-----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, IzudMJBP7zFlDyhGS7tBZBBs0Ewl4Rk7sf+pksxVz7QJgI5Bnp7ZdAcnEA5uTZP/ V+EJ4A1ikGDJIyJZA9g0hQ== 0001130319-02-000222.txt : 20020415 0001130319-02-000222.hdr.sgml : 20020415 ACCESSION NUMBER: 0001130319-02-000222 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCAN INC CENTRAL INDEX KEY: 0000004285 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 000000000 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03677 FILM NUMBER: 02589150 BUSINESS ADDRESS: STREET 1: 1188 SHERBROOKE ST WEST CITY: MONTREAL QUEBEC CANA STATE: A8 ZIP: 00000 BUSINESS PHONE: 5148488000 MAIL ADDRESS: STREET 1: 1188 SHERBROOKE STREET WEST CITY: MONTREAL QUEBEC CANA STATE: A8 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: ALCAN ALUMINIUM LTD /NEW DATE OF NAME CHANGE: 19930519 FORMER COMPANY: FORMER CONFORMED NAME: ALUMINUM CO OF CANADA LTD DATE OF NAME CHANGE: 19870728 10-K 1 m06714e10-k.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [4] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended 31 December 2001 OR [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-3677 ALCAN INC. Incorporated in: I.R.S. Employer Identification No.: Canada Not applicable 1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A 3G2 Telephone: (514) 848-8000
Securities registered pursuant to Section 12(b) of the Act: Title Name of each exchange on which registered Common Shares without nominal or par value New York Stock Exchange Common Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days: Yes [ 4 ] 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. [ 4 ] The aggregate market value of the voting stock held by non-affiliates: $13,015 million, as of 28 February 2002 Common Stock of Registrant outstanding 321,041,314 Common Shares, as of 28 February 2002 Documents incorporated by reference Annual Report to security holders for the fiscal year ended 31 December 2001 (Parts I, II and IV) Management Proxy Circular for the Annual Meeting to be held on 25 April 2002 (Parts III and IV)
INDEX TO ALCAN INC. 2001 ANNUAL REPORT ON FORM 10-K
Page ---- PART I Items 1 and 2 Business and Properties............................................. 2 Overview of Operating Segments............................................. 2 History/Recent Developments................................................ 3 Bauxite and Alumina........................................................ 7 Primary Metal.............................................................. 9 Aluminum Fabrication....................................................... 13 Packaging.................................................................. 17 Research and Development................................................... 19 Environmental Health and Safety............................................ 19 Properties................................................................. 19 Employee Relations......................................................... 20 Patents, Licenses and Trademarks........................................... 20 Competition and Government Regulations..................................... 20 Item 3 Legal Proceedings.......................................................... 21 Environmental Matters...................................................... 21 Other Matters.............................................................. 23 Item 4 Submission of Matters to a Vote of Security Holders........................ 23 PART II Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters.. 24 Item 6 Selected Financial Data.................................................... 25 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................... 26 Item 7a Quantitative and Qualitative Disclosures about Market Risk................ 26 Item 8 Financial Statements and Supplementary Data................................ 27 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................................... 27 PART III Item 10 Directors and Executive Officers of the Registrant........................ 27 Item 11 Executive Compensation.................................................... 29 Item 12 Security Ownership of Certain Beneficial Owners and Management............ 29 Item 13 Certain Relationships and Related Transactions............................ 29 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 30 Signatures........................................................................ 35 Consent of Independent Accountants................................................ 37 Exhibit No. 21 Subsidiaries, Related Companies, etc............................... 38
PART I In this report, unless the context otherwise requires, the following definitions apply: "Alcan", "Company" or "Registrant" means Alcan Inc. and, where applicable, one or more Subsidiaries, "Algroup" means Alusuisse Group Ltd.