-----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, S0GdSKDf796p0keqhu4Si0orKOftCLB7AQ4McNl/xrFNe+NcCt9z5y1DDyZX8bHV uAeCcoPr/NTSXRufeGJ/gQ== 0000950123-98-003261.txt : 19980406 0000950123-98-003261.hdr.sgml : 19980406 ACCESSION NUMBER: 0000950123-98-003261 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 DATE AS OF CHANGE: 19980403 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCAN ALUMINIUM LTD /NEW CENTRAL INDEX KEY: 0000004285 STANDARD INDUSTRIAL CLASSIFICATION: 3334 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03677 FILM NUMBER: 98584642 BUSINESS ADDRESS: STREET 1: 1188 SHERBROOKE ST WEST CITY: MONTREAL QUEBEC CANA STATE: A8 BUSINESS PHONE: 5148488000 10-K405 1 ALCAN ALUMINIUM LIMITED 1 _______________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended 31 December 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-3677 ALCAN ALUMINIUM LIMITED Incorporated in: I.R.S. Employer Identification No.: CANADA NOT APPLICABLE 1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A 3G2 Telephone: (514) 848-8000
Securities registered pursuant to Section 12(b) of the Act: Title Name of each exchange on which registered Common Shares without nominal or par value Chicago Stock Exchange New York Stock Exchange Pacific Stock Exchange Common Share Purchase Rights Chicago Stock Exchange New York Stock Exchange Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days: Yes . X. No ... Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by non-affiliates: $7,378 million, as of 20 March 1998 Common Stock of Registrant outstanding: 227,447,459 Common Shares, as of 20 March 1998 Documents incorporated by reference: Annual Report to security holders for the fiscal year ended 31 December 1997 (Parts I, II and IV)
_______________________________________________________________________________ 2 CONTENTS PAGE ================================================================================ PART I Items 1 and 2 Business and Properties. . . . . . . . . . . . . . . . . . . . . 1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Sales and Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Raw Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Smelting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Other Aluminum Sources . . . . . . . . . . . . . . . . . . . . . . . . . .6 Electricity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Fabricating. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Research and Development . . . . . . . . . . . . . . . . . . . . . . . . .9 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . .9 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Competition and Government Regulations . . . . . . . . . . . . . . . . . 10 Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 11 Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . .13 PART II Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . .14 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . .15 Item 7a Quantitative and Qualitative Disclosures about Market Risk . . . . . .15 Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . .16 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . .16 PART III Item 10 Directors and Executive Officers of the Registrant . . . . . . . . . .17 Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . .20 Item 12 Security Ownership of Certain Beneficial Owners and Management . . . .31 Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . .32 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . 34 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Consent of Independent Accountants . . . . . . . . . . . . . . . . . . . . 39 Exhibit No. 21 Subsidiaries, Related Companies, etc. . . . . . . . . . . . 40
3 PART I In this report, unless the context otherwise requires, the following definitions apply: "Alcan", "Company" or "Registrant" means Alcan Aluminium Limited and, where applicable, one or more Subsidiaries, "Annual Report" means the Annual Report for the year ended 31 December 1997, "Board" or "Board of Directors" means the Board of Directors of Alcan, "Dollars" or "$" means U.S. Dollars, "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, "Shares" or "Common Shares" means the Common Shares of Alcan, "Shareholders" means holders 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. Where this is done, the reference will be preceded by the word "See". A typical reference would be "See Annual Report, the section titled "Quarterly Financial Data" on page 59". With the exception of such information specifically incorporated by reference, the Annual Report is not to be deemed filed as part of this Form 10-K Report. ITEMS 1 AND 2 BUSINESS AND PROPERTIES GENERAL Alcan is a Canadian company, incorporated on 3 June 1902, with headquarters in Montreal, Canada, engaged, together with Subsidiaries and Related Companies, in all significant aspects of the aluminum business on an international scale. Alcan is independent of, and operates in competition with, all other aluminum companies. Alcan's operations include the mining and processing of bauxite, the basic aluminum ore; the refining of bauxite into alumina; the generation of electricity 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 1 4 materials into semi-finished and finished products; the distribution and marketing of aluminum and non-aluminum products; the production and sale of industrial chemicals; and research and technology. Alcan, together with its Subsidiaries and Related Companies, has bauxite holdings in six countries, produces alumina in nine, smelts primary aluminum in six, operates aluminum fabricating plants in 14 and has sales outlets and maintains warehouse inventories in the larger markets of the world. Alcan also operates a global transportation network which includes bulk cargo vessels, port facilities and freight trains. For 1997, the Company reported a net income of $485 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 15. SALES AND MARKETS Nearly 90% of Alcan's sales and operating revenues are derived from the sale of aluminum in ingot and fabricated form, including fees charged for converting customer-owned alumina into primary ingot and for converting customer-owned metal into fabricated products. Total Western World primary aluminum shipments (excluding the countries of the CIS, Eastern Europe and China) totalled 17.9 million tonnes in 1995, 17.8 million tonnes in 1996 and 18.9 million tonnes in 1997. For a discussion of the Western World Market and Western World Consumption Versus Alcan Sales, see Annual Report, pages 17 and 18. Alcan's ingot product realizations were $1,739 per tonne in 1997 compared to $1,658 per tonne in 1996 and $1,983 per tonne in 1995. These figures relate to primary and secondary ingot and scrap. For a review of Alcan's Raw Materials and Chemicals Operations, Primary Metals Operations and Fabricated Products Operations, see Annual Report, pages 22 through 27. For the Geographic Review, see Annual Report, pages 27 through 31 and page 57. RAW MATERIALS BAUXITE/ALUMINA Alumina (aluminum oxide) is produced from bauxite, the basic aluminum-bearing ore, by a chemical process. Aluminum is, in turn, produced from alumina by an electrolytic process which uses large quantities of energy to separate the aluminum from the oxygen in alumina. Depending upon quality, between four and five tonnes of bauxite are required to produce approximately two tonnes of alumina which yield approximately one tonne of aluminum. A portion of the alumina produced by the Company is sold in the metallurgical and chemical alumina markets. The Company and its Subsidiaries obtain their requirements of alumina and bauxite from several sources as described below. CANADA The Company owns alumina facilities with a capacity of about 1.2 million tonnes per year at Jonquiere (Quebec). Bauxite for this operation is obtained from Brazil (see below), Guinea (see below) and other sources. Alumina and alumina-based chemicals produced at Jonquiere supply, in part, the smelters in Quebec and are also sold in the North American chemical market. AUSTRALIA The Company has a 21.4% interest in a company which operates an alumina plant at Gladstone (Queensland) which has a capacity of about 3.3 million tonnes per year. Each participant in that plant supplies bauxite for toll conversion. Alcan's bauxite is purchased from a third party in Australia under long-term 2 5 contracts. 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. On 3 February 1998, Alcan and the aforementioned Australian third party signed an agreement providing for the future development of Alcan's Ely bauxite mine in Cape York, Australia, with that party's adjacent operations. BRAZIL The Company purchased close to 2 million tonnes of bauxite in 1997 under contracts in effect through 1999 from a 12.5%-owned company, Minercao Rio do Norte S.A. ("MRN"). MRN's Trombetas mine in the Amazon region has an operating capacity of about 10 million tonnes per year. Bauxite purchased from MRN is processed at the Jonquiere plant (see above) and at the Alumar alumnia refinery in Sao Luis (Brazil) which has an annual capacity of about 1.2 million tonnes; the Company owns a 10% interest and future expansion rights in the latter refinery. Also, a portion of the MRN bauxite is exchanged for bauxite from other sources. The Company owns alumina facilities (and related bauxite mining facilities) with a capacity of about 150,000 tonnes per year at Ouro Preto which supply smelters in Brazil. GHANA The Company purchased about 400,000 tonnes of bauxite in 1997 from Ghana Bauxite Co. Ltd. ("GBC"), in which it held an interest of 45%. As of 19 March 1998, the Company has increased its interest in GBC to 80%. The bauxite purchased is used for processing at the Burntisland plant (see below), the Aughinish plant (see below) and the Jonquiere plant (see above). GUINEA The Company purchased 4 million tonnes of bauxite in 1997 under contracts in effect through 2011 from Compagnie des Bauxites de Guinee ("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 Aughinish plant (see below) and the Jonquiere plant (see above) and is also sold to third parties. In Guinea, the Company also purchased about 100,000 tonnes of alumina in 1997 from Friguia. The Company holds a 20% interest in Frialco S.A. which holds a 51% interest in Friguia, the remaining 49% being held by the Republic of Guinea. The Friguia alumina plant has an operating capacity of about 640,000 tonnes per year. Alumina purchased from Friguia is sold to third parties. IRELAND The Company owns an alumina plant at Aughinish which has a capacity of about 1.3 million tonnes of alumina per year. Bauxite for this operation is purchased almost exclusively from Guinea (see above). In 1997, the alumina produced at Aughinish was consumed by Alcan smelters in the United Kingdom and North America or sold to third parties. JAMAICA The Company has a 93% interest in alumina facilities (and related bauxite mining facilities) with an annual capacity of about 1.1 million tonnes. The Government of Jamaica owns the remaining 7% interest in these facilities. The Company is responsible for management of the operations. In 1997, most of the Company's share of the alumina produced was supplied to Alcan smelters in Canada and the United States. UNITED KINGDOM The Company operates an alumina plant in Burntisland (Scotland), which has an annual capacity of approximately 120,000 tonnes of special aluminas and other chemicals. Bauxite for this operation is purchased from Ghana (see above). Production from this plant is sold in the chemical market. In addition to the foregoing, Alcan owns bauxite-mining and alumina-producing facilities through Related Companies in India and Japan. 3 6 BAUXITE RESERVES Through Subsidiaries and Related Companies, Alcan has approximately 400 million tonnes of demonstrated bauxite reserves, which the Company believes are sufficient to meet its needs for the next 30 years. CHEMICALS AND OTHER MATERIALS The Company, together with its Subsidiaries and Related Companies, produces a wide range of specialty aluminas and aluminum hydroxides for different markets, such as ceramics, refractories, water treatment, catalysts and coagulants; its products are also used as flame retardants and smoke suppressants for plastics and resins. The principal manufacturing facilities for special aluminas and aluminum hydroxides are located in Canada, the U.K., Brazil, Japan and India. Certain chemicals and other materials, e.g., aluminum fluoride, required for the production of aluminum at the Company'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. SMELTING At the end of 1997, the Company owned 13 primary aluminum smelters with a total annual rated capacity of 1,558,000 tonnes. Seven of these smelters, having a total annual rated capacity of 1,093,000 tonnes, are located in Canada. The other smelters are located in Brazil, the U.K. and the U.S.A. The Company has interests, through Related Companies, in a primary smelter in Japan with an annual rated capacity of 20,000 tonnes and in three primary smelters in India with a total annual rated capacity of 117,000 tonnes. 4 7 The table below summarizes the primary aluminum production for 1997, together with annual rated capacities of smelters referred to above at December 31, 1997:
OWNERSHIP AT 31 DECEMBER 1997 RATED COMPANY AND SUBSIDIARIES 1997 PRODUCTION CAPACITY - - - ------------------------ ------------ ------------- ------------- (%) ('000 TONNES) ('000 TONNES) Canada 100 1,096 1,093* Brazil 100 93 109 United Kingdom 100 116 176 United States 100 124 180 ----- ----- Total 1,429 1,558 ----- ----- RELATED COMPANIES Japan 45.6 17 20 India 34.6 39 117 ----- ----- Total 56 137 ----- -----
[FN] * See table below The Company's smelter facilities in Canada are as follows:
SMELTER LOCATION RATED CAPACITY ------- -------- ------------------ ('000 TONNES P.A.) Arvida Jonquiere, Quebec 232 Beauharnois Melocheville, Quebec 48 Grande Baie Ville de la Baie, Quebec 180 Isle Maligne Alma, Quebec 73 Laterriere Chicoutimi, Quebec 204 Shawinigan Shawinigan, Quebec 84 Kitimat Kitimat, British Columbia 272 ----- Total 1,093 -----
Utilization of smelting capacities varies from time to time according to business conditions. In 1995, a ten- day strike at three of the Quebec smelters reduced output by approximately 75,000 tonnes. In connection with the restart of capacity related to the strike, 63,000 tonnes/year of capacity shut down during the previous year was restarted in Quebec, British Columbia and the U.K. in 1995. Earlier in 1995, the Company had restarted 27,000 tonnes/year of shut-down capacity in Brazil. As part of the settlement with the British Columbia Government regarding the Kemano Completion Project, Alcan restarted 22,000 tonnes/year of capacity at Kitimat in 1997. 5 8 For many years, the Company 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. On 19 February 1998, Alcan announced the construction of a 375,000-tonne annual capacity aluminum smelter in Alma, Quebec. It is intended that the existing Isle Maligne smelter, also at Alma, will be shut down when this new smelter becomes operational. The total cost for the new smelter is estimated at $1.6 billion, and construction is expected to extend over a period of 40 months. OTHER ALUMINUM SOURCES Other sources of aluminum include the following: purchases of primary aluminum under contracts and spot purchases, purchases of aluminum used beverage cans and aluminum scrap for recycling and purchases of customer scrap returned against ingot or semi-fabricated product sales contracts. In addition, some aluminum fabricated products are purchased for re-sale. Purchases in 1997 of aluminum of all types from all sources amounted to 1,254,000 tonnes, compared with 1,003,000 tonnes in 1996 and 1,365,000 tonnes in 1995. The Company operates three specialized plants in the U.S.A., with a total annual capacity of 481,000 tonnes, for the recycling of used beverage cans and process scrap returned from customers. A similar plant in the U.K. operates with a capacity of 70,000 tonnes per year. The Company also operates a facility in the U. K. for the production of 70,000 tonnes per year of sheet ingot from aluminum scrap. Additionally, the Company started up a dedicated used beverage can facility in February 1998 in Brazil with an initial capacity of 20,000 tonnes. The Company operates secondary aluminum smelters in Italy, the U.S.A. and Thailand which have capacities of 56,000, 59,000 and 30,000 tonnes per year, respectively, for the production of secondary aluminum from aluminum scrap. The Company has interests, through Related Companies, in four secondary aluminum smelters: three in Japan with annual rated capacities totalling 116,000 tonnes and one in India with an annual rated capacity of 25,000 tonnes. ELECTRICITY Aluminum is produced from alumina by an electrolytic process requiring large amounts of electricity. The smelting of one tonne of aluminum requires between 14 and 18.5 megawatt-hours of electric energy. The Company produces low-cost electricity at its own hydro-electric generating plants in Canada. These plants have an installed generating capacity of 3,583 megawatts, of which 2,730 megawatts may be considered to be hydraulically available over the long term. The Company's generating facilities in Canada are as follows: 6 9
GENERATING STATION LOCATION INSTALLED CAPACITY ------------------ -------- ------------------ (MEGAWATTS) Chute-des-Passes Peribonka River, Quebec 750 Chute-du-Diable Peribonka River, Quebec 205 Chute-a-la-Savane Peribonka River, Quebec 210 Isle Maligne Saguenay River, Quebec 402 Chute-a-Caron Saguenay River, Quebec 224 Shipshaw Saguenay River, Quebec 896 Kemano Kemano, British Columbia 896 ----- Total 3,583
In Canada, all water rights are owned by the Company except for those relating to the Peribonka River in Quebec. In 1984, the Company and the Quebec Government signed a lease extending the Company's water rights relating to that river to 31 December 2033 against an annual payment based on sales realizations of aluminum ingot. An additional charge ("redevance additionnelle") is payable to the provincial government based on total energy generation, escalating at the same rate as the Consumer Price Index in Canada. In British Columbia, rentals and generation taxes for electricity used in smelting and related purposes are directly related to the sales realizations of aluminum produced at Kitimat. For electricity sold to third parties within that province, the Company pays provincial water rentals at rates which are fixed by the provincial government. One-third of the Company's installed hydro-electric 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 plants, as described above, the Company has agreed to purchase, under a long-term agreement, between one and three billion KWh of electrical energy annually from Hydro-Quebec. Electricity required by the Company's smelters in Canada is provided from the foregoing sources. Electricity which is surplus to the Company's needs is sold to neighbouring utilities or customers under both long-term and short-term arrangements. Electricity for the smelters located outside of Canada is supplied from a variety of sources. The smelters in England and Scotland operate their own coal-fired and hydro-electric generating plants, respectively. A Related Company in India operates its own coal-fired generating plant for one of its smelters, while its two other smelters are dependent upon purchased electricity. The smelters in Brazil and that of a Related Company in Japan obtain some of their electricity requirements from owned hydro-electric generating plants and purchase the balance. The smelter in the U.S.A. purchases electricity under a long-term contract. 7 10 FABRICATING 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 which purchase primary and recycled aluminum from the primary producers and the post consumer market. Although Alcan is a leader in international markets for aluminum ingot products, the Company's principal sales are in fabricated aluminum products. In 1997, Alcan shipped 1,694,000 tonnes of fabricated products and manufactured another 276,000 tonnes from customer-owned metal, which together represented 70% of Alcan's total volume for the year. Alcan, together with its Subsidiaries and Related Companies, carries out fabricating operations in more than 60 plants in 14 countries. Due to market conditions, certain fabricating facilities in Europe and the U.S.A. are operating at less than full capacity. FLAT-ROLLED PRODUCTS Alcan is the world's largest producer and marketer of flat-rolled aluminum products (sheet and foil), which constitute over 85% of Alcan's fabricated product volume. At the end of 1997, the Company's annual sheet and foil manufacturing capacity in its principal fabricating markets was as follows: in excess of 1,000,000 tonnes in North America; 140,000 tonnes in South America; over 950,000 tonnes in Europe; and over 40,000 tonnes in Asia. A major portion of Alcan sheet is can stock for beverage containers. Other important end-use markets for sheet include building and construction, transportation, the printing industry and the industrial distribution market. Alcan foil is used for household and commercial packaging applications and for industrial products. During the year, Alcan commenced a project to expand capacity at its Pindamonhangaba, Brazil rolling mill from 100,000 tonnes to 280,000 tonnes. WIRE AND CABLE Aluminum is also cast and rolled into rod which is then drawn into wire and stranded into cable for the transmission and distribution of electricity. Rod is also used for mechanical applications such as screen wire and cable armouring. Alcan's main wire and cable businesses are located in Canada and the U.S.A. CASTINGS Another method of fabrication is the casting of molten aluminum into components for machinery, automotive products and aircraft. Alcan is a supplier of aluminum pistons and other engine components to the automotive industry in Germany, the U.S.A. and Canada. The Company also sells aluminum alloys to independent foundries in Canada, Italy, the U.K. and the U.S.A. EXTRUSIONS The Company's Subsidiaries and Related Companies produce extruded products in several countries (including France, India, Italy, Japan, Malaysia and Thailand) and sell these products locally and in other countries for the 8 11 building, construction, transportation and engineering markets. Examples of end-products using extrusions include windows, doors and automotive components. The Company is also a major supplier of extrusion ingot in many countries. Divestments/Restructuring 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.A. In 1996, Alcan restructured several of its investments in Related Companies in the Asia/Pacific region, as a consequence of which Alcan's effective ownership of Nippon Light Metal Company, Ltd. changed from 47.4% to 45.6%. In Brazil, Alcan sold three fabricating plants in 1996 and a cable business in January 1997. In December 1997, Alcan sold its fabricating Subsidiary in Uruguay. RESEARCH AND DEVELOPMENT Alcan's resource for technology is a global system of research laboratories, applied engineering centres and technical departments. Some of these are operated on a Company-wide basis by the R&D division of Alcan, while others are managed and operated locally by Subsidiaries or Related Companies. The R&D division of Alcan constitutes the largest single body of research effort within Alcan. Responsible for about 60% of total R&D expenses, the division plays a major role in innovation, through basic and applied research. The organization consists of about 500 employees located largely in three laboratories: two in Canada (at Kingston, Ontario and Jonquiere, Quebec) and one in the U.K. (Banbury, Oxfordshire). At Kingston and Banbury, efforts are related mainly to fabricating processes and aluminum product systems as well as developing and improving aluminum alloys. At Jonquiere, efforts are directed more towards primary alumina production, smelter operations and molten metal treatment. The Company's expenditures on research and development amounted to $72 million in 1997 compared to $71 million in 1996 and $76 million in 1995. Corresponding expenditures are expected to be approximately $77 million for 1998. ENVIRONMENTAL PROTECTION In most of the countries where the Company operates production facilities, environmental control regulations have been established or are in the process of being established. The Company 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. The Company's capital expenditures to protect the environment and improve working conditions at the smelters and other locations were $84 million in 1997. Similar expenditures for 1998 and 1999 are expected to be $90 million and $136 million, respectively. In addition, expenditures charged against revenue for environmental protection were $88 million in 1997 and are expected to be $99 million in 1998 and $87 million in 1999. In respect of years beyond 1999, the Company expects that capital and operating expenditures will continue at approximately the same levels. 9 12 EMPLOYEES The following table shows the average number of employees of Alcan on a geographical basis for the year ended 31 December 1997:
COUNTRY/REGION EMPLOYEES ('000) -------------- ---------------- Canada 11 United States 4 South America 3 Europe 11 Asia and Pacific 2 Other 2 -- Total 33 --
A majority of the hourly-paid employees is represented by labour unions. COMPETITION AND GOVERNMENT REGULATIONS The aluminum business is highly competitive in price, quality and service. The Company experiences competition in the sale of aluminum from a large number of companies in all major markets. In addition, aluminum products face competition from products fabricated from several other materials such as plastic, steel, iron, copper, glass, wood, zinc, lead, tin, titanium, magnesium, cement and paper. The Company believes that its competitive standing is enhanced by its ability to supply virtually all its own power requirements for its Canadian and U.K. smelters at low cost. The operations of the Company, like those of other international companies, including its access to and cost of raw materials and repatriation of earnings, may be affected by such matters as fluctuations in monetary exchange rates, currency and investment controls, withholding taxes and changes in import duties and import restrictions. Imports of ingot and other aluminum products into certain markets are subject to import regulations and, where applicable, import duties. These affect the Company's sales realizations and may affect the Company's competitive position. Shipments of the Company's products are also subject to anti-dumping laws of the importing country, which prohibit sales of imported merchandise at less than defined fair values. The Investment Canada Act provides that the acquisition of control of a Canadian business enterprise, such as Alcan, by a "non-Canadian" (as defined in the Act) is subject to review under the Act and may not be implemented unless the Minister of the Government of Canada responsible for the administration of the Act determines that the proposed acquisition is, or is likely to be, of net benefit to Canada. The acquisition by a non-Canadian of a majority of the voting shares of a Canadian company is deemed to constitute the acquisition of control of that company. The acquisition by a non-Canadian of more than one-third but less than the majority of the common shares of a Canadian company is, unless the contrary is established, deemed to constitute the acquisition of control. 10 13 ITEM 3 LEGAL PROCEEDINGS ENVIRONMENTAL MATTERS LITIGATION The Company's U.S. Subsidiary (Alcan Aluminum Corporation, or "Alcancorp") and third parties are defendants in a litigation, 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 in California. 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. Alcancorp will seek to recover contributions over that amount (if any, based on the final determination of clean-up costs) from other defendants in this case. A decision by the Special Master would assign as much as 95% of Alcancorp's liability to the State of California. The decision of the Special Master was appealed to the United States District Court and the District Court confirmed the decision of the Special Master. The matter is now being appealed to the U.S. Court of Appeals for the Ninth Circuit. In a lawsuit instituted before the Federal District Court for the Southern District of New York in 1985, in which Alcancorp is a party, and involving the dumping of allegedly hazardous waste at five New York sites, the Court in June 1991 rendered partial summary judgment holding Alcancorp and other defendants jointly and severally liable for clean-up costs. Alcancorp is planning to appeal as soon as it has a final appealable order from the Court identifying its alleged share of the costs. Alcancorp is party to an EPA lawsuit, instituted in October 1991 before the Federal District Court for the District of New Jersey, relating to the Quanta Resources site in Edgewater, New Jersey. Alcancorp is a third-party defendant in a lawsuit filed by other generators in connection with the Kin Buc site in Edison, New Jersey, instituted in 1988 before the Federal District Court for the District of New Jersey. In a lawsuit brought in July 1987 relating to the Pollution Abatement Services site in Oswego, New York, the Federal District Court for the Northern District of New York found (in January 1991) Alcancorp liable for a share of the clean-up costs for the site, and in December 1991 determined the amount of such share to be $3,175,683. Alcancorp appealed this decision to the United States Circuit Court of Appeals for the Second Circuit. In April 1993, the Second Circuit reversed the District Court and remanded the case for a hearing on what, if any, liability might be assigned to Alcancorp depending on whether Alcancorp can prove that its waste did not contribute to the response costs at the site. Furthermore, the case was consolidated with another case, instituted in October 1991, in which the EPA sued Alcancorp in the Federal District Court for the Northern District of New York seeking clean-up costs in regard to the Fulton Terminals site in Oswego County, New York. 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. Alcancorp appealed to the United States Court of Appeals for the Third Circuit, which in May 1992 reversed the District Court decision and remanded the case to the District Court for a trial on whether Alcancorp can prove that its waste did not contribute to the response costs at the site. In June 1995, the District Court upon hearing cross motions for summary judgment ruled in favour of the government and imposed joint and several liability against Alcancorp and other defendants. Alcancorp filed a motion for reconsideration which was denied in December 1995. Alcancorp appealed the District Court's decision to the United States Circuit Court of Appeals for the Third Circuit and lost. A petition for rehearing was filed and denied by the Court. A hearing before the U.S. Supreme Court was sought but not granted. Alcancorp paid $652,371.09 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. 11 14 In May 1992, Alcancorp received an adverse arbitration ruling in Southern Pacific Railroad v. Alcan in San Francisco, California, in which the arbitrators awarded the plaintiffs $5.4 million from Alcancorp for a clean-up of the plaintiffs' land adjacent to the site of Alcancorp's former Berkeley aluminum powders plant as well as the site itself and for rent claimed to be owed to the railroad. Alcancorp appealed to the Superior Court of California for Alameda County, which rejected the appeal. Alcancorp then appealed to the Court of Appeals of the State of California, First Appellate Division, Division One, which rejected Alcancorp's appeal. Alcancorp then sought discretionary review by the California Supreme Court, which was denied. In 1994, Alcancorp paid the amount plus interest (a total of $6.5 million) into escrow pending a determination of the actual cost of the clean-up. If the actual cost is less than the escrowed amount, Alcancorp will receive a refund of the difference. In September 1993, the EPA issued an order against Alcancorp and other potentially responsible parties ("PRPs") at the Sealand Restoration site in Upstate New York. The order directed the PRPs to supply drinking water to area residents potentially affected by the site. Since the material sent to the site was the same water-oil emulsion which was the subject of favourable decisions by the U.S. Courts of Appeals for the Third and Second Circuits referred to above, Alcancorp refused to supply the water. In February 1996, the Company's U.K. Subsidiary (British Alcan Aluminium plc) sold its investments in several of its Subsidiaries, including Magnesium Elektron, Inc. and Luxfer USA Limited, both located in the U.S.A. However, as part of the sale, British Alcan has agreed to indemnify the purchaser for certain liabilities including those, inter alia, arising out of the following proceedings which are therefore included in this Form 10-K Report: (a) Magnesium Elektron, Inc. ("MEI"; at the time, a Subsidiary of British Alcan Aluminium plc) was sued by the Public Interest Research Group of New Jersey and the Friends of the Earth for exceeding its water discharge limits. The United States District Court for the District of New Jersey imposed a fine of $2.6 million for technical violations and an award of attorneys' fees in the amount of $524,900. MEI appealed the District Court decision to the United States Court of Appeals for the Third Circuit which reversed the judgment in its entirety. MEI is currently awaiting a decision by the plaintiffs to see if they will seek review by the U.S. Supreme Court. (b) Luxfer USA Limited ("Luxfer"; at the time, a Subsidiary of British Alcan Aluminium plc) is a participant in a joint defence group with regard to waste Luxfer sent to the Omega hazardous waste site in Whittier, California. At various times during 1995, Luxfer contributed various amounts totalling $11,800 for defence group costs and the removal of waste from the site, and is now waiting for a report on the cost of the remediation that is needed at the site. (c) Luxfer is also a participant in a joint defence group formed to defend claims by numerous homeowners against various companies who allegedly disposed of industrial waste at a landfill in Monterey Park, California. The group is investigating the claims. INVESTIGATIONS In certain other previously-reported government investigations of contamination by alleged hazardous wastes at sites in Illinois, New York, Pennsylvania, Ohio, New Jersey, North Carolina, Michigan, Missouri 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 that its waste is hazardous. The EPA has responded that, in the EPA's opinion, Alcancorp's waste is hazardous and that it may file lawsuits against Alcancorp as to these sites. In 1995, Alcancorp was advised of five additional sites being similarly investigated: two in Ohio, two in New Jersey and one in Kentucky. 