460 - -------------------------------------------------------------------------------- Grand Total 3,489 5.3.2 Engineered Products 5.3.2.1 Wire and Cable Alcan's main wire and cable businesses are located in Canada (Quebec and Ontario) and the U.S.A. 5.3.2.2 Extrusions Alcan's Subsidiaries, Related Companies and Joint Ventures produce extruded products in several countries (including Italy, China, Malaysia and Thailand) and sell these products locally and in other countries for the building, construction, transportation and engineering markets. The following four facilities producing extruded products were added to the Alcan Group in 2000, through the Combination: Singen (Germany), Sierre (Switzerland), St. Florentin (France) and Decin (Czech Republic). - -- Singen operates the largest extrusion press in Western Europe. The facility shipped 35,000 tonnes in 2000 following the Combination, principally for end-users in transportation, electromechanical applications and machinery. A sizeable part of its production is further processed internally into automotive components. - -- Sierre's production of 28,000 tonnes in 2000 following the Combination was delivered mainly to the transportation and industrial markets. - -- About 81% of the total output of St. Florentin (26,000 tonnes in 2000 following the Combination), was delivered to the French market. The operation targets end-users in the building (50%), transportation (30%) and industrial (20%) sectors. 14 17 - -- At the extrusion plant at Decin in the Czech Republic, shipments of about 32,000 tonnes were made in 2000 following the Combination, approximately equally divided between hard alloy and soft alloy extrusions. Alcan's Pieve extrusion plant in Italy produced 17,000 tonnes in 2000. 5.3.2.3 Automotive and Other Transportation Among the product lines included in this business area are: - -- extrusion-based safety systems and other structural automotive components, airfreight containers, suspension parts and forgings; and - -- diecastings produced by Subsidiary Alusuisse BDW, and its 66%-owned joint venture activity, Alusuisse-Tomos, in Slovenia. In 2000, revenues from the Auto Systems and Components and Mass Transportation Systems units were $ 286 million. Safety systems include both bumper beams and side impact bars used as door reinforcement in cars. Structural automotive components include both ready to assemble dashboard support beams as currently installed in Mercedes A-class cars and spaceframe components developed for the new aluminum intensive Audi car. Following the Combination, Alcan is the world's leading producer of airfreight containers used for baggage and cargo transport by all airlines. Diecastings for automotive application are produced in Germany and Slovenia. Products are typically machined after casting and delivered ready for assembly on automotive production lines. To expand capacity, the joint venture was set up in Slovenia to draw on the available competence in diecasting as well as favorable production costs. 5.3.2.4 Composites Composites activities had revenues of $ 273 million in 2000. The main areas of application are facade, display and transportation. Products include: aluminum-plastic composites, comprising an outer and inner skin of aluminum sheet surrounding a plastic core; foam plastic materials, covered, if required by specific market requirements, with paper or plastic layers; and fibre-reinforced plastic components, mainly for transportation applications. The main applications for these products are ventilated facades for which composites have a number of advantages over more traditional materials because of their low weight-to-stiffness ratio, ease of application and design variety. In addition to facade applications, composites are now commonly used in display and transportation markets. Composites are produced in Switzerland, Germany, China, the U.K. and the United States. Alcan also produces fibre-reinforced components in Switzerland for such applications as rail car driver cabs, bus components and car spoilers. 6. RECYCLING 6.1 Production and Facilities Alcan operates three specialized recycling plants in the U.S., with a total annual capacity of 481,000 tonnes, for the recycling of used beverage cans ("UBCs") and process scrap returned from customers. A similar plant in the U.K. operates with a capacity of 77,000 tonnes per year. Alcan also operates a facility in the U.K. for the production of 71,000 tonnes per year of sheet ingot from aluminum scrap. 15 18 Alcan has a dedicated UBC recycling plant, which has an ultimate capacity of 80,000 tonnes per year, at Pindamonhangaba, Brazil. The Company also operates a secondary aluminum smelter in Borgofranco, Italy, which has a capacity of 70,000 tonnes per year for the production of secondary aluminum from aluminum scrap. This plant serves Alcan's fabricating plants in Germany, Switzerland and Italy, recycles customers' manufacturing scrap and post-consumer aluminum packaging material and recovers aluminum and salt from saline slag, a by-product of aluminum recycling. The Company 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 the case of UBCs, Alcan has a well-established North American recycling network. Alcan's U.S. plants processed more than 23.8 billion cans, or about 40% of all UBCs recycled in the U.S.A. in 2000. In the United Kingdom, Alcan has an infrastructure of 26 UBC recycling centres. Alcan plays leading roles in joint industry programs to promote aluminum collection and recycling in many of the countries where it operates. As a matter of course, Alcan operates facilities in many plants to recycle aluminum scrap generated internally by fabricating activities.
Recycling plant capacities -- As at 31 December 2000 (thousands of tonnes) % of Ownership Annual Locations by Alcan capacity Foundry alloys and remelt scrap ingot Italy...................................... Borgofranco di Ivrea 100 70(1) (Piemonte region) Total foundry alloys 70 Sheet ingot from UBCs and customer process scrap Brazil..................................... Pinda 100 37(2) (Pindamonhangaba, Sao Paulo) United Kingdom............................. Warrington 100 77 (England) United States.............................. Berea 100 | (Kentucky) | Greensboro 100 > 481(1) (Georgia) | Oswego 100 | (New York) Sheet ingot from miscellaneous scrap United Kingdom............................. Warrington 100 71 (England) Total sheet ingot 666 Total 736
- ---------- [FN] (1) Reflects the continued optimization of current assets. (2) Ultimate annual capacity is 80,000 tonnes per year. 6.2 Sales and Marketing/Customers Recycled metal is primarily utilized by Alcan's own rolling facilities to produce can sheet. 16 19 7. PACKAGING Following the Combination, Alcan is a leader in the manufacture and sale of individual packages to the producers of consumer goods in North America and Western Europe. Packaging is used to protect and present consumer goods in individual formats; it is also used to collate and transport consumer packages, and to protect and transport industrial and agricultural goods. Alcan has some 85 packaging plants in 14 countries. Packaging sales were $1.2 billion in 2000, based on the inclusion of the former Algroup businesses following the Combination. These sales are concentrated in certain product segments where the Company has built a strong competitive position. In 2000, over 90% of packaging sales were made by plants located in North America and Western Europe. 7.1 Food Flexibles and Specialty Packaging Food flexibles and specialty packaging accounted for sales of $ 1,006 million in 2000. There are manufacturing sites in North America, Western Europe, Brazil and Turkey. 7.1.1 Food Flexibles The principal activity of this sector is flexible packaging: the printing, coating and laminating of plastic films, aluminum foil and paper into primary packaging materials for food manufacturers. The origins of this sector lie in the conversion of aluminum foil. However, the sector diversified by acquisition, especially through the 1994 purchase of Lawson Mardon Group by Algroup. The food flexibles sector is now "materials neutral", (i.e. not only aluminum), with a large stake in the conversion of all the major materials required by customers. The main processes used in sector plants are rotogravure and flexographic printing; laminating using adhesives, wax or plastics extrusion; and various coating processes to add barrier properties, sealability or gloss. The sector's products are typically produced in wide reel format and then slit into narrow reels for delivery to customers, where they are formed into sealed packages (around the customer's product) on automated machinery. Other types of flexible packaging manufactured by the same processes include lidding materials (e.g., for dairy cups) and certain types of labels (especially for carbonated soft drinks packed in plastic bottles). In addition to flexible packaging, the sector also produces rigid plastics trays (e.g., for frozen meals) and, in Spain, folding cartons. Sales and Marketing/Customers The main markets served by the food flexibles business are confectionery (e.g., bagged sweets, medicated confectionery, chewing gum), beverages (e.g., pouch material and film labels), dairy products (e.g., yogurt lidding, soft cheese and processed cheese), savoury snacks, instant dried products (e.g., soups, coffee, bouillon cubes), biscuits and breakfast cereal. 7.1.2 Foil products Alcan foil is used for household and commercial packaging applications and for industrial products. Foil products are sold mostly in Europe, from manufacturing sites located in Germany, Switzerland, the United Kingdom, The Netherlands and Canada. The foil products sector uses cold rolling mills to roll the foil to its required thickness while retaining shape and surface quality across the whole width of the foil. Laminating, coating and printing equipment is used to convert the foil reels. Die stamping presses are used to form plain, coated or laminated foil materials into shallow trays for various food markets, notably pet food and frozen food. One of the largest applications for plain foil is the liquid beverage carton industry. Beverage carton materials for certain products, such as long-life milk and fruit juices, include a layer of aluminum foil to provide the protection necessary to preserve the product. 17 20 Sales and Marketing / Customers Alcan sells plain and converted foil for industrial applications to a diverse customer base, but there are a number of key external customers in each of its principal product lines. 7.1.3 Specialty Packaging The specialty packaging sector's main activity is the manufacture of tobacco packaging at seven sites, two in North America, four in Western Europe, and one in Turkey. The principal products at all of these sites are folding carton blanks, which are produced by printing reels of paperboard, cutting and creasing the reels into individual blanks, and stacking them for delivery to the customer. The other, smaller, specialty businesses are all located in the United Kingdom. Sales and Marketing/Customers Cigarette consumption is expected to continue to decline in North America and Western Europe but to continue to increase elsewhere, which may affect overall demand for packaging. Folding cartons have, however, consistently taken share in the past from soft packs. Because of the relatively high concentration among cigarette producers, three customer groups account for 90% of sales in this area: British American Tobacco plc, Philip Morris Companies Inc. and Imperial Tobacco Ltd. 7.2 Pharmaceutical and Cosmetics Packaging The pharmaceutical and cosmetics packaging sector accounted for net sales of $210 million in 2000, of which pharmaceuticals accounted for the major portion. Following the Combination, Alcan produces and sells a full range of packaging products for pharmaceutical and cosmetic companies. Principal products include: blister lidding, strip packs, pouches, barrier form packs, flexible tube laminate, plastic containers and closures, molded glass bottles, glass tubing vials, drawn glass tubing, folding cartons, glass ampoules, aluminum seals, rubber stoppers, and contract packaging services. In addition, Alcan produces and sells products used primarily in life science laboratories including liquid handling devices, cell culture equipment, and specialty glass apparatus. These products are manufactured in facilities in North America, Europe, South America, and through a joint venture, in China. Sales and Marketing/Customers The trend towards consolidation on a global basis is prevalent in the pharmaceutical and personal care/cosmetic market. Industry leaders are building global organizations in an attempt to gain economies of scale and create global brand equity. As the relevant markets continue to consolidate, industry leaders will account for a larger share of demand for packaging products and services. This, coupled with the tendency for industry leaders to rationalise their supply base, creates a premium on understanding and reacting swiftly to the needs of large global industry players. 8. RESEARCH AND DEVELOPMENT Research and development comprises a global system of research laboratories, applied engineering centers and plant technical departments. The research laboratories, responsible for approximately 50 % 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), one is in the U.K. (Banbury, Oxfordshire) and one is in Switzerland (Neuhausen). Together, they employ about 600 people. In recent years, Alcan's R&D effort has been refocused on core processes and products. Research and Development expenses for Alcan were $81 million in 2000, $67 million in 1999 and $70 million in 1998. Additionally, intellectual 18 21 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. 9. ENVIRONMENTAL REGULATIONS Underlying Alcan's environmental commitments are a number of factors. These include a clear approach to environmental management systems, continuous improvement of environmental control systems, dedicated environmental professionals and ongoing employee involvement. Alcan is also committed to making the most of the inherent environmental value of aluminum and other materials in every stage of its products' life cycles. 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 $133 million in 2000. Similar expenditures for 2001 and 2002 are expected to be $110 million and $130 million, respectively. In addition, expenditures charged against income for environmental protection were $91 million in 2000 and are expected to be $115 million in 2001 and $110 million in 2002. 10. PROPERTIES Alcan believes that its properties, most of which are owned, are suitable and adequate for its operations. 11. EMPLOYEE RELATIONS At 31 December 2000, Alcan employees were located as follows: approximately 21,000 in North America, 23,000 in Europe, 3,100 in South America, 3,300 in Asia and Pacific areas and 3,000 in other areas. A majority of the hourly-paid employees are represented by labour unions. In many European locations, union contracts are of relatively short duration (e.g., one year) and are negotiated on a national basis between representatives of the relevant industries and the national unions. There are 26 collective labour agreements in effect in Canada, the majority of which expire in 2003 or later. 12. PATENTS, LICENSES AND TRADEMARKS Alcan 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. Alcan 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. 19 22 Alcan owns a number of trademarks that 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, significant trademarks will be renewed for a further three to ten years. Alcan has also acquired certain intellectual property rights under licenses from others for use in its businesses. Alcan'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. 13. COMPETITION AND GOVERNMENT REGULATIONS The aluminum and packaging businesses are highly competitive in price, quality and service. The Company experiences competition 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 in aluminum production is enhanced by its ability to supply its own power to 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 the anti-dumping laws of the importing country, which prohibit sales of imported merchandise at less than defined fair values. The Investment Canada Act (the "Act") provides that the acquisition of control of a Canadian business, such as Alcan's Canadian business, by a "non-Canadian" (as defined in the Act) may be subject to review under the Act and, if so, may not be implemented unless the Minister of Industry 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. In addition, the acquisition by a non-Canadian of more than one-third but less than the majority of the voting shares of a Canadian company is presumed to constitute an acquisition of control unless it can be established that on the acquisition the corporation is not controlled in fact by the non-Canadian. 20 23 ITEM 3 LEGAL PROCEEDINGS ENVIRONMENTAL MATTERS LITIGATION The Company's U.S. Subsidiary, Alcan Aluminum Corporation ("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. The settlement is not yet final. In a lawsuit brought in July 1987 relating to the Pollution Abatement Services site in Oswego, New York ("PAS"), 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. The trial court re-instituted its judgment holding Alcancorp jointly and severally liable. The amount of the judgment plus interest is $13.5 million as of December 2000. The case is being appealed. Alcancorp has also been sued by other PRPs at PAS seeking contribution for costs incurred in cleaning up the PAS site which are being contested. 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 arising out of the following proceedings: 21 24 (a) Magnesium Elektron, Inc. ("MEI"; at the time, a Subsidiary of British Alcan) was sued, together with approximately 70 other defendants, by plaintiffs 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 chemical 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. Large waste generators are cleaning up the site. Luxfer, being a small contributor, is discussing settlement offers. In 2000, Luxfer and other members of the joint defence group entered into a consent decree to complete the remediation. The remediation will be funded on a "pay as you go" basis; Luxfer's first assessment was $2,325. 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. In 2000, Luxfer and the other joint defence group members negotiated a settlement. Luxfer's allocation in the settlement was approximately $ 50,000. Court approval of the settlement was obtained in January 2001. In connection with a property in New York State that 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 and Alcancorp. A record of decision has been issued. The parties have negotiated a consent order to implement the record of decision. The consent order was signed in 2000 and the remedial activities are complete. An operation and maintenance program has been instituted as part of the record of decision at a projected cost of $75,000. 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 petitioned the Supreme Court of New Jersey. The Supreme Court of New Jersey declined to hear Alcancorp's appeal and Alcancorp has paid the civil penalty in the amount of $58,000. Wheaton USA Inc. ("Wheaton"), a subsidiary of Algroup, owns a former site used for the manufacture of lead crystal glassware. Three local residents filed suit alleging contamination of wells and exposure to hazardous materials. The New Jersey Department of Environmental Protection ("NJDEP") is investigating manufacturing facilities in the area and has identified another company to be principally responsible. A motion for a class action is before the court. 22 25 Wheaton has been charged, in connection with its Flat River plant in Missouri, with an alleged air emission violation and a permit violation. Negotiations with the Missouri Department of Natural Resources are ongoing. 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 ("TCE") in the groundwater. Alcancorp investigated the matter with a third party believed to be responsible for the contamination and a voluntary remediation plan was filed with the State of Indiana. The third party has refused to pay and Alcancorp has filed a lawsuit for indemnification and liability. There is currently a tentative settlement in that case, in which Alcancorp will transfer ownership and full responsibility for the operation and maintenance of a landfill site at its Sebree, Kentucky plant to the third party and Alcancorp will remediate the TCE at the Indiana facility. An industrial neighbour of Wheaton's coated product plant in Mays Landing, New Jersey, has claimed that in the 1970's, Wheaton had disposed of hazardous waste that was leaching onto its land. The NJDEP has investigated and Wheaton is required to perform remediation and monitoring at the site. In 1997, Wheaton began building new furnaces at its Millville New Jersey glass plant that may not be in compliance with applicable air emission regulations. The NJDEP is involved. Wheaton is making modifications to the furnaces. Lawson Mardon USA Inc, a subsidiary of Algroup, is undertaking a site investigation and clean-up of the land at its Clifton plant in compliance with a NJDEP permit. 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. 23 26 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company has not submitted any matter to a vote of security holders, through solicitations of proxies or otherwise, during the fourth quarter of the year ended 31 December 2000. 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 79. The number of holders of record of Shares on 12 February 2001 was 18,775. 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 64, note 15 to Consolidated Financial Statements) and foreign governmental restrictions affecting repatriation of earnings. (See section titled "Competition and Government Regulations" on page 20 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%. 24 27 ITEM 6 SELECTED FINANCIAL DATA SELECTED HISTORICAL FINANCIAL DATA
Years ended 31 December ---------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------ ------ ----- ----- ----- Sales and operating revenues 9,148 7,324 7,789 7,777 7,614 Net income from continuing operations before extraordinary item (Canadian GAAP) 618 460 399 468 410 Net income from continuing operations before extraordinary item (U.S. GAAP) 606 455 417 504 420 Net income (Canadian GAAP) 618 460 399 485 410 Net income (U.S. GAAP) 606 455 417 521 420 Total assets 18,407 9,849 9,901 9,374 9,228 Long-term debt (including current portion) 3,528 1,322 1,703 1,277 1,338 Net income per Share from continuing operations 2.45 2.06 1.71 2.02 1.74 before extraordinary item (Canadian GAAP) Net income per Share from continuing operations 2.40 2.04 1.79 2.18 1.79 before extraordinary item (U.S. GAAP) Net income per Share (Canadian GAAP) 2.45 2.06 1.71 2.09 1.74 Net income per Share (U.S. GAAP) 2.40 2.04 1.79 2.25 1.79 Cash dividends per Share 0.60 0.60 0.60 0.60 0.60
Commencing 1998, the Company retroactively adopted, without restating prior years, the recommendations of the Canadian Institute of Chartered Accountants ("CICA") concerning accounting for income taxes. Commencing 1998, the Company retroactively adopted the recommendations of the CICA concerning segment disclosures. See Annual Report, pages 53 to 55, note 4 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. 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 22 through 44, the section titled "Management's Discussion and Analysis". As the Company follows Canadian GAAP, reference should be made to note 4 to the Consolidated Financial Statements on pages 53 to 55 of the Annual Report which compares, for certain items 25 28 listed, the amounts as reported with the amounts that would have been reported under U.S. GAAP. Beginning in 2001, the Company is required to adopt, for supplementary US GAAP reporting purposes only, Financial Accounting Standards Boards Statements 133 and 138. These standards require that all derivatives be recorded in the financial statements and valued at market. Alcan is in the process of completing its assessment of the new standards. Refer to the section titled "Competition and Government Regulations" on page 20 of this report for a brief description of the application of the Investment Canada Act. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. The Company considers EBITDA to be a key financial performance measure used by management for the four operating segments. Management believes that EBITDA provides a measure of operating results that is unaffected by the financing and accounting effects of acquisitions and differences in capital structures among otherwise comparable companies. EBITDA is not a substitute for net income, cash flows and other measures of financial performance as defined by generally accepted accounting principles, and may be defined differently by other companies. 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 2000. INTEREST RATES The net income impact of a 10% movement in interest rates on the Company's variable rate debt outstanding at 31 December 2000 net of its invested surplus cash and time deposits at 31 December 2000 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 forward and option contracts) outstanding at 31 December 2000 would be to reduce 2001 net income by approximately $102 million. 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 options contracts outstanding at 31 December 2000 would be to reduce 2001 net income by approximately $38 million, of which $10 million relates to the net cost of option premiums and $ 28 million to forward contracts. These results reflect a 10% reduction from the 2000 year-end, three-month LME aluminum closing price of $1,565 and assume an equal 10% drop has occurred throughout the aluminum forward price curve existing as at 31 December 2000. Because all of the Company's aluminum forward 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 contracts would be offset by an equal and opposite impact on the purchases being hedged. 26 29 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required is incorporated by reference to the Annual Report, Consolidated Financial Statements on pages 47 through 73 and the "Auditors' Report" on page 46 and the section titled "Quarterly Financial Data" on page 76. The 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 7 March 2001. 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 7. The term of office of each Director runs from the time of his or her election to the next succeeding annual meeting or until he or she ceases to hold office as such. 27 30 (b) IDENTIFICATION OF EXECUTIVE OFFICERS The required particulars with respect to the Officers of the Issuer are as follows:
Name and municipality of residence Position Age - ---------------------------------- ------------------------------------------------------ ----- TRAVIS ENGEN President and Chief Executive Officer 56 New Canaan, Connecticut R.L. BALL Executive Vice President 54 Beaconsfield, England President, Rolled Products, Europe R.B. EVANS Executive Vice President, 53 Zurich, Switzerland President, Aluminum Fabrication Europe E.P. LeBLANC Executive Vice President, 59 Westmount, Quebec President, Primary Metal B.W. STURGELL Executive Vice President, 51 Cleveland, Ohio President, Aluminum Fabrication Americas and Asia S. THADHANI Executive Vice President and Chief Financial Officer 61 Westmount, Quebec H. VAN DE MEENT Executive Vice President 59 Meilen, Switzerland President, Global Packaging K. WOLFENSBERGER Executive Vice President 60 Winterthur, Switzerland President, Engineered Products, Europe D. GAGNIER Senior Vice President, Corporate and External Affairs 54 Beaconsfield, Quebec D. L. McAUSLAND Senior Vice President, Mergers and Acquisitions, 47 Beaconsfield, Quebec Chief Legal Officer and Secretary G. OUELLET Senior Vice President, Human Resources 58 Montreal, Quebec C. CARROLL Vice President, 45 Westmount, Quebec President, Bauxite, Alumina and Specialty Chemicals G.R. LUCAS Vice President, Treasurer 47 Westmount, Quebec R. GENEST Vice President, Controller 47 Montreal, 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: - -- prior to joining the Company in February 2001, Mr. Engen was chairman and chief executive of ITT Industries, Inc.; - -- prior to joining the Company in January 1997, Mr. Evans held senior management positions with the Kaiser Aluminum organization; - -- prior to joining the Company in April 1998, Mr. Genest was vice-president and controller of Societe Financiere Desjardins - Laurentienne; and - -- prior to joining the Company in June 1999, Mr. McAusland was managing partner at the law firm of Byers Casgrain and was president of the Montreal Board of Trade. 28 31 ITEM 11 EXECUTIVE COMPENSATION The information required is incorporated by reference to the Management Proxy Circular, pages 12 to 23, 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 8, the sections titled "Holdings of Shares and Deferred Share Units by Directors" and "Holding of Shares by Others". Directors and Executive Officers as a group beneficially own 169,209 Shares (including Shares over which control or direction is exercised). This represents 0.05% of Shares issued and outstanding. In addition, Executive Officers as a group have Options (as defined in the Management Proxy Circular) to purchase 2,999,691 Shares. In the case of each of the Directors and Named Executive Officers of Alcan, the percentage of Shares held amount to less than 0.01% 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, pages 24 and 25, the section titled "Indebtedness of Directors and Executive Officers". The rate of interest charged was 5% in the first quarter of 2000 and 6% 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 47 to 73 and the Auditors' Report on page 46 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: 29 32 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.) 3.1.1 Certificate of Amendment dated 1 March 2001. (Filed herewith) 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.) (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 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 30 33 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.) 10.1.7 Amendments dated 1 May 1999 in Schedule 99-1, 1 October 1999 in Schedule 99-2, 1 January 2000 and 1 July 2000 in Schedule 00-1, 1 October 2000 in Schedule 00-2 and 31 December 2000 in Schedule 00-3. (Filed herewith) 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.) 10.3 Alcan 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 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 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 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.) 31 34 10.8.4 Amendments dated 1 May 1999 in Schedule 99-1 and 1 January 2000 in Schedule 00-1. (Filed herewith) 10.9 Indemnity Agreement with Jacques Bougie. Substantially similar agreements have been entered into with all current Directors of Alcan. (Incorporated by reference to exhibit 10.9 to the Annual Report on Form 10-K of the Company for 1995.) 10.10 Alcan 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.) 10.11 Alcan 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. (Incorporated by reference to exhibit 10.14 to the Annual Report on Form 10-K of the Company for 1999.) 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, E.P. LeBlanc, and Robert L. Ball. (Incorporated by reference to exhibit 10.15 to the Annual Report on Form 10-K of the Company for 1999.) 10.16 Employment Agreement dated 23 February 2001 with Travis Engen. (Filed herewith) 10.17 Financial Arrangements dated 16 February 2001 with Jacques Bougie. (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 36. 32 35 (24) Powers of Attorney. (Filed herewith) 24.1 Power of attorney of W. Blundell 24.2 Power of attorney of M. Ebner 24.3 Power of attorney of T. Engen 24.4 Power of attorney of J.R. Evans 24.5 Power of attorney of W. Kerth 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. Saint-Pierre 24.9 Power of attorney of P.M. Tellier 24.10 Power of attorney of S. Thadhani 24.11 Power of attorney of R. Genest (27) Financial Data Schedule. (Filed herewith) (99) Cautionary statement for purposes of the "Safe Harbour" 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 two reports on Form 8-K during the quarter ended 31 December 2000 concerning Item 5 thereof: "Other Events". The filing dates were 27 October 2000 and 4 December 2000. 33 36 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 INC. 22 March 2001 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 22 March 2001. /s/ Travis Engen - --------------------------------------------- Travis Engen, Director, President and Chief Executive Officer (Principal Executive Officer) By: Serge Fecteau, as Attorney-in fact /s/ W.R.C.Blundell - --------------------------------------------- W.R.C.Blundell, Director By: Serge Fecteau, as Attorney-in fact /s/ Martin Ebner - ---------------------------------------------- Martin Ebner, 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/ Rupert Gasser - ---------------------------------------------- Rupert Gasser, Director By: Serge Fecteau, as Attorney-in fact 34 37 /s/ Willi Kerth - ---------------------------------------------- Willi Kerth, Director By: Serge Fecteau, as Attorney-in fact /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/ Guy Saint-Pierre - ---------------------------------------------- Guy Saint-Pierre, Director By: Serge Fecteau, as Attorney-in fact /s/ Gerhard Schulmeyer - ---------------------------------------------- Gerhard Schulmeyer, Director By: Serge Fecteau, as Attorney-in fact /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, Vice-President and Controller (Principal Accounting Officer) By: Serge Fecteau, as Attorney-in fact 35 38 CONSENT OF INDEPENDENT ACCOUNTANTS To the Directors of Alcan Inc.: 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 Inc. of our report, dated 15 February 2001 appearing on page 46 of the 2000 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 22 March 2001 /s/ PricewaterhouseCoopers LLP ------------------------------ PricewaterhouseCoopers LLP 36 EX-3.1.1 2 m09446ex3-1_1.txt CERTIFICATE OF AMENDMENT 1 EXHIBIT 3.1.1 CERTIFICATE OF AMENDMENT DATED 1 MARCH 2001 2 [INDUSTRY CANADA LETTERHEAD] I HEREBY CERTIFY THAT THE JE CERTIFIE, PAR LES PRESENTES, QUE LE ATTACHED IS A TRUE COPY OF THE DOCUMENT CI-JOINT EST UNE COPIE EXACTE DOCUMENT MAINTAINED IN THE D'UN DOCUMENT CONTENU DANS LES LIVRES RECORDS OF THE DIRECTOR. TENUS PAR LE DIRECTEUR. [SIGNATURE] Deputy Director - Directeur adjoint Date [SEAL] [CANADA LOGO] 3
[LOGO] Industry Canada Industrie Canada Certificate Certificat of Amendment de modification Canada Business Loi canadienne sur Corporations Act les societes par actions Alcan Inc. 310I45-2 - ---------------------------------------------- --------------------------------------- Name of corporation-Denomination de la societe Corporation number-Numero de la societe I hereby certify that the articles of the Je certifie que les statuts de la societe above-named corporation were amended susmentionnee ont ete modifies: a) under section 13 of the Canada [ ] a) en vertu de l'article 13 de la Loi Business Corporations Act in canadienne sur les societes par accordance with the attached notice; actions, conformement a l'avis ci-joint; b) under section 27 of the Canada [ ] b) en vertu de l'article 27 de la Loi Business Corporations Act as set out in canadienne sur les societes par the attached articles of amendment actions, tel qu'il est indique dans les designating a series of shares; clauses modificatrices ci-jointes designant une serie d'actions; c) under section 179 of the Canada [X] c) en vertu de l'article 179 de la Loi Business Corporations Act as set out in canadienne sur les societes par the attached articles of amendment; actions, tel qu'il est indique dans les clauses modificatrices ci-jointes; d) under section 191 of the Canada [ ] d) en vertu de l'article 191 de la Loi Business Corporations Act as set out in canadienne sur les societes par the attached articles of reorganization; actions, tel qu'il est indique dans les clauses de reorganisation ci-jointes; [Sig] March 1, 2001 / le 1 mars 2001 Director - Directeur Date of Amendment - Date de modification [Canada logo]
4 Canada Business Loi canadienne sur les Corporation Act societes par actions
FORM 4 FORMULE 4 ARTICLES OF AMENDMENT CLAUSES MODIFICATRICES (SECTION 27 OR 177) (ARTICLES 27 OU 177) - ---------------------------------------------------------------------------------------------------------------------------------- of the Corporation - Denomination sociale de la societe 2 - Corporation No. - No de la societe ALCAN ALUMINIUM LIMITEE 310145-2 ALCAN ALUMINIUM LIMITED - ---------------------------------------------------------------------------------------------------------------------------------- 3 - The articles of the above-named corporation are amended as follows: Les statuts de la societe mentionee ci-dessous sont modifies de la facon suivante By changing section 1 of the Articles of Amalgamation (Name of amalgamated corporation) from Alcan Aluminium Limited/Alcan Aluminium Limitee to Alcan Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Date [Sig] Title - Titre 15 February 2001 Assistant Secretary - ----------------------------------------------------------------------------------------------------------------------------------- MC 3059 (1998/01) For Departmental Use Only - A l'usage du ministere seulement Filed [Canada logo] Deposee (Date) --------------------------------
EX-10.1.7 3 m09446ex10-1_7.txt AMENDMENTS 1 EXHIBIT NO. 10.1.7.: ALCAN PENSION PLAN ALCAN PENSION PLAN (CANADA) SCHEDULE OF AMENDMENTS 99-1 As of 1 May 1999, the Alcan Pension Plan (Canada) is amended by adding the following subsection after subsection 19.5. 19.6 PENSION AUGMENTATION AT 1 MAY 1999 This pension augmentation consists of two successively applied pension augmentations. The first under paragraph 19.6.1 increases smaller retirement pensions and deferred retirement pensions according to the size of the pension, years of Credited Service under the Plan and date of retirement. The second under paragraph 19.6.2 adjusts pensions in payment as a function of inflation. The two pension augmentations are applied successively, that under paragraph 19.6.1 applied first and that under paragraph 19.6.2 applied second. 19.6.1 AUGMENTATION OF SMALLER PENSIONS 19.6.1.1 The retirement pension of a Member aged 65 before 1 April 1999, who either retired before 1 November 1998 or terminated employment before 1 November 1998 and retired before 2 May 1999, shall be augmented on 1 May 1999, as applicable, in accordance with subparagraph 19.6.1.9. 19.6.1.2 The retirement pension of a Member aged less than 65 on 1 April 1999, who either retired before 1 November 1998 or terminated employment before 1 November 1998 and retired before 2 May 1999, shall be augmented on 1 May 1999, as applicable, in accordance with subparagraph 19.6.1.10. 19.6.1.3 The pension in payment of a surviving Spouse and the Spouse's pension payment guarantee connected to the retirement pension referred to in subparagraphs 19.6.1.1 and 19.6.1.2, shall be augmented on 1 May 1999, as applicable, in accordance with subparagraph 19.6.1.11. 19.6.1.4 The deferred retirement pension of a Member who terminated employment before 1 November 1998, including the pension payable under any attached elected pension 1 2 payment guarantee, shall be augmented on 1 May 1999, as applicable, in accordance with subparagraph 19.6.1.12. 19.6.1.5 The retirement pension of a Member who at his Commencement Date has less than 100% of the Company's contributions to his retirement income vested but who has 10 years or more of Credited Service shall be augmented on 1 September 1999 in accordance with subparagraph 19.6.1.13 only and not under any of subparagraphs 19.6.1.9, 19.6.1.10, 19.6.1.11 and 19.6.1.12. 19.6.1.6 Notwithstanding the preceding, this augmentation under paragraph 19.6.1 shall not apply to a Member nor to the Spouse of such Member who immediately before his retirement or termination of employment was a Suspended Member as a result of a transfer to another pension plan sponsored by the Company, an Affiliated Company or a Predecessor Company. 19.6.1.7 For the purposes of paragraph 19.6.1 only, the following expressions shall have the meaning set out below: "Commencement Date" means in the case of a Member, the earliest of such Member's retirement date, date of disability and date of termination of service and, in the case of a pre-retirement surviving Spouse's pension, the first of the month following the Member's date of death. "Monthly Pension Amount" means the monthly equivalent of the pension referred to in any of subparagraphs 19.6.1.1, 19.6.1.2, 19.6.1.3, 19.6.1.4 and 19.6.1.5. "Total Monthly Pension Amount" means the Monthly Pension Amount of a Member plus the monthly equivalent of any other pension, benefit of a pension or income nature, or any payment required by law on termination of service which payment is, in the opinion of the Company, compensation related to service with the Company, an Affiliated Company or a Predecessor Company which the Member is receiving, has received, or may expect to receive in respect of Credited Past Service granted under subsections 4.03(a) and 4.03(b). "Adjusted Total Monthly Pension Amount" means the Total Monthly Pension Amount excluding that portion which ceases to be paid after age 65 or means the Total Monthly 2 3 Pension Amount at Normal Retirement Date in the case of a deferred retirement pension. 19.6.1.8 In the case where a Member's pension referred to in any of subparagraphs 19.6.1.1, 19.6.1.2, 19.6.1.3, 19.6.1.4 and 19.6.1.5 has been revalued because of marital breakdown, Monthly Pension Amount, Total Monthly Pension Amount and Adjusted Total Monthly Pension Amount shall be determined on 1 May 1999 as if such revaluation had not occurred. 19.6.1.9 In regard to subparagraph 19.6.1.1, the monthly amount of the augmentation is determined by the formula: the lesser of (i) $1 x A x (0.4 + B) x Credited Service and (ii) $1,250.00 - Total Monthly Pension Amount, which result cannot be less than zero where "A" equals the greater of (i) 30 - MPC, -------- 2 which result cannot be less than zero and (ii) 2 x (40 - greater of MPC and 30), -------------------------------- 10 which result cannot be less than zero "B" equals the lesser of (i) .0025 x number of complete months by which the Commencement Date precedes 1 January 1995 and 3 4 (ii) 0.6 "MPC" is determined as follows: Total Monthly Pension Amount ---------------------------- Credited Service 19.6.1.10 In regard to subparagraph 19.6.1.2, the monthly amount of the augmentation is determined by the formula: the lesser of A and B where "A" equals $17,000.00 - the sum of the Total Monthly Pension Amount expected to be paid for 1999 before this augmentation ---------------------------------- , 24 which result cannot be less than zero "B" equals C + (C - C ) x (1.0 - (0.6 x the number of 1 2 1 complete months by which 1 May 1999 precedes the first of the month following the Normal retirement Date)) "C " equals the amount determined by the formula 1 in subparagraph 19.6.1.9 "C " equals the amount determined by the formula 2 in subparagraph 19.6.1.9 except that "MPC" is determined as follows: Adjusted Total Monthly Pension Amount -------------------------------------- Credited Service 4 5 and Total Monthly Pension Amount is replaced by Adjusted Total Monthly Pension Amount. 19.6.1.11 In regard to subparagraph 19.6.1.3, the monthly amount of the augmentation is determined by the formula: the lesser of (i) $1 x A x (0.4 + B) x Credited Service and (ii) $1,250.00 - Total Monthly Pension Amount, which result cannot be less than zero. where "A" equals the greater of (i) 18 - MPC, -------- 2 which result cannot be less than zero and (ii) 2 x (24 - greater of MPC and 18), -------------------------------- 6 which result cannot be less than zero "B" equals the lesser of (i) .0025 x number of complete months by which the Commencement Date precedes 1 January 1995 and (ii) 0.6 "MPC" is determined as follows: Total Monthly Pension Amount ---------------------------- Credited Service 5 6 19.6.1.12 In regard to subparagraph 19.6.1.4, the augmentation factor equals the amount determined by the formula in subparagraph 19.6.1.9 divided by the Monthly Pension Amount, and the monthly amount of the augmentation on the date of calculation equals the amount obtained when the augmentation factor is applied to the Monthly Pension Amount. 19.6.1.13 In regard to subparagraph 19.6.1.5, the monthly amount of the augmentation is equal to $100.00. 19.6.2 COST OF LIVING AUGMENTATION 19.6.2.1 The retirement pension, the deferred retirement pension and the Disability Pension of a Member who has retired, terminated his employment or became disabled as the case may be, before 2 October 1998, including the pension payable under any attached elected pension payment guarantee, either contingent or in payment, and the pension, either deferred or in payment, to a surviving spouse, shall be augmented on 1 May 1999. Notwithstanding the preceding, this cost of living augmentation under paragraph 19.6.2 is not applicable if a Member at his Commencement Date has less than 100% of the Company's contributions to his retirement income vested. 19.6.2.2 For the purposes of this paragraph 19.6.2 only, the following expressions shall have the meanings set out below: "Commencement Date" means in the case of a Member, the earliest of such Member's retirement date, the date he became disabled and the date of termination of service and, in the case of a pre-retirement surviving spouse's pension, the first of the month following the Member's date of death. "Monthly Pension Amount" means the monthly equivalent of the pension referred to in subparagraph 19.6.2.1 less, in the case where the pension commenced between 1 April 1975 and 1 January 1976 inclusively or in the case where the termination date was before 1 February 1976, any increase paid under the provisions of the Government Annuity Improvement Act, Chapter 83, Statutes of Canada 1974-75-76. 6 7 19.6.2.3 The augmentation factors are the following: "Canadian Augmentation Factor" equals (A) in respect of a Member whose Commencement Date falls after 1 April 1998 but before 2 October 1998, 0.5%; (B) in respect of a Member whose Commencement Date falls after 1 September 1997 but before 2 April 1998, the lesser of (i) 0.6% plus the amount obtained when 0.1% is multiplied by the number of complete months that the Commencement Date precedes 1 April 1998 and (ii) 1.0%; (C) in respect of a Member whose Commencement Date falls after 1 September 1996 but before 2 September 1997, the lesser of (i) 1.0% plus the amount obtained when 0.1% is multiplied by the number of complete months that the Commencement Date precedes 1 October 1997 and (ii) 2.0%; (D) in respect of a Member whose Commencement Date falls before 2 September 1996, 1.0%; "American Augmentation Factor" equals (A) in respect of a Member whose Commencement Date falls after 1 September 1996 but before 2 October 1998, 1.7%; (B) in respect of a Member whose Commencement Date falls before 2 September 1996, 1.4%; 7 8 "British Augmentation Factor" equals (A) in respect of a Member whose Commencement Date falls after 1 September 1996 but before 2 October 1998, 5.0%; (B) in respect of a Member whose Commencement Date falls before 2 September 1996, 3.6%; "Swiss Augmentation Factor" equals nil. "German Augmentation Factor" equals (A) in respect of a Member whose Commencement Date falls before 2 October 1998, 1.0%; "French Augmentation Factor" equals (A) in respect of a Member whose Commencement Date falls before 2 October 1998, 0.8%; "Japanese Augmentation Factor" equals (A) in respect of a Member whose Commencement Date falls before 2 October 1998, 1.1%; 19.6.2.4 Other than as provided for in subparagraph 19.6.2.5, the monthly amount of the augmentation on the date of calculation is equal to the amount obtained when the Canadian Augmentation Factor is applied to the Monthly Pension Amount. 19.6.2.5 If the Monthly Pension Amount is paid in a currency other than in Canadian dollars at a fixed rate of exchange, the monthly amount of the augmentation is equal to: (A) in respect of a Monthly Pension Amount paid in United States Dollars, the amount obtained when the American Augmentation Factor is applied to the Monthly Pension Amount; (B) in respect of a Monthly Pension Amount paid in Pounds Sterling, the amount obtained when the British Augmentation Factor is applied to the Monthly Pension Amount; 8 9 (C) in respect of a Member's Monthly Pension Amount paid in Swiss Francs, the amount obtained when the Swiss Augmentation Factor is applied to the Monthly Pension Amount; (D) in respect of a Member's Monthly Pension Amount paid in German Marks, the amount obtained when the German Augmentation Factor is applied to the Monthly Pension Amount; (E) in respect of a Member's Monthly Pension Amount paid in French Francs, the amount obtained when the French Augmentation Factor is applied to the Monthly Pension Amount. (F) in respect of a Member's Monthly Pension Amount paid in Japanese Yen, the amount obtained when the Japanese Augmentation Factor is applied to the Monthly Pension Amount. 19.6.2.6 The retirement pension of a Member, who retires on or after 1 May 1999 and who immediately prior to such retirement was in receipt of an Approved Disability Benefit, shall be augmented from his retirement date by the same augmentation percentage that would otherwise have applied to his retirement pension had his date of disability been his Commencement Date for the purpose of calculating such augmentation. 19.6.3 The compounded augmentation factor under this and any previous pension augmentation, shall, unless it is an integral number of tenths of 1%, be rounded to the next higher multiple of 0.1%. 19.6.4 The compounded augmentation factor under this and any previous pension augmentation granted from Pension Commencement Date, multiplied by the retirement pension payable for a particular month on or after the effective date of this augmentation, plus any other pension increase which may have been granted in previous schedules of amendments, cannot exceed the maximum pension augmented with increases of the Consumer Price Index as determined by Revenue Rules. 9 10 ALCAN PENSION PLAN (CANADA) SCHEDULE OF AMENDMENTS 99-2 Effective 1 October 1999, the Plan is amended by inserting the following Annex D: ANNEX D BUY-BACK PROVISIONS D.1 The Administrator may establish as Credited Past Service of a Contributing Member who was not offered a second option to buyback either under the Plan or under a plan whose credited service is recognized as Credited Past Service under paragraphs 4.03(a) or 4.03(b) and (a) who, at the time of his election to buyback, is reported as being in active employment with a Participating Company at any point in time between 1 January 1999 and 31 December 1999, or (b) who is, after 31 December 1999, returning to active employment from an authorized leave of absence, that portion of the current period of employment with the Company, its Affiliated Companies or with a Predecessor Company that would have been credited to him prior to January 1990 if on the date he became an Employee, he had been declared eligible to the Plan or such other plan whose credited service is recognized as Credited Past Service under paragraph 4.03(a) or 4.03(b), subject to the conditions and limitations set out below. 11 D.2 Such period of employment shall be established as Credited Past Service subject to the following conditions: (a) prior to 31 December 1999 or within three months of returning to active employment from an authorized leave of absence, the Member contributes to the Plan, in a lump sum, an amount equal to the contribution required at the first time an option to buyback was offered to him plus interest at the rate equal to such rate credited on Member contributions during the interim period; (b) the period of employment being so credited under these provisions shall not exceed one year less any Credited Service granted under similar provisions of the Plan prior to 1 January 1990 or of a plan of an Affiliated Company or Predecessor Company; (c) the lump sum shall be prorated if the period of employment to be credited is less than twelve months; (d) the Credited Service inclusive of the period of employment being credited under this provision shall not exceed Continuous Service; (e) the Credited Service prior to 1 January 1990 inclusive of the period of employment being credited under this subsection shall be limited to 35 years for the purpose of calculating the retirement pension. Where such limitation applies, the lump sum shall be further prorated by the number of months required to reach 35 years of Credited Service prior to 1 January 1990. 12 ALCAN PENSION PLAN (CANADA) SCHEDULE OF AMENDMENTS 00-1 1. The following definition is added to Section 2: "2.09.1 "CAW Member" means a Member who in addition is a member of CAW Local 2301 and who is not in receipt of an Approved Disability Benefit at 1 July 2000 unless he returns to work after that date." 2. Subsection 2.38 is amended by inserting immediately after the words "opposite sex" the words "or the same sex". 3. The second paragraph of subsection 5.01 is amended by replacing the first word of the paragraph by the word "the", by inserting at the beginning of the paragraph the words "Other than for a CAW Member," and by adding at the end of the paragraph the sentence "For a CAW Member, the amount shall be determined with reference to a pay period and calculated as described in subsection E.2 of Annex E." 4. The first paragraph of Section 7 is amended by replacing the first word of the paragraph by the word "the", by inserting at the beginning of the paragraph the words "Other than for a CAW Member," and by adding at the end of the paragraph the sentence "For a CAW Member, the retirement pension shall be calculated as described in subsection E.3 of Annex E." 5. Paragraph 8.02(b) is amended by adding at the end of the paragraph the sentence "For the case of a CAW Member, the above early retirement factor is modified as described in subsection E.4 of Annex E." 6. Annex B is amended by replacing "Alcan Adminco Inc." by "Alcan Adminco (2000) Inc." 7. Schedule of Amendment 98-1 in respect of the Reciprocal Transfer Agreement made as of 9 June 1997 between Alcan Adminco Inc. and 1087509 Ontario Inc./Gentek Building Products is abrogated. 1 13 8. The following Annex E is added: ANNEX E CAW MEMBERS The provisions of this Annex apply only to a CAW Member and supersede any corresponding provisions provided elsewhere in the Plan. E.1 In this Annex, unless the context clearly indicates otherwise, the following terms shall have the following meanings: "Adjusted YMPE" means an amount equal to the average YMPE over the current Plan Year and the previous two consecutive Plan Years. "Equivalent Earnings" means, in relation to a CAW Member's job class and group for a pay period, an amount determined as follows: if 12 times his Pension Multiplier is less than 1.15% of the Adjusted YMPE 90% of 12 x Pension Multiplier ---- 1.15% and, if 12 times his Pension Multiplier is equal to or greater than 1.15% of the Adjusted YMPE 90% of [12 x Pension Multiplier + 0.55% of Adjusted YMPE] --- 1.7% "Highest Average Pension Multiplier" means an amount equal to the average of the Pension Multipliers of a CAW Member during those 36 consecutive months of service within the 60 months of service immediately prior to his Date of Determination or the date he became entitled to an Approved Disability Benefit, as the case maybe, for which the average was greatest. In the case of a CAW Member who does not have 36 consecutive months of service, Highest Average Pension Multiplier means an amount determined by the Administrator on an equitable basis that is consistent, so far as practicable, with the basis otherwise applicable. "Pension Multiplier" means, in relation to a CAW Member's job class and group for a pay period, the multiplier set out in the table below in effect at the earlier of his Date of Determination or the date he became entitled to an Approved Disability Benefit. For the purpose of determining his Equivalent Earnings, Pension Multiplier means, in relation to a CAW Member's job class and group for 2 14 a pay period, the multiplier set out in the table below in effect on the last day of such pay period.