(now Alcan Holdings Switzerland Ltd., a Subsidiary of Alcan following the Combination), "Annual Report" means Alcan's Annual Report for the year ended 31 December 2001, "Board" or "Board of Directors" means the Board of Directors of Alcan, "Combination" means the process by which Algroup became a Subsidiary of Alcan on 18 October 2000, through the completion of a share exchange offer by Alcan for the shares of Algroup, "Dollars" or "$" means U.S. Dollars, "EVA(R)" Economic Value Added is the registered trademark of Stern Stewart & Co. and a key measure of financial performance. EVA represents the difference between the return on capital and the cost for using that capital over the same period. "Joint Venture" means an association (incorporated or unincorporated) of companies jointly undertaking some commercial enterprise and proportionately consolidated to the extent of Alcan's participation, "Management Proxy Circular" means the management proxy circular for Alcan's Annual Meeting of Shareholders to be held on 25 April 2002 , "Related Company" means a company in which Alcan owns, directly or indirectly, 50% or less of the voting stock and in which Alcan has significant influence over management, but does not include a company in a Joint Venture, "Share" or "Common Share" means a common share in the capital of Alcan, "Shareholder" means a holder of the Shares, "Subsidiary" means a company controlled, directly or indirectly, by Alcan, and "tonne" means a metric tonne of 1,000 kilograms or 2,204.6 pounds. Unless otherwise expressly indicated herein, the financial and other information given in this report is presented on a consolidated basis. Certain information called for by Items of this Form is incorporated by reference to the Annual Report and the Management Proxy Circular. Such information is specifically identified herein, including by the reference "See Annual Report..." or "See Management Proxy Circular...". With the exception of such information specifically incorporated by reference, the Annual Report and the Management Proxy Circular are not to be deemed filed as part of this Form 10-K Report. 1 Cautionary Statement Written or oral statements made by Alcan or its representatives, including statements set forth herein, that 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, that can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "estimates," "anticipates" or the negative thereof or other variations thereon. The Company cautions that, by their nature, forward-looking statements involve risk and uncertainty and that the Company's actual actions or results could differ materially from those expressed or implied in such forward-looking statements or could affect the extent to which a particular projection is realized. Important factors that could cause the Company's actual performance to differ materially from projections or expectations included in forward-looking statements include global supply and demand conditions for aluminum and other products, aluminum ingot prices and changes in raw materials costs and availability, changes in the relative values of various currencies, cyclical demand and pricing within the principal markets for the Company's products, changes in government regulations, particularly those affecting environmental, health or safety compliance, economic developments, relationships with and financial and operating conditions of customers and suppliers, the effect of integrating acquired businesses and the ability to attain expected benefits, and other factors within the countries in which the Company operates or sells its products and other factors relating to the Company's ongoing operations, including but not limited to, litigation, labour negotiations and fiscal regimes. Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements include, but are not necessarily limited to, those discussed under the heading "Risks and Uncertainties" in the Management's Discussion and Analysis section of Alcan's Annual Report, on pages 38 and 39 thereof. The text under such heading is incorporated herein by reference. ITEMS 1 AND 2 BUSINESS AND PROPERTIES Alcan is the parent company of an international group involved in many aspects of the aluminum and packaging industries. Through Subsidiaries, Joint Ventures and Related Companies around the world, the activities of Alcan include bauxite mining, alumina refining, specialty chemicals, power generation, aluminum smelting, manufacturing, recycling and packaging, as well as research and development. Alcan employs approximately 50,000 people. In the 99 years since it was established, Alcan has developed a unique combination of competitive strengths. Alcan is a multicultural and multilingual market-driven company reflecting the differing corporate and social characteristics of the 38 countries in which it operates. Alcan is one of the most international aluminum and packaging companies and is the foremost global producer and marketer of rolled aluminum products. 1. OVERVIEW OF OPERATING SEGMENTS In November 2001, the Company announced the realignment of its operating management structure from four to six business groups, each responsible for the value creation of the different business units of which they are comprised. The new operating management structure became effective 1 January 2002. The six major operating segments are: Bauxite, Alumina and Specialty Chemicals focusing on bauxite mining, alumina refining and the production of specialty chemicals; 2 Primary Metal, comprising smelting operations, power generation and production of primary value-added ingot in the form of sheet billet, wire bar, extrusions and foundry products, as well as the trading operations for alumina and aluminum; Rolled Products Americas and Asia, encompassing aluminum sheet, rod and extrusions; Rolled Products Europe, comprising aluminum sheet including lithographic sheet and industrial plate; Engineered Products, including wire and cable businesses, components for mass transportation and auto systems as well as sales and service centres throughout Europe; and Packaging, consisting of food flexible and foil, tobacco, pharmaceutical and cosmetics packaging businesses. Following the Combination and up to 31 December 2001, operations were reorganized into four operating segments as described below. Consequently, for purposes of this report, the information contained herein, including financial information about the