12 15 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. As to those sites not yet subject to litigation, although Alcancorp does not acknowledge any legal obligation to do so, it is cooperating with the governments in each matter to seek fair and reasonable solutions. 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 In March 1996, Alcancorp, along with other U.S. aluminum producers, was sued by a U.S. bicycle manufacturer for alleged price-fixing stemming from the Memorandum of Understanding entered into by six Governments in January 1994. In a summary judgment, rendered in July 1996, the U.S. District court for the Central District of California (county of Los Angeles) dismissed the case. The plaintiff has appealed. 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 1997. 13 16 PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS See Annual Report, the section titled "Common Shares" on page 64. The number of holders of record of Shares on 20 March 1998 was approximately 20,658. 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 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 51, note 14 to Consolidated Financial Statements) and foreign governmental restrictions affecting repatriation of earnings. (See section titled "Competition and Government Regulations" on page 10 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%. ITEM 6 SELECTED FINANCIAL DATA See Annual Report, on pages 60 and 61, for the following items: - - - - under the heading "Consolidated Income Statement Items": - Revenues - Net income (Loss) - - - - under the heading "Consolidated Balance Sheet Items": - Total assets - Total debt - - - - under the heading "Per Common Share": - Net income (Loss) - Dividends paid Commencing 1992, the Company adopted the accrual basis of accounting for post-retirement benefits other than pensions. Commencing 1995, the Company adopted the recommendations of the Canadian Institute of Chartered Accountants concerning the accounting for joint ventures. Commencing 1996, the Company retroactively adopted the recommendations of the Canadian Institute of Chartered Accountants concerning the disclosure and presentation of financial instruments. 14 17 See Annual Report, pages 42 to 43, 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 See the Annual Report, pages 16 through 35, 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 42 to 43 of the Annual Report which compares, for certain items listed, the amounts as reported with the amounts that would have been reported under U.S. GAAP. Refer to the section titled "Competition and Government Regulations" on page 10 of this report for a brief description of the Investment Canada Act as it applies to the Company. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has estimated the impact on 1998 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 1997. INTEREST RATES The net income impact of a 10% movement in interest rates on the Company's invested surplus cash and time deposits at 31 December 1997 and on its variable rate debt outstanding at 31 December 1997 is immaterial. FOREIGN CURRENCY EXCHANGE RATES The effect of an adverse movement of 10% in foreign currency exchange rates on the Company's financial instruments (principally Canadian dollar forward and range forward purchase contracts) outstanding at 31 December 1997 would be to reduce 1998 net income by approximately $58 million. Because all of the Company's foreign currency derivatives 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 financial instruments would be offset by an equal and opposite favourable exchange impact on the commitments being hedged. DERIVATIVE COMMODITY CONTRACTS The effect of a reduction of 10% in aluminum prices on the Company's aluminum forward purchase and options contracts outstanding at 31 December 1997 would be to reduce 1998 net income by approximately $49 million, of which $11 million relates to the cost of unexercised option premiums and $38 million to forward purchase contracts. Because all of the Company's aluminum forward purchase contract positions are taken out to hedge future purchases of metal required for firm sales commitments to fabricated products customers, any negative impact 15 18 of movements in the price of aluminum on the forward purchase contracts would be offset by an equal and opposite impact on the purchases being hedged. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Annual Report, Consolidated Financial Statements on pages 37 through 58 and the "Auditors' Report" on page 36; the section titled "Quarterly Financial Data" on page 59. 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. 16 19 PART III INFORMATION IN THIS PART IS BASED ON INFORMATION CONTAINED IN THE COMPANY'S MANAGEMENT PROXY CIRCULAR DATED 4 MARCH 1998. ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (A) IDENTIFICATION OF DIRECTORS The term of office of each Director runs from the time of his or her election to the next succeeding annual meeting or until they cease to hold office as such. SONJA I. BATA, O.C. - DIRECTOR SINCE 1979 Sonja Bata, 71, has been active in the world-wide Bata Shoe Organization for many years. Mrs. Bata was a director of Bata Limited from 1973 to 1997. Presently she is a director of Compass Limited and vice-chairman of the Bata Shoe Foundation. Mrs. Bata devotes significant time to other business and philanthropic activities. She is chairman of the Bata Shoe Museum Foundation, honorary chairman of the World Wildlife Fund Canada and past chairman of the Board of Governors of Junior Achievement of Canada and North York General Hospital. W.R.C. BLUNDELL, O.C. - DIRECTOR SINCE 1987 Bill Blundell, 70, is chairman of The Manufacturers Life Insurance Company, and 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, chairman of the Wellesley Hospital and 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. JACQUES BOUGIE, O.C. - DIRECTOR SINCE 1989 Jacques Bougie, 50, has been President and Chief Executive Officer of Alcan since November 1993, having served as President and Chief Operating Officer since July 1989. Mr. Bougie joined Alcan in 1979 and held a number of senior management positions until 1989, including having responsibility for all of Alcan's fabricating operations in North America other than rolling. Mr. Bougie is also a director of Royal Bank of Canada and Bell Canada. WARREN CHIPPINDALE, F.C.A., C.M. - DIRECTOR SINCE 1986 Warren Chippindale, 69, was chairman and chief executive partner of Coopers & Lybrand (Canada) from 1971 to 1986 and chairman of Coopers & Lybrand (International) for five years during that period. Mr. Chippindale is a director of BCE Inc., Bell Canada, BCE Mobile Communications Inc., The Spectrum United Funds and The Molson Companies Limited. D. TRAVIS ENGEN - DIRECTOR SINCE 1996 Travis Engen, 53, is chairman, president and chief executive officer of ITT Industries, Inc. in the United States of America and has held several important positions within the ITT organization, including that of executive vice president of ITT Corporation from 1991 to 1995. Mr. Engen is a member of the U.S. President's National Security Telecommunications Advisory Committee. He is a director of Fundacion Chile. He is also a director of Lyondell Petrochemical Company and a member of the Business Round Table and the Manufacturers Alliance Board of Trustees, all of which are located in the United States of America. DR. JOHN R. EVANS, C.C. - DIRECTOR SINCE 1986 John Evans, 68, is Chairman of Alcan as well as chairman of Allelix Biopharmaceuticals Inc. and Torstar Corporation. Dr. Evans was chairman and chief executive officer of Allelix Inc. from 1983 to 1989, president of 17 20 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 Connaught Laboratories Ltd., MDS Health Group Ltd., Pasteur Merieux Serums & Vaccines and Royal Bank of Canada. ALLAN E. GOTLIEB, C.C. - DIRECTOR SINCE 1989 Allan Gotlieb, 70, was Ambassador of Canada to the United States of America from 1981 to 1989 and chairman of the Canada Council from 1989 to 1994. Mr. Gotlieb is a director of Hollinger Inc., Champion International Corporation, AXA Insurance Canada, AXA Pacific Insurance Company, Suncor Energy Inc. and Peoples Jewellers, a senior consultant with the law firm of Stikeman, Elliott, a member of the advisory boards of Nestle Canada Inc., Hollinger International Inc., Investment Co. of America and Julius Baer Investment Advisory (Canada) Ltd., co-chairman of Saturday Night magazine and chairman of the Donner Canadian Foundation. J.E. NEWALL, O.C. - DIRECTOR SINCE 1985 Ted Newall, 62, is vice-chairman, chief executive officer and a director of NOVA Corporation. He was chairman and chief executive officer of Du Pont Canada Inc. from 1980 to 1991. Mr. Newall is a director of BCE Inc., BCI Inc., Canadian Pacific Ltd., Maple Leaf Foods Inc., Methanex Corporation, Royal Bank of Canada and is vice-chairman of the Business Council on National Issues. DR. PETER H. PEARSE, C.M. - DIRECTOR SINCE 1989 Peter Pearse, 65, is a consultant on natural resources economics and policies and president of a private investment company. He is a Professor Emeritus at the University of British Columbia where he was a member of the faculty from 1962 to 1996. Dr. Pearse has served on the Economic Council of Canada, the Canadian Consumer Council, the Board of Governors of the University of British Columbia, the executive board of the Law of the Sea Institute and the board of directors of World Wildlife Fund Canada. Dr. Pearse has conducted two Royal Commissions on natural resources policies and has been an advisor on natural resources matters to Canadian and foreign governments and to the World Bank. SIR GEORGE RUSSELL, C.B.E. - DIRECTOR SINCE 1987 Sir George Russell, 62, is chairman of 3i Group plc, an industrial investment bank in the United Kingdom. Sir George had previously served with Alcan from 1972, becoming managing director of British Alcan Aluminium plc, a Subsidiary of Alcan, in 1981. He resigned from that company in 1986, but rejoined its board in 1997. He is also chairman of Camelot plc and director of Northern Rock Building Society and Taylor Woodrow, all of which are located in the United Kingdom. GUY SAINT-PIERRE, O.C. - DIRECTOR SINCE 1994 Guy Saint-Pierre, 63, 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 currently honorary chairman of the Business Council on National Issues. Mr. Saint-Pierre is a director of BCE Inc., General Motors of Canada and Royal Bank of Canada. GERHARD SCHULMEYER - DIRECTOR SINCE 1996 Gerhard Schulmeyer, 59, has been president and chief executive officer of Siemens Nixdorf Informationssysteme AG and chairman of its managing board since 1994. Prior to joining Siemens Nixdorf, Mr. Schulmeyer was executive vice president and a member of the executive committee of Asea Brown Boveri Ltd. as well as president and chief executive officer of ABB Inc., U.S.A. From 1980 to 1989, he held various senior positions with Motorola Inc., culminating with that of executive vice president, deputy to the chief executive officer, responsible for European business. He is a member of the supervisory boards of Thyssen-Bornemisza Holding N.V. and VOBIS Microcomputer AG. He is also a member of MIT Corporation. 18 21 (B) IDENTIFICATION OF EXECUTIVE OFFICERS The names, ages and positions of the Executive Officers of the Company, at 20 March 1998, are as follows:
NAME AGE POSITION - - - ----- --- -------- J. Bougie 50 President and Chief Executive Officer; Director since 1989 R.L. Ball 51 Executive Vice President, Corporate Development and Technology C. Chamberland 58 Executive Vice President, Smelting and Power J.-P.M. Ergas 58 Executive Vice President, Europe R.B. Evans 50 Executive Vice President, Fabricated Products, North America D. Gagnier 51 Vice President, Corporate and Environmental Affairs E.P. LeBlanc 57 Executive Vice President, Raw Materials and Chemicals G. Ouellet 55 Vice President, Human Resources, Occupational Health and Safety P. K. Pal 62 Vice President, Chief Legal Officer and Secretary E.N. Santos 58 Executive Vice President, South America B.W. Sturgell 48 Executive Vice President, Asia/Pacific S. Thadhani 58 Vice President and Chief Financial Officer G.P. Batt 50 Treasurer D.G. O'Brien 55 Controller
Except as described below, all of the Executive Officers named above have held their present positions or other senior management positions with the Company or its Subsidiaries during the past five years: . prior to joining the Company in January 1995, Mr. Ergas held senior management positions with the Pechiney group of companies; . prior to joining the Company in January 1997, Mr. Evans held senior management positions with the Kaiser Aluminum organization; and . prior to joining the Company in January 1995, Mr. Gagnier was president of a manufacturers' association in Canada and, prior to that, had held senior administrative positions with the Government of Canada (including its Privy Council Office). The term of office of each officer runs from the time of his appointment to the next succeeding annual meeting. 19 22 ITEM 11 EXECUTIVE COMPENSATION 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
Long-term Compensation Annual Compensation ------------------------------- Bonus (Executive Shares Under Name and Principal Performance Other Annual Options All Other Position Year Salary Award) Compensation Granted Compensation (1) (2) (3) ($) ($) ($) (#) ($) - - - --------------- ----- ------ ----------- ------------ ----------- ------------ J. Bougie 1997 707,943 See Note 4 31,786 312,800 20,900 (5) President and 1996 647,415 424,274 45,773 65,000 19,225 Chief Executive Officer 1995 552,799 582,880 32,084 54,500 16,556 J.-P. M. Ergas 1997 508,750 296,125 2,000 20,000 21,301 Executive Vice President 1996 453,061 162,319 83,516 20,000 40,202 1995 330,114 195,428 9,755 36,000 10,999 E.N. Santos 1997 501,270 282,305 33,757 16,700 43,093 Executive Vice President 1996 357,761 168,829 125,942 20,000 12,064 1995 268,195 198,287 32,789 20,000 10,166 R.L. Ball 1997 340,000 246,780 64,516 18,200 46,213 Executive Vice President 1996 312,500 142,762 54,381 18,200 29,218 1995 286,667 213,953 57,065 16,000 14,275 B.W. Sturgell 1997 284,500 246,780 345,210 20,000 18,099 Executive Vice President 1996 202,333 92,039 19,073 6,800 13,161 1995 172,000 73,903 15,839 4,200 10,520
[FN] (1) See page 22 for description. (2) See page 23 for details. (3) See page 24 for description. (4) Awarded in the form of 21,767 EDSUs under the Executive Deferred Share Unit Plan (see page 23 for description), based on the Share price (Can. $46.40) at the end of 1996 (see paragraph 2 on page 27 for details). (5) See also paragraph 3 on page 27. 20 23 Compensation payments to each Named Executive Officer were determined in the currency of his normal place of work. Unless otherwise indicated, all compensation payments reported in this document 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 Canadian Dollars 1997 0.7199 Canadian Dollars 1996 0.7329 Canadian Dollars 1995 0.7298 J.-P. M. Ergas U.S. Dollars 1997 1.0000 British Pounds 1997 1.6404 U.S. Dollars 1996 1.0000 British Pounds 1996 1.5672 U.S. Dollars 1995 1.0000 E.N. Santos Brazilian Reals 1997 0.9250 Canadian Dollars 1996 0.7329 Brazilian Reals 1996 0.9924 Canadian Dollars 1995 0.7298 R.L. Ball U.S. Dollars 1997 1.0000 U.S. Dollars 1996 1.0000 U.S. Dollars 1995 1.0000 B.W. Sturgell U.S. Dollars 1997 1.0000 U.S. Dollars 1996 1.0000 U.S. Dollars 1995 1.0000
COMPENSATION - GENERAL Alcan's executive compensation policies cover cash compensation and benefits, including pensions, and are designed to enable Alcan to attract and retain highly qualified people to carry out the objectives of the organization. The Personnel Committee (the "Committee"), all of whose members with the exception of the Chief Executive Officer are Non-Executive Directors, has the duty and responsibility to review and approve these policies periodically and to make recommendations with respect to such matters either to the Board or to the Chief Executive Officer, as may be appropriate. The policies provide a compensation package that is internally equitable, externally competitive and reflects individual efforts and achievements. The cash compensation structure and benefits programs, including short- and long-term incentive plans, are designed to be competitive with the median of selected comparator groups of companies. These companies, identified as a "Compensation Peer Group", are comparable in size, are involved in cyclical industries as is Alcan, and have a global presence. In the case of the Canada-based Executive Officers, the Compensation Peer Group includes both Canada-based (12) and U.S.-based (15) enterprises. When establishing the level of compensation, weight is given to U.S. compensation practices. For certain Canada-based Executive Officers, an equal weighting is given to both U.S. and Canadian practices while, for the others, more weight is given to Canadian compensation practices. In the case of the Chief Executive Officer, the total annual compensation is set at the level of U.S.-based peers. These different weightings reflect the increasing global importance of the senior management level positions in the organization. 21 24 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. ANNUAL COMPENSATION 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. EXECUTIVE PERFORMANCE AWARD PLAN 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 Corporate Profitability Award ("CPA"). The CPA is related to return on equity. The CPA for the Executive Officers has a guideline payment range of 20% to 35% of salary grade mid-point against which actual performance is measured. The minimum CPA payment can be nil and the maximum, in a year of exceptionally high profits, could be up to three times the guideline amount. The Personnel Committee of the Board establishes a threshold corporate profitability performance target which must be met before any CPA payment will be made. All Executive Officers received an award from this component of the EPA for the year 1997. 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 Personnel Committee for approval at the start of each year. The COA is independent of the CPA objective. For Executive Officers, the COA has a guideline payment range of 15% to 30% of salary grade mid-point. There is a minimum payment of nil and a maximum of twice the guideline amount. All Executive Officers received an award from this component of the EPA for the year 1997. 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 CPA and COA objectives. For Executive Officers, the BUA has a guideline payment range of 15% to 20% of salary grade mid-point. There is a minimum payment of nil and a maximum of twice the guideline amount. The criteria for rewards under this aspect of the EPA are set annually by management at various levels and their respective superiors. There are 17 major business units within Alcan world-wide. All Executive Officers received awards from this component of the EPA, varying within the range mentioned above based on their performance in 1997. 22 25 An exception to the practice described in the preceding paragraphs is made in the case of employees retiring from or otherwise ceasing employment with Alcan. In that year, the employee receives guideline CPA, COA and BUA amounts, prorated for the number of months actually employed. Effective 1 January 1997, the Executive Deferred Share Unit Plan was introduced, under which 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 all or one-half of their EPA in respect of that year, instead of a cash award under the EPA. The number of EDSUs is determined by dividing the amount so elected by the average price of a Share on the Montreal, 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. The Executive Deferred Share Unit Plan is intended to link the interests of the eligible Executive Officers more closely with those of Shareholders. OTHER COMPENSATION Compensation benefits made available to senior employees under various plans included those under (a) the Executive Performance Award Plan (including the Executive Deferred Share Unit Plan) described above, (b) the Alcan Executive Share Option Plan described on page 24, (c) retirement benefit plans described on page 28, (d) life insurance plans, (e) savings plans, (f) plans for the use and parking of automobiles, for professional financial advice through independent organizations, for deemed interest on loans and for the reimbursement of club membership fees, and (g) in applicable cases, expatriate benefits, foreign taxes, housing assistance, and directors' fees from Subsidiaries and Related Companies. In the Summary Compensation Table on page 20, the amounts indicated for the year 1997 under the column titled Other Annual Compensation include benefits paid to the Named Executive Officers under these plans: automobile usage (J. Bougie, $12,250 and E.N. Santos, $22,548), club membership fees (J.-P. M. Ergas, $2,000 and R.L. Ball, $19,085), deemed interest (E.N. Santos, $11,209), expatriate benefits (B.W. Sturgell, $238,852), financial advice (J. Bougie, $8,368), foreign taxes (R.L. Ball, $32,045) and housing assistance (B.W. Sturgell, $72,889). 23 26 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. The Option Plan, which is administered by the Option Committee of the Board, 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 senior employees and to encourage them to contribute to growth in the price of Alcan Shares. The number of Options granted is related to salary grade mid-point but not to the amount of outstanding Options or SARs (described below). 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 generally produces 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 about the same as Canada-based companies within the Compensation Peer Group. A OPTIONS Prior to 22 April 1993, the Option Plan provided for the granting of Options hereinafter referred to as "A Options". No further A Options have been, or may be, issued after that date. The exercise price per Share under A Options was set 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 as determined by the Option Committee of the Board 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 (see INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS on page 32). 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 has provided for Options hereinafter referred to as "B Options". Alcan may issue in any year B Options in respect of a Yearly Allotment, as defined in the Option Plan, of 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. 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 in whole or in part during a period commencing not less than three months after the effective date as determined by 24 27 the Option Committee of the Board ("Waiting Period") 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. Option Loans may not be made in respect of the exercise of Options. The B Options do not have SARs connected therewith unless the above-mentioned committee so determines at the time of grant; no such determination has been made in respect of the B Options currently outstanding. GRANTS AND EXERCISES DURING 1997 The following table provides information pertaining to Options granted to the Named Executive Officers during 1997: OPTION GRANTS DURING 1997
Shares Under Percent of Total Exercise Price and Name Options Options Granted to Market Value on (#) Date of Grant Expiration Date (Can.$/Share) J.-P.M. Ergas 20,000(1) 1.8 48.35 24 September 2007 E.N. Santos 16,700(1) 1.5 48.35 24 September 2007 R.L. Ball 18,200(1) 1.7 48.35 24 September 2007 B.W. Sturgell 20,000(1) 1.8 48.35 24 September 2007 J. Bougie 312,800(2) 28.4 48.91 28 May 2007
[FN] (1) Date of grant: 24 September 1997. One-quarter of the Options may be exercised, cumulatively, after Waiting Periods of 12, 24, 36 and 48 months from the date of grant. (2) Date of grant: 28 May 1997. Options may be exerciced between 1 January 2000 and 28 May 2007. 25 28 The following table provides certain required information pertaining to Options exercised by the Named Executive Officers during 1997 as well as year-end values: AGGREGATED OPTION EXERCISES DURING 1997 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 1997 (1) 31 December 1997 (1) (#) (Can. $) (#) (Can. $) J. Bougie 25,000 565,925 E: 127,950 E: 701,382 U: 401,950 U: 49,444 J.-P.M. Ergas - - E: 18,500 E: 13,005 U: 57,500 U: 39,015 E.N. Santos 7,450 116,007 E: 25,450 E: 122,652 U: 36,150 U: 16,732 R.L. Ball 4,250 73,962 E: 40,700 E: 278,324 U: 43,900 U: 15,228 B.W. Sturgell - - E: 9,025 E: 66,416 U: 28,425 U: 4,606 (1) E: Exercisable U: Unexercisable
During 1997, the Named Executive Officers did not receive or exercise any SARs, nor did they have any remaining unexercised SARs at the year end. COMPENSATION OF THE CHIEF EXECUTIVE OFFICER The Chief Executive Officer's annual compensation is administered by the Non-Executive Directors of 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 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. Given the uniqueness of Alcan as one of the largest global Canadian corporations with two-thirds of its assets and employees located outside Canada, the Committee has decided to set the total annual compensation of its Chief Executive Officer, beginning in 1997, at the level of his U.S.-based peers (15 similar enterprises). In making this change, the Committee has also increased the proportion of his compensation which is variable and "at risk" and, more importantly, has placed greater emphasis on long-term performance linked directly to total shareholder return. With this change, the Committee has decided to administer the Chief Executive Officer's total compensation on a longer term perspective rather than through annual adjustments. To this end, the Chief Executive Officer's compensation is now covered by an agreement with a three-year term. Under this modified approach, the fixed portion of his total compensation (the base salary and the value of pension benefits) will represent some 33% thereof while the "at risk" portion, comprising the short-term, medium-term and long-term incentive plans, will represent 67% thereof. The "at risk" portion is linked directly to improved long-term shareholders' return through a combination of grants under the Option Plan and the Executive Deferred Share Unit Plan (described on page 23). 26 29 The three-year (1997-1999) agreement, referred to above, with the Chief Executive Officer provides for compensation as set out below: 1. A base salary of Can. $1,000,000 per annum, commencing 1 March 1997. 2. An annual short-term incentive grant using the formula under the EPA and based on a guideline of 85% of salary mid-point but to be received in the form of EDSUs. For the year 1997, the Chief Executive Officer received 21,767 EDSUs (the figure being determined by dividing the value he would have received under the EPA by the average price of a Share at the end of 1996, Can. $46.40). 3. As a medium-term incentive, the Chief Executive Officer will be entitled to receive a further award (by way of deferred share units issued under an arrangement that generally parallels the Executive Deferred Share Unit Plan - see page 23) if, over a three-year period, Alcan achieves specific financial targets based on the objective of a sustainable improvement of $300 million in Alcan's net income over 1996, subject to adjustment if certain underlying assumptions change. The achievement of this objective over a three-year cycle will give rise to an award of 19,400 deferred share units; lower and higher awards will be made if the income improvement falls short or surpasses that objective. The maximum would be 58,200 deferred share units for an income improvement of $600 million over 1996. The grant of the deferred share units, if any, under this medium-term incentive will be made in the year 2000. 4. As a long-term incentive in respect of the three-year period under the agreement, the Chief Executive Officer was granted 312,800 Options (see page 20) at an exercise price of Can. $48.91 per Share, exercisable during the period from 1 January 2000 up to 28 May 2007 (10 years from the date of grant). 5. Pensions under the Canadian Plans (see page 28) for eligible Alcan employees are calculated on the basis of salary plus the EPA guideline amount but, in view of the increases in the Chief Executive Officer's direct compensation described above, the pensionable portion of his EPA was reduced from 85% of salary to 40% thereof. This change results in a reduction of about 25% in the pension which would otherwise have accrued to him under the Canadian Plans. However, under certain conditions of termination of employment, his pension will be subject to a minimum guaranteed amount which has been based on salary and pensionable EPA at 85% of salary. 6. The Board may adjust the compensation arrangement set out above in order to correct for a sudden change in the relative values of the Canadian and U.S. Dollars; no such adjustment was made in 1997. 27 30 RETIREMENT BENEFITS Canadian Plans The Alcan Pension Plan (Canada) and the Alcan Supplemental Retirement Benefit Plan (Canada) are together herein referred to as the "Canadian Plans". Pensions up to a statutory limit are payable under the former and, in excess thereof, under the latter. The Canadian Plans provide for pensions calculated on pensionable service and annual average earnings during the 36 consecutive months when they were the greatest, which earnings consist of salary and the Executive Performance Award at its guideline amount (except for J. Bougie; see page 27). The following table shows estimated annual retirement benefits, expressed as a percentage of annual average earnings during the said 36 months, payable upon normal retirement at age 65 to persons in the indicated earnings and pensionable service classifications. CANADIAN PLANS
Average Annual Years of Pensionable Service Earnings ($) 10 15 20 25 30 35 -------------- -- -- -- -- -- -- 900,000 - 2,000,000 17% 25% 34% 42% 51% 59%
The Alcan Supplemental Retirement Benefits Plan also provides for an additional pension to J. Bougie which increases the percentage in the table above by 4%. Non-Canadian Plans During 1997, R.L. Ball and B.W. Sturgell participated in an Alcan-sponsored pension plan in the U.S.A. ("U.S. Plan") which provides for retirement benefits which are generally comparable with the Canadian Plans, but with a ceiling of 60% of annual average earnings and a maximum pensionable service of 35 years. The following table shows estimated annual retirement benefits, expressed as a percentage of annual average earnings during the three consecutive calendar years when they were the greatest, payable upon normal retirement at age 65 to persons in the indicated earnings and pensionable service classifications. U.S. PLAN
Average Annual Years of Pensionable Service Earnings ($) 10 15 20 25 30 35 -------------- -- -- -- -- -- -- 500,000 - 900,000 17% 25% 34% 42% 51% 59% 1,000,000 2,000,000 17% 26% 34% 43% 51% 60%
J.-P.M. Ergas participated in an Alcan-sponsored pension plan in the U.K. and also in a supplemental retirement benefit agreement which provides for a pension based on the terms of the U.S. Plan but in excess of statutory limitations in both countries. E.N. Santos participated in an Alcan-sponsored pension plan in Brazil, which is comparable to the U.S. Plan. 28 31 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 1997 pensionable earnings and estimated years of pensionable service on normal retirement at age 65 (subject to a maximum of 35 years where applicable) for the Named Executive Officers were as follows: J. Bougie, $995,920 and 33 years; J.-P.M. Ergas, $766,250 and 10 years; E. N. Santos, $760,265 and 35 years; R.L. Ball, $559,360 and 35 years; B.W. Sturgell, $503,860 and 25 years. RETIRING ALLOWANCES Upon his retirement, E.N. Santos will be paid a retiring allowance equal to $200,000 plus an amount determined at the rate of $10,000 per year from 1 August 1995 to his retirement date. 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 1997, 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 Option 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 $120,000 during 1997 in lieu of the above fees; effective 1 January 1998, the Chairman's fee was increased to $155,000 per annum. 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 1997, travel fees were paid as follows: P.H. Pearse, $8,000; Sir George Russell, $7,000; and G. Schulmeyer, $7,000. RETIREMENT ARRANGEMENTS Effective 1 January 1997, a Non-Executive Directors' Deferred Share Unit Plan was introduced, under which 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 of the Company next 29 32 following the termination) will be calculated by multiplying the accumulated balance of DDSUs by the average price of a Share on the Montreal, Toronto and New York stock exchanges at the time of redemption. The Non-Executive Directors' Deferred Share Unit Plan is intended to link the interests of the Non- Executive Directors more closely with those of Shareholders. PERFORMANCE GRAPH The following graph compares the cumulative total Shareholder return on Can. $100 invested in Shares with the cumulative total return of the Toronto Stock Exchange 300 Stock Index, assuming reinvestment of all dividends. Additional comparisons, which the Personnel Committee believes to be appropriate, are provided with respect to two U.S. Dollar-based indices, the Standard & Poor's 500 Index and the Standard & Poor's Aluminum Index. (GRAPH - COMPARISON OF FIVE-YEAR CUMULATIVE RETURN) INDEXED RETURNS
Years Ending --------------------------------------------------------------- Base Period Symbol Company/Index 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 - - - --------- ----------------- ------------ ------------ ------------ ------------ ------------ ------------ _________ Alcan Aluminium Ltd. 100.0 119.51 147.95 184.17 202.68 169.57 xxxxxxxxx S&P Aluminum Index 100.0 102.38 125.55 154.72 177.69 180.60 ********* S&P 500 Index 100.0 110.08 111.53 153.45 188.68 251.63 +++++++++ TSE 300 Index 100.0 133.00 132.00 152.00 194.00 224.00
30 33 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The second column in the table below shows Shares which are beneficially owned (including Shares over which control or direction is exercised) as well as Shares subject to Options granted under the Alcan Executive Share Option Plan described on page 24. The third and fourth columns show Units held under the Deferred Share Unit Plans described on pages 29 and 23; these Units do not carry voting rights.
NUMBER OF NAME NUMBER OF SHARES DEFERRED SHARE UNITS DIRECTORS' EXECUTIVE PLAN (1) PLAN(2) S.I. Bata 6,840 354 - W.R.C. Blundell 5,262 415 - J. Bougie 566,863 (3) - 21,767 W. Chippindale 1,615 465 - D.T. Engen 5,500 392 - J.R. Evans 2,902 1,214 - A.E. Gotlieb 1,523 405 - J.E. Newall 4,166 465 - P.H. Pearse 1,996 354 - G. Russell 4,106 405 - G. Saint-Pierre 5,778 354 - G. Schulmeyer 718 341 - Directors and Executive Officers as a group 1,383,063 5,164 28,925
[FN] (1) See page 29 for description. (2) See page 23 for description. (3) Made up as follows: 34,572 Shares, 2,391 Shares in the Alcan Employee Savings Plan and Options to purchase 529,900 Shares. Mrs. Bata's husband beneficially owns 940 Shares. A trust in which Sir George Russell's children have an interest owns 10,523 Shares. Mrs. Bata and Sir George Russell disclaim beneficial ownership in the Shares owned by Mr. Bata and the Russell children, respectively. Mr. Blundell and his wife beneficially own, respectively, 2,000 and 1,500 Floating Rate Cumulative Redeemable Preference Shares, Series C. Mr. Engen owns his Shares jointly with his wife. 31 34 ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 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 all Executive Officers (including the Named 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 9 February 1998 was $4,342,563. The terms of Option Loans are described on page 24. TABLE OF INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS UNDER OPTION PLAN
Name and Principal Position Involvement Largest Amount Financially Security for of Amount Outstanding Assisted Indebtedness Alcan Outstanding as at Share During 1997 9 February Purchases 1998 During 1997(1) ($) ($) (#) - - - ------------------------------------------ ----------- ----------- ----------- -------------- ------------ G.N. de Aguiar Treasurer Lender 77,158 0 0 (2) R.L. Ball Executive Vice President Lender 144,987 75,378 4,250 (2) J. Bougie(3) President and Lender 499,196 492,842 25,000 (2) Chief Executive Officer C. Chamberland Executive VicePresident Lender 81,767 30,929 0 (2) S.B. Heister(4) Executive Vice President Lender 31,782 26,203 0 (2) E.P. LeBlanc Executive Vice President Lender 26,161 24,784 0 (2) D.G. O'Brien Controller Lender 7,361 0 0 (2) G. Ouellet Vice President Lender 61,195 61,195 3,750 (2) P.K. Pal Vice President Lender 88,121 0 0 (2) E.N. Santos Executive Vice President Lender 299,343 284,376 0 (2) S. Thadhani Vice President Lender 125,450 125,450 7,500 (2)
[FN] (1) In respect of A Options only. (2) Security for the indebtedness is provided by the deposit of the certificates representing the relevant Shares with CIBC Mellon Trust Company, as trustee, which holds the certificates registered in its name until full repayment of the particular Option Loan has been made to Alcan. (3) J. Bougie is a nominee proposed for election as Director. (4) S.B. Heister retired during 1997. 32 35 OTHER INDEBTEDNESS The required details with regard to indebtedness of Executive Officers to Alcan other than in respect of Option Loans is shown in the following table. The aggregate indebtedness of all officers and employees and former officers and employees of Alcan and its Subsidiaries to Alcan other than in respect of Option Loans at 9 February 1998 is $2,095,874.
Largest Amount Amount Outstanding as Name and Principal Position Involvement of Alcan Outstanding at at Year-end or Subsidiary during 1997 9 February 1998 ($) ($) - - - ----------------------------------- -------------------- -------------- --------------------- R.L. Ball Executive Vice President Lender (1) 43,257 32,250 E.P. LeBlanc Executive Vice President Lender (2) 89,849 80,994 D. Gagnier Vice President Lender (3) 20,389 18,615 G.P. Batt Treasurer Lender (4) 33,858 0 (1) The indebtedness consists of a residential loan from Alcan. The loan is interest-free, is secured by a mortgage on the residence and matures on 23 September 1999. (2) The indebtedness consists of a residential loan from Alcan. The loan is interest-free, is secured by a mortgage on the residence and matures on 13 May 2004. (3) The indebtedness consists of a residential loan from Alcan. The loan is interest-free, is secured by a mortgage on the residence and matures on 16 February 2005. (4) The loan was repaid on 22 July 1997.
33 36 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS See Annual Report, pages 37 to 58 and the Auditors' Report on page 36 thereof. 2. FINANCIAL STATEMENT SCHEDULES The required information is shown in the consolidated financial statements or notes thereto. 3. EXHIBITS References to documents filed by the Company prior to April 1987 are to SEC File No. 1-3555. References to documents filed by the Company after April 1987 are to SEC File No. 1-3677. (3) Articles of Incorporation and By-laws: 3.1 Certificate of Amalgamation dated 1 January 1995, Certificate of Amendment dated 8 May 1995. (Incorporated by reference to exhibit 3.1 to the Annual Report on Form 10-K of the Company for 1996.) 3.2 By-law No. 1A. (Incorporated by reference to exhibit 3.5 to the Annual Report on Form 10-K of the Company for 1987.) (4) Instruments defining the rights of security holders: 4.1 No long-term debt instrument is required to be filed herewith, and the Company agrees to furnish a copy of any such instrument to the Commission upon request. 4.2 Form of certificate for the Registrant's Common Shares. (Incorporated by reference to exhibit 4.2 to the Annual Report on Form 10-K of the Company for 1989.) 4.3 Shareholder Rights Agreement as amended and restated on 24 April 1995 between Alcan Aluminium Limited and The R-M Trust Company as Rights Agent, which Agreement includes the form of Rights Certificates. (Incorporated by reference to exhibit 4 to the Company's Report on Form 8-K filed on 5 May 1995.) (10) Material Contracts 10.1 Alcan Pension Plan (Canada), restated version, as of October 1990. (Incorporated by reference to exhibit 10.1 to the Annual Report on Form 10-K of the Company for 1990.) 10.1.1 Amendments dated 1 January 1992. (Incorporated by reference to exhibit 10.1.1 to the Annual Report on Form 10-K of the Company for 1991.) 10.1.2 Amendments dated 1 January 1990, Schedule 93-2. (Incorporated by reference to exhibit 10.1.2. to the Annual Report on Form 10-K of the Company for 1994.) 34 37 10.1.3 Amendments dated 1 January 1994, Schedule 93-3 and Schedule 93-4. (Incorporated by reference to exhibit 10.1.3. to the Annual Report on Form 10-K of the Company for 1994.) 10.1.4 Amendments dated 31 December 1994, for Schedule 95-1, 1 January 1996 for Schedule 95-2, 1 January 1992 for Schedule 95-3 and 1 January 1995 for Schedule 95-4. (Incorporated by reference to exhibit 10.1.4 to the Annual Report on Form 10-K of the Company for 1995.) 10.1.5 Amendments dated 1 July 1996 for Schedule 96-1, 1 November 1996 for Schedule 96-2, 1 January 1992 for paragraphs 1, 2 and 3 of Schedule 96-3 and 1 January 1996 for paragraph 4 of Schedule 96-3. (Incorporated by reference to exhibit 10.1.5 to the Annual Report on Form 10-K of the Company for 1996.) 10.2 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 Aluminium Limited Executive Performance Award Plan revised as of October 1994. (Incorporated by reference to exhibit 10.3 to the Annual Report on Form 10-K of the Company for 1994.) 10.4 Alcan Aluminium Limited Financial Counselling Plan. (Incorporated by reference to the exhibit of that name filed with the Annual Report on Form 10-K of the Company for 1981.) 10.5 Alcan Aluminium Limited Executive Automobile Programme revised as of 1 January 1992. (Incorporated by reference to exhibit 10.5 to the Annual Report on Form 10-K of the Company for 1991.) 10.6 Alcan Aluminium Limited Flexible Perquisites Program. (Incorporated by reference to exhibit 10.6 to the Annual Report on Form 10-K of the Company for 1995.) 10.7 Form of Supplemental Retirement Benefits Agreement. (Incorporated by reference to exhibit 10.6 filed with the Annual Report of the Company on Form 10-K for 1983.) 10.8 Alcan Supplemental Retirement Benefit Plan (Canada), February 1992 edition. (Incorporated by reference to exhibit 10.8 to the Annual Report on Form 10-K of the Company for 1991.) 10.8.1 Amendments dated 1 January 1994, Schedule 93-1. (Incorporated by reference to exhibit 10.7.1 to the Annual Report on Form 10-K of the Company for 1994.) 10.8.2 Amendments dated 23 September 1993. (Incorporated by reference to exhibit 10.8.2 to the Annual Report on Form 10-K of the Company for 1994.) 10.9 Indemnity Agreement with Jacques Bougie. Substantially similar agreements have been entered into with all current Directors of Alcan Aluminium Limited. (Incorporated by reference to exhibit 10.9 to the Annual Report on Form 10-K of the Company for 1995.) 35 38 10.10 Alcan Aluminium Limited Retirement Compensation Plan for Non-Executive Directors dated 27 April 1995. (Incorporated by reference to exhibit 10.10 to the Annual Report on Form 10-K of the Company for 1995.) 10.10.1 Amendment dated 1 January 1997. (Incorporated by reference to exhibit 10.10.1 to the Annual Report on Form 10-K of the Company for 1996.) 10.11 Alcan Aluminium Limited Deferred Share Unit Plan for Non-Executive Directors dated 1 January 1997. (Incorporated by reference to exhibit 10.11 to the Annual Report on Form 10-K of the Company for 1996.) 10.12 B.C./Alcan 1997 Agreement. (Incorporated by reference to exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company for the quarter ended 30 June 1997.) 10.13 Employment Agreement dated 24 July 1997 with Jacques Bougie. (Filed herewith.) (13) Annual Report. (Filed herewith.) (21) Subsidiaries and Related Companies of the Company are listed on pages 40 to 43. (23) Consent of Independent Accountants is on page 39. (24) Powers of Attorney. (Filed herewith.) 24.1 Power of attorney of S.I. Bata 24.2 Power of attorney of W. Chippindale 24.3 Power of attorney of D.T. Engen 24.4 Power of attorney of J.R. Evans 24.5 Power of attorney of A.E. Gotlieb 24.6 Power of attorney of J.E. Newall 24.7 Power of attorney of P.H. Pearse 24.8 Power of attorney of G. Russell 24.9 Power of attorney of G. Saint-Pierre 24.10 Power of attorney of G. Schulmeyer (27) Financial Data Schedule. (Filed herewith.) (99) Cautionary statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. (Filed herewith.) (B) REPORTS ON FORM 8-K The Company has not filed any Form 8-K reports during the quarter ended 31 December 1997. 36 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALCAN ALUMINIUM LIMITED 26 March 1998 By /s/ Serge Fecteau ________________________________________ 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 26 March 1998. /s/ Robert des Trois Maisons _______________________________________________________________ Sonja I. Bata, Director By Robert des Trois Maisons, as Attorney-in-fact _______________________________________________________________ W. R. C. Blundell, Director /s/ Jacques Bougie _______________________________________________________________ Jacques Bougie, Director, President and Chief Executive Officer (Principal Executive Officer) /s/ P.K. Pal _______________________________________________________________ Warren Chippindale, Director By P.K. Pal, as Attorney-in-fact /s/ P.K. Pal _______________________________________________________________ D. Travis Engen, Director By P.K. Pal, as Attorney-in-fact /s/ Serge Fecteau _______________________________________________________________ John R. Evans, Chairman of the Board By Serge Fecteau, as Attorney-in-fact 37 40 /s/ P.K. Pal _______________________________________________________________ Allan E. Gotlieb, Director By P.K. Pal, as Attorney-in-fact /s/ Robert des Trois Maisons _______________________________________________________________ J. E. Newall, Director By Robert des Trois Maisons, as Attorney-in-fact /s/ Serge Fecteau _______________________________________________________________ Peter H. Pearse, Director By Serge Fecteau, as Attorney-in-fact /s/ Serge Fecteau _______________________________________________________________ Sir George Russell, Director By Serge Fecteau, as Attorney-in-fact /s/ Robert des Trois Maisons _______________________________________________________________ Guy Saint-Pierre, Director By Robert des Trois Maisons, as Attorney-in-fact /s/ P.K. Pal _______________________________________________________________ Gerhard Schulmeyer, Director By P.K. Pal, as Attorney-in-fact /s/ Suresh Thadhani _______________________________________________________________ Suresh Thadhani, Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Denis G. O'Brien _______________________________________________________________ Denis G. O'Brien, Controller (Principal Accounting Officer) 38 41 CONSENT OF INDEPENDENT ACCOUNTANTS To the Directors of Alcan Aluminium Limited: We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (Nos. 33-6070, 33-34716 and 33-61790) and on Form S-3 (Nos. 2-78568, 2-78713 and 33-82754) of Alcan Aluminium Limited of our Report, dated 12 February 1998 (with the exception of note 22 which is dated 19 February 1998) appearing on page 36 of the 1997 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. /s/ Price Waterhouse -------------------- PRICE WATERHOUSE Montreal, Canada 26 March 1998 39 42 EXHIBIT INDEX References to documents filed by the Company prior to April 1987 are to SEC File No. 1-3555. References to documents filed by the Company after April 1987 are to SEC File No. 1-3677. (3) Articles of Incorporation and By-laws: 3.1 Certificate of Amalgamation dated 1 January 1995, Certificate of Amendment dated 8 May 1995. (Incorporated by reference to exhibit 3.1 to the Annual Report on Form 10-K of the Company for 1996.) 3.2 By-law No. 1A. (Incorporated by reference to exhibit 3.5 to the Annual Report on Form 10-K of the Company for 1987.) (4) Instruments defining the rights of security holders: 4.1 No long-term debt instrument is required to be filed herewith, and the Company agrees to furnish a copy of any such instrument to the Commission upon request. 4.2 Form of certificate for the Registrant's Common Shares. (Incorporated by reference to exhibit 4.2 to the Annual Report on Form 10-K of the Company for 1989.) 4.3 Shareholder Rights Agreement as amended and restated on 24 April 1995 between Alcan Aluminium Limited and The R-M Trust Company as Rights Agent, which Agreement includes the form of Rights Certificates. (Incorporated by reference to exhibit 4 to the Company's Report on Form 8-K filed on 5 May 1995.) (10) Material Contracts 10.1 Alcan Pension Plan (Canada), restated version, as of October 1990. (Incorporated by reference to exhibit 10.1 to the Annual Report on Form 10-K of the Company for 1990.) 10.1.1 Amendments dated 1 January 1992. (Incorporated by reference to exhibit 10.1.1 to the Annual Report on Form 10-K of the Company for 1991.) 10.1.2 Amendments dated 1 January 1990, Schedule 93-2. (Incorporated by reference to exhibit 10.1.2. to the Annual Report on Form 10-K of the Company for 1994.) 43 10.1.3 Amendments dated 1 January 1994, Schedule 93-3 and Schedule 93-4. (Incorporated by reference to exhibit 10.1.3. to the Annual Report on Form 10-K of the Company for 1994.) 10.1.4 Amendments dated 31 December 1994, for Schedule 95-1, 1 January 1996 for Schedule 95-2, 1 January 1992 for Schedule 95-3 and 1 January 1995 for Schedule 95-4. (Incorporated by reference to exhibit 10.1.4 to the Annual Report on Form 10-K of the Company for 1995.) 10.1.5 Amendments dated 1 July 1996 for Schedule 96-1, 1 November 1996 for Schedule 96-2, 1 January 1992 for paragraphs 1, 2 and 3 of Schedule 96-3 and 1 January 1996 for paragraph 4 of Schedule 96-3. (Incorporated by reference to exhibit 10.1.5 to the Annual Report on Form 10-K of the Company for 1996.) 10.2 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 Aluminium Limited Executive Performance Award Plan revised as of October 1994. (Incorporated by reference to exhibit 10.3 to the Annual Report on Form 10-K of the Company for 1994.) 10.4 Alcan Aluminium Limited Financial Counselling Plan. (Incorporated by reference to the exhibit of that name filed with the Annual Report on Form 10-K of the Company for 1981.) 10.5 Alcan Aluminium Limited Executive Automobile Programme revised as of 1 January 1992. (Incorporated by reference to exhibit 10.5 to the Annual Report on Form 10-K of the Company for 1991.) 10.6 Alcan Aluminium Limited Flexible Perquisites Program. (Incorporated by reference to exhibit 10.6 to the Annual Report on Form 10-K of the Company for 1995.) 10.7 Form of Supplemental Retirement Benefits Agreement. (Incorporated by reference to exhibit 10.6 filed with the Annual Report of the Company on Form 10-K for 1983.) 10.8 Alcan Supplemental Retirement Benefit Plan (Canada), February 1992 edition. (Incorporated by reference to exhibit 10.8 to the Annual Report on Form 10-K of the Company for 1991.) 10.8.1 Amendments dated 1 January 1994, Schedule 93-1. (Incorporated by reference to exhibit 10.7.1 to the Annual Report on Form 10-K of the Company for 1994.) 10.8.2 Amendments dated 23 September 1993. (Incorporated by reference to exhibit 10.8.2 to the Annual Report on Form 10-K of the Company for 1994.) 10.9 Indemnity Agreement with Jacques Bougie. Substantially similar agreements have been entered into with all current Directors of Alcan Aluminium Limited. (Incorporated by reference to exhibit 10.9 to the Annual Report on Form 10-K of the Company for 1995.) 44 10.10 Alcan Aluminium Limited Retirement Compensation Plan for Non-Executive Directors dated 27 April 1995. (Incorporated by reference to exhibit 10.10 to the Annual Report on Form 10-K of the Company for 1995.) 10.10.1 Amendment dated 1 January 1997. (Incorporated by reference to exhibit 10.10.1 to the Annual Report on Form 10-K of the Company for 1996.) 10.11 Alcan Aluminium Limited Deferred Share Unit Plan for Non-Executive Directors dated 1 January 1997. (Incorporated by reference to exhibit 10.11 to the Annual Report on Form 10-K of the Company for 1996.) 10.12 B.C./Alcan 1997 Agreement. (Incorporated by reference to exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company for the quarter ended 30 June 1997.) 10.13 Employment Agreement dated 24 July 1997 with Jacques Bougie. (Filed herewith.) (13) Annual Report. (Filed herewith.) (21) Subsidiaries and Related Companies of the Company are listed on pages 40 to 43. (23) Consent of Independent Accountants is on page 39. (24) Powers of Attorney. (Filed herewith.) 24.1 Power of attorney of S.I. Bata 24.2 Power of attorney of W. Chippindale 24.3 Power of attorney of D.T. Engen 24.4 Power of attorney of J.R. Evans 24.5 Power of attorney of A.E. Gotlieb 24.6 Power of attorney of J.E. Newall 24.7 Power of attorney of P.H. Pearse 24.8 Power of attorney of G. Russell 24.9 Power of attorney of G. Saint-Pierre 24.10 Power of attorney of G. Schulmeyer (27) Financial Data Schedule. (Filed herewith.) (99) Cautionary statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. (Filed herewith.) EX-10.13 2 EMPLOYMENT AGREEMENT 1 EMPLOYMENT AGREEMENT BETWEEN JACQUES BOUGIE AND ALCAN ALUMINIUM LIMITED 2 THIS EMPLOYMENT AGREEMENT entered into at Montreal, Canada, as of the 1st day of January 1997 . BETWEEN: Mr. Jacques Bougie (hereinafter referred to as the "CEO"). AND: ALCAN ALUMINIUM LIMITED, a company incorporated under the laws of Canada, having its head office at Montreal, Quebec, Canada (hereinafter referred to as "ALCAN"). AND WHEREAS the Board of Directors of Alcan agrees to maintain Mr. Jacques Bougie in the position of Chief Executive Officer for the duration of this Agreement, subject to the terms and conditions of this Agreement. AND WHEREAS Mr. Jacques Bougie agrees to serve as Chief Executive Officer for the duration of the Agreement, subject to its terms and conditions. THE PARTIES AGREE AS FOLLOWS: 1.0 TERM AND TERMINATION 1.1 The Term of this Agreement shall run from the 1st day of January 1997 to the 31st day of December 1999 (3 years) and therewith terminate unless extended by mutual written Agreement. 1.2 Both parties have the intention to extend this Agreement beyond the termination date at terms and conditions mutually acceptable to the parties. 1.3 On or about 1 July 1999 (6 months prior to expiry date) the parties intend to start outlining the terms and conditions of a new Agreement with effect from 1 January 2000. 2.0 UNDERTAKING AND DECLARATIONS 2.1 For the Term of this Agreement, the CEO hereby agrees not to accept employment offers by any other Corporations. Initials 2 3 3.0 COMPENSATION (All amounts are in Canadian dollars unless stated otherwise) 3.1 BASE SALARY For the duration of the Agreement the Base Salary is set at $1,000,000 per year, effective 1 March 1997. 3.2 EXECUTIVE PERFORMANCE AWARD ("EPA") The total guideline amount defined under the regular Plan is set at 85% of the base salary, i.e. C$850,000 and prorated as follows for each award.
DSU --- - Profitability (%ROE) = 35% or $350,000 7,543 - Corporate (Operating Cash Flow) = 30% or $300,000 6,466 - Business Unit (Agreed Objectives) = 20% or $200,000 4,310 -------- ------ - TOTAL $850,000 18,319
The annual EPA guideline awards will automatically be converted into Deferred Share Units (DSU) for each performance period, at the share price(1) determined under the approved plan. The actual amount credited to the personal account will be the guideline amount of each award adjusted by its approved performance factors. A cash payment will be made at retirement, termination of employment or death (as defined in the approved plan) equal to the number of DSU multiplied by the share price of Alcan's common stock. From the date of allocation, dividends payable on the accumulated DSU will be converted into additional DSU (as specified in the approved plan). 3.3 MEDIUM TERM INCENTIVE PLAN ("MTIP") Under the MTIP, a three year performance period ("cycle") is established with a payout paid if certain minimum, target or maximum performance thresholds are achieved at the end of the cycle. The Board of Directors ("Board") has discretion to apply different performance criteria for different cycles. The Board also has discretion during a cycle to adjust performance measures set for that period to reflect changes in accounting principles and practices, mergers, acquisitions or divestitures or extraordinary non-recurring or unusual items. The payout, if at all, for the first 3 year cycle (1997-1999) will be made in February 2000 on the basis of achieving Full Business Potential ("FBP") and having completed the full _____________________ [FN] 1 For year 1997 the share price is C$46.40 providing a total guideline share units of 18,319. Initials - 3 - 4 3 year term of employment. The payout will be in the form of DSU, allocated at the end of the performance cycle, however payable only at retirement, termination of employment or death, based on the share price of Alcan's common stock. From the date of allocation to the date of payment dividends will accrue in the form of additional DSUs. Performance objectives for the first cycle will relate to the achievement of the Full Business Potential ("FBP") defined as the generation of an additional sustainable after tax income of US$300 million per year (over and above the 1996 net income base). Schedule "A" describes the definition of "FBP" and the adjustments to be taken into account for its calculation. The minimum target and maximum payouts for the performance periods are shown in TABLE 1 below. TABLE 1 MEDIUM TERM INCENTIVE DEFERRED SHARE UNITS DEGREE OF ACHIEVEMENT OF "FBP" ------------------------------
LESS THAN S$300 M US$450 M MORE THAN US$150 M US$600 M Performance 0 1.0 x 2.0 x 3.0 x Rating Grants of Share2 Nil 19,400 38,800 58,200 Units
Results between US$150 Million and US$600 Million will be prorated. 3.4 ALCAN EXECUTIVE SHARE OPTION PLAN ("AESOP") The CEO will be granted 312,800 share options at an exercise price of C$48.913, exercisable for a period of 10 years from the date of grant (28 May 1997). Up to 100% of the shares under option may be exercised on or after 1 January 2000. 3.5 PENSION 3.5.1 The CEO's annual Pensionable Earnings from 1 January 1997 are equal to 140% of Basic Pay. _____________________ [FN] 2 For the first 3 year cycle, the number of share units have been established on a share price of $46.40 ($300,000 p.a. x 3 yr/$46.40) Initials - 4 - 5 3.5.2 The Appendix 1 of the Board Resolution dated 22 September 1993 will be amended to provide for the following minimum guaranteed pension from all company sources, subject to the conditions below :
AGE AT MINIMUM GUARANTEED RETIREMENT PENSION (CDN $) 52 500,000 53 612,500 54 725,000 55 837,500 56 950,000 57 1,000,000 58 1,050,000 59 1,100,000 60 1,150,000
The minimum guarantee applies at any age from 52 if the CEO's termination of employment is requested by the Board OR if there is a mutual agreement between the Board and the CEO, or if the appointment of a new Chair of the Board is not acceptable to the CEO. In the case of the CEO's unilateral decision to retire, except as provided above, the guaranteed level only applies from age 56. 4.0 SPECIAL CONDITIONS 4.1 In the event of a sudden drop in the value of the Canadian dollar in relation to the US dollar caused by an event deemed by the Board to justify making an upward correction to the compensation values stated in paragraphs 3.1 and 3.5, such correction will be made for the remaining period of the Agreement. 4.2 A sudden drop in the value of the Canadian dollar would translate into a corresponding increase in the price of Alcan's shares when quoted in Canadian dollars. Even though the value of DSUs payable under paragraph 3.2 and 3.3 and the value of stock options payable under paragraph 3.4 should be self correcting, the Board will nevertheless review the impact to ensure a just and equitable treatment. Initials 5 6 4.3 5.0 TERMINATION OF EMPLOYMENT In the event of a termination of employment initiated by the Board, the parties agree that a separate termination agreement will be negotiated to arrive at mutually acceptable terms. Notwithstanding the Term of this Agreement, it is understood by both parties that the employment relationship between the CEO and Alcan is not for a fixed term but for an indefinite term, and therefore, such separate termination agreement will be negotiated in this context. 6.0 DISABILITY 6.1 In the event the CEO becomes disabled prior to 31 December 1999 and cannot perform the duties of his position, Alcan shall maintain full payment of the amounts under paragraph 3.1 for a period of 12 months after the date deemed disabled. Regular EPA amounts will also be payable during the period. After the period of pay continuance the CEO will receive regular LTD benefits. In addition to the pay continuation stated above, the Board may at its discretion recommend that a portion of the MTIP payment (paragraph 3.3) be made even though through no fault on the CEO's part he was not able to complete the performance period (3 years). 7.0 DEATH 7.1 In the event of death prior to age 56, in addition to the regular benefit payable under the life assurance program and the death benefits payable under the Alcan Pension Plan using the minimum guarantee described under paragraph 3.5.2, the Company will pay to the Estate of the CEO the following amounts: 7.1.1 the EPA guideline amount prorated to the date of death; 7.1.2 the DSU amount payable under the program (paragraph 3.2); 7.1.3 a discretionary amount deemed by the Board to be a just and equitable payment for the progress toward achieving the objectives under the MTIP program (paragraph 3.3). Initials 6 7 8.0 OTHER EXECUTIVE BENEFITS AND PERQUISITES All other benefits and perquisites currently available to the CEO will continue unchanged for the duration of this Agreement, with the exception of those benefits which are calculated on the basis of the definition of pensionable earnings. 9.0 ENGLISH LANGUAGE This contract is written in English at the express request of the Parties. Ce contrat est redige en anglais a la demande expresse des parties. 10.0 APPLICABLE LAW This Agreement shall be interpreted according to the laws of the Province of Quebec. The Parties agree that the courts of the District of Montreal shall have exclusive jurisdiction. IN WITNESS WHEREOF the Parties have signed these presents as at the place and date first hereinabove written. ALCAN ALUMINIUM LIMITED By /s/ John Evans _________________________________ Dr. John Evans Chairman of the Board WITNESS: /s/ Robert Maheu __________________________ /s/ Jacques Bougie ________________________________ Jacques Bougie 8 SCHEDULE A FULL BUSINESS POTENTIAL (FBP) OBJECTIVE By end 1999 to achieve higher run-rate of annual net income. ASSUMPTIONS: - - - - 1996 net income - - - - 1996 average metal price of $1530/t (LME - 3 months) - - - - C$ exchange rate of .73 cents - - - - Smelters operating at full capacity - - - - No major strategic investment, acquisition or merger TARGET: US$300 M ADJUSTMENTS: - - - - As per the basic assumptions - - - - For major strategic initiatives - - - - For large expense portion of Capex taking place in 1999 - - - - Alcan Aluminium Limited EX-13 3 ANNUAL REPORT 1 Alcan Aluminium Limited 1997 ANNUAL REPORT Alcan Aluminium Limited, a Canadian corporation, is the parent company of an international group involved in all aspects of the aluminum industry. Through subsidiaries and related companies around the world, the activities of the Alcan Group include bauxite mining, alumina refining, power generation, aluminum smelting, manufacturing and recycling as well as research and technology. Approximately 33,000 people are directly employed by the Company, with thousands more employed in its related companies. In the 96 years since it was established, Alcan has developed a unique combination of competitive strengths, with owned hydroelectricity in Canada, proprietary process technology and international presence. With operations and sales offices in more than 30 countries, the Alcan Group is one of the most international aluminum companies as well as the largest producer of flat-rolled aluminum products. The word ALCAN and the Alcan symbol are registered trademarks in more than 100 countries and are synonymous with aluminum the world over. The Alcan Group is a multicultural and multilingual enterprise reflecting the differing corporate and social characteristics of the many countries in which it operates. Within a universal framework of policies and objectives, individual subsidiaries conduct their operations with a large measure of autonomy. Alcan Aluminium Limited has approximately 20,700 registered holders of its common shares and 1,200 registered holders of its preference shares. While distributed internationally, the Company's shares are mostly held in North America. CONTENTS 1 Highlights of the Year 2 Message to Shareholders 8 Corporate Social Responsibility 12 The Alcan Group's Businesses at a Glance 16 Management's Discussion and Analysis 36 Responsibility for the Annual Report, OECD Guidelines and Auditors' Report 37 Consolidated Financial Statements 40 Notes to Consolidated Financial Statements 59 Quarterly Financial Data 60 Eleven-Year Summary 62 Corporate Governance 63 Directors and Officers 64 Shareholder Information 65 The Alcan Group Worldwide
1 2 TERMS The word "Alcan" or "Company" means Alcan Aluminium Limited and, where applicable, one or more consolidated subsidiaries. A "subsidiary" is a company controlled by Alcan. A "related company" is one in which Alcan has significant influence over management but owns 50% or less of the voting stock. The "Alcan Group" refers to Alcan Aluminium Limited, its subsidiaries and related companies. In this report, unless stated otherwise, all dollar amounts are stated in United States dollars and all quantities in metric tons, or tonnes. A tonne is 1,000 kilograms, or 2,204.6 pounds. The following abbreviations are used: /t per tonne kt thousand tonnes kt/y thousand tonnes per year Mt million tonnes Mt/y million tonnes per year
ANNUAL MEETING The Annual Meeting of the holders of common shares of Alcan Aluminium Limited will be held on Thursday, April 23, 1998. The meeting will take place at 10:00 a.m. in the Ballroom of the Marriott Chateau Champlain, 1 Place du Canada, Montreal, Quebec, Canada. 2 3 HIGHLIGHTS OF THE YEAR
1997 1996 1995 FINANCIAL DATA (in millions of US$, except per common share amounts) Sales and operating revenues 7,777 7,614 9,287 Net income before extraordinary item 468 410 543 Net income 485 410 263 Return (%) on average common shareholders' equity 10 9 11* Total assets (at year-end) 9,466 9,325 9,736 Capital expenditures 641 482 441 Ratio of borrowings to equity (at year-end) 23:77 23:77 29:71 Per common share (in US$) Net income before extraordinary item 2.02 1.74 2.30 Net income 2.09 1.74 1.06 Cash from operating activities 3.17 4.34 4.63 Dividends 0.60 0.60 0.45 Common shareholders' equity (at year-end) 21.43 20.57 19.84 OPERATING DATA (in thousands of tonnes) Fabricated products shipments** 1,970 1,797 1,958 Ingot products shipments*** 858 810 801 Primary aluminum production 1,429 1,407 1,278 Secondary/recycled aluminum production 670 639 523 AVERAGE THREE-MONTH LME PRICE (in US$/tonne) 1,620 1,536 1,830
[FN] *** Before extraordinary item. *** Includes products fabricated from customer-owned metal. *** Includes primary and secondary ingot and scrap. 3 4 NET INCOME (LOSS) AND AVERAGE THREE-MONTH LME PRICE US$/t 1993 = 1,161 1994 = 1,500 1995 = 1,830 1996 = 1,536 1997 = 1,620 MILLIONS OF US$ 1993 = (104) 1994 = 96 1995 = 543 1996 = 410 1997 = 468 Net income improved in 1997 to reflect higher volumes, although products prices were lower. * Before extraordinary item. FABRICATED PRODUCTS SHIPMENTS Fabricated products shipments KT 1993 = 1,651 1994 = 1,952 1995 = 1,958 1996 = 1,797 1997 = 1,970 Fabricated products shipments adjusted for acquisition and divestments KT 1993 = 1,291 1994 = 1,636 1995 = 1,787 1996 = 1,786 1997 = 1,970 Fabricated products volumes grew 10% to reach their highest-ever level in 1997. With earlier years adjusted for acquisitions and divestments, compound annual growth since 1993 was 11%. 4 5 MESSAGE TO SHAREHOLDERS OUR STRATEGIC PRIORITIES * Continue implementation of Full Business Potential with the target of increasing after- tax returns by $300 million and earning our cost of capital. * Strengthen the position of aluminum in the marketplace and ensure its future as the material of choice. * Aggressively seek out opportunities to maximize shareholder value. We can take great pride in what Alcan accomplished during 1997. Net income for the year was US$485 million and we achieved a 10% increase in overall shipments of fabricated products, which translates into increased market share. Particularly noteworthy were our results in Europe, where we succeeded in boosting shipments by 16% -- significantly above the growth in regional demand - - - -- while holding fabricating costs to levels virtually unchanged from the previous year. Perhaps most importantly from a shareholder's standpoint, we also made considerable headway during 1997 in terms of improving Alcan's underlying profitability. AN EVENTFUL YEAR FOR THE INDUSTRY Nineteen ninety-seven was an eventful year for the industry with market fundamentals showing steady improvement until the onset of economic difficulties in Asia late in the year. Western World aluminum consumption climbed 5.4%, led by steadily increasing demand from the transportation industry. Gains were recorded in all major market sectors -- including can stock, where Alcan has a leading position. In the U.S., manufacturers of aluminum beverage cans surpassed the 100-billion-can milestone for the first time. DELIVERING ON ALCAN'S STRATEGIC PRIORITIES You may recall the three strategic priorities Alcan identified for 1997: implementing our "Full Business Potential" program; strengthening the position of aluminum in the marketplace; and maximizing shareholder value. We are pleased to report that excellent progress has been made in each of these areas. In terms of full business potential, we have attained one-third of our targeted $300 million, after tax, in productivity improvements. To date, these improvements have come primarily in the areas of raw materials and fabricated products in Europe and North America. This three-year program is proceeding on plan as 1998 unfolds, with further significant improvement anticipated. Such progress notwithstanding, Alcan still is not earning its cost of capital. While we are confident that the achievement of full business potential will get us to that point, we have introduced Economic Value Added (EVAregistered trademark) as a tool that will support decision-making and enable us to measure our effectiveness in terms of creating increased shareholder value. Here, too, we are determined to deliver on our commitment. With regard to promoting aluminum as the material of choice, Alcan has been active on several fronts. For instance, we have forged partnerships with key customers that will lead to further increases in the use of aluminum by important global industries. And we have taken a lead role within our own industry as an advocate of intensified recycling programs and other initiatives that will enable us to capitalize on the metal's inherently superior properties. Such endeavours have taken on added significance, given the heightened public awareness of environment and energy-related issues in the wake of last fall's Kyoto, Japan, environmental conference. 5 6 NOTEWORTHY ACHIEVEMENTS Other noteworthy developments during 1997 include: - - - - Settlement of a long-standing dispute with the government of British Columbia (B.C.) over the Kemano Completion Project, effectively putting B.C. back on Alcan's investment map; - - - - Agreement regarding supply of low-cost bauxite through the development of our Ely reserves in Australia; - - - - Solid progress on the major expansion of our Pindamonhangaba, Brazil, fabricating facilities, the success of which entails close cooperation between Alcan operations in North and South America; and - - - - The signing of a memorandum of understanding (MOU) with China National Non- Ferrous Metals Industry Corporation to complete a detailed feasibility study for a proposed aluminum smelter and dedicated power-generating station project in China. This MOU was signed with the full support of China's State Planning Commission. Subsequent to the year's end, we announced our decision to proceed with development of a new 375,000-tonne smelter at Alma, Quebec. Preliminary planning for this very sizeable US$1.6-billion undertaking was completed during 1997. Environmental clearance for the project has been obtained from the government of Quebec, and we also have reached agreement with Hydro-Quebec on the terms of a long-term contract for the supply of electrical energy. A key consideration for this project is timing; that is, to ensure that the additional capacity will come on stream during a period of expanding world aluminum markets. Work at the site will get under way in early March of this year, with the first aluminum production expected in the fall of 2000. SUCCESS BREEDS CONFIDENCE AND ENTHUSIASM The high level of activity evident throughout Alcan's operations is matched by a high level of confidence and enthusiasm discernable among Alcan personnel - and with good reason. Our successful initiatives in critical areas such as cost reduction, strategic focus and, most recently, full business potential have clearly demonstrated that this organization can achieve what needs to be done to enhance Alcan's status as a global industry leader. Faced with significant challenges - both internal and external - we have developed appropriate action plans and have executed them successfully. Having significantly improved the internal environment - those factors over which we exercise direct control - we are intent on sustaining the positive momentum by addressing some significant external issues. A CONSISTENT STRATEGY IS KEY Consistency is the watchword for 1998. We intend to adhere to our successful approach by continuing to focus on those three key strategic priorities: - - - - Continuing implementation of full business potential; - - - - Maintaining our proactive role in promoting aluminum as the material of choice, and - - - - Aggressively seeking out further opportunities to maximize shareholder value. 7 PURSUING FULL EMPLOYEE POTENTIAL The success of Alcan's full business potential program clearly is dependent upon us also achieving "full employee potential". Accordingly, the Company has undertaken a number of other important initiatives designed to ensure that Alcan is able to develop and retain the best people in the industry, while providing them with a safe, healthy, stimulating and rewarding work environment. These initiatives include: - - - - A new thrust in employee develop-ment, with the introduction of training techniques that focus on maximizing learning and are closely aligned with achievement of Alcan's business objectives; - - - - A Code of Conduct that reiterates the Company's expectations regarding a wide range of ethical issues, and - - - - A new measurement system to ensure global consistency in tracking health and safety performance. ASSUMING ENVIRONMENTAL LEADERSHIP In keeping with our efforts to make certain that Alcan enjoys a reputation second to none, we revised our corporate Environmental Policy, which commits us - on the record - to assuming industry leadership in this field. Further details on many of these initiatives can be found in the Corporate Social Responsibility section of this report. YEAR 2000 COMPLIANCE We should also note that Alcan has in place a Year 2000 compliance action plan. A program is well under way to examine and resolve Year 2000 issues as they affect the Company, thus permitting an orderly transition through the year 2000. ACKNOWLEDGEMENTS As stated at the outset, 1997 was an eventful - and challenging - year. We are grateful for the guidance provided by our fellow directors. And, on behalf of the entire Board, we would like to thank Alcan employees for their exceptional effort and dedication - knowing that they share our pride in the collective achievements of 1997. There's no doubt that, working as partners, we can continue to deliver excellent results in 1998 and beyond. LOOKING AHEAD Industry fundamentals remained sound as the year ended, despite an element of uncertainty stemming from the economic upset in Asia. With inventories reduced by some 300,000 tonnes from 1996 levels, the market was pretty much in balance from a supply-demand perspective and activity continued to be brisk in North America and Europe. We are cautiously optimistic regarding the outlook for 1998 and anticipate further volume growth in fabricated products, unless the impact of the Asian situation spills over into other major markets to a degree not anticipated at this time. Dr. John R. Evans Jacques Bougie Chairman of the Board President and Chief Executive Officer February 19, 1998 8 EXERGUE . . . one-third of our full business potential target attained . . . fundamental characteristics of aluminum make it second to none . . . pride in our collective achievements . . . Our ultimate goal maximizing shareholder value CAPTION Jacques Bougie (left), President and Chief Executive Officer, and Dr. John R. Evans, Chairman of the Board. 8 9 CORPORATE SOCIAL RESPONSIBILITY OUR WAY OF DOING BUSINESS: * bullet Youth of today are tomorrow's leaders; * bullet Communities are partners in growth; * bullet Environmental Management System initiated at all locations; * bullet Occupational health and safety is paramount; * bullet Code of Conduct is our reputation; * bullet Employees lead us to Full Business Potential. INVESTING IN THE FUTURE Investing in the future is more than expanding facilities and upgrading processes. At Alcan, we believe that a successful future also depends on how well we nurture the leaders of tomorrow. We must pass on the message that good business means respecting people and the environment. It means cooperation and integrity with employees, communities, customers, suppliers, shareholders and governments. These are the basic principles of a special partnership formed by Alcan and Ecole Saint- Pierre, in Alma, Quebec, in 1990. With the support of the community, the school created a micro-business where the students are the mastercrafters. They recycle paper into greeting cards and collect and sell used grocery bags and aluminum cans. This initiative has proven so successful that it has spawned similar ventures at three other Quebec schools. Another similar project was launched in British Columbia, and a regional program has received public recognition in Brazil. The collection and recycling activities enable the students to make a profit, while Alcan's specially designed workbooks teach them business management skills. They also learn the importance of matching business principles with environmental and social responsibility. COMMUNITY INVESTMENT PROGRAM Community investment has long been a part of Alcan's corporate culture. In 1997, Alcan placed a renewed focus on supporting activities that relate both to the communities in which it operates and to the Company's business interests. In Canada, for example, over CAN$5 million was invested in communities where Alcan has a significant presence. The investments covered programs in the areas of occupational health and safety, education and training. One such pledge was a five-year, CAN$250,000 grant to Universite Laval in Quebec, in cooperation with the federal government, to encourage the participation of women in science and engineering programs. Investments in medical research programs and sponsorships of civic and cultural events were also undertaken, especially when the themes related to health or environmental concerns. The Company also donated 775 acres of land to Nipissing University in Ontario to be used for teaching, research and environmental conservation purposes. The land is home to wildlife such as loons and wolves and also has archaeological significance. 9 10 Alcan's donations and sponsorships foster community partnerships and stimulate local development, illustrating the Company's commitment to the health and prosperity of the locations in which it operates. SPECIAL PARTNERSHIPS Of course, no community investment would be complete without volunteer efforts, whether it's the Terry Fox Run for cancer research or helping neighbours stranded by a natural disaster. In 1997, torrential rains hit Kentucky and Brazil's Belo Horizonte region, forcing many citizens to leave their homes. And, in early January 1998, an unprecedented ice storm paralyzed southern Quebec and parts of neighbouring provinces and states, leaving millions of people without electricity. In each instance, Alcan people were involved, providing relief, gathering supplies or raising funds. In the U.S., Alcan joined an initiative of The Aluminum Association and Habitat for Humanity International in building affordable homes for needy families. The program, entitled Aluminum Cans Build Habitat for Humanity Homes, is based on the collection and recycling of aluminum cans to help finance construction. Assisting young people with career choices continues to distinguish Alcan. In Switzerland, Alcan Rorschach AG offers work apprenticeships to young people who have completed their compulsory schooling. With Alcan personnel acting as mentors, the program sponsors 27 apprentices in eight different functions. Through a similar program in Canada, Career Edge, Alcan contributed CAN$800,000 and provided 47 apprenticeships. ENVIRONMENT Alcan revitalized its Environmental Policy with a 1997 revision that focuses on the contribution of every employee in order to achieve a leadership position within our industry. An Environmental Management System (EMS) has now been initiated in each and every Alcan facility. This global approach to environmental management focuses on processes, smoothing the way to earn new environmental certification such as ISO 14001 from the International Organization of Standardization. The Company has taken a lead role in several industry initiatives to promote the image of aluminum in both North America and Europe. And, Alcan helped spearhead a joint Life- Cycle Inventory (LCI) of a generic North American family-size vehicle. An LCI is used to quantify the environmental performance of a product or process over its life cycle, including raw material extraction, production, use, and end-of-life disposal. The study was under the auspices of the U.S. Automotive Materials Partnership, a coalition of the "big three" U.S. car manufacturers and the aluminum, plastic and steel industries. Aluminum has many inherent qualities such as its recyclability, energy efficiency, strength-to-weight ratio, barrier ability, and thermal and electrical conductivity. All of these contribute to aluminum being specified as a material of choice, not only in the automotive sector, but also in other industries around the globe. HEALTH AND SAFETY The elimination of work-related injury and illness is the ultimate objective at all Alcan locations. In 1997, the traditional indices of safety performance exhibited a positive trend. Many Alcan facilities reported record safety performances. Of special significance was the Laterriere smelter, which operated a full year without a lost-time accident -- an accomplishment all but unheard of a few years ago for a major aluminum smelter. 10 11 A new health and safety recordkeeping system was implemented at the end of 1997. Known as AIRS Plus (Alcan Injury and Illness Recordkeeping System), it takes a global approach, enabling the organization to gather more consistent data and compare improvements between locations. With AIRs Plus, Alcan looks at health and safety from the total health perspective, not just at injuries due to accidents. The Company encourages and values the involvement of all employees in the continual improvement of occupational health and safety. CODE OF CONDUCT When Alcan published Alcan, Its Purpose, Objectives and Policies some 20 years ago, it was a demonstration of industry leadership and a commitment to social responsibility. In 1997, the Company released a companion document - the Code of Conduct. The "Code" outlines Alcan's expectations on ethical issues, ranging from employee behaviour in the workplace to business practices with suppliers and customers. In an extensive implementation, the Code of Conduct was introduced to employees around the globe. In a similar vein in Canada, Alcan voluntarily agreed to a code of international business practices, dealing with human rights, worker health and safety, community needs, and environmental responsibility. It also includes a commitment to conduct business with integrity. PEOPLE DRIVE SUCCESS People make the difference at Alcan. In the past year, we saw renewed emphasis on human resources development, linking training and education directly to the Company's strategic goals. Whether it was technical training or management development, the renewed vigour in training and education was highly visible throughout the year. Action-learning and other advanced training techniques were incorporated in programs to make them more relevant and to maximize learning. This was especially apparent in the new Corporate Management Development Program where participants work in global teams on strategic issues and undergo individual development assessments. Corporate training programs include sessions on Alcan's business environment and strategy, international competitiveness, leadership and management competencies for success. The goal of all Alcan education programs is to build a partnership with each and every employee. By investing in its people, the Company reinforces its strengths. When this collective energy is combined with knowledge and determination, true partnerships are formed and the seamless organization becomes a reality. 11 12 CAPTION As part of the entrepreneurship program at Ecole Saint-Pierre in Alma, Quebec, kindergarten students fabricate greeting cards from recycled paper made at their school. In Ouro Preto, Brazil, students benefit from the value of aluminum can collection activities. Matching business principles with environmental and social responsibility is important to Alcan. The Company donated 775 acres of land to Nipissing University in Ontario for teaching, research and environmental conservation purposes. In his third year of apprenticeship at Alcan Rorschach in Switzerland, Vincenzo Nicosiano learns about rotogravure printing from his trainer Willi Birrer. Currently 27 young people, having completed their compulsory schooling, are getting hands-on experience from a choice of eight different functions. 12 13 THE ALCAN GROUP'S* AT A GLANCE *includes subsidiaries, related companies and divisions. 1997 HIGHLIGHTS CUSTOMERS AND MARKETS - - - - Total fabricated and non-aluminum sales. Containers and packaging - - - - $2.5 billion in sales. - - - - 43% of total sales. Transportation - - - - $483 million in sales. - - - - 8% of total sales. Electrical - - - - $579 million in sales. - - - - 10% of total sales. Building and construction - - - - $952 million in sales. - - - - 17% of total sales. Other markets - - - - $1.3 billion in sales. - - - - 22% of total sales. FABRICATED PRODUCTS++ - - - - Over 60 manufacturing plants in 11 countries. Rolled products - - - - $3.9 billion (1,476 kt) in sales.++++ - - - - Fabricated 276 kt of customer-owned metal. Other fabricated products - - - - $1.2 billion (218 kt) in sales. Total fabricated products - - - - $5.1 billion in sales.++++ - - - - 2 Mt of aluminum fabricated in Alcan facilities. 13 14 METAL SUPPLY ++ (Smelting and Power) - - - - 13 smelters in 4 countries with 1.6 Mt of annual capacity. - - - - 7 recycling plants in 4 countries with 692 kt of annual capacity. Purchased ingot and fabricated products - - - - 730 kt of primary ingot, 2 kt of secondary ingot and 40 kt of fabricated products purchased. Primary production - - - - 1.4 Mt produced. - - - - $1.2 billion (661 kt) in ingot sales.+++ Secondary recycled aluminum - - - - 670 kt produced. - - - - 482 kt of scrap purchased. - - - - $135 million (82 kt) in ingot sales. - - - - $164 million (115 kt) in scrap sales. ALUMINA AND CHEMICALS (Raw Materials and Chemicals) - - - - 11 bauxite mines/reserves in 6 countries with 400 Mt of demonstrated reserves (in subsidiaries+ and related companies). 12 alumina plants in 9 countries with 5.1 Mt of annual capacity (in subsidiaries+ and related companies). - - - - 8 specialty chemicals plants in 4 countries (including related companies). In addition to the sales of bauxite, alumina and specialty chemicals indicated above, Alcan's non-aluminum products account for $224 million in sales. Bauxite mining - - - - 11.5 Mt used (including related companies). - - - - $47 million in bauxite third-party sales. Alumina refining - - - - 5.0 Mt produced (in subsidiaries+ and related companies). - - - - $311 million in alumina third- party sales. Specialty chemicals - - - - $174 million in sales. + includes joint ventures, proportionately consolidated.+ ++ excluding related companies. +++ also includes purchased ingot. ++++ excluding fabrication of customer-owned metal. 14 15 BUSINESS SECTOR REVIEW* CUSTOMERS AND MARKETS - - - - Total fabricated and non-aluminum sales. - - - - The decline in revenues in 1996 was due to business divestments and lower prices. Containers and packaging End uses include beverage cans, household foil, foil dishes and containers, bottle closures and foil laminates for packaging applications. Transportation End uses include automotive structures, body panels and engine parts, wheels and radiators, aircraft structures, rail carriages, freight cars and ships. Electrical End uses include over-head transmission cable, cable wrap, condenser windings, underground distribution cable and heat sinks. Building and construction End uses include windows and doors, roofing and cladding, lighting poles and fixtures, structures and handrails. Other markets End uses include machinery, appliances, heat exchangers, wear components, synthetic marble and alumina chemicals. FABRICATED PRODUCTS - - - - The decline in fabricated products revenues and shipments from 1995 to 1996 is largely attributable to the disposal of a number of downstream businesses. Third-party sales and operating revenues In 1997, volumes were up 10% but average prices were lower, principally due to weaker European currencies. Total sector operating income Profits from this sector more than doubled in 1997 with increased volumes and lower unit costs. Fabricated products shipments Shipments were up 10% in 1997, including a 16% increase in Europe. 15 16 METAL SUPPLY (Smelting and Power) - - - - The decline in sales and operating revenues and operating income in 1996 from 1995 reflects the 16% reduction in LME prices. Third-party sales and operating revenues Both sales volume and average price realizations increased in 1997. Total sector operating income Improved earnings reflect higher metal prices. Primary production Continued improvements in process efficiencies resulted in increased output in 1997. Production in 1995 had been affected by a strike in Quebec. ALUMINA AND CHEMICALS (Raw Materials and Chemicals) - - - - Because many alumina contracts are linked with the LME prices of aluminum, the decline in aluminum prices in 1996 also affected sales and operating revenues and operating income for alumina. Third-party sales and operating revenues Sales volume was up slightly in 1997 and prices were little-changed. Total sector operating income The improvement in profitability in the year arose primarily from reduced costs. Alumina hydrate production Alumina hydrate production reached its highest-ever level with new records achieved in Jamaica and Ireland from existing assets. * excluding related companies. 16 17 STRATEGIC PRIORITIES AND OBJECTIVES Alcan's ongoing strategic priorities are to continue the implementation of our Full Business Potential program, to maintain a proactive role in promoting aluminum as the material of choice and to aggressively seek out further opportunities to maximize shareholder value. In so doing, Alcan will exploit its global presence, continuing to work in close relationship with its select customers. We will focus on market growth and new market opportunities and continue to provide excellent service and premium quality products to our customers. The success of Alcan's strategy is clearly dependent upon the full participation of every employee towards these goals and the Company's ability to create a safe and healthy environment in which the full potential of each employee can be realized. The following are the strategic priorities and objectives by business sector aimed at maximizing shareholder value. FABRICATED PRODUCTS Strategic priorities - - - - Leverage Alcan's position as the world's largest producer of aluminum rolled products. - - - - Invest in those downstreambusinesses with superior returns. Objectives - - - - To maintain a global supply position in the can sheet and lithographic markets. - - - - To develop an automotive sheet business for the 21st century. - - - - To maintain the leading position in the South American rolled products market. - - - - To capture the value of Alcan's recent investments in rolled products operations in Europe. - - - - To invest in and grow the electrical cable business. METAL SUPPLY (Smelting and Power) Strategic Priorities - - - - Grow the power and smelting business while remaining a low-cost producer. - - - - Retain our position as the world's largest aluminum used beverage can recycler. Objectives - - - - To efficiently return to full capacity as market conditions permit. - - - - To achieve improved process efficiencies on existing assets through the implementation of best operating practices and technology applications. - - - - To develop and implement low-cost expansion/growth alternatives. - - - - To ensure a cost-effective stream of recycled aluminum to supplement our primary aluminum position. ALUMINA AND CHEMICALS Strategic Priorities - - - - Optimize Alcan's alumina and bauxite asset base while substantially reducing the cost of alumina. - - - - Achieve profitable growth in Alcan's chemicals business. - - - - Objectives To achieve best operating practices in alumina refining. - - - - To secure low-cost bauxite. - - - - To leverage existing assets. - - - - To pursue opportunities that strengthen Alcan's alumina position. 17 18 MANAGEMENT'S DISCUSSION AND ANALYSIS AIMING FOR FULL BUSINESS POTENTIAL * Maximizing the penetration of aluminum in existing end uses * Seizing opportunities in emerging markets * Reducing costs of raw materials and processing * Fully developing our employees' potential WORLD MARKET REVIEW PRIMARY ALUMINUM After only a small increase in Western World* demand for aluminum in 1996, the early part of 1997 saw a strong recovery as the customer destocking that had characterized much of 1996 was reversed. In North and South America and in Europe, industry demand continued to be strong throughout the year. In Japan, however, GDP growth was strong in the first quarter in anticipation of an increase in consumption tax, but this was followed by a sharp decline. As a result, Japanese aluminum demand grew in the first half but declined in the second half of the year to give total year-over-year growth of 2%, largely driven by higher exports resulting from the weaker yen. Despite this, and the financial crisis in Southeast Asia, which resulted in a slowing of growth in demand as the year progressed, total Western World primary aluminum demand is estimated to have increased over 6% to reach 18.9 million tonnes (Mt). Primary aluminum production in the Western World increased some 4% in 1997 to 16.1 Mt with capacity additions in Australia and Nigeria as well as some restarts of idled capacity, primarily in Europe. At the end of the year, about 750 thousand tonnes (kt) of capacity remained idle, representing 4.4% of total capacity. Expansions planned for 1998 are expected to add some 370 kt per year (kt/y) to capacity by the end of the year. Exports of primary aluminum from the C.I.S. to the West remained at a similar level to 1996 at 2.6 Mt with little evidence of a revival in domestic demand. Chinese primary production is estimated to have increased 8% in 1997, resulting in a reduction in China's net imports from the previous year's level of 250 kt to an estimated 50 kt. * Defined as the world excluding the Commonwealth of Independent States (C.I.S.), Eastern Europe and China. Total inventories in the hands of primary aluminum producers and in London Metal Exchange (LME) warehouses declined over the year by 300 kt to a level of 3.8 Mt, equivalent to about 10.1 weeks of consumption. Ingot prices increased during the first part of the year rising to a peak three-month LME price of $1,755 per tonne (/t) in the third quarter, to be followed by a decline to $1,558/t by year-end, close to the year's low point. The average price for the year was $1,620/t, an increase of $84/t over 1996 but well below the average for 1995 of $1,830/t. 18 19 WESTERN WORLD CONSUMPTION VERSUS ALCAN SALES It is estimated that total Western World aluminum consumption in 1997 was 25.5 Mt, three-quarters of which was supplied from primary sources and the remainder from recycled metal. This represents an estimated increase of 5.4% over 1996. Alcan's total shipments increased some 8.5% to 2.8 Mt with ingot shipments up 6% and a near 10% increase in shipments of fabricated products. Lower average prices for fabricated products, resulting from the translation of weaker European currencies, and product mix changes, however, meant that revenues increased only 2% over the 1996 level. The transportation market consolidated its position as the largest market for aluminum with a 7.4% increase to 6.8 Mt. This resulted from strong production of light vehicles, up over 4% globally, and the continuing increase in aluminum penetration. Alcan's revenues from this market increased some 6% in 1997. The containers and packaging market increased an estimated 3.4% to consume 4.8 Mt of aluminum. Can sheet demand recovered from the decline seen in 1996 to return to the peak levels seen in 1995. In the U.S., can shipments surpassed the 100 billion mark for the first time and very strong growth continued to be exhibited in South America. Despite higher can sheet volumes, Alcan's revenues declined slightly in this market due to soft prices for flexible packaging in Europe and the effect of weaker European currencies when revenues are translated into dollars. Building and construction also posted a healthy gain, rising 3.9% to a level of 5.1 Mt, with strong growth from Europe and North America offset by a decline of over 5% in Japan. Alcan's consolidated revenues from this sector were up 4.5%, primarily in Europe and North America. Consumption of aluminum in the electrical market was up 6.4% in 1997, reaching 2.2 Mt, more than reversing a small decline in the previous year. Alcan's revenues from this market were unchanged. Strong growth in North America offset the reduction that arose from divestment of a business in South America. Other markets include machinery and equipment, durable goods and other smaller end-use markets. Total aluminum consumption in these markets rose some 5.6% reflecting generally buoyant economic conditions. Alcan's sales revenues in this category, which include sales of aluminum ingot and alumina, were unchanged. Higher alumina volumes and flat prices were offset by the effect of the divestment of businesses in 1996. RESULTS OF OPERATIONS (millions of US$) 1997 1996 1995 Net income before extraordinary item 468 410 543 Extraordinary gain (loss) 17 - (280) Net income 485 410 263
Alcan reported consolidated net income for 1997 of $485 million after an extraordinary gain of $17 million arising from the sale of a portion of a contract to supply power to B.C. Hydro, net of additional write-downs of remaining Kemano Completion Project (KCP) assets. As part of the settlement of the dispute regarding the cancellation of KCP, the Company was able to sell to a third party the right to supply power to B.C. Hydro under an ongoing contract. Details of the settlement of the KCP dispute can be found on page 33. Also included in the 1997 income was a net after-tax gain of $6 million comprising a favourable tax adjustment relating to prior periods of $26 million, and a net gain on the sale of businesses of $10 million. This was partly offset by a $30-million provision in respect of contract losses and restructuring at the Company's Japanese affiliate. 19 20 For 1996, consolidated net income was $410 million including net after-tax charges of $23 million relating to restructuring and early retirement of debt, offset by gains on business disposals and prior-period tax adjustments. Net income for 1995 was $263 million after an extraordinary loss of $280 million after tax for the write-down of the Company's investment in KCP. In addition, there was a net adverse impact of $61 million, the largest item being the effect of a labour strike at the Company's operations in Quebec. In 1997, the Company launched a program of measures aimed at achieving the full business potential of each of its operating units. A target was sezt to improve after-tax profitability by $300 million over a three-year period, beginning in 1997. By the end of the year, the Company is approximately one-third of the way to achievement of this goal. Improvements totalling $160 million before tax have been achieved. In the raw materials sector, gains of $40 million have been made through cost reductions and increased production volume. In fabricated products, improvements totalled $120 million, principally from higher capacity utilization, $80 million of which arises in Europe and the remainder in North America. The full impact of these achievements is not visible in the 1997 results due to non-recurring costs associated with the program. These include pot relining costs at the Company's Lynemouth smelter in the U.K. and expenses related to information technology and systems. REVENUES Sales and Operating Revenues, at $7,777 million, were 2% higher than in 1996 but 16% below the 1995 level. Sales volumes were 8.5% higher than in 1996, but average price realizations for fabricated products were sharply lower at $2,999/t compared to $3,279/t in 1996 and $3,557/t in 1995. This reflects the impact of weaker European currencies when translated into U.S. dollars as well as changes in product mix due to the sale of certain downstream businesses. The decline compared to 1995 reflects lower prevailing metal prices and the disposal of businesses with higher average prices and correspondingly higher manufacturing costs. Other income, which comprises interest income and other non-operating gains, amounted to $88 million in 1997 compared to $75 million and $100 million in 1996 and 1995, respectively. Other than interest received on surplus cash, the main items included in this category were gains on the disposal of downstream businesses. COSTS AND EXPENSES Despite higher sales volumes, cost of sales and operating expenses increased only 1.5% in 1997 and this followed a decline of 18% in the previous year. The improvement in unit costs is due to increased capacity utilization, lower European costs in dollar terms and some change in product mix, offset in part by higher cost and increased volume of purchased metal. The decline in 1996 was due primarily to the impact of business disposals and lower metal purchases. (kt) 1997 1996 1995 Purchases of aluminum Ingot products 732 509 789 Scrap 482 446 509 Fabricated products 40 48 67 1,254 1,003 1,365
Purchases of aluminum increased in 1997 to 1,254 kt to support increased sales. Average prices for ingot on the LME were $1,620/t in 1997 compared to $1,536/t in 1996 and $1,830/t in 1995. 20 21 Depreciation expense at $436 million in 1997 compares to $431 million in 1996 and $447 million in 1995. The decline in 1996 over 1995 reflected business disposals. Selling, administrative and general expenses increased 5% in 1997, to $444 million, following six consecutive years of decline. The increase is due primarily to expenses totalling $46 million incurred in renewing and updating information technology systems. These expenses are expected to continue at similar levels in 1998 and to decline thereafter. Research and development expenses were $72 million in 1997, little changed from 1995 and 1996. The stable level of spending over the last three years reflects the full alignment of R & D activities with the technology needs of the Company's core businesses: principally raw materials, smelting and rolling. Alcan continues to maintain a strong effort in developing automotive aluminum materials and technology. Additionally, there are currently several process optimization initiatives aimed at assisting in the achievement of full business potential. In 1998, research and development expenditures are expected to increase moderately. INTEREST COSTS
(millions of US$) 1997 1996 1995 Interest expense 101 125 204 Interest capitalized 2 - 2 Total interest costs 103 125 206 Effective average interest rate 6.9% 7.3% 8.2%
Alcan's interest expense continued its declining trend in 1997. Interest expense fell by 19% in the year to $101 million. From its peak of $254 million in 1992, the Company's interest expense has now fallen by $153 million or 60%. The decline reflects Alcan's debt reduction program over this period and the benefit of falling interest rates. The pre-tax interest expense coverage ratio continued to improve to 7.4 times from 5.6 times in 1996 and 4.8 times in 1995. INCOME TAXES Income taxes of $258 million for 1997 represent an effective tax rate of 34%, little- changed from 1996, versus a composite statutory rate of 40%. The difference in the rates is due primarily to investment and other allowances, the realization of previously unrecorded tax benefits on losses, as well as favourable adjustments for prior periods. In 1995 there was little difference between the two rates. Income taxes for the years 1988 to 1991 have been reassessed by the Canadian tax authorities. Most of the additional taxes and interest claimed related to transfer pricing and are recoverable in other countries. Any unrecoverable amounts are covered by existing provisions. EQUITY COMPANIES Alcan's share of the losses of equity-accounted companies was $33 million compared to $10 million in 1996 and $3 million in 1995. The increased losses arise from a restructuring and contract loss provision at Alcan's 45.6%-owned related company in Japan, Nippon Light Metal Company, Ltd. (NLM). 21 22 PRODUCT SECTOR REVIEW The following information is reported by major product sector viewing each sector on a stand-alone basis. Transactions between sectors are conducted on an arm's-length basis and reflect market prices. Thus, profit on all alumina produced by the Company, whether sold to third parties or used in the Company's smelters, is included in the raw materials and chemicals sector. Similarly, income from primary metal operations includes profit on metal produced by the Company, whether sold to third parties or used in the Company's fabricating operations. Income from the fabricated products sector represents only the fabricating profit from rolled products and downstream businesses. Additional product sector information is presented in note 21 to the financial statements. RAW MATERIALS AND CHEMICALS OPERATIONS
(millions of US$) 1997 1996 1995 Sales and operating revenues Third parties 536 529 618 Intersector 520 507 555 Operating income 125 95 203 Shipments - third parties (kt) Smelter - grade alumina 1,679 1,585 1,325 Alumina hydrate production (kt) 4,727 4,536 4,209
Profits for the sector rose substantially over the prior year. The main contributing factors were lower production costs and a small increase in volume. Prices for third-party sales of alumina remained at similar levels to 1996. Unit production costs fell significantly in 1997. The decrease was largely attributed to lower raw materials prices for caustic soda and purchased bauxite coupled with cost reduction efforts towards achievement of the full business potential. BAUXITE Through subsidiaries and related companies, Alcan has approximately 400 Mt of demonstrated bauxite reserves, more than sufficient to meet its needs for the next 30 years. The Company also has access to additional resources to meet its needs beyond this period. During 1997, significant progress was made in Australia towards securing a low-cost bauxite supply for the Company's share in the Queensland Alumina Limited refinery for the year 2000 and beyond. Early in 1998, agreement was reached with Comalco Limited for integrated mining of Alcan's Ely bauxite with Comalco's reserves. This will achieve significant economies of scale and provide Alcan with low-cost bauxite. In addition, initiatives to increase equity and expand a mine in Ghana were launched. ALUMINA Alumina hydrate production reached 4.7 Mt in 1997, a 4% increase over 1996 and the highest level ever for the Company. Aughinish Alumina Limited in Ireland and Alcan Jamaica Company in Jamaica achieved record production levels. Third-party sales rose 6% to almost 1.7 Mt. 22 23 CHEMICALS Operating results for the year were lower than in 1996, mainly in Europe where the strengthening of the pound sterling, particularly against continental European currencies, reduced profit margins. Considerable progress has been made towards improving Alcan's position in the specialty alumina chemicals markets and capacity expansions have been undertaken for these higher value-added products. PRIMARY METAL OPERATIONS (millions of US$) 1997 1996 1995 Sales and operating revenues Third parties 1,531 1,472 1,612 Intersector 1,530 1,653 2,286 Operating income 589 519 701 Shipments (kt) Primary aluminum Third parties 661 592 549 Intersector 891 1,008 1,193 Primary production (kt) 1,429 1,407 1,278
Operating profits for the primary metal sector rose in 1997 to reflect higher average aluminum ingot prices. Profits for this sector arise not only from third-party sales but also from the sale of metal at market prices to the Company's fabricating operations. The average realized price on third-party sales of primary ingot was $1,803/t against $1,721/t in 1996 and $2,057/t in 1995. Alumina is transferred from the Company's raw materials operations to its smelters at market prices. Alumina prices were little-changed in 1997 from 1996 and still somewhat lower than in 1995. Alcan's average cost of production of primary aluminum (mainly in the form of extrusion billet and sheet ingot), including alumina at market prices, was $1,352/t in 1997 versus $1,328/t in 1996 and $1,336/t in 1995. The principal reason for the increase in 1997 was the cost of refurbishing the idle potline at the Lynemouth smelter in the United Kingdom in preparation for restart when market conditions allow. This project will be completed in the first half of 1998. PRIMARY PRODUCTION Primary metal production in 1997 was slightly higher than the 1996 level due to improved performance in Canada and increased water availability at the Company's hydroelectric power plant in Scotland. Production in 1995 had been adversely affected by about 75 kt due to a strike at the Company's Quebec smelters. Alcan continues to have approximately 134 kt/y, or 8%, of its total rated capacity temporarily idled. This capacity will be restarted only when warranted by industry conditions. Alcan restarted 22 kt/y of capacity at its smelter in Kitimat, British Columbia, in November 1997. This restart was one element of a legal agreement with the government of British Columbia to settle the outstanding issues related to the government's rejection of the Kemano Completion Project. This 1997 B.C.-Alcan settlement agreement also provides for replacement electricity, at attractive prices, to power a potential future expansion of the Kitimat smelter, as well as improvements to an existing electricity sale agreement. Further details are given on page 33. In Quebec, the environmental review and community consultation processes relating to the proposed 375-kt/y smelter at Alma have been successfully completed. In February of this year, the Company announced its decision to proceed with the project. Construction will commence in early March of 1998, and the first metal will be produced in the fall of 2000. 23 24 A new two-year power contract was negotiated for the Aratu smelter in Brazil. Also in Brazil, flooding temporarily affected production at the Ouro Preto smelter. In the U.S., Alcan has made progress in its efforts to find an acceptable solution to the economic problems of the power supplier to the Sebree, Kentucky, smelter. At Lynemouth in the U.K., a two-year capital program to upgrade and refurbish the closed potline is nearing completion. In October, Alcan announced the formation of a team to conduct a feasibility study on a proposed 225-kt/y expansion of its Kitimat smelter in northern British Columbia. A month later, a memorandum of understanding was signed with the China National Non-Ferrous Metals Industry Corporation for a feasibility study related to the potential construction of an aluminum smelter and power station in Shanxi province, China. The results of both of these feasibility studies are expected in the next 15 to 18 months. SECONDARY PRODUCTION In addition to its used beverage can recycling operations, which are included in the fabricated products sector, Alcan recycles other forms of aluminum scrap at four facilities in Italy, Thailand, the U.K. and the U.S. that have a total capacity of 192 kt/y. Third-party sales, primarily of foundry alloys for the automotive industry, were 82 kt in 1997 compared to 119 kt in 1996 and 124 kt in 1995. The decline in 1997 arises from the sale, late in 1996, of the Company's facility at Guelph, Ontario. These secondary smelters also produce rolling ingot for use in the Company's own fabricating operations. FABRICATED PRODUCTS OPERATIONS (millions of US$) 1997 1996 1995 Sales and operating revenues 5,693 5,593 6,983 Operating income 290 127 346 Shipments (kt) 1,694 1,539 1,733 Fabrication of customer-owned metal 276 258 225 Total volume 1,970 1,797 1,958
Alcan's fabricated products volumes, including fabrication of customer-owned metal, rose 10% in 1997 to a record level of just under two million tonnes, more than compensating for the 1996 fall that was due mainly to the divestment of downstream businesses. As well as enjoying strong market conditions in Europe and North America, the Company achieved an increased share of a number of important markets. Adjusting for the impact of divestments, fabricated products sales have grown at a compound annual rate of 11% since 1993. Operating income, at $290 million, was more than double the 1996 level as a result of higher volumes and the impact on margins of increased capacity utilization. 24 25 ROLLED PRODUCTS Following capacity expansions in North America and Europe in recent years, Alcan's focus in these regions has been to consolidate its position as the world's largest producer of rolled aluminum products. Total rolled products volume, including conversion of customer-owned metal, rose to 1,752 tonnes, an increase of 12% over 1996. Sales revenue increased 7% to $3,894 million, the lower percentage gain reflecting lower realizations primarily due to weaker European currencies. Rolled products shipments were 1,476 kt compared to 1,304 kt in 1996 and 1,337 kt in 1995. The average realized price of $2,637/t was down from $2,797/t in 1996 and $2,950/t in 1995. The 1997 decline was attributable to the lower dollar realizations on translation of European sales. In North America, total demand increased some 5% and Alcan's shipments were up slightly more at 5.7%. The beverage can market grew by some 1.6% with can sheet shipments up about 2% over 1996. Alcan's shipments into domestic can sheet markets increased over 5% indicating a gain in market share. Distributor markets were also strong with industry demand up over 10% and Alcan increasing its shipments by 36%. This was offset to some degree by a reduction in the Company's shipments of building sheet. Capacity utilization was approximately 90%. The European rolled products market recovered from its decline in 1996 to grow by an estimated 6.5% in the year, reflecting stronger economic conditions in all the major economies and a reversal of the customer destocking that occurred in 1996. Alcan's European rolling operations increased shipments by 16% with improved market share and higher exports. This sales growth was broadly-based, with the most significant increases being in foil stock, can body stock, lithographic sheet and painted products. German foil markets were particularly competitive so, despite a significant increase in sales volumes, revenues were insufficient to prevent a decline in profitability of those businesses. Higher sales volumes have led to most plants operating at their manned capacity during 1997, although there is still further potential for increased volumes, particularly at Nachterstedt in eastern Germany where the program to modernize and expand the plant has now been completed. In South America, rolled products consumption continued to be led by can sheet, which grew 45% in 1997 with the start-up of several new canning lines. During the year, Alcan commenced a project to expand capacity at its Pindamonhangaba, Brazil, rolling mill from 100 kt to 280 kt and to build a used beverage can recycling facility. This mill is the only rolling mill in South America capable of producing can sheet. AUTOMOTIVE During the year, Alcan continued to make significant gains in growing its automotive sheet business capturing a majority of the autobody sheet business in North America. Alcan is now the leading supplier of these products to North American automotive manufacturers. Ford Motor Company showcased its impressive Project 2000 PNGV (Partnership for a New Generation of Vehicles) car to the public at the end of 1997. Produced under a joint auto industry and U.S. government initiative aimed at the development of fuel-efficient and environmentally-friendly cars, the vehicle improves fuel consumption to 63 m.p.g. and achieves a 53% mass reduction in the body structure. As a full development partner, Alcan, with its Aluminum Vehicle Technology, helped Project 2000 produce the lightest mid-sized vehicle in the world at just 2,000 lbs. 25 26 The Ford Project 2000 and General Motors' EV1 (electric vehicle) programs bear witness to the growing importance the automotive community is placing on delivering earth- friendly, fuel-efficient vehicles for the next generation of consumer transportation. Aluminum is positioned to play a key role in helping the automakers achieve these goals. Alcan's strategic initiatives have put the Company in a strong position to benefit from these growth opportunities. OTHER FABRICATED PRODUCTS Sales of other fabricated products have declined in recent years as a result of the divestment of non-strategic downstream businesses, most of which was completed by 1996. Shipments in 1997 were 218 kt compared to 235 kt in 1996 and 396 kt the year before. Sales revenues were also lower, at $1,187 million, compared to $1,404 million in 1996 and $2,219 million in 1995. Average price realizations were $5,445/t compared to $5,946/t and $5,611/t respectively in the two previous years. The 1997 decline arose largely in Europe where currencies were substantially lower against the U.S. dollar. Alcan's North American cable business achieved further growth in the year. Demand for overhead transmission cable and service cable increased moderately, but building wire exhibited major growth resulting in near-record shipments and increased profitability. It is expected that this trend will continue in 1998. Alcan's architectural products business faced highly competitive business conditions in France but performed well in other markets. RECYCLING ACTIVITIES Alcan's North American used beverage can (UBC) recycling plants again increased output by 7.5%, to a record level of 18.5 billion UBCs processed, of which over 2.1 billion were collected by Alcan in Canada. In the U.K., where Alcan has the only UBC recycling facility, the rate of beverage can recycling continued to increase. In Brazil, as part of Alcan's expansion of can sheet capacity, a new UBC recycling operation was commissioned in February of 1998. GEOGRAPHIC REVIEW The improvement in earnings in most geographic regions that was seen towards the end of 1996 continued into 1997, as customer destocking was reversed and economic activity accelerated. The effects of the economic crisis in Asia and slowdown in Japan were felt in the second half of the year. Net income data included in this Geographic Review relate to Alcan's operations in each region, whereas the shipment data are classified according to third-party customer location. Net income, presented below, does not reflect the prior year tax reassessment in Canada and related recovery from other jurisdictions. CANADA
1997 1996 1995 (millions of US$) Net income* 245 175 216 Net income excluding special items* 219 188 231 Shipments (kt) Ingot products 101 120 120 Fabricated products 110 120 112
26 27 * Net income in 1995 and 1997 is before extraordinary items. Special items include: 1997 prior year tax adjustments, 1996 rationalization expenses and loss on early retirement of debt, and 1995 loss on early retirement of debt. Earnings from Canadian operations improved in 1997 to reflect higher aluminum ingot prices but remained below the 1995 level. Ingot prices in 1995 were substantially higher than in 1996 and 1997. Income for 1995 was adversely affected by some $70 million by a labour strike in Quebec. The Canadian economy remained robust in 1997, with low interest rates spurring pent-up demand. Domestic aluminum consumption recovered in the year to increase by 4% following a 1% decline in 1996. Expansion of aluminum smelting operations in Canada is planned. In February 1998, the go-ahead was given for a 375-kt smelter at Alma, Quebec. Also, a feasibility study is under way on a possible 225-kt expansion in British Columbia. UNITED STATES (millions of US$) 1997 1996 1995 Net income 136 70 123 Net income excluding special items* 136 72 99 Shipments (kt)** Ingot products 379 380 380 Fabricated products 905 874 918
* Special items include: 1996 loss on sale of business and tax write-backs, and 1995 gain on sale of a business. ** Includes fabrication of customer-owned metal. Net income in the U.S. almost doubled in 1997 principally due to the strong increase in fabricated products sales volume. The U.S. economy continued at a strong, steady pace and total aluminum consumption was up 6.3% after a flat year in 1996. High levels of vehicle production and construction activity were key drivers of growth, and can sheet demand was better than expected with higher can volumes and a slowing in the rate of downgauging. The aluminum cable market was also robust with a good financial performance from Alcan Cable. SOUTH AMERICA (millions of US$) 1997 1996 1995 Net income 27 42 15 Net income excluding special items* 17 29 15 Shipments (kt) Ingot products 27 21 13 Fabricated products 146 153 133
* Special items include: 1997 and 1996 gain on sale of businesses. South America reported operating results lower than in 1996, largely due to divestments. This resulted in a change in product mix with a higher proportion of shipments in the form of primary metal. Adjusted for divestments, fabricated products shipments increased by 18% in 1997. 27 28 Despite very high real interest rates introduced in Brazil to protect the currency in the wake of the Asian crisis, aluminum demand in the region grew by about 10% in 1997, driven principally by can sheet. Strong regional growth is expected again in 1998. An expansion of Alcan's Pindamonhangaba rolling mill from 100 kt to 280 kt with associated UBC recycling capacity is under way, with the increased capacity becoming available in stages in 1998 and 1999. EUROPE (millions of US$) 1997 1996 1995 Net income 55 21 161 Net income excluding special items* 55 26 161 Shipments (kt)** Ingot products 106 89 95 Fabricated products 726 630 756
* Special items include: 1996 rationalization expenses and tax write-backs. ** Includes fabrication of customer-owned metal. Net income from European operations was sharply higher in 1997 due to a 16% increase in fabricated products sales volume, offset in part by pressure on profit margins in some markets. All the major European economies experienced better economic conditions in 1997 than in the previous year. Aluminum consumption rebounded from the drop in 1996 to record growth estimated at 6.5%, led principally by the building, transportation and can sheet markets. Alcan's shipments significantly exceeded the market gains with sales volume up 16%, indicating an increased share in many markets, as well as increased exports. Most European currencies weakened against the U.S. dollar. It was not possible to pass on the resultant local-currency increase in purchased metal costs to customers immediately, leading to downward pressure on profit margins, especially during the early part of the year. Shipments from German operations were up 24%, with increased exports helped by the weaker Deutschmark. Foil markets were subject to increased competitive pressure, resulting in a decline in earnings from those businesses. Utilization of the newly expanded capacity at Norf and Nachterstedt improved during the year. In the U.K., the volume increase was more modest, at 4%, partly due to the stronger pound sterling impacting export sales, and partly to production constraints in the early part of the year. The refurbishment of the idled potline at the Lynemouth smelter is near to completion and will allow the restart of 66 kt of annual capacity when market conditions permit. Exceptional costs of $18 million after tax are included in respect of this project. Sales volumes from Alcan's operations in Italy were up 17% with strong sales of painted sheet products. In France, conditions in the building systems market continued to be highly competitive, while the overseas business of Alcan France performed well in most markets. The alumina refinery in Ireland maintained its low conversion costs and achieved its highest-ever production volume. 28 29 ASIA AND PACIFIC
1997 1996 1995 (millions of US$) Net income (Loss) (1) 13 43 Net income excluding special items* 29 25 43 Shipments (kt) Ingot products 245 199 193 Fabricated products 76 13 32
* Special items include: 1997 construction contract losses and rationalization expenses, and 1996 rationalization expenses. Income, excluding special items, from this region was little changed in the year, but the second half was marked by a deterioration in business conditions. The increase in fabricated products shipments reflects the consolidation for the full year of operations in Malaysia and Thailand following the restructuring of Alcan's investments in the region in 1996, as well as increased exports into the region. In the third quarter, a charge to net income of $30 million was made in respect of construction contract losses and restructuring costs at the Company's 45.6%-owned related company in Japan, Nippon Light Metal Company, Ltd. (NLM). Aluminum consumption grew by an estimated 3% in the region in 1997 but the trend reversed sharply with strong growth in the first half of the year and a decline in the second half. The outlook for 1998 remains uncertain. In Japan, a consumer boom in the first quarter ahead of an increase in consumption tax was followed by a severe downturn in demand with the construction market particularly badly affected. Alcan's affiliate, NLM, experienced a sharp drop in shipments to the building market and its building products subsidiary is undergoing a major rationalization program. In addition, a number of other restructuring and divestment measures are being initiated. For Alcan's fabricating businesses in Southeast Asia, it was a difficult and challenging year. The financial crisis, which hit the region in the second half of 1997, saw currencies plunge and demand for aluminum products fall. In Thailand, business was particularly hard hit by a collapse in large-scale construction activity. In Malaysia, lower profits mainly reflected reduced demand for sheet products. With this tough environment foreseen to continue in 1998, Alcan's businesses in the region are focusing on export opportunities, cost reduction, and working capital management. In Australia, earnings from alumina sales improved in 1997 to reflect higher alumina prices. Indian aluminum demand growth was lower than in recent years at about 3%. At Indian Aluminium Company, Limited (Indal), 34.6%-owned by Alcan, prices and margins were under pressure due to competitors' capacity expansions. Accordingly, cost reduction and improved asset utilization have emerged as key priorities for Indal. 29 30 OTHER AREAS
1997 1996 1995 (millions of US$) Net income 35 31 39 Net income excluding special items* 35 35 39 Shipments (kt) Ingot products -- 1 -- 7 7 7
* Special items in 1996 were mainly rationalization expenses. Activities in other areas include raw materials operations in Jamaica, Guinea and Ghana, and trading, shipping and insurance activities in Bermuda. Alcan also sells metal in other parts of the world such as the Middle East and Africa. LIQUIDITY AND CAPITAL RESOURCES Cash generation in 1997 was slightly ahead of the previous year reflecting the improvement in profitability. Calculated by taking the net income for the year and adding back depreciation and deferred income taxes, cash generation was $913 million compared to $856 million in 1996 and $1,164 million in 1995. Net operating working capital requirements increased $125 million in 1997, following a $63-million decline the previous year. This was entirely due to higher sales volumes with tight working capital management reflected by a fall in the number of days' sales in working capital. Following reassessment of income taxes relating to prior years, an amount of $134 million was paid to the Canadian authorities to prevent the further accrual of interest. Most of this is recoverable from other jurisdictions and has, accordingly, been included in deferred receivables. Disposal proceeds from the sale of non-strategic businesses and other assets were $54 million, sharply lower than the 1996 level of $660 million as the divestment program reached its conclusion. Total borrowings were little changed during the year, following the substantial debt repayments and preference share redemption of the preceding year. Cash and time deposits increased $62 million in 1997, reaching a level of $608 million at year-end. The ratio of total borrowings to equity was unchanged from the previous year at 23:77 which compares to 29:71 at the end of 1995. The ratio improves further, to 16:84, when adjusted for surplus cash reserves. 30 31 INVESTMENT ACTIVITIES Capital investment in the year was $641 million, an increase from $482 million and $441 million in 1996 and 1995, respectively. On an ongoing basis, approximately $450 to $500 million is required annually to maintain the integrity and competitiveness of the Company's assets. Additional expenditures in 1997 related primarily to the refurbishment and upgrade of the Lynemouth smelter in the U.K. and the expansion of rolling capacity in Brazil. In 1998, projects, other than to maintain existing assets, include the continuation of the rolling mill expansion project in Brazil, with approximately $150 million expenditure planned in the year. The Alma smelter project in Quebec, commencing in March 1998, will entail an investment of $1.6 billion over a three-year period. In addition, the Company intends to bid, in partnership with Aluminum Company of America, for 70% of the state- owned aluminum assets in Venezuela that are being privatized in 1998. If successful, Alcan would have an effective 28% share of those assets. The program of divestment of non-strategic businesses was largely completed by early 1997. Over a three-year period, the Company made a number of disposals in Canada, the U.S., the U.K., Australia and South America which generated proceeds of $1.25 billion, used mainly to repay debt. Financing Activities Total borrowings at the end of 1997 were unchanged from 1996 at $1.5 billion and $470 million less than in 1995. Alcan's debt to equity ratio of 23:77 is the lowest in the Company's history and positions Alcan well to take advantage of attractive investment opportunities as they become available. The quarterly common share dividend was maintained at 15 cents per share in 1997 compared to 1996. The dividend was increased from 7.5 cents to 15 cents per share in 1995. Total dividends paid to common shareholders were $136 million in 1996 and 1997 compared to $101 million in 1995. Preference share dividends were $10 million versus $16 million in 1996 and $24 million in 1995. Cash reserves totalled $608 million at the end of the year compared to $546 million and $66 million at the end of 1996 and 1995, respectively. In addition, the Company continues to have a $1 billion global, multi-year and multi-currency credit facility with a syndicate of major international banks. At December 31, 1997, no funds had been borrowed under this facility and the full amount was available. The Company's investment grade credit rating also provides Alcan with ready access to global capital markets through the issuance of debt and equity instruments. The Company expects that cash generated from operations, combined with the above resources, will be more than sufficient to meet the cash requirements of operations, planned capital expenditures and dividends. Existing resources, and liquid capital markets also provide ample liquidity to meet unforeseen events. 31 32 KEMANO COMPLETION PROJECT In the third quarter of 1995, the Company wrote down its investment in the Kemano Completion Project (KCP), following the project's cancellation by the British Columbia government. After estimated disposal proceeds and site restoration costs, the amount of the write-down was $420 million, resulting in an extraordinary loss of $280 million on an after-tax basis. In early 1997, Alcan filed, in the British Columbia Supreme Court, a writ of summons naming the province of British Columbia as defendant in a lawsuit for damages arising from the government's rejection of KCP. The Company continued negotiations with the Province and, on August 5, 1997, a final settlement agreement was signed that resolved the issues surrounding KCP. The principal elements of the agreement were the provision of replacement power, which would be made available if Alcan were to expand its operations in British Columbia in the future, and the maintenance and enhancement of an existing contract whereby Alcan sells power to B.C. Hydro. Alcan also agreed to contribute to environmental improvements in the region. The agreement provided for the issuance by the Province of Alcan's final Water Licence and Permit of Occupation. The availability of replacement power restores to Alcan the opportunity of a low-cost smelter expansion in British Columbia. The Company believes that the settlement agreement is in the best interests of shareholders. Following the settlement, the power sales contract was split and the right to sell 167 MW to B.C. Hydro, at the California-Oregon border, was sold to Enron Corp., a U.S.-based energy provider. The gain on this sale, net of the write-off of remaining KCP assets, amounting to $17 million, is one element of the settlement that is realized and quantifiable. Accordingly, it has been treated as an extraordinary gain. ENVIRONMENTAL MATTERS Alcan is committed to the continued environmental improvement of its operations and products. The Company has devoted, and will continue to devote, significant resources to control air and water pollutants, to dispose of wastes and to remediate sites of past waste disposal. Alcan estimates that annual environment-related spending, both capital and expense, will average about $190 million per year over the next several years and is not expected to have a material effect on its competitive position. While the Company does not anticipate a material increase in the projected level of such expenditures, there is always a possibility that such increases may occur in the future in view of the uncertainties associated with environmental exposures, including new information concerning sites with identified environmental liabilities and changes in laws and regulations and their application. Included in total operating costs and expenses for the year are amounts for safeguarding the environment and improving working conditions in plants. In 1997, such expenses totalled $88 million. This amount was largely for costs associated with reducing air emissions and mitigating the impact of waste and by-products. In 1995 and 1996, these expenses totalled $76 million and $96 million, respectively. Included in capital spending in 1997 was $84 million for environment-related projects. Such spending was largely on equipment designed to reduce or contain air emissions generated by Alcan plants. Spending in 1995 and 1996 was $53 million and $60 million, respectively. 32 33 RISKS AND UNCERTAINTIES RISK MANAGEMENT As a multinational company engaged in a commodity-related business, Alcan's financial performance is heavily influenced by fluctuations in metal prices and exchange rates. In order to reduce the associated risks, the Company uses a variety of financial instruments and commodity contracts. All risk management activities are governed by clearly defined policies and management controls. Transactions in financial instruments for which there is no underlying exposure are prohibited. The decision whether and when to commence a hedge, along with the duration of the hedge, can vary from period to period depending on market conditions and the relative costs of various hedging instruments. The duration of a hedge is always linked to the timing of the underlying transaction, with the connection between the two constantly monitored to ensure effectiveness. FOREIGN CURRENCY EXCHANGE Exchange rate movements, particularly between the Canadian dollar and the U.S. dollar, have an important impact on Alcan's results. For example, on an annual basis, each US$0.01 permanent change in the value of the Canadian dollar has an after-tax impact of approximately $11 million on the Company's long-term profitability. Alcan benefits from a weakening in the Canadian dollar, but, conversely, is disadvantaged if it strengthens. In order to reduce the short-term volatility in costs arising from movements in exchange rates, Alcan hedges a substantial portion of its Canadian dollar exposure through the use of forward exchange contracts and currency options. For further details, refer to note 16 of the financial statements. From the beginning of 1998, following a change to the accounting standards of the Canadian Institute of Chartered Accountants on accounting for income taxes, the Company's deferred income tax liability is translated into U.S. dollars at current rates. The resultant exchange gains or losses are included in income. The impact of a US$0.01 movement in the value of the Canadian dollar on deferred income taxes is approximately $6 million. ALUMINUM PRICES Depending on market conditions and logistical considerations, Alcan may sell primary aluminum to third parties and may purchase primary and secondary aluminum, including scrap, on the open market to meet the requirements of its fabricating businesses. In addition, depending on pricing arrangements with fabricated products customers, Alcan may hedge some of its purchased metal supply in support of those sales. Through the use of forward purchase and sale contracts and options, Alcan seeks to limit the impact of lower metal prices, while retaining the ability to benefit from higher prices. The Company may also, through a combination of hedging instruments, establish a range of sales prices for a certain portion of its future revenues. Alcan estimates that on an annual basis, each $100 per tonne change in the price of aluminum has an after-tax impact of approximately $100 million on the Company's long-term profitability. For further details, refer to note 16 of the financial statements. 33 34 THE YEAR 2000 ISSUE Alcan has a program which is well under way to examine and resolve Year 2000 issues as they affect the Company. The objective of the program is to ensure that the business-and process-related systems technology relied on by the Company accurately processes date-related data prior to, during and after, the year 2000. The program includes the assessment of hardware and software as well as coordination with third parties where electronic interaction is present. In the event that Year 2000 issues could not be resolved in a timely fashion, the Company could face potential business interruptions or delays. Alcan is therefore dedicating substantial resources to its program to permit an orderly transition through the year 2000. The Company has not completed its assessment of Year 2000 issues. Based on information to date, the costs of remediation and coordination are not expected to have a material adverse impact on the Company's financial condition. CAUTIONARY STATEMENT Statements in this report that describe the Company's objectives, projections, estimates, expectations or predictions of the future may be-looking statements' within the meaning of applicable securities laws and regulations. The Company cautions that such statements involve risk and uncertainty and that actual results could differ materially from those expressed or implied. Important factors that could cause differences include global aluminum supply and demand conditions, aluminum ingot prices and other raw materials' cost or availability, cyclical demand and pricing in the Company's principal markets, changes in government regulations, economic developments within the countries in which the Company conducts business, and other factors relating to the Company's operations, such as litigation, labour negotiations and fiscal regimes. CAPTIONS At left, Michel Villeneuve, smelting operator at Grande-Baie Works in Quebec, prepares for an anode change. The recent decision to proceed with the 375-kt/y Alma smelter project in Quebec is in keeping with Alcan's strategic priority to grow the power and smelting business, building on its low-cost position. Aluminum's high strength-to-weight ratio, corrosion resistance, recyclability and especially, today's all-important energy management are reasons why automobile designers are choosing aluminum. Alcan, with its Aluminum Vehicle Technology, helped the Ford Motor Company produce the Project 2000-sized vehicle in the world at just 2,000 lbs. Aluminum's inherently unique properties, its light-weight formability, strength-to-weight ratio as well as high recyclability and residual value make it the material of choice. Alcan, the world's largest producer of aluminum rolled products, is committed to solidifying aluminum's position in end-use markets such as transportation, and containers and packaging. Throughout its worldwide operations, Alcan is committed to excellence in research and technology, raw materials, chemicals, casting ingot, extrusion billet, rolled products and downstream fabricated products. At the Petaling Jaya plant in Malaysia, Harun Sonder Ali removes ingots after casting. Aluminum cans are, by far, the most recycled beverage container of any kind and Alcan is the world's largest can recycler. Aluminum's high salvage value contributes to the success of many fund-raising efforts and substantially covers the cost of community collection and recycling programs. Alcan offers the technology and the metal to the automotive industry. Aluminum is used in fin stock for heat exchanger components as well as engine parts such as Alcan's high performance pistons made from advanced alloys for the latest low-emission engines. 34 35 Architects and designers are finding that aluminum's high strength-to-weight ratio, versatility, durability and decorative potential offer unique advantages over alternative materials. For the packaging market, not only does aluminum provide superior barrier qualities, blocking out light, oxygen and moisture, it also offers graphic design possibilities as well as being economical, convenient and recyclable. Aluminum's high electrical conductivity has long made it a material of choice. Alcan is a major supplier to all sectors of the electrical industry and has established growing relationships with power utilities, distributors and equipment manufacturers. GRAPHICS WESTERN WORLD PRIMARY ALUMINUM SUPPLY AND DEMAND Production plus imports from C.I.S. Shipments (seasonally adjusted) Demand eased from the high levels at the beginning of the year, then rebounded in the fourth quarter. Supply increased steadily throughout the years. THE ALUMINUM INVENTORIES AND INGOT PRICES Total inventories (IPAI*, LME) LME three-month prices Inventories were declining for most of the year with prices trading in a narrow range before coming under pressure towards year-end, as the decline in Asian demand was left. *International Primary Aluminum Institute 1997 WESTERN WORLD ALUMINUM CONSUMPTION BY END-USE MARKET (25.5 million tonnes) 9% Electrical 19% Containers and packaging 20% Building and construction 26% Transportation 26% Other 35 36 NUMBER OF EMPLOYEES Adjusted for business acquisitions and disposals (at year-end) Productivity improved in 1997, as 10% more fabricated products shipments were achieved with a similar number of employees. thousands 1993 - 34.1 1994 - 33.0 1995 - 33.1 1996 - 32.7 1997 - 32.9 ALCAN'S 1997 FABRICATED AND NON-ALUMINUM SALES BY MARKET (US$5.8 billion) 10% Electrical 43% Containers and packaging 17% Building and construction 8% Transportation 22% Other ALUMINUM SHIPMENTS AND PURCHASES kt Ingot products* 1993 - 887 1994 - 897 1995 - 801 1996 - 810 1997 - 858 Fabricated products** 1993 - 1,651 1994 - 1,952 1995 - 1,958 1996 - 1,797 1997 - 1,970 Total purchases 1993 - 865 1994 - 1,350 1995 - 1,365 1996 - 1,003 1997 - 1,254 * Includes primary and secondary ingot and scrap. ** Includes products fabricated from customer-owned metal. Higher total shipments in 1997 resulted in an increase in third-party purchases of aluminum. 36 37 1997 ALUMINUM SHIPMENTS BY REGION Western World consumption North America - 38% South America - 4% Europe - 27% Asia and Pacific - 30% Africa - 1% Alcan Group Shipments (includes Alcan's share of released companies) North America - 53% South America - 6% Europe - 29% Asia and Pacific - 12% Africa - 0% TOTAL BORROWINGS AND EQUITY (AT YEAR-END) millions of US$ Total borrowings 1993 - 2,652 1994 - 2,485 1995 - 1,985 1996 - 1,516 1997 - 1,515 Equity (includes minority interests and preference shares) 1993 - 4,519 1994 - 4,689 1995 - 4,863 1996 - 4,937 1997 - 5,117 ratio Ratio of total borrowings to equity 1993 - 37:63 1994 - 35:65 1995 - 29:71 1996 - 23:77 1997 - 23:77 Alcan's borrowings-to-equity ratio remained at a healthy level in 1997 despite the working capital requirements of increased volume. Adjusted for surplus cash at year-end, the ratio was 16:84. 37 38 CASH FLOWS million of US$ Sales of assets and investments 1993 - 31 1994 - 427 1995 - 168 1996 - 660 1997 - 54 Cash from operating activities 1993 - 444 1994 - 65 1995 - 1,044 1996 - 981 1997 - 719 Dividends paid 1993 - 85 1994 - 88 1995 - 125 1996 - 152 1997 - 149 Capital expenditures 1993 - 370 1994 - 356 1995 - 441 1996 - 482 1997 - 641 Cash generation remained in excess of capital expenditure and working capital requirements. Debt levels were unchanged and cash reserves increased to $608 million. 38 39 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 accounting principles generally accepted in Canada and include, where appropriate, estimates based on the best judgement of management. They conform in all material respects with accounting principles established by the International Accounting Standards Committee. A reconciliation with accounting principles generally accepted 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 reappointment of Price Waterhouse 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 Price Waterhouse, whose report is provided below. Jacques Bougie, Suresh Thadhani, Chief Executive Officer Chief Financial Officer
February 12, 1998 39 40 OECD GUIDELINES The Organization for Economic Cooperation and Development (OECD), which consists of 24 industrialized countries including Canada, has established guidelines setting out an acceptable framework of reciprocal rights and responsibilities between multinational enterprises and host governments. Alcan supports and complies with the OECD guidelines, and the Company's own statement, Alcan, Its Purpose, Objectives and Policies, is consistent Xwith them. This statement, first published in 1978, has been distributed in 11 languages to Alcan employees worldwide to strengthen the awareness of the basic principles and policies which have guided the conduct of Alcan's business over the years. The statement of Alcan's purpose, objectives and policies, the Company's annual information form and its 10-K report are all available to shareholders on request. The latter two documents contain a complete list of significant Alcan Group companies worldwide. AUDITORS' REPORT TO THE SHAREHOLDERS OF ALCAN ALUMINIUM LIMITED We have audited the consolidated balance sheet of Alcan Aluminium Limited as at December 31, 1997, 1996 and 1995 and the consolidated statements of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 1997. 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. 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, 1997, 1996 and 1995 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997 in accordance with Canadian generally accepted accounting principles. Price Waterhouse Montreal, Canada Chartered Accountants February 12, 1998 (except as to note 22 which is as of February 19, 1998)
40 41 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (in millions of US$, except per share amounts)
Year ended December 31 1997 1996 1995 REVENUES Sales and operating revenues $7,777 $7,614 $9,287 Other income 88 75 100 7,865 7,689 9,387 COSTS AND EXPENSES Cost of sales and operating expenses 5,995 5,905 7,233 Depreciation (note 2) 436 431 447 Selling, administrative and general expenses 444 422 484 Research and development expenses 72 71 76 Interest 101 125 204 Other expenses 54 88 61 7,102 7,042 8,505 Income before income taxes and other items 763 647 882 Income taxes (note 5) 258 226 340 Income before other items 505 421 542 Equity loss (note 7) (33) (10) (3) Minority interests (4) (1) 4 Net income before extraordinary item $ 468 $ 410 $ 543 Extraordinary gain (loss) (note 3) 17 -- (280) Net income $ 485 $ 410 $ 263 Dividends on preference shares 10 16 24 Net income attributable to common shareholders $ 475 $ 394 $ 239 Net income per common share before extraordinary item (note 2) $ 2.02 $ 1.74 $ 2.30 Extraordinary gain (loss) per common share (note 3) 0.07 -- (1.24) Net income per common share (note 2) $ 2.09 $ 1.74 $ 1.06 Dividends per common share $ 0.60 $ 0.60 $ 0.45
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (in millions of US$)
Year ended December 31 1997 1996 1995 Retained earnings - beginning of year $3,217 $2,959 $2,821 Net income 485 410 263 3,702 3,369 3,084 Dividends - Common 136 136 101 - - - - Preference 10 16 24 Retained earnings - end of year (note 14) $3,556 $3,217 $2,959
41 42 CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATED BALANCE SHEET (in millions of US$) December 31 1997 1996 1995 ASSETS Current assets Cash and time deposits $ 608 $ 546 $ 66 Receivables 1,292 1,262 1,449 Inventories Aluminum 800 736 888 Raw materials 307 325 321 Other supplies 234 244 281 1,341 1,305 1,490 3,241 3,113 3,005 Deferred charges and other assets 424 314 364 Investments (notes 7 and 9) 343 428 695 Property, plant and equipment (note 8) Cost 11,715 11,517 11,735 Accumulated depreciation 6,257 6,047 6,063 5,458 5,470 5,672 Total assets $ 9,466 $ 9,325 $ 9,736 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Payables $ 1,052 $ 1,008 $ 1,107 Short-term borrowings 238 178 212 Income and other taxes 98 98 101 Debt maturing within one year (note 11) 36 19 28 1,424 1,303 1,448 Debt not maturing within one year (notes 11 and 16) 1,241 1,319 1,745 Deferred credits and other liabilities (note 10) 715 770 701 Deferred income taxes 969 996 979 Minority interests (note 9) 43 73 28 Shareholders' equity Redeemable non-retractable preference shares (note 12) 203 203 353 Common shareholders' equity Common shares (note 13) 1,251 1,235 1,219 Retained earnings (note 14) 3,556 3,217 2,959 Deferred translation adjustments (note 15) 64 209 304 4,871 4,661 4,482 5,074 4,864 4,835 Commitments and contingencies (note 17) Total liabilities and shareholders' equity $ 9,466 $ 9,325 $ 9,736
Approved by the Board: Jacques Bougie, W.R.C. Blundell, Director Director
42 43 CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATED STATEMENT OF CASH FLOWS (in millions of US$)
Year ended December 31 1997 1996 1995 OPERATING ACTIVITIES Net income $ 485 $ 410 $ 263 Adjustments to determine cash from operating activities: Extraordinary loss - - 280 Depreciation 436 431 447 Deferred income taxes (8) 15 174 Equity income 39 21 12 Change in receivables (30) 187 (38) Change in inventories (37) 185 (107) Change in payables 44 (99) 11 Change in income and other taxes payable - (3) 78 Changes in operating working capital due to: Deferred translation adjustments (93) (29) 33 Acquisitions, disposals and consolidations/deconsolidations (9) (178) (77) Change in deferred charges, other assets, deferred credits and other liabilities - net (139) 25 30 Gain on sales of businesses - net (12) (8) (34) Other - net 43 24 (28) Cash from operating activities 719 981 1,044 FINANCING ACTIVITIES New debt 22 56 90 Debt repayments (25) (459) (738) (3) (403) (648) Short-term borrowings - net 90 (11) 4 Common shares issued 16 16 24 Shares issued by subsidiary companies - - 1 Redemption of preference shares - (150) - Dividends - Alcan shareholders (including preference) (146) (152) (125) - Minority interests (3) - - Cash used for financing activities (46) (700) (744) INVESTMENT ACTIVITIES Property, plant and equipment (641) (482) (390) Investments - - (38) Other - - (13) (641) (482) (441) Net proceeds from disposal of businesses and other assets 54 660 168 Cash from (used for) investment activities (587) 178 (273) Effect of exchange rate changes on cash and time deposits (12) (1) 1 Increase in cash and time deposits 74 458 28 Cash of companies consolidated (deconsolidated) - net (12) 22 11 Cash and time deposits - beginning of year 546 66 27 Cash and time deposits - end of year $ 608 $ 546 $ 66
43 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of US$, except where indicated) 1. NATURE OF OPERATIONS Alcan is engaged, together with subsidiaries and related companies, in all aspects of the aluminum business on an international scale. Its operations include the mining and processing of bauxite, the basic aluminum ore; the refining of bauxite into alumina; the generation of electric power for use in smelting aluminum; the smelting of aluminum from alumina; the recycling of used and scrap aluminum; the fabrication of aluminum, aluminum alloys and non-aluminum materials into semi-fabricated and finished products; the distribution and marketing of aluminum and non-aluminum products; and, in connection with its aluminum operations, the production and sale of industrial chemicals. Alcan, together with its subsidiaries and related companies, has bauxite holdings in six countries, produces alumina in nine, smelts primary aluminum in six, operates aluminum fabricating plants 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 USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles 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 The consolidated financial statements, which are expressed in U.S. dollars, the principal currency of Alcan's business, are prepared in accordance with generally accepted accounting principles (GAAP) in Canada. They include the accounts of companies controlled by Alcan, virtually all of which are majority owned. Joint ventures, irrespective of percentage of ownership, are proportionately consolidated to the extent of Alcan's participation. Consolidated net income also includes Alcan's equity in the net income or loss of companies owned 50% or less where Alcan has significant influence over management, and the investment in these companies is increased or decreased by Alcan's share of their undistributed net income or loss and deferred translation adjustments since acquisition. Investments in companies in which Alcan does not have significant influence over management are carried at cost less amounts written off. Intercompany balances and transactions, including profits in inventories, are eliminated. FOREIGN CURRENCY The financial statements of self-sustaining foreign operations are translated into U.S. dollars at prevailing exchange rates. Differencesarising from exchange rate changes are included in the Deferred translationadjustments (DTA) component of Common shareholders' equity. If there is areduction in the Company's ownership in a foreign operation, the relevantportion of DTA is recognized in Other income or Other expenses at that time. 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 or Cost of sales and operating expenses, as applicable, concurrently with recognition of the underlying items being hedged. 44 45 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. 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 andoperating revenues or Cost of sales and operating expenses, as applicable, concurrently with recognition of the underlying items being hedged. INTEREST RATE SWAPS Net cash flows related to interest rate swaps are recorded in Interest concurrently with the interest expense on the underlying debt. INVENTORIES Aluminum, raw materials and other supplies are stated at cost (determined for the most part on the monthly average method) or net realizable value, whichever is the lower. DEPRECIATION Depreciation is calculated on the straight-line method using rates based on the estimated useful lives of the respective assets. The principal rates are 2 1/2% for buildings and range from 1% to 4% for power assets and 3% to 12 1/2% for chemical, smelter and fabricating assets. ENVIRONMENTAL COSTS AND LIABILITIES Environmental expenses are accrued when it is probable that a liability for past events exists. For future removal and site restoration costs, provision is made in a systematic manner by periodic charges to income, except for assets that are no longer in use, in which case full provision is charged immediately to income. Environmental expenses are normally included in Cost of sales and operating expenses except for large, unusual amounts which are included in Other expenses. Accruals related to environmental costs are included in Payables and Deferred credits and other liabilities. Environmental expenditures of a capital nature that extend the life, increase the capacity or improve the safety of an asset or that mitigate or prevent environmental contamination that has yet to occur are included in Property, plant and equipment and are depreciated generally over the remaining useful life of the underlying asset. POST-RETIREMENT BENEFITS The costs of post-retirement benefits other than pensions are recognized on an accrual basis over the working lives of employees. NET INCOME PER SHARE Net income per common share is calculated by dividing Net income attributable to common shareholders by the average number of common shares outstanding (1997: 227.0 million; 1996: 226.2 million; 1995: 225.3 million). 45 46 3.EXTRAORDINARY ITEMS - KEMANO COMPLETION PROJECT An extraordinary gain of $26 ($17 after tax or 7 cents per common share) in the fourth quarter of 1997 arises from the sale of a portion of a contract to supply power to B.C. Hydro, net of additional write-downs of remaining Kemano Completion Project ("KCP") assets. In addition to the commitment by the government of British Columbia to supply replacement power at attractive rates for a possible smelter expansion, the settlement of the dispute regarding the cancellation of KCP allowed the Company to sell to a third party the right to supply a specified amount of power to B.C. Hydro under an ongoing contract. An extraordinary loss of $420 ($280 after tax or $1.24 per common share) was recorded in 1995 following the cancellation of the project. 4. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) DEFERRED INCOME TAXES Under Canadian GAAP, deferred income taxes are measured at tax rates prevailing at the time the provisions for deferred taxes are made. Deferred income taxes for U.S. GAAP are revalued each period using currently enacted tax rates. Under Canadian GAAP, deferred income taxes of operations using the temporal method are translated at historical exchange rates, while under U.S. GAAP, deferred income taxes of all operations are translated at current exchange rates. Beginning in 1998, the Company will adopt the new accounting standards approved by the Canadian Institute of Chartered Accountants dealing with accounting for income taxes. These new standards are substantially identical to U.S. GAAP as contained in FASB Statement No. 109. 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. 46 47 RECONCILIATION OF CANADIAN AND U.S. GAAP
1997 1996 1995 As U.S. As U.S. As U.S. Reported GAAP Reported GAAP Reported GAAP Net income from continuing operations before extraordinary item $ 468 $ 504 $ 410 $ 420 $ 543 $ 561 Extraordinary gain (loss) 17 17 -- -- (280) (295) Net income* $ 485 $ 521 $ 410 $ 420 $ 263 $ 266 Net income attributable to common shareholders $ 475 $ 511 $ 394 $ 404 $ 239 $ 242 Extraordinary gain (loss) per common share $ 0.07 $ 0.07 $ -- $ -- $(1.24) $(1.31) Net income per common share (basic and diluted) $ 2.09 $ 2.25 $ 1.74 $ 1.79 $ 1.06 $ 1.07 Deferred income taxes - December 31 $ 969 $ 684 $ 996 $ 755 $ 979 $ 762 Retained earnings - December 31 $3,556 $3,895 $3,217 $3,520 $2,959 $3,252 Deferred translation adjustments (DTA) - December 31 $ 64 $ 3 $ 209 $ 141 $ 304 $ 214
* In 1997, $37 ($2 in 1996 and $1 in 1995) of the net difference between "As Reported" and "U.S. GAAP" relates to accounting for deferred income taxes. In 1997, $23 of this difference arises from changes in tax rates and regulations enacted during the year. The principal items included in Deferred income taxes under U.S. GAAP are:
December 31 1997 1996 1995 Liabilities: Depreciation $ 767 $ 810 $ 844 Undistributed earnings of equity companies 29 60 86 Inventory valuation 52 43 48 Other 64 77 57 912 990 1,035 Assets: Tax benefit carryovers 114 121 184 Accounting provisions not currently deductible for tax 164 180 199 Other 26 18 9 304 319 392 Valuation allowance (amount not likely to be recovered) 76 84 119 228 235 273 Net deferred income tax liability $ 684 $ 755 $ 762
47 48 The difference between DTA under Canadian GAAP and U.S. GAAP arises principally from the impact of FASB Statement No. 109 and 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. Net income (Loss) from continuing operations, before cumulative effect on prior years of accounting change, on a U.S. GAAP basis for the years 1994 and 1993 was $175 and $(89), respectively, compared to $96 and $(104), respectively, as reported. Net income (Loss) from continuing operations, before cumulative effect on prior years of accounting change, per common share on a U.S. GAAP basis for the years 1994 and 1993 was $0.69 and $(0.47), respectively, compared to $0.34 and $(0.54), respectively, as reported. 5. INCOME TAXES
1997 1996 1995 Income before income taxes and other items Canada $ 360 235 $ 300 Other countries 403 412 582 763 647 882 Current income taxes Canada 251 87 29 Other countries 15 124 137 266 211 166 Deferred income taxes Canada (28) (5) 114 Other countries 20 20 60 (8) 15 174 Income tax provision $ 258 226 $ 340
The composite of the applicable statutory corporate income tax rates in Canada is 40.3% (1996: 40.1%; 1995: 40.3%). The following is a reconciliation of income taxes calculated at the above composite statutory rates with the income tax provision:
1997 1996 1995 Income taxes at the composite statutory rate $ 307 $ 259 $ 355 Differences attributable to: Exchange translation items 13 11 17 Unrecorded tax benefits on losses - net (12) (33) (5) Investment and other allowances (32) (24) (24) Large corporations tax 3 3 6 Withholding taxes 5 6 6 Reduced rate or tax exempt items (3) 17 (21) Foreign tax rate differences 1 (9) (6) Prior years' tax adjustments (31) (11) (6) Other - net 7 7 18 Income tax provision $ 258 $ 226 $ 340
In 1997 $19 ($7 in 1996; $2 in 1995) of benefits related to income tax loss carryforwards were recorded in deferred income tax expense. Based on rates of exchange at December 31, 1997, additional benefits of approximately $60 relating to prior and current years' tax losses will only be recognized in income when realized. 48 49 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 relate to transfer pricing issues and are recoverable in other countries. Existing provisions are adequate to cover any amounts not recoverable. 6. JOINT VENTURES The activities of the Company's major joint ventures are the procurement and processing of raw materials in Australia, Brazil and Guinea, as well as aluminum rolling operations in Germany and the United States. Alcan's proportionate interest in all joint ventures is included in the consolidated financial statements. Summarized financial information relating to Alcan's share of these joint ventures is provided below. Because most of the activities of the Company's joint ventures relate to supplying the Company's other operations, the portion of the Company's third-party revenues, and related costs and expenses, conducted through joint ventures is insignificant. 1997 1996 1995 Financial position at December 31 Inventories $ 189 $ 159 $ 158 Property, plant and equipment - net 943 1,001 1,037 Other assets 60 95 114 Total assets $1,192 $1,255 $1,309 Short-term debt $ 38 $ 17 $ 15 Debt not maturing within one year 100 106 102 Other liabilities 156 152 145 Total liabilities $ 294 $ 275 $ 262 Cash flow information for the year ended December 31 Cash from financing activities $ 10 $ 12 $ 18 Cash used for investment activities $ (78) $ (76) $ (28) 7. INVESTMENTS Companies accounted for under the equity method $ 337 $ 421 $ 688 Other investments - at cost, less amounts written off 6 7 7 $ 343 $ 428 $ 695
The activities of the major equity-accounted companies are diversified aluminum operations in Japan and India. On December 31, 1997, the quoted market value of the Company's investments in Nippon Light Metal Company, Ltd. (NLM) and Indian Aluminium Company, Limited (Indal) exceeds their book value by $36. Their combined results of operations and financial position are included in the summary below. In the third quarter of 1997, the Company recorded a special after-tax charge of $30, included in equity loss, reflecting the Company's share of construction contract losses and restructuring provisions in NLM. The 1996 information for NLM excludes, from the date of acquisition, the interest in those subsidiaries acquired by the Company from NLM as a result of the restructuring of the Company's holdings in Asia, explained in note 9. 49 50
1997 1996 1995 Results of operations for the year ended December 31 Revenues $5,572 $6,483 7,896 Costs and expenses 5,622 6,457 7,816 Income (Loss) before income taxes (50) 26 80 Income taxes 35 65 84 Net income (Loss) $ (85) $ (39) $ (4) Alcan's share of Net income (Loss) $ (33) $ (10) $ (3) Dividends received by Alcan $ 6 $ 11 $ 9 Financial position at December 31 Current assets $2,600 $3,013 3,842 Current liabilities 2,519 2,735 3,438 Working capital 81 278 404 Property, plant and equipment 1,737 1,916 2,347 Other assets - net 335 261 153 2,153 2,455 2,904 Debt not maturing within one year 1,376 1,422 1,351 Net assets $ 777 $1,033 1,553 Alcan's equity in net assets $ 337 $ 421 $ 688
8. PROPERTY, PLANT AND EQUIPMENT
1997 1996 1995 Cost Land and property rights $ 219 $ 236 $ 247 Buildings, machinery and equipment 10,914 10,886 11,201 Construction work in progress 582 395 287 $11,715 $11,517 $11,735
Accumulated depreciation relates primarily to Buildings, machinery and equipment. Capital expenditures for maintaining the productive capacity of the Company's existing assets are estimated at $450 to $500 per year. In addition, the Company expects to spend approximately $150 in 1998 on the continuation of its rolling mill expansion in Brazil. 50 51 9. RESTRUCTURING OF HOLDINGS IN ASIA In the third quarter of 1996, the Company sold its equity-accounted investment in Toyo Aluminium K.K. (Toyal) to the Company's Japanese affiliate, Nippon Light Metal Company, Ltd. (NLM), for cash proceeds of $207. The after-tax gain of $128, including deferred translation adjustments, on this sale was deferred. Approximately one half of the gain is being recognized over the period related to the utilization of the underlying assets by Toyal, while the remainder will be recognized if certain non-depreciable assets are sold by Toyal. In 1997, $7 of the gain was recognized ($3 in 1996). In November 1996, the Company and NLM created a new company, Alcan Nikkei Asia Holdings Ltd. (ANAH), owned 60% by Alcan and 40% by NLM. In exchange for shares in ANAH, the Company contributed a portion of its holdings in NLM while NLM contributed its shareholdings in a number of companies located in Malaysia, Thailand and China. The Company's effective ownership of ANAH, including the interests held through NLM, is 78.2% and the minority interest in ANAH's subsidiaries is presented on this basis. As a result of this transaction, Alcan's effective ownership in NLM fell from 47.4% to 45.6%. The gain on the partial sale of the Company's investment in NLM was deferred and is being recognized over the period related to the utilization or disposition of the underlying assets by ANAH's subsidiaries. In 1997, $1 of the after-tax gain was recognized. Included in the Company's balance sheet at the date of acquisition in 1996 were the following assets and liabilities of ANAH's Asian subsidiaries: Working capital $ 49 Property, plant and equipment 99 Other assets 9 157 Long-term debt 4 Minority interest 71 Net assets $ 82
10. DEFERRED CREDITS AND OTHER LIABILITIES Deferred credits and other liabilities comprise the following elements:
1997 1996 1995 Deferred revenues $ 56 $ 74 $ 87 Deferred profit on sale of investments 106 113 - Post-retirement and post-employment benefits 390 405 426 Environmental liabilities 37 32 38 Rationalization costs 32 31 27 Claims 40 39 41 Other 54 76 82 $715 $770 $701
51 52 11. DEBT NOT MATURING WITHIN ONE YEAR
1997 1996 1995 Alcan Aluminium Limited Deutschmark bank loans, due 1998/2005 (DM381 million) (a) $ 213 $ 251 $ 276 5.875% Debentures, due 2000 (b) 150 150 150 5.375% Swiss franc bonds, due 2003 (c) 123 132 154 CARIFA loan, due 2006 (d) 60 60 60 9.5% Debentures, due 2010 (e) 100 100 100 9.625% Sinking fund debentures, due 2000/2019 (e) 150 150 150 8.875% Debentures, due 2022 (f) 150 150 150 Other debt, due 2001 7 8 8 12.45% Canadian dollar debentures, due 1997 (c)(g) -- -- 92 9.1% Debentures, due 1998 (g) -- -- 125 9.2% Debentures, due 2001 (g) -- -- -- Alcan Aluminum Aluminum Corporation 7.25% Debentures, due 1999 (h) 100 100 100 Other debt, due 1998/2004 3 6 6 6.375% Debentures, due 1997 (g)(h) -- -- 150 British Alcan Aluminium plc and subsidiary companies Other debt -- 7 -- Bank loans -- -- 54 Alcan Deutschland GmbH and subsidiary companies 6.78% Bank loans -- 2 4 5.65% Bank loans, due 2001 (DM15 million) 8 10 11 Bank loans, due 2000/2001 (DM101 million) (a) 56 65 38 Queensland Alumina Limited Bank loans, due 2000/2003 (a) 79 71 67 Other companies Bank loans, due 1998/2011 (a) 51 48 48 4% Eurodollar exchangeable debentures, due 2003 (i) 24 24 24 Other debt, due 2002/2036 3 4 6 1,277 1,338 1,773 Debt maturing within one year included in current liabilities (36) (19) (28) $1,241 $1,319 $1,745
[FN] (a) Interest rates fluctuate principally with the lender's prime commercial rate, the commercial bank bill rate, or are tied to LIBOR rates. (b) Through an interest rate swap the Company had effectively converted the interest on the debentures to a rate tied to U.S. LIBOR for the period to October 1996. (c) The Canadian dollar debentures were issued as CAN$125 million and the Swiss franc bonds as SFr178 million. Both debts were swapped for $107 and $105 at effective interest rates of 9.82% and 8.98%, respectively. (d) The Caribbean Basin Projects Financing Authority (CARIFA) loan bears interest at a rate related to U.S. LIBOR. The interest was swapped until April 1996 for a fixed rate of 6.74%. 52 53 (e) The Company can redeem the 9.5% debentures between the years 2000 and 2007 at amounts declining from 104% to 100% of the principal and can redeem the 9.625% debentures between the years 1999 and 2009 at amounts declining from 105% to 100% of the principal. In certain circumstances prior to January 30, 2000, for the 9.5% debentures, or prior to July 30, 1999, for the 9.625% debentures, the holders may retract the debentures at 100%. (f) The interest was swapped until 1995 at a rate tied to U.S. LIBOR. 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 Canadian dollar 12.45% debentures due 1997, the 9.1% debentures due 1998, the 9.2% debentures due 2001 (callable in 1998) and the 6.375% debentures due 1997 were effectively extinguished in February 1996, February 1996, December 1995 and September 1996, respectively, through transactions whereby the Company placed government securities in trusts, the sole purpose of which was to fund the repayment of the debentures and related interest. (h) The following is summarized consolidated financial information for Alcan Aluminum Corporation, a wholly-owned subsidiary which consolidates virtually all of the Company's operations in the United States:
1997 1996 1995 Results of operations for the year ended December 31 Revenues $3,624 $3,389 $3,937 Costs and expenses 3,438 3,242 3,708 Income before income taxes 186 147 229 Income taxes 81 55 86 Net income $ 105 $ 92 $ 143 Financial position at December 31 Current assets $ 801 $ 868 $ 615 Current liabilities 376 578 353 Working capital 425 290 262 Property, plant and equipment - net 736 756 795 Other liabilities - net (199) (186) (138) 962 860 919 Debt not maturing within one year 102 105 256 Net assets $ 860 $ 755 $ 663
The above figures are prepared using the accounting principles followed by the Company (see note 2), except that inventories have been valued principally by the last-in, first-out (LIFO) method. Results of operations in 1995 included net afzter-tax gains on disposals of businesses of $24. (i) Debenture holders are entitled to receive at their option 1,772 common shares held by the Company in NLM, a related company, in exchange for each ten thousand dollar principal amount of debentures. The Company can redeem the debentures between the years 1998 and 1999 at amounts declining from 100.5% to 100% of the principal.z The Company has swapped, to 1998, the interest payments on $100 of its floating rate debt in exchange for fixed interest payments. Based on rates of exchange at year-end, debt repayment requirements over the next five years amount to $36 in 1998, $128 in 1999, $216 in 2000, $102 in 2001 and $79 in 2002. 53 54 12. 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 1997, 1996 and 1995, there were authorized and outstanding 5,700,000 series C, 1,700,000 series D, and 3,000,000 series E, redeemable non- retractable preference shares with stated values of $106, $43 and $54, respectively. The 300 series G redeemable non-retractable preference shares with stated value of $150, authorized and outstanding throughout 1995, were redeemed in August 1996. Outstanding shares are eligible for quarterly dividends as follows: - - - - Preference, series C, D and E - An amount related to the average of the Canadian prime interest rates for series C and E, and the average of the U.S. prime interest rates for series D, quoted by two major Canadian banks for stated periods. Outstanding shares may be called for redemption at the option of the Company on 30 days' notice as follows: - - - - Preference, series C and E (denominated in Canadian dollars) and D (denominated in U.S. dollars) - At $25.00 per share. Any partial redemption must be made on a pro rata basis or by lot. 13. 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 1997 1996 1995 1997 1996 1995 Outstanding -- beginning of year 226,620 225,913 224,685 $1,235 $1,219 $1,195 Issued for cash: Executive share option plan 550 549 1,039 11 11 18 Dividend reinvestment and share purchase plans 174 158 189 5 5 6 Outstanding - end of year 227,344 226,620 225,913 $1,251 $1,235 $1,219
54 55 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 average price of the shares covered by the outstanding options is CAN$38.64 per share. These options vest generally over a 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 are summarized below:
Number (in thousands) 1997 1996 1995 Outstanding - beginning of year 3,715 3,473 3,934 Granted 1,100 853 752 Exercised (550) (549) (1,039) Cancelled (72) (62) (174) Outstanding - end of year 4,193 3,715 3,473
At December 31, 1997, the Company had reserved for issue under the executive share option plan 19,401,061 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, net income would have been lower by $10, or $0.04 per share, ($8, or $0.04 per share in 1996 and $7, or $0.03 per share, in 1995). 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. 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 rights expire in 1999, but may be redeemed earlier by the Board, with the prior consent of the holders of rights or common shares, for 1 cent 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 1 cent per right. 14. RETAINED EARNINGS Consolidated retained earnings at December 31, 1997, includes $138 of undistributed earnings of companies accounted for under the equity method and $2,124 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 business. 55 56 15. CURRENCY GAINS AND LOSSES The following are the amounts recognized in the financial statements:
1997 1996 1995 Currency gains (losses) excluding realized deferred translation adjustments: Forward exchange contracts and currency options $ 22 $ 40 $ (56) Other 1 (4) (1) $ 23 $ 36 $ (57) Deferred translation adjustments: Balance - beginning of year $ 209 $ 304 $ 292 Effect of exchange rate changes (143) (94) 12 Gains realized (2) (1) - Balance - end of year $ 64 $ 209 $ 304
16. 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 The Company seeks to manage the risks arising from movements in exchange rates on identifiable firm cost commitments (principally Canadian dollar) and certain foreign currency denominated revenues. A combination of forward exchange contracts and options, covering periods of up to three years, are used to manage these risks. At December 31, 1997, the contract amount of forward exchange contracts outstanding used to hedge future firm cost commitments was $1,296 ($1,791 in 1996 and $2,017 in 1995) while the contract amount of purchased options (range forward contracts) outstanding used to hedge future firm cost commitments was $1,512 ($614 in 1996 and $550 in 1995). At December 31, 1997, the contract amount of outstanding forward exchange contracts used to hedge future revenues was $268 ($387 in 1996 and $256 in 1995). The market value of outstanding forward exchange contracts related to hedges of costs or revenues at December 31, 1997, was such that if these contracts had been closed out, the Company would have paid $24 (received $17 in 1996 and received $37 in 1995). Based on prevailing market prices, if the currency option contracts (range forward contracts) had been closed out on December 31, 1997, the Company would have paid $36 (received $1 in 1996 and paid $2 in 1995). Unrealized gains and losses on outstanding forward contracts and options are not recorded in the financial statements until maturity of the underlying transactions. In addition, certain intercompany foreign currency denominated loans are hedged through the use of forward exchange contracts. At December 31, 1997, the contract amount of such forward contracts was $220 ($231 in 1996 and $236 in 1995) and the market value was such that if these contracts had been closed out, the Company would have received $16 (received $2 in 1996 and received $4 in 1995). 56 57 Included in Deferred charges and other assets was an amount of $2 in 1996 and $3 in 1995 consisting of net losses on terminated forward exchange contracts and options used to hedge future costs. These deferred charges were included in Cost of sales and operating expenses at the same time as the underlying transactions being hedged were recognized. FINANCIAL INSTRUMENTS - DEBT NOT MATURING WITHIN ONE YEAR As explained in note 11, the 5.375% swiss franc bonds of principal amount sfr178 have been swapped for $105 at an effective interest rate of 8.98%. if the swap had been closed out at December 31, 1997, the Company would have received a net amount of $15 ($32 in 1996 and $47 in 1995) of which an amount of $18 related to the swap of the principal ($27 in 1996 and $49 in 1995) has been recorded in Deferred charges and other assets. FINANCIAL INSTRUMENTS - INTEREST RATES As stated in note 11, the Company sometimes enters into interest rate swaps to manage funding costs as well as the volatility of interest rates. Net cash flows 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, 1997, the Company would have paid $2 ($6 in 1996 and $12 in 1995), based on prevailing interest rates. COMMODITY CONTRACTS - METAL Depending on supply and market conditions, as well as for logistical reasons, the Company may sell primary metal to third parties and may purchase primary and secondary aluminum on the open market to meet its fabricated products requirements. in addition, the Company may hedge certain commitments arising from pricing arrangements with some of its customers. Through the use of forward purchase and sales contracts and options, the Company seeks to limit the negative impact of low metal prices whilst retaining most of the benefit from higher metal prices. At December 31, 1997, the Company had outstanding forward purchase contracts covering 418,800 tonnes (474,300 tonnes in 1996 and 472,400 tonnes at December 31, 1995), maturing at various dates in 1998, 1999 and 2000 (1997, 1998 and 1999 at December 31, 1996 and 1996 and 1997 at December 31, 1995). in addition, the Company held call options outstanding for 657,800 tonnes (591,300 tonnes at December 31, 1996 and 146,500 tonnes at December 31, 1995) maturing at various dates in 1998 and 1999 (1997 and 1998 at December 31, 1996 and 1996 and 1997 at December 31, 1995). At December 31, 1997, the Company held put options, maturing in 1998 and 1999, which establish a minimum price for the metal component of 60,000 tonnes of the Company's future sales. 57 58 Included in Receivables or Deferred charges and other assets is $33 ($25 in 1996 and $7 in 1995) 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, 1997, if all commodity forward purchase contracts and options had been closed out, the Company would have paid $9 (received $20 in 1996 and received $5 in 1995). 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, 1997, the fair value of the Company's long-term debt totalling $1,277 ($1,338 in 1996 and $1,773 in 1995) was $1,321 ($1,363 in 1996 and $1,868 in 1995), based on market prices for the Company's fixed rate securities and the book value of variable rate debt. The market values of all other financial assets and liabilities and preference shares are approximately equal to their carrying values. 17. COMMITMENTS AND CONTINGENCIES The company has guaranteed the repayment of approximately $10 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 $52 in 1998, $41 in 1999, $26 in 2000, $23 in 2001, $23 in 2002, and $99 thereafter. Total fixed charges from these entities were $9 in 1997, $14 in 1996 and $62 in 1995. Minimum rental obligations are estimated at $55 in 1998, $52 in 1999, $27 in 2000, $16 in 2001, $16 in 2002 and $26 thereafter. Total rental expenses amounted to $70 in 1997, $80 in 1996 and $94 in 1995. Alcan, in the course of its operations, is subject to environmental and other claims, lawsuits and contingencies. Accruals have been made in specific instances where it is probable that liabilities will be incurred and where such liabilities can be reasonably estimated. Although it is possible that liabilities may arise in other instances for which no accruals have been made, the Company does not believe that such an outcome will significantly impair its operations or have a material adverse effect on its financial position. In addition, see reference to income taxes in note 5, capital expenditures in note 8, debt repayments in note 11, and financial instruments and commodity contracts in note 16. 58 59 18. SUPPLEMENTARY INFORMATION
1997 1996 1995 Income statement Interest on long-term debt $ 91 $109 $175 Capitalized interest (2) -- (2) Balance sheet Payables Accrued employment costs $170 $167 $150 Short-term borrowings (principally from banks) 238 178 212 At December 31, 1997, the weighted average interest rate on short-term borrowings was 5.3% (4.8% in 1996 and 7.3% in 1995). Statement of cash flows Interest paid $101 $133 $218 Income taxes paid 261 214 71 All time deposits qualify as cash equivalents.
59 60 19. POST-RETIREMENT BENEFITS PENSION PLANS Alcan and its subsidiaries have established pension plans in the principal countries where they operate, for the greater part contributory and generally open to all employees. Most plans provide pension benefits that are based on the employee's highest average eligible compensation during any consecutive 36-month period before retirement. Plan assets consist primarily of listed stocks and bonds. Alcan's funding policy is to contribute the amount required to provide for benefits attributed to service to date, with projection of salaries to retirement, and to amortize unfunded actuarial liabilities for the most part over periods of 15 years or less.
1997 1996 1995 Service cost for the year $ 73 $ 69 $ 76 Interest cost on projected benefit obligation 231 225 215 Actual return on assets (607) (505) (483) Variance of actual return from expected long-term rate of 7.3% (7.3% in 1996 and 7.5% in 1995) being deferred, and amortization of gains and losses and of prior service costs 327 241 221 Net cost for the year $ 24 $ 30 $ 29 Included in the net cost for 1996 are $27 of settlement gains ($16 in 1995) and $22 of curtailment losses ($1 in 1995) related to the disposal of certain businesses. The plans' funded status at December 31 was: Actuarial accumulated benefit obligation, which is substantially vested* $3,156 $3,136 $2,818 Plan assets at market value $4,231 $3,986 $3,447 Actuarial projected benefit obligation based on average compensation growth of 4.9% (4.9% in 1996 and 4.8% in 1995) and discount rate of 6.8% (7.2% in 1996 and 7.1% in 1995) 3,550 3,506 3,210 Plan assets in excess of projected benefit obligation 681 480 237 Unamortized actuarial gains - net** (943) (779) (495) Unamortized prior service cost** 276 313 287 Unamortized portion of net surplus at January 1, 1986** (48) (71) (93) Net pension liability in balance sheet $ (34) $ (57) $ (64)
* Includes commitments for which the actuarial accumulated benefit obligation exceeds plan assets by $135 in 1997 ($147 in 1996 and $108 in 1995). These have been fully provided in the Company's accounts (see note 10). ** Being amortized over expected average remaining service of employees, generally 15 years. 60 61 OTHER The Company provides life insurance benefits under some of its retirement plans. Certain early retirement arrangements also provide for medical benefits, generally only until the age of 65. These plans are not funded.
1997 1996 1995 Service cost for the year $ 4 $ 4 $ 4 Interest cost on accumulated benefit obligation 12 12 13 Amortization of gains and losses (6) (5) (15) Total cost for the year $10 $11 $ 2
Included in the total cost for 1996 is $1 of curtailment gains ($12 in 1995) related to the disposal of certain businesses. Accumulated benefit obligation (ABO) based on average compensation growth of 4.9% (5.2% in 1996 and 5.2% in 1995) and discount rate of 6.7% (7.0% in 1996 and 7.0% in 1995):
1997 1996 1995 Active employees - not fully eligible $ 58 $ 61 $ 66 - fully eligible 28 29 28 Retired employees 86 88 97 Total ABO 172 178 191 Unamortized gains - net 31 24 11 ABO in balance sheet $203 $202 $202
The assumed health care cost trend rate used in calculating the ABO was 8.5% in 1997 (8.5% in 1996 and 11% in 1995), decreasing gradually to 4.5% (5.0% in 1996 and 5.0% in 1995) in 2006. If the average of such rate was increased by 1%, the ABO would increase by approximately $8 and the periodic cost of post-retirement benefits other than pensions would increase by approximately $1 per year. 61 62 20. INFORMATION BY GEOGRAPHIC AREAS
Location 1997 1996 1995 Canada $1,926 $2,169 $2,740 Sales and operating revenues - subsidiaries United States 541 499 552 South America 41 25 41 Europe 226 216 222 Asia and Pacific 68 78 96 All other 350 349 338 Sub-total 3,152 3,336 3,989 Consolidation eliminations (3,152) (3,336) (3,989) Total $- $ - $ - Sales to subsidiary companies are made at fair market prices recognizing volume, continuing of supply and other factors. Canada $1,169 $1,210 $1,258 Sales and operating revenues - third parties United States 3,063 2,871 3,306 South America 395 579 719 Europe 2,609 2,633 3,632 Asia and Pacific 515 290 326 All other 26 31 46 Total $7,777 $7,614 $9,287 Net income* Canada $ 245 $ 175 $ 216 United States 136 70 123 South America 27 42 15 Europe 55 21 161 Asia and Pacific (1) 13 43 All other 35 31 39 Consolidation eliminations (29) 58 (54) Net income before extraordinary item 468 410 543 Extraordinary gain (loss) - Canada 17 - (280) Total $ 485 $ 410 $ 263 Total Assets at December 31 Canada $4,077 $4,159 $4,033 United States 1,848 1,820 1,679 South America 729 739 854 Europe 3,162 3,189 3,520 Asia and Pacific 833 983 1,078 All other 498 477 463 Consolidation eliminations (1,681) (2,042) (1,891) Total $9,466 $9,325 $9,736 Capital expenditures and investments Canada $ 186 $ 143 $ 99 United States 71 55 63 South America 118 43 45 Europe 206 185 196 Asia and Pacific 21 7 3 All other 39 49 35 Total $ 641 $ 482 $ 441
62 63 Average number Canada 11 11 11 of employees United States 4 4 4 (in thousands) South America 3 4 6 Europe 11 12 15 Asia and Pacific 2 1 - All other 2 2 3 Total 33 34 39
* If presented to reflect the effect of prior years' income tax reassessments described in note 5, net income in Canada in 1997 would be reduced by $109 and increased by $93 in the United States and $16 in Europe. 21. INFORMATION BY PRODUCT SECTORS The following presents selected information by major product sector, viewed on a stand- alone basis. Transactions between product sectors are conducted on an arm's length basis and reflect market prices. Thus, profit on all alumina produced by the Company, whether sold to third parties or used in the Company's smelters, is included in the raw materials and chemicals sector. Similarly, income from primary metal operations is mainly profit on metal produced by the Company, whether sold to third parties or used in the Company's fabricating operations. Income from fabricated products businesses represents only the fabricating profit on rolled products and downstream businesses. The information presented below is consistent with recently approved accounting standards in Canada and the U.S. that take effect in 1998 and deal with segmented information. The Company will adopt all provisions of the new standards in 1998.
Sales and operating revenues Intersector Third parties Operating income 1997 1996 1995 1997 1996 1995 1997 1996 1995 Raw materials and chemicals $ 520 $ 507 $ 555 $ 536 $ 529 $ 618 $ 125 $ 95 $ 203 Primary metal 1,530 1,653 2,286 1,531 1,472 1,612 589 519 701 Fabricated products - - - 5,693 5,593 6,983 290 127 346 Intersector and other items (2,050) (2,160) (2,841) 17 20 74 (18) 147 (49) $ - $ - $ - $7,777 $7,614 $9,287 $ 986 $ 888 $1,201 Reconciliation to net income before extraordinary item Equity loss (33) (10) (3) Corporate offices (126) (117) (111) Interest (101) (125) (204) Income taxes (258) (226) (340) Net income before extraordinary item $ 468 $ 410 $ 543 Total Assets at December 31 1997 1996 1995 Raw materials and chemicals $1,409 1,357 $1,354 Primary metal 2,880 2,795 2,971 Fabricated products 4,318 4,198 4,737 Cash, equity companies and other items 859 9 75 674 $9,466 $9,325 $9,736
63 64 22. SUBSEQUENT EVENT On February 19, 1998, the Company announced it was proceeding with the construction of a 375,000-tonne smelter at Alma, Quebec. Total cost is estimated at $1,600, most of which will be incurred over the next three years. Approximately $220 is expected to be spent in 1998. 64 65 QUARTERLY FINANCIAL DATA (in millions of US$, except where indicated)
First Second Third Fourth Year (unaudited) 1997 Revenues $1,898 $2,030 $1,965 $1,972 $7,865 Cost of sales and operating expenses 1,450 1,552 1,504 1,489 5,995 Depreciation 107 110 106 113 436 Income taxes 45 72 78 63 258 Other items 153 180 197 178 708 Net income before extraordinary item 143 116 80 129 468 Extraordinary gain -- -- -- 17 17 Net income(1) $ 143 $ 116 $ 80 $ 146 $ 485 Dividends on preference shares 3 2 2 3 10 Net income attributable to common shareholders $ 140 $ 114 $ 78 $ 143 $ 475 Net income before extraordinary item per common share (in US$)(2) $ 0.62 $ 0.50 $ 0.34 $ 0.56 $ 2.02 Extraordinary gain per common share (in US$) -- -- -- 0.07 0.07 Net income per common share (in US$)(2) $ 0.62 $ 0.50 $ 0.34 $ 0.63 $ 2.09 Net income before extraordinary item under U.S. GAAP(3) $ 142 $ 141 $ 90 $ 131 $ 504 Net income under U.S. GAAP(3) $ 142 $ 141 $ 90 $ 148 $ 521 1996 Revenues $2,015 $1,972 $1,881 $1,821 $7,689 Cost of sales and operating expenses 1,528 1,501 1,460 1,416 5,905 Depreciation 110 108 108 105 431 Income taxes 69 74 57 26 226 Other items 183 177 155 202 717 Net income(1) $ 125 $ 112 $ 101 $ 72 $ 410 Dividends on preference shares 5 5 4 2 16 Net income attributable to common shareholders $ 120 $ 107 $ 97 $ 70 $ 394 Net income per common share (in US$)(2) $ 0.53 $ 0.47 $ 0.43 $ 0.31 $ 1.74 Net income under U.S. GAAP(3) $ 120 $ 118 $ 111 $ 71 $ 420
65 66
1995 Revenues $2,455 $2,449 $2,288 $2,195 $9,387 Cost of sales and operating expenses 1,874 1,843 1,750 1,766 7,233 Depreciation 109 113 115 110 447 Income taxes 102 99 86 53 340 Other items 196 214 194 220 824 Net income before extraordinary item 174 180 143 46 543 Extraordinary loss - - 280 - 280 Net income (Loss)(1) $ 174 $ 180 $ (137) $ 46 $ 263 Dividends on preference shares 6 6 5 7 24 Net income (Loss) attributable to common shareholders $ 168 $ 174 $ (142) $ 39 $ 239 Net income before extraordinary item per common share (in US$)(2) $0.75 $0.77 $ 0.61 $0.17 $ 2.30 Extraordinary loss per common share (in US$) - - 1.24 - 1.24 Net income (Loss) per common share (in US$)(2) $0.75 $0.77 $(0.63) $0.17 $ 1.06 Net income before extraordinary item under U.S. GAAP(3) $ 176 $ 172 $ 119 $ 94 $ 561 Net income (Loss) under U.S. GAAP(3) $ 176 $ 172 $ (176) $ 94 $ 266
[FN] (1) The first quarter of 1997 included an after-tax gain of $10 from the sale of a business and $26 from a favourable tax adjustment related to prior years. The third quarter of 1997 included a special charge of $30 after tax related to Alcan's share of contract losses and restructuring provisions at 45.6% owned Nippon Light Metal Company, Ltd., in Japan. (1) The first quarter of 1996 included an after-tax charge of $12 on the in- substance defeasance of debentures. The third quarter of 1996 included an after- tax gain of $8 from the sale of businesses. (1) The first quarter of 1995 included an after-tax gain of $24 from the sale of Alcan's metal distribution business in the U.S. The second, third and fourth quarters of 1995 included after-tax charges of $3, $4 and $8 respectively on the in-substance defeasance of debentures. (2) Net income (Loss) per common share calculations are based on the average number of common shares outstanding in each period. (3) See note 4 to the consolidated financial statements for explanation of differences between Canadian and U.S. GAAP. 66 67 ELEVEN-YEAR SUMMARY
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 CONSOLIDATED INCOME STATEMENT ITEMS (in millions of US$) REVENUES Sales and operating revenues 7,777 7,614 9,287 8,216 7,232 7,596 7,748 8,757 8,839 8,529 6,797 Other income 88 75 100 109 75 69 82 162 208 97 81 Total revenues 7,865 7,689 9,387 8,325 7,307 7,665 7,830 8,919 9,047 8,626 6,878 COSTS AND EXPENSES Cost of sales and operating expenses 5,995 5,905 7,233 6,740 6,002 6,300 6,455 6,996 6,682 6,072 5,117 Depreciation 436 431 447 431 443 449 429 393 333 316 296 Selling, administrative and general expenses 444 422 484 528 551 596 635 659 600 525 447 Research and development expenses 72 71 76 72 99 125 131 150 136 132 95 Interest 101 125 204 219 212 254 246 197 130 137 177 Other expenses 54 88 61 95 106 118 163 65 62 91 113 Income taxes 258 226 340 112 (13) (17) (104) 126 350 497 230 Equity income (loss) (33) (10) (3) (29) (12) 53 89 211 97 97 35 Minority interests (4) (1) 4 (3) 1 (5) -- (1) (16) (22) (5) Net income (Loss) before extraordinary item 468 410 543 96 (104) (112) (36) 543 835 931 433 Extraordinary gain (loss) 17 -- (280) -- -- -- -- -- -- -- -- Net income (Loss) 485 410 263 96 (104) (112) (36) 543 835 931 433 Preference dividends 10 16 24 21 18 23 20 22 21 30 36 Net income (Loss) attributable to common shareholders 475 394 239 75 (122) (135) (56) 521 814 901 397 CONSOLIDATED BALANCE SHEET ITEMS (in millions of US$) Operating working capital 1,483 1,461 1,731 1,675 1,314 1,460 1,717 1,842 1,774 1,764 1,735 Property, plant and equipment - net 5,458 5,470 5,672 5,534 6,005 6,256 6,525 6,167 5,260 4,280 3,965 Total assets 9,466 9,325 9,736 10,003 9,812 10,154 10,843 10,681 9,518 8,627 7,693 Total debt 1,515 1,516 1,985 2,485 2,652 2,794 3,024 2,648 1,734 1,530 1,558 Deferred income taxes 969 996 979 914 888 955 1,126 1,092 1,044 1,006 754 Preference shares 203 203 353 353 353 353 212 212 212 211 405 Common shareholders' equity 4,871 4,661 4,482 4,308 4,096 4,266 4,730 4,942 4,610 4,109 3,565 PER COMMON SHARE (in US$) Net income (Loss) before extraordinary item 2.02 1.74 2.30 0.34 (0.54) (0.60) (0.25) 2.33 3.58 3.85 1.68 Net income (Loss) 2.09 1.74 1.06 0.34 (0.54) (0.60) (0.25) 2.33 3.58 3.85 1.68 Dividends paid 0.60 0.60 0.45 0.30 0.30 0.45 0.86 1.12 1.12 0.59 0.39 Common shareholders' equity 21.43 20.57 19.84 19.17 18.28 19.06 21.17 22.19 20.30 18.06 15.05 Market price - NYSE close 27.69 33.63 31.13 25.38 20.75 17.63 20.00 19.50 22.88 21.75 17.92
67 68
OPERATING DATA (in thousands of tonnes) Consolidated aluminum shipments Ingot products* 858 810 801 897 887 870 866 857 743 832 787 Fabricated products 1,694 1,539 1,733 1,763 1,560 1,389 1,333 1,488 1,518 1,446 1,410 Fabrication of customer-mowned metal 276 258 225 189 91 206 145 81 75 80 99 Total aluminum shipments 2,828 2,607 2,759 2,849 2,538 2,465 2,344 2,426 2,336 2,358 2,296 Consolidated primary aluminum production 1,429 1,407 1,278 1,435 1,631 1,612 1,695 1,651 1,643 1,619 1,587 Consolidated aluminum purchases 1,254 1,003 1,365 1,350 865 675 591 646 718 716 593 Consolidated aluminum inventories (end of year) 451 408 449 435 403 418 463 447 539 480 496 Primary aluminum capacity ** Consolidated subsidiaries 1,558 1,561 1,561 1,561 1,711 1,711 1,676 1,685 1,685 1,680 1,680 Total consolidated subsidiaries and related companies 1,695 1,698 1,712 1,712 1,862 1,862 1,827 1,836 1,836 1,831 1,861 OTHER STATISTICS Cash from operating activities (in millions of US$) 719 981 1,044 65 444 465 659 760 970 1,370 879 Capital expenditures (in millions of US$) 641 482 441 356 370 474 880 1,367 1,466 676 415 Ratio of total borrowings to equity (%) 23:77 23:77 29:71 35:65 37:63 37:63 37:63 33:67 26:74 26:74 27:73 Average number of employees (in thousands) 33 34 39 42 46 49 54 57 57 56 63 Common shareholders - registered (in thousands at end of year) 21 22 23 26 28 32 34 38 40 41 46 Common shares outstanding (in millions at end of year) 227 227 226 225 224 224 223 223 227 228 237 Registered in Canada (%) 61 61 61 55 59 69 68 54 44 54 44 Registered in the United States (%) 39 39 38 44 40 30 31 44 54 43 53 Registered in other countries (%) - - 1 1 1 1 1 2 2 3 3 Return on average common shareholders' equity (%) 10 9 5 2 (3) (3) (1) 11 19 24 12 Before extraordinary item (%) 10 11
[FN] ** Includes primary and secondary ingot and scrap. All per-share amounts reflect the three-for-two share splits on May 5, 1987, and May 9, 1989. ** Primary aluminum capacity has been restated to reflect better the actual production levels achieved over a period of time. See note 4 to the consolidated financial statements for U.S. GAAP information. ** Includes primary and secondary ingot and scrap. All per-share amounts reflect the three-for-two share splits on May 5, 1987, and May 9, 1989. ** Primary aluminum capacity has been restated to reflect better the actual production levels achieved over a period of time. See note 4 to the consolidated financial statements for U.S. GAAP information. 68 69 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 opposite page. In discharging its duties and obligations, the Alcan Board acts in accordance with the provisions of the Canada Business Corporations Act, the Company's constituting documents and by-laws and other applicable legislation and Alcan policies. Alcan does not have a controlling shareholder nor do any of the Directors represent the investment of any minority shareholder. Corporate governance has traditionally received the active attention of Alcan's Board. For instance, an intensive review of the guiding principles of Alcan conducted by the Board in the 1970s led to the publication in 1978 of a policy statement entitled Alcan, Its Purpose, Objectives and Policies, which has remained fundamentally unchanged. This statement represents the basic business principles that guide Alcan employees in conducting a widespread international enterprise and has helped Alcan achieve public understanding and trust. To that original document, a Code of Conduct has been added to reinforce it with more detailed guidelines for Alcan employees as well as consultants and contractors engaged by Alcan. The Montreal and Toronto stock exchanges now require a formal description of corporate governance practices by all listed companies. Alcan's disclosure in this regard is published in the Management Proxy Circular issued in connection with the forthcoming Annual Meeting; a copy is available from Shareholder Services at the address on page 65. Committees of the Board (described briefly below) assist the Board in carrying out its functions and make recommendations to it on various matters. Membership of these Committees is indicated on the opposite 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. All matters relating to the Chief Executive Officer are dealt with by non-executive members of the Committee. A special committee composed of members of the Personnel Committee, ezxcept the Chief Executive Officer, administers the Alcan Executive Share Option Plan. 69 70 DIRECTORS AND OFFICERS (AS AT FEBRUARY 12, 1998) DIRECTORS DR. JOHN R. EVANS, C.C.1, 3, 8 Chairman of the Board of Alcan Aluminium Limited, Montreal Age 68, director since 1986 SONJA I. BATA, O.C.5, 7 Director of Bata Limited, Toronto Age 71, director since 1979 W. R. C. BLUNDELL, O.C.2, 7 Director of various companies, Toronto Age 70, director since 1987 JACQUES BOUGIE, O.C.3, 5 President and Chief Executive Officer of Alcan Aluminium Limited, Montreal Age 50, director since 1989 WARREN CHIPPINDALE, F.C.A., C.M.1, 4, 7 Director of various companies, Montreal Age 69, director since 1986 D. TRAVIS ENGEN1, 5, 7 Chairman, President and Chief Executive Officer of ITT Industries, Inc., New York Age 53, director since 1996 ALLAN E. GOTLIEB, C.C.3, 5, 7 Director of various companies, Toronto Age 69, director since 1989 J. E. NEWALL, O.C.3, 6, 7 Vice Chairman and Chief Executive Officer of NOVA Corporation, Calgary Age 62, director since 1985 DR. PETER H. PEARSE, C.M.5, 7 President of Pearse Ventures Limited, Vancouver Age 65, director since 1989 70 71 SIR GEORGE RUSSELL, C.B.E.1, 3, 7 Chairman of 3i Group plc, London Age 62, director since 1987 GUY SAINT-PIERRE, O.C.1, 7 Chairman of SNC-Lavalin Group Inc., Montreal Age 63, director since 1994 GERHARD SCHULMEYER1, 7 President and Chief Executive Officer of Siemens Nixdorf Informations systeme AG, Munich Age 59, director since 1996 OFFICERS JACQUES BOUGIE President and Chief Executive Officer ROBERT L. BALL Executive Vice President, Corporate Development and Technology CLAUDE CHAMBERLAND Executive Vice President, Smelting and Power JEAN-PIERRE M. ERGAS Executive Vice President, Europe RICHARD B. EVANS Executive Vice President, Fabricated Products - North America EMERY P. LEBLANC Executive Vice President, Raw Materials and Chemicals EVERALDO N. SANTOS Executive Vice President, South America BRIAN W. STURGELL Executive Vice President, Asia/Pacific 71 72 DANIEL GAGNIER Vice President, Corporate and Environmental Affairs GASTON OUELLET Vice President, Human Resources, Occupational Health and Safety P. K. PAL Vice President, Chief Legal Officer and Secretary SURESH THADHANI Vice President and Chief Financial Officer GEOFFREY P. BATT Treasurer DENIS G. O'BRIEN Controller 1 Member of Audit Committee 2 Chairman of Audit Committee 3 Member of Personnel Committee 4 Chairman of Personnel Committee 5 Member of Environment Committee 6 Chairman of Environment Committee 7 Member of Corporate Governance Committee 8 Chairman of Corporate Governance Committee 72 73 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 Montreal, Vancouver, Chicago, Pacific, London, Paris, Brussels, Amsterdam, Frankfurt and Swiss stock exchanges. The transfer agents for the common shares are CIBC Mellon Trust Company in Montreal, Toronto, Winnipeg, Regina, Calgary and Vancouver, Chase Mellon Shareholder Services, L.L.C. in New York, and CIBC Mellon Trust Company in England. Common share dividends are paid quarterly on or about the 20th of March, June, September and December to shareholders of record on or about the 20th of February, May, August and November, respectively. PREFERENCE SHARES The preference shares are listed on the Montreal, Toronto and Vancouver stock exchanges. The transfer agent for the preference shares is CIBC Mellon Trust Company. INVESTMENT PLANS The Company offers holders of common shares two convenient ways of buying additional Alcan common shares without payment of brokerage commissions. These are known as the Dividend Reinvestment Plan and the Share Purchase Plan. Copies of the prospectus describing these Plans may be obtained from Shareholder Services at the address on page 65. SECURITIES REPORTS FOR 1997 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, 1998. Copies of both may be obtained from Shareholder Services at the address on page 65.
Dividend Prices* and Average Daily Trading Volumes New York Stock Exchange (US$) Toronto Stock Exchange (CAN$) 1997 US$ High Low Close Avg. Daily High Low Close Avg. Daily Quarter Volume Volume First 0.150 381/4 333/8 337/8 562,300 52.25 45.70 46.75 641,900 Second 0.150 377/8 301/2 3411/16 430,900 52.10 42.65 47.10 587,800 Third 0.150 405/16 331/2 343/4 470,600 55.70 46.65 48.40 547,600 Fourth 0.150 3513/16 261/16 275/8 499,133 49.25 37.10 39.40 679,694 Year 0.600 1996 Quarter First 0.150 337/8 283/8 321/4 398,500 46 383/4 44 709,100 Second 0.150 341/8 301/8 301/2 367,400 46.40 40.75 41.55 468,100 Third 0.150 323/8 285/8 30 327,200 44.45 39.35 40.70 406,500 Fourth 0.150 361/8 293/4 335/8 435,200 48.50 40.10 46.25 664,500 Year 0.600
[FN] * The share prices are those reported as New York Stock Exchange -- Consolidated Trading and reported by the Toronto Stock Exchange. Since April 15, 1996, share prices on the Toronto Stock Exchange are expressed in decimals. 73 74 FURTHER INFORMATION Contact for shareholder account inquiries: Linda Burton Manager, Shareholder Services Telephone: (514) 848-8050 or 1-888-252-5226 (toll free) shareholder.services@alcan.com Investor contact: Alan G. Brown Director, Investor and Media Relations Telephone: (514) 848-8368 investor.relations@alcan.com Media contact: Alain Bergeron Manager, Investor and Media Relations Telephone: (514) 848-8232 media.relations@alcan.com 74 75 THE ALCAN GROUP WORLDWIDE PARENT COMPANY AND WORLD HEADQUARTERS Alcan Aluminium Limited 1188 Sherbrooke Street West Montreal, Quebec, Canada H3A 3G2 Mailing Address: P.O. Box 6090 Montreal, Quebec, Canada H3C 3A7 Telephone: (514) 848-8000 Telecopier: (514) 848-8115 www.alcan.com NORTH AMERICA Bermuda Alcan (Bermuda) Limited Alcan Nikkei Asia Holdings Ltd. (78.2%)1 Canada Alcan Aluminium Limited Alcan Cable Alcan Chemicals Alcan Foil Products Alcan International Limited Alcan Smelters and Chemicals Limited Jamaica Alcan Jamaica Company United States Alcan Aluminum Corporation Alcan Automotive Products Alcan Cable Alcan Chemicals Alcan Foil Products Alcan Ingot Alcan Light Gauge Products Alcan Sheet Products SOUTH AMERICA Brazil Alcan Aluminio do Brasil Ltda. Consorcio Aluminio do Maranhao (Alumar Consortium) (10%) Mineracao Rio do Norte S.A. (12.5%) Petrocoque S.A. - Indusria & Comercio (25%) 75 76 AFRICA Ghana Ghana Bauxite Company Limited (45%) Guinea Compagnie des Bauxites de Guinee (16.8%) Friguia (10.2%) EUROPE France Alcan France (Technal) Germany Alcan Deutschland GmbH Aluminium Norf GmbH (50%) Ireland Aughinish Alumina Limited Italy Alcan Alluminio S.p.A. Norway Vigeland Metal Refinery A/S (50%) Spain Alcan Palco S.A. Switzerland Alcan Aluminium AG Alcan Rorschach AG United Kingdom British Alcan Aluminium plc PACIFIC Australia Alcan South Pacific Pty Ltd. Queensland Alumina Limited (21.4%) China Alcan Asia Limited Alcan Asia Pacific Limited Alcan Nikkei China Limited (72.3 %)2 Alcan Nikkei Korea Limited (72.3 %)2 Nonfemet International (China-Canada-Japan) Aluminium Company Limited (35.2%)3 India Indian Aluminium Company, Limited (34.6%) 76 77 Japan Alcan Asia Limited (Tokyo Branch) Nippon Light Metal Company, Ltd. (NLM) (45.6%) Korea Alcan Nikkei Korea Limited (Seoul Branch) Malaysia Alcan Nikkei Asia Company Ltd. (78.2%)1 Aluminium Company of Malaysia Berhad (46.3%)3 Alcom Nikkei Specialty Coatings Sdn Bhd (62.2%)4 Thailand Alcan Nikkei Siam Limited (54.8%)3 Alcan Nikkei Thai Limited (60.7%)3 * This list names only the principal businesses of the Alcan Group. A complete list is contained in the Company's 10-K Report, available from Alcan's headquarters in Montreal. 1 Alcan's direct interest is 60%, the remaining interest is held through Nippon Light Metal Company, Ltd. (NLM). 2 Alcan's direct interest is 49%, the remaining interest is held through NLM. 3 Interest held through Alcan Nikkei Asia Holdings Ltd., which is 78.2% owned by Alcan. 4 Interest held through Aluminium Company of Malaysia Berhad and Alcan Nikkei Asia Holdings Ltd. Visit Alcan's Web Site: www.alcan.com Further information on Alcan and its activities is available on Alcan's World Wide Web site and contained in various Company publications. These publications, such as A Commitment to Continual Environmental Improvement, published in 1996, are available by writing to the address shown at upper left. VERSION FRANCAISE Pour obtenir la version francaise de ce rapport, veuillez ecrire aux Services aux actionnaires dont l'adresse figure dans le coin superieur gauche. This report was printed using vegetable-based inks and is recyclable. 77 EX-21 4 SUBSIDIARIES 1 EXHIBIT NO. 21.: SUBSIDIARIES, RELATED COMPANIES, ETC. - VOTING SHARES 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 1 March 1998, are listed below. All Subsidiaries and joint ventures named below are consolidated in the financial statements incorporated by reference in this report. The list also includes several Related Companies for which Alcan reports its interest in the net income or loss of such companies. Alcan is the direct owner of the shares 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 43.
SUBSIDIARIES, RELATED COMPANIES, ETC. ORGANIZED UNDER % OF VOTING THE LAWS OF SHARES HELD BY IMMEDIATE OWNER - - - ------------------------------------- --------------- -------------- Alcan Adminco Inc. Canada 100 Alcan Aluminio (America Latina) Inc. Canada 100 Alcan Aluminum Corporation Ohio 100 Alcan Automotive Castings, Inc. Ohio 100 Altek Automotive Castings Partnership Delaware 50 Alcan Cable (Mexico), Inc. Georgia 100 Alcan Management Services U.S.A. Inc. Ohio 100 Erieview Cartage, Inc. Ohio 100 Logan Aluminum Inc. Delaware 40 Alcan Asia Pacific Limited Canada 100 Alcan Empreendimentos Ltda. Brazil 100 Alcan Aluminio do Brasil Ltda. Brazil 100 Alcan Aluminio Pocos de Caldas S.A. Brazil 100 Consorcio de Aluminio do Maranhao ("Consorcio Alumar") (unincorporated) Brazil 10 Petrocoque S.A. - Industria e Comercio Brazil 25 Mincracao Rio do Norte S.A. Brazil 12.5 Alcan Europe Limited England 100 Alcan Finances (Bda) Ltd. Bermuda 100 Alcan Asia Limited Hong Kong 100 Alcan (Bermuda) Limited Bermuda 100 Alcan Shipping (Bermuda) Limited Bermuda 100 Alcan Limerick Limited Ireland 100 Alcan Nikkei Asia Holdings Ltd. Bermuda 60 (1) Alcan Nikkei Siam Limited Thailand 33 (2) Alcan Nikkei Thai Limited Thailand 75 (3) Alcom Nikkei Specialty Coatings Sdn. Bhd. Malaysia 50 (4) Aluminium Company of Malaysia Berhad Malaysia 59.2 Aluminium Development Company (Thailand) Limited Thailand 16 (5) Nikkei Holdings Pte. Limited Singapore 100 Nonfemet International (China-Canada-Japan) Aluminium Company Limited China 45 Alcan Nikkei China Limited China 49 (6) Champlain Insurance Company Ltd. Bermuda 100 Frialco S.A. Cayman Islands 20 Friguia Guinea 51 Halco (Mining) Inc. Delaware 33 Compagnie des Bauxites de Guinee Delaware 51 Alcan Finances B.V. Netherlands 100
40 2
SUBSIDIARIES, RELATED COMPANIES, ETC. ORGANIZED UNDER % OF VOTING THE LAWS OF SHARES HELD BY IMMEDIATE OWNER -------------------------------------- --------------- -------------- Alcan Finances (Ireland) Limited Canada 100 Alcan Aluminium AG Switzerland 100 Alcan Rorschach AG Switzerland 100 Alcan Finances (Ireland) Company Ireland 100 Alcan Finances (U.K.) England 100 Alcan France Holdings France 100 Alcan France France 91.1 (7) Evolutis S.A. France 100 Evolutis Espinos-Roy France 95 (8) Technal AB Sweden 99 Technal Aluminium Systems SA Switzerland 100 Technal Iberica Spain 100 Technal Portuguesa Systemas de Aluminio Ltda Portugal 100 Evolutis Ltda Portugal 100 Technal Limited England 100 Technal South East Asia Co. Ltd. Thailand 49 Transports et Aluminium Industries Transalumin France 100 Alcan Iberica, S.A. Spain 100 Alcan International Limited Canada 100 Alcan Ireland Limited Ireland 100 Aughinish Alumina Limited Ireland 40 (9) Aughinish Estates Limited Ireland 40 (9) Aughinish Property (Nominees) Limited Ireland 40 (9) Alcan Luxembourg S.A. Luxembourg 100 Alcan Alluminio S.p.A. Italy 100 Alcanital Services S.r.l. Italy 100 Alcan Deutschland GmbH Germany 98.6 (10) Alcan Austria GmbH Austria 100 Alcan Lamines France France 40 (11) Aluminium Norf GmbH Germany 50 BAA Holdings S.A. Luxembourg 100 British Alcan Aluminium plc England 100 Alcan Automotive Structures (UK) Ltd. England 100 Alcan BAP Limited England 100 Alcan BAS Limited England 100 Alcan Chemicals Europe Limited England 100 Alcan Chemicals Limited England 100 Alcan Colwick Holdings Limited England 100 Alcan Colwick Limited England 100 Alcan Contracts Limited England 100 Alcan Enfield Alloys Limited England 50 Alcan Farms Limited England 100 Alcan Metal Centres (Midlands) Limited England 100 Alcan Metal Centres Limited Scotland 100 Alcan Shipping Services (UK) Limited England 100 Alcan Speciality and Aerospace Limited England 100 Alcan St Helens Limited England 100 Alcan Stockists South Limited England 100 Alcan Swinton Limited England 100 Alcan Systems and Conservatories Limited England 100 Alcan Systems Limited England 100
41 3
SUBSIDIARIES, RELATED COMPANIES, ETC. ORGANIZED UNDER % OF VOTING THE LAWS OF SHARES HELD BY IMMEDIATE OWNER ------------------------------------- --------------- -------------- ALCAN LUXEMBOURG S.A. (CONTINUED) BAA HOLDINGS S.A. (CONTINUED) BRITISH ALCAN ALUMINIUM PLC (CONTINUED) Alcan Windows Limited England 100 Alliance Aluminium Holdings Limited England 100 Aluminium Corporation Limited England 100 Aluminium Sulphate Limited England 50 Aluminium Supply (Aerospace) Limited England 100 Aylesford (Packaging) Limited England 100 BA Chemicals Limited England 100 BA Finance Limited England 100 BA Metals Limited England 100 Belfast Aluminium Limited Northern Ireland 100 British Alcan Conductor Limited England 100 British Alcan Consumer Products Limited England 100 British Alcan Extrusions Limited England 100 British Alcan Highland Estates Limited England 100 British Alcan Primary and Recycling Limited England 100 British Alcan Rolled Products Limited England 100 British Alcan Snappies Limited England 100 British Alcan Wire and Conductor Limited England 100 Four County Windows Limited England 100 Gentrin Limited England 100 Pearhouse Limited England 100 Pentagon Radiator (Stafford) Limited England 100 Propax Packaging Products Limited England 100 Saguenay Shipping (U.K.) Limited England 100 TBAC Limited England 100 Alcan Aluminium UK Limited England 90 (12) British Alcan Overseas Investments Limited England 100 Saratoga Resources N.V. Netherland Antilles 20 Vigelands Metal Refinery A/S Norway 50 Ghana Bauxite Company Limited Ghana 45 ** Isleburn Limited Scotland 21.7 MacKay & MacLeod Engineering Limited Scotland 100 Kinlochleven Road Transport Company Limited Scotland 25 The Lochaber Power Company Scotland 100 Venesta Foils Limited England 100 Vigelands Brug A/S Norway 100 Thames Alum Limited England 100 Ulster Aluminium Stockists Limited Northern Ireland 100 Westbro Welding Wire Limited England 100 Alcan Management Services Canada Limited Canada 100 Alcan Nikkei Asia Company Ltd. Bermuda 60 (1) Alcan Nikkei Korea Limited China 49 (6) Alcan Palco, S.A. Spain 100 Alcan Realty Limited Canada 100
[FN] ** Increased to 80% on 19 March 1998. 42 4
% OF VOTING Organized Under Shares Held by Subsidiaries, Related Companies, Etc. the Laws of Immediate Owner - - - ------------------------------------- ---------------- ---------------- Alcan Shannon Company Ireland 100 Alcan Shipping Services Limited Canada 100 Alcan Smelters and Chemicals Limited Canada 100 Alcan-Sprostons Limited Jamaica 100 Alpac Aluminium Inc. Canada 50 (13) Aluminio de Venezuela, C.A. Venezuela 49 Aluminum Company of Canada, Limited Canada 100 Handy Chemicals Limited Quebec 100 Indian Aluminium Company, Limited India 34.6 Jamalcan (unincorporated) Jamaica 93 Nippon Light Metal Company, Ltd. Japan 37.2 (14)(15) N.V. Alcan Aluminium Products Benelux S.A. Belgium 100 Societe des Alumines et Bauxites de Provence France 100 The Roberval and Saguenay Railway Company Quebec 100 3088405 Canada Inc. Canada 100 Alcan South Pacific Pty Ltd. Australia 100 Alcan Queensland Smelter Pty Ltd. Australia 100 Queensland Alumina Limited Australia 21.4 Queensland Alumina Security Corporation Delaware 20 Wenlock Bauxite Pty Limited Australia 100
% of Voting Note Additional Ownership Through Shares Held - - - --------------------------------- ----------- (1) Nippon Light Metal Company, Ltd. 40.0 (2) Nikkei Holdings Pte. Limited 37.0 (3) Nikkei Holdings Pte. Limited 2.6 (4) Aluminium Company of Malaysia Berhad 50.0 (5) Alcan Nikkei Thai Limited 84.0 (6) Nippon Light Metal Company, Ltd. 51.0 (7) Alcan Aluminium Limited 8.9 (8) Transports et Aluminium Industries Transalumin 5.0 (9) Alcan Shannon Company 25.0 Alcan Limerick Limited 35.0 (10) Alcan Aluminium AG 1.4 (11) British Alcan Aluminium plc 30.0 Alcan Alluminio S.p.A. 30.0 (12) British Alcan Aluminium plc 10.0 (13) Nippon Light Metal Company, Ltd. 50.0 (14) Alcan Adminco Inc. 1.6 Alcan Asia Pacific Limited 0.2 Alcan Nikkei Asia Holdings Ltd 8.5
[FN] (15) Nippon Light Metal Company, Ltd., a major aluminum company in Japan, has its principal operations in Japan and has subsidiaries and related companies in many countries including Brazil, Canada, China, Indonesia, Malaysia and Thailand. 43 EX-24 5 POWERS OF ATTORNEYS 1 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (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 Robert des Trois Maisons, Serge Fecteau, P.K. Pal, 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 Corporation, 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 26th day of March 1998. /s/ Sonja I. Bata --------------------- Name: Sonja I. Bata Title: Director 2 Exhibit 24.2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (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 Robert des Trois Maisons, Serge Fecteau, P.K. Pal, 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 Corporation, 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 26th day of March 1998. /s/ Warren Chippindale ---------------------------- Name: Warren Chippindale Title: Director 3 Exhibit 24.3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (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 Robert des Trois Maisons, Serge Fecteau, P.K. Pal, 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 Corporation, 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 26th day of March 1998. /s/ D. Travis Engen ------------------------- Name: D. Travis Engen Title: Director 4 Exhibit 24.4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (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 Robert des Trois Maisons, Serge Fecteau, P.K. Pal, 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 Corporation, 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 26th day of March 1998. /s/ John R. Evans ------------------------ Name: John R. Evans Title: Chairman 5 Exhibit 24.5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (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 Robert des Trois Maisons, Serge Fecteau, P.K. Pal, 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 Corporation, 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 26th day of March 1998. /s/ Allan E. Gotlieb -------------------------- Name: Allan E. Gotlieb Title: Director 6 Exhibit 24.6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (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 Robert des Trois Maisons, Serge Fecteau, P.K. Pal, 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 Corporation, 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 26th day of March 1998. /s/ J.E. Newall ----------------------- Name: J.E. Newall Title: Director 7 Exhibit 24.7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (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 Robert des Trois Maisons, Serge Fecteau, P.K. Pal, 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 Corporation, 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 26th day of March 1998. /s/ Peter H. Pearse ------------------------- Name: Peter H. Pearse Title: Director 8 Exhibit 24.8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (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 Robert des Trois Maisons, Serge Fecteau, P.K. Pal, 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 Corporation, 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 26th day of March 1998. /s/ G. Russell ---------------------- Name: Sir George Russell Title: Director 9 Exhibit 24.9 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (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 Robert des Trois Maisons, Serge Fecteau, P.K. Pal, 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 Corporation, 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 26th day of March 1998. /s/ Guy Saint-Pierre ------------------------------ Name: Guy Saint-Pierre Title: Director 10 Exhibit 24.10 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (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 Robert des Trois Maisons, Serge Fecteau, P.K. Pal, 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 Corporation, 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 26th day of March 1998. /s/ Gerhard Schulmeyer ------------------------------- Name: Gerhard Schulmeyer Title: Director EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-K OF ALCAN ALUMINIUM LIMITED FOR THE YEAR ENDED 31 DECEMBER 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 608 0 1,292 0 1,341 3,241 11,715 6,257 9,466 1,424 1,241 0 203 1,251 3,620 9,466 7,777 7,865 5,995 5,995 436 0 101 763 258 468 0 17 0 485 2.09 2.09
EX-99 7 CAUTIONARY STATEMENT 1 EXHIBIT NO. 99: CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - - - ----------------------------------------------------------------------- Written or oral statements made by Alcan or its representatives, including statements set forth in Alcan's Form 10-K for the year ended 31 December 1997, which describe the Company's or management's objectives, projections, estimates, expectations or predictions of the future may be "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "estimates," "anticipates" or the negative thereof or other variations thereon. The Company cautions that, by their nature, forward-looking statements involve risk and uncertainty and that the Company's actual results could differ materially from those expressed or implied in such forward-looking statements or could affect the extent to which a particular projection is realized. Important factors which could cause the Company's actual performance to differ materially from projections or expectations included in forward-looking statements include global aluminum supply and demand conditions, aluminum ingot prices and changes in other raw materials costs and availability, cyclical demand and pricing within the principal markets for the Company's products, changes in government regulations, particularly those affecting environmental, health or safety compliance, economic developments and other factors within the countries in which the Company operates or sells its products and other factors relating to the Company's ongoing operations including, but not limited to, litigation, labour negotiations and fiscal regimes. Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements include, but are not necessarily limited to, those discussed under the heading "Risks and Uncertainties" in the Management's Discussion and Analysis section of Alcan's Annual Report 1997, incorporated by reference in Part II, Item 7 of, and filed as an exhibit to, the Company's report on Form 10-K for the year ended 31 December 1997. The text under such heading is incorporated herein by reference. Copies of the Company's filings may be obtained by contacting the Company or the United States Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----