Group Job Pension Multiplier (effective date: D/M/Y) Class ---------------------------------------------------------------------------------- To From From From From 31/12/01 01/01/02 01/01/03 01/01/04 01/01/05 ------------ ---------------- --------------- ---------------- ---------------- --------------- ---------------- N * - $40.60 $41.30 $42.00 $43.40 $44.80 1 9-15 $58.00 $59.00 $60.00 $62.00 $64.00 2 16-20 $63.00 $64.00 $65.10 $67.00 $69.20 3 21-24 $70.00 $71.00 $72.40 $74.40 $76.80 4 Trades $73.00 $75.00 $75.50 $77.60 $80.10 5 * Trades $76.00 $78.00 $78.50 $80.60 $83.10 6 * Trades $81.00 $83.00 $83.50 $85.60 $88.10 7 * Trades $88.00 $90.00 $90.50 $92.60 $95.10
*N: CAW Members who work at the Nechako Lodge. 5: CAW Members in Group 4 who work on 12-hour shifts (rotating or day shift) or in Kemano. 6: CAW Members in Group 4 who are live filed as a gangleader (G1/G2/G3) working on 12-hour day shift (A37). 7: CAW Members in Group 4 who are live filed as a gangleader (G2/G3) second-class power engineers. E.2 The amount of Member Contributions payable by a CAW Member for a pay period in respect of a Plan Year shall be equal to: (i) 1.7% of his Equivalent Earnings up to the YMPE plus (ii) 3 1/3% of his Equivalent Earnings in excess of the YMPE divided (iii) by the number of pay periods in that Plan Year and (iv) in the event that the CAW Member's scheduled employment for a Plan Year is less than the number of hours required for full-time employment, his Member Contributions shall be adjusted for that period of employment on a pro-rata basis as determined by the Administrator. 3 15 E.3 The annual amount of retirement pension as of a CAW Member's Date of Determination shall be equal to: (i) Highest Average Pension Multiplier times 12 times Credited Service limited to 35 years in respect of Credited Service earned prior to 1 January 1990 less any other pension, benefit of a pension or income nature, or any payment required by law on termination of service which payment is, in the opinion of the Company, compensation related to service with the Company, an Affiliated Company or a Predecessor Company, payable to such CAW Member primarily in his own right that he is receiving, has received, or may expect to receive in respect of Credited Past Service granted under subsections 4.03(a) and 4.03(b), (ii) subject to a minimum retirement pension for a CAW Member who was a CAW Member at July 1, 2000 equal to the sum of (a) and (b) below: (a) the retirement pension determined at 1 July 2000, in respect of Credited Service to such date and Highest Average Earnings at 25 June 2000, in accordance with Section 7 applied without reference to subsection 7.04 (b) Highest Average Pension Multiplier times 12 times Credited Service after 30 June 2000, 4 16 (iii) subject to a minimum retirement pension determined as follows: Highest Average Pension Multiplier times 12 times Credited Plan Service, (iv) revalued in case of marital breakdown as in subsection 7.04. E.4 The early retirement factor of a CAW Member is increased to 100% if at his Early Retirement Date either (i) his Number of Points equals 85 or more and he has attained age 55, or (ii) his Number of Points equals 75 or more and he has attained age 60. E.5 The transfer of a CAW Member such that he ceases to be a CAW Member but continues to be a Member and the transfer of a Member such that he becomes a CAW Member shall be governed by subsection 4.05 adapted as required by the Administrator on an equitable and consistent basis. The above amendments are effective from 1 July 2000 except for item 6 which is effective from 1 January 2000. 5 17 ALCAN PENSION PLAN (CANADA) SCHEDULE OF AMENDMENTS 00-2 As of 1 October 2000, the Alcan Pension Plan (Canada) is amended by adding the following subsection after subsection 19.6. 19.7 PENSION AUGMENTATION AT 1 OCTOBER 2000 19.7.1 The retirement pension, the deferred retirement pension and the Disability Pension of a Member who has retired, terminated his employment or became disabled as the case may be, before 2 April 2000, including the pension payable under any attached elected pension payment guarantee, either contingent or in payment, and the pension, either deferred or in payment, to a surviving spouse, shall be augmented on 1 October 2000. Notwithstanding the preceding, this pension augmentation is not applicable if a Member at his Commencement Date has less than 100% of the Company's contributions to his retirement income vested and has less than 10 years of Credited Service. 19.7.2 For the purposes of this subsection 19.7 only, the following expressions shall have the meanings set out below: "Commencement Date" means the earliest of a Member's Retirement Date, date the Disability Pension commenced and date of termination of employment. In the case of a pre-retirement surviving spouse's 1 18 pension, Commencement Date means the first of the month following the Member's date of death. "Monthly Pension Amount" means the monthly equivalent of the pension referred to in paragraph 19.7.1 less, in the case where the pension commenced between 1 April 1975 and 1 January 1976 inclusively or in the case where the termination date was before 1 February 1976, any increase paid under the provisions of the Government Annuity Improvement Act, Chapter 83, Statutes of Canada 1974-75-76. "Adjusted Monthly Pension Amount" means the Monthly Pension Amount payable at 1 October 2000, excluding that portion which ceases to be paid at age 65, or payable at normal retirement date in the case of a deferred pension. 19.7.3 The augmentation factors are the following: "Canadian Augmentation Factor (I)" equals (A) in respect of a Member whose Commencement Date falls after 1 April 1999 but before 2 April 2000, 1.0% plus the amount obtained when 0.1% is multiplied by the number of complete months that the Commencement Date precedes 1 April 2000; (B) in respect of a Member whose Commencement Date falls after 1 October 1998 but before 2 April 1999, 2.2% plus the amount obtained when 0.1% is multiplied by the number of complete months that the Commencement Date precedes 1 April 1999; 2 19 (C) in respect of a Member whose Commencement Date falls before 2 October 1998, 2.2%. "Canadian Augmentation Factor (II)" equals (A) in respect of a Member whose Commencement Date falls after 1 April 1999 but before 2 April 2000, 0.8% plus the amount obtained when 0.05% is multiplied by the number of complete months that the Commencement date precedes 1 April 2000; (B) in respect of a Member whose Commencement Date falls after 1 October 1998 but before 2 April 1999, 1.4% plus the amount obtained when 0.1% is multiplied by the number of complete months that the Commencement Date precedes 1 April 1999; (C) in respect of a Member whose Commencement Date falls before 2 October 1998, 1.4%. "Adjusted Canadian Augmentation Factor" equals Canadian Augmentation Factor (I) x A + Canadian Augmentation Factor (II) x B ------------------------------------- Adjusted Monthly Pension Amount where A equals the lesser of (i) Adjusted Monthly Pension Amount and 3 20 (ii) $9,333.33 where B equals the amount, if any, that the Adjusted Monthly Pension exceeds $9,333.33. "American Augmentation Factor" equals, in respect of a Member whose Commencement Date falls before 2 April 2000, 2.8%. "Adjusted American Augmentation Factor" equals American Augmentation Factor x A + 1.5% x B ------------------------------------------- Adjusted Monthly Pension Amount where A equals the lesser of (i) the Adjusted Monthly Pension Amount and (ii) US $6,166.67, where B equals the amount, if any, that the Adjusted Monthly Pension Amount exceeds US $6,166.67. "British Augmentation Factor" equals, in respect of a Member whose commencement Date falls before 2 April 2000, 2.0%. "Adjusted British Augmentation Factor" equals British Augmentation Factor x A + 0.3% x B ------------------------------------------ Adjusted Monthly Pension Amount 4 21 where A equals the lesser of (i) the Adjusted Monthly Pension Amount and (ii) (pound)4,250.00, where B equals the amount, if any, that the Adjusted Monthly Pension Amount exceeds (pound) 4,250.00. "Swiss Augmentation Factor" equals, in respect of a Member whose commencement Date falls before 2 April 2000, 1.2%. "Adjusted Swiss Augmentation Factor" equals Swiss Augmentation Factor x A + 0,8% x B ---------------------------------------- Adjusted Monthly Pension Amount where A equals the lesser of (i) the Adjusted Monthly Pension Amount and (iii) SF 10,666.67, where B equals the amount, if any, that the Adjusted Monthly Pension Amount exceeds SF 10,666.67. 5 22 "German Augmentation Factor" equals, in respect of a Member whose Commencement Date falls before 2 April 2000, 1.0%. "Adjusted German Augmentation Factor" equals German Augmentation Factor x A + 0.5% x B ----------------------------------------- Adjusted Monthly Pension Amount where A equals the lesser of (i) the Adjusted Monthly Pension Amount and (ii) DM 13,333.33, where B equals the amount, if any, that the Adjusted Monthly Pension Amount exceeds DM 13,333.33. "French Augmentation Factor" equals, in respect of a Member whose Commencement Date falls before 2 April 2000, 0.9%. "Adjusted French Augmentation Factor" equals French Augmentation Factor x A + 0.3% x B ----------------------------------------- Adjusted Monthly Pension Amount where A equals the lesser of (i) the Adjusted Monthly Pension Amount 6 23 and (ii) FF 44,583.33, where B equals the amount, if any, that the Adjusted Monthly Pension Amount exceeds FF 44,583.33. "Japanese Augmentation Factor" equals nil. "Adjusted Japanese Augmentation Factor" equals nil. "European Augmentation Factor" equals, in respect of a Member whose Commencement Date falls before 2 April 2000, 1.3%. "Adjusted European Augmentation Factor" equals European Augmentation Factor x A + 0.9% x B ------------------------------------------- Adjusted Monthly Pension Amount where A equals the lesser of (i) Adjusted Monthly Pension Amount and (ii) E 6,833.33, where B equals the amount, if any, that the Adjusted Monthly Pension Amount exceeds E 6,833.33. 7 24 19.7.4 Other than as provided for in paragraph 19.7.5, the monthly amount of the augmentation on the date of calculation is equal to the amount obtained when the Adjusted Canadian Augmentation Factor is applied to the Monthly Pension Amount. 19.7.5 If the Monthly Pension Amount is paid in a currency other than in Canadian dollars at a fixed rate of exchange, the monthly amount of the augmentation is equal to: (A) in respect of a Monthly Pension Amount paid in United States Dollars, the amount obtained when the Adjusted American Augmentation Factor is applied to the Monthly Pension Amount; (B) in respect of a Monthly Pension Amount paid in Pounds Sterling, the amount obtained when the Adjusted British Augmentation Factor is applied to the Monthly Pension Amount; (C) in respect of a Member's Monthly Pension Amount paid in Swiss Francs, the amount obtained when the Adjusted Swiss Augmentation Factor is applied to the Monthly Pension Amount; (D) in respect of a Member's Monthly Pension Amount paid in German Marks, the amount obtained when the Adjusted German Augmentation Factor is applied to the Monthly Pension Amount; 8 25 (E) in respect of a Member's Monthly Pension Amount paid in French Francs, the amount obtained when the Adjusted French Augmentation Factor is applied to the Monthly Pension Amount; (F) in respect of a Member's Monthly Pension Amount paid in Japanese Yen, the amount obtained when the Adjusted Japanese Augmentation Factor is applied to the Monthly Pension Amount; (G) in respect of a Member's Monthly Pension Amount paid in Euros, the amount obtained when the Adjusted European Augmentation Factor is applied to the Monthly Pension Amount. 19.7.6 The compounded augmentation factor under this and any previous pension augmentation, shall, unless it is an integral number of tenths of 1%, be rounded to the next higher multiple of 0.1%. 19.7.7 The retirement pension of a Member, who retires on or after 1 October 2000 and who immediately prior to such retirement was in receipt of an Approved Disability Benefit, shall be augmented from his retirement date by the same augmentation percentage that would otherwise have applied to his retirement pension had his date of disability been his Commencement Date for the purpose of calculating such augmentation. 19.7.8 The compounded augmentation factor under this and any previous pension augmentation granted from Pension Commencement Date, multiplied by the retirement pension payable for a particular month on or after the effective date of this augmentation, plus any other pension increase which may have been granted in previous schedules of 9 26 amendments, cannot exceed the maximum pension augmented with increases of the Consumer Price Index as determined by Revenue Rules. 10 27 ALCAN PENSION PLAN (CANADA) SCHEDULE OF AMENDMENTS 00-3 --------------------------- 1. Subsection 3.07 is amended by replacing the second paragraph with the following : "Notwithstanding any other provision of the Plan, there shall be added to the Credited Service of a Member who has taken an authorized maternity leave of absence without pay or an authorized parental leave of absence without pay, a number of months equal to the number of months of such absence provided: a) he makes an application to that effect to the Administrator within one month from the date of his return to work after the end of his maternity leave or parental leave; and b) he pays, for each such month, an amount of contribution equal to the contribution that would have been made had he not been so on leave, based on Pensionable Earnings he was receiving at the time he was granted such leave, and c) he is in a category of employment designated by his Participating Company as being eligible to participate in the Plan from the end of such leave, and d) the number of months does not exceed 12 for any one leave and, when added to the number of months of authorized maternity leave of absence and authorized parental leave of absence after 1 January 1991, does not exceed 96 months." 2. The following subsection is added after subsection 5.02: "5.02.1 TEMPORARY CONTRIBUTION HOLIDAY Notwithstanding paragraphs 3.07(i) and 4.05(b) and subsections 5.01 and 5.02 and with effect from 31 December 2000, a Member other than a CAW Member is exempted from contributing to the Plan. The Company reserves the right to periodically review this exemption and undertakes to give the member prior notice of its termination. A Member who would otherwise be required to contribute to the Plan if not for the exemption granted under this subsection shall be deemed to be contributing to the Plan for the purpose only of qualifying under the fifth clause of subsection 1.01, under paragraphs 8.02(c) and 14.01(a) and under Annexes C and D. 1 28 3. Paragraph 8.02(a) is amended by adding immediately after the words "paragraph (b) hereof" the following: "or in accordance with paragraph (b.1) hereof if the Member meets the following conditions at Early Retirement date: (i) his Number of Points equals 85 or more, or his Number of Points is 75 and he is age 55 or more; and (ii) he is not a CAW Member". 4. The following paragraph is added after paragraph 8.02(b): "(b.1) The early retirement factor referred to in paragraph (a) is determined for a particular month and is equal to the result of 100% less 4% for each year by which the Member's age precedes age 60, plus 4% if the Number of Points equals 85 or more, plus 2% for each point that the Number of Points exceeds 85. The early retirement factor may not exceed 100%." 5. Subsection 12.02 is amended by replacing the words "has completed two or more years of Continuous Service while a Member or two or more years of Credited Service" with the words "whose Number of Points is 75 or more". 6. Subsection 12.03 is amended by replacing in the last paragraph the number "75" by the number "85". The above amendments are effective from 31 December 2000. 2 EX-10.8.4 4 m09446ex10-8_4.txt AMENDMENTS 1 EXHIBIT NO. 10.8.4.: ALCAN SUPPLEMENTAL RETIREMENT BENEFIT PLAN ALCAN SUPPLEMENTAL RETIREMENT BENEFIT PLAN (CANADA) SCHEDULE OF AMENDMENTS 99-1 As of 1 May 1999, the Alcan Supplemental Retirement Benefit Plan (Canada) is amended by adding the following subsection after subsection 15.05 15.06 PENSION AUGMENTATION AT 1 MAY 1999 15.06.1 The retirement pension, the deferred retirement pension and the Disability Pension of a Member who has retired, terminated his employment or became disabled as the case may be, before 2 October 1998, including the pension payable under any attached elected pension payment guarantee, either contingent or in payment, and the pension, either deferred or in payment, to a surviving spouse, shall be augmented on 1 May 1999. 15.06.2 For the purposes of this subsection 15.06 only, the following expressions shall have the meanings set out below: "Commencement Date" means in the case of a Member, the earliest of such Member's retirement date, the date he became disabled and the date of termination of service and, in the case of a pre-retirement surviving spouse's pension, the first of the month following the Member's date of death. "Monthly Pension Amount" means the monthly equivalent of the pension referred to in paragraph 15.06.1. 15.06.3 The augmentation factors are the following: "Canadian Augmentation Factor" equals (A) in respect of a Member whose Commencement Date falls after 1 April 1998 but before 2 October 1998, 0.5%; (B) in respect of a Member whose Commencement Date falls after 1 September 1997 but before 2 April 1998, the lesser of 1 2 (i) 0.6% plus the amount obtained when 0.1% is multiplied by the number of complete months that the Commencement Date precedes 1 April 1998 and (ii) 1.0%; (C) in respect of a Member whose Commencement Date falls after 1 September 1996 but before 2 September 1997, the lesser of (i) 1.0% plus the amount obtained when 0.1% is multiplied by the number of complete months that the Commencement Date precedes 1 October 1997 and (ii) 2.0%; (D) in respect of a Member whose Commencement Date falls before 2 September 1996, 1.0%; "American Augmentation Factor" equals (A) in respect of a Member whose Commencement Date falls after 1 September 1996 but before 2 October 1998, 1.7%; (B) in respect of a Member whose Commencement Date falls before 2 September 1996, 1.4%; "British Augmentation Factor" equals (A) in respect of a Member whose Commencement Date falls after 1 September 1996 but before 2 October 1998, 5.0%; (B) in respect of a Member whose Commencement Date falls before 2 September 1996, 3.6%; "Swiss Augmentation Factor" equals nil. "German Augmentation Factor" equals (A) in respect of a Member whose Commencement Date falls before 2 October 1998, 1.0%; 2 3 "French Augmentation Factor" equals (A) in respect of a Member whose Commencement Date falls before 2 October 1998, 0.8%; "Japanese Augmentation Factor" equals (A) in respect of a Member whose Commencement Date falls before 2 October 1998, 1.1%; 15.06.4 Other than as provided for in paragraph 15.06.5, the monthly amount of the augmentation on the date of calculation is equal to the amount obtained when the Canadian Augmentation Factor is applied to the Monthly Pension Amount. 15.06.5 If the Monthly Pension Amount is paid in a currency other than in Canadian dollars at a fixed rate of exchange, the monthly amount of the augmentation is equal to: (A) in respect of a Monthly Pension Amount paid in United States Dollars, the amount obtained when the American Augmentation Factor is applied to the Monthly Pension Amount; (B) in respect of a Monthly Pension Amount paid in Pounds Sterling, the amount obtained when the British Augmentation Factor is applied to the Monthly Pension Amount; (C) in respect of a Member's Monthly Pension Amount paid in Swiss Francs, the amount obtained when the Swiss Augmentation Factor is applied to the Monthly Pension Amount; (D) in respect of a Member's Monthly Pension Amount paid in German Marks, the amount obtained when the German Augmentation Factor is applied to the Monthly Pension Amount; (E) in respect of a Member's Monthly Pension Amount paid in French Francs, the amount obtained when the French Augmentation Factor is applied to the Monthly Pension Amount. 3 4 (F) in respect of a Member's Monthly Pension Amount paid in Japanese Yen, the amount obtained when the Japanese Augmentation Factor is applied to the Monthly Pension Amount. 15.06.6 The retirement pension of a Member, who retires on or after 1 May 1999 and who immediately prior to such retirement was in receipt of an Approved Disability Benefit, shall be augmented from his retirement date by the same augmentation percentage that would otherwise have applied to his retirement pension had his date of disability been his Commencement Date for the purpose of calculating such augmentation. 15.06.7 The compounded augmentation factor under this and any previous pension augmentation, shall, unless it is an integral number of tenths of 1%, be rounded to the next higher multiple of 0.1%. 4 5 ALCAN SUPPLEMENTAL RETIREMENT BENEFIT PLAN (CANADA) SCHEDULE OF AMENDMENTS 00-1 1. As of 1 January 2000, the Alcan Supplemental Retirement Benefit Plan (Canada) is amended by replacing subsection 2.04 by the following: 2.04 "Administrator" means Alcan Adminco (2000) Inc. 2. As of 1 October 2000, the Alcan Supplemental Retirement Benefit Plan (Canada) is amended by adding the following subsection after subsection 15.06. 15.07 PENSION AUGMENTATION AT 1 OCTOBER 2000 15.07.1 The retirement pension and the deferred retirement pension of a Member who has retired, terminated his employment or became disabled as the case may be, before 2 April 2000, including the pension payable under any attached elected pension payment guarantee, either contingent or in payment, and the pension, either deferred or in payment, to a surviving spouse, shall be augmented on 1 October 2000. 15.07.2 For the purposes of this subsection 15.07 only, the following expressions shall have the meanings set out below: "Commencement Date" means the earliest of a Member's Retirement Date, date the Disability Pension commenced and date of termination 1 6 of employment. In the case of a pre-retirement surviving spouse's pension, Commencement Date means the first of the month following the Member's date of death. "Monthly Pension Amount" means the monthly equivalent of the pension referred to in paragraph 15.07.1. "APP Adjusted Monthly Pension Amount" means the amount determined under paragraph 19.7.2 of the Plan as the Adjusted Monthly Pension Amount. 15.07.3 The augmentation factors are the following: "Canadian Augmentation Factor (I)" expressed in percent (%) equals (A) in respect of a Member whose Commencement Date falls after 1 April 1999 but before 2 April 2000, 1.0% plus the amount obtained when 0.1% is multiplied by the number of complete months that the Commencement Date precedes 1 April 2000; (B) in respect of a Member whose Commencement Date falls after 1 October 1998 but before 2 April 1999, 2.2% plus the amount obtained when 0.1% is multiplied by the number of complete months that the Commencement Date precedes 1 April 1999; (C) in respect of a Member whose Commencement Date falls before 2 October 1998, 2.2%. "Canadian Augmentation Factor (II)" expressed in percent (%) equals 2 7 (A) in respect of a Member whose Commencement Date falls after 1 April 1999 but before 2 April 2000, 0.8% plus the amount obtained when 0.05% is multiplied by the number of complete months that the Commencement date precedes 1 April 2000; (B) in respect of a Member whose Commencement Date falls after 1 October 1998 but before 2 April 1999, 1.4% plus the amount obtained when 0.1% is multiplied by the number of complete months that the Commencement Date precedes 1 April 1999; (C) in respect of a Member whose Commencement Date falls before 2 October 1998, 1.4%. "Adjusted Canadian Augmentation Factor" expressed in percent (%) equals Canadian Augmentation Factor (I) x A plus Canadian Augmentation Factor (II) x B minus 100% x C --------------------------------- Monthly Pension Amount where A equals the lesser of (i) the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount 3 8 and (ii) $9,333.33, where B equals the amount, if any, that the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount exceeds $9,333.33, where C equals the monthly amount of the augmentation determined under paragraph 19.7.4 of the Plan. "American Augmentation Factor" expressed in percent (%) equals, in respect of a Member whose Commencement Date falls before 2 April 2000, 2.8%. "Adjusted American Augmentation Factor" expressed in percent (%) equals American Augmentation Factor x A + 1.5% x B - 100.0% x C -------------------------------------------------------- Monthly Pension Amount where A equals the lesser of (i) the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount and (ii) US $6,166.67, 4 9 where B equals the amount, if any, that the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount exceeds US $6,166.67, and where C equals the monthly amount of the augmentation determined under paragraph 19.7.5(A) of the Plan. "British Augmentation Factor" expressed in percent (%) equals, in respect of a Member whose Commencement Date falls before 2 April 2000, 2.0%. "Adjusted British Augmentation Factor" expressed in percent (%) equals British Augmentation Factor x A + 0.3% x B - 100.0% x C ------------------------------------------------------- Monthly Pension Amount where A equals the lesser of (i) the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount and (ii) (pound)4,250.00, where B equals the amount, if any, that the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount exceeds (pound) 4,250.00, and 5 10 where C equals the monthly amount of the augmentation determined under paragraph 19.7.5(B) of the Plan. "Swiss Augmentation Factor" expressed in percent (%) equals, in respect of a Member whose Commencement Date falls before 2 April 2000, 1.2%. "Adjusted Swiss Augmentation Factor" expressed in percent (%) equals Swiss Augmentation Factor x A + 0,8% x B - 100.0% x C ----------------------------------------------------- Monthly Pension Amount where A equals the lesser of (i) the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount and (ii) SF 10,666.67, where B equals the amount, if any, that the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount exceeds SF 10,666.67, and where C equals the monthly amount of the augmentation determined under paragraph 19.7.5(C) of the Plan. 6 11 "German Augmentation Factor" expressed in percent (%) equals, in respect of a Member whose Commencement date falls before 2 April 2000, 1.0%. "Adjusted German Augmentation Factor" expressed in percent (%) equals German Augmentation Factor x A + 0.5% x B - 100.0% x C -------------------------------------------------------------- Monthly Pension Amount where A equals the lesser of (i) the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount and (ii) DM 13,333.33, where B equals the amount, if any, that the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount exceeds DM 13,333.33, and where C equals the monthly amount of the augmentation determined under paragraph 19.7.5(D) of the Plan. "French Augmentation Factor" expressed in percent (%) equals, in respect of a Member whose Commencement Date falls before 2 April 2000, 0.9%. 7 12 "Adjusted French Augmentation Factor" expressed in percent (%) equals French Augmentation Factor x A + 0.3% x B - 100.0% x C -------------------------------------------------------------- Monthly Pension Amount where A equals the lesser of (i) the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount and (ii) FF 44,583.33, where B equals the amount, if any, that the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount exceeds FF 44,583.33, and where C equals the monthly amount of the augmentation determined under paragraph 19.7.5(E) of the Plan. "Japanese Augmentation Factor" equals nil. "Adjusted Japanese Augmentation Factor" equals nil. "European Augmentation Factor" expressed in percent (%) equals, in respect of a Member whose Commencement Date falls before 2 April 2000, 1.3%. "Adjusted European Augmentation Factor" equals 8 13 European Augmentation Factor x A + 0.9% x B - 100.0% x C -------------------------------------------------------- Monthly Pension Amount where A equals the lesser of (i) the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount and (ii) E 6,833.33, where B equals the amount, if any, that the sum of the Monthly Pension Amount and the APP Adjusted Monthly Pension Amount exceeds E 6,833.33, and where C equals the monthly amount of the augmentation determined under paragraph 19.7.5(G). 15.07.4 Other than as provided for in paragraph 15.07.5, the monthly amount of the augmentation on the date of calculation is equal to the amount obtained when the Adjusted Canadian Augmentation Factor is applied to the Monthly Pension Amount. 15.07.5 If the Monthly Pension Amount is paid in a currency other than in Canadian dollars at a fixed rate of exchange, the monthly amount of the augmentation is equal to: (A) in respect of a Monthly Pension Amount paid in United States Dollars, the amount obtained when the Adjusted American 9 14 Augmentation Factor is applied to the Monthly Pension Amount; (B) in respect of a Monthly Pension Amount paid in Pounds Sterling, the amount obtained when the Adjusted British Augmentation Factor is applied to the Monthly Pension Amount; (C) in respect of a Member's Monthly Pension Amount paid in Swiss Francs, the amount obtained when the Adjusted Swiss Augmentation Factor is applied to the Monthly Pension Amount; (D) in respect of a Member's Monthly Pension Amount paid in German Marks, the amount obtained when the Adjusted German Augmentation Factor is applied to the Monthly Pension Amount; (E) in respect of a Member's Monthly Pension Amount paid in French Francs, the amount obtained when the Adjusted French Augmentation Factor is applied to the Monthly Pension Amount; (F) in respect of a Member's Monthly Pension Amount paid in Japanese Yen, the amount obtained when the Adjusted Japanese Augmentation Factor is applied to the Monthly Pension Amount; (G) in respect of a Member's Monthly Pension Amount paid in Euros, the amount obtained when the Adjusted European Augmentation Factor is applied to the Monthly Pension Amount. 10 15 15.07.6 The compounded augmentation factor under this and any previous pension augmentation, shall, unless it is an integral number of tenths of 1%, be rounded to the next higher multiple of 0.1%. 15.07.7 The retirement pension of a Member, who retires on or after 1 October 2000 and who immediately prior to such retirement was in receipt of an Approved Disability Benefit, shall be augmented from his retirement date by the same augmentation percentage that would otherwise have applied to his retirement pension had his date of disability been his Commencement Date for the purpose of calculating such augmentation. 11 EX-10.16 5 m09446ex10-16.txt EMPLOYMENT AGREEMENT RE TRAVIS ENGEN 1 EXHIBIT 10.16.: EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AGREEMENT, dated this 23rd day of February 2001 (this "Agreement"), among Alcan Aluminium Limited, a Canadian corporation (the "Employer"), with offices at 1188 Sherbrooke Street West, Montreal, Quebec, Canada, and Travis Engen (the "Employee"). 1. EMPLOYMENT, DUTIES AND AGREEMENTS. (a) The Employer hereby agrees to employ the Employee as the President and Chief Executive Officer of the Employer and to nominate the Employee for re-election as a member of the Board of Directors of the Employer (the "Board") and the Employee hereby accepts such positions and agrees to serve the Employer in such capacities during the employment period fixed by Section 4 hereof (the "Employment Period"). The Employee shall report solely and directly to the Board. The Employee's duties and responsibilities shall be such duties and responsibilities that are consistent with the positions of President, Chief Executive Officer and Director. (b) During the Employment Period and as long as the Employer shall not be in default of a material obligation hereunder, excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee shall devote substantially all of his business time and attention to the performance of his duties and responsibilities hereunder. Notwithstanding any provision to the contrary, nothing herein shall prohibit the Employee from (i) acting or serving as a director, trustee, committee member or principal of any type of business or civic or charitable organization except where such service is inconsistent with the non-competition provision referred to in Section 9(a) hereof or otherwise inconsistent with the effective completion of his responsibilities hereunder and provided that the Employee has received the prior approval in writing of the Personnel Committee (or equivalent committee) of the Board 2 which shall not be unreasonably withheld, and (ii) managing his personal, financial and legal affairs. 2. COMPENSATION. (a) As compensation for the agreements made by the Employee herein and the performance by the Employee of his obligations hereunder, during the Employment Period, the Employer shall pay the Employee, not less than once a month pursuant to the Employer's normal and customary payroll procedures, a base salary at the rate of not less than $1,200,000 per annum (the "Base Salary"). (b) In addition to the Base Salary, for each of calendar years 2001 through 2005, the Employee shall be entitled to a bonus (the "Annual Bonus") based on an established target bonus level and the achievement of performance objectives. The Annual Bonus shall be determined on a calendar year basis and the Employee shall be entitled to a full year's Annual Bonus with respect to calendar year 2001 (i.e., without proration relating to the commencement of the Employment Period after January 1, 2001). The target bonus (the "Target Bonus") level for each such year and the performance objectives shall be determined in a manner and a level consistent with the Employer's past practice. The minimum amount of the Annual Bonus for calendar year 2001 shall be not less than 100% of the Employee's Base Salary, regardless of the achievement of the performance objectives for such calendar year. (c) On the date of this Agreement, the Employer shall grant the Employee an option (the "Option") to purchase shares of the Employer's common stock and such Option shall become exercisable at a price and according to the conditions as set forth in the Option Agreement attached as Schedule I hereto. Notwithstanding Schedule I, such options will become fully vested and exercisable upon the termination of the Employee's employment by the Employer without Cause, by the Employee for Good Reason or upon a Change of Control (as defined below), provided that to the extent the minimum waiting periods stipulated by law or listing regulations have not expired as of the date of termination of employment or Change of Control, such options shall become fully vested and exercisable on the expiration of such minimum waiting periods. Notwithstanding any provision in this Agreement or any other agreement or document to the contrary, and upon becoming exercisable, the Option and any 2 3 other stock options granted to the Employee under any plan, practice, policy or program of the Employer, shall remain outstanding and exercisable for the full ten (10) year period from the date such stock option was issued regardless of any termination of Employee's employment. (d) During the Employment Period, the Employee shall be entitled to participate in all long-term incentive compensation practices, policies and programs of the Employer and its affiliated companies which are made available generally to other executive officers of the Employer and its affiliated companies. The term "affiliated companies" means all companies controlled by the Employer. (e) The amounts of the Base Salary, Target Bonus and long term incentive opportunities shall be reviewed from time to time in a manner consistent with the Employer's past practice based on competitive market pay levels. 3. BENEFITS, PERQUISITES AND EXPENSES (a) During the Employment Period: (i) the Employee shall be entitled to participate in all savings and retirement plans, practices, policies and programs of the Employer and its affiliated companies which are made available to any other executive officers of the Employer and its affiliated companies; and (ii) the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in, and shall receive all benefits under, all welfare benefit plans, practices, policies and programs provided by the Employer and its affiliated companies (including, without limitation, medical, prescription, dental, disability, life insurance, group life insurance, short- and long-term disability, accidental death and travel accident insurance plans and programs) which are made available to any other executive officers of the Employer and its affiliated companies. (b) During the Employment Period, the Employee shall be entitled to paid vacation in accordance with the Employer's practice and policies. The ability to carry forward vacation time shall be subject to the Employer's vacation policy applicable to executive officers of the Employer as in effect from time to time. 3 4 (c) The Employer shall pay or promptly reimburse the Employee for any fees, dues and expenses with respect to any club, society, or organization in which the Employee is a member provided that such memberships are reasonably necessary to assist the Employee in performing his duties and responsibilities hereunder. The Employer shall provide the Employee with a supplemental cash payment to gross-up the Employee for any tax liability incurred with respect to any such payment or reimbursement, including any such liability incurred with respect to the payment provided for by this sentence. (d) The Employer shall pay or promptly reimburse the Employee for the costs of obtaining financial and tax planning advice and preparation of tax returns by a leading international accounting firm chosen by the Employee for each relevant jurisdiction in connection with the employment of the Employee hereunder during the Employment Period and for the year in which the Employment Period terminates. The Employer shall provide the Employee with a supplemental cash payment to gross-up the Employee for any tax liability incurred with respect to any such payment or reimbursement, including any such liability incurred with respect to the payment provided for by this sentence. (e) The Employer shall pay or promptly reimburse the Employee for all expenses incurred by the Employee or the Employee's spouse in connection with the performance of the Employee's duties hereunder, including without limitation any travel (including without limitation the use of a car service to travel from home to the office), accommodation or meals and entertainment costs. The Employer shall provide the Employee with a supplemental cash payment to gross-up the Employee for any tax liability incurred with respect to any such payment or reimbursement, including any such liability incurred with respect to the payment provided for by this sentence. (f) During the Employment Period, the Employee shall be entitled to the use of a limousine service for business related transport in accordance with the Employer's policies. (g) In order to compensate the Employee for any additional income tax liability that he may be subject to in Canada or any other non-U.S. jurisdiction as a result of his employment hereunder, the Employer shall provide the Employee with quarterly tax-equalization payments, such that the Employee's net income after taxes from all compensation received by 4 5 Employee from the Employer is equal to what his net income after taxes would have been if such amounts were earned in New Canaan, Connecticut. The quarterly payments will be based on estimates calculated by a leading international accounting firm chosen by the Employee, on behalf of the Employee and Employer. Upon the filing of the Employee's final tax returns each year, the accounting firm shall calculate the total tax-equalization amount and determine whether there is a shortfall or excess between such amount and the quarterly payments paid to the Employee in respect of such tax year. If there is a shortfall, the Employer shall pay the Employee the difference, and, if there is an excess, the Employee shall pay the Employer such difference. In the event any governmental taxing authority audits or otherwise challenges the Employee's tax liability determined by the international accounting firm, the Employer shall advance all costs of defending the calculation and shall indemnify the Employee and hold the Employee harmless from any and all costs and liabilities related to such governmental taxing authority's audit or other action. (h) As regards the pension benefits to which the Employee would normally be entitled as a employee of the Employer, the Employer shall adjust its retirement programs as regards the rights and interests of the Employee so as to meet the requirements of SCHEDULE II attached hereto. 4. EMPLOYMENT PERIOD. The Employment Period shall commence on March 12, 2001 (the "EFFECTIVE DATE") and shall end on the day preceding the fifth anniversary of the Effective Date (the "SCHEDULED TERMINATION DATE"); provided, however, that on the fifth anniversary of the Effective Date, and on every anniversary of the Effective Date thereafter, the Employment Period shall be extended for a period of one year (and the Scheduled Termination Date shall also be extended until the day preceding such anniversary date) unless either party gives notice to the other at least ninety (90) days before such anniversary date that such party is electing not to extend the Employment Period. Notwithstanding the foregoing, the Employee's employment hereunder may be terminated during the Employment Period upon the earliest to occur of the following events (at which time the Employment Period shall be terminated): 5 6 (a) DEATH. The Employee's employment hereunder shall terminate upon his death. (b) DISABILITY. The Employer shall be entitled to terminate the Employee's employment hereunder for "DISABILITY" being the disability of the Employee as defined according to the Employer's applicable Long-Term Disability program and insurance policies. (c) CAUSE. The Employer may terminate the Employee's employment hereunder for Cause. For purposes of this Agreement, the term "CAUSE" shall mean: (i) the willful failure of the Employee substantially to perform the Employee's duties under this Agreement (other than as a result of physical or mental illness or injury) that has a material adverse effect on the Employer, after the Board delivers to the Employee a written demand for substantial performance that specifically identifies the manner in which the Board believes that the Employee has not substantially performed the Employee's duties; and (ii) the willful engaging by the Employee, in the Employee's capacity as an employee of the Employer, in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Employer. Any act or failure to act that is based upon authority given pursuant to a resolution duly adopted by the Board, or the advice of counsel for the Employer, shall not constitute Cause. For purposes of this SECTION 4(c), any act or failure to act by the Employee shall not be considered "willful" unless done by the Employee not in good faith and without reasonable belief that the Employee's action or omission was in the best interests of the Employer. Cause shall not exist unless and until the Employer has delivered to the Employee, within ninety (90) days after the Employer becomes aware of the proposed basis giving rise to Cause, a copy of a resolution duly adopted by a majority of the Board at a meeting of the Board called and held for such purpose (after reasonable but in no event less than thirty (30) days' notice to the Employee and an opportunity for the Employee, together with his counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Employee was guilty of the conduct set forth above and specifying the particulars thereof in detail. The Employee shall have the right to cure the same, to the extent reasonably susceptible to cure, within thirty (30) days of the date of such written notice. This SECTION 4(c) shall not prevent the Employee from challenging in any court of competent jurisdiction the Board's determination that Cause exists or that the Employee has 6 7 failed to cure any act (or failure to act) that purportedly formed the basis for the Board's determination. (d) Good Reason. The Employee may terminate his employment hereunder for "GOOD REASON," for any of the following reasons enumerated in this SECTION 4(d) (and such termination shall be treated as if it were a termination by the Employer without Cause, and not a voluntary termination by the Employee): (i) the assignment to the Employee of any duties inconsistent with SECTION 1(a) of this Agreement, or any other action by the Employer that results in a diminution in the Employee's position, authority, status, duties or responsibilities as they currently exist, or any failure to reelect the Employee to any positions or offices the Employee held as contemplated hereunder; (ii) any reduction by the Employer of the Employee's Base Salary or Target Bonus or in any material term or condition of his compensation or benefits as they currently exist, or failure to comply with, or breach of, any of the provisions of this Agreement or any other agreement related to the Employee's employment or other relationship with the Employer, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Employer promptly after receipt of notice thereof given by the Employee; (iii) a Change of Control (as defined in SCHEDULE III attached hereto); (iv) if the Employee, having accepted to be nominated, is not re-elected at each annual general meeting of the shareholders of the Employer following the date hereof at which such an election is required under the Articles of Incorporation or Bylaws of the Employer, as the case may be; (v) if the Employee is removed as a member of the Board at any time during the Employment Period; or (vi) any purported termination of the Employee's employment by the Employer for a reason or in a manner not expressly permitted by this Agreement. Termination by the Employee pursuant to this SECTION 4(d) shall not be effective until the Employee delivers to the Board a notice specifically identifying the conduct of the Employer which the Employee believes constitutes a reason enumerated in this SECTION 4(d) and, to the extent reasonably susceptible to cure, the Employee provides the Board thirty (30) days to remedy such conduct. This SECTION 4 (d) shall not prevent the Employer from challenging in any court of competent jurisdiction the Employee's determination that "Good Reason" exists or that the Employer has failed to cure any act (or failed to act) that purportedly formed the basis for Employee's determination. 7 8 (e) WITHOUT CAUSE. The Employer may terminate the Employee's employment hereunder without Cause, provided that the Employer provides the Employee with notice of its intent to terminate the Employee's employment without Cause at least thirty (30) days in advance of the Date of Termination (as defined below). (f) WITHOUT GOOD REASON. The Employee may terminate his employment hereunder without Good Reason, provided that the Employee provides the Employer with notice of his intent to terminate his employment without Good Reason at least thirty (30) days in advance of the Date of Termination (as defined below). (g) PUBLIC ANNOUNCEMENT OF TERMINATION. The Employee and the Employer shall exercise reasonable efforts to mutually agree on the time, method and content of any public announcement regarding the Employee's termination of employment hereunder. Neither the Employee nor the Employer shall make any public statements which are inconsistent with the information which has been so agreed upon by the Employer and the Employee and the parties hereto shall cooperate with each other in refuting any public statements made by other persons, which are inconsistent with the information mutually agreed upon between the Employee and Employer as described above. 5. TERMINATION PROCEDURE. (a) NOTICE OF TERMINATION. Any termination of the Employee's employment by the Employer or by the Employee during the Employment Period (other than termination pursuant to SECTION 4(a)) shall be communicated by written "NOTICE OF TERMINATION" to the other party hereto in accordance with SECTION 15(a) hereof. For purposes of this Agreement, a Notice of Termination shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated and shall attach any prior notices required under SECTION 4. (b) DATE OF TERMINATION. "DATE OF TERMINATION" shall mean (i) if the Employee's employment is terminated by his death, the date of his death, (ii) if the Employee's employment is terminated pursuant to SECTION 4(b), thirty (30) days after Notice of Termination (provided 8 9 that the Employee shall not have returned to the substantial performance of his duties during such thirty (30) day period), (iii) if the Employee's employment is terminated pursuant to SECTIONS 4(E) or 4(F), a date specified in the Notice of Termination which is at least thirty (30) days from the date of such notice as specified in such SECTIONS 4(E) or 4(F); and (iv) if the Employee's employment is terminated for any other reason, the date on which a Notice of Termination is given or any later date (within thirty (30) days (or any alternative time period agreed upon by the parties) after the giving of such notice) set forth in such Notice of Termination. 6. TERMINATION PAYMENTS. (a) WITHOUT CAUSE OR FOR GOOD REASON. In the event of the termination of the Employee's employment during the Employment Period by the Employer without Cause or by the Employee for Good Reason, the Employee shall be entitled to: (i) a payment of (A) the Employee's Base Salary through the Date of Termination (to the extent not theretofore paid), (B) any earned but unpaid Annual Bonus in respect of the year ending prior to or coincident with the Date of Termination, (C) any accrued vacation pay, and (D) any unreimbursed expenses under SECTION 3(c), (d), (e) and (g) (together, the payments under SECTION 6(a)(i)(A), (B), (C), and (D), the "ACCRUED OBLIGATIONS"); (ii) a lump-sum payment equal to the product of (A) the greater of (x) the quotient of the number of full and partial months from the Date of Termination to the Scheduled Termination Date, divided by twelve (12), and (y) three (3), and (B) the Employee's highest annualized Base Salary in effect during the Employment Period and Target Bonus (assuming a Target Bonus equal to one hundred percent (100%) of the Employee's highest annualized Base Salary and all performance objectives have been met); (iii) immediate acceleration of vesting and exercisability of all stock grants, stock options and any other incentive compensation; 9 10 (iv) an additional service credit (for all purposes, including without limitation vesting and benefit accrual) under the Employer's Supplemental Executive Retirement Plan (SERP) in accordance with SCHEDULE II, to bring the total years of service to five (5) years under SCHEDULE II; and (v) continuation of all benefits provided in SECTION 3 hereunder from the Date of Termination to the later of (A) the Scheduled Termination Date, or (B) the third anniversary of the Date of Termination. (b) CAUSE OR WITHOUT GOOD REASON. If the Employee's employment is terminated during the Employment Period by the Employer for Cause or by the Employee without Good Reason, the Employer shall pay to the Employee: (i) the Accrued Obligations, and (ii) a pro-rata portion of the Target Bonus (assuming a Target Bonus equal to one hundred percent (100%) of the Employee's annualized Base Salary then in effect and all performance objectives have been met). (c) DEATH OR DISABILITY. If the Employee's employment is terminated during the Employment Period as a result of the Employee's Death or the Employee's Disability, the Employee or the Employee's estate or legal representative, as the case may be, shall be entitled to receive the proceeds of the insurance policies and similar employee benefit plans and policies referred to under SECTION 3 above and, except as set forth in SCHEDULE IV attached hereto, no further compensation from the Employer. (d) TIME OF PAYMENTS. Unless otherwise specified in this Section 6 or in the policies and plans referred to in SECTION 6(c), all payments due under this SECTION 6 shall be paid no later than ten (10) days after the Date of Termination. (e) SCHEDULED TERMINATION DATE. Notwithstanding anything else contained herein and for the purposes of clarity, the Employee shall not be entitled to receive any termination payments or other payments similar to those referred to under this SECTION 6 (other than Accrued Obligations) in the event that this Agreement terminates on the Scheduled Termination Date. 10 11 7. NON-EXCLUSIVITY OF RIGHTS. Any vested benefits and other amounts that the Employee is otherwise entitled to receive under any employee benefit plan, policy, practice or program of the Employer or any of its affiliated companies shall be payable in accordance with such employee benefit plan, policy, practice or program as the case may be, except as explicitly modified by this Agreement. 8. FULL SETTLEMENT; NO DUTY TO MITIGATE. (a) The Employer's obligation to make the payments provided for in, and otherwise to perform its obligations under, this Agreement shall not be affected by any set off, counterclaim, recoupment, defense or other claim, right or action that the Employer may have against the Employee or others. (b) In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement, and such amounts shall not be reduced, regardless of whether the Employee obtains other employment. 9. CONFIDENTIALITY OF INFORMATION; DUTY OF NON-DISCLOSURE; NON-COMPETITION. (a) CONFIDENTIALITY AND NON-COMPETITION. The Employee acknowledges and agrees that his employment as President and Chief Executive Officer of the Employer under this Agreement is conditional upon his agreeing to be bound by the Confidentiality Undertaking attached hereto as SCHEDULE V and the Non-Competition Undertaking attached hereto as SCHEDULE VI. (b) REMEDIES. The parties hereto hereby declare that the payment of money as damages or indemnification by the Employee to the Employer will alone be inadequate compensation for the loss and damages that will accrue to the Employer by reason of a failure by the Employee to perform any of his obligations under this SECTION 9. Accordingly, if the Employer institutes any action or proceeding to enforce the provisions hereof, to the extent permitted by applicable law, the Employee hereby waives the claim or defense that the Employer 11 12 has an adequate remedy at law, and the Employee shall not urge in any such action or proceeding the defense that any such remedy exists at law. (c) SURVIVAL OF COVENANTS. This SECTION 9 and the undertakings referred to herein shall survive the termination of the Employment Period. 10. NON-SOLICITATION. During the Employment Period and for a period of two (2) years following the Date of Termination, the Employee shall not directly or indirectly induce any employee of the Employer or any of its subsidiaries to terminate employment with such entity, and shall not employ or offer employment to any person who is or was employed by the Employer or a subsidiary thereof unless such person shall have ceased to be employed by such entity for a period of at least three (3) months. 11. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) GENERAL. The Employer undertakes to indemnify the Employee in accordance with SCHEDULE VII. (b) DIRECTORS' AND OFFICERS' INSURANCE. The Employer shall maintain appropriate and customary directors' and officers' liability insurance for the benefit of the Employee, and the Employee shall be entitled to the protection of any other insurance policies the Employer or any of its affiliates from time to time maintains for the benefit of its senior executive officers and directors (or substantially similar policies) respecting liabilities, costs, charges, and expenses of any type whatsoever incurred or sustained by the Employee (or the employee's legal representatives or other successors) in connection with any action, suit or proceeding to which the Employee (or the Employee's legal representatives or other successors) may be made a party or may be threatened to be made a party by reason of the Employee's being or having been a director, officer, employee or agent of the Employer or serving or having served at the request of the Employer as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. 12 13 (c) SURVIVAL OF OBLIGATION. This SECTION 11 and the undertakings referred to herein shall survive the termination of the Employment Period. 12. CHANGE OF CONTROL PROVISIONS. (a) The Employer shall enter into with the Employee a Change of Control Agreement in the form attached hereto as SCHEDULE III. Notwithstanding anything to the contrary in SCHEDULE III or in any other agreement or arrangement, nothing in SCHEDULE III shall diminish, reduce or otherwise adversely affect the payments, rights and benefits provided to Employee in this Agreement, including without limitation the payments, rights and benefits that the Employee becomes entitled to as a result of a Change of Control. Accordingly, in the event any provision in SCHEDULE III (or any successor Change of Control Agreement) conflicts or is otherwise inconsistent with any provision of this Agreement, this Agreement shall govern. In addition, the definition of Change of Control provided in SCHEDULE III shall apply to this Agreement even after the expiration of SCHEDULE III, unless any new Change of Control Agreement specifically provides that it is intended to replace the definition of Change of Control in this Agreement. (b) In the event of a Change of Control (as defined in SCHEDULE III), in addition to the payments provided under SECTION 6 or under any other plan, program, agreement or arrangement, the Employee shall further be entitled to additional payments equal to: (A) any excise taxes imposed by Section 4999 of the Internal Revenue Code of 1986 (the "CODE") (or any similar taxes or charges imposed by any other state or jurisdiction, including without limitation Canada) on the payments or benefits to or for the benefit of the Employee provided for herein or under any other plan, program, agreement or arrangement of the Employer (or any member of the Employer's affiliated group as such term is defined in Section 1504 of the Code, without regard to Section 1504(b) thereof); and (B) any such excise taxes and any other taxes imposed by the Code or under the laws or regulations of any other state or jurisdiction (including without limitation, Canada) on the payments provided for in this SECTION 12. (c) The Employer shall pay to the Employee the payments provided for in this Section 12 as soon as practical following the determination of the tax counsel referred to below. Tax counsel selected by the Employee and reasonably acceptable to the Employer shall 13 14 determine on behalf of the Employee and the Employer whether the payments provided for by this SECTION 12 shall be required. Tax counsel shall determine that payments shall be necessary only if, and to the extent that, it is more likely than not that the payments or benefits are subject to a tax. In making the determinations required by this SECTION 12, tax counsel may rely on benefit consultants, accountants or other experts. The Employer hereby agrees to pay all reasonable fees and expenses of such tax counsel and other experts. If, subsequent to the payment to the Employee of payments pursuant to this SECTION 12, the tax counsel referred to in this SECTION 12 reasonably determines that the amount of the payments paid pursuant to this SECTION 12 are less or more than the amount required to have been paid, then based on such determination, the Employer shall pay to the Employee any shortfall and the Employee shall repay any overpayment to the Employer. In the event that tax counsel referred to in this SECTION 12 reasonably determines that the Employee is required to pay interest or penalties to a governmental taxing authority as a result of his non-payment of taxes in accordance with any prior determination pursuant to this SECTION 12, the Employer shall pay to the Employee an additional amount equal to (i) the amount of such interest and/or penalties and (ii) any excise tax and any other taxes imposed by the Code or under the laws of any state or jurisdiction on the payments provided for in this sentence. Nothing in this SECTION 12 shall be interpreted as absolving the tax counsel from any professional responsibility with respect to his determinations hereunder. 13. LEGAL FEES. The Employer shall reimburse the Employee for legal and other professional fees (based upon a reasonable hourly rate) and reasonable out-of-pocket expenses and other fees incurred in connection with the preparation of this Agreement. 14. ENFORCEMENT. (a) Any disagreement, dispute, controversy or claim arising out of or relating to this Agreement, or the breach thereof (except as otherwise specified herein), shall be settled by arbitration. The arbitration shall be administered by the American Arbitration Association ("AAA") under its Commercial Arbitration Rules ("RULES") except as those Rules conflict with the provisions of this SECTION 14, in which case the provisions of this SECTION 14 shall control. Nothing herein shall limit the Employer's right to seek injunctive relief in a court of competent 14 15 jurisdiction in connection with a breach by the Employee of his obligations under Section 9(b) of this Agreement. (b) The parties shall submit the dispute to the New York City regional office of the AAA and the situs of the arbitration shall be the New York metropolitan area unless another location is otherwise agreed to in writing by the parties. (c) The arbitration shall be conducted by a panel of three arbitrators. Each such arbitrator shall be an attorney admitted to practice law in a state of the United States. Within thirty (30) business days of the filing of a demand for arbitration by the claimant(s) with the New York City regional office of the AAA, the claimant(s) and the respondent(s) shall each appoint one arbitrator, and within sixty (60) business days of the date of their appointment, the two arbitrators shall appoint a third arbitrator, who shall act as chairperson. If any arbitrator is not appointed within the times specified above, the AAA or President of local bar association where appropriate shall appoint such arbitrator(s) in accordance with the Rules. (d) The arbitration proceedings and any record thereof, including all submissions, shall be confidential, except as necessary to enforce the arbitration award. (e) The Employer agrees to pay as incurred, to the full extent permitted by law, all legal fees (based upon a reasonable hourly rate), reasonable out-of-pocket expenses and all costs of any arbitration which the Employee may reasonably incur as a result of any arbitration contest (regardless of the outcome thereof) pursued or defended against in good faith by the Employee regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Employee of the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the lowest rate specified to be payable by the Employer to any of its bankers or other arm's length lenders in respect of U.S. dollar denominated indebtedness. (f) Judgment on the award rendered by the arbitrators shall be final and binding upon the parties and may be entered in any court having competent jurisdiction thereof. 15 16 15. MISCELLANEOUS. (a) NOTICES. Any notice to be given hereunder shall be given in writing. Notice shall be deemed to be given when delivered by hand, or three (3) days after being mailed, postage prepaid, registered with return receipt requested, to the following addresses: If to the Employer: Alcan Aluminium Limited 1188 Sherbrooke Street West Montreal, Quebec, CANADA H3A 3G2 Attention: Chairman with a copy to: Senior Vice President and Chief Legal Officer If to the Employee: Travis Engen 265 Brushy Ridge Road New Canaan, CT 06840 U.S.A. with a copy to: Arthur Kohn, Esq. Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, New York 10006 or to such other address as any party hereto may designate by notice to the other, and shall be deemed to have been given upon receipt. (b) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties hereto with respect to the Employee's employment with the Employer. (c) MODIFICATION OR AMENDMENT. This Agreement may be amended only by an instrument in writing signed by the parties hereto, and any provision hereof may be waived only by an instrument in writing signed by the party or parties against whom or which enforcement of 16 17 such waiver is sought. The failure of any party hereto at any time to require the performance by any other party hereto of any provision hereof shall in no way affect the full right to require such performance at any time thereafter, nor shall the waiver by any party hereto of a breach of any provision hereof be taken or held to be a waiver of any succeeding breach of such provision or a waiver of the provision itself or a waiver of any other provision of this Agreement. (d) SUCCESSORS. (i) This Agreement is binding on and is for the benefit of the parties hereto and their respective successors, heirs, executors, administrators and other legal representatives. Neither this Agreement nor any right or obligation hereunder may be assigned by the Employer or by the Employee. (ii) The Employer shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would have been required to perform it if no such succession had taken place. As used in the Agreement, the "Employer" shall mean both the Employer as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise. (iii) Notwithstanding the foregoing, the Employer shall have the right to assign all or part of its obligations hereunder to any of its U.S. incorporated subsidiaries provided that the Employer shall remain responsible on a solidary (i.e., joint and several) basis with the assignee as regards the obligations so assigned. (e) SEVERABILITY. Each provision hereof is severable from this Agreement, and if one or more provisions hereof are declared invalid, the remaining provisions shall nevertheless remain in full force and effect. If any provision of this Agreement or portion thereof is so broad, in scope or duration or otherwise, as to be unenforceable, such provision or portion thereof shall be interpreted to be only so broad as is enforceable. 17 18 (f) WAIVER. The failure to enforce at any time any of the provisions of this Agreement or to require at any time performance by the other party of any of the provisions of this Agreement shall in no way be construed to be a waiver of such provisions or to affect the validity of this Agreement, or any part hereof, or the right of either party thereafter to enforce each and every such provision in accordance with the terms of this Agreement. (g) TAX WITHHOLDING. The Employer may withhold from any amounts payable to the Employee hereunder all federal, state, city or other taxes that the Employer may reasonably determine are required to be withheld pursuant to any applicable law or regulation. (h) RULE OF CONSTRUCTION. The parties hereto acknowledge and agree that each party has reviewed and negotiated the terms and provisions of this Agreement and has had the opportunity to contribute to its revision. Accordingly, the rule of construction to the effect that ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement. Rather, the terms of this Agreement shall be construed fairly as to both parties hereto and not in favor or against either party. This Agreement has been prepared in the English language at the specific request of both parties. All monetary amounts referred to herein are expressed in U.S. dollars unless otherwise stipulated as is the case for Schedule I. (i) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the STATE OF NEW YORK, USA, without reference to its principles of conflicts of law. (j) COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. (k) HEADINGS. The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof. * * * * 18 19 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. Alcan Aluminium Limited /s/ Dr. John R. Evans ------------------------------- Name: Dr. John R. Evans Title: Chairman /s/ Travis Engen ------------------------------- Travis Engen 19 20 SCHEDULE I STOCK OPTION GRANT This Agreement made as of the 23rd day of February 2001, between: ALCAN ALUMINIUM LIMITED (the "Company") - and - Travis Engen (the "Optionee") WHEREAS the Company has adopted the "Alcan Executive Share Option Plan" (the "Plan") as set out in a Circular dated April 22, 1993 providing for the grant to key employees of the Company and its subsidiaries of options to purchase Shares of the Company; and WHEREAS the Company wishes to grant an option to the Optionee subject to the terms of the Plan and the terms contained herein and the Optionee has agreed to accept the said grant of such option; NOW, THEREFORE, the parties hereto agree as follows: 1. CONSTRUCTION The terms and conditions of the Plan, as the same may be revised, amended or supplemented from time to time, shall form part of this Agreement as if set out at length herein. If a conflict arises between the terms of this Agreement and those of the Plan, the terms of the Plan shall govern, subject, in each case, to the relevant provisions of the Optionee's Employment Agreement of the same date hereof. 2. GRANT OF OPTION The Company hereby grants to the Optionee the option ("C Option") to purchase the number of Shares ("Shares") of the Company at the subscription price and during the Option Period set forth below (subject to the terms of the Plan and this Agreement): Subscription Option Period Effective Number Price ------------------------- Date of shares (CAD/Share) From To ---- --------- ----------- ---- -- March 12, 2001 579,000 $59.35 March 12, March, 11 2001 2011 20 21 3. Waiting Period The expression "Waiting Period" as defined in the Plan shall, in its application to the C Options, mean a period (ending not less than three months from the Effective Date) during which the Market Value of a Share for each of 21 consecutive trading days exceeds the minimum market value stated in column 1 of the following table whereupon the portion of the original C Option stated in column 2 of that table shall become vested in the Optionee for exercise at his discretion: ------------------------------------------- --------------------------------------------------------------- (1) (2) Minimum Market Value as percentage of the Portion of the original C Option granted which may be February 23, 2001 reference price: exercised: =========================================== =============================================================== 120% not exceeding 33% ------------------------------------------- --------------------------------------------------------------- 140% not exceeding 66% ------------------------------------------- --------------------------------------------------------------- 160% 100% ------------------------------------------- ---------------------------------------------------------------
EXCEPTIONS AND CLARIFICATIONS: (a) reference is made to the Optionee's Employment Agreement with respect to the exceptions to the waiting period stipulations and the term of the C Option. (b) the Waiting Period shall be waived on the day which is one year preceding the date of termination of the Option Period. (c) the February 23, 2001 reference price shall be CAD $ 55.83. 4. HOLDING PERIOD There shall not be a Holding Period for the Shares issued on the exercise of C Options. 5. STOCK APPRECIATION RIGHTS No stock appreciation rights shall be connected with the C Option. 6. EXERCISE OF OPTION AND SPECIAL PAYMENT ON EXERCISE A C Option may be exercised (in part or in whole) by the Optionee giving written notice to the Vice President, Human Resources of the Company (with a copy to the Secretary of the Company) specifying the number of Shares being purchased, together with payment in Canadian Dollars of the subscription price for such Shares. At the time of exercise of the Option (in whole or in part), the Optionee shall be entitled to receive from the Company a per share adjusting payment equal to CAD $ 3.52 in the form of Deferred Share Units (as defined in the Company's Deferred Share Unit Plan). The number of Deferred Share Units to be credited to the account of the Optionee will be equal to the number of options exercised multiplied by CAD $ 3.52 divided by the average common share trading price on the Toronto Stock Exchange on the date of exercise. 21 22 7. INSIDERS Notwithstanding anything contained herein, if the Optionee is, or becomes, an insider of the Company for the purposes of any applicable law, the exercise of the Option and disposal of the Shares acquired pursuant to such exercise shall be subject to restrictions under such law. The Optionee shall be responsible for complying with all obligations arising in connection with the Shares under applicable securities or other laws. 8. NOTICE Any notice or request which either party hereto gives to the other shall be in writing, and if to the Company, addressed to: Alcan Aluminium Limited P.O. Box 6090 Montreal, Quebec, Canada H3C 3A7 Attention: Vice President, Human Resources, or Secretary as the case may be and, if to the Optionee, at his address as shown in the records of the Company, and in both cases to such other address as one party may designate in writing from time to time to the other. No notice hereunder shall be deemed delivered until it has been received. 9. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the Province of Quebec. The Parties hereto have agreed and requested that this Agreement be drafted in English. Les parties ont convenu et requis que cette convention soit redigee en anglais. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. ALCAN ALUMINIUM LIMITED Per: /s/ Gaston Ouellet Signature: /s/ Travis Engen ______________________ __________________________ Gaston Ouellet Travis Engen Senior Vice President 22 23 RETIREMENT BENEFIT AGREEMENT THIS AGREEMENT is made in duplicate as of the 12 of March, 2001 BETWEEN TRAVIS ENGEN (hereinafter referred to as "the Executive") OF THE FIRST PART AND ALCAN INC., a Corporation incorporated under the laws of Canada (hereinafter referred to as "Alcan"). OF THE SECOND PART WHEREAS by Agreement dated February 23, 2001 (the "Employment Agreement"), Alcan agreed to employ the Executive as its President and Chief Executive Officer and as a director, and the Executive agreed to accept such positions; WHEREAS Section 3 and Schedule II of the Employment Agreement set forth in general terms an undertaking by Alcan to provide retirement benefits to the Executive in the manner described in such Section and such Schedule, respectively; WHEREAS, in order to give effect to the above-mentioned Section and Schedule of the Employment Agreement and in order to retain the Executive in its employ, Alcan is entering into a retirement benefits agreement (hereinafter referred to as the "Agreement") to pay to the Executive retirement benefits (hereinafter referred to as the "Retirement Benefit") as herein stated; 23 24 NOW, THEREFORE this Agreement witnesses that the parties hereto covenant and agree each with the other as follows: 1. INTERPRETATION 1.1 In this Agreement, "Plan" means Alcan's qualified pension plan in the United States of America called the "Alcancorp Pension Plan". Unless the context otherwise specifies or requires, all terms contained in this Agreement which are defined in the Plan shall for the purposes of this Agreement have the meaning given to such terms in the Plan. 1.2 Words importing the singular number shall include the plural and vice versa, and words importing the masculine gender shall include the feminine gender. 2. RETIREMENT, TERMINATION AND DEATH BENEFIT ALCAN shall, in the event of the termination of the Executive's employment for whatever reason, including his retirement or his death (hereinafter referred to as the "Date of Determination"), determine a Retirement Benefit payable by Alcan to the Executive or, in the event of his death, to his Qualified Spouse, in the manner provided in paragraph 3 below. 3. DETERMINATION OF BENEFITS AND PAYMENTS 3.1 The total Retirement Benefit as of the Date of Determination, in U.S. currency, is a monthly pension equal to the product of -- $6,432, and -- the number of years and fraction of years of service rendered from 1 April 2001 by the Executive to Alcan, up to a maximum of 5 years. A fraction of month shall be rounded up to a whole month. 3.2 Notwithstanding paragraph 3.1 above, if the Executive shall become disabled and qualify for payment under Schedule IV of the Employment 24 25 Agreement, the service accrual for pension purposes shall be at the rate of one half of one month for each month during which a payment is made pursuant to paragraph (ii) of the aforementioned Schedule IV ("Supplemental Disability Payment"), 3.3 If the Executive does not have a Qualified Spouse (as defined under the Plan) at the pension commencement date, the Retirement Benefit shall be payable for the lifetime of the Executive. If the Executive has a Qualified Spouse, the Executive may elect, before the pension commencement date, to receive a reduced Retirement Benefit for his lifetime and his surviving Qualified Spouse shall receive either 50% of the unreduced Retirement Benefit or 100% of the reduced Retirement Benefit for her lifetime. The applicable reduction factors are as follows: -- 50% spousal option: 90.4% -- 100% spousal option: 83.9%. 3.4 Notwithstanding paragraph 3.1, the Retirement Benefit may be commuted to an immediate cash value on an Actuarially Equivalent basis at the applicable Date of Determination, in whole or in part, at the request of the Executive and with the consent of the Board of Directors of Alcan. Such request shall be made in writing to Alcan at least one month prior to his applicable Date of Determination, or at the pension commencement date if it occurs later than said Date of Determination. Actuarial Equivalence shall be determined by the rules in the Plan for the cash-out of Members' benefits (Section 4.3.4 of the Plan). Any Retirement Benefit payable in any year is limited to the deduction limitation provided in Section 162(m) of the Internal Revenue Code. Any amount deferred pursuant to this deduction limitation shall be credited with interest at the rate used to calculate the actuarial equivalent of the Retirement Benefits. 25 26 3.5 In the event of the Executive's death prior to his Pension Commencement Date, a monthly spousal benefit will be payable to the Executive's surviving Qualified Spouse for her life. The amount of the monthly spouse's benefit will be equal to the amount of benefits that the Qualified Spouse would have received had the Executive retired on the day before his death, chosen the 50% spousal option and then died the following day. 3.6 The monthly pension shall be payable from the first of the month coinciding with or next following the Date of Determination. 4. GENERAL PROVISIONS 4.1 Nothing contained herein shall constitute an agreement or undertaking by the Executive to remain in the employment of the Alcan for any specific period, nor an undertaking by Alcan to employ the Executive for any specific period. The term of the Executive's employment and its termination shall be governed by the terms of the Employment Agreement. 4.2 Any benefits which the Executive shall receive under this Agreement shall be in substitution for any rights he may now or hereafter have to an annuity, retirement allowance, pension or similar benefit under any other agreement with Alcan or any of its Subsidiaries. The Executive hereby agrees that he will be excluded from participation to the Plan. 4.3 Alcan shall be entitled to assign its rights hereunder to, and to cause all or any portion of its obligations hereunder to be assumed by, any direct or indirect subsidiary of Alcan incorporated in the United States of America. However Alcan shall remain liable on a joint and several basis with the assignee as regards any obligation so assumed. 26 27 4.4 This Agreement and all of the rights and benefits of the Executive hereunder are personal to the Executive, and may not be alienated, assigned or transferred by the Executive in whole or in part, voluntarily or involuntarily. 4.5 This Agreement shall enure to the benefit of and be binding upon the heirs, executors, administrators and successors of the parties hereto. 4.6 The benefits paid to the Executive under this Agreement are considered by Alcan to be in the nature of a retirement benefit. However, Alcan neither warrants nor guarantees that the benefits will be so regarded and so treated by third parties, including taxation authorities of the United States of America or Canada. 4.7 Any notice to be given hereunder shall be given in writing and may be given either personally or may be sent by registered mail, addressed in the case of the Executive to him at his last known place of residence and, in the case of Alcan Inc., at its principal place of business, 1188 Sherbrooke Street West, Montreal, Quebec, H3A 3G2, c/o the Secretary. 4.8 Pension benefits provided under this agreement are not subject to post-retirement pension augmentations. 4.9 Alcan will use its best endeavors at all times to ensure payment of the Retirement Benefit provided herein, but shall be under no obligation in that regard to set aside any amounts or make any contribution to any trust or other fund or establish any book reserve in the amount of the Retirement Benefit payable hereunder, in accordance with generally acceptable accounting practices. 4.10 This Agreement shall be construed in accordance with and governed by the laws of the State of New York. 27 28 IN WITNESS WHEREOF the parties hereto have duly executed this Agreement, with effect as of the day and year first above written, at the places and on the dates indicated below. ALCAN INC. Per: /s/ John R. Evans Per: /s/ Travis Engen ---------------------- ------------------------ John R. Evans Travis Engen Chairman of the Board Date: 12 March , 2001 Date: 12 March, 2001 ---------------------- ---------------------- Place: Montreal, Quebec Place: ---------------------- 28 29 SCHEDULE III CHANGE OF CONTROL AGREEMENT A G R E E M E N T Agreement made as of the 23rd day of February 2001, 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 Travis Engen (the "Executive"). WITNESSETH: WHEREAS, the Corporation and the Executive have entered into an Employment Agreement, dated the same date hereof (the "Employment Agreement") whereby the Executive has agreed to become the President and Chief Executive Officer of the Corporation; 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: 1.1 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 29 30 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 (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. 30 31 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 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. Notwithstanding the foregoing, should the Person referred to in paragraph 1.1 above include Mr. Martin Ebner or BZ Group Holding Limited, the reference to "twenty percent (20%)" in such paragraph shall be replaced with "thirty percent (30%)." 31 32 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; (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. 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 32 33 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; (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 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 33 34 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 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 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. 34 35 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 (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 35 36 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. 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. 36 37 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. 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. 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 37 38 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 and the Employment Agreement constitute 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 or the Employment Agreement. All references to any law shall be deemed also to refer to any successor provisions to such laws. 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. 38 39 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, such amounts shall be offset against any amounts that the Executive is entitled to under any other program, plan, agreement or statute, including without limitation the Employment Agreement. 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 or in the Employment Agreement. 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 Employment Agreement and 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. 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. 39 40 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 _______________________ /s/ Travis Engen _______________________ Travis Engen 40 41 SCHEDULE IV SUPPLEMENTAL DISABILITY PAYMENT The Employer will make such further payments to the Employee, or to his estate or legal representatives, as the case may be, as may be necessary over and above those provided for in Section 6 (c) of the attached Employment Agreement so that in the event of the Employee's Death or Disability he, or his estate or legal representatives, shall receive the equivalent of the Accrued Obligations as of the Date of Termination, and in the event of the Employee's Disability, he shall receive the equivalent of: (i) continuation of Base Salary as in effect immediately prior to the Date of Termination until the first anniversary of the Date of Termination, plus an amount equal to the Target Bonus for the year in which the Date of Termination occurs (assuming that the Target Bonus equals one hundred percent (100%) of the Employee's Base Salary as of the Date of Termination and all performance objectives have been met); and (ii) continuation of 50% of Base Salary for the period from the first anniversary of the Date of Termination through the Scheduled Termination Date, plus payment of 50% of the Target Bonus for each year following the year in which the Date of Termination occurred (assuming that the Target Bonus equals one hundred percent (100%) of the Employee's Base Salary as of the Date of Termination and all performance objectives have been met), provided that if the Scheduled Termination Date falls on or before the first anniversary of the Date of Termination, then the Employee shall not be entitled to any payments under this paragraph (ii). 41 42 SCHEDULE V CONFIDENTIALITY AGREEMENT To Alcan Aluminium Limited In consideration of your agreeing to employ him as your President and Chief Executive Officer, the undersigned Employee acknowledges and agrees that his employment by the Employer under this Agreement necessarily involves his understanding of and access to certain trade secrets and confidential information pertaining to the business of the Employer. Accordingly, the Employee agrees that during the Employment Period and for a period of two (2) years following the Date of Termination, he will not, directly or indirectly, without the prior written consent of the Employer, disclose or use for the benefit of any person, corporation or other entity, or for himself any and all files, trade secrets or other confidential information concerning the internal affairs of the Employer or its subsidiaries or affiliates, including, but not limited to, information pertaining to its clients, services, products, earnings, finances, operations, methods or other activities; provided, however, that the foregoing shall not apply to information which is of public record or is generally known, disclosed or available to the general public or the industry generally. Notwithstanding the foregoing, the Employee may disclose such information as required by law during any legal proceeding or to the Employee's personal representatives and professional advisers and, with respect to such personal representatives and professional advisers, the Employee agrees to inform them of his obligations hereunder and take all reasonable steps to ensure that such professional advisers do not disclose the existence or substance hereof. Further, the Employee agrees that he shall not, directly or indirectly, remove or retain, without the express prior written consent of the Employer, and upon termination of employment for any reason shall return to the Employer, any records, computer disks, computer printouts, business plans or any copies or reproductions thereof, or any information or instruments derived therefrom, arising out of or relating to the business of the Employer or obtained as a result of his employment by the Employer. Signed by the Employee as of February 23, 2001. /s/ Travis Engen ------------------------------------- Travis Engen 42 43 SCHEDULE VI NON-COMPETITION UNDERTAKING To Alcan Aluminium Limited In consideration of your agreeing to employ me as your President and Chief Executive Officer, I acknowledge and undertake that until the expiry of two (2) years following the termination of my employment with the Company, I will not be entitled to act as an employee, director of or officer of, advisor to or material investor in any corporation, partnership, person or other entity which carries on any business which is materially competitive with the Company's principal lines of business. Entities which carry on businesses which are so materially competitive include without limitation, those which carry on any business which relates to the mining or refining of bauxite, the production and sale of alumina or primary aluminum, the production and sale of aluminum products (such as can sheet, foil, litho sheet and other flat rolled products, wire and cable, castings and extrusions), the trading of aluminum, the production and sale of packaging products for tobacco, pharmaceutical, cosmetics, health care, food or beverage products or any line of business carried on by the Company and accounting for at least five percent (5.0%) of its consolidated assets or gross revenues at the time of the termination of my employment. Nevertheless, no such business shall be considered to be materially competitive unless it is carried on in any of the jurisdictions in which the Company carries on business at the time of the termination of my employment. I acknowledge that in view of the position of extreme trust and confidence attached to my position as Employee of the Company, this undertaking is reasonable in all respects and essential to the protection of the Company and its shareholders. I shall continue to be bound by its terms of this undertaking notwithstanding the termination of my employment for any reason. For the purposes of the foregoing: the "Company" means Alcan Aluminium Limited as well as its subsidiaries, affiliates and joint ventures, and "Material Investor" means the holder of more than five per cent (5.0% ) of the outstanding voting or equity shares, units or similar interests. Signed by the Employee as of February 23, 2001. /s/ Travis Engen --------------------------------------- Travis Engen 43 44 SCHEDULE VII INDEMNITY AGREEMENT BETWEEN ALCAN ALUMINIUM LIMITED, a corporation incorporated under the laws of Canada and having its head office in the City and District of Montreal, in the Province of Quebec (hereinafter referred to as "Alcan") AND TRAVIS ENGEN (hereinafter referred to as "the Employee") IN CONSIDERATION of the Employee consenting to act as a director, and continuing to act as a director, of Alcan, Alcan agrees that it shall indemnify the Employee in accordance with the conditions provided in this Agreement. 1. The terms "liability" and "expense" shall include, but shall not be limited to, costs, charges, counsel fees and disbursements, and amounts paid to settle claims, actions, suits or proceedings or to satisfy judgments, fines or penalties incurred by or on behalf of the Employee in respect of a claim, action, suit or proceeding as defined below. 2. The terms "claim, action, suit or proceeding" shall include any claim, action, suit or proceeding (whether civil, criminal, administrative or investigative) or any threat thereof, involving the Employee or to which the Employee is made party by reason of being, or having been, an employee or a director of Alcan or any one of its subsidiaries or affiliates (this shall be interpreted as including any organization, partnership, joint venture, trust, enterprise or entity under Alcan's direct or indirect control). 3. Except in respect of a claim, action, suit or proceeding by or on behalf of Alcan, Alcan shall, to the fullest extent permitted by law, indemnify the Employee against any and all liability and expense that may reasonably be incurred by the Employee in respect of any claim, action, suit or proceeding. 4. In respect of a claim, action, suit or proceeding by or on behalf of Alcan, Alcan shall, to the fullest extent permitted by law, indemnify the Employee against any and all liability and expense that may reasonably be incurred by the Employee in connection therewith. 5. If, prior to the final disposition of any claim, action, suit or proceeding, the Employee wishes to be reimbursed for expenses incurred, then, upon the application of the Employee 44 45 to Alcan and upon receipt of an undertaking by the Employee to repay such amount should it be determined upon such final disposition that the Employee was not entitled to indemnification, Alcan shall advance monies to the Employee to cover reasonable expenses actually incurred by the Employee. 6. If any income tax is deemed by any taxation authority to be payable by the Employee by reason of: (a) the value to the Employee of the undertaking by Alcan herein contained, and/or (b) any indemnity payment actually made to the Employee hereunder, then, Alcan shall, upon notice to such effect, pay to the Employee such amount or amounts as shall be necessary to save the Employee harmless from the burden of such income tax and any other income tax paid consequent to the operation of this Article 7. In the event that the Employee is assessed for income tax as aforesaid and Alcan makes any payment to the Employee pursuant to this Article, the Employee agrees to take any steps necessary to enable Alcan to contest, at its expense, the assessment of income tax. 7. The rights of indemnification provided in this Agreement shall be in addition to any rights to which the Employee may otherwise be entitled by statute, by-law, agreement, vote of shareholders of Alcan or otherwise. 8. In the event that this Agreement would otherwise be held inoperative as providing for indemnity to an extent greater than that permitted under the provisions of the Canada Business Corporations Act, then those of its terms which would be so affected shall be construed so as to provide indemnity to the maximum extent permitted by the said Act. 9. This Agreement may not be amended or modified in any manner except by a written agreement executed by the Employee and Alcan. 10. This Agreement shall be binding on Alcan, its successors and assigns and shall ensure to the benefit of the Employee and the legal representatives, heirs, successors and assigns of the Employee and shall continue notwithstanding that the Employee has ceased to be an employee or a director of Alcan. 12. 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. 45 46 IN WITNESS WHEREOF the parties hereto have duly executed this Agreement at the places and as of February 23, 2001. ALCAN ALUMINIUM LIMITED By: /s/ John R. Evans By: /s/ Travis Engen ------------------------- ------------------------- John R. Evans, Chairman Travis Engen
46 EX-10.17 6 m09446ex10-17.txt FINANCIAL ARRANGEMENTS KWITH JACQUES BOUGIE 1 ALCAN ALUMINIUM LIMITEE 1188, rue Sherbrooke Ouest Adresse postale Tel.: (514) 848-8000 LOGO Montreal (Quebec) H3A 3G2 C.P. 6090 Telec. : (514) 848-8115 Canada Montreal (Quebec) H3C 3A7 Telex: 05-25236 Canada Cable: Alcan
EXHIBIT 10.17.: FINANCIAL ARRANGEMENTS 16 February 2001 PERSONAL & CONFIDENTIAL Mr. Jacques Bougie Further to our discussions pertaining to your resignation as Chief Executive Officer and Director of Alcan Aluminium Limited, please find hereunder the details of the agreed upon financial arrangements. 1. EFFECTIVE DATE Even though your resignation took immediate effect on January 10th, 2001 your regular monthly compensation continues until 14 February. Effective 15 February 2001, you will be considered a non-active employee as per the customary practices. 2. SPECIAL BONUS The Board has awarded you a special bonus in the aggregate amount of US$3,962,140 in consideration of your extraordinary contribution to the Corporation over 20 years and, accrued but untaken vacation. This amount will be paid as follows: 2.1 TRANSFER TO NON-ACTIVE PAYROLL (PART TO THE SPECIAL BONUS) Effective 15 February 2001, you will be transferred to the non-active payroll at a salary rate of US$33,333 per month (US$400,000 p.a.) until 1 August 2003, i.e. for a total of 29.5 months. The maximum total amount paid on the non-active payroll will be US$983,333. At any time during the non-active period (15 Feb. 2001 to 31 July 2003) you may elect to stop these payments and be paid the remaining balance of the monthly payments in a lump sum. At the end of the non-active period, you will retire under the terms of the Alcan Pension Plan (APP) and the Alcan Supplemental Retirement Benefit Plan (ASRBP), but no later than 1 August 2003. In the event of death while still on the non-active payroll, the remaining unpaid balance of non-active payments will be paid as a lump sum to the beneficiary you designated under the Alcan Pension Plan. Page 1 [][] 2 ALCAN ALUMINIUM LIMITEE [ALCAN LOGO] 16 February 2001 2.2 A bonus of US$2,978,807 paid in a lump sum at the end of February 2001. You may not elect to accelerate or defer the date of this payment. In the event of your death, prior to 31 January 2002, the amount of US$2,978,807 will be paid to the beneficiary you designated under the Alcan Pension Plan. 3. IMPROVED PENSION As a further consideration to your past contribution to the Group the Board has increased your annual pension entitlement on 1 March 2001 (age 53,5833) by C$271,875. This additional pension is payable from Alcan's general revenues and is not subject to pension augmentations granted by the Company from time to time. You may elect to defer your pension commencement date but no later than your attainment of age 56. Should you make such an election, the amount of additional pension will be limited to the amount necessary to increase your regular pension benefit entitlement shown in your employment contract signed on 23 July 1999 (contract attached), under column "B" of Schedule B to C$950,000. At your pension commencement date, you will also receive a lump sum payment equal to the excess of (A) US$2,402,860 increased with interest at the rate of 6.25% p.a. from 1 March 2001 over (B) the actuarial value of the additional pension. The amount of additional pension may be commuted into a lump sum at any time up to age 56. In the event of death prior to your pension commencement date a lump sum of US$2,402,860 increased with interest at the rate of 6.25% p.a. from 1 March 2001 will be paid to the beneficiary you designated under the Alcan Pension Plan. Upon your death after your pension commencement date, 60% of the amount of additional pension will be paid to your surviving spouse for her lifetime. 4. OTHER REGULAR PAYMENTS -- EPA PAYMENT (PERIOD 1/1/00 TO 31/12/00) The amount has been determined by the Board in accordance with the rules of the Plan and will be paid at the end of February 2001. The amount payable is US$934,400, which will be converted into 23,250 DSUs. -- EPA PAYMENT (PERIOD 1/1/01 TO 15/2/01) As provided under the Plan, an amount of US$106,250 representing 100% of the target bonus will be paid at the end of February 2001. -- MTIP PAYMENT (PERIOD 1/1/99 TO 31/12/00) As agreed, this program is deemed cancelled and no other payments are due or to be paid thereunder. Page 2 [][] 3 ALCAN ALUMINIUM LIMITEE LOGO 5. EMPLOYEE BENEFITS AND PERKS While on the non-active payroll for the purposes referred to above, the following miscellaneous benefits will continue to be available to you, but will be calculated, where applicable, on the specified reduced rate of compensation ($33,333 p.m.): -- Medical Plan -- Savings Plan -- Pension Plan (APP and ASRBP) - pension amount dealt with as referred to above (par. 3) Life Assurance Plan -- Perks (auto, club memberships, financial counseling) The following benefits cease on 15 February -- Eligibility for vacation accrual -- Eligibility for stock option -- Short and long-term disability programs Post retirement benefits normally available to all employees will be provided on retirement date. 6. STATUS OF STOCK OPTIONS AND DEFERRED SHARE UNITS (DSUP) STOCK OPTIONS (OUTSTANDING OPTIONS) As you are eligible for retirement on 15 February 2001, the retirement provision of the Plan applies; that is, you may exercise any outstanding options on the earlier of 14 February 2006 (5 years) or to the end of the original period. All outstanding stock option loans for "A" options will be due and payable on the earlier of 14 February 2006 or on original maturity date. Furthermore, all waiting and holding periods are waived. 7. DEFERRED SHARE UNIT PLAN (DSUP) While on the non-active payroll the provision of the Plan continues to apply. For purposes of the DSUP plan, you will be considered retired on the date you start receiving a pension from APP. Thus the distribution date of your accumulated DSUs will be at the end of the year following the year of retirement. 8. RELEASE AND NON COMPETE AGREEMENTS The Board requests that you sign below to confirm your agreement with the foregoing as being the definitive settlement of all outstanding claims and rights of action which you may have against the Company and to confirm certain related undertakings on your part. Page 3 [][] 4 ALCAN ALUMINIUM LIMITEE LOGO On behalf of the Board of Directors, I thank you for your contribution and dedication to the Group and wish you every success in your future endeavors. /s/ John Evans ----------------------------------------------- John Evans Chairman of the Board I accept the terms and conditions set in this letter and in consideration thereof: 1. I give the Company full and final discharge and release and hereby waive all claims and demands, including for damages and costs, actions and causes of actions whatsoever, whether contractual or non-contractual arising out of or in connection with the termination of my employment contract. 2. I acknowledge that my obligations with respect to the confidentiality of information regarding the Company and its business, affairs and assets shall remain binding and that I will not use any such information for the benefit of any party other than the Company. 3. I acknowledge that until December 31, 2002 I will not be entitled to act as an employee, director of or officer of, advisor to or material investor in any corporation, partnership, person or other entity which carries on any business which is materially competitive with the Company's principal lines of business. Entities with such materially competitive businesses include those in respect of which a substantial part of the assets or revenues relate to: (i) The mining or refining of bauxite, the production and sale of alumina or primary aluminum, the production and sale of aluminum products (such as can sheet, foil, litho sheet and other flat rolled products, wire and cable, castings and extrusions), the trading of aluminum or the production and sale of packaging products for tobacco, pharmaceutical, cosmetics, health care, food or beverage products. Since this paragraph 3 is intended to protect the interests of the Company and its shareholders, I understand that the Company, acting through its Board of Directors, will consider granting a waiver in respect of any opportunity I may have which would be in technical contravention of the foregoing but would not make my knowledge and wisdom with respect to the Company and its various businesses available to any entity which would be likely to have the opportunity to use same in a manner which would be materially detrimental to the interests of the Company or its shareholders. In this regard, I further confirm my understanding Page 4 5 ALCAN ALUMINIUM LIMITEE LOGO 16 FEBRUARY 2001 that should any such waiver be refused by the Company, I shall have the right to submit my request, in writing, with a copy of this letter agreement, to an independent third party who shall be, unless the Company and I otherwise agree, a retired judge of the Superior Court or Court of Appeal of the Province of Quebec. The third party shall take such steps as he or she considers reasonable to inform himself or herself as to the full nature of my request as well as the business and interests of the Company (including meeting with me and representatives of the Company should he or she consider it to be appropriate) provided that the decision shall be definitive and binding and rendered within no more then 14 days of the third party's acceptance to act in this matter. The expenses relating to the mandate of the third party shall be paid by the Company. 4. For the purposes of the foregoing, the "Company" means Alcan Aluminium Limited as well as its subsidiaries, affiliates and joint ventures. /s/ Jacques Bougie ----------------------------- Jacques Bougie Copies to: Travis Engen Gaston Ouellet Page 5 EX-13 7 m09446ex13.txt ANNUAL REPORT 1 Exhibit 13 [ALCAN LOGO] IMAGINATION MATERIALIZED . . . Alcan Inc., 2000 Annual Report 2 [ALCAN LOGO] IMAGINATION MATERIALIZED . . . Innovative Aluminum and Packaging Solutions Worldwide Alcan Inc., 2000 Annual Report 3 PROFILE Alcan Inc., a Canadian corporation, is a $13-billion organization and the parent company of an international group operating in the aluminum and packaging sectors. Alcan's unique strengths lie in its expansive network of operations with 53,000 dedicated employees, a global customer base, innovative products and advanced technologies. With a strong commitment to the highest standards in all aspects of its operations, the Company is a valued corporate partner to its stakeholders. ALCAN IS: (bullet) A strongly competitive producer of primary metal through its unique combination of power generation capabilities, raw materials management and low-cost smelting capacity; (bullet) A global force in aluminum fabrication, with low-cost rolling operations, leadership in can stock and a wide array of value-added engineered products; (bullet) The largest converter of flexible packaging in Europe and one of the world's leading suppliers of packaging materials for the fast moving consumer goods, pharmaceutical and cosmetics industries; (bullet) An innovative solutions provider through the development of strategic customer partnerships such as in the automotive/transportation sector. Alcan Inc. is a multicultural, multilingual organization with a presence in some 40 countries. Alcan's shares are traded internationally and are listed on the New York, Toronto, London, Frankfurt and Swiss stock exchanges. The word ALCAN and the Alcan symbol are registered trademarks in more than 100 countries. HIGHLIGHTS OF THE YEAR Highlights of the Year 1 Message to Shareholders 2 The Alcan Group's Businesses at a Glance 6 Imagination Materialized 8 Corporate Citizenship 18 Management's Discussion and Analysis 22 Financial Section 45 Corporate Governance 77 Directors and Officers 78 Shareholder Information 79 Glossary 80 Company Information 81 ALCAN'S NAME CHANGE ON MARCH 1, 2001, ALCAN ALUMINIUM LIMITED CHANGED ITS NAME TO ALCAN INC. THE NEW NAME WAS SELECTED BY THE BOARD OF DIRECTORS PURSUANT TO THE AUTHORITY CONFERRED BY THE SHAREHOLDERS' RESOLUTION, WHICH WAS ADOPTED ON NOVEMBER 22, 1999. THE INFORMATION PRESENTED THROUGHOUT THIS REPORT INCLUDES DATA OF ALUSUISSE GROUP LTD (ALGROUP) ONLY SINCE THE COMPLETION OF THE MERGER IN OCTOBER 2000. 4 1 > Highlights of the Year
2000 1999 1998 ------ ----- ----- Financial Data (in millions of US$, except where indicated) Sales and operating revenues 9,148 7,324 7,789 Net income 618 460 399 Economic Value Added (EVA(R))(1) Excluding purchase accounting adjustments(2) 153 (111) (285) Including purchase accounting adjustments(2) 19 N/A N/A Return (%) on average common shareholders' equity 10 9 7 Total assets (at year-end) 18,407 9,849 9,901 Capital investments 1,735 1,298 877 Ratio of borrowings to equity (at year-end) 33:67 21:79 24:76 Per common share (in us$) Net income 2.45 2.06 1.71 Dividends 0.60 0.60 0.60 Price on NYSE (at year-end) 34.19 41.38 27.06 ------ ----- ----- Operating Data (in thousands of tonnes) Ingot products shipments(3) 974 859 829 Rolled products shipments(4), (5) 2,183 1,924 1,892 Aluminum used in engineered products and packaging 352 302 220 Primary aluminum production 1,562 1,518 1,481 ------ ----- ----- Average LME Three-Month Price (in US$/tonne) 1,567 1,388 1,379 ------ ----- -----
1 EVA is a registered trademark of Stern Stewart & Co. 2 Goodwill and asset revaluation related to the algroup merger, as well as depreciation and amortization. 3 Includes primary and secondary ingot and scrap, as well as shipments from metal trading activities. 4 Includes conversion of customer-owned metal. 5 Includes foil products for 1998 only; foil operations have been reclassified to the packaging segment for 1999 and 2000. Net Income and Average LME Three-Month Price Rolled Products Shipments(dagger) [GRAPHIC] [GRAPHIC] [] Net Income [] Rolled products shipments (Before extraordinary item) [] Rolled products shipments adjusted for acquisitions and divestments With higher metal prices, Rolled products shipments have continued progress under the increased by more than 40% Full Business Potential program over the last five years. and the inclusion of algroup for the fourth quarter, net income (dagger) includes conversion of in 2000 was 34% higher than in customer-owned metal and the previous year. includes foil products for 1996, 1997 and 1998; foil operations have been reclassified to the packaging segment for 1999 and 2000. 5 2 MESSAGE TO SHAREHOLDERS [PICTURE] John R. Evans, Chairman of the Board OUR STRATEGIC PRIORITIES > Manage a smooth transition to the new Alcan. > Surpass our targets for earnings improvement programs and merger synergies. > Position Alcan as the global partner of choice in both aluminum and packaging, perceived as NO. 1 in the eyes of customers. > Maintain profitable growth momentum and achieve our governing objective to maximize shareholder value. 6 3 > Message to Shareholders The year 2000 ended on a high note with our successful conclusion of the Alcan-algroup merger. By combining the complementary strengths of these two outstanding organizations, the new Alcan has emerged as a dynamic global leader in both aluminum and packaging with annual revenues of approximately $13 billion - -- plus exceptional upside potential in terms of future growth and value creation. ENHANCED COMPETITIVE POSITION -- NEW GROWTH PLATFORM With 53,000 employees in some 40 countries, Alcan benefits from enhanced competitive positions in key sectors such as: (bullet) Primary metal -- maintaining a low-cost position in primary aluminum; (bullet) Aluminum fabrication -- with low-cost, high-quality rolling operations, plus leadership in can stock globally and value-added products in Europe; (bullet) Automotive -- where we now enjoy industry leadership in both Europe and North America as a provider of aluminum solutions to major automakers such as Audi/Volkswagen, Ford and General Motors; (bullet) Packaging -- a significant new growth platform for Alcan, underpinned by established leadership in food flexible, pharmaceutical, cosmetics/personal care and other specialty areas. In short, the new Alcan is a cutting-edge organization with a remarkable combination of talented people, innovative products and advanced technologies. It is uniquely equipped to devise creative solutions to meet customers' needs -- a capability we like to think of as Imagination Materialized. INCREASED EARNINGS Continued progress in Alcan's Full Business Potential (FBP) earnings improvement program, increased fabricated products volumes and higher average metal prices contributed to a significant increase in earnings for 2000. The Company generated consolidated net income of $618 million, an increase of 34% from 1999. Those results incorporate the operations of the former algroup for the fourth quarter of 2000, and include non-cash, merger-related charges of $60 million. SYNERGIES GREATER THAN ANTICIPATED The merger integration process got off to a running start and is progressing very well. Management now expects total synergies of some $200 million, 33% higher than originally anticipated. Furthermore, integration costs will be considerably lower, $100 million versus an earlier estimate of $150 million. [PICTURE] Travis Engen, Alcan's new President and CEO Effective March 12, 2001, Travis Engen is appointed Alcan's new President and Chief Executive Officer (CEO). Prior to assuming this post, Mr. Engen was chairman and chief executive of ITT Industries, Inc. He has been a member of Alcan's Board of Directors since 1996. Expressing the unanimous support of the Board for the appointment, Dr. John Evans, Chairman, said Mr. Engen is "a proven international business leader with a solid record of achievement, a wealth of manufacturing know-how and a reputation for nurturing successful customer relationships." He noted that Mr. Engen already had gained a strong appreciation of Alcan's global business from his service as a member of the Board. "Sometimes, you are fortunate to find the optimal candidate close to home." 7 4 > Message to Shareholders CUSTOMER-FOCUSED BUSINESS GROUPS Alcan's customer-focused business groups -- Primary Metal; Aluminum Fabrication, Americas and Asia; Aluminum Fabrication, Europe; and Packaging -- are responsible for value creation within their respective markets. They provide the business leadership for growth and assume the operating oversight to deliver profitably and meet customer, shareholder and employee expectations. CONTINUED PROGRESS ON PROFIT IMPROVEMENT The continued progress of profit improvement programs is impressive throughout Alcan and former algroup operations. Alcan's FBP program has achieved $580 million over the four years since its inception, including $150 million during 2000. Alcan also showed substantial improvement in terms of Economic Value Added (EVA(R)) for the year under review, generating Positive EVA of $153 million (excluding the merger-related revaluation of assets and goodwill) compared with a Negative $111 million in 1999. An even more aggressive earnings improvement program, which now includes the former algroup operations, has been adopted for 2001 and 2002, with targets based on EBITDA (earnings before interest, taxes, depreciation and amortization), another key measure of financial performance. 50th ANNIVERSARY ON NYSE The year 2000 also marked the 50th anniversary of Alcan's listing on the New York Stock Exchange (NYSE), on June 1, 1950. Key customers as well as senior Alcan executives and customer-relationship managers were in New York to celebrate the anniversary -- and to hear an announcement confirming that the Alcan-algroup merger would proceed. Information regarding other significant milestones and achievements of 2000 -- including the successful start-up of the new smelter at Alma, Quebec, the acquisition of Aluminium of Korea Limited and the ramp-up of operations at our Pindamonhangaba rolling mill in Brazil -- can be found in this document, in the messages of the four business group presidents. ACKNOWLEDGEMENTS On January 10, 2001, the Board of Directors accepted with regret the resignation of Jacques Bougie, who had served as President and Chief Executive Officer (CEO) for seven years. On February 26, 2001, the Board announced the appointment of Travis Engen, formerly chairman and chief executive of ITT Industries, Inc., as Alcan's new President and CEO, effective March 12, 2001. During the transition period, we were able to forge ahead with the merger-integration process and the implementation of other strategic initiatives, thanks to the efforts of a very strong senior management team overseen by interim President and CEO W. R. C. Blundell. Once again, in the year 2000, it was the drive and commitment of people that made possible our accomplishments. On behalf of the Board, I'd like to thank employees throughout the organization for their contributions to the success of their respective business units and functions, and for helping bring about a smooth, speedy integration. If we are to achieve our goals and realize our full potential, we must strive to be the best at everything we decide to do by being value- and customer-driven, results-oriented, proactive, innovative and open-minded. People clearly remain the single most important asset of Alcan. 8 5 > Message to Shareholders I would also like to acknowledge the guidance and support received from other members of the Board of Directors during what can rightly be termed a historic year for Alcan. Special thanks are due to the directors who have retired from the Board: Warren Chippindale, Eleanor R. Clitheroe, Allan E. Gotlieb, Sir George Russell and, of course, Jacques Bougie, each of whom has made a valuable contribution. We welcome four new directors who joined our Board following completion of the Alcan-algroup merger: W. R. C. Blundell, who is the retired chairman of Manulife Financial and earlier served as chairman and CEO of GE Canada; Martin Ebner, chairman of the board of directors of BZ Group Holding Limited and chairman of the board of directors of Lonza Group Ltd.; Rupert Gasser, executive vice president of Nestle S.A. and a director of various companies within the Nestle group; and Willi Kerth, a director of Alusuisse Swiss Aluminium Ltd. OUTLOOK The Alcan-algroup merger represents an exciting new chapter in our corporate history -- another major step in the pursuit of our governing objective, which is to maximize shareholder value. To properly reflect the increasingly diverse nature of its activities -- particularly in the packaging sphere -- the Company's name has been changed from Alcan Aluminium Limited to Alcan Inc., as of March 1, 2001. Although weaker economic conditions, particularly in the United States, reduced near-term demand for aluminum last year, the Company should continue to benefit from strategic actions taken previously and those currently in progress as 2001 unfolds. Indeed, going forward, Alcan expects to realize significant benefits from its aggressive profit-improvement initiatives as well as the positive impact of merger synergies. The Board is strongly supportive of the Company's strategic direction and has full confidence in the ability of the management team to successfully implement that strategy, in order to achieve continued profitable growth and enhanced shareholder value. [SIGNATURE] JOHN R. EVANS Chairman of the Board March 1, 2001 JACQUES BOUGIE: LASTING CONTRIBUTIONS In accepting the resignation of Jacques Bougie, effective January 10, 2001, the Board of Directors expressed its appreciation for the distinguished leadership and lasting contributions Mr. Bougie made to Alcan during a career that spanned more than 20 years -- including 10 years as President during seven of which he also served as CEO. "From the pivotal repositioning of Alcan's assets to the drive to realize the full potential of our operations and the evolution of the Company into a global leader in both aluminum and packaging, Mr. Bougie certainly made his mark," the Board noted. "He leaves Alcan at a new level of performance with enhanced opportunities for the future. We wish him and his family well." 9 6 THE ALCAN GROUP'S BUSINESSES AT A GLANCE Alcan has a very clear strategic focus, aimed at profitable growth, as evidenced by certain key accomplishments during 2000. Alcan's Total Aluminum Volume+ GRAPH In thousands of tonnes Alcan's EBITDA from Operations GRAPH In millions of US$ Alcan's Economic Value Added++ GRAPH In millions of US$ + Total aluminum volume includes ingot and rolled products shipments, conversion of customer-owned metal as well as aluminum used in engineered products and packaging. ++ EVA excluding algroup purchase accounting adjustments. 10 A GLOBAL PRESENCE [MAP] 11 7 > The Alcan Group's Businesses at a Glance > NET INCOME was up 34%. > THE MERGER with algroup was successfully completed and post-merger integration is proceeding very well with expected SYNERGIES INCREASED by 33%, from $150 million to $200 million. > ECONOMIC VALUE ADDED (EVA), excluding purchase accounting adjustments, was $153 million, a $264-MILLION IMPROVEMENT over 1999. > Alcan has achieved $580 MILLION towards its five-year, $1-billion FULL BUSINESS POTENTIAL (FBP) program. The balance has been incorporated into a more aggressive EBITDA earnings improvement program for 2001 and 2002. > Operations at the new 400-kt annual capacity SMELTER IN ALMA, QUEBEC, were successfully started up. When in full operation later this year, this state-of-the-art smelter will be ONE OF THE LOWEST COST smelters in the world. > The integration of the newly acquired ALUMINIUM OF KOREA LIMITED with the operations of Alcan Taihan Aluminum Limited is well underway and positions Alcan as the LOWEST COST PRODUCER of can sheet in Asia. > Following the completion of the expansion of the Pindamonhangaba rolling mill in BRAZIL, Alcan reached A NEW RECORD IN RECYCLING of used beverage cans with 29% OF ALL CANS RECYCLED in Brazil. > At 1.6 MT, PRIMARY METAL PRODUCTION reached its best year ever, with record third-party sales in North America and a major improvement in on-time delivery. > CONTINUOUS IMPROVEMENT in our management systems was A PRIME FOCUS in 2000. This approach led to better ENVIRONMENTAL CONTROL PRACTICES and further positive changes in workplace HEALTH AND SAFETY. > Alcan and some 20 other leading metals and mining companies joined together to launch an E-COMMERCE MARKETPLACE, now known as QUADREM. This initiative will be key to REFINING ALCAN'S GLOBAL PROCUREMENT strategies and to maximizing our FBP. > ROLLED PRODUCTS SHIPMENTS WORLDWIDE, at 2.2 MT, increased over 1999, with major improvements in sheet shipments in Europe. > FABRICATED PRODUCTS SHIPMENTS, including tolling, for Americas and Asia increased 11% over 1999 levels to a RECORD 1.6 MT. > ALCAN'S PACKAGING OPERATION is now one of the world's largest in its category with over $3 BILLION in ANNUAL SALES. > Alcan is a WORLD LEADER IN AUTOMOTIVE ALUMINUM -- the fastest growing market for aluminum -- with leadership positions in North America and Europe. 12 Primary Aluminum Production Operating Segment's EBITDA Economic Value Added(1) [GRAPH] [GRAPH] [GRAPH] in thousands of tonnes In millions of US$ In millions of US$ Operations 2000 Highlights Primary - ------------------------------------------------------------------------------------------------- Metal (bullet) 15 SMELTERS in 7 countries with over (bullet) 1.6 Mt of ingot produced. 2.2 Mt of ultimate rated capacity, (bullet) 1.0 Mt of ingot purchased. including the Alma, Quebec, smelter. (bullet) $1.3 billion (758 kt) in primary ingot third-party sales. (bullet) 8 ALUMINA PLANTS in 5 countries with (bullet) 3.9 Mt of alumina hydrate produced. 5.3* Mt of annual capacity, including (bullet) $403 million in alumina and chemicals specialty chemicals. third-party sales. (bullet) 9 BAUXITE MINES/DEPOSITS in 6 countries (bullet) 9.4 Mt used. with 422* Mt of proved ore reserves. (bullet) $100 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 $99 million in sales. * AS AT JANUARY 2001, REFLECTS 100% OWNERSHIP OF GOVE ASSETS IN AUSTRALIA. Operations 2000 Highlights - ----------------------------------------------------------------------------------------------------- (bullet) 33 FOOD FLEXIBLE and FOIL PLANTS. (bullet) $922 million in sales. Packaging (bullet) 43 PHARMACEUTICAL, COSMETICS and (bullet) $210 million in sales. PERSONAL CARE PLANTS. (bullet) 9 SPECIALTY PACKAGING PLANTS. (bullet) $84 million in sales. (bullet) TOTAL: (bullet) $1.2 billion in sales. Over 85 plants in 14 countries. Third-Party Revenues(2) Operating Segment's EBITDA(2) Economic Value(3) Added(1), (2) [GRAPH] [GRAPH] [GRAPH] In millions of US$ In millions of US$ In millions of US$ (1) Eva excluding algroup purchase accounting adjustments. (2) Excludes foil products for 1998 only; foil operations have been reclassified to the packaging segment from the fabricated products segments for 1999 and 2000. Rolled Products Shipments(3) Operating Segment's(3) EBITDA Economic Value Added(1) [GRAPH] [GRAPH] [GRAPH] In thousands of tonnes In millions of US$ In millions of US$ Aluminum Operations 2000 Highlights Fabrication, -------------------------------------------------------------------------- Americas (bullet) 17 ROLLED (sheet and light gauge) (bullet) $3.4 billion and Asia PRODUCTS PLANTS. (1,487 kt) in sales, including (bullet) 11 ENGINEERED PRODUCTS PLANTS*. conversion of customer-owned metal. (bullet) TOTAL: (bullet) $0.5 billion (161 kt) 28 plants in 7 countries. in sales. (bullet) 1.6 Mt of aluminum fabrication in Alcan facilities, including conversion of customer-owned metal. (bullet) $3.9 billion in sales, including conversion of customer-owned metal. * INCLUDES CABLE, EXTRUSIONS AND ENGINEERED CAST PRODUCTS. Aluminum Operations 2000 Highlights Fabrication, --------------------------------------------------------------------------- Europe (bullet) 11 ROLLED (sheet and surface (bullet) $1.7 billion (696 kt) finished) PRODUCTS PLANTS. in sales, including conversion of customer-owned metal. (bullet) 26 ENGINEERED PRODUCTS PLANTS**. (bullet) $0.2 billion (16 kt) in sales. (bullet) TOTAL: (bullet) 712 kt of aluminum 37 plants in 11 countries. fabrication in Alcan facilities, including conversion of customer-owned metal. (bullet) $1.9 billion in sales, including conversion of customer-owned metal. ** Includes extrusions, auto systems and components, sales and service centres and mass transportation systems throughout Europe as well as composites worldwide (including china and the U.S.). Rolled Products Shipments(3) Operating Segment's EBITDA Economic Value(3) Added(1) [GRAPH] [GRAPH] [GRAPH] In thousands of tonnes In millions of US$ In millions of US$ (3) Includes foil products for 1998 only; foil operations have been reclassified to the packaging segment for 1999 and 2000.
13 8 IMAGINATION MATERIALIZED PICTURE The butterfly model on this page and on the cover of this report was created with aluminum, plastic, paperboard and glass materials. Alcan -- providing global aluminum and packaging solutions that turn today's ideas into tomorrow's innovations. Every good idea needs a partner to see it through. The new Alcan is a cutting-edge organization with a remarkable combination of talented people, innovative products, advanced technologies and a decidedly customer-focused culture. So whatever the challenge -- be it contributing to the design of a more fuel-efficient and environmentally friendly automobile, engineering a sophisticated new component or coming up with a clever new packaging concept for pharmaceutical or food products -- look no further. Alcan -- providing global aluminum and packaging solutions that turn today's ideas into tomorrow's innovations! 14 9 > Imagination Materialized > PRIMARY METAL Focuses Alcan's global bauxite, alumina, power-generation and smelting assets on the production of primary, value-added aluminum in the form of sheet ingot, extrusion billet, wire bar and foundry ingot for other Alcan plants or sold to third-party customers serving the transportation, building and construction, consumer goods and machinery markets. > ALUMINUM FABRICATION, AMERICAS AND ASIA Provides high-quality sheet and light gauge rolled products as well as rod, cable, wire, extrusions and engineered cast products to customer-partners that range from the building and construction, and durable goods industries to major automakers and global manufacturers of beverage cans. > ALCAN PACKAGING Is one of the world's largest specialty packaging groups and ranks among the leaders in supplying most consumer packaging markets; food, pharmaceutical, cosmetics/personal care, and tobacco. It offers a variety of packaging solutions based on plastics, paperboard, aluminum, glass and other materials. > ALUMINUM FABRICATION, EUROPE Serves a number of European markets with advanced and value-added engineered products, including extrusions and composites, automotive systems and components, platforms for rapid-transit and high-speed rail vehicles as well as rolled products such as lithographic sheet and industrial plate. 15 10 PRIMARY METAL PICTURE Emery P.Leblanc President, Primary Metal "Alcan's Primary Metal group performed exceptionally well in 2000, achieving financial and operating results that exceeded expectations by a considerable margin, with EBITDA of $994 million compared to $557 million in 1999. Results for the latest year include an additional $75 million in earnings improvements (excluding restarts) realized as part of the Full Business Potential program. Noteworthy, too, is the fact that the final quarter of 2000 marked our sixth consecutive EVA-positive quarter. It was also a year of historic milestones, highlighted by the safe start-up of our new Alma, Quebec, smelter in October; permanent closure of the 57-year-old smelter at nearby Isle-Maligne, Quebec; and, of course, integration of the global primary metal operations of Alcan and algroup, which began during the fourth quarter. The majority of our facilities, including 11 of 15 smelters as well as three alumina refineries, posted production records for 2000, and third-party metal sales in North America reached an all-time high -- attesting to Primary Metal's status as a supplier of choice. I am pleased to report that we were also able to maintain our solid performance in employee health and safety and make further progress in terms of addressing environmental issues. These are top priority areas that figure prominently in any evaluation of the group's performance. Looking ahead to 2001, strategic priorities include: aggressively pursuing the merger synergies; accelerating the ramp-up of Alma; capitalizing on opportunities to reduce procurement costs through the new Quadrem e-commerce marketplace; further enhancing our safety record; setting new standards of environmental performance; and achieving the group's ambitious targets for profit improvement. Our efforts in that regard were bolstered by the acquisition, subsequent to year-end, of the remaining 30% of the Gove alumina refinery and related bauxite mine in Australia. Our aim is to continue growing Alcan's Primary Metal business and creating value for customers and shareholders." 16 11 > Primary Metal COMPLETED ALMA PROJECT EXPECTED TO DELIVER $250 MILLION IN EBITDA IMPROVEMENT The Primary Metal group is striving to achieve an accelerated start-up of its new Alma, Quebec, smelter complex in order to begin realizing the substantial benefits that will accrue from this strategic investment. The state-of-the-art aluminum smelter, originally planned with an annual production capacity of 375,000 tonnes, will now be able to produce 400,000 tonnes, further enhancing Alcan's competitiveness by delivering quality primary metal at operating costs among the lowest in the world. Once fully up and running, it is expected to generate EBITDA of approximately $250 million per year at a metal price of $1,500 per tonne. The complex also includes a casting centre that will produce value-added ingot products for high-growth market segments such as automotive. A milestone in the realization of the project occurred on October 21, 2000, when the first of the new facility's 432 reduction cells was energized, marking the initial start of potroom operations. Work on the commissioning of the remaining cells, along with equipment and operations in other parts of the plant, was in full swing by year-end. [PICTURE] When in full production, Alcan's Alma, Quebec, smelter will also produce foundry T ingots for the automotive industry. Launching production at a massive complex like Alma -- with its kilometre-long central potline --requires meticulous planning and careful coordination. At the peak of activity during the autumn of 2000, more than 3,000 production employees and construction workers were busy on site. However, thanks to the extraordinary efforts of everyone involved, the start-up has so far proceeded swiftly and safely. As well as being one of the most cost-efficient smelters in the world, Alma was designed to establish a new standard of excellence in terms of the level of environmental protection it affords employees and the surrounding community. This reflects Alcan's conviction that responsible corporate citizenship is crucial to our overall success. GOVE ACQUISITION YIELDS IMMEDIATE PAYOFF PLUS PROMISE OF FUTURE GAINS The Gove alumina refinery and related bauxite mine in Australia represent a significant competitive advantage -- for now and for the future. In January 2001, Alcan acquired outright ownership of the world-scale Australian complex, which has a current annual capacity of 1.8 million tonnes of low-cost alumina. This has enabled the Primary Metal group to immediately realize a further reduction in its average alumina costs, while gaining access to 100% of Gove's substantial, low-cost expansion potential. 17 12 ALUMINUM FABRICATION, AMERICAS AND ASIA PICTURE Brian W. Sturgell President, Aluminum Fabrication, Americas and Asia "Underscoring Alcan's international growth strategy, the Aluminum Fabrication, Americas and Asia group developed new capacity and capabilities during 2000, helping solidify our leadership in the global rolling market. We significantly enhanced our presence in the rapidly growing markets of South America and Asia, while improving our competitive position in North America through a focus on manufacturing excellence and value-creating supply alliances with customers. The group shipped a record 1.6 million tonnes in 2000, an increase of 11% over 1999 -- in markets where total consumption increased only 3.5%. Key to this success was a 52% increase in sales at our recently expanded and improved Pindamonhangaba (Pinda), Brazil, rolling complex. In addition, our Korean operations acquired the facilities of Aluminium of Korea Limited (Koralu), providing Alcan with new advanced-technology, globally competitive, rolling operations to capitalize on the growing Asian market. We also made further inroads in the automotive sector, where aluminum in general - -- and Alcan in particular -- continue to strengthen their market position. The group's profitable growth is the result of our strategic investments and of our focus on differentiating ourselves from competitors by adding value to customers' operations and providing superior quality-and-service solutions. Critical to our continued success are creativity and human resources -- the 7,500 highly-motivated men and women of the Aluminum Fabrication, Americas and Asia group who have demonstrated the outstanding abilities required to sustain our positive momentum. In 2001, we expect our business group will continue to grow profitably as we aggressively pursue manufacturing excellence and superior service solutions." 18 13 > Aluminum Fabrication, Americas and Asia RECYCLING: A BIG PART OF ROLLED PRODUCTS BUSINESS Recyclability is one of aluminum's greatest attributes. So it makes sense that recycling plays an important role in the activities of Aluminum Fabrication, Americas and Asia. Our North American recycling operations handled a record 23.8 billion used beverage cans (UBCs) during 2000 -- representing nearly four out of every 10 aluminum beverage cans recycled in the United States. Elsewhere, the group's state-of-the art recycling plant in Brazil handles approximately 50% of all UBCs recovered in that country. Needless to say, Alcan's conversion of all those used cans into new, high-quality rolled products conveys significant environmental, energy and economic benefits. Can sheet continues to be the largest global market in the rolled products category. And as a result of strategically targeted modernization and capacity-related investments in Brazil and Korea, we have extended our global leadership position in this crucial segment. INDUSTRIAL PRODUCTS -- THE SUPPLIER OF CHOICE Alcan also has emerged as the supplier of choice in the industrial products category. Over the past decade, the group's sales in this segment have increased at a compounded annual rate of 24.2% -- four times faster than the industry. A recent customer survey conducted by the National Association of Aluminum Distributors ranked Alcan first in seven of 10 customer-satisfaction categories and No. 1 overall, reinforcing Alcan's continued commitment to be the supplier of choice in these markets. PLUGGED IN TO ELECTRIC UTILITY CUSTOMERS Strong customer alliances have generated increased value for Alcan products and service among customers in the electrical cable market. We have expanded our position with electric utility customers through several long-term supply contracts. Also, demonstrating its active commitment to the environment, the North American cable unit became the first business unit in the group to obtain ISO-14001 registration at all its seven plants. AUTOMOTIVE The Alcan-algroup merger brought together two of the world's most successful and innovative suppliers of lightweight automotive solutions. A new strategic unit called Alcan Global Automotive Solutions, with offices in Detroit and Zurich, works in close collaboration with our fabrication groups and major automakers to accelerate the development of lighter and more fuel-efficient aluminum-intensive vehicles. Results of Alcan's automotive developments in North America were highly visible in 2000, with the introduction of General Motors' new GMC Yukon and Chevrolet Suburban sport utility vehicles, which boast the first aluminum rear liftgates built in North America, and the unveiling of the Precept and Prodigy concept cars from GM and Ford, respectively. Alcan's Alumineering(SM) know-how figured prominently in both concept cars, which were developed under the Partnership for a New Generation of Vehicles (PNGV), a U.S. government-industry program, to demonstrate that producing safe, environmentally friendly automobiles, capable of delivering up to three times the gas mileage of today's typical family sedan, is an achievable goal. These successful partnerships with leading Detroit automakers enable us to differentiate ourselves by underscoring the fact that Alcan is not only a supplier of metal, but rather a provider of solutions -- solutions aligned with the value goals of our automotive customers as well as those of society. 19 14 ALUMINUM FABRICATION, EUROPE PICTURE Richard B. Evans President, Aluminum Fabrication, Europe "By quickly putting an experienced transition team in place, Aluminum Fabrication, Europe was able to move promptly following completion of the merger last October to identify -- and begin capitalizing on -- synergies stemming from the merger. It is within our extensive European fabricating operations, where the greatest opportunities exist for system optimization and profit improvement. Despite the intensive integration activities and inherent disruptions placed on our management teams, many of our European business units improved their performance during the integration. The rolled products sector, led by our Norf facility in Germany, set overall and numerous individual shipment records. Throughout the Aluminum Fabrication, Europe group, continued progress was made on improving business fundamentals, including such areas as reliability, capacity utilization and delivery performance. We also continued to enhance our position in the key automotive market by the significant contribution of former algroup automotive technical expertise and market presence. Looking ahead to 2001, our group's strategic priorities include: > Accelerating and maximizing the synergies resulting from the Alcan-algroup combination; > Enhancing our product mix by drawing on the greater capabilities of the new combined assets and technologies; > Continuing our programs to achieve manufacturing excellence by transferring best practices and technology both within our group and with Alcan's other three business groups; > Aggressively pursuing both internal and external growth opportunities. Demand for aluminum in Europe is expected to remain strong during the first half of 2001, and our group is looking forward to seizing the opportunities for further growth." 20 15 > Aluminum Fabrication, Europe TECHNICAL PROWESS PAYS OFF Exceptional technical capabilities in both aluminum and advanced composite materials -- along with a penchant for innovation -- have enabled the group's engineered products teams to carve leading positions in a number of growing markets including mass transportation, building facades and display applications. Alcan engineered products that incorporate the group's specialized know-how in areas such as joining technology and light-weight modular design are being utilized as key components in an array of 21st-century passenger rail and urban-transit systems, including high-speed tilting trains, rapid-transit systems, trams, city buses and commuter-rail vehicles serving urban areas throughout Europe and abroad. Composite materials, including structural composites, extruded sheets, engineering foam and sandwich-bonded panels, represent another of the group's strengths, addressing constantly evolving customer needs in market segments as diverse as automotive, mass transportation, architectural products and retail and trade-show displays. Our Airex Composites unit captured the 2000 SPE (Society of Plastics Engineers) Award for the most innovative plastic part -- a rear spoiler for a new Porsche. INDUSTRY LEADER IN PROVIDING CUSTOMER SOLUTIONS Alcan in Europe is increasingly providing solutions to customers utilizing our technology and manufacturing capability in the rolled products sector. In higher value markets such as industrial plate, precision lithographic sheet, automotive body sheet, and beverage and food can sheet, Alcan has been increasing sales. In these exacting market segments, where product tolerances expressed in microns (one one-thousandth of a millimetre) are the norm, the group's superior technological know-how and focus on achieving consistent high quality add up to a competitive edge. In the plate sector, a strong marketing effort combined with Alcan's technological edge and highly differentiated product and service led to a 16% gain in year-over-year sales of value-added industrial plate, mainly to the machinery and moulding markets. The outlook for 2001 remains buoyant, thanks to strong demand and a continuing trend to substitute aluminum for steel in these markets. PARTNERING WITH AUTOMOTIVE LEADERS Alcan engineers are providing extensive support to auto industry leaders Audi, DaimlerChrysler, BMW and the European operations of Ford and General Motors. For example, we partnered with Audi on the development of the Audi A2 aluminum-intensive automobile, which was launched in the European market during 2000. Initial customer response has been positive. In 2001, the A2 is expected to establish its position as the largest volume aluminum-intensive vehicle in the world. Based on our successful earlier collaboration on the luxury Audi A8, the German automaker chose algroup as its development and production partner for the new, larger-volume A2 model. Thanks to its high-tech aluminum space frame, body panels and shock-absorbing bumpers and side-impact beams, the A2 boasts a total vehicle weight of only 895 kilograms. That is about 250 kilograms less than would have been the case had the car been built using steel. To meet increasing demand from the automotive industry, Aluminum Fabrication, Europe has expanded its auto-body sheet-finishing capacity and invested in new engineered products production facilities at Dahenfeld, Gottmadingen and Markt-Schwaben, in Germany. 21 16 ALCAN PACKAGING [PICTURE] Henk Van de Meent President, Alcan Packaging "Alcan Packaging brought together the two packaging divisions of the former algroup -- which account for approximately 75% of revenues -- along with the packaging and European foil rolling operations of Alcan. With more than 85 plants on four continents, we already rank as one of the world's largest specialty packaging groups and are well positioned for growth by virtue of our status as: > The leading supplier of packaging for pharmaceuticals; > A leader in flexible packaging for food products; > Strong market positions in tobacco packaging and other key specialty segments. Alcan is determined to remain at the forefront of these markets by staying focused on low-cost, highly efficient manufacturing systems, superior customer service and innovative packaging solutions. Strategically, the group is also committed to growing with its multinational customers around the globe. The various business units that comprise Alcan Packaging generally performed well during 2000, despite sometimes difficult circumstances. Volumes grew satisfactorily, although profits were impacted by cost increases for materials and, in Europe, by adverse exchange rates. Strategic priorities for 2001 include reorganizing the manufacturing systems at our European foil-rolling and conversion operations to achieve greater efficiencies and shorter lead times. We also intend to capitalize on growth opportunities created by the enhanced product ranges, broader distribution systems and new customer relationships resulting from the merger. Our successes -- past, present and future -- ultimately hinge on the efforts of our empowered people, a team I am privileged to lead as we enter what I'm confident will be an exciting and rewarding new chapter in the evolution of the group." 22 17 > Alcan Packaging THE ONE-STOP SHOP FOR PHARMACEUTICAL PACKAGING SOLUTIONS The pharmaceutical and cosmetics sector of Alcan Packaging combines a multi-line product offering with a global account-management process that enables us to effectively channel innovative packaging solutions to leading drug companies worldwide. The following case study -- involving a widely prescribed product from a major international pharmaceutical company -- illustrates how clients can capitalize on our customer-focused strategy, which offers one-stop access to a range of specialized products and services from Alcan Packaging facilities around the globe. Packaging such a product is truly a global team effort: (bullet) Lawson Mardon at Singen, in Germany, rolls the aluminum foil (from ingots produced by Alcan's Primary Metal group), which is then shipped to our Pharma Centre at the Shelbyville facility in Kentucky, U.S.A.; (bullet) Pharma Centre in Shelbyville converts the basic rolled foil into blister foil and forwards it on to our Margo business unit in Montreal, Canada; (bullet) Margo then utilizes its combined contract packaging and specialty carton capabilities to deliver the drug in its consumer-ready package -- including blisters, sealed cards and displays -- to the customer. Margo's design centre also developed the graphic and structural design of the package used for this product in the Canadian market. (bullet) Just to round out the picture, it should be noted that our Wheaton unit, situated in Cayey, Puerto Rico, also produces plastic bottles for the same product. From Concept to Market(sm), Alcan Packaging delivers innovative packaging solutions to pharmaceutical companies around the globe! INNOVATIVE STICK-PACK HELPS NESTLE WIN NEW MARKET SHARE Alcan Packaging's innovative "stick-pack" food flexible has helped Nestle perk up its share of the instant-coffee market in France. Working in close collaboration with the customer, our Packaging group drew on its broad expertise to devise a solution precisely suited to Nestle's requirements. Stick-pack incorporates three different materials -- polyester, aluminum foil and polyethylene -- and several applied technologies -- including reverse-gravure printing and extrusion laminating in a package that is not only eye-catching and convenient but also addresses practical necessities such as barrier protection, to keep the product fresh, and production-line efficiency. Stick-pack's patented "easy-opening" feature, produced right on the press line, makes for easy opening and pouring and also served to make the product a hit with consumers. The sort of ingenuity reflected in stick-pack has enabled Alcan Packaging to build a strong customer relationship with Nestle, providing it with winning packaging solutions for markets worldwide. 23 18 CORPORATE CITIZENSHIP Alcan research identified aquatic plants that can be used to treat runoff water due to their ability to absorb aluminum without any harm to the plant or the ecosystem. STRATEGY Alcan ensures ethical conduct wherever it operates and its facilities work to meet or exceed environment and health and safety regulations. The Company's corporate citizenship strategies contribute to the long-term health of the organization, the well being of the communities where it operates and society in general. Alcan's success will not only be measured through traditional tracking systems, but also by its efforts to preserve and restore natural resources as well as by the impact of its actions and products in contributing to a more sustainable planet in the future. - -- a key element to increased shareholder value and long-term sustainable growth. At Alcan, corporate citizenship means going beyond sponsoring local events or charitable causes. It is about linking social responsibility with the business objectives of the organization. It is how the Company demonstrates its commitment towards employees, communities and all stakeholders who may be influenced by our policies and practices on the environment, health and safety, and community responsibility. Corporate citizenship is about how Alcan perceives and acts upon its responsibilities -- it is an essential component of our long-term sustainability as a global corporation. As more companies embrace corporate citizenship, it becomes increasingly valuable to benchmark performance. Alcan earned a place in the Dow Jones Sustainability Group Index. This Index tracks the performance of sustainability-driven organizations worldwide and found Alcan to be among the top 10% of companies within its market sector in terms of economic, environmental and social policies, practices and performance. 24 19 > Corporate Citizenship ENVIRONMENT Increasingly, major companies are specifying environmental management systems as a standard supplier requirement -- making Alcan's corporate citizenship approach an even more relevant strategic business decision. In 2000, Alcan further demonstrated its global commitment to be an environmental leader by initiating a long-term greenhouse gas management program in all businesses. Known as TARGET, this program's objective is to institutionalize ongoing greenhouse gas reductions. Alcan is involved with other leading companies, industry associations, governments, and special interest groups in a number of environmental efforts that respond to climate change issues. For example, in Canada, Alcan joined major multinational companies in the Champions in Action initiative of the Voluntary Challenge and Registry and, internationally, Alcan participates in the Partnership for Climate Action. Climate change is an international issue, and Alcan will continue to take a leadership role in working with others to develop pragmatic and cost-effective solutions. In the United States, the Environmental Protection Agency singled out Alcan's Sebree smelter in Kentucky as the 2000 recipient of the Climate Protection Award. Sebree made significant reductions in global warming gases such as decreasing its rate of PFC (perfluorocarbon) emissions by more than 60% between 1990-1999. Elsewhere in the Company, particularly in Canada and Brazil, improved processes have also resulted in reductions of PFCs. Alcan will continue to work with its partners to improve its products and maximize product life cycle benefits. In the last year, the Company continued its progress towards environmental management excellence in power operations, smelters and fabricated products and packaging plants by doubling the number of facilities that have earned the ISO-14001 environmental management system certification of the International Organization for Standardization. In addition, Alcan will continue to work with its partners -- customers, suppliers, employees, governments and communities -- to improve its products and maximize product life cycle benefits. Alcan strives for environmental leadership within its industry sectors -- a goal that includes being accountable and transparent in the reporting of environmental issues and progress. Several of Alcan's subsidiaries and facilities have published documents on their environmental performance and challenges. Exemplifying this commitment is the release of a "three pillar" report by Alcan's operations in British Columbia (B.C.), Canada. The publication, Committed to Continual Improvement, outlines performance in three key areas of sustainability: environmental stewardship, economic contribution and social responsibility. This review has already had a positive impact through increased employee and stakeholder awareness of issues affecting B.C. operations. A global corporate citizenship report is being planned for 2002 covering all Alcan operations. 25 20 > Corporate Citizenship HEALTH AND SAFETY Alcan's health and safety values are reflected in its facilities and are viewed by many investors and stakeholders as criteria to assess the long-term health of the organization. Despite strong employee efforts that resulted in health and safety milestones at numerous Alcan facilities around the globe, the Company suffered two employee fatalities and one contractor fatality in 2000. This reality reinforced Alcan's resolve to ensure that appropriate management systems and safeguards are in place and to strengthen our efforts to minimize at-risk behaviours through the implementation of Behaviour Based Safety (BBS) processes. The employee-driven BBS approach or other similar programs are now in place at many Alcan installations in North and South America and Europe, and even more facilities will benefit as these initiatives continue to be implemented. Other health and safety initiatives in 2000 include the creation of an Environment, Health and Safety Council and the development of special procedures for third-party contractors in Canada and Brazil. In Canada, a cooperative effort between the University of Sherbrooke and the Occupational and Environmental Health Service of the Primary Metal group resulted in unique software that analyzes the impact of plant equipment design and installation as it relates to employee exposure to noise. In the Alcan Packaging group, a focused approach to health and safety has resulted in substantial improvements in areas such as fire protection, machine guards and risk reduction. In addition to a continued commitment to standards certified by the International Organization for Standardization, several Alcan food packaging plants also received hygiene certification in 2000. [PICTURE] A full review of safety issues for mobile equipment and overhead cranes resulted in extensive safety management systems being implemented throughout the organization. Increased networking is one vehicle being used to encourage excellence. For example, the bauxite and alumina health and safety experts met in Jamaica to share best practices and identify opportunities for improvement. Alcan believes that people make the difference between an ordinary company and an extraordinary one. Published in 2000, the Company's shared values reinforce its corporate Code of Conduct and are intended to stimulate all employees to seek their full potential. INTEGRITY Integrity requires the adherence to a code of sound moral and ethical conduct that governs all aspects of our activities. ACCOUNTABILITY Accountability means honouring our commitments and accepting responsibility for our actions and behaviour. At Alcan, we believe in aligning decision-making power with responsibilities -- at all levels of the organization -- and for employees to exercise greater control over their activities and, at the same time, be accountable for the results. TRUST AND TRANSPARENCY The success of our organization depends, to a considerable extent, on being able to trust the information we receive and the people who provide it. Transparency is vitally important as well, which means we promote an atmosphere of open communication and the constant exchange of timely, credible information. TEAMWORK A cooperative effort by all Alcan employees is crucial to achieve our common goals. We regard interaction with other group and team members as a vital part of everyone's job. Through effective team-work, the organization is able to leverage the energies and abilities of various groups to achieve results that wouldn't otherwise be possible. 26 21 > Corporate Citizenship COMMUNITY From community consultation and investment to volunteer programs, Alcan is viewed as a valued partner. Developing these ties helps to maintain a positive relationship with key stakeholders. It is an indication of what communities can expect when new Alcan projects are proposed. In the educational sector, the Company's support includes local grants and scholarships, mentorship programs, medical education conferences and cooperative research undertakings. For example, in Jamaica, where Alcan has earned an enviable reputation for its agricultural contributions, the Company's cooperative efforts with local universities include the funding of a chair in sustainable development at the University of the West Indies. In terms of environmental education at the primary school level, the Micro-Business program in Brazil, launched and sponsored by Alcan over four years ago, has expanded to include 25,000 children and more than 600 teachers in three cities. Alcan employees were extremely proud to watch six beneficiaries of the Jamaica-based employee community and sports program participate at the summer Olympics where three of the athletes received medals for their performance. And, Alcan-sponsored wheelchair athlete Chantal Petitclerc captured two gold and two silver medals against top international competitors at the Paralympics, which followed the Olympic Games in Australia. In Canada, consultation with community and union leaders resulted in the smooth closure of Alcan's Kemano company village where technology now allows the power-house to be managed by rotating work crews. Alcan was commended by government authorities for its cooperative approach and for making the village site available for extensive fire and rescue training exercises. From dragon boat festivals to special relief for the less fortunate, the generosity of Alcan employees is difficult to surpass. In the U.K., as part of Operation Christmas Child, employees in Uxbridge prepared special Christmas surprise boxes for children in Eastern Bloc countries. Families in need of housing in the U.S. benefited from Alcan's participation in the Aluminum Cans Build Habitat For Humanity Homes program, jointly sponsored by the Aluminum Association and Habitat for Humanity International. In Brazil, Alcan continues its support of the World Wildlife Fund in areas such as educator training, participates in Project Smile that has provided some 2,600 needy children with free dental care, and has also played an active role in the restoration of two historic buildings in Ouro Preto, a UNESCO world heritage site. Alcan's involvement with its neighbours is no better demonstrated than in the U.K. where the closure of the kinlochleven smelter is being turned into new community opportunities in tourism and small business. After almost a century of operation, Alcan closed its Kinlochleven smelter in Scotland, but not without first ensuring that the community was in a strong position to survive. Since the decision some five years ago to close the world's oldest and smallest smelter, Alcan has worked with employees and community leaders to explore future opportunities. A $14.7-million ((Sterling pound) 10-million) community redevelopment plan is well underway and Alcan has invested an equivalent amount into upgrading the neighbouring kinlochleven power station. The facility will be open to public visits along with a Heritage and Visitor Centre created to commemorate the region's contribution to aluminum smelting. Alcan is now furthering its commitment by proposing a woodland regeneration program on 3,000 hectares of Company-owned land. The aim is to maintain and enhance the existing native woodlands and encourage development of new wildlife areas. 27 22 MANAGEMENTS'S DISCUSSION AND ANALYSIS As a result mainly of improved metal prices and continued progress under the FBP program, the Company's net income increased by 34% and its EVA was up $264 million+ in 2000. + Excluding purchasing accounting adjustments related to the merger with algroup. World Market Review 22 Merger with algroup 25 Results of Operations 25 Operating Segment Review 29 Geographic Review 38 Liquidity and Capital Resources 41 Environmental Matters 42 Risks and Uncertainties 42 Western World Primary Aluminum Supply and Demand (GRAPH) [] Production plus imports from C.I.S. [] Shipments (seasonally adjusted) Demand growth was up 3.5% from the previous year. Supply increased by less than 1% in 2000, due to power-related cutbacks in the U.S. Pacific Northwest and higher net Chinese imports. Total Aluminum Inventories and Ingot Prices (GRAPH) [] Total inventories LME [] (IAI*, LME and three-month price COMEX**) * international Aluminium Institute ** Inventories held by the New York Mercantile Exchange Total inventories were down by 435 kt from the end of 1999. Prices trended down in 2000, after peaking at $1,756/t in January. The average price of $1,567/t was 13% higher than in 1999. 28 23 > Management's Discussion and Analysis WORLD MARKET REVIEW PRIMARY ALUMINUM Western World* total consumption grew by 3.5% in 2000, a level slightly higher than earlier forecasts suggested. Demand surpassed expectations in all regions except for North America and Latin America. North American demand was strong in the first half, with growth of 5%, but slowed significantly during the second half of 2000 as confidence dipped amid fears of a recession. Overall, North American demand rose by 1.1% during the year, a significant decline compared to the 6.8% growth rate in 1999. This was contrasted sharply by a 6.8% growth rate in Asia, driven mainly by Japan and other export-oriented countries. Europe experienced growth in demand of 3.7%, bolstered by consumer confidence and exports. Latin American growth measured 5.1%, somewhat lower than earlier forecast levels, but nonetheless very healthy. Western World consumption totalled 28.5 million tonnes (Mt) in 2000, 20.2 Mt of which was primary metal, and the balance, recycled metal. Since 1982, demand for aluminum has grown at a compound annual growth rate of approximately 4%. Western World primary aluminum production grew 2.3 % in 2000, to 17.3 Mt. During the year, Alcan and other producers announced combined restarts of 310 thousand tonnes (kt) to meet anticipated demand. However, power constraints in the U.S. Pacific Northwest have resulted in production capacity of about 770 kt per year (kt/y) being idled by the end of 2000, representing approximately 47% of the region's capacity. Most of the idle capacity in that region, which increased to about 1 Mt by February 2001, will likely be restarted only when energy prices for aluminum producers drop significantly from current levels. Aluminum inventories decreased by 13% in 2000 to 3.5 Mt. Imports from the former Eastern Bloc decreased by approximately 9.4% to 2.4 Mt in 2000, due to Chinese net imports increasing to 0.7 Mt, more than double the total of 1999. In 2000, growth in consumption translated into a 3.5% growth in demand for primary aluminum, whereas supply increased by only 0.7%, resulting in a reduction of inventories estimated at 450 kt. During the year, inventories with aluminum producers, the London Metal Exchange (LME) and COMEX decreased to approximately 3.5 Mt, or the equivalent of about nine weeks of consumption. For 2001, current expectations are that demand will match supply for the year as a whole, although inventory levels may fluctuate during the year. Ingot prices (LME three-month) were at $1,638 per tonne (/t) at the beginning of 2000, reaching a high of $1,756/t in mid-January, dropping to a low of $1,427/t in mid-April, and closing the year at $1,568/t. The average LME price of $1,567/t was 12.9% higher than the 1999 average of $1,388/t, which had been virtually unchanged from 1998. WESTERN WORLD CONSUMPTION VS. ALCAN SALES Alcan's total shipments grew to 3.5 Mt in 2000, an increase of 13.7% over the previous year, with ingot shipments rising 13.4% and rolled products shipments increasing by 15.3%. Demand from the transportation sector increased by 2.7% to 8.4 Mt, a lower rate of growth than in previous years. Nonetheless, it remains the largest, and most promising market for aluminum. The year 2000 was a record year in terms of light vehicle sales in the U.S., as was 1999 *Defined as the world excluding the Commonwealth of Independent States (C.I.S.), Eastern Europe and China. 29 24 Composite materials, such as engineering foam and sandwich-bonded panels, are used for facades and claddings in the building and construction market. 2000 Western World Aluminum Consumption by End-Use Market [GRAPH] [] Containers and packaging [] Building and construction [] Electrical Transportation [] Other [GRAPH] Alcan's 2000 Fabricated and Non-Aluminum Sales by Market compared to the prior year. However, the market has begun to contract, reflecting increases in energy prices and interest rates, as well as a slowing economy. Automotive demand for aluminum in Japan was also strong for most of the year, but dropped in the last quarter. Alcan's revenues from the transportation market increased by 20%. This market accounted for 8% of its revenues. Demand from the building and construction sector grew by 2.5%, to 5.2 Mt. The sector started out in 2000 on a strong note in the U.S., but dropped later in the year due to higher mortgage rates and fears of an economic slowdown. Growth in this market was healthy in Europe, but flat in Japan, and negative in Asia as a whole. Alcan's revenues from building and construction increased by 4%, accounting for 12% of Company revenues. Consumption from the containers and packaging market was stable, at 4.9 Mt. Can stock demand was stable in 2000, as growth in Asia and Latin America was offset by downgauging and substitution in North America. Other packaging, principally foil, declined slightly as the decrease in the U.S. was offset by gains in most other regions. Alcan's aluminum revenues from the containers and packaging market increased by 35%, accounting for 50% of revenues. 30 25 > Management's Discussion and Analysis The electrical market grew a very healthy 6% to 2.6 Mt, with above average growth in North America and Asia. Alcan's revenues from the electrical market increased by 18%, accounting for 9% of revenues. Demand from other markets increased to 7.3 Mt in 2000. This includes demand from the machinery and equipment market, which was up 7.6% to 2.7 Mt, as well as demand from the consumer durables market, which increased by 3.3% to 1.8 Mt. Alcan's revenues from these other markets increased by 32%, accounting for 21% of the Company's revenues. MERGER WITH ALGROUP Alcan completed its merger with Alusuisse Group Ltd ("algroup") in October 2000. The merger was recorded under the purchase method of accounting, in a transaction which valued algroup at $5.6 billion. This included the issue by the Company of 115.4 million shares having a market value of $3.5 billion, and algroup's debt of $2.1 billion. Results from the operations of algroup have been included with the financial results of Alcan for the fourth quarter of 2000. RESULTS OF OPERATIONS Alcan reported consolidated net income for 2000 of $618 million compared to $460 million in 1999 and $399 million in 1998. The increase in 2000 net income was attributable in large part to the higher average metal prices compared to 1999, to further improvements made under the Company's Full Business Potential (FBP) earnings improvement program, and to the inclusion of algroup's results in the fourth quarter. These favourable factors were offset in part by higher energy costs and the unfavourable effect arising from the time lag in fully passing on higher metal prices to customers. The lag varies from about one month for ingot products to over six months for certain can sheet customers. [PICTURE] With 33 plants in 11 countries, the food flexible and foil sector customizes packaging to meet the needs of a vast array of food product manufacturers. In 1999, operating results were higher than in the previous year due mainly to higher fabricated product sales volumes and to lower operating costs, offset in part by the unfavourable effect of the time lag in fully passing on higher metal prices to customers. Average metal prices in 2000 were approximately 13% higher than in 1999 and 1998. In 2000, the average LME three-month price was $1,567/t compared to $1,388/t in 1999 and $1,379/t in 1998. The average metal price during the second half of 1999 was $1,503/t, compared to $1,322/t for the same period in 1998. The results for 2000 included non-cash merger related charges of $60 million after tax. This was comprised of depreciation and amortization of asset revaluation ($19 million), amortization of goodwill ($16 million), and a one-time inventory adjustment of $25 million. Also included in the results for 2000 were special items totalling a net loss of $35 million after tax. These included rationalization charges of $30 million, related principally to the closure of operations in the U.K. (Rogerstone Foil) and Canada (Kemano, B.C.). In addition, there were favourable tax adjustments of $75 million during the year. These included favourable prior year income tax adjustments of $37 million in 31 26 Foundry ingot and extrusion billet are strategic to Alcan's success as a leading partner-supplier to various markets in North America, such as control arms (shown above) or heat exchangers for the automotive market. 2000 Economic Value Added (EVA)+ EVA LME three-month price + Excluding purchase accounting adjustments. Compared to 1999, and excluding purchase accounting adjustments, EVA improved by $264 million in 2000. Canada, as well as a $20-million reduction of deferred income tax liabilities in Canada and Germany due to a reduction in tax rates. Moreover, the revaluation of deferred taxes due to exchange rate changes resulted in a non-cash gain of $18 million. For 1999, the results included a net non-operating gain of $62 million, after tax. These included gains on business disposals of $90 million. In addition, there was a favourable tax adjustment of $31 million in Canada, offset by rationalization costs of $33 million. Furthermore, the revaluation of deferred taxes due to exchange rate changes resulted in a non-cash charge of $26 million. For 1998, there were a number of offsetting special items totalling a net after-tax loss of $10 million. Economic Value Added (EVA) was $19 million in 2000, including the purchase accounting adjustments related to the algroup merger*. Excluding these purchase accounting adjustments, to allow for a more meaningful comparison with prior years, EVA was $153 million positive in 2000. This compares to a negative $111 million in 1999 and a negative $285 million in 1998. The improvement in 2000 over 1999 was due in large part to higher metal prices and to continued progress in achieving the Company's FBP program. The improvement in 1999 over 1998 was largely due to changes in cost of capital and economic tax rates. *Goodwill and asset revaluation, as well as depreciation and amortization. 32 27 > MANAGEMENT'S DISCUSSION AND ANALYSIS Under the FBP program, Alcan's objective was to improve pre-tax profitability by $1 billion over the five-year period of 1997 to 2001, at benchmark LME prices of $1,380/t. The $1-billion target included a contribution of $150 million from the new 400 kt smelter in Alma, Quebec. Start-up of the Alma smelter commenced successfully in October 2000, and its profit contribution to the FBP target is virtually assured. The smelter is expected to be fully operational by September 30, 2001. Of the remaining $850 million, the Company had achieved $430 million during the first three years of the program, from 1997 to 1999. In 2000, a further $150 million of profit improvement was achieved to raise the total profit improvement to $580 million. Following the merger with algroup, the Company has set a new profit improvement goal. This objective includes the former algroup businesses and sets aggressive targets for all operations. In 2000, total earnings from operations before interest, taxes, depreciation and amortization (EBITDA) for the Company, including algroup for the full year on a pro-forma basis, were approximately $2 billion. The Company has given itself the goal of improving this base of $2 billion by $1 billion, or 50%, over the two-year period of 2001 and 2002. This new target, based upon a benchmark LME price of $1,500/t (compared to an average price of $1,567/t in 2000) includes the remaining $270 million from the prior FBP program, the positive impact from the Alma smelter, the EBITDA to be generated by the recently acquired Korean rolling mills, the EBITDA improvement of the former algroup businesses, as well as the impact of the merger related synergies. Revenues
2000 1999 1998 ----- ----- ----- Sales and operating revenues (millions of US$) 9,148 7,324 7,789 Total aluminum volume(1) (kt) 3,509 3,085 2,941 Average sales price realizations (US$/t) Ingot products 1,667 1,511 1,558 Rolled products(2) 2,455 2,209 2,603
(1) Includes shipments of ingot and rolled products, conversion of customer-owned metal as well as aluminum used in engineered products and packaging. (2) Includes foil products for 1998 only; foil operations have been reclassified to the packaging segment for 1999 and 2000. Sales and operating revenues, at $9,148 million, were 25% higher than the level of 1999, and 17% higher than 1998. Compared to both 1999 and 1998, the increase in 2000 was attributable mainly to higher average metal prices and to the inclusion of the former algroup results for the fourth quarter, which added 226 kt to total aluminum volume, and $1.2 billion to revenues. Other income, which comprises interest income and other non-operating gains, was $96 million in 2000 compared to $179 million in 1999 and $231 million in 1998. The decrease in 2000 was due mainly to the lower asset disposal gains. In 1999 and 1998, these gains totalled $110 million and $156 million before taxes, respectively. COSTS AND EXPENSES Cost of sales and operating expenses increased by 25% in 2000, in line with the increase in sales and operating revenues. The increase was attributable mainly to the inclusion of algroup in the fourth quarter results, to higher average prices of purchased metal, to the increased volume of ingot purchases for the year, to higher energy costs, and to increased start-up and pre-operating expenses related to the Alma smelter and the restarts at the Lynemouth, U.K., and Sebree, Kentucky, smelters. However, as a percentage of sales and operating revenues, cost of sales and operating expenses remained stable at approximately 78%, compared to 1999 and 1998, reflecting in part the continued progress under the Company's FBP program.
(kt) 2000 1999 1998 ----- ----- ----- Purchases of aluminum Ingot products 1,033 714 648 Scrap 572 538 535 Fabricated products 65 45 44 ----- ----- ----- 1,670 1,297 1,227 ===== ===== =====
Purchases of primary ingot increased in 2000 to support the higher level of fabricated product sales volumes, and also as a result of the metal trading activity of algroup, which was included for the fourth quarter of the year. 33 28 > Management's Discussion and Analysis Oil prices increased by about 45% in 2000, compared to 1999, and natural gas prices increased by approximately 70% during the year. The Company did not bear the full impact of the higher oil prices due to forward purchases at lower prices. These increases had a negative impact on cost of sales, offset only slightly by a 7% reduction in caustic soda prices. During 1999, the impact of somewhat higher energy prices, compared to 1998, was negligible. Depreciation and amortization expense was $545 million compared to $477 million in the previous year and $462 million in 1998. The increase reflected depreciation on the algroup assets, the two rolling mills in South Korea acquired in late 1999 and early 2000, and the major expansion of the Pindamonhangaba (Pinda) rolling mill in Brazil, which was completed in late 1999. Selling, administrative and general expenses, at $405 million, increased 8% from the 1999 level of $375 million, which represented a 16% decline from the 1998 level. The increase in 2000 was due mainly to the algroup merger, and expressed as a percentage of sales, these expenses fell to 4.4% representing a 14% improvement over 1999 and a 23% improvement compared to 1998. Research and development expenses were $81 million for 2000 compared to $67 million and $70 million in 1999 and 1998 respectively. Alcan's research and development activities are closely aligned with the needs of its core businesses, principally raw materials, smelting, fabrication, and packaging. The Company continues 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. [PICTURE] Alcan is the only aluminum can sheet producer with operations in North and South America, Asia and Europe and its can recycling operations in both the U.S. and Brazil established new records in 2000. Other expenses were $139 million compared to $127 million in 1999 and $219 million in 1998. In 2000, this included rationalization costs of $45 million as well as a non-recurring environmental provision of $14 million. The 1999 figure included rationalization costs of $55 million, and included in 1998 was an asset write-off of $143 million related to the Aughinish alumina refinery in Ireland, which was sold in early 1999. Interest Costs
(millions of US$) 2000 1999 1998 ---- ---- ---- Interest expense 78 76 92 Interest capitalized 81 41 15 Total interest costs 159 117 107 Effective average interest rate (%) 7.1 6.9 6.7 ---- ---- ----
Total interest costs rose $42 million due to debt incurred to finance capital expenditures and share repurchases, and to the inclusion of algroup's debt as a result of the merger. In 2000, $81 million of interest was capitalized, compared to $41 million in 1999, relating mainly to the construction of the new smelter in Alma, Quebec. In 1998, $15 million of interest was capitalized, relating mainly to the Pinda, Brazil, and Alma projects. The Company expects capitalized interest of about $25 million related to the Alma project during 2001. The pre-tax interest expense coverage ratio was 6.0 times in 2000, compared to 5.5 times in 1999 and 6.3 times in 1998. 34 29 INCOME TAXES Income taxes of $254 million for 2000 represented an effective rate of 29%, compared to 31% in 1999 and 32% in 1998. This compares to a composite statutory rate of 40.2% in Canada. In 2000, the difference in the rates was due primarily to investment and other allowances, prior years' tax adjustments and the impact of reduced tax rates on accumulated deferred income taxes. In 1999 and 1998, the difference in the rates was due primarily to prior years' tax adjustments, reduced rate or tax exempt items and investment and other allowances. In addition, a non-cash gain of $18 million was recorded on the currency revaluation of deferred tax balances due to the weaker Canadian dollar during the year. In 1999, a loss of $26 million for currency revaluation was recorded, while a gain of $31 million was recorded in 1998. 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, earnings from primary metal operations include profit on metal produced by the Company, whether sold to third parties or used in the Company's fabricating and packaging operations. Earnings from the fabricated products and packaging operations represent only the fabricating profit from rolled products, engineered products and packaging products. Optimization of materials, joining technology, prototype construction, light-weight modular design are all key to Alcan's know-how in design and manufacturing solutions for the mass transportation market. Costs and Expenses [GRAPH] [] Cost of sales and operating expenses [] Research and development expenses [] Depreciation and amortization [] Interest [] Selling, administrative and general expenses [] Other expenses Despite increased prices for purchased metal and energy, and higher start-up and pre-operating expenses, cost of sales and operating expenses remained stable at 78% of sales and operating revenues. 35 30 With 100% ownership of the Gove, Australia, alumina refinery and related bauxite mine, Alcan will further reduce its average alumina cost and has access to low-cost expansion potential. The Primary Metal segment's EBITDA increased to $994 million in 2000, an improvement of 78% compared to 1999. Higher metal prices, FBP progress and the inclusion of algroup's operations contributed to this improvement. Following the merger with algroup in 2000, the operations were reorganized to create four operating segments. In addition to EVA, a key financial performance measure for the operating segments is EBITDA. Additional operating segment information is presented in note 22 to the financial statements. Comparative information has been restated to conform to the new organizational structure. Primary Metal
(millions of US$) 2000 1999 1998 ---- ----- ----- Sales and operating revenues Third parties 2,123 1,689 1,813 Intersegment 1,667 1,317 1,405 EBITDA 994 557 629 ----- ----- -----
The Primary Metal segment includes the Company's bauxite and alumina operations, as well as its primary aluminum facilities. EBITDA from this segment increased 78% from the 1999 level reflecting higher realized prices for alumina and aluminum, the positive impact from continued progress under the FBP program, and the inclusion of algroup's operations in the fourth quarter of 2000. In 1999, primary metal segment EBITDA declined compared to 1998 reflecting lower realized prices, as well as higher rationalization, pre-operating and closure costs. Bauxite and Alumina
(millions of US$) 2000 1999 1998 ----- ----- ----- Sales and operating revenues Third parties 470 413 509 Intersegment 536 479 516 EBITDA 265 118 192 ----- ----- ----- Alumina shipments - third parties (kt) 975 1,153 1,641 Production (kt) Alumina hydrate 3,941 3,991 5,013 ----- ----- -----
36 31 > Management's Discussion and Analysis Bauxite and alumina EBITDA increased 125% in 2000 compared to the previous year, reflecting higher realized prices for alumina and bauxite as well as the addition of algroup's Gove, Australia, bauxite and alumina operation for the fourth quarter. Average realized prices for alumina, which are highly correlated to metal prices, increased in 2000 as metal prices on the LME were 13% higher in 2000 compared to 1999. During 2000, spot prices for alumina also rose following an explosion that took place in July 1999 at a competitor's alumina refinery in the U.S. This refinery is expected to resume production in 2001 which, in conjunction with decreased alumina requirements resulting from the idling of significant smelting capacity in the U.S. Pacific Northwest, is expected to lower alumina spot prices in 2001. The 1998 results included those of the Aughinish alumina refinery in Ireland, which was sold early in 1999. BAUXITE In 1999, Alcan adopted the Australasian Code for Reporting of Mineral Resources and Ore Reserves, an internationally accepted reporting standard. On that basis, and including 100% of the Gove assets in Australia, Alcan's current proven ore reserves are estimated to be 422 Mt and measured mineral resources are estimated to be 454 Mt, representing increases of 66% and 118%, respectively, compared to 1999. The Company has more than sufficient bauxite to meet its needs for the next 30 years based on current production capabilities. In January 2000, the Ely bauxite reserves in Australia began supplying the Company's 21.4% interest in the Queensland Alumina Limited (QAL) refinery. Significant savings on bauxite costs were realized during the year, and will continue in the future. The equity partners in the Mineracao Rio do Norte S.A. (MRN) bauxite mine in Brazil, in which Alcan owns a 12.5% interest, have approved an expansion that would result in total production increasing by about 50%, from 11 Mt to 16.3 million tonnes per year (Mt/y), by 2003. ALUMINA Alumina hydrate production reached 3.9 Mt in 2000, a 1% decrease over 1999. Adjusting for divestitures and the algroup merger, production in 2000 was stable compared to 1999, which had been a record year, following an increase of 8% over 1998. In 2000, new records for hydrate production were achieved in Jamaica, the QAL refinery in Australia and the Alumar facility in Brazil. Despite the increase in oil and natural gas prices, production costs increased by only 3% in 2000 compared to 1999. Partly offsetting the higher energy costs were reductions achieved under the ongoing FBP program during 2000. In January 2001, the Company acquired the remaining 30% of the Gove alumina refinery and related bauxite mine at a cost of $362 million, subject to certain post-closing adjustments which could require the payment of additional amounts of up to $30 million. The refinery has a total annual capacity of 1.8 Mt of low-cost alumina. This investment will enable the Company to further reduce its average alumina cost, while giving it access to all of Gove's significant low-cost expansion potential. In February 2001, the Company announced its intention to sell its 93% interest in the Alcan Jamaica Company, which operates bauxite and alumina facilities having a capacity of 1.2 Mt/y of alumina. The Company continues to own a 35% interest in the proposed 1.2 Mt Utkal alumina project in Orissa, India. The $105-million modernization program for the Company's alumina refinery in Jonquiere, Quebec, is progressing on schedule and within budget. The start-up has begun in certain areas and will help reduce alumina costs in 2001, with completion scheduled in 2002-03. The project is expected to result in higher productivity, improved process efficiencies and better environmental, health and safety working conditions. 37 32 > Management's Discussion and Analysis CHEMICALS Operating results in 2000 were better than in 1999, although the European operations continued to suffer losses, caused mainly by depressed selling prices, unfavourable exchange rates and lower shipment volumes. A major restructuring of the European operations is underway and is expected to result in improved performance in 2001. This follows a significant reduction in workforce already implemented in the latter part of 1999. Primary Aluminum
(millions of US$) 2000 1999 1998 ----- ------ ------ Sales and operating revenues Third parties 1,653 1,276 1,304 Intersegment 1,674 1,312 1,394 EBITDA 729 439 437 ----- ----- ----- Shipments(1) (KT) Third parties 758 649 635 Intersegment 932 892 904 Production of primary aluminum (KT) 1,562 1,518 1,481 ----- ----- -----
(1) Shipments of primary aluminum, including those resulting from metal trading activities. data was restated for 1999 and 1998. Primary aluminum EBITDA increased by 66% in 2000, reaching a level of $729 million compared to $439 mil- lion in 1999 and $437 million in 1998. The main factors contributing to the increase were the improved ingot product realizations on third- party sales, which were 10% higher compared to 1999, the benefits arising from the FBP program and the addition of the former algroup's primary aluminum business. In 1999, EBITDA was similar to 1998, as the positive impact from reduced operating costs in 1999 was offset by higher start-up, pre-operating and rationalization costs, and by lower prices on third-party sales of primary ingot. Primary aluminum production increased 2.9% in 2000 to 1,562 kt. Eleven of the Company's 15 smelters achieved record production in 2000. The positive contribution to production as it relates to the algroup merger and the restarts of idle capacity at the Sebree, U.S., and Lynemouth, U.K., smelters, more than offset the lost production in 2000 caused by the permanent closures of the Isle-Maligne, Quebec, and Kinlochleven, U.K., smelters. Production from the new smelter in Alma, Quebec, which commenced operations in October 2000, was negligible during the year. [PICTURE] Sheet ingot is lifted from the casting area of the Laterriere, Quebec, smelter. Together with Alcan's 14 other smelters worldwide, primary metal production levels were the best ever in 2000. Construction of the new smelter and casting center in Alma is approximately 90% completed and facilities are gradually being transferred to operations. The smelter should reach full capacity of 400 kt/y by September 30, 2001, with production of about 270 kt in 2001. The smelter also has low-cost expansion capability of 133 kt/y. Alcan's average cost of production of primary aluminum (mainly in the form of sheet ingot, extrusion billet and foundry ingot), including alumina at market prices, was $1,337/t in 2000 compared to $1,275/t in 1999 and $1,327/t in 1998. Higher alumina prices had an unfavourable impact on costs, as did higher energy prices, more than offsetting the savings generated by the cost reductions related to the FBP program. This total metal production cost included special charges of $94/t in 2000 compared to $73/t in 1999 and $46/t in 1998. The increase in special charges in 2000 was attributable mainly to Alma pre-operating expenses and start-up expenses for the Sebree and Lynemouth smelters ($67/t in 2000). Excluding special charges, the average cost of production of primary aluminum increased by only 3.4% in 2000 compared to the previous year, despite higher alumina and purchased energy prices. Almost all smelter production is in value-added form, such as sheet ingot, extrusion billet and foundry ingot, which costs more to produce than the remelt ingot sold on the LME. Despite the effect of the weakening U.S. economy during the last few months of 2000, Alcan achieved record sales for value-added ingots. 38 33 The Company installed a state-of-the-art research extrusion press at its Kingston, Ontario, facility in 2000, which will increase its knowledge and customer service capabilities as it relates to the metallurgical and extrusion processes. An extrusion scrap recycling facility in Sebree, Kentucky, became operational in 2000, and an expansion of Sebree's billet capacity was approved during the year, with expected completion in 2001. This investment will increase billet capacity by 65 kt/y. The average realized price on third-party sales of primary ingot was $1,747/t compared to $1,569/t in 1999 and $1,618/t in 1998. Fabricated Products -- Americas and Asia
(millions of US$) 2000 1999 1998(1) ----- ----- -------- Sales and operating revenues Third parties 3,929 3,402 3,478 Intersegment 82 80 N/A EBITDA 296 349 299 ----- ----- ----- Total aluminum volume(2) (kt) 1,648 1,481 1,395 ===== ===== =====
(1) Includes foil products for 1998 only; foil operations have been reclassified to the packaging segment for 1999 and 2000. Intersegment data not available for 1998. (2) Includes shipments of rolled products, conversion of customer-owned metal and aluminum used in engineered products. The markets served by this business segment include containers and packaging, building and construction, industrial products, electrical, as well as automotive and other transportation sectors. In 2000, EBITDA was $296 million compared to $349 million in 1999 and $299 million in 1998. The decline in 2000 was attributable [PICTURE] Following a successful start-up last fall, Alcan's newest, state-of-the-art 400-kt capacity smelter at Alma, Quebec, will be one of the lowest cost smelters in the world when in full operation in September 2001. Despite the effect of the weakening U.S. economy during the last few months of 2000, Alcan achieved record sales for value-added ingots. 39 34 [PICTURE] Alcan's recent investments as well as modernization and capacity expansions continue to solidify its global leadership position in rolled products. Total Aluminum Volume1 and Purchases [GRAPH] [] Total aluminum volume [] Total purchases Increased aluminum shipments surpassed the increase in primary production, leading to higher metal purchases. 1 Includes ingot and rolled products shipments, conversion of customer-owned metal as well as aluminum used in engineered products and packaging. mainly to a squeeze in profit margins in North America and Asia, offset in part by an improvement in South America. In 1999, EBITDA was higher than in 1998, due mainly to the higher sales volume of rolled products and to cost reductions. Highlights for 2000 included a 46% increase in shipment volumes in South America following the successful expansion and modernization of the Company's rolling mill located in Pinda, Brazil. In addition, through its 68%-owned subsidiary, Alcan Taihan Aluminum Limited (ATA), the Company acquired an equity interest of 95% in Aluminium of Korea Limited (Koralu) in May 2000 and has integrated its operations into ATA. During 2000, Alcan's total aluminum volume from this segment increased 11% compared to 1999, as a result of the strategic focus on South American and Asian markets, which complements the segment's overall growth strategy given the maturity of North American markets. Rolled Products
2000 1999 1998(1) ----- ------ ------- Shipments (kt) 1,269 1,096 1,035 Conversion of customer-owned metal (kt) 218 218 196 Total aluminum volume (kt) 1,487 1,314 1,231 ----- ------ ----- EBITDA (millions of US$) 261 307 265 Average price realizations(2) (US$/T) 2,401 2,239 2,418 ===== ===== =====
(1) Includes foil products for 1998 only; foil operations have been reclassified to the packaging segment for 1999 and 2000. (2) Excluding conversion of customer-owned metal. 40 35 > Management's Discussion and Analysis EBITDA from rolled products was $261 million in 2000, compared to $307 million in 1999 and $265 million in 1998. Although shipments and price realizations were higher in 2000, this was not sufficient to offset higher energy prices, the unfavourable impact due to the time lag in fully passing higher aluminum prices to customers, as well as losses from the South Korean operations. Alcan continues to consolidate its position of leadership in rolled products markets in North and South America following capacity expansions and modernization in recent years and, through its acquisitions in South Korea, has established a platform for growth in Asian markets. Alcan's recent investments in modernization and capacity expansions continue to solidify its global leadership position in rolled products. Alcan is the only can sheet producer with operations in North America, South America, Asia and Europe. In 2000, Alcan's North American rolled products business matched its previous year's record shipment level amid declining market conditions and increased competitiveness across all product lines, reflecting continued market share growth. A project to upgrade rolling operations in Kingston, Ontario, was completed in 2000. This has improved the Company's ability to service the growing automotive market and expanded its industrial products capacity. Despite a 3.5% decline in U.S. can sheet shipments by the industry in 2000 compared to 1999, the Company's shipments of can sheet increased by 1%, allowing it to gain market share owing to its focus on quality, service and its global leadership position. [PICTURE] The Lincoln LS, Motor Trend magazine's "2000 Car of the Year" makes extensive use of aluminum (450 lb/204 kg), including Alcan body sheet for the hood, front fenders and trunk lid -- accounting for 40% of the metal body surface. Alcan's automotive sheet sales rose by approximately 75% in 2000 compared to 1999, despite a decline in vehicle production during the second half of the year. Although shipment volume levels to this market remain a minor portion of the Company's overall shipments, this growth performance exceeded that of the overall market in this key strategic market to Alcan. In January 2000, Alcan and Ford signed a significant multi-year aluminum supply agreement. During the year, both Ford and GM introduced demonstration aluminum intensive vehicles. The Ford Prodigy and GM Precept models use a wide range of aluminum applications including body structures and skin panels for significant weight and fuel savings. In South America, Alcan achieved record sales levels in Brazil. Shipments of rolled products from South American operations grew by 46% in 2000 compared to 1999, as the Company's expanded and modernized rolling mill in Pinda, Brazil, enjoyed its first full year of production. The Company now expects this facility to reach full capacity by the end of 2001, two years ahead of schedule. Alcan is currently the only manufacturing company in South America capable of producing can sheet, and is therefore well positioned to benefit from the anticipated rapid growth in this region of the world. 41 36 [PICTURE] Alcan's Koralu rolling complex at Ulsan (shown above), together with the mill at Yeongju, South Korea, provide a new platform for earnings growth in low-cost, technically advanced semi-fabricated products in Asia. Alcan's aluminum can recycling operations in the United States increased throughput to establish a new record of 23.8 billion used beverage cans. In Asia, shipments of rolled products more than doubled in 2000 to reach 239 kt compared to 117 kt in 1999. This increase was due primarily to the first full year of production at the Yeongju, South Korea, rolling mill acquired in September 1999. In addition, through its 68%-owned ATA subsidiary, Alcan acquired Koralu in May 2000, adding a second world-class rolling mill in South Korea. The Koralu acquisition further enhances Alcan's overall cost position in Asia and doubles the Company's annual production capacity in South Korea to 600 kt to meet the development of its chosen markets. The repositioning of Alcan in Asia included the sale of Indian Aluminium Company, Limited (Indal) during the year. RECYCLING ACTIVITIES Alcan's aluminum can recycling operations in the United States increased throughput to establish a new record of 23.8 billion used beverage cans (UBCs), a 10% increase over last year. This represented an estimated 40% of aluminum beverage cans recycled in the U.S. in 2000. At the Berea, Kentucky, facility, already the largest UBC recycling facility in the world, production increased by 13% as a result of improved manufacturing efficiencies. 42 37 > Management's Discussion and Analysis Alcan continues to expand the capacity of its state-of-the-art recycling plant at Pinda, in Brazil, to keep pace with the tremendous growth in demand for beverage cans in that region. Currently, Alcan recycles and processes 29% of all the aluminum cans collected in Brazil, and along with metal received from a third-party recycler, casts 50% of the UBCs collected in Brazil. Engineered Products
(millions of US$) 2000 1999 1998 ---- ---- ---- Sales and operating revenues 538 494 644 EBITDA 35 42 34 ---- ---- ---- Aluminum used in engineered products (KT) 161 167 164 ==== ==== ====
Engineered products are comprised mainly of Alcan's North American cable business, where EBITDA declined in 2000 compared to 1999, mainly as a result of the weakening North American construction and housing activities in the second half of the year, exacerbated by an already competitive market place. As a result, shipments of cable products in 2000 decreased by about 2% following a number of years of sustained growth. Sales of bare transmission and distribution cables for high voltage power supply were strong throughout the year. With demand for energy growing, the outlook for overhead transmission lines continues to be positive for 2001. Fabricated Products -- Europe
(millions of US$) 2000 1999 1998(1) ------ ------ ------ Sales and operating revenues Third parties 1,854 1,524 2,485 Intersegment 289 268 N/A EBITDA 164 144 157 Total aluminum volume(2) (KT) 712 620 717 ===== ===== =====
(1) Includes foil products for 1998 only; foil operations have been reclassified to the packaging segment for 1999 and 2000. intersegment data not available for 1998. (2) Includes shipments of rolled products, conversion of customer-owned metal and aluminum used by engineered products. With a significant presence in rolled products and engineered products, the markets served by this segment include containers and packaging, building and construction, industrial products, machinery and equipment, automotive and mass transportation, displays and facades. The increase in EBITDA in 2000 compared to 1999 and 1998 resulted mainly from the inclusion of algroup's operations in the fourth quarter. Following the merger, Alcan now has a significant engineered products business in Europe. The merger also consolidates the company's leadership position in rolled products in that region. Results for 1998 included foil operations, which have been reclassified to the packaging segment for 1999 and 2000. Rolled Products
2000 1999 1998(1) ----- ----- ----- Shipments (KT) 586 513 568 Conversion of customer-owned metal (KT) 110 97 93 Total aluminum volume (KT) 696 610 661 ----- ----- ----- EBITDA (MILLIONS OF US$) 144 142 114 Average price realizations(2) (US$/T) 2,571 2,145 2,942 ===== ===== =====
(1) Includes foil products for 1998 only; foil operations have been reclassified to the packaging segment for 1999 and 2000. (2) Excluding conversion of customer-owned metal. EBITDA was relatively flat in 2000 compared to 1999, as the increase in shipment volumes and price realizations was offset mainly by the strength of the pound sterling against other European currencies, which had an unfavourable impact on profits from U.K. based fabrica- tion operations. In 1999, EBITDA was higher than in the prior year due mainly to the absence of rationalization charges that were recorded in 1998. The European rolled product market grew in 2000, increasing by 3.8% over 1999. This mirrored the growth in overall aluminum consumption in Europe, which increased 3.7% in 2000, after having grown 3.2% in 1999. Despite a very competitive environ- ment, the European aluminum beverage can market grew in 2000, increasing its share from steel in the U.K. to 70% and showed strong growth in Eastern Europe. Alcan's total sales volume in Europe reached an all-time record in the beverage can market. Compared to 1999, can-body stock shipments increased by 8%, and shipments of can-end and can-tab were up by 34%. 43 38 > Management's Discussion and Analysis The litho sheet market grew strongly during 2000, with Alcan's increase at more than twice the market growth. The Company achieved record litho sales in 2000, exceeding the 1999 level by 10%. ENGINEERED PRODUCTS
(Millions of US$) 2000 1999 1998 ---- ---- ---- Sales and operating revenues 188 58 653 EBITDA 20 2 43 Aluminum used in engineered products (KT) 16 10 56 ---- ---- ----
The EBITDA generated by engineered products in Europe for 2000 relates only to algroup's operations in the fourth quarter. The year 1999 included engineered products operations in France and Germany, which were sold during the year. Following the merger with algroup, Alcan now has a significant presence in engineered products in Europe. Alcan's main markets include: - - automotive systems and components, using extrusions and plastic components, - - large extrusions, composite panels and structures for lightweight mass transportation systems, - - composites for displays, facades and transport applications, - - large profile extrusions for building, transportation, machinery and equipment, and industrial markets. PACKAGING
(millions of US$) 2000 1999 1998(1) ---- ---- ------- Sales and operating revenues 1,216 681 N/A ----- --- --- EBITDA 73 43 N/A Aluminum used in packaging (KT) 175 125 N/A ----- --- ---
(1) Excludes foil products for 1998 only; foil operations have been reclassified to the packaging segment from the fabricated product segments for 1999 and 2000. The former algroup had significant operations in the specialty packaging industry. Alcan expects annual revenue to be approximately $3 billion from this segment, compared to $681 million in 1999. The year 2000 included the fourth quarter results of algroup. Alcan's packaging revenues1 can be broken down as follows: BY MARKET % Food 47 Pharmaceutical 17 Tobacco 12 Cosmetics 7 Other 17 ---- 100% ==== BY TYPE OF INPUT % Plastic and paper 42 Aluminum 38 Paperboard 9 Glass 9 Steel 2 ---- 100% ==== BY REGION % Europe 64 North America 32 South America 3 Asia 1 ---- 100% ====
(1) Based on 1999 data. GEOGRAPHIC REVIEW (millions of US$) 2000 1999 1998 ---- ---- ---- Canada 295 111 133 United States 155 178 144 Brazil 34 5 13 Germany 43 30 7 United Kingdom 10 18 2 Switzerland 1 3 -- Other Europe 17 13 (98)(1) Australia 59 36 25 Asia (22) 46 922 Other 26 20 81 --- --- --- Net income 618 460 399 === === ===
(1) Includes a write-down of $120 million after-tax related to the sale of the Aughinish alumina refinery in Ireland. (2) Includes a gain of $140 million after-tax related to the sale of a portion of the Company's investment in Nippon Light Metal Company, Ltd. In Canada, the increase in net income compared to 1999 and 1998 resulted mainly from higher aluminum prices and favourable tax adjustments. In addition, rationalization charges were lower than in 1999. In the United States, net income was lower than in 1999 due mainly to higher energy costs, the time lag in passing metal prices to customers, lower shipments in certain rolled products markets as a result of the slowing U.S. economy, a non-recurring environmental provision, and a less favourable sales product mix. Partly offsetting these factors were increased earnings from the U.S. smelting operation due to higher metal prices, and the restart of idled capacity at the Sebree, Kentucky, smelter. Net income for 1999 was higher than in 1998 due mainly to increased sales volumes and lower operating costs. 44 39 In Brazil, the improvement in net income for 2000 was attributable mainly to higher shipment volumes of rolled products and lower unit production costs following the first full year of production from the expanded Pinda rolling mill. Compared to 1998, operating results in 1999 were affected by the impact of the economic crisis early in the year as well as depreciation and startup costs for the Pinda expansion. In Germany, the increase in net income for 2000 was caused mainly by a reduction in Germany's deferred income tax liability of $12 million due to a reduction in tax rates in that country. Excluding special items, 1999 net income was similar to the 1998 level. In 1999, the special item was a $25-million net gain on sale of a business. In 1998, the special item comprised of a net rationalization charge of $3 million. In the U.K., the decline in net income in 2000 was due mainly to net rationalization charges of $18 million associated with the closure of the foil operations at Rogerstone and the strength of the pound sterling against other European currencies, offset in part by higher average metal prices on ingot sales and the restart of idled capacity at the Lynemouth smelter. Excluding special items, 1999 net income from the U.K. was in line with the prior year. In 1999, special items were a net $12-million gain, comprised of a $16-million gain on sale of property offset in part by rationalization costs of $4 million. In 1998, special items were net rationalization costs of $6 million. [PICTURE] Alcan's pharmaceutical sector, the world's No. 1 packaging supplier, combines a multi-line product, offering a global account management process and effectively channels innovative packaging solutions to leading pharmaceutical companies worldwide. 2000 Aluminum Shipments by Region [GRAPH] [] Western World consumption [] Alcan Group shipments Alcan is well positioned to serve key markets in all regions. 45 40 CASH FLOWS [graph] [] Sales of assets and investments [] Cash from operating activities [] Dividends paid [] Capital investments Capital investments during the year included $850 million for the Alma, Quebec, smelter, and $200 million to acquire Koralu, in South Korea. TOTAL BORROWINGS AND EQUITY (at-year-end) [graph] [] Total borrowings [] Equity (includes minority interests and preference shares) [] Ratio of total borrowings to equity The Company maintains a healthy balance sheet, with a debt:equity ratio of 33:67 at the end of 2000. In Australia, net income for 2000 was higher than in 1999 and 1998, due mainly to higher alumina prices and to the addition of the Gove bauxite and alumina operations in the fourth quarter of 2000 and to the benefits arising from the bauxite mining and exchange agreement with Comalco for the development of the Company's Ely bauxite reserves to supply its interest in the QAL refinery. In Asia, the decline in 2000 net income resulted primarily from the absence of a $37-million net business disposal gain recorded in 1999 for the sale of shares in Nippon Light Metal Company, Ltd (NLM), and from losses incurred by the rolled products operations in South Korea, acquired in late 1999 and early 2000. The 1998 net income related primarily to a gain arising from the sale of a large portion of Alcan's stake in NLM. Activities in other areas include bauxite and alumina operations in Jamaica, bauxite mining operations in Guinea and Ghana, smelting operations in Iceland, packaging operations in Turkey and Puerto Rico, 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. 46 41 > MANAGEMENT'S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Cash generation, calculated by taking the net income for the year and adding back depreciation, amortization and deferred income taxes, was $1,231 million compared to $1,047 million in 1999 and $890 million in 1998. The improvement mainly reflected increased metal prices and the inclusion of algroup's results in the fourth quarter of 2000. Net operating working capital increased by $223 million in 2000 compared to a decline of $239 million in 1999 and an increase of $106 million in 1998. The increase in 2000 was due mainly to a refinancing of trade payables by short-term borrowings in South Korea, as well as a decrease in payables related to the Alma smelter in Quebec. INVESTMENT ACTIVITIES Capital investment in the year was $1.7 billion, an increase from the previous two years, which were $1.3 billion and $877 million respectively. Capital investments in 2000 included about $850 million related to the Alma smelter project in Quebec, $200 million for the acquisition of Koralu, and the capital expenditures for the former algroup operations in the fourth quarter of 2000. On an ongoing basis, approximately $750 million is required annually to maintain the integrity and competitiveness of the Company's assets. In October 2000, the Company made a pre-acquisition loan of $532 million to algroup in order to finance a special payment to algroup shareholders as part of the share exchange offer. In 2001, capital expenditures are projected to total $1.1 billion, including about $300 million for the completion of the Alma smelter. In addition, as mentioned previously, the Company has acquired the remaining 30% of the Gove alumina refinery and related bauxite mine at a cost of $362 million, subject to certain post-closing adjustments which could require the payment of additional amounts of up to $30 million. The Company expects to realize about $400 million from asset disposals during 2001. Disposal of assets in 2000 was mainly comprised of the sale of shares in Indal and of a small panel business in Thailand. FINANCING ACTIVITIES Reflecting the inclusion of algroup's debt, increased capital expenditures and funds required to repurchase shares, total borrowings increased to $4.6 billion at the end of 2000 compared to $1.5 billion at the end of 1999. The debt-to-equity ratio was 33:67 at the end of 2000 compared to 21:79 at the end of 1999. In October 2000, the Company issued 115.4 million common shares in exchange for 99.4% of algroup's shares. During 2000, the Company purchased for cancellation 16.6 million of its common shares, at a total cost of $530 million, under a normal course issuer bid program which was initiated in June 2000. At the end of 2000, outstanding shares totalled 317.9 million compared to 218.3 million at the end of 1999. In January 2000, $100 million 9.5% debentures were redeemed at a price of 104.64%. In April 2000, $150 million 5.875% debentures matured and were repaid. In July 2000, the remaining $18 million of the 9.625% sinking fund debentures were purchased at par. In January 2001, the CHF150 million 6.75% debentures were redeemed at par. Commercial paper outstanding increased from $30 million at the beginning of 2000 to $1,475 million at the end of the year. Cash reserves totalled $261 million at the end of 2000 compared to $315 million at the end of 1999. Alcan has increased committed credit facilities to $2.75 billion through the establishment of a new $1.75-billion multi-currency credit facility, in addition to a previously existing $1-billion credit facility. As at December 31, 2000, $250 million had been drawn and $1.5 billion used as "back-up" for commercial paper in issue under 47 42 > Management's Discussion and Analysis these facilities. In addition to the balance available under these facilities, the Company's investment grade rating continues to provide Alcan with access to global capital markets through the issuance of commercial paper, debt and equity instruments. The quarterly common share dividend remained at 15 cents per common share in 2000. Total dividends paid (common and preferred) to shareholders were $155 million in 2000 compared to $140 million in 1999. The Company expects that cash generation 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, the Company considers that its ability to access capital markets should provide any additional liquidity which may be required to meet unforeseen events. ENVIRONMENTAL MATTERS Underlying Alcan's environmental commitments are a number of factors. These include a clear approach to environmental management systems, continual improvement of environmental control systems, dedicated environmental professionals, and ongoing employee involvement. Alcan is also committed to making the most of the inherent environmental value of aluminum and other materials in every stage of our products' life cycles. 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 $133 million in 2000. Similar expenditures for 2001 and 2002 are projected to be $110 million and $130 million, respectively. In addition, expenditures charged against income for environmental protection were $91 million in 2000 and are expected to be $115 million in 2001 and $110 million in 2002. RISKS AND UNCERTAINTIES RISK MANAGEMENT As a multinational company, which is to a large degree 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 the 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 48 43 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 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. Following the algroup merger, exchange movements between the Euro and U.S. dollar have a greater impact on the Company's results. It is estimated, based on the current European earnings base, that each US$0.01 permanent change in the value of the Euro has an annual after-tax translation impact of approximately $3 million on profitability. Alcan benefits from a strengthening of the Euro, but, conversely, is disadvantaged if it weakens. For further details, refer to note 17 of the financial statements. [PICTURE] > From the luxury Audi A8 (shown above in production) to the fuel-efficient A2, total vehicle weight is reduced thanks to a light-weight, high-strength aluminum structure and body panels. On an annual basis, each $100/t change in the price of aluminum has an after-tax impact of $130 million on the Company's profitability. 49 44 > Management's Discussion and Analysis The Company's deferred income tax liability in Canada is translated into U.S. dollars at current rates, and 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 $7 million. During 2000, a gain of $18 million was recorded in this regard, compared to a loss of $26 million in 1999. 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. Alcan estimates that on an annual basis, each $100 per tonne change in the price of aluminum has an after-tax impact of approximately $130 million on the Company's profitability. For further details, refer to note 17 of the financial statements. THE YEAR 2000 ISSUE No Alcan operating location has experienced any 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 at the beginning of 2000 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. Costs of Alcan's Year 2000 program were expensed as incurred and were less than $50 million, most of which was spent prior to 2000. 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 actions or results could differ materially from those expressed or implied. Important factors that could cause differences include global supply and demand conditions for aluminum and other products, aluminum ingot prices and changes in raw material costs or availability, changes in the relative value of various currencies, 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, relationships with and financial and operating conditions of customers and suppliers, the effects of integrating acquired businesses and the ability to attain expected benefits, economic developments within the countries in which the Company conducts business, and other factors relating to the Company's operations, such as litigation, labor negotiations and fiscal regimes. 50 45 FINANCIAL SECTION OECD Guidelines 46 Auditors' report 46 Consolidated Financial Statements 47 Notes to Consolidated Financial Statements 50 Eleven-Year Summary 74 Quarterly Financial Data 76 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 on page 46. [SIGNATURE] [SIGNATURE] W.R.C. Blundell, Suresh Thadhani, Interim Chief Executive Officer Chief Financial Officer February 15, 2001 51 46 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 has a CODE OF CONDUCT, which is consistent with them. AUDITORS' REPORT TO THE SHAREHOLDERS OF ALCAN INC. (FORMERLY ALCAN ALUMINIUM LIMITED) We have audited the consolidated balance sheets of Alcan Inc. (formerly Alcan Aluminium Limited) as at December 31, 2000, 1999 and 1998 and the consolidated statements of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2000. 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 and the United States. 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, 2000, 1999 and 1998 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2000 in accordance with Canadian generally accepted accounting principles. PricewaterhouseCoopers LLP Montreal, Canada Chartered Accountants February 15, 2001 52 47 > Alcan Inc. CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (in millions of US$, except per share amounts)
Year ended December 31 2000 1999 1998 -------- -------- -------- REVENUES Sales and operating revenues $ 9,148 $ 7,324 $ 7,789 Other income (notes 9 and 10) 96 179 231 -------- -------- -------- 9,244 7,503 8,020 -------- -------- -------- COSTS AND EXPENSES Cost of sales and operating expenses 7,113 5,695 6,076 Depreciation and amortization (note 2) 545 477 462 Selling, administrative and general expenses 405 375 448 Research and development expenses 81 67 70 Interest 78 76 92 Other expenses (notes 5, 9 and 10) 139 127 219 -------- -------- -------- 8,361 6,817 7,367 -------- -------- -------- Income before income taxes and other items 883 686 653 Income taxes (note 6) 254 211 210 -------- -------- -------- Income before other items 629 475 443 Equity income (loss) (note 8) 4 (1) (48) Minority interests 1 (14) 4 -------- -------- -------- Net income before amortization of goodwill $ 634 $ 460 $ 399 Amortization of goodwill (note 2) 16 -- -- -------- -------- -------- Net income $ 618 $ 460 $ 399 Dividends on preference shares 10 9 10 -------- -------- -------- Net income attributable to common shareholders $ 608 $ 451 $ 389 -------- -------- -------- Net income per common share before amortization of goodwill (note 2) $ 2.50 $ 2.06 $ 1.71 Amortization of goodwill per common share (note 2) 0.05 -- -- ======== ======== ======== Net income per common share (note 2) $ 2.45 $ 2.06 $ 1.71 ======== ======== ======== Dividends per common share $ 0.60 $ 0.60 $ 0.60 ======== ======== ========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (in millions of US$)
Year ended December 31 2000 1999 1998 -------- -------- -------- Retained earnings - beginning of year $ 4,227 $ 4,078 $ 3,862 Net income 618 460 399 -------- -------- -------- 4,845 4,538 4,261 Amount related to common shares purchased for cancellation 400 171 37 Dividends - Common 145 131 136 - Preference 10 9 10 -------- -------- -------- Retained earnings - end of year (note 15) $ 4,290 $ 4,227 $ 4,078 ======== ======== ========
53 48 > Alcan Inc. CONSOLIDATED FINANCIAL STATEMENTS (CONT'D) Consolidated Balance Sheet (in millions of US$)
December 31 2000 1999 1998 ------- -------- ------- ASSETS CURRENT ASSETS Cash and time deposits $ 261 $ 315 $ 615 Receivables (net of allowances of $55 in 2000, $31 in 1999, $43 in 1998) 2,280 1,299 1,401 Inventories Aluminium operating segmente - Aluminum 1,034 709 826 - Raw materials 414 294 345 - Other supplies 268 188 242 ------- ------- ------- 1,716 1,191 1,413 Packaging operating segment 399 85 -- ------- ------- ------- 2,115 1,276 1,413 ------- ------- ------- 4,656 2,890 3,429 ======= ======= ======= Deferred charges and other assets (note 8) 719 525 575 Property, plant and equipment (note 9) Cost (excluding construction work in progress) 14,807 11,771 11,758 Construction work in progress 1,979 1,220 911 Accumulated depreciation 6,753 6,557 6,772 ------- ------- ------- 10,033 6,434 5,897 ------- ------- ------- Intangible assets, net of accumulated amortization (note 9) 330 -- -- Goodwill, net of accumulated amortization (notes 3 and 9) 2,669 -- -- ------- ------- ------- Total assets $18,407 $ 9,849 $ 9,901 ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Payables $ 2,427 $ 1,268 $ 1,132 Short-term borrowings 1,080 167 86 Debt maturing within one year (note 12) 333 311 166 ------- ------- ------- $ 3,840 $ 1,746 $ 1,384 ======= ======= ======= Debt not maturing within one year (notes 12 and 17) 3,195 1,011 1,537 Deferred credits and other liabilities (note 11) 874 563 604 Deferred income taxes (note 6) 1,227 781 747 Minority interests 244 207 110 SHAREHOLDERS' EQUITY Redeemable non-retractable preference shares (note 13) 160 160 160 Common shareholders' equity Common shares (note 14) 4,597 1,230 1,251 Retained earnings (note 15) 4,290 4,227 4,078 Deferred translation adjustments (note 16) (20) (76) 30 ------- ------- ------- 8,867 5,381 5,359 ------- ------- ------- 9,027 5,541 5,519 ======= ======= ======= Commitments and Contingencies (note 18) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $18,407 $ 9,849 $ 9,901 ======= ======= =======
Approved by the Board: /s/ W. R. C. Blundell, /s/ Guy Saint-Pierre - --------------------------- ----------------------------- W. R. C. Blundell, Director Guy Saint-Pierre, Director 54 49 > Alcan Inc. CONSOLIDATED FINANCIAL STATEMENTS (cont'd) CONSOLIDATED STATEMENT OF CASH FLOWS (in millions of US$)
Year ended December 31 2000 1999 1998 ---- ---- ---- OPERATING ACTIVITIES Net income $ 618 $ 460 $ 399 Adjustments to determine cash from operating activities: Depreciation and amortization 561 477 462 Deferred income taxes 52 110 29 Equity (income) loss -- net of dividends (3) 2 53 Change in operating working capital Change in receivables (981) 101 (109) Change in inventories (839) 137 (72) Change in payables 1,160 137 (18) Changes in operating working capital due to: Deferred translation adjustments (41) (82) 46 Acquisitions, disposals and consolidations/deconsolidations 478 (54) 47 -------- ------ ------ (223) 239 (106) Change in deferred charges, other assets, deferred credits and other liabilities -- net 28 (26) (113) Gain on sales of businesses -- net (9) (110) (156) Impairment in value of property, plant and equipment -- -- 143 Other -- net 42 30 28 -------- ------ ------ CASH FROM OPERATING ACTIVITIES 1,066 1,182 739 -------- ------ ------ FINANCING ACTIVITIES New debt 1,586 13 359 Debt repayments (419) (347) (57) -------- ------ ------ 1,167 (334) 302 Short-term borrowings -- net 280 45 (169) Common shares purchased for cancellation (530) (219) (46) Common shares issued 21 27 9 Redemption of preference shares -- -- (43) Dividends -- Alcan shareholders (including preference) (155) (140) (146) -- Minority interests (2) (8) (2) -------- ------ ------ CASH FROM (USED FOR) FINANCING ACTIVITIES 781 (629) (95) -------- ------ ------ INVESTMENT ACTIVITIES Property, plant and equipment (1,491) (1,169) (805) Business acquisitions (244) (129) (72) -------- ------ ------ (1,735) (1,298) (877) Net proceeds from disposal of businesses, investments and other assets 184 460 221 Preaquisition loan to algroup to finance special payment to algroup shareholders (532) -- -- -------- ------ ------ CASH USED FOR INVESTMENT ACTIVITIES (2,083) (838) (656) -------- ------ ------ Effect of exchange rate changes on cash and time deposits 2 (11) 2 -------- ------ ------ DECREASE IN CASH AND TIME DEPOSITS (234) (296) (10) Cash of companies consolidated (deconsolidated) -- net 180 (4) 17 Cash and time deposits -- beginning of year 315 615 608 -------- ------ ------ Cash and time deposits -- end of year $ 261 $ 315 $ 615 ======== ====== ======
55 50 > Alcan Inc. 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 and specialty packaging businesses 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 producing and converting of specialty packaging and packaging products for many industries including the food, pharmaceutical, cosmetic and health sectors; the distribution and marketing of aluminum, non-aluminum and packaging 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 five, smelts primary aluminum in seven, operates aluminum fabricating plants in 16, has packaging facilities in 14 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 4 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 having the U.S. dollar as the functional currency. Under this method, monetary items are translated at current rates and translation gains and losses are included in income except for unrealized gains and losses arising from the translation of long-term monetary assets and liabilities, which are deferred and amortized over the remaining lives of the related items. Non-monetary items are translated at historical rates. 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. 56 51 > Alcan Inc. 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, packaging products 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 range from 2% to 10% for buildings and structures, 1% to 4% for power assets and 3% to 20% for chemical, smelter and fabricating assets. AMORTIZATION AND IMPAIRMENT OF GOODWILL Goodwill is recorded at cost less accumulated amortization and is amortized over a period of 40 years using the straight-line method of amortization. Periodic assessments will be made to determine whether there is permanent impairment in the remaining unamortized goodwill balance based on the undiscounted cash flows of the underlying operations. AMORTIZATION OF INTANGIBLE ASSETS Intangible assets are recorded at cost less accumulated amortization and are amortized over 15 years using the straight-line method of amortization. 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. 57 52 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 2 > SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) POST-RETIREMENT BENEFITS OTHER THAN PENSIONS The costs of post-retirement 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. 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 (2000: 248.2 million; 1999: 219.1 million; 1998: 227.4 million). Net income attributable to common shareholders is computed by subtracting Preference dividends from Net income. 3> COMBINATION WITH ALUSUISSE GROUP LTD Pursuant to the combination agreement entered into between the Company and Alusuisse Group Ltd (algroup), the shareholders of algroup, in response to the Company's share exchange offer, tendered 6,747,707 shares, representing 99.37% of the outstanding registered algroup shares, in exchange for 115,385,790 shares of the Company valued at $30.11 per share. Accordingly, the combination was completed and algroup became a subsidiary of the Company on October 17, 2000. The Company is proceeding to acquire the remaining shares of algroup in accordance with the provisions of Swiss law. algroup is a diversified industrial enterprise whose activities are focused on aluminum and packaging. In addition, the Company assumed from algroup total debt of $2,171. The combination is accounted for using the purchase method of accounting and the results of operations of algroup are included in the Consolidated Financial Statements since acquisition. The purchase price was allocated in the accounts based on the assigned fair values of the assets acquired and liabilities assumed as follows: FAIR VALUE OF NET ASSETS ACQUIRED Cash and time deposits $ 175 Other current assets 1,657 Deferred charges and other assets 117 Capital assets 3,008 ------ Current liabilities 1,997 Long-term debt* 1,292 Deferred credits and other liabilities 303 Deferred income taxes 467 ------ FAIR VALUE OF NET ASSETS $ 898 ======
*Includes preacquisition loan from Alcan to finance special payment to algroup shareholders. Determination of fair values was based on valuations performed by independent appraisers and consultants. Allocation of the purchase price in a major business combination necessarily involves a number of estimates as well as the gathering of information over a number of months following the date of the combination. This estimation process will be finalized in 2001. Accordingly, there may be some changes to the assigned values presented above. Net restructuring costs for plant closures estimated at $43, identified at the time of the combination, are recognized in the purchase price allocation. These charges are primarily for employee severance costs and are expected to be incurred over the next two years. 58 53 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 3 > COMBINATION WITH ALUSUISSE GROUP LTD (CONT'D) The difference between the total purchase price and the net fair value of all identifiable assets and liabilities acquired was $2,620 and is accounted for as goodwill, which is being amortized over a period of 40 years using the straight-line method of amortization. CONSIDERATION Issuance of common shares (115,385,790 common shares without nominal or par value; average market value of $30.11 per share) $ 3,474 Other consideration 44 ------- TOTAL CONSIDERATION $ 3,518 =======
Supplemental Pro Forma Information (in millions of US$, except per share amounts) The following unaudited pro forma information presents a summary of consolidated results of operations of the Company and algroup as if the combination had occurred on January 1, 1999. These pro forma results have been prepared for comparative purposes only.
2000 1999 ------- ------- Sales and operating revenues $13,146 $12,388 ------- ------- Net income before amortization of goodwill $ 737 $ 655 ------- ------- Net income $ 672 $ 590 ------- ------- Earnings per common share before amortization of goodwill $ 2.22 $ 1.93 ------- ------- Earnings per common share $ 2.02 $ 1.74 ======= =======
4 > 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. 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 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. 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 7 for summarized financial information about joint ventures. 59 54 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 4 > DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (CONT'D) CONSOLIDATED STATEMENT OF INCOME Under U.S. GAAP, separate subtotals for net income, and net income per common share, before amortization of goodwill would not be presented. 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
2000 1999 1998 ----------------- ----------------- ------------------ $ per $ per $ per Common Common Common $ Share $ Share $ Share --- ------ --- ------ --- ------ Net income - as reported 618 460 399 Differences due to: Foreign currency translation (8) (9) 14* Other (4) 4 4 --- ---- --- Net income - U.S. GAAP 606 2.40 455 2.04 417 1.79 --- ---- --- ---- --- ---- Net income attributable to common shareholders - as reported 608 2.45 451 2.06 389 1.71 --- ---- --- ---- --- ---- Net income attributable to common shareholders - U.S. GAAP 596 2.40 446 2.04 407 1.79 === ==== === ==== === ====
* $13 relates to a difference in the realized exchange gain on the sale of shares in an equity investment.
2000 1999 1998 As U.S. As U.S. As U.S. Reported GAAP Reported GAAP Reported GAAP -------- ---- -------- ---- -------- ---- Deferred charges and other assets - December 31 $ 719 $ 716 $ 525 $ 534 $ 575 $ 622 Deferred income taxes - December 31 $1,227 $1,231 $ 781 $ 781 $ 747 $ 747 Retained earnings - December 31 $4,290 $4,324 $4,227 $4,273 $4,078 $4,129 Deferred translation adjustments (DTA) - December 31 $ (20) $ (76) $ (76) $ (132) $ 30 $ (24)
2000 1999 1998 ---- ---- ---- COMPREHENSIVE INCOME (U.S. GAAP ONLY) Net income $606 $ 455 $417 Net change in deferred translation adjustments* 56 (108) (27) Net change in market value of available-for-sale securities* (4) (26) 45 ---- ----- ---- Comprehensive income $658 $ 321 $435 ==== ===== ====
* 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 ($41 and nil, respectively in 1998). 60 55 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 4 > DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (CONT'D) Reconciliation of Canadian and U.S. GAAP (cont'd)
2000 1999 1998 ------- ------- ------ ACCUMULATED OTHER COMPREHENSIVE INCOME (U.S. GAAP ONLY) Accumulated other comprehensive income -- beginning of year $(113) $ 21 $ 3 Change in deferred translation adjustments 56 (108) (27) Change in excess of market value over book value of available-for-sale securities (4) (26) 45 ------- ------- ------ Accumulated other comprehensive income -- end of year $ (61) $(113) $ 21 ======= ======= ======
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. 5 > REORGANIZATION COSTS In 2000, the Company announced the closure of the Rogerstone Foil operations in the U.K. by the end of June 2001 due to adverse market conditions. This closure will result in a reduction of approximately 220 employees. As a result, the Company has incurred $25 for closure costs which are included in Other expenses. At December 31, 2000, there remains approximately $12 of accrued liabilities. Included in Other expenses in 2000 are other asset write-offs and restructuring costs totalling $28. Restructuring costs relating to the merger with algroup are described in note 3. In 1999, the Company undertook a reorganization which 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 incurred costs of $49 in 1999 which were included in Other expenses. At December 31, 2000, there remains approximately $15 of accrued liabilities. 6 > INCOME TAXES
2000 1999 1998 ------- ------- ------ INCOME BEFORE INCOME TAXES AND OTHER ITEMS Canada $ 428 $ 174 $ 175 Other countries 455 512 478 ------- ------- ------ $ 883 $ 686 $ 653 ------- ------- ------ CURRENT INCOME TAXES Canada $ 19 $ (78) $ 65 Other countries 183 179 116 ------- ------- ------ 202 101 181 ------- ------- ------ DEFERRED INCOME TAXES Canada 25 48 (22) Other countries 27 62 51 ------- ------- ------ 52 110 29 ------- ------- ------ INCOME TAX PROVISION $ 254 $ 211 $ 210 ======= ======= ======
61 56 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 6 > INCOME TAXES (CONT'D) The composite of the applicable statutory corporate income tax rates in Canada is 40.2% (1999: 40.4%; 1998: 40.4%). The following is a reconciliation of income taxes calculated at the above composite statutory rates with the income tax provision:
2000 1999 1998 ----- ----- ----- Income taxes at the composite statutory rate $ 355 $ 277 $ 264 Differences attributable to: Exchange translation items 7 (12) 46 Exchange revaluation of deferred income taxes (18) 26 (31) Effect of tax rate changes on deferred income taxes (20) -- (4) Unrecorded tax benefits on losses - net (19) (1) (3) Investment and other allowances (38) (29) (21) Large corporations tax 6 5 4 Withholding taxes 9 7 5 Reduced rate or tax exempt items (12) (31) (47) Foreign tax rate differences 7 (4) (16) Prior years' tax adjustments (40) (40) 3 Other - net 17 13 10 ----- ----- ----- INCOME TAX PROVISION $ 254 $ 211 $ 210 ===== ===== =====
At December 31, the principal items included in Deferred income taxes are:
2000 1999 1998 ------- ------ ----- LIABILITIES: Property, plant, equipment and intangibles $1,291 $ 796 $ 773 Undistributed earnings 34 29 28 Inventory valuation 80 47 49 Other - net 166 83 56 ------- ------ ----- 1,571 955 906 ======= ====== ===== ASSETS: Tax benefit carryovers 326 105 103 Accounting provisions not currently deductible for tax 220 173 167 ------- ------ ----- 546 278 270 VALUATION ALLOWANCE (AMOUNT NOT LIKELY TO BE RECOVERED) 202 104 111 ------- ------ ----- 344 174 159 ------- ------ ----- NET DEFERRED INCOME TAX LIABILITY $1,227 $ 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 and South Korea, as well as time and other limitations in the tax legislation giving rise to the potential benefits. In 2000, $4 ($13 in 1999) 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. Based on rates of exchange at December 31, 2000, tax benefits of approximately $127 relating to prior and current years' operating losses and $32 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. These amounts are included in the valuation allowance above. Approximately $20 of these potential tax benefits expire in 2001. 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. 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. In 2000, certain provinces decided not to proceed with the reassessments pertaining to 1988 and 1989. As a result of this and other adjustments, the Company recorded $32 of tax recoveries. See note 21. 62 57 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 7 > JOINT VENTURES The activities of the Company's major joint ventures are the procurement and processing of bauxite in Australia, Brazil, Guinea and Jamaica, smelting operations in Norway, 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 results in the supplying of materials to other operations of the Company, third-party revenues, and related costs and expenses attributable to the Company's participation in these joint ventures is insignificant. Accordingly, summarized income statement information as well as cash flow from operating activities would not provide meaningful information.
2000 1999 1998 ------- ------- ------ FINANCIAL POSITION AT DECEMBER 31 Inventories $ 113 $ 103 $ 174 Property, plant and equipment -- net 768 688 959 Other assets 103 90 101 ------- ------- ------ Total assets $ 984 $ 881 $1,234 ------- ------- ------ Short-term debt $ 28 $ 27 $ 19 Debt not maturing within one year 106 117 123 Other liabilities 208 150 167 ------- ------- ------ Total liabilities $ 342 $ 294 $ 309 ------- ------- ------ CASH FLOW INFORMATION FOR THE YEAR ENDED DECEMBER 31 Cash from (used for) financing activities $ (17) $ 2 $ (1) Cash used for investment activities $ (57) $ (61) $ (85) ======= ======= ======
8 > DEFERRED CHARGES AND OTHER ASSETS Deferred charges and other assets comprise the following elements:
2000 1999 1998 ------- ------- ------ Prepaid pension costs $ 284 $ 189 $ 171 Income taxes recoverable 52 59 116 Marketable securities 44 53 38 Prepaid mining expenses 60 62 44 Investments 50 32 58 Costs related to combination (note 3) -- 20 -- Net assets held for disposal 70 -- -- Premiums on currency and metal options 1 10 39 Unamortized exchange losses 18 10 -- Amount receivable on currency swap of debt 16 6 25 Long-term notes and other receivables 60 30 21 Other 64 54 63 ------- ------- ------ $ 719 $ 525 $ 575 ======= ======= ======
INVESTMENTS
2000 1999 1998 ------- ------- ------ Companies accounted for under the equity method $ 19 $ 11 $ 13 Portfolio investments -- at cost, less amounts written off 31 21 45 ------- ------- ------ $ 50 $ 32 $ 58 ======= ======= ======
63 58 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 8 > DEFERRED CHARGES AND OTHER ASSETS (CONT'D) INVESTMENTS (cont'd) As described in note 10, in 2000 the Company sold its interest in Indian Aluminium Company, Limited (Indal). In 1998 the Company had acquired a controlling interest in Indal, the accounts of which were consolidated with those of the Company, until Indal was sold in 2000. Prior to 1998 Indal was treated as an equity investment. Also in 1998, Nippon Light Metal Company, Ltd. (NLM) ceased to be an equity investment and became a portfolio investment. See note 10. For 1998, the combined results of operations, shown below, 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 included in Equity loss, reflecting the Company's share of construction contract losses and restructuring provisions in NLM. 1998 ------ RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31 Revenues $ 3,626 Costs and expenses 3,719 ------ Loss before income taxes (93) Income taxes 12 ------ Net loss $ (105) ------ Alcan's share of Net loss $ (48) ------ Dividends received by Alcan $ 5 ======
9 > CAPITAL ASSETS PROPERTY, PLANT AND EQUIPMENT 2000 1999 1998 ------- ------- ------- COST (EXCLUDING CONSTRUCTION WORK IN PROGRESS) Land and property rights $ 366 $ 220 $ 236 Buildings, machinery and equipment 14,441 11,551 11,522 ------- ------- ------- $14,807 $11,771 $11,758 ======= ======= =======
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 for 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 $750 per year. In addition, the Company expects to spend approximately $300 in 2001 on the completion of the new smelter at Alma, Quebec. INTANGIBLE ASSETS 2000 1999 1998 ------- ------- ------- Cost $ 335 $ -- $ -- Accumulated amortization 5 -- -- ------- ------- ------- $ 330 $ -- $ -- ======= ======= =======
Intangible assets are primarily trademarks and patented and non-patented technology. GOODWILL 2000 1999 1998 ------- ------- ------- Cost $ 2,686 $ -- $ -- Accumulated amortization 17 -- -- ------- ------- ------- $ 2,669 $ -- $ -- ======= ======= =======
64 59 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 10 > 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. INDIA In 2000, the Company sold its 54.6% interest in Indian Aluminium Company, Limited (Indal) to Hindalco Industries Limited (Hindalco). Net proceeds from the sale were $162 resulting in a gain of $3, included in Other income. 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 2000, the Company's subsidiary, Alcan Taihan Aluminum Limited (ATA), acquired a 95% interest in Aluminium of Korea Limited for $200 in cash and the assumption of $114 of debt. As a result of the transaction, the Company owns 68% of ATA. Included in the Company's balance sheet at the date of acquisition were the following assets and liabilities: Working capital $ (2) Property, plant and equipment 347 Other assets -- net (4) ----- 341 Long-term debt 77 Minority interest 64 ----- Net assets $ 200 =====
In 1999, the Company purchased a 56% interest in ATA, a newly created company based in South Korea. 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 =====
11 > DEFERRED CREDITS AND OTHER LIABILITIES Deferred credits and other liabilities comprise the following elements:
2000 1999 1998 ---- ---- ---- Deferred revenues $ 37 $ 43 $ 56 Post-retirement and post-employment benefits 539 378 395 Environmental liabilities 91 44 40 Rationalization costs 23 36 23 Claims 43 39 43 Amount payable for metal and currency forward contracts 41 -- -- Other 100 23 47 ----- ----- ----- $ 874 $ 563 $ 604 ===== ===== =====
65 60 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 12 > DEBT NOT MATURING WITHIN ONE YEAR
2000 1999 1998 ------- ------- ------- ALCAN INC. (FORMERLY ALCAN ALUMINIUM LIMITED) Commercial paper -- CAN$ (a) $ 897 $ -- $ -- Commercial paper -- US$ (a) 578 -- -- Long-term credit facilities (a) 250 -- -- Deutschmark bank loans, due 2001/2005 (DM298 million) (b) 142 175 218 5.875% Debentures -- 150 150 5.375% Swiss franc bonds, due 2003 (c) 109 111 130 CARIFA loan, due 2006 (d) 60 60 60 6.25% Debentures, due 2008 200 200 200 9.5% Debentures (e) -- 100 100 9.625% Sinking fund debentures, due 2019 (e) -- 18 150 8.875% Debentures, due 2022 (f) 150 150 150 7.25% Debentures, due 2028 100 100 100 Other debt, due 2001 7 7 7 ALCAN ALUMINUM CORPORATION 7.25% Debentures -- -- 100 Other debt, due 2001/2004 1 2 2 ALCAN DEUTSCHLAND GMBH AND SUBSIDIARY COMPANIES 5.65% Bank loans, due 2001 (DM15 million) 7 8 9 5.06% Bank loans, due 2004 (DM25 million) 12 -- -- Bank loans, due 2008/2013 (DM16 million) (b) 8 8 64 QUEENSLAND ALUMINA LIMITED Bank loans, due 2001/2003 (b) 77 70 78 Other debt -- 9 -- ALUSUISSE GROUP AG 6.75% Swiss franc bond, due 2001 (CHF150 million) 92 -- -- 4.5% Bank loan, due 2002 (CHF100 million) 61 -- -- ALUSUISSE FINANCE LTD. Euro Medium Term Note Program (EMTN) EMTN, due 2002 (Euro400 million) (g) 372 -- -- EMTN, due 2008 (DM25 million) (g) 12 -- -- EMTN, due 2008 (DM16 million) (g) 8 -- -- ALA (NEVADA) INC. 7.1% Bank loan, due 2001 60 -- -- 0.5% EMTN, due 2001 33 -- -- ALUSUISSE CANADA INC. 5.69% Bank loan, due 2003 35 -- -- 6.24% Bank loan, due 2004 30 -- -- SWISS ALUMINIUM AUSTRALIA LTD. Bank loans, due 2001 (AUD111 million) (b) 62 -- -- OTHER Bank loans, due 2001/2011 (b) 86 117 140 4% Eurodollar, due 2003 (h) 14 14 14 Other debt, due 2001/2011 65 23 31 ------- ------- ------- 3,528 1,322 1,703 Debt maturing within one year included in current liabilities (333) (311) (166) ------- ------- ------- $ 3,195 $ 1,011 $ 1,537 ======= ======= =======
66 61 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 12 > DEBT NOT MATURING WITHIN ONE YEAR (cont'd) (a) The Company has two long-term global, multi-year and multi-currency facilities with a syndicate of major international banks amounting to $1,000 and $1,750. The facilities expire in tranches at various dates in 2001, 2005 and 2006. At December 31, 2000, $250 had been borrowed under these facilities at market rates. These facilities are also available as back-up for commercial paper issued by the Company in Canada and the U.S. at market rates. At December 31, 2000, the entire amount of commercial paper borrowings as well as the $250 borrowed under the above facilities has been classified as debt not maturing within one year since the Company has both the intent and ability, through its long-term credit facilities, to refinance the borrowings on a long-term basis. Commercial paper borrowings of principal amount $518 with a rate tied to U.S. LIBOR have been swapped for CHF920 million with a rate tied to CHF LIBOR for the period to February 2001. Commercial paper borrowings of principal amount CAN$1,368 million have been swapped for $894 through the use of forward exchange contracts. (b) Interest rates fluctuate principally with the lender's prime commercial rate, the commercial bank bill rate, or are tied to LIBOR rates. (c) The Swiss franc bonds were issued as CHF178 million and were swapped for $105 at an effective interest rate of 8.98%. (d) The Caribbean Basin Projects Financing Authority (CARIFA) loan bears interest at a rate related to U.S. LIBOR. (e) In 2000, $18 ($132 in 1999) of the 9.625% debentures were redeemed at face value (104.64% in 1999). The 1999 loss on redemption of $6 was included in Other expenses. The 9.5% debentures were redeemed in January 2000 at a price of 104.64%. The loss on redemption of $3 was included in Other expenses in 2000. (f) 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. (g) The EMTN notes of principal amounts of Euro400 million, DM25 million and DM16 million with rates tied to EURIBOR or LIBOR have been swapped for CHF608 million, (pound)9 million and (pound) 5 million, respectively. (h) 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 has swapped, to 2001 and 2002, the interest payments on $79 and $61, respectively, 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 $333 in 2001, $524 in 2002, $241 in 2003, $88 in 2004 and $24 in 2005. 67 62 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 13 > 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 2000, 1999 and 1998, 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. 14 > 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 2000 1999 1998 2000 1999 1998 ------- ------- ------- -------- -------- -------- OUTSTANDING -- BEGINNING OF YEAR 218,315 226,003 227,344 $ 1,230 $ 1,251 $ 1,251 ISSUED FOR CASH: Executive share option plan 521 886 135 13 19 2 Dividend reinvestment and share purchase plans 237 271 254 8 8 7 ISSUED IN EXCHANGE FOR TENDERED ALGROUP SHARES 115,446* -- -- 3,476 -- -- PURCHASED FOR CANCELLATION (16,598) (8,845) (1,730)** (130) (48) (9) ------- ------- ------- -------- -------- ------ OUTSTANDING -- END OF YEAR 317,921 218,315 226,003 $ 4,597 $ 1,230 $ 1,251* ======= ======= ======= ======== ======== =======
* 115,386 shares were tendered in response to the Company's share exchange offer; 60 shares were tendered after the Company's share exchange offer. ** 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) 2000 1999 1998 2000 1999 1998 ------ ------ ------ ------ ----- ----- OUTSTANDING -- BEGINNING OF YEAR $40.91 $38.16 $38.64 5,472 5,156 4,193 Granted $46.52 $45.41 $34.91 2,422 1,315 1,122 Exercised $35.75 $32.76 $26.96 (521) (886) (135) Cancelled $31.37 $31.80 $33.23 (47) (113) (24) ------ ------ ------ ----- ----- ----- OUTSTANDING -- END OF YEAR $43.20 $40.91 $38.16 7,326 5,472 5,156 ====== ====== ====== ===== ===== =====
68 63 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 14 > COMMON SHARES (cont'd) RANGE OF EXERCISE PRICES FOR OPTIONS OUTSTANDING AT DECEMBER 31, 2000
RANGE OF EXERCISE PRICES (CAN$) NUMBER OF OPTIONS (in thousands) - ----- -- -------- ------ ------ ------ -- ------- --- ---------- $21.94 - $34.00 290 $34.01 - $40.00 1,200 $40.01 - $46.00 2,357 $46.01 - $48.98 3,479 ----- 7,326 =====
At December 31, 2000, approximately 4,913,000 of outstanding options with an average exercise price of CAN$41.56 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 Alusuisse Group Ltd, described in note 3, all options granted under the Company's executive share option plan prior to the consummation were vested. At December 31, 2000, the Company had reserved for issue under the executive share option plan 17,858,854 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 $29, or $0.12 per share ($13, or $0.06 per share, in 1999 and $9, or $0.04 per share, in 1998). 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 35% of the exercise price. In June 2000, the Company obtained authorization to repurchase, within a 12 month period, up to 21,800,000 common shares under a normal course issuer bid. During 2000, 16,598,100 common shares were purchased and cancelled at a cost of $530. In 1999, 8,845,000 common shares for an amount of $219 were purchased and cancelled under a previous 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 $0.01 per right. 69 64 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 15 > RETAINED EARNINGS Consolidated retained earnings at December 31, 2000, include $3,118 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. 16 > CURRENCY GAINS AND LOSSES The following are the amounts recognized in the financial statements:
2000 1999 1998 ---- ----- ---- CURRENCY GAINS (LOSSES) EXCLUDING REALIZED DEFERRED TRANSLATION ADJUSTMENTS: Forward exchange contracts and currency options $ 34 $ (23) $(58) Other (2) (15) 4 ---- ----- ---- $ 32 $ (38) $(54) ---- ----- ---- DEFERRED TRANSLATION ADJUSTMENTS -- BEGINNING OF YEAR $(76) $ 30 $ 43 Effect of exchange rate changes 9 (100) 28 Losses (Gains) realized* 47 (6) (41) ---- ----- ---- BALANCE -- END OF YEAR $(20) $ (76) $ 30 ==== ===== ====
* The loss realized in 2000 relates principally to the sale of the company's investment in Indian Aluminium Company, Limited. 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 2000, $26 ($25 in 1999 and $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. 17 > 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 order to hedge certain identifiable foreign currency revenue and operating cost exposures as well as certain capital commitments, the Company enters into forward exchange and option contracts. At December 31, 2000, the contract amount of forward exchange contracts outstanding used to hedge future firm net operating cash flows was $2,248 ($507 in 1999 and $473 in 1998) while the contract amount of purchased options outstanding used to hedge future firm operating cost commitments was $58 ($199 in 1999 and $1,499 in 1998). At December 31, 2000, the contract amount of forward exchange contracts outstanding used to hedge future commitments (mainly Canadian dollar) principally for the construction of a new smelter at Alma, Quebec, was $212 ($490 in 1999 and $281 in 1998) while the contract amount of purchased options outstanding used to hedge the Canadian dollar commitments for the new smelter was nil ($55 in 1999 and $315 in 1998). The market value of outstanding forward exchange contracts related to hedges of operating costs or revenues at December 31, 2000 was such that if these contracts had been closed out, the Company would have received $14 (received $29 in 1999 and paid $18 in 1998). Based on prevailing market prices, if the currency option contracts related to operating cost commitments had been closed out on December 31, 2000, the Company would have paid $2 (received $4 in 1999 and paid $33 in 1998). The market value at December 31, 2000 of outstanding forward exchange contracts related to hedges of cost commitments principally for the new smelter at Alma, Quebec, was such that if these contracts had been closed out, the Company would have received nil (received $8 in 1999 and 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, 2000, the Company would have received nil (received $1 in 1999 and paid $2 in 1998). Unrealized gains and losses on outstanding forward contracts and options are not recorded in the financial statements until maturity of the underlying transactions. 70 65 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 17 > FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS (CONT'D) FINANCIAL INSTRUMENTS -- CURRENCY (cont'd) In addition, certain intercompany foreign currency denominated loans are hedged through the use of forward exchange contracts. At December 31, 2000, the contract amount of such forward contracts was $193 ($204 in 1999 and $212 in 1998) and the market value was such that if these contracts had been closed out, the Company would have paid $3 (received nil in 1999 and $4 in 1998). Included in Deferred charges and other assets and Receivables is an amount of $1 ($42 in 1999 and $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 indicated in note 12, certain of the Company's foreign currency denominated debts have been swapped. Commercial paper borrowings of principal amount of $518 with a rate tied to U.S. LIBOR have been swapped for CHF920 million with a rate tied to CHF LIBOR for the period to February 2001. If the swap had been closed out at December 31, 2000, the Company would have paid $48. This amount is recognized in the balance sheet and, because the swap is hedging an intercompany CHF loan, has no net income impact. Commercial paper borrowings of principal amount of CAN$1,368 million have been swapped for $894 through the use of forward exchange contracts. If the contracts had been closed out at December 31, 2000, the Company would have received $17, of which an amount of $12 related to the swap of the principal has been recorded in Deferred charges and other assets. The 5.375% Swiss franc bonds of principal amount of CHF178 million have been swapped for $105 at an effective interest rate of 8.98%. If the swap had been closed out at December 31, 2000, the Company would have received a net amount of $4 ($6 in 1999 and $24 in 1998) of which an amount of $4 related to the swap of the principal ($6 in 1999 and $25 in 1998) has been recorded in Deferred charges and other assets. The Euro Medium Term Note Program notes of principal amounts of Euro400 million, DM25 million and DM16 million, with rates tied to EURIBOR or LIBOR, have been swapped for CHF608 million, (pound)9 million and (pound)5 million, respectively. If the swaps had been closed out at December 31, 2000, the Company would have received $1. 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. If all interest rate swap agreements had been closed out on December 31, 2000, the Company would have received $2. There were no significant interest rate swap agreements outstanding at December 31, 1999 and 1998. COMMODITY CONTRACTS -- METAL Depending on supply and market conditions, as well as for logistical reasons, the Company may sell primary metal to third parties and may purchase primary and secondary aluminum on the open market to meet its fabricated products requirements. In addition, the Company may hedge certain commitments arising from pricing arrangements with some of its customers. Through the use of forward purchase and sales contracts and options, the Company seeks to limit the negative impact of low metal prices whilst retaining most of the benefit from higher metal prices. 71 66 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 17 > FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS (CONT'D) COMMODITY CONTRACTS -- METAL (cont'd) At December 31, 2000, the Company had outstanding forward contracts (principally forward purchase contracts) covering 410,650 tonnes (326,800 tonnes at December 31, 1999 and 465,600 tonnes at December 31, 1998), maturing at various dates principally in 2001, 2002 and 2003 (2000, 2001 and 2002 at December 31, 1999 and 1999, 2000 and 2001 at December 31, 1998). In addition, the Company held call options outstanding for 175,650 tonnes (135,500 tonnes at December 31, 1999 and 346,000 tonnes at December 31, 1998) maturing at various dates in 2001 and 2002 (2000 and 2001 at December 31, 1999 and 1999 and 2000 at December 31, 1998). At December 31, 2000, the Company had put options outstanding for 151,000 tonnes, maturing in 2001, 2002 and 2003 (27,300 tonnes maturing in 2000 and 2001 at December 31, 1999 and 20,000 tonnes maturing in 1999 at December 31, 1998). Included in Receivables or Deferred charges and other assets is $23 ($7 in 1999 and $22 in 1998) 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, 2000, if all commodity forward purchase and sale contracts and options had been closed out, the Company would have received $10 (received $64 in 1999 and paid $39 in 1998). OIL DERIVATIVES As a hedge of future oil purchases, as at December 31, 2000, the Company had outstanding approximately 18.1 million barrels of oil futures, maturing at various times in the years 2001 to 2006. Based on oil prices prevailing on December 31, 2000, if all these futures had been closed out, the Company would have paid $7. 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, 2000, the fair value of the Company's long-term debt totalling $3,528 ($1,322 in 1999 and $1,703 in 1998) was $3,516 ($1,323 in 1999 and $1,762 in 1998), based on market prices for the Company's fixed rate securities and the book value of variable rate debt. At December 31, 2000, the quoted market value of the Company's portfolio investments having a book value of $31 ($21 in 1999 and $45 in 1998) was $46 ($39 in 1999 and $90 in 1998). At December 31, 2000, the market value of the Company's preference shares having a book value of $160 ($160 in 1999 and 1998) was $139 ($139 in 1999 and $140 in 1998). The market values of all other financial assets and liabilities are approximately equal to their carrying values. 72 67 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 18 > COMMITMENTS AND CONTINGENCIES The Company has guaranteed the repayment of approximately $17 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 $252 in 2001, $106 in 2002, $89 in 2003, $74 in 2004, $59 in 2005, and $446 thereafter. Total commitments to these entities, excluding $749 in relation to the smelter at Alma, were $106 in 2000, $18 in 1999 and $23 in 1998. Minimum rental obligations are estimated at $44 in 2001, $36 in 2002, $26 in 2003, $20 in 2004, $17 in 2005 and $80 thereafter. Total rental expenses amounted to $58 in 2000, $57 in 1999 and $83 in 1998. 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 33 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 combination agreement in note 3, income taxes in note 6, capital expenditures in note 9, debt repayments in note 12, financial instruments and commodity contracts in note 17, and subsequent event - acquisition of 30% of Gove alumina refinery in note 24. 19 > SUPPLEMENTARY INFORMATION
2000 1999 1998 ------ ----- ----- INCOME STATEMENT Interest on long-term debt $ 123 $ 104 $ 93 Capitalized interest $ (81) $ (41) $ (15) ------ ----- ----- BALANCE SHEET Payables Accrued employment costs $ 288 $ 205 $ 196 Short-term borrowings $1,080 $ 167 $ 86 At December 31, 2000, the weighted average interest rate on short-term borrowings was 6.5% (6.7% in 1999 and 4.7% in 1998). ------ ----- ----- STATEMENT OF CASH FLOWS Interest paid $ 161 $ 128 $ 96 Income taxes paid $ 203 $ 96 $ 298 ====== ===== =====
73 68 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 20 > POST-RETIREMENT BENEFITS Alcan and its subsidiaries have established pension plans in the principal countries where they operate, generally open to all employees. Most plans provide pension benefits that are based on the employee's highest average eligible compensation before retirement. Pension payments are periodically adjusted for cost of living increases, either by Company practice, collective agreement or statutory requirement. 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. All actuarial gains and losses are amortized over 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 generally not funded.
PENSION BENEFITS OTHER BENEFITS 2000 1999 1998 2000 1999 1998 ---- ---- ---- ---- ---- ---- CHANGE IN BENEFIT OBLIGATION Benefit obligation at January 1 $ 4,047 $ 3,827 $ 3,550 $ 186 $ 176 $ 172 Service cost 83 99 84 5 4 4 Interest cost 255 241 236 12 11 11 Members' contributions 21 21 20 -- -- -- Benefits paid (217) (209) (200) (10) (10) (9) Amendments 435 66 80 (1) 3 -- Acquisitions/divestitures 2,047 (5) (1) 27 -- -- Actuarial (gain) loss (263) 59 45 (18) 2 (2) Currency (gains) losses (91) (52) 13 -- -- -- ------- ------- ------- ------- -------- ------- Benefit obligation at December 31 $ 6,317 $ 4,047 $ 3,827 $ 201 $ 186 $ 176 ------- ------- ------- ------- -------- ------- CHANGE IN MARKET VALUE OF PLAN ASSETS (ASSETS) Assets at January 1 $ 4,917 $ 4,298 $ 4,231 $ -- $ -- $ -- Actual return on assets 250 800 204 -- -- -- Members' contributions 21 21 20 -- -- -- Benefits paid (217) (209) (200) -- -- -- Company contributions 44 44 36 -- -- -- Acquisitions/divestitures 2,087 -- -- 5 -- -- Currency gains (losses) (88) (37) 7 -- -- -- ------- ------- ------- ------- -------- ------- Assets at December 31 $ 7,014 $ 4,917 $ 4,298 $ 5 $ -- $ -- ------- ------- ------- ------- -------- ------- Assets in excess of benefit obligation $ 697 $ 870 $ 471 (196) $ (186) $ (176) Unamortized -- actuarial (gains) losses (1,311) (1,115) (763) (39) (17) (22) -- prior service cost 590 246 263 1 2 (5) ------- ------- ------- ------- -------- ------- NET ASSET (LIABILITY) IN BALANCE SHEET $ (24) $ 1 $ (29) $ (234) $ (201) $ (203) ======= ======= ======= ======= ======== =======
74 69 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 20 > POST-RETIREMENT BENEFITS (CONT'D) The accumulated benefit obligation (ABO) of pension plans is $5,867 ($3,661 in 1999 and $3,414 in 1998). For certain plans, the ABO exceeds the market value of the assets. For these plans, the ABO is $588 ($158 in 1999 and $1,239 in 1998) while the market value of the assets is $308 ($28 in 1999 and $1,041 in 1998).
PENSION BENEFITS OTHER BENEFITS 2000 1999 1998 2000 1999 1998 ------- ------- ------- ------- -------- ------- COMPONENTS OF NET PERIODIC (BENEFIT) COST Service cost $ 83 $ 99 $ 84 $ 5 $ 4 $ 4 Interest cost 255 241 236 12 11 11 Expected return on assets (345) (301) (293) -- -- -- Amortization -- actuarial gains (102) (86) (95) (2) (3) (2) -- prior service cost 89 76 94 -- (4) (4) ------ ------ ----- ----- ----- ----- NET PERIODIC (BENEFIT) COST $ (20) $ 29 $ 26 $ 15 $ 8 $ 9 ====== ====== ===== ===== ===== =====
PENSION BENEFITS OTHER BENEFITS 2000 1999 1998 2000 1999 1998 ------- ------- ------- ------- -------- ------- WEIGHTED AVERAGE ASSUMPTIONS AT DECEMBER 31 Discount rate 6.3% 6.5% 6.3% 7.3% 6.9% 6.4% Average compensation growth 3.7% 4.3% 4.3% 4.5% 5.0% 4.5% Expected return on assets 7.0% 7.3% 7.2% N/A n/a n/a ----- ------ ----- ----- ----- -----
The assumed health care cost trend rate used for measurement purposes is 6.6% from 2001 through 2005, decreasing to 5.4% 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) -------- ---------
75 70 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 21 > INFORMATION BY GEOGRAPHIC AREAS LOCATION 2000 1999 1998 -------- ------- ------- ------- SALES AND OPERATING REVENUES Canada $ 625 $ 620 $ 580 - -- THIRD PARTIES (BY DESTINATION) United States 3,665 3,067 3,073 Brazil 465 371 473 United Kingdom 600 450 548 Germany 756 641 769 Switzerland 65 25 25 Other Europe 1,475 1,224 1,531 Australia 131 60 67 Asia and Other Pacific 1,228 817 681 All other 138 49 42 ------- ------- ------- Total $ 9,148 $ 7,324 $ 7,789 ------- ------- ------- SALES AND OPERATING REVENUES Canada $ 2,042 $ 1,852 $ 1,980 - -- INTERCOMPANY (BY ORIGIN) United States 563 528 504 Brazil 44 56 37 United Kingdom 373 327 294 Germany 181 147 143 Switzerland 237 75 78 Other Europe 72 34 223 Australia 114 72 70 Asia and Other Pacific 9 -- -- All other 401 260 358 ------- ------- ------- Subtotal 4,036 3,351 3,687 Consolidation eliminations (4,036) (3,351) (3,687) ------- ------- ------- Total $ -- $ -- $ -- ------- ------- ------- Sales to subsidiary companies are made at fair market prices recognizing volume, continuity of supply and other factors. SALES AND OPERATING REVENUES Canada $ 915 $ 941 $ 1,004 - -- THIRD PARTIES (BY ORIGIN) United States 3,713 3,119 3,229 Brazil 443 334 369 United Kingdom 565 445 515 Germany 1,401 1,196 1,379 Switzerland 414 50 56 Other Europe 589 470 721 Australia 137 60 67 Asia and Other Pacific 852 611 424 All other 119 98 25 ------- ------- ------- Total $ 9,148 $ 7,324 $ 7,789 ======= ======= =======
76 71 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 21 > INFORMATION BY GEOGRAPHIC AREAS (cont'd)
LOCATION 2000 1999 1998 -------- ------- ------- NET INCOME* Canada $ 295 $ 111 $ 133 United States 155 178 144 Brazil 34 5 13 United Kingdom 10 18 2 Germany 43 30 7 Switzerland 1 3 -- Other Europe 17 13 (98)** Australia 59 36 25 Asia and Other Pacific (22) 46 92*** All other 56 33 39 Consolidation eliminations (30) (13) 42 ------- ------ ------ Total $ 618 $ 460 $ 399 ------- ------ ------ CAPITAL ASSETS - NET Canada $ 4,002 $3,050 $2,376 AT DECEMBER 31 United States 1,579 681 714 Brazil 736 743 710 United Kingdom 1,047 444 462 Germany 1,322 499 650 Switzerland 752 34 47 Other Europe 1,006 113 302 Australia 551 71 70 Asia and Other Pacific 1,026 504 269 All other 1,011 295 297 ------- ------ ------ Total $13,032 $6,434 $5,897 ------- ------ ------ CAPITAL EXPENDITURES Canada $ 1,097 $ 845 $ 326 AND INVESTMENTS United States 113 63 62 Brazil 42 86 188 United Kingdom 49 41 85 Germany 55 49 44 Switzerland 18 2 4 Other Europe 68 19 31 Australia 12 4 4 Asia and Other Pacific 239 154 80 All other 42 35 53 ------- ------ ------ Total $ 1,735 $1,298 $ 877 ------- ------ ------ AVERAGE NUMBER Canada 11 11 11 OF EMPLOYEES United States 5 4 4 (in thousands) Brazil 3 3 3 United Kingdom 3 3 3 Germany 4 4 5 Switzerland 1 -- -- Other Europe 2 2 3 Australia -- -- -- Asia and Other Pacific 5 8 5 All other 3 3 2 ------- ------ ------ Total 37 38 36 ======= ====== ======
* If presented to reflect the effect of prior years' income tax reassessments described in note 6, 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 2000, net income in Canada would be increased by a further $25 and decreased by $14 in the United States, $5 in the United Kingdom and $6 in Germany. ** Includes write-down of $120 after tax related to the Aughinish alumina refinery. *** Includes gain of $140 after tax related to the sale of a portion of the Company's investment in Nippon Light Metal Company, Ltd. 77 72 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 22 > INFORMATION BY OPERATING SEGMENT The following presents selected information by operating segment, viewed on a stand-alone basis. In 2000, as a result of the combination of the Company and algroup (see note 3), the operating segments were reorganized to create four operating segments, Primary Metal; Aluminum Fabrication, Americas and Asia; Aluminum Fabrication, Europe; and Packaging. Comparative information has been restated to conform to the 2000 organizational structure. Transactions between operating segments are conducted on an arm's-length basis and reflect market prices. Thus, earnings 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 Fabrication and Packaging groups. Earnings from the Fabrication and Packaging groups represents only the fabricating profit on rolled and packaging 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 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 Intersegment and other items. Some Corporate office and certain other costs have been allocated to the respective operating segments.
SALES AND OPERATING REVENUES INTERSEGMENT THIRD PARTIES 2000 1999 1998 2000 1999 1998 ------- ------- -------- -------- ------- ------- Primary Metal $ 1,667 $ 1,317 $ 1,405 $ 2,123 $ 1,689 $ 1,813 Aluminum Fabrication, Americas and Asia 82 80 -- 3,929 3,402 3,478 Aluminum Fabrication, Europe 289 268 -- 1,854 1,524 2,485 Packaging 58 55 -- 1,216 681 -- Intersegment and other items (2,096) (1,720) (1,405) 26 28 13 ------- ------- ------- ------- ------- ------- $ -- $ -- $ -- $ 9,148 $ 7,324 $ 7,789 ======= ======= ======= ======= ======= =======
The fabrication groups include the foil operations for 1998, which have been reclassified to the packaging segment for 1999 and 2000. Intersegment data for the fabrication groups is not available for 1998.
EBITDA 2000 1999 1998 ------- ------- -------- Primary Metal $ 994 $ 557 $ 629 Aluminum Fabrication, Americas and Asia 296 349 299 Aluminum Fabrication, Europe 164 144 157 Packaging 73 43 -- ------- ------- -------- EBITDA from operating segments 1,527 1,093 1,085 Depreciation and amortization (545) (477) (462) Intersegment and other items 32 182 111 Corporate office (49) (37) (37) Interest (78) (76) (92) Income taxes (254) (211) (210) Minority interest 1 (14) 4 ------- ------- -------- NET INCOME BEFORE AMORTIZATION OF GOODWILL $ 634 $ 460 $ 399 ======= ======= ======== NET INCOME AFTER AMORTIZATION OF GOODWILL $ 618 $ 460 $ 399 ======= ======= ========
Included in 1999 Intersegment 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 Intersegment 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 2000 EBITDA for Primary Metal and Packaging are $18 and $26 related to rationalization costs, respectively. Included in 1999 EBITDA for Primary Metal is $38 related to rationalization costs. Included in 1998 EBITDA for Primary Metal; Aluminum Fabrication, Americas and Asia; and Aluminum Fabrication, Europe, groups are $1, $9 and $15 related to rationalization costs, respectively. 78 73 > Alcan Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd) (in millions of US$, except where indicated) 22 > INFORMATION BY OPERATING SEGMENT (CONT'D)
TOTAL ASSETS AT DECEMBER 31 2000 1999 1998 ------- ------- ------- Primary Metal $ 7,772 $ 4,793 $ 4,351 Aluminum Fabrication, Americas and Asia 2,949 2,848 2,534 Aluminum Fabrication, Europe 3,326 1,299 2,178 Packaging 3,712 405 -- Cash and other corporate items 648 504 838 ------- ------- ------- $18,407 $ 9,849 $ 9,901 ======= ======= =======
DEPRECIATION AND AMORTIZATION CAPITAL EXPENDITURES 2000 1999 1998 2000 1999 1998 ----- ------ ----- ------- ------- ------ Primary Metal $ 243 $ 232 $ 227 $ 1,114 $ 907 $ 475 Aluminum Fabrication, Americas and Asia 154 140 121 365 303 317 Aluminum Fabrication, Europe 76 67 104 110 60 78 Packaging 62 28 -- 97 20 -- Intersegment and other items 10 10 10 49 8 7 ----- ----- ----- ------- ------- ----- $ 545 $ 477 $ 462 $ 1,735 $ 1,298 $ 877 ===== ===== ===== ======= ======= =====
23 > PRIOR YEAR AMOUNTS Certain prior year amounts have been reclassified to conform with the 2000 presentation. 24 > SUBSEQUENT EVENT -- ACQUISITION OF 30% OF GOVE ALUMINA REFINERY In January 2001, the Company acquired the remaining 30% of the Gove alumina refinery and related bauxite mine at a cost of $362, subject to certain post-closing adjustments which would require the payment of additional amounts of up to $30. As a result of this transaction, the Company now owns 100% of these assets. 79
ELEVEN-YEAR SUMMARY 2000 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ---- CONSOLIDATED Sales and operating revenues 9,148 7,324 7,789 7,777 7,614 9,287 INCOME Other income 96 179 231 88 75 100 STATEMENT Cost of sales and operating expenses 7,113 5,695 6,076 6,005 5,919 7,247 ITEMS Depreciation and amortization 545 477 462 436 431 447 (in millions Selling, administrative and general expenses 405 375 448 444 422 484 of US$) Research and development expenses 81 67 70 72 71 76 Interest 78 76 92 101 125 204 Other expenses 139 127 219 54 88 61 Income taxes 254 211 210 248 212 326 Equity income (loss) 4 (1) (48) (33) (10) (3) Minority interests 1 (14) 4 (4) (1) 4 ------ ------ ------ ------ ------ ------ Net income (Loss) before amortization of goodwill and extraordinary item 634 460 399 468 410 543 Amortization of goodwill 16 -- -- -- -- -- ------ ------ ------ ------ ------ ------ Net income (Loss) before extraordinary item 618 460 399 468 410 543 Extraordinary gain (Loss) -- -- -- 17 -- (280) ------ ------ ------ ------ ------ ------ Net income (Loss) 618 460 399 485 410 263 ------ ------ ------ ------ ------ ------ Net income (Loss) attributable to common shareholders 608 451 389 475 394 239 ------ ------ ------ ------ ------ ------ CONSOLIDATED Operating working capital 1,968 1,307 1,682 1,483 1,461 1,731 BALANCE Capital assets -- net 13,032 6,434 5,897 5,458 5,470 5,672 SHEET ITEMS Total assets 18,407 9,849 9,901 9,374 9,228 9,736 (in millions Total debt 4,608 1,489 1,789 1,515 1,516 1,985 of US$) Deferred income taxes 1,227 781 747 969 996 979 Preference shares 160 160 160 203 203 353 Common shareholders' equity 8,867 5,381 5,359 4,871 4,661 4,482 ------ ------ ------ ------ ------ ------ PER COMMON Net income (Loss) before amortization of goodwill SHARE and extraordinary item 2.50 2.06 1.71 2.02 1.74 2.30 (in US$) Net income (Loss) before extraordinary item 2.45 2.06 1.71 2.02 1.74 2.30 Net income (Loss) 2.45 2.06 1.71 2.09 1.74 1.06 Dividends paid 0.60 0.60 0.60 0.60 0.60 0.45 Common shareholders' equity 27.89 24.65 23.71 21.43 20.57 19.84 Market price -- NYSE close 34.19 41.38 27.06 27.63 33.63 31.13 ------ ------ ------ ------ ------ ------ OPERATING CONSOLIDATED ALUMINUM SHIPMENTS DATA Ingot products (includes primary and secondary ingot, 974 859 829 858 810 801 (in thousands trading and scrap) of tonnes except for Rolled products 1,855 1,609 1,603 -- -- -- LME price) Aluminum used in engineered products and packaging 352 302 220 -- -- -- ------ ------ ------ ------ ------ ------ Total fabricated products 2,207 1,911 1,823 1,694 1,539 1,733 Conversion of customer-owned metal 328 315 289 276 258 225 ------ ------ ------ ------ ------ ------ Total aluminum volume 3,509 3,085 2,941 2,828 2,607 2,759 Consolidated primary aluminum production 1,562 1,518 1,481 1,429 1,407 1,278 Consolidated aluminum purchases 1,670 1,297 1,227 1,254 1,003 1,365 Consolidated aluminum inventories (end of year) 568 477 469 451 408 449 PRIMARY ALUMINUM CAPACITY Consolidated subsidiaries 1,899 1,583 1,706 1,558 1,561 1,561 Total consolidated subsidiaries and related companies 1,899 1,583 1,706 1,695 1,698 1,712 Average three-month LME price (US$ per tonne) 1,567 1,388 1,379 1,620 1,536 1,830 ------ ------ ------ ------ ------ ------ OTHER Cash from operating activities (in millions of US$) 1,066 1,182 739 719 981 1,044 STATISTICS Cash from (used for) financing activities (in millions of US$) 781 (629) (95) (46) (700) (744) Cash from (used for) investment activities (in millions of US$) (2,083) (838) (656) (587) 178 (273) Capital expenditures (in millions of US$) 1,735 1,298 877 641 482 441 Ratio of total borrowings to equity (%) 33:67 21:79 24:76 23:77 23:77 29:71 Average number of employees (in thousands) 37 38 36 33 34 39 Common shareholders -- registered (in thousands at end of year) 19 20 20 21 22 23 Common shares outstanding (in millions at end of year) 318 218 226 227 227 226 Registered in Canada (%)* 76 61 60 61 61 61 Registered in the United States (%) 24 39 39 39 39 38 Registered in other countries (%) -- -- 1 -- -- 1 Return on average common shareholders' equity (%) 10 9 7 10 9 5 ------ ------ ------ ------ ------ ------ *Shares held by former algroup shareholders are registered in Canada.
ELEVEN-YEAR SUMMARY 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- CONSOLIDATED Sales and operating revenues 8,216 7,232 7,596 7,748 8,757 INCOME Other income 109 75 69 82 162 STATEMENT Cost of sales and operating expenses 6,740 6,002 6,300 6,455 6,996 ITEMS Depreciation and amortization 431 443 449 429 393 (in millions Selling, administrative and general expenses 528 551 596 635 659 of US$) Research and development expenses 72 99 125 131 150 Interest 219 212 254 246 197 Other expenses 95 106 118 163 65 Income taxes 112 (13) (17) (104) 126 Equity income (loss) (29) (12) 53 89 211 Minority interests (3) 1 (5) -- (1) ------ ------ ------ ------ ------ Net income (Loss) before amortization of goodwill and extraordinary item 96 (104) (112) (36) 543 Amortization of goodwill -- -- -- -- -- ------ ------ ------ ------ ------ Net income (Loss) before extraordinary item 96 (104) (112) (36) 543 Extraordinary gain (Loss) -- -- -- -- -- ------ ------ ------ ------ ------ Net income (Loss) 96 (104) (112) (36) 543 ------ ------ ------ ------ ------ Net income (Loss) attributable to common shareholders 75 (122) (135) (56) 521 ------ ------ ------ ------ ------ CONSOLIDATED Operating working capital 1,675 1,314 1,460 1,717 1,842 BALANCE Capital assets -- net 5,534 6,005 6,256 6,525 6,167 SHEET ITEMS Total assets 10,003 9,812 10,154 10,843 10,681 (in millions Total debt 2,485 2,652 2,794 3,024 2,648 of US$) Deferred income taxes 914 888 955 1,126 1,092 Preference shares 353 353 353 212 212 Common shareholders' equity 4,308 4,096 4,266 4,730 4,942 ------ ------ ------ ------ ------ PER COMMON Net income (Loss) before amortization of goodwill SHARE and extraordinary item 0.34 (0.54) (0.60) (0.25) 2.33 (in US$) Net income (Loss) before extraordinary item 0.34 (0.54) (0.60) (0.25) 2.33 Net income (Loss) 0.34 (0.54) (0.60) (0.25) 2.33 Dividends paid 0.30 0.30 0.45 0.86 1.12 Common shareholders' equity 19.17 18.28 19.06 21.17 22.19 Market price -- NYSE close 25.38 20.75 17.63 20.00 19.50 ------ ------ ------ ------ ------ OPERATING CONSOLIDATED ALUMINUM SHIPMENTS DATA Ingot products (includes primary and secondary ingot, trading 897 887 870 866 857 (in thousands and scrap) of tonnes except for Rolled products -- -- -- -- -- LME price) Aluminum used in engineered products and packaging -- -- -- -- -- ------ ------ ------ ------ ------ Total fabricated products 1,763 1,560 1,389 1,333 1,488 Conversion of customer-owned metal 189 91 206 145 81 ------ ------ ------ ------ ------ Total aluminum volume 2,849 2,538 2,465 2,344 2,426 Consolidated primary aluminum production 1,435 1,631 1,612 1,695 1,651 Consolidated aluminum purchases 1,350 865 675 591 646 Consolidated aluminum inventories (end of year) 435 403 418 463 447 PRIMARY ALUMINUM CAPACITY Consolidated subsidiaries 1,561 1,711 1,711 1,676 1,685 Total consolidated subsidiaries and related companies 1,712 1,862 1,862 1,827 1,836 Average three-month LME price (US$ per tonne) 1,500 1,161 1,278 1,333 1,636 ------ ------ ------ ------ ------ Other Cash from operating activities (in millions of US$) 65 444 465 659 760 Statistics Cash from (used for) financing activities (in millions of US$) (191) (172) (44) 197 433 Cash from (used for) investment activities (in millions of US$) 71 (339) (450) (857) (1,245) Capital expenditures (in millions of US$) 356 370 474 880 1,367 Ratio of total borrowings to equity (%) 35:65 37:63 37:63 37:63 33:67 Average number of employees (in thousands) 42 46 49 54 57 Common shareholders -- registered (in thousands at end of year) 26 28 32 34 38 Common shares outstanding (in millions at end of year) 225 224 224 223 223 Registered in Canada (%)* 55 59 69 68 54 Registered in the United States (%) 44 40 30 31 44 Registered in other countries (%) 1 1 1 1 2 Return on average common shareholders' equity (%) 2 (3) (3) (1) 11 ------ ------ ------ ------ ------ See note 4 to the consolidated financial statements for U.S. GAAP information.
80 76 > Alcan Inc. QUARTERLY FINANCIAL DATA (in millions of US$, except where indicated)
(unaudited) FIRST SECOND THIRD FOURTH YEAR - ---------- ----- ------ ----- ------ ----- 2000 Revenues $ 1,979 $ 2,063 $ 2,004 $ 3,198 $ 9,244 Cost of sales and operating expenses 1,454 1,560 1,530 2,569 7,113 Depreciation and amortization 116 114 120 195 545 Income taxes 104 88 34 28 254 Other items 131 148 139 280 698 ------- ------- ------- ------- ------- Net income before amortization of goodwill 174 153 181 126 634 Amortization of goodwill -- -- -- 16 16 ------- ------- ------- ------- ------- Net income(1) $ 174 $ 153 $ 181 $ 110 $ 618 Dividends on preference shares 2 3 2 3 10 ------- ------- ------- ------- ------- Net income attributable to common shareholders $ 172 $ 150 $ 179 $ 107 $ 608 ------- ------- ------- ------- ------- Net income per common share before amortization of goodwill $ 0.78 $ 0.70 $ 0.85 $ 0.39 $ 2.50 Amortization of goodwill per common share -- -- -- 0.05 0.05 ------- ------- ------- ------- ------- Net income per common share (in US$)(2) $ 0.78 $ 0.70 $ 0.85 $ 0.34 $ 2.45 Net income under U.S. GAAP(3) $ 171 $ 152 $ 179 $ 104 $ 606 ------- ------- ------- ------- ------- 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 and amortization 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 and amortization 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 ======= ======= ======= ======= =======
[FN] (1) The second quarter of 2000 includes an after-tax gain of $6 from disposal of property, a gain of $10 from the demutualization of the Company's life insurance providers and a favourable tax adjustment of $8 for the revaluation of deferred taxes. This is offset in part by a non-operating exceptional provision of $9 in the U.S., merger costs of $4 and rationalization costs of $2. The third quarter of 2000 includes favourable tax adjustments of $46, including the revaluation of deferred taxes, partially offset by asset write-offs of $12. The fourth quarter of 2000 includes non-cash merger charges related to the merger with Alusuisse Group Ltd of $60, rationalization charges in respect of the closure of foil operations at Rogerstone in the U.K. of $18, asset write-offs of $6, partially offset by favourable tax adjustments of $21, including the revaluation of deferred taxes. The first quarter of 1999 included an unfavourable tax adjustment of $9 for the revaluation of deferred taxes. The second quarter of 1999 included an after-tax gain of $26 on the sale of the Company's piston operations in Germany, a restructuring charge of $20 relating to the Company's Full Business Potential program and an unfavourable tax adjustment of $12 for the revaluation of deferred taxes. The third quarter of 1999 included 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 costs of $5 in Primary Metal and an unfavourable tax adjustment of $2 for the revaluation of deferred taxes. The fourth quarter of 1999 included a favourable tax adjustment in Canada relating to prior periods of $28, including the revaluation of deferred taxes, 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 $17 related to Alcan's share of construction contract losses, restructuring costs and operating losses at NLM in Japan. The second quarter of 1998 included an after-tax charge of $27 related to Alcan's share of restructuring costs and operating losses 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, after-tax charges of $7 for rationalization costs in Europe and $9 for equity losses in NLM. 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., $9 from rationalization costs in Europe and Asia, and a favourable tax adjustment of $11 for the revaluation of deferred taxes. (2) Net income per common share calculations are based on the average number of common shares outstanding in each period. (3) See note 4 to the consolidated financial statements for explanation of differences between Canadian and U.S. GAAP. 81 77 > Alcan Inc. 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. 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. This statement set forth a series of basic business principles to guide Alcan employees in conducting a widespread international enterprise and helped Alcan achieve public understanding and trust. These principles are now found in Alcan's CODE OF CONDUCT, which provides detailed ethical 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 CIBC Mellon Trust Company at the address on page 79. 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. 82 78 > Alcan Inc. DIRECTORS AND OFFICERS (As at February 26, 2001)
DIRECTORS OFFICERS JOHN R. EVANS, C.C.(1, 3, 5, 8) W. R. C. BLUNDELL* Chairman of the Board, Montreal Interim President and AGE 71, DIRECTOR SINCE 1986 Chief Executive Officer W. R. C. BLUNDELL, O.C.(1, 3, 7) ROBERT L. BALL (1) Member of Audit Director of various companies, Toronto Executive Vice President, Committee AGE 73, DIRECTOR SINCE 2000 AND FORMERLY PRESIDENT, ROLLED PRODUCTS, EUROPE FROM 1987 TO 1999 (2) Chairman of Audit RICHARD B. EVANS Committee MARTIN EBNER(3, 7) Executive Vice President, Chairman, BZ Group Holding Limited, PRESIDENT, ALUMINUM FABRICATION, EUROPE (3) Member of Personnel Wilen, Switzerland Committee AGE 55, DIRECTOR SINCE 2000 EMERY P. LEBLANC Executive Vice President, (4) Chairman of Personnel TRAVIS ENGEN*(4, 7) PRESIDENT, PRIMARY METAL Committee Chairman and Chief Executive, ITT Industries, Inc., New York BRIAN W. STURGELL (5) Member of Environment AGE 56, DIRECTOR SINCE 1996 Executive Vice President, Committee PRESIDENT, ALUMINUM FABRICATION, RUPERT GASSER(1) AMERICAS AND ASIA (6) Chairman of Environment Executive Vice President, Committee Nestle S.A., Vevey, Switzerland SURESH THADHANI AGE 62, DIRECTOR SINCE 2000 Executive Vice President and (7) Member of Corporate Chief Financial Officer Governance Committee DR. WILLI KERTH(5) Director, Alusuisse Swiss HENK VAN DE MEENT (8) Chairman of Corporate Aluminium Ltd., Neuhausen, Executive Vice President, Governance Committee Switzerland PRESIDENT, GLOBAL PACKAGING AGE 64, DIRECTOR SINCE 2000 KURT WOLFENSBERGER J. E. NEWALL, O.C.(3, 6, 7) Executive Vice President, Chairman, NOVA Chemicals PRESIDENT, ENGINEERED PRODUCTS, EUROPE Corporation, Calgary AGE 65, DIRECTOR SINCE 1985 CYNTHIA CARROLL Vice President, PRESIDENT, BAUXITE, ALUMINA AND DR. PETER H. PEARSE, C.M.(5) SPECIALTY CHEMICALS Natural resources consultant, Vancouver AGE DANIEL GAGNIER 68, DIRECTOR SINCE 1989 Senior Vice President, Corporate and External Affairs** GUY SAINT-PIERRE, O.C.(2, 7) Chairman, SNC-Lavalin Group Inc., DAVID MCAUSLAND Montreal Senior Vice President, Mergers and AGE 66, DIRECTOR SINCE 1994 Acquisitions, Chief Legal Officer and Secretary GERHARD SCHULMEYER(1) President and Chief Executive Officer, GASTON OUELLET Siemens Corp., New York Senior Vice President, AGE 62, DIRECTOR SINCE 1996 Human Resources PAUL M. TELLIER, C.C.(1) GLENN R. LUCAS President and Chief Executive Officer, Vice President and Treasurer Canadian National Railway Company, Montreal RICHARD GENEST AGE 61, DIRECTOR SINCE 1998 Vice President and Controller
* On February 26, 2001, Alcan announced the appointment of Mr. Travis Engen as President and Chief Executive Officer, effective March 12, 2001. ** Including Environment, Health and Safety. 83 79 > Alcan Inc. 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 London, 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, Mellon Investor 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 CIBC Mellon Trust Company at the address below. SECURITIES REPORTS FOR 2000 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, 2001. Copies of both may be obtained from CIBC Mellon Trust Company at the address below.
DIVIDEND PRICES* AND AVERAGE DAILY TRADING VOLUMES - ------------------------------------------------------------------------------------------------------------ NEW YORK STOCK EXCHANGE (US$) TORONTO STOCK EXCHANGE (CAN$) - ------------------------------------------------------------------------------------------------------------ 2000 US$ High Low Close Avg. Daily High Low Close Avg. Daily QUARTER Volume Volume - ------------------------------------------------------------------------------------------------------------ First 0.150 45 15/16 30 4/16 34 1/16 1,364,008 67.25 44.30 48.55 944,659 Second 0.150 35 10/16 29 1/16 31 1,189,854 52.50 42.90 46.00 827,276 Third 0.150 35 4/16 28 3/16 28 15/16 983,691 52.00 41.95 43.70 859,522 Fourth 0.150 35 3/16 28 3/16 34 3/16 1,652,341 53.00 42.50 51.35 1,221,086 - ----------------------------------------------------------------------------------------------------------- Year 0.600 - ----------------------------------------------------------------------------------------------------------- 1999 QUARTER - ----------------------------------------------------------------------------------------------------------- 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 ===========================================================================================================
* 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: CIBC Mellon Trust Company 320 Bay Street, 3rd Floor Toronto, Ontario, Canada M5H 4A6 Telephone: (416) 643-5500 (collect call outside North America) or 1-800-387-0835 (toll free in North America) inquiries@cibcmellon.ca MAILING ADDRESS: P.O. Box 7010 Adelaide Street Postal Station Toronto, Ontario, Canada M5C 2W9 INVESTOR CONTACT: Michael Hanley Vice President, Investor Relations Telephone: (514) 848-8368 investor.relations@alcan.com MEDIA CONTACT: Marc Osborne Director, External Communications Telephone: (514) 848-1342 media.relations@alcan.com 84 80 > Alcan Inc. GLOSSARY INDUSTRY-RELATED TERMS ALLOY A substance with metallic properties, composed of two or more chemical elements of which at least one is a metal, such as aluminum, and produced to have certain specific characteristics. 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 earth'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. ENGINEERED PRODUCTS A basic aluminum fabricated product that has been mechanically, and at times thermally, altered to create special properties for specific purposes. Castings, composites, extrusions and/or components for various systems or end-use markets are examples. FABRICATED PRODUCTS Generally, fabricated products are rolled products (such as sheet) as well as rod, wire and cable, extruded and drawn products, castings and other engineered products. FOIL Foil is a thin sheet of metal, around 0.006 inch (0.15 millimeter) thick or less, and is widely used in the packaging, household and industrial markets. INGOT A cast form suitable for fabricating or remelting. Sometimes called sheet ingot, foundry ingot or an extrusion billet, ingots and billets can be produced in a wide range of alloys and purity levels and in different shapes and sizes. 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. PACKAGING A range of flexible and specialty packaging is produced from aluminum, paper, plastic, glass, paperboard and laminated products and serves the food, pharmaceutical, cosmetics/personal care, and tobacco businesses. 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. 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. Sheet is primarily used for the container, lithography, transportation and building end-use markets. 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. FINANCIAL TERMS EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. EVA(R), ECONOMIC VALUE ADDED A registered trademark of Stern Stewart & Co. and is a key measure of performance. The term means the difference between the return on capital and the cost for using that capital over the same period. RETURN ON AVERAGE COMMON SHAREHOLDERS' EQUITY (AT TIMES REFERRED TO AS ROE, OR RETURN ON EQUITY) Net income after preference share dividends, expressed as a percentage of average common shareholders' equity. 85 DEFINITIONS The word "Alcan" or "Company" means Alcan Inc. (formerly 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 Inc., its subsidiaries, joint ventures and related companies. "algroup" means Alusuisse Group Ltd. 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 VISIT ALCAN'S WEB SITE: www.alcan.com Further information on Alcan, its policies and its activities, is available on Alcan's Internet site and contained in various Company publications. Copies of its policies and publications are also available by writing to the address on the back cover. VERSION FRANCAISE Pour obtenir la version francaise de ce rapport, veuillez ecrire a la Compagnie Trust CIBC Mellon dont l'adresse figure a la page 79. ANNUAL MEETING The Annual Meeting of the holders of common shares of Alcan Inc. will be held on Thursday, April 26, 2001. The meeting will take place at 10:00 a.m. (EDT) in the Assembly Hall, International Civil Aviation Organization, Atrium Entrance, 999 University Street, Montreal, Quebec, Canada. This report was printed using vegetable-based inks and is recyclable. 86 ALCAN . . . Innovative Aluminum and Packaging Solutions Worldwide [GRAPHIC OMITTED] 1188 Sherbrooke Street West Mailing Address: Montreal, Quebec, Canada P.O. Box 6090 H3A 3G2 Montreal, Quebec, Canada H3C 3A7 Telephone: (514) 848-8000 www.alcan.com Telecopier: (514) 848-8115 Printed in Canada EX-21 8 m09446ex21.txt 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 15 March 2001, are listed below. 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 42. ALCAN INC.
Subsidiaries, Related Companies, Etc. Organized % of Voting Under the Shares Held by Laws of Immediate Owner 3712001 CANADA INC. Canada 100.00 ALCAN-SPROSTONS LIMITED Jamaica 100.00 ALCAN ADMINCO (2000) INC. Canada 100.00 ALCAN ALLUMINIO S.p.A. Italy 100.00 ALCANITAL SERVICES S.r.l. Italy 100.00 ALCAN ALUMINIO (AMERICA LATINA) INC. Canada 100.00 ALCAN ALUMINUM CORPORATION Ohio 100.00 ALCAN ALUMINUM EXPORT, INC. Georgia 100.00 ALCAN AUTOMOTIVE CASTINGS, INC. Ohio 100.00 ALTEK AUTOMOTIVE CASTINGS PARTNERSHIP Delaware 50.00 ALCAN CONNECTICUT, INC. Connecticut 100.00 ALCAN MANAGEMENT SERVICES USA INC. Ohio 100.00 ERIEVIEW CARTAGE, INC. Ohio 100.00 LOGAN ALUMINUM INC. Delaware 40.00 ALCAN ASIA PACIFIC LIMITED Canada 100.00 ALCAN DEUTSCHLAND GmbH Germany 98.60 (4) ALCAN AUSTRIA GmbH Austria 100.00 ALCAN LAMINES FRANCE France 40.00 (6) (7) ALUMINIUM NORF GmbH Germany 50.00 DEUTSCHE ALUMINIUM VERPACKUNG RECYCLING GmbH Germany 16.70 (21) FRANCE ALUMINIUM RECYCLAGE SA France 20.00 (22) ISYTEC GmbH Germany 25.00 ALCAN EMPREENDIMENTOS LTDA. Brazil 100.00 ALCAN ALUMINIO DO BRASIL LTDA. Brazil 100.00 MINERACAO RIO DO NORTE S.A. Brazil 12.50 PETROCOQUE S.A. -- INDUSTRIA E COMERCIO Brazil 25.00 ALCAN EUROPE LIMITED England 100.00 ALCAN FINANCES B.V. The Netherlands 100.00 ALCAN FINANCES (Bda) LTD. Bermuda 100.00 ALCAN ASIA LIMITED Hong Kong 100.00 ALCAN NIKKEI ASIA HOLDINGS LTD. Bermuda 60.00 ALCAN NIKKEI SIAM LIMITED Thailand 63.00 (8) ALCAN NIKKEI THAI LIMITED Thailand 75.00 (9) MODULAR SYSTEM COMPANY LIMITED Thailand 30.00 TECHNAL SOUTH EAST ASIA CO. LTD. Thailand 49.00 ALCOM NIKKEI SPECIALTY COATINGS SDN. BHD. Malaysia 50.00 (10) ALUMINIUM COMPANY OF MALAYSIA BERHAD Malaysia 49.15 (12) NIKKEI HOLDINGS PTE. LIMITED Singapore 100.00 NIPPON LIGHT METAL COMPANY, LTD. Japan 8.50 NONFEMET INTERNATIONAL (China-Canada-Japan) ALUMINIUM COMPANY LIMITED China 45.00 ALCAN NIKKEI CHINA LIMITED Hong Kong 49.00 ALCAN (BERMUDA) LIMITED Bermuda 100.00 ALCAN SHIPPING (BERMUDA) LIMITED Bermuda 100.00 CHAMPLAIN INSURANCE COMPANY LTD. Bermuda 100.00
37 2 ALCAN INC.
Subsidiaries, Related Companies, Etc. Organized % of Voting Under the Shares Held by Laws of Immediate Owner HALCO (MINING) INC. Delaware 33.00 COMPAGNIE DES BAUXITES DE GUINEE Delaware 51.00 QUADREM INTERNATIONAL HOLDINGS LTD. Bermuda 9.00 ALCAN FINANCES (IRELAND) LIMITED Canada 100.00 3088405 CANADA INC. Canada 100.00 ALCAN FINANCES (IRELAND) COMPANY Ireland 99.99 (5) ALCAN SOUTH PACIFIC PTY LTD Australia 100.00 ALCAN NORTHERN ALUMINA PTY LIMITED Australia 100.00 ALCAN NORTHERN TERRITORY ALUMINA PTY LIMITED Australia 100.00 GOVE ALUMINIUM LIMITED Australia 100.00 ALCAN QUEENSLAND SMELTER PTY LTD Australia 100.00 QUEENSLAND ALUMINA LIMITED Australia 21.39 QUEENSLAND ALUMINA SECURITY CORPORATION Delaware 20.00 WENLOCK BAUXITE PTY LIMITED Australia 100.00 ALCAN ALUMINIUM AG Switzerland 100.00 ALCAN RORSCHACH AG Switzerland 100.00 ALCAN FINANCES (UK) England 100.00 ALCAN IBERICA, S.A. Spain 100.00 ALCAN INTERNATIONAL LIMITED Canada 100.00 ALCAN IRELAND LIMITED Ireland 100.00 ALCAN MANAGEMENT SERVICES CANADA LIMITED Canada 100.00 ALCAN NIKKEI ASIA COMPANY LTD. Bermuda 60.00 ALCAN NIKKEI ASIA CORPORATION SDN. BHD Malaysia 60.00 ALCAN NIKKEI KOREA LIMITED Hong Kong 49.00 ALCAN REALTY LIMITED Canada 100.00 ALCAN SHANNON COMPANY Ireland 100.00 ALCAN SHIPPING SERVICES LIMITED Canada 100.00 ALCAN SMELTERS AND CHEMICALS LIMITED Canada 100.00 ALCAN TAIHAN ALUMINUM LIMITED Korea 68.02 ALUMINIUM OF KOREA LIMITED Korea 94.80 ALPAC ALUMINIUM INC. Canada 50.00 ALUMINIUM MANAGEMENT, INC. New York 100.00 ALUMINUM COMPANY OF CANADA LIMITED Canada 100.00 ALUSUISSE GROUP AG Switzerland 99.40 AL HOLDING USA LLC Delaware 100.00 ALUSUISSE ALUMINUM USA INC. Delaware 100.00 ALUSUISSE COMPOSITES INC. Missouri 100.00 LAWSON MARDON THERMAPLATE CORPORATION New Jersey 100.00 LAWSON MARDON USA INC. New Jersey 100.00 ALA (NEVADA) INC. Nevada 95.38 (1) (2) PHARMA CENTER SHELBYVILLE INC. Kentucky 100.00 WHEATON PUERTO RICO INC. New Jersey 100.00 WHEATON USA INC. New Jersey 100.00 BEIJING WHEATON GLASS CORP. LTD. China 45.70 HBE FERMENTATION SYSTEMS INC. California 10.00 INTERNATIONAL GLASS EQUIPMENT LTD. Bahamas 100.00 LAWSON MARDON WHEATON OF CANADA INC. Ontario 100.00 POLAR MATERIALS INC. Pennsylvania 86.21 PC MATERIALS INC. New Jersey 50.00 POLYPLASMA INC. Canada 100.00 WHEATON PACIFIC LIMITED Hong Kong 99.80 ALESA ALUSUISSE ENGINEERING AG Switzerland 100.00
38 3 ALCAN INC.
Subsidiaries, Related Companies, Etc. Organized % of Voting Under the Shares Held by Laws of Immediate Owner ALUSUISSE ALESA LTD. Canada 100.00 ALUSUISSE ROAD & RAIL AG Switzerland 100.00 ALG AG Switzerland 100.00 ALGROUP AG Switzerland 100.00 ALUCOBOND (FAR EAST) PTE LTD. Singapore 100.00 ALUFLUOR AB Sweden 50.00 ALUSUISSE-LONZA AG FUR KREISLAUFWIRTSCHAFT Switzerland 100.00 ALUSUISSE-LONZA CSFR s.r.o. Czech Republic 100.00 ALUSUISSE-LONZA DO BRASIL LTDA. Brazil 100.00 CBA-ALUSUISSE LTDA. Brazil 50.00 ALUSUISSE-LONZA PRODUCTS LTD. Russia 100.00 ALUSUISSE AIREX AG Switzerland 100.00 ALUSUISSE ALLEGA AG Switzerland 100.00 ALUSUISSE AUSTRIA GmbH Austria 100.00 ALUSUISSE HUNGARIA Kft. Hungary 100.00 ALUSUISSE CANADA INC. Ontario 100.00 LAWSON MARDON PACKAGING OVERSEAS (BRISTOL) LIMITED England 99.00 (24) ALUSUISSE CAPITAL LTD. Channel Islands 100.00 ALUSUISSE FINANCE LTD. Channel Islands 100.00 ALUSUISSE INVESTMENTS LTD. Channel Islands 100.00 ALUSUISSE CAPITAL MARKET AG Switzerland 100.00 ALUSUISSE DECIN s.r.o. Czech Republic 61.51 ALUSUISSE ESPANA SA Spain 100.00 ALUSUISSE PORTUGAL LDA. Portugal 98.00 ALUSUISSE HOLDINGS EUROPE BV The Netherlands 72.73 (16) A-L FINANCIAL PRODUCTS LTD. England 100.00 ALUSUISSE DISTRIBUZIONE srl Italy 100.00 ALUSUISSE HOLDINGS FRANCE S.A. France 100.00 ALUSUISSE CMIC S.A. France 99.97 (14) ALUSUISSE FRANCE S.A. France 99.99 BOXAL (FRANCE) S.A. France 99.99 CHARMETTES S.A. France 99.99 CIVILE IMMOBILIERE CELI France 99.50 (20) COPAL SNC France 49.00 TECHPION RECHERCHE France 49.00 LAWSON MARDON MORIN S.A. France 99.98 LAWSON MARDON PACKAGING SA France 99.72 (25) LAWSON MARDON TRENTESAUX S.A. France 99.99 TIM COMPOSITES S.A. France 30.77 WHEATON FRANCE S.A. France 99.99 WHEATON PHARMA FRANCE S.A. France 99.99 ALUSUISSE HOLDINGS GmbH Germany 99.24 (17) ALUSUISSE ALUCOBOND COMPANY LTD. China 80.00 ALUSUISSE BAYRISCHES DRUCKGUSS-WERK GmbH & CO. KG Germany 100.00 ALUSUISSE BAYRISHES DRUCKGUSS-WERK BETEILIGUNGS GmbH Germany 100.00 ALUSUISSE KAPA GmbH Germany 100.00 ALUSUISSE MARTINSWERK GmbH Germany 99.82 MAGNIFIN MAGNESIAPRODUKTE GESELLSCHAFT GmbH Austria 50.00 ALUSUISSE SINGEN GmbH Germany 99.80 TULE THYSSEN UMFORMTECHNIK Germany 24.90 ALUSUISSE TOMOS d.o.o. Slovenia 66.67 GRUNDSTUCKSGEMEINSCHAFT GbR. Germany 99.00 (23) LAWSON MARDON GESELLSCHAFT FUR BETEILIGUNGEN GmbH Germany 100.00 LAWSON MARDON HANSE-DRUCK GmbH Germany 100.00
39 4 ALCAN INC.
Subsidiaries, Related Companies, Etc. Organized % of Voting Under the Shares Held by Laws of Immediate Owner LAWSON MARDON ROTOPACK GmbH Germany 98.04 (26) LAWSON MARDON HANSE-DRUCK GmbH & CO. Germany 100.00 LAWSON MARDON SINGEN GmbH Germany 99.90 (28) WERKWOHNUNGSGEMEINSCHAFT GbR Germany 99.00 (29) ALUMINIUM-INDUSTRIE-WOHNBAU GmbH Germany 75.10 (11) ALUSUISSE HOLDINGS NEDERLAND B.V. The Netherlands 100.00 ALU VASTGOED B.V. The Netherlands 100.00 ALUMINIUM & CHEMIE ROTTERDAM B.V. The Netherlands 65.82 (13) ALUSUISSE NEDERLAND B.V. The Netherlands 100.00 ALUSUISSE GUY GEISLER S.A. Belgium 99.37 (15) BOXAL (NETHERLANDS) B.V. The Netherlands 100.00 BOXAL SALES GmbH Germany 100.00 LAWSON MARDON BRABANT B.V. The Netherlands 100.00 LAWSON MARDON PICOPAC B.V. The Netherlands 100.00 VERNHOUT & VAN SLUYTERS' GRAVURE (DIEPDRUK) B.V. The Netherlands 100.00 ALUSUISSE HOLDINGS UK LTD. England 89.75 (18)(19) ALUSUISSE UK LIMITED England 100.00 LAWSON MARDON PACKAGING LTD. England 100.00 DISPRO LIMITED England 100.00 FLEATHAM ESTATES LIMITED England 100.00 FORMAN MARSHALL LIMITED England 100.00 GLOSSIFILM LIMITED England 100.00 HEADLEY (READING) LIMITED England 100.00 CELLOGLAS HOLDINGS LTD. England 100.00 ALGROUP TRADE FINISHING LTD. England 100.00 FIVE STAR CORPORATION LIMITED England 100.00 UNIVERSAL COATINGS LIMITED England 100.00 WEST MIDLANDS FOIL BLOCKING LIMITED England 100.00 LUSTRETEX LTD. England 100.00 UV COMPANY LIMITED (THE) England 100.00 UVIPAK (FINISHING) LIMITED England 100.00 HEADLEY TRUSTEES LIMITED England 100.00 LAWSON MARDON GROUP INTERNATIONAL LIMITED England 100.00 LAWSON MARDON BAK GRAVUR BASKILI KARTON SANAYI VE TICARET A.S. Turkey 80.00 LAWSON MARDON KAZAKHSTAN LIMITED LIABILITY PARTNERSHIP Kazakhstan 100.00 LAWSON MARDON SELEPRINT SRL Italy 75.00 (27) LAWSON MARDON LIMITED England 100.00 LAWSON MARDON PACKAGING PENSION TRUST (1994) LIMITED England 100.00 LAWSON MARDON PACKAGING UK LTD. England 100.00 CUMBRIAN COMMERCIAL PROPERTIES LIMITED England 20.00 KOTERS (LIVERPOOL) LIMITED England 100.00 LAWSON MARDON FIBRENYLE LTD. England 100.00 FIBRENYLE (CORBY) LIMITED England 100.00 LAWSON MARDON FLEXIBLE LIMITED England 100.00 MARDON FLEXIBLE PACKAGING (KENTON) LIMITED England 100.00 LAWSON MARDON SMITH BROTHERS LTD. England 100.00 LAWSON MARDON SUTTON LTD. England 100.00 MARDON PELOREX LIMITED England 100.00 LMG IRIDON LIMITED England 100.00 LAWSON MARDON THERMOPLASTICS LTD. England 100.00 WHEATON UK LTD. England 100.00 LAWSON MARDON READING LTD. England 100.00 STALCON PLASTICS LIMITED England 100.00 LAWSON MARDON PENSION TRUST LIMITED England 100.00
40 5 ALCAN INC.
Subsidiaries, Related Companies, Etc. Organized % of Voting Under the Shares Held by Laws of Immediate Owner LAWSON MARDON SUNER SA Spain 100.00 LAWSON MARDON THYNE LTD. Scotland 100.00 LAWSON MARDON (WITHAM) LIMITED England 100.00 LMG FINANCE LIMITED England 100.00 LMG LLOYDS LIMITED England 100.00 LMG (EUROPE) PENSION INVESTMENTS LIMITED England 100.00 LMG (EUROPE) PENSION TRUSTEE LIMITED England 100.00 MANCHESTER LAMINATORS LIMITED England 100.00 MARDON COMPOSITES LIMITED England 100.00 MARDON PACKAGING LIMITED England 100.00 MARDON WRAPPINGS LIMITED England 100.00 NORTHERN GRAVURE LIMITED England 100.00 PRONTOSEAL LIMITED Scotland 100.00 WILLIAM THYNE (PLASTICS) LIMITED Scotland 100.00 WILLIAM THYNE (SECURITIES) LIMITED Scotland 100.00 LAWSON MARDON PACKAGING SALES LTD. England 100.00 LAWSON MARDON STAR LTD. England 100.00 PHARMAFLEX LTD. England 100.00 ALUSUISSE ITALIA S.p.A. Italy 100.00 ALUSUISSE JAPAN LTD. Japan 100.00 LMG (IRELAND) LIMITED Ireland 100.00 LAWSON MARDON SUPERIOR LTD. Ireland 100.00 WCL FLEXIBLE PACKAGING LIMITED Ireland 100.00 WAXED CARTONS (EXPORT) LIMITED Ireland 100.00 ZITELI LIMITED Ireland 100.00 ALUSUISSE OF AUSTRALIA LIMITED Australia 100.00 ALESA ALUSUISSE ENGINEERING AUSTRALIA PTY LTD. Australia 100.00 SWISS ALUMINIUM AUSTRALIA LIMITED Australia 100.00 GOVE JOINT VENTURE (THE) Australia 70.00 NABALCO Pty. LIMITED Australia 50.00 ALUSUISSE SCHWEIZERISCHE ALUMINIUM AG Switzerland 100.00 ALUSUISSE SERVICIOS S.A., Panama Panama 100.00 ALUSUISSE SERVICIOS S.A., Venezuela Venezuela 100.00 ALUSUISSE TECHNOLOGY & MANAGEMENT AG Switzerland 100.00 ALUSUISSE TRADING AG Switzerland 100.00 A.P.A. GROUP AG Switzerland 100.00 BOXAL (SUISSE) S.A. Switzerland 100.00 ICELANDIC ALUMINIUM COMPANY LTD. Iceland 100.00 LAWSON MARDON NEHER AG Switzerland 100.00 LAWSON MARDON PACKAGING SERVICES AG Switzerland 100.00 METALLICA S.A. Switzerland 35.00 METALLWERKE REFONDA AG Switzerland 100.00 PRESSWERK DER ALUSUISSE SCHWEIZERISCHE ALUMINIUM AG Switzerland 100.00 SIERRA LEONE ORE & METAL COMPANY LTD. Sierra Leone 100.00 SOCIETE MINIERE ET DE PARTICIPATIONS GUINEE-ALUSUISSE Guinea 50.00 SOR-NORGE ALUMINIUM A/S Norway 50.00 SWISS ALUMINIUM IRAN LTD. Iran 96.67 VIAL GROUP AG Switzerland 100.00 VIALIS AG Switzerland 100.00 BAA HOLDINGS S.A. Luxembourg 100.00 BRITISH ALCAN ALUMINIUM plc England 100.00 ALCAN AUTOMOTIVE STRUCTURES (UK) LIMITED England 100.00 ALCAN CHEMICALS EUROPE LIMITED England 100.00
41 6 ALCAN INC.
Subsidiaries, Related Companies, Etc. Organized % of Voting Under the Shares Held by Laws of Immediate Owner ALCAN CHEMICALS LIMITED England 100.00 ALCAN COLWICK HOLDINGS LIMITED England 100.00 ALCAN COLWICK LIMITED England 100.00 ALCAN FARMS LIMITED England 100.00 ALCAN SWINTON LIMITED England 100.00 BA METALS LIMITED England 100.00 BELFAST ALUMINIUM LIMITED Northern Ireland 100.00 PEARHOUSE LIMITED England 100.00 TBAC LIMITED England 100.00 ALCAN ALUMINIUM UK LIMITED England 85.00 (3) BRITISH ALCAN OVERSEAS INVESTMENTS LIMITED England 100.00 SARATOGA RESOURCES N.V. Netherland Antilles 20.00 VIGELAND METAL REFINERY A/S Norway 50.00 GHANA BAUXITE COMPANY LIMITED Ghana 80.00 ISLEBURN LIMITED Scotland 21.74 MACKAY & MACLEOD ENGINEERING LIMITED Scotland 100.00 KINLOCHLEVEN ROAD TRANSPORT COMPANY LIMITED Scotland 25.00 THE LOCHABER POWER COMPANY Scotland 100.00 VENESTA FOILS LIMITED England 100.00 VIGELANDS BRUG A/S Norway 100.00 THE BOWLING BACK LAND COMPANY England 50.00 ULSTER ALUMINIUM STOCKISTS LIMITED Northern Ireland 100.00 CABLE ALCAN DE MEXICO, S.A. DE C.V. Mexico 100.00 JAMALCAN (unincorporated) Jamaica 93.00 N.V. ALCAN ALUMINIUM PRODUCTS BENELUX S.A. Belgium 100.00 SOCIETE DES ALUMINES ET BAUXITES DE PROVENCE SARL France 100.00 THE ROBERVAL AND SAGUENAY RAILWAY COMPANY Quebec 100.00 UTKAL ALUMINA INTERNATIONAL LIMITED India 35.00
[FN] END-NOTE: ADDITIONAL OWNERSHIP (%) THROUGH THE FOLLOWING SUBSIDIARIES: (1) AL HOLDING USA LLC (2.89) (2) WHEATON USA INC. (1.73) (3) BRITISH ALCAN ALUMINIUM plc (15.00) (4) ALCAN ALUMINIUM AG (1.40) (5) ALCAN ALUMINIUM AG (.01) (6) ALCAN ALLUMINIO S.p.A. (30.00) (7) BRITISH ALCAN ALUMINIUM plc (30.00) (8) NIKKEI HOLDINGS PTE. LIMITED (37.00) (9) NIKKEI HOLDINGS PTE. LIMITED (2.60) (10) ALUMINIUM COMPANY OF MALAYSIA BERHAD (50.00) (11) ALUSUISSE HOLDINGS GmbH (24.90) (12) ALCAN NIKKEI SIAM LIMITED (10.00) (13) SOR-NORGE ALUMINIUM A/S (12.97) (14) LAWSON MARDON PACKAGING SA (.01) (15) ALUSUISSE GROUP AG (.62) (16) ALUSUISSE HOLDINGS UK LTD. (27.27) (17) ALUSUISSE GROUP AG (.76) (18) A-L FINANCIAL PRODUCTS LTD. (6.19) (19) ALUSUISSE HOLDINGS FRANCE S.A. (4.06) (20) ALUSUISSE HOLDINGS FRANCE S.A. (.50) 42 7 (21) ALUSUISSE HOLDINGS GmbH (16.67) (22) ALUSUISSE HOLDINGS FRANCE S.A. (19.99) (23) ALUSUISSE MARTINSWERK GmbH (1.00) (24) LAWSON MARDON PACKAGING LTD. (1.00) (25) LAWSON MARDON PACKAGING SERVICES AG (.08) (26) LAWSON MARDON SINGEN GmbH (1.96) (27) LAWSON MARDON PACKAGING UK LTD. (25.00) (28) ALUSUISSE SINGEN GmbH (.10) (29) ALUSUISSE SINGEN GmbH (1.00) 43 EX-24.1 9 m09446ex24-1.txt POWER OF ATTORNEY: W. BLUNDELL 1 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., 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 22rd day of March 2001. /s/ W.R.C. Blundell --------------------------- Name: W.R.C. Blundell Title: Director EX-24.2 10 m09446ex24-2.txt POWER OF ATTORNEY: M. EBNER 1 Exhibit 24.2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., 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 22rd day of March 2001. /s/ Martin Ebner --------------------------- Name: Martin Ebner Title: Director EX-24.3 11 m09446ex24-3.txt POWER OF ATTORNEY: T. ENGEN 1 Exhibit 24.3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., 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 22nd day of March 2001. /s/ Travis Engen --------------------------- Name: Travis Engen Title: Director EX-24.4 12 m09446ex24-4.txt POWER OF ATTORNEY: J.R. EVANS 1 Exhibit 24.4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., 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 22nd day of March 2001. /s/ J.R. Evans --------------------------- Name: J.R. Evans Title: Director EX-24.5 13 m09446ex24-5.txt POWER OF ATTORNEY: W. KERTH 1 Exhibit 24.5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., 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 22nd day of March 2001. /s/ Willi Kerth --------------------- Name: Willi Kerth Title: Director EX-24.6 14 m09446ex24-6.txt POWER OF ATTORNEY: J.E. NEWALL 1 Exhibit 24.6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., 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 22nd day of March 2001. /s/ J.E. Newall --------------------- Name: J.E. Newall Title: Director EX-24.7 15 m09446ex24-7.txt POWER OF ATTORNEY: P.H. PEARSE 1 Exhibit 24.7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., 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 22nd day of March 2001. /s/ P. H. Pearse --------------------- Name: P. H. Pearse Title: Director EX-24.8 16 m09446ex24-8.txt POWER OF ATTORNEY: G. SAINT-PIERRE 1 Exhibit 24.8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., 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 22nd day of March 2001. /s/ G. Saint-Pierre --------------------- Name: G. Saint-Pierre Title: Director EX-24.9 17 m09446ex24-9.txt POWER OF ATTORNEY: P.M. TELLIER 1 Exhibit 24.9 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., 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 22nd day of March 2001. /s/ P.M. Tellier --------------------- Name: P.M. Tellier Title: Director EX-24.10 18 m09446ex24-10.txt POWER OF ATTORNEY: S. THADHANI 1 Exhibit 24.10 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., 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 22nd day of March 2001. /s/ Suresh Thadhani --------------------- Name: Suresh Thadhani Title: Executive Vice President and Chief Financial Officer EX-24.11 19 m09446ex24-11.txt POWER OF ATTORNEY: R. GENEST 1 Exhibit 24.11 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., 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 22nd day of March 2001. /s/ R. Genest --------------------- Name: R. Genest Title: Corporate Controller EX-27 20 m09446ex27.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Form 10-K of Alcan Inc. for the year ended 31 December 2000 and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR DEC-31-2000 JAN-01-2000 DEC-31-2000 261 0 2,280 55 2,115 4,656 16,786 6,753 18,407 3,840 3,195 0 160 4,597 4,270 18,407 9,148 9,244 7,113 7,113 545 0 78 867 254 618 0 0 0 618 2.45 2.45
EX-99 21 m09446ex99.txt MANAGEMENT PROXY CIRCULAR 1 LOGO ALCAN INC. Notice of Annual Meeting 26 April 2001 Management Proxy Circular [2001 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 ...................................... 2 Voting Shares and Record Date ........................... 3 Voting by Shareholders .................................. 3 Voting by Proxyholders .................................. 3 Appointment of Proxyholders and Revocation of Proxies ............................................ 3 Proxy Voting Procedures .............................. 3 Business at Annual Meeting .............................. 4 Financial Statements and Auditors' Report ............... 4 Election of Directors ................................... 5 Holdings of Shares and Deferred Share Units by Directors ............................................ 8 Holdings of Shares by Others ............................ 8 Corporate Governance Practices .......................... 8 Board Meetings and Board Committees ..................... 10 Corporate Governance Committee ....................... 10 Audit Committee ...................................... 10 Environment Committee ................................ 10 Personnel Committee .................................. 10 Options Committee .................................... 11 Executive Compensation .................................. 12 Report on Executive Compensation ..................... 12 Performance Graph .................................... 17 Summary Compensation Table ........................... 18 Executive Performance Award .......................... 19 Other Compensation ................................... 19 Alcan Executive Share Option Plan .................... 19 Retirement Benefits .................................. 22 Retiring Allowances .................................. 23 Board Fees ........................................... 23 Compensation of Non-Executive Directors ................. 23 Fees and Expenses .................................... 23 Share Investment Plan for Directors .................. 23 Retirement Arrangements .............................. 24 Special Payment ...................................... 24 Indebtedness of Directors and Executive Officers ........ 24 Directors' and Officers' Liability Insurance ............ 25 Appointment of Auditors ................................. 25 Approval of Board of Directors .......................... 25
La version francaise du present document ainsi que la formule de procuration qui l'accompagne seront envoyees aux actionnaires sur demande. Veuillez communiquer avec la Compagnie Trust CIBC Mellon, en appelant au 1-800-387-0825 (sans frais) ou a frais vires au 416-643-5500. 3 ALCAN LETTERHEAD LOGO NOTICE OF ANNUAL MEETING The 99th Annual Meeting of the holders of the Common Shares of Alcan Inc. will be held on Thursday, 26 April 2001 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 2000, 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, LOGO David McAusland Senior Vice President, Montreal, Canada Mergers & Acquisitions, 7 March 2001 Chief Legal Officer and Secretary 1 4 ALCAN LETTERHEAD LOGO 7 March 2001 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 INC. FOR USE AT THE ANNUAL MEETING TO BE HELD IN MONTREAL ON 26 APRIL 2001 (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 Inc., formerly Alcan Aluminium Limited, "Algroup" means Alusuisse Group Ltd. (a Subsidiary of Alcan following the Combination) and, where applicable, one or more of its subsidiaries, "Board" or "Board of Directors" means the Board of Directors of Alcan, "Combination" means the process by which Algroup became a Subsidiary of Alcan on 18 October 2000, through the completion of a share exchange offer by Alcan for the shares of Algroup, "Director" means a Director of Alcan, "Executive Officers" means the President and Chief Executive Officer, the Executive Vice Presidents, the Vice Presidents (including the Secretary), the Treasurer and the Controller of Alcan, "Meeting" means the Annual Meeting of Shareholders to be held on 26 April 2001 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, "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, "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, 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. 2 5 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 7 March 2001, there were 318,372,077 Shares outstanding. Only Shareholders of record at the close of business on that date 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. All proxies or letters of revocation must be delivered NO LATER THAN THE CLOSE OF BUSINESS (5:00 P.M. E.D.T.) ON 25 APRIL 2001: 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 26 APRIL 2001 to the Chairman prior to the commencement of the Meeting. 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 Directors or Executive Officers of Alcan, 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 7), AND FOR THE APPOINTMENT OF AUDITORS (SEE PAGE 25). 3 6 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. 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 2000 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 Nine Directors are to be elected to serve until the close of the 2002 Annual Meeting or until they cease to hold office as such. The Board of Directors and Management recommend the election of the nominees named below.
Director since -------- [PHOTO] W.R.C. BLUNDELL, O.C. 2000 Bill Blundell, 73, is presently interim President and Chief Exec- utive Officer of Alcan and formerly a Director from 1987 to 1999. He has recently retired as chairman of the Manufacturers Life Insurance Company, and is a director of a number of Canadian companies. Mr. Blundell is a vice-chairman of the Canadian Institute of Applied Research, and has served as a member of the National Forum on Health, as chairman of the Wellesley Hospital, and as governor of the University of Toronto. He was with General Electric Canada Inc. from 1949 to 1991, the last six years as chairman and chief executive officer. Mr. Blundell is a member of the Corporate Governance Committee, the Audit Committee and the Personnel Committee, except for his period of service as interim President and Chief Executive Officer. [PHOTO] MARTIN EBNER 2000 Martin Ebner, 55, has been chairman of the Algroup board since April 1999. He is also chairman of the board of directors of BZ Group Holding 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. Mr. Ebner is a member of the Corporate Governance Committee and the Personnel Committee. [PHOTO] TRAVIS ENGEN 1996 Travis Engen, 56, was until recently chairman and chief executive officer of ITT Industries, Inc. in the United States 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. Mr. Engen is a member of the Corporate Governance Committee, and Chairman of the Personnel Committee; his membership on these Committees will cease on March 12, 2001, when Mr. Engen becomes President and Chief Executive Officer of Alcan.
5 8
Director since -------- LOGO DR. JOHN R. EVANS, C.C. 1986 John R. Evans, 71, is non-executive 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, Glyco Design Inc., Retirement Residences Real Estate Investment Trust and vice chairman of NPS Allelix. Dr. Evans is Chairman of the Corporate Governance Committee and a member of the Audit Committee, the Environment Committee and the Personnel Committee. LOGO WILLI KERTH 2000 Willi Kerth, 64, joined Algroup in 1967 and retired from Algroup in 1999. Mr. Kerth held a number of management positions in its German, French, 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. Mr. Kerth is a member of the Corporate Governance Committee and the Environment Committee. LOGO J.E. NEWALL, O.C. 1985 Ted Newall, 65, 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 DuPont Canada Inc. from 1980 to 1991. Mr. Newall is a director of BCE Inc., Bell Canada, Canadian Pacific Ltd., Maple Leaf Foods Inc. and Royal Bank of Canada. 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.
6 9
Director since -------- [PHOTO] GUY SAINT-PIERRE, O.C. 1994 Guy Saint-Pierre, 66, 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. [PHOTO] GERHARD SCHULMEYER 1996 Gerhard Schulmeyer, 62, is president and chief executive officer of Siemens Corporation in the United States, having been president and chief executive officer of Siemens Nixdorf in Germany between 1994 and 1998. 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, serves on the supervisory board of Thyssen-Bornemisza Holding N.V., the boards of Zurich Financial Services, Arthur D. Little, Inc., Ingram Micro, FirePond and Korn/Ferry as well as the international advisory board of Banco Santander Central Hispano. Mr. Schulmeyer is a member of the Corporate Governance Committee and the Audit Committee. [PHOTO] PAUL M. TELLIER, C.C. 1998 Paul M. Tellier, 61, 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 years in the Canadian civil service, which started in 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 and the Audit Committee.
7 10 HOLDINGS OF SHARES AND DEFERRED SHARE UNITS BY DIRECTORS All Directors named in the table below are present Directors and are nominees for election as Directors at the Meeting, there being no other nominees. The second column shows Shares which are beneficially owned (including Shares over which control or direction is exercised). The third column shows Units held under the Deferred Share Unit Plans described on page 24; these Units do not carry voting rights. - ---------------------------------------------------------------------------------------------------------------------------- Number of Name Number of Shares Deferred Share Units - ---------------------------------------------------------------------------------------------------------------------------- W.R.C. Blundell 2,228 1,179(1) - ---------------------------------------------------------------------------------------------------------------------------- M. Ebner 1,912 88(1) - ---------------------------------------------------------------------------------------------------------------------------- T. Engen 5,500 1,674(1) - ---------------------------------------------------------------------------------------------------------------------------- J.R. Evans 4,380 4,978(1) - ---------------------------------------------------------------------------------------------------------------------------- W. Kerth 7,440 75(1) - ---------------------------------------------------------------------------------------------------------------------------- J.E. Newall 7,704 1,908(1) - ---------------------------------------------------------------------------------------------------------------------------- G. Saint-Pierre 11,890 1,558(1) - ---------------------------------------------------------------------------------------------------------------------------- G. Schulmeyer 1,592 1,439(1) - ---------------------------------------------------------------------------------------------------------------------------- P.M. Tellier 1,776 1,022(1) - ----------------------------------------------------------------------------------------------------------------------------
(1) Held as DDSUs described on page 24. Mr. Blundell and his spouse beneficially own, respectively 5,000 and 1,500 Floating Rate Cumulative Redeemable Preference Shares, Series C. Mr. Engen owns his Shares jointly with his spouse. HOLDINGS OF SHARES BY OTHERS As of 31 December 2000, BZ Group Holding Limited, Spezialitaeten Vision AG and Stillhalter Vision AG beneficially owned 35,814,240 Shares, with shared voting and shared dispositive power over this entire amount, according to a Schedule 13D filing; this shareholding amounted to 11.1% of the outstanding Shares. 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 those 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 the Board's 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 nine (9) Directors, W.R.C. Blundell is presently interim President and Chief Executive Officer of Alcan, Gerhard Schulmeyer is chairman of the supervisory board of Alcan Deutschland GmbH (a wholly-owned Subsidiary of Alcan) and Willi Kerth is a director of Alusuisse Swiss Aluminium Ltd. The majority of Directors are unrelated Directors. 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. Alcan does not have a controlling Shareholder. The composition of the Board, accordingly, meets the test in Guidelines 2 and 3. 8 11 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. 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. The Board is satisfied that its number of Directors provides for an efficient Board and meets the criteria in Guideline 7. 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 Board has appointed five committees as described on pages 10 and 11. Each Committee is made up of Non-Executive Directors and a majority of unrelated Directors and, therefore, the requirements in Guideline 9 are met. The mandate of the Corporate Governance Committee also includes the review of corporate governance practices in general and, therefore, meets the requirements in Guideline 10. 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 in accordance with Guideline 11. 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. The mandate of the Audit Committee, which is composed entirely of Non-Executive Directors, is described on page 10. The Committee has direct discussions with external and internal auditors. This is in accordance with Guideline 13. 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. 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 to 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 United States and is reviewed periodically. The investor relations staff meets periodically with investors and analysts and is accessible to Shareholders by telephone during business hours. These services facilitate the receiving of Shareholder comments. 9 12 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 fifteen (15) meetings during 2000, eight of which were held by telephone conference. As part of the terms of the Combination, four Directors have resigned on 26 October 2000: W. Chippindale, E.R. Clitheroe, A.E. Gotlieb and G. Russell. Four new Directors were nominated on the same date: W.R.C. Blundell, M. Ebner, R. Gasser and W. Kerth. The description of the Committees below reflects the current membership. The Board has appointed the Committees 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.R.C. Blundell(1), M. Ebner, T. Engen, J.R. Evans (Committee Chairman), W. Kerth, J.E. Newall, G. Saint-Pierre, G. Schulmeyer and P.M. Tellier serve on this Committee, which met six times during 2000. As mentioned above (page 9), 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.R.C. Blundell(1), J.R. Evans, R. Gasser, G. Saint-Pierre (Committee Chairman), G. Schulmeyer and P.M. Tellier serve on this Committee, which met three times during 2000. 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 an 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. J.R. Evans, W. Kerth and J.E. Newall (Committee Chairman) and P.H. Pearse serve on this Committee, which met once during 2000. (1) Except for Mr. Blundell's period of service as interim President and CEO. 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.R.C. Blundell(1), M. Ebner, T. Engen (Committee Chairman), J.R. Evans, and J.E. Newall serve on this Committee, which met five times during 2000. 10 13 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 19. 11 14 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 to Alcan in size, are also involved in cyclical industries, and have a global presence. In the case of the Canada-based Executive Officers, the Compensation Peer Group includes both Canada-based and U.S.-based 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 world-wide, 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 8.5% to 30% 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(R), could be up to three times the guideline amount. All Executive Officers received an award from this component of the EPA Plan for the year 2000. ("EVA(R)" 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 guideline payment range of 8.5% to 20% 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 2000. 12 15 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 16% to 50% 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 worldwide. All Executive Officers received awards from this component of the EPA Plan for the year 2000. 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 either 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 19), 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. Three Executive Officers participate in the Medium-Term Incentive Plan ("MTIP"), 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 2000, this MTIP was terminated and replaced by a new plan, effective 1 January 2001. The Committee approved an award of $299,000 for E.P. LeBlanc and a nil award for R.B. Evans with respect to the prorated 2-year achievements. As regards to J. Bougie's award, see paragraphs 3 and (d) on page 15. 13 16 Given that certain Executive Officers had taken on much larger responsibilities, effective 1 January 2000, as a result of the potential three-way combination between Alcan, Pechiney and Algroup, the Committee recommended the payment of an additional monthly cash compensation related to those additional responsibilities. With the cancellation of the three-way combination, the additional monthly cash compensation was terminated on 30 June 2000. During the 6-month period, the following cash compensation was paid to the following Named Executive Officers (as defined on page 18): J. Bougie $100,000, R.B. Evans $12,000, and E.P. LeBlanc $12,000. Alcan entered into a change of control agreement ("Change of Control Agreement") with certain Executive Officers (J. Bougie, B.W. Sturgell, E.P. LeBlanc, R.B. Evans and R.L. Ball) on 23 July 1999 which is due to expire on 31 July 2002. The terms of the Change of Control Agreement are effective upon the occurrence of two events: (1) a change of control of Alcan (as defined in the Change of Control Agreement), and (2) the termination of the Executive Officer's employment with Alcan either by Alcan without cause other than for disability or by the Executive Officer himself for good reason (as defined in the Change of Control Agreement such as any material diminution in the Executive's duties and responsibilities, reduction in annual base salary rate, or relocation of his principal business location) within a period of 12 months from the date of such change of control. In addition, in the event that the Executive Officer's employment with Alcan is either terminated by Alcan without cause other than for disability or terminated by himself for good reason (based on an event occurring within three months prior to the occurrence of a change of control), within three months prior to the occurrence of a change of control, such termination is deemed to be covered by the Agreement. If the Executive Officer's employment is terminated for cause following a change of control, Alcan will pay the Executive Officer his base salary, the prorated amount of the guideline award under the EPA Plan and the cash value of any untaken and accrued vacations to the date of termination. Alcan will also accrue service under its pension plans and maintain all other benefits and perquisites in which the Executive Officer participates to the date of termination and not grant any Options to purchase Shares under the Alcan Executive Share Option Plan (described on page 19) to the Executive Officer between the date of notice of termination and the actual date of termination. If Alcan terminates the employment of the Executive Officer following a change of control without cause or if the Executive Officer terminates his own employment after a change of control for good reason, the Executive Officer will be entitled to an amount equal to 36 times the sum of his monthly (a) base salary on the date of termination, (b) EPA guideline amount in force at the date of termination, and (c) MTIP at the date of termination. 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 60% of its assets and 80% of its employees located outside Canada, the Committee decided to set the total annual compensation of its Chief Executive Officer, beginning in 1997, at the level of U.S.-based peers in similar enterprises. In making this change, the Committee increased the proportion of the Chief Executive Officer's 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 determined to administer the Chief Executive Officer's total compensation with a longer term perspective rather than through annual adjustments. To this end, Mr. Bougie's compensation was established in accordance with a 43-month term agreement (1 January 2000 to 31 July 2003). Under this modified approach, the fixed portion of the total compensation (the base salary and the value of pension benefits) represented some 20% thereof while the "at risk" portion, comprising the short-term, medium-term and long-term incentive plans, represented 80% thereof. Furthermore, the "at risk" portion was linked directly to improved long-term Shareholders' value through a combination of grants under the Option Plan and the Executive Deferred Share Unit Plan. 14 17 The 43-month agreement referred to above provided for Mr. Bougie's compensation as follows: 1. A base salary of $800,000 per annum, commencing 1 January 2000 and increasing at the rate of $50,000 per year on the anniversary of 1 January. 2. An annual short-term incentive grant, using the formula under the EPA Plan and based on a guideline of 100% of salary mid-point. The annual grant may be received in the form of EDSUs or cash, as elected by the Chief Executive Officer. For the year 2000, the Chief Executive Officer elected to receive it in the form of EDSUs and received 23,250 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 1999, $40.19). 3. An MTIP, whereby the Chief Executive Officer would be entitled to receive a further award for the first performance cycle (three years) if, over this cycle, Alcan achieves specific financial targets based on the objective of a sustainable improvement of $700,000,000 pre-tax income, subject to adjustment if certain underlying assumptions changed. The achievement of this objective over a three-year cycle would give rise to an award of $1,125,000; lower and higher awards would be made if the income improvement falls short or surpasses that objective as the case may be with a maximum of $2,700,000 for an income improvement of $910,000,000. 4. A leveraged long-term incentive to provide the additional incentive focusing on the creation of shareholder value. In 2000, the Committee granted 975,000 Options. The exercise price was set at Can. $46.38 per Share, exercisable during the period from 18 October 2000 up to 17 October 2010 (10 years from the date of grant). 5. A pension 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 is limited to 40%. However, under certain conditions of termination of employment, his pension would be subject to a minimum guaranteed amount once again based on salary and pensionable EPA at 75% of salary. Resignation of the Chief Executive Officer In view of Mr. Bougie's resignation on 10 January 2001, the Board of Directors, upon recommendation of the Committee, entered into specific retirement arrangements, which override the foregoing and may be summarized as follows: a) in light of (i) Mr. Bougie's contribution to Alcan for over 20 years and his performance as Chief Executive Officer which included the entire strategic refocusing of Alcan and the completion of the Alusuisse Group Ltd. merger, (ii) Mr. Bougie's substantial accrued but untaken vacation, and (iii) Mr. Bougie's undertaking to remain available as a special advisor to the Board of Directors and senior management team, Mr. Bougie will be paid an extraordinary bonus in the aggregate amount of $3,962,140 approximately $1,000,000 of this amount to be paid to Mr. Bougie as an inactive employee over a period of 30 months, subject to acceleration by him. b) all waiting and holding periods in respect of all of Mr. Bougie's Alcan stock options were waived in accordance with the retirement rules of the Share Option Plan; c) Mr. Bougie's pension will be determined according to what he would have been contractually entitled to receive had he retired at age 56 rather than age 53.5. The pension is receivable immediately unless the Board of Directors and Mr. Bougie mutually agree to a different but actuarially equivalent form of payment; and d) the MTIP was cancelled as regards Mr. Bougie with no further payments to be made. 15 18 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. T. Engen, Chairman of the Committee M. Ebner J.R. Evans J.E. Newall 16 19 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 three U.S. Dollar-based indices, the Standard & Poor's 500 Index, the Standard & Poor's Aluminum Index and the Standard & Poor's Metals Mining Index. The Company intends to replace the Standard & Poors Aluminum Index with the Standard & Poors Metals Mining Index, since the former Index only includes the Company and one competitor whereas the broader Metals Mining Index should allow for a more meaningful comparison. In accordance with statutory requirements, both indices are included this year. COMPARISON OF FIVE-YEAR CUMULATIVE PERFORMANCE GRAPH
- -------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 - -------------------------------------------------------------------------------- Alcan 100 110 92 92 144 121 - -------------------------------------------------------------------------------- TSE 300 100 128 148 145 191 205 - -------------------------------------------------------------------------------- S&P Metals Mining 100 102 69 49 94 65 - -------------------------------------------------------------------------------- S&P 500 100 123 164 211 255 232 - -------------------------------------------------------------------------------- S&P Aluminium 100 115 117 119 234 194 - --------------------------------------------------------------------------------
17 20 SUMMARY COMPENSATION TABLE Compensation paid to the Chief Executive Officer and the four other most highly compensated Executive Officers 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 Name and Performance Other Annual Options Share All Other Principal Position Year Salary Award) Compensation Granted Units Compensation (1) (2) (3) (4) (2) ($) ($) ($) (#) (#) ($) - -------------------------------------------------------------------------------------------------------------------------- J. Bougie (5) 2000 800,000 See Note(6) 49,979 975,000(7) 23,250(6) 128,933(8)(9)(15) President and Chief 1999 740,700 See Note(10) 426,486 200,000(7) 71,955(10) 27,173 Executive Officer 1998 739,906 See Note(11) 52,914 0 29,732(11) 20,475 - -------------------------------------------------------------------------------------------------------------------------- E. P. LeBlanc 2000 451,250 346,500(14) 23,725 51,000(7) 0(14) 327,660(8)(9) Executive Vice 1999 393,438 418,815 23,523 51,000(7) 0 141,583(13) President 1998 273,994 126,842 22,408 51,000(12) 4,848 13,287 - -------------------------------------------------------------------------------------------------------------------------- R. B. Evans 2000 451,250 316,800 104,125 51,000(7) 0 34,427(8)(9) Executive Vice 1999 388,750 398,057 32,957 51,000(7) 0 122,835(13) President 1998 308,333 298,377 64,748 32,100(12) 0 17,707 - -------------------------------------------------------------------------------------------------------------------------- B. W. Sturgell 2000 432,500 307,500 38,275 32,100(7) 0 26,952 Executive Vice 1999 395,000 484,550 175,092 51,000(7) 0 13,771 President 1998 336,667 308,786 813,612 32,100(12) 0 15,670 - -------------------------------------------------------------------------------------------------------------------------- R.L. Ball 2000 410,000 270,600 270,102 32,100(7) 0 23,712 Executive Vice 1999 392,500 339,725 181,513 32,100(7) 0 33,775 President 1998 370,000 284,500 218,107 35,100(12) 0 49,148 - --------------------------------------------------------------------------------------------------------------------------
(1) See page 12 for description of the Executive Performance Award Plan. (2) See Other Compensation on page 19. (3) See page 19 for description of the Alcan Executive Share Option Plan. (4) See page 13 for description of the Executive Deferred Share Unit Plan. (5) J. Bougie resigned on 10 January 2001. (6) Received 100% of the EPA in the form of 23,250 EDSUs under the Executive Deferred Share Unit Plan (see paragraph 2 on page 15 for description) based on the Share price ($40.19) at the end of 1999; these qualify for additional EDSUs corresponding to dividends declared subsequently (see page 13 for description). (7) Granted as C Options. (8) See page 13 for description of the Medium-Term Incentive Plan. (9) See page 19 for additional monthly cash compensation. (10) Received 100% of the EPA in the form of 41,205 EDSUs, based on the Share price ($26.89) at the end of 1998; these qualify for additional EDSUs corresponding to dividends declared subsequently (see page 13 for description). Received also in the form of 30,750 deferred share units under the Medium-Term Incentive Plan. (11) 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 13 for description). (12) Granted as C Options together with the same number of associated D Options. (13) Including payment under the Medium-Term Incentive Plan: R.B. Evans $100,000 and E.P. LeBlanc $125,000. (14) 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 13 for description). (15) See page 15, paragraph (a) under caption "Resignation of the Chief Executive Officer". 18 21 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 2000 1.0000 U.S. Dollars 1999 1.0000 Canadian Dollars 1998 0.6710 - ------------------------------------------------------------------------------------------------------------------------------ E. P. LeBlanc U.S. Dollars 2000 1.0000 U.S. Dollars 1999 1.0000 Canadian Dollars 1999 0.6740 Canadian Dollars 1998 0.6710 - ------------------------------------------------------------------------------------------------------------------------------ R. B. Evans U.S. Dollars 2000 1.0000 U.S. Dollars 1999 1.0000 U.S. Dollars 1998 1.0000 - ------------------------------------------------------------------------------------------------------------------------------ B. W. Sturgell U.S. Dollars 2000 1.0000 U.S. Dollars 1999 1.0000 U.S. Dollars 1998 1.0000 - ------------------------------------------------------------------------------------------------------------------------------ R.L. Ball U.S. Dollars 2000 1.0000 U.S. Dollars 1999 1.0000 U.S. Dollars 1998 1.0000 - ------------------------------------------------------------------------------------------------------------------------------
EXECUTIVE PERFORMANCE AWARD The Executive Performance Award Plan and the related Executive Deferred Share Unit Plan are described on pages 12 and 13. 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 19, (c) retirement benefit plans described on pages 22 and 23, (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 18, the amounts indicated for the year 2000 under the column titled Other Annual Compensation include benefits paid to the Named Executive Officers under these plans: automobile usage (J. Bougie, $16,438 and E. P. LeBlanc, $12,137), deemed interest (J. Bougie, $23,621), relocation costs (R. B. Evans, $38,750), housing assistance (R.L. Ball, $113,516), (B.W. Sturgell, $18,270) and domestic and foreign taxes (R.L. Ball, $109,519). 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 12). The Option Plan is administered by the Options Committee referred to on page 11. 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. 19 22 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 24). 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. 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. 20 23 In 1998, Alcan 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. E Options Options granted under the Algroup Share Option Plan on 3 May 2000 were converted into Options of Alcan under the Option Plan as a result of the Combination. These Options are hereinafter referred to as "E Options". The exercise price per Share was originally set at 110% of market price and the right to purchase one share of Algroup was converted in the right to purchase 21.66 Shares of Alcan. Each E Option is exercisable in whole or in part during a period commencing not less than three years after the date of grant and ending not later than five years after that date. In the event of death or disability, this period is waived. As this was a transitional measure related to the Combination, no further E Options will be issued. 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 2000 The following table provides information pertaining to Options granted to the Named Executive Officers during 2000: OPTION GRANTS DURING 2000 - ----------------------------------------------------------------------------------------------------------------------------- Shares Under Exercise Price and Options Percent of Total Market Value on Granted Options Granted Date of Grant Name (#)(1) To Employees in 2000 (Can. $/Share) Expiration Date - ----------------------------------------------------------------------------------------------------------------------------- J. Bougie 975,000(2) 40.2 46.38 17 October 2010 - ----------------------------------------------------------------------------------------------------------------------------- E. P. LeBlanc 51,000(2) 2.1 46.38 17 October 2010 - ----------------------------------------------------------------------------------------------------------------------------- R. B. Evans 51,000(2) 2.1 46.38 17 October 2010 - ----------------------------------------------------------------------------------------------------------------------------- B. W. Sturgell 32,100(2) 1.3 46.38 17 October 2010 - ----------------------------------------------------------------------------------------------------------------------------- R.L. Ball 32,100(2) 1.3 46.38 17 October 2010 - -----------------------------------------------------------------------------------------------------------------------------
(1) Date of grant: 18 October 2000. (2) C Option grant. 21 24 The following table provides certain required information pertaining to Options exercised by the Named Executive Officers during 2000 as well as year-end values: AGGREGATED OPTION EXERCISES DURING 2000 AND YEAR-END OPTION VALUES - -------------------------------------------------------------------------------------------------------------------------------- Shares Underlying Value of Shares Aggregate Unexercised Unexercised Acquired Value Options at In-the-Money Options at Name on Exercise Realized 31 December 2000 (1) 31 December 2000 (1) (#) (Can. $) (#) (Can. $) - -------------------------------------------------------------------------------------------------------------------------------- J. Bougie 0 0 E : 729,900 E : 5,377,938 U : 975,000 U : 5,235,750 - -------------------------------------------------------------------------------------------------------------------------------- E. P. LeBlanc 0 0 E : 169,400 E : 1,971,167 U : 51,000 U : 273,870 - -------------------------------------------------------------------------------------------------------------------------------- R. B. Evans 0 0 E : 116,300 E : 973,055 U : 51,000 U : 273,870 - -------------------------------------------------------------------------------------------------------------------------------- B. W. Sturgell 0 0 E : 117,550 E : 1,116,905 U : 32,100 U : 172,377 - -------------------------------------------------------------------------------------------------------------------------------- R.L. Ball 0 0 E : 151,800 E : 1,918,857 U : 32,100 U : 172,377 - --------------------------------------------------------------------------------------------------------------------------------
(1) E: Exercisable U: Unexercisable RETIREMENT BENEFITS Canadian Plans During 2000, J. Bougie, 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 15). 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 Eaenings ----------------------------------------------------------------------------------------- ($) 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% - -----------------------------------------------------------------------------------------------------------------------------
In view of Mr. Bougie's resignation, specific retirement arrangements provide for a pension of 60% of his pensionable earnings and payable at his date of resignation (see page 15, paragraph (c) under the caption "Resignation of the Chief Executive Officer"). 22 25 Non-Canadian Plans During 2000, R.L. Ball, B. W. Sturgell and R. B. Evans participated in an Alcan-sponsored pension plan in the United States ("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 highest, 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% - -----------------------------------------------------------------------------------------------------------------------------
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 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 2000 pensionable earnings and estimated years of pensionable service (subject to a maximum of 35 years where applicable) on normal retirement at age 65 for the Named Executive Officers were as follows: R.L. Ball, $665,580 and 35 years, B.W. Sturgell, $688,080 and 25 years; E. P. LeBlanc, $599,750 and 33 years; R. B. Evans, $744,270 and 16 years. At retirement, Mr. Bougie's pensionable earnings were $1,120,000 and his years of pensionable service totalled 22 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. COMPENSATION OF NON-EXECUTIVE DIRECTORS FEES AND EXPENSES During 2000, 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 2000 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 2000, travel fees were paid as follows: P.H. Pearse, $7,000; and G. Schulmeyer, $5,000. Non-Executive Directors who are not Canadian residents are entitled to paid tax advice. During 2000 the expenses were paid as follows : T. Engen, $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. 23 26 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. SPECIAL PAYMENT As described on page 10, W. Chippindale, E.R. Clitheroe, A.E. Gotlieb and G. Russell resigned from the Board on 26 October 2000. At the end of the year 2000, the fees and the equivalent of the DDSUs for serving on Committees of the Board and for serving on the Board were paid in cash as if these Non-Executive Directors had completed their mandate until the Meeting. 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 12 February 2001 was $2,544,839. The terms of Option Loans are described on page 20. TABLE OF INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS UNDER OPTION PLAN - ------------------------------------------------------------------------------------------------------------------------------ Name and Principal Position Involvement Largest Amount Financially Security for of Alcan Amount Outstanding Assisted Indebtedness Outstanding as at Share During 2000 12 February Purchases ($) 2001 During 2000 ($) (1) (#) - ------------------------------------------------------------------------------------------------------------------------------ R.L. Ball Executive Vice Lender 63,447 59,726 0 (2) President - ------------------------------------------------------------------------------------------------------------------------------ J. Bougie Former President and Lender 411,975 348,958 0 (2) Chief Executive Officer - ------------------------------------------------------------------------------------------------------------------------------ C. Carroll Vice President Lender 7,397 7,027 500 (2) - ------------------------------------------------------------------------------------------------------------------------------ E.P. LeBlanc Executive Vice Lender 48,742 45,973 0 (2) President - ------------------------------------------------------------------------------------------------------------------------------ G.R. Lucas Vice President and Lender 56,842 51,722 0 (2) Treasurer - ------------------------------------------------------------------------------------------------------------------------------ G. Ouellet Senior Vice President Lender 51,584 48,718 0 (2) - ------------------------------------------------------------------------------------------------------------------------------ B.W. Sturgell Executive Vice Lender 40,242 0 0 (2) President - ------------------------------------------------------------------------------------------------------------------------------ S. Thadhani Executive Vice Lender 105,747 99,872 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. 24 27 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 12 February 2001 was $1,575,459. 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 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 2000 was $370,000 and the limit of insurance is $125 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. LOGO David McAusland Senior Vice President, Mergers & Acquisitions, Chief Legal Officer and Secretary 25 -----END PRIVACY-ENHANCED MESSAGE-----