four operating segments, is as at 31 December 2001, except where an earlier or later date is expressly indicated. PRIMARY METAL, headquartered in Montreal, Canada, comprised Alcan's worldwide activities related to bauxite, alumina and specialty chemicals operations, the primary aluminum smelting facilities, power generation and the trading operations for alumina and aluminum. ALUMINUM FABRICATION, AMERICAS AND ASIA, headquartered in Cleveland, USA comprised the fabrication of aluminum sheet and light gauge rolled products as well as rod, cable and wire, serving markets ranging from containers and packaging, building and construction, industrial, electrical, automotive and other transportation sectors. ALUMINUM FABRICATION, EUROPE, headquartered in Zurich, Switzerland, comprised the European fabrication of rolled and engineered products serving the packaging, mass transportation, automotive, building, display and other industrial markets. PACKAGING, also headquartered in Zurich, Switzerland comprised Alcan's food flexible and foil, specialty, pharmaceutical, tobacco and cosmetics packaging businesses. Alcan's corporate head office, located in Montreal, focuses on strategy development, while overseeing governance, policy and compliance matters. 2. HISTORY/RECENT DEVELOPMENTS Alcan is a limited liability Canadian company, incorporated on 3 June 1902, with its headquarters and registered office in Montreal, Canada. It was formed as a subsidiary of the Pittsburgh Reduction Company, one of the founding companies of the aluminum industry, to establish a smelter and hydroelectric power facility in Shawinigan, Quebec. In 1928, the international operations and domestic U.S. operations were separated into two competing companies that became Alcan and Alcoa Inc., respectively. During the Second World War substantial expansion of hydroelectric and smelting capacity took place in Quebec to supply aluminum for the war effort. In the 1950s, Alcan added hydroelectric and smelting capacity in British Columbia. During the postwar period, Alcan expanded internationally and invested in fabricating activities to stimulate demand for its primary metal production. Today, Alcan is a multinational company engaged in all aspects of the aluminum industry on an international scale. In terms of revenues, Alcan ranks among the top five manufacturers of flexible and specialty packaging in the world. In past years, Alcan has divested several fabricating businesses that did not fit within the Company's corporate strategy for creating long-term value for its shareholders. As part of this process, in 1998 and 1999, Alcan decreased its shareholding in Nippon Light Metal Company, Ltd. 3 from 45.6% to 5.1%. Also in 1999, the Company sold its Aughinish alumina refinery in Ireland, its piston business in Nuremberg, Germany and its wholly-owned Subsidiary, Alcan France, which produced building systems. On 30 September 1999, Alcan and Korea's Taihan Electric Wire Co., Ltd. announced the formation of Alcan Taihan Aluminum Limited ("ATA"), a jointly-owned company with modern rolling assets to serve the growing market for aluminum rolled products throughout the Asia/Pacific region. In May 2000, ATA announced the acquisition of Aluminium of Korea Limited ("Koralu"). The Koralu facility consists of top quality assets, including casting, hot rolling, cold rolling and extensive finishing operations, as well as aluminum foundry alloy and billet operations supported by a research and development centre. The product lines of the ATA rolling mills are complementary with high potential integration benefits through load balancing production between the two facilities. In July 2000, Alcan completed the $169 million sale of its 54.62% interest in Indian Aluminium Company, Limited to Hindalco Industries Limited, India's largest integrated aluminum producer. On 18 October 2000, the Combination between Alcan and Algroup was completed, with Alcan acquiring over 99% of the shares of Algroup by virtue of its exchange offer, with former Algroup shareholders receiving 17.1 Alcan Shares for each Algroup share exchanged. Alcan acquired the remaining shares in Algroup in 2001 by virtue of statutory right and Algroup de-listed from the Swiss Stock Exchange. The making of the exchange offer by Alcan for the Algroup shares was subject to competition clearance from the European Commission competition authorities. The European Commission cleared the Alcan -Algroup Combination, conditional to: - - the divestiture of the alumina tri-hydrate plant operated by Algroup subsidiary, Alusuisse Martinswerk GmbH, at Bergheim-Erft, Germany; - - the divestiture of the lithographic operation carried out by an Algroup subsidiary at Bridgnorth, UK; and - - the divestiture of certain machines that produce semi-rigid aluminum containers. In response, on 27 April 2001, Alcan announced the sale of the Martinswerk plant to Albermarle Corporation of Richmond, Virginia, U.S.A. As well, on 30 May 2001, the Palco foil container plant, located in Madrid, Spain, was sold to Aliberico SA of Spain and 12 presses for smooth wall containers in Ohle, Germany were sold to Alupak AG of Switzerland. On 18 June 2001, the Company announced the sale of its lithographic sheet production plant, Star Litho, located in the U.K. to Elval Hellenic Aluminium Industry S.A. of Greece. In January 2001, because of an acute shortage of water in the Nechako reservoir in British Columbia, Canada and consequent reduced electrical generation at its Kemano Power Station, Alcan adopted measures at its Kitimat smelter that involved shutting down individual pots and reducing amperage. Implementation of these measures will reduce production of aluminum at the Kitimat smelter by 40,000 tonnes over 16 months. On 8 June 2001, the Company announced a further reduction, raising the total closure to up to 50% of the smelter's capacity of 275,000 tonnes. This measure was adopted to allow Alcan to honour its contractual obligations and scheduled deliveries to B.C. Hydro. On 1 February 2001, Alcan announced that it had completed the acquisition of the remaining 30% interest in the Gove alumina refinery and related bauxite mine in Australia (see section 3.3.2 below). Following Jacques Bougie's resignation on 10 January 2001, the Board of Directors appointed 4 W.R.C. (Bill) Blundell as interim President and Chief Executive Officer. Effective 12 March 2001, Travis Engen, previously chairman and chief executive of ITT Industries, Inc. and a non-executive Director of the Company, was appointed as President and Chief Executive Officer of Alcan. On 1 March 2001, Alcan changed its corporate name from Alcan Aluminium Limited to Alcan Inc. to reflect the Company's increasingly diversified product mix and global character. For 2001, the Company reported consolidated net income of $5 million. See the Annual Report "Management's Discussion and Analysis" on page 23. On 17 April 2001, the Company announced the retirement of Suresh Thadhani, Executive Vice President and Chief Financial Officer. Mr. Thadhani's retirement took effect on 1 September 2001. On 31 May 2001, the Company completed the sale of its bauxite and alumina operations in Jamaica to Glencore, a privately held company based in Switzerland. These assets comprise two alumina refineries and related bauxite reserves and mine sites. On 28 June 2001, the Company announced the appointment of Geoffery E. Merszei to the position of Executive Vice President and Chief Financial Officer. Prior thereto, Mr. Merszei had been vice president and treasurer of The Dow Chemical Company. On 22 October 2001, the Board announced the appointments of Messrs. Clarence J. Chandran and Brian M. Levitt as Directors. Mr. Chandran is the former chief operating officer of Nortel Networks. Mr. Levitt is Montreal resident co-chair of the law firm of Osler, Hoskin & Harcourt LLP and former president and chief executive officer of Imasco Limited. On 20 November 2001, the Company announced the establishment of the Office of the President and a realigned operating management structure comprised of six business groups and four corporate functions. The Office of the President, which is based at the Company's Corporate Head Office in Montreal, includes Travis Engen, President and Chief Executive Officer and Executive Vice Presidents Richard B. Evans and Brian W. Sturgell. It is intended that the new organizational and management structure effective 1 January 2002 will substantially raise Alcan's performance, move the Company closer to its markets and improve its responsiveness. In October 2001, in light of increased competitive pressures and market outlook, the Company announced a restructuring program that will result in a series of plant sales, closures and divestments as well as a reduction of approximately 6% of the workforce. As part of this, changes were effected to the rolled products businesses in the U.K. and Italy as well as to the aluminum foil activities in the U.K. and Switzerland. The changes affect all 200 employees at the Glasgow, U.K. site; up to 310 out of a total of 600 employees at the Rogerstone plant in Newport, South Wales and 95 out of 550 employees at Kreuzlingen, Switzerland. Alcan will also exit from non-core products at the Pieve plant in Milan, Italy with a workforce of 200 employees in these product streams. Also, as part of its restructuring program, the Company announced on 20 December 2001 the following series of plant closures and divestments: o In February 2002, the foil fabrication plant located in Saint-Laurent, Quebec, Canada transferred its operations to the foil fabrication plant in Toronto, Ontario, Canada. Twenty employees were affected by this closure. 5 - -- The Company will consolidate the Weston, Ontario and Toronto Ontario, Canada food flexible packaging plants at the existing Weston facility, which will result in a reduction of 30 employees. - -- The Carson, California, U.S.A. food flexible plant will be closed. It employs 40 people. - -- On 21 February 2002, subject to regulatory approvals, Alcan sold its extrusion operations in Malaysia. The divestment is expected to be completed within the next six months. The facility employed 220 employees. - -- The Company has also sold its extrusion operations in Thailand. The sale was completed on 20 February 2002. This facility employed 240 employees. - -- Also in the process of being sold are the glass packaging operations in Park Hills, Missouri, U.S.; Mays Landing; Williamstown and in Milville (two plants), New Jersey, U.S. as well as the Company's 46% owned joint venture in Beijing, China, to Stolzle Oberglass, an Austrian packaging manufacturer. In addition, two Pharmatech rubber stopper and aluminum seals operations located in Salisbury, Maryland, U.S. are in the process of being sold to Helvoet Pharma. In February 2002, Alcan announced that it had concluded an agreement with the Societe generale de financement du Quebec (SGF) to purchase for approximately $165 million, a 20% interest in the Aluminerie Alouette consortium, which operates a 243,000 tonne aluminum smelter in Sept-Iles, Quebec, Canada. The transaction that was accepted by the consortium partners is subject to applicable regulatory approvals, the completion of the due diligence investigation by Alcan and final approval by Alcan's Board. It is expected that the transaction will be completed on or about 30 April 2002. On 21 March 2002, the Board announced the appointment of Mr. L. Yves Fortier as a Director and subject to his election as a Director at the Annual Meeting, he will become Chairman of the Board. Mr. Fortier is chairman and a senior partner of the law firm Ogilvy Renault in Montreal. In 1997, as part of the claim settlement arrangements related to the British Columbia Government's cancellation of the Kemano Completion Project, Alcan obtained the right to transfer a portion of a power supply contract with BC Hydro to a third party. Alcan sold the right to supply this portion to Enron Power Marketing Inc. (EPMI), a subsidiary of Enron Corporation (Enron) for cash consideration. In order to obtain the consent of BC Hydro to this sale, Alcan was required to retain residual liability for EPMI's obligations arising from the supply contract, including in the event that EPMI became unable to perform. This contingent liability is subject to a maximum aggregate amount of $100 million, with mitigation and subrogation rights. On 2 December 2001, EPMI and Enron filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Powerex Corp., the BC Hydro affiliate which now holds the rights to the power supply contract, maintains that it has terminated the power supply contract and as a result has filed a claim for $100 million against Enron on March 15, 2002 as a necessary step prior to making the same claim against the Company. Enron did not respond to that claim and the Company received, on March 22, 2002, a demand for payment in the amount of $100 million from Powerex Corp. The Company is unable to estimate reasonably the amount of the contingent loss which might arise in respect of this matter and intends to contest the claim on substantive and procedural grounds as well as by reason of inadequate mitigation efforts. In any event, the Company is of the view that any residual liabilities, which it may have as a result of its assignment of the power supply agreement to EPMI in 1997 would relate to the supply of power and not be in the form of a financial obligation. 6 3. BAUXITE AND ALUMINA 3.1 Products Aluminum is one of the most abundant metals in the earth's crust but is never found in its pure form. Bauxite is the basic aluminum-bearing ore. Alumina (aluminum oxide) is produced from bauxite by a chemical process. Depending upon quality, between four and five tonnes of bauxite are required to produce approximately two tonnes of alumina. 3.2 Sales and Marketing/Customers Alcan produced in 2001 approximately 4.4 million tonnes of smelter-grade alumina, of which some 3.9 million tonnes are required by its current smelting operations. The remainder is sold to third parties. In addition, Alcan produced in 2001 approximately 250,000 tonnes of chemical-grade alumina, which is sold to third parties in the form of various alumina chemicals. 3.3 Production and Facilities 3.3.1 Canada Alcan owns an alumina facility at Jonquiere, Quebec, Canada. Bauxite for this operation is obtained from Brazil, Guinea, Ghana and Australia (see below). Alumina and alumina-based chemicals produced at Jonquiere supply, in part, the smelters in Quebec and are also sold in chemical markets. 3.3.2 Australia In 2000, through the Combination, Alcan acquired a 70% interest in the Gove bauxite mine and refinery plant. The facilities, which are located on the Gove peninsula in the Northern Territory of Australia, started operations in 1971-72. In January 2001, the Company acquired the remaining 30% of the Gove alumina refinery and related bauxite mine at a cost of $379 million, subject to certain post-closing adjustments. As a result of this transaction, the Company now owns 100% of these assets. Design capacity at the start-up of the Gove refinery was one million tonnes of alumina and has since expanded to 1.8 million tonnes of low-cost alumina. In 2001, the amount of bauxite mined at Gove was 6.3 million tonnes. Also in Australia, Alcan has a 21.4% interest in a company which operates an alumina plant at Gladstone (Queensland). Each participant in that plant supplies bauxite for toll conversion. Alcan's bauxite is purchased from Comalco Limited ("Comalco") in Australia under a long-term contract. Alcan's share of production from Gladstone is used to supply the Alcan smelter at Kitimat (British Columbia), Jonquiere (Quebec) and is also sold to third parties. Alcan and Comalco have an agreement providing for the future development of Alcan's Ely bauxite mine in Cape York, Queensland, Australia, with Comalco's adjacent operations. 3.3.3 Brazil Alcan purchased approximately 1.9 million tonnes of bauxite in 2001 from a 12.5%-owned company, Mineracao Rio do Norte S.A. ("MRN"). MRN's Trombetas mine in the Amazon region has an operating capacity of about 11 million tonnes per year. Bauxite purchased from MRN is processed at the Jonquiere plant (see above) and at the Alumar alumina refinery in Sao Luis (Brazil), which has an annual capacity of about 1.2 million tonnes; Alcan owns a 10% interest in the Alumar refinery. Alcan also owns alumina facilities (and related bauxite mining facilities) with a capacity of about 150,000 tonnes of alumina per year at Ouro Preto, which supply smelters in Brazil. 3.3.4 Ghana Alcan purchased about 700,000 tonnes of bauxite in 2001 from Ghana Bauxite Co. Ltd. in which it holds an interest of 80%. The bauxite purchased is used for processing at the Burntisland plant (see below), the Jonquiere plant (see above) and is also sold to third parties. 7 3.3.5 Guinea Alcan purchased about 4 million tonnes of bauxite in 2001 under contracts in effect through 2011 from Compagnie des Bauxites de Guinee S.A. ("CBG"). Alcan has a 33% interest in Halco (Mining) Inc.; Halco holds a 51% interest in CBG, the remaining 49% being held by the Republic of Guinea. CBG's mine in the Boke region of Guinea has an operating capacity of about 12 million tonnes per year. Bauxite purchased from CBG is processed at the Jonquiere plant (see above) and is also sold to third parties. 3.3.6 India At year end, Alcan holds a 35% interest in the proposed Utkal alumina project in Orissa, India. The project includes a one million tonne integrated alumina plant and bauxite mine, with potential to further expand production capacity. 3.3.7 Jamaica Effective 31 May 2001, the Company sold its Jamaican operations. Alcan entered into a multi-year purchase agreement with Glencore to supply Alcan smelters in Quebec, Canada and Sebree, Kentucky, U.S. 3.3.8 United Kingdom Alcan operates an alumina plant in Burntisland, Scotland, which has an annual capacity of approximately 100,000 tonnes of special aluminas and other chemicals for sale to the chemical market. Bauxite for this operation is purchased from Ghana (see above). Subsequent to year-end, Alcan announced its intention to exit this business. ALUMINA CAPACITIES -- AS AT 31 DECEMBER 2001
% OF CAPACITY ALCAN OWNERSHIP (THOUSANDS SHARE OF BY ALCAN OF TONNES) CAPACITY LOCATIONS (dagger) SMELTER-GRADE ALUMINA Australia.............. Gladstone 21.4 3,740 800 (Queensland) Gove 100 1,800 1,800 (Northern Territories) Brazil................. Ouro Preto 100 150 150 (Saramenha, Minas Gerais) Alumar 10 1,200 120 (Sao Luis) Canada................. Vaudreuil 100 1,050 1,050 (Jonquiere, Quebec) TOTAL SMELTER-GRADE ALUMINA 3,920 SPECIALTY CHEMICAL ALUMINAS AND HYDRATES Canada................. Vaudreuil 100 150 150 (Jonquiere, Quebec) United Kingdom......... Burntisland 100 100 100 (Fife, Scotland) TOTAL SPECIALTY CHEMICAL ALUMINAS AND HYDRATES 250 TOTAL 4,170
- ------- (dagger) Includes Joint Ventures, proportionately consolidated. 8 3.4 Raw Materials 3.4.1 Bauxite Reserves Alcan obtains its bauxite from mining Subsidiaries, Joint Ventures, consortium companies and third-party suppliers. In 2001, the Company consumed 11.1 million tonnes of bauxite. Alcan has more than sufficient bauxite reserves to meet its needs over the next 25 years. Bauxite Interests -- As at 31 December 2001
% OF OWNERSHIP COUNTRY ASSET BY ALCAN Australia Gove 100 ELY 100 Brazil Mineracao Rio do Norte S.A. 12.5 Alcan Brazil 100 Ghana Ghana Bauxite Co. Ltd. 80 Guinea Compagnie des Bauxites de Guinee S.A. 16.5 India Utkal 35
3.4.2 Chemicals and Other Materials Certain chemicals and other materials, e.g., aluminum fluoride, required for the production of aluminum at Alcan's smelters, are also produced by its chemical operations. Other materials, e.g., caustic soda, fuel oil, fluorspar and petroleum coke, are purchased from third parties. 3.5 Special Alumina Alcan, together with its Subsidiaries, Related Companies and Joint Ventures, produces a wide range of specialty aluminas and aluminum hydroxides for different uses, such as ceramics, refractories, water treatment chemicals, catalysts and coagulants. Its products are also used as flame retardants and smoke suppressants for plastics and resins. Alcan's principal manufacturing facilities for special aluminas and aluminum hydroxides are located in Canada and the U.K. (see above). 4. PRIMARY METAL 4.1 Products 4.1.1 Aluminum Aluminum is produced through the electrolytic reduction of alumina. Electrical energy is used to separate the aluminum from the oxygen in alumina. Approximately two tonnes of alumina yield one tonne of metal. 4.1.2 Other Aluminum Sources Other sources of aluminum include the following: purchases of primary aluminum under contracts and spot purchases, purchases of used beverage cans and aluminum scrap for recycling and purchases of customer scrap returned against ingot or semi-fabricated product sales contracts. In addition, some aluminum fabricated products are purchased for resale. Purchases in 2001 of aluminum of all types from all sources amounted to 1,822,000 tonnes, compared with 1,670,000 tonnes in 2000 and 1,297,000 tonnes in 1999. 9 4.1.3 Sales and Marketing/Customers In 2001, Alcan sold 1,287,000 tonnes of primary aluminum to third parties. Virtually all of this was in the form of value-added ingot, primarily extrusion billet, sheet ingot or foundry ingot. The remainder of the primary metal produced was transferred to Alcan's own fabricating operations, primarily as sheet ingot, wire bar or molten metal, or was used for the continuous casting of rod or sheet. Approximately half of the primary aluminum produced in Alcan's North and South American smelters is consumed in Alcan's fabricating facilities, while the remainder is sold to third party customers, primarily in North America and Asia. North American third party sales have been focused on both customized extrusion billet and foundry ingot. Although Alcan has been short of metal in Europe, the duty barrier for aluminum from Canada and high logistics costs have made it uneconomical to ship significant tonnages of metal to Europe. Alcan's European smelter production is mainly consumed by Alcan's fabricating facilities. Alcan covers the remainder of its metal requirements in Europe with purchases of aluminum. Alcan's ingot product realizations were $1,581 per tonne in 2001 compared to $1,667 per tonne in 2000 and $1,511 per tonne in 1999. 4.3 Production and Facilities 4.3.1 Smelting Alcan owns and operates 15 primary aluminum smelters with a nominal rated annual capacity of 2,252,000 tonnes. Seven of these smelters, having a total nominal rated capacity of 1,481,000 tonnes, are located in Canada; the other smelters are located in Brazil, Iceland, Norway, Switzerland, the U.K. and the U.S.A. During 2001, Alcan's smelters produced 2,041,500 tonnes of primary aluminum: 1,290,900 tonnes in Canada, 190,200 tonnes in the U.S.A., 201,500 tonnes in the U.K., 92,000 tonnes in Brazil, 168,300 tonnes in Iceland, 62,400 tonnes in Norway and 36,200 tonnes in Switzerland. For many years, Alcan has been engaged in smelter modernization and rebuilding programs to retrofit or replace some of its older facilities. It intends to continue these programs with a view to increasing productivity, improving working conditions and minimizing the impact of its operations on the environment. The Alma smelter, which reached full operation by 30 September 2001, produced 270,000 tonnes during 2001. 10 SMELTER CAPACITIES -- AS AT 31 DECEMBER 2001
% OF ANNUAL OWNERSHIP CAPACITY LOCATIONS BY ALCAN (THOUSANDS OF TONNES) Canada.................. Arvida 100 248 (Jonquiere, Quebec) Grande-Baie 100 196 (La Baie, Quebec) Laterriere 100 219 (Chicoutimi, Quebec) Shawinigan 100 91 (Quebec) Alma 100 400 (Quebec) Beauharnois 100 50 (Melocheville, Quebec) Kitimat 100 277 (British Columbia) ----- TOTAL IN CANADA 1,481 ----- Brazil.................. Ouro Preto 100 51 (Saramenha, Minas Gerais) Aratu 100 58 (Bahia) Iceland................. ISAL 100 168 (Reykjavik) Norway.................. SOERAL 50 62 (Husnes) Switzerland............. Steg 100 36 (Valais) United Kingdom.......... Lynemouth 100 160 (Northumberland, England) Lochaber 100 40 (Inverness-shire, Scotland) United States........... Sebree 100 196 (Kentucky) ----- TOTAL OUTSIDE CANADA 771 ----- TOTAL 2,252 =====
4.3.2 Other Aluminum Sources Alcan operates recycling plants in Brazil, Italy, the U.S. and the U.K. (see section 5.3.3 below). 4.4 Raw Materials 4.4.1 Electricity The smelting of one tonne of aluminum requires between 13.5 and 18.5 megawatt-hours of electric energy. Alcan produces low-cost electricity at its own hydroelectric generating plants. In Canada, these plants have an installed generating capacity of approximately 3,600 megawatts, of which about 2,700 megawatts may be considered to be hydraulically available over the long term. These facilities supply electricity to Alcan's Canadian smelters. All water rights pertaining to Alcan's hydroelectric installations are owned in perpetuity by Alcan except for those relating to the Peribonka River in Quebec. An annual charge is payable to the Quebec provincial government based on total energy generation, escalating at the same rate as the Consumer Price Index in Canada. In 1984, Alcan and the Quebec provincial government signed a lease extending the Company's water rights relating to the Peribonka River to 31 December 2033 against an annual payment based on sales realizations of aluminum ingot. In British Columbia, water rentals for electricity used in smelting and related purposes are directly tied to the sales realizations of aluminum produced at Kitimat. For electricity sold to third parties within that province, Alcan pays provincial water rentals at rates which are fixed by the British Columbia provincial government, similar to those paid by BC Hydro, the provincially-owned electric utility. 11 One-third of Alcan's installed hydroelectric capacity in Canada was constructed prior to the end of 1943, another third by the end of 1956 and the remainder by the end of 1968. All these facilities have been upgraded or will be upgraded according to prudent utility practices and are expected to remain fully operational over the foreseeable future. In addition to electricity generated at its own plants, as described above, Alcan agreed to purchase, under a long-term agreement, between one and three billion kilowatt-hours of electrical energy annually from Hydro-Quebec beginning in 2001. On 26 February 2002, the Quebec government announced that Aluminerie Alouette was the successful bidder for a block of 500 megawatts of power to support the proposed expansion of the Sept-Iles smelter. Any electricity that is surplus to Alcan's needs is sold to neighbouring utilities or customers under both long-term and short-term arrangements. For smelters located outside of Canada, electricity is obtained from a variety of sources. The smelters in England and Scotland operate their own coal-fired and hydroelectric generating plants, respectively. The smelters in Brazil obtain some of their electricity requirements from owned hydroelectric generating plants and purchase the balance. The smelter in the U.S. purchases electricity under a long-term contract through 2011 as well as a short-term contract. The smelter in Iceland is supplied with hydroelectric power from Iceland's national power company. The supply is under contract through 2014 at rates that vary, subject to certain limits, based on metal prices. The Norwegian smelter has a number of contracts for energy supply, the most important of which expire in 2006. The smelter in Switzerland is supplied with power from Lonza Energie AG (the former Algroup energy division) under medium-term contracts. 4.4.2 Anodes Anodes are used and consumed in the smelting process. Alcan produces anodes in a stand-alone facility in the Netherlands ("Aluchemie"). Alcan holds 66% of Aluchemie directly while SOERAL, its 50% joint venture, owns a further 13%. The remainder of the shares is held by Hydro Aluminium A.S. The main raw materials for anode production are calcined petroleum coke and pitch. Smaller amounts of burned-off anodes from smelters are also added. The production process is subdivided into two steps: mixing of the raw materials followed by cold shaping of the anode and baking of the anode at elevated temperature. Each of the three shareholders of Aluchemie is entitled to a volume of anodes corresponding to their shareholding at prices determined by formula. Alcan's share of anodes produced by Aluchemie is currently used at the ISAL and SOERAL smelters or sold to third-party customers. 4.5 Engineering Alcan Alesa Engineering AG ("Alesa") provides engineering services and custom-made engineering solutions on a global basis to Alcan subsidiaries as well as to third parties. Alesa subsidiaries maintain engineering offices in Switzerland, Canada and Australia. The main areas of activity are: - - Raw Materials Technologies, including carbon and reduction technology, alumina refining, anode production and smelter technology; - - Materials Handling Technologies, including shiploaders and unloaders, silo systems, airlifts and air gravity conveyors, dense phase conveying systems, flyash handling and special applications; and - - Process Automation, including electrolytic cell control systems and general purpose automation. 12 The Australian office also provides technical services to the Gove alumina refinery on an ongoing basis. 4.6 Trading Alcan Trading AG, a wholly owned subsidiary of Alcan, trades on behalf of Alcan's aluminum and packaging subsidiaries. It also engages in limited aluminum and related trading activities for third parties. In 2001, sale volumes for aluminum trading activities for third parties amounted to approximately 430,000 tonnes. Trading services include four main activities: sales of excess raw materials such as alumina and anodes, purchases of metal and other raw materials to cover requirements that exceed internal supplies, managing risk exposures through London Metal Exchange transactions and managing the supply logistics between smelters and fabricating plants. The Company's third party trading functions has a focus on metal and alumina transactions. In 2001, the Company completed the process of integrating this former Algroup function to harmonize it with Alcan's current policies and practices. 5. Aluminum Fabrication 5.1 Products The conversion of aluminum ingot into semi-fabricated and finished products requires the application of a variety of intermediate processes, known generally as fabricating. Many other producers of primary aluminum are also in the business of supplying those products. In addition, there are many independent fabricators that purchase primary and recycled aluminum from both primary producers and the post-consumer market. 5.1.1 Rolled Products Approximately 80% of Alcan's fabricated aluminum product volume is composed of rolled products. A major portion of this is can stock for beverage containers. Other important end-use markets for aluminum sheet include transportation, the printing industry, building and construction and a variety of durable goods and packaging markets. 5.1.2 Engineered Products Through a number of downstream businesses, Alcan manufactures and sells other fabricated aluminum products such as: - - Wire and Cable Aluminum is cast and rolled into rod, which is then drawn into wire and stranded into cable for the transmission and distribution of electricity. Rod is also used for mechanical applications such as screen wire and cable armouring. - - Castings Another method of fabrication is the casting of molten aluminum into components for machinery, automotive products and aircraft. - - Extrusions The extrusion process involves forcing hot metal through a die to create profiled shapes. Examples of end-products using extrusions include windows, doors and automotive components. - - Automotive and other transportation Among the product lines included in this business area are extrusion-based safety systems and other structural automotive components, airfreight containers, suspension parts, forgings, and diecastings. - - Service Centers are located in major European countries. They typically warehouse various forms of aluminium plates, profiles and composite panels and perform value-added services for local customers such as cutting, shaping and machining. 13 5.2 Sales and Marketing/Customers In 2001, Alcan shipped 2,281,000 tonnes of rolled products that included 344,000 tonnes of customer-owned metal. Alcan also used 553,000 tonnes in engineered products and packaging. Alcan's fabricated aluminum products business is mainly composed of a number of large, capital-intensive rolling operations as well as some smaller downstream businesses, and represents 53% of Alcan's total sales and operating revenues of $12.6 billion. Principal markets are beverage can sheet, other packaging, transportation (including automotive), building products, lithographic sheet, electrical and other industrial applications. Alcan continues to work with General Motors, Ford, Audi, DaimlerChrysler, BMW and other auto-makers in North America and Europe to develop lighter, more efficient vehicles. 5.3 Production and Facilities Alcan, together with its Subsidiaries, Related Companies and Joint Ventures, carries out fabricating operations in more than 78 plants in 21 countries. 5.3.1 Rolled Products At the end of 2001, Alcan's annual rolled products manufacturing capacity in its principal fabricating markets was as follows: 1,200,000 tonnes in North America; 260,000 tonnes in South America; 1,720,000 tonnes in Europe; and 430,000 tonnes in Asia. ROLLING CAPACITIES BY REGION -- AS AT 31 DECEMBER 2001 (thousands of tonnes)
EUROPE Rogerstone NORTH AMERICA (United Kingdom) Saguenay Falkirk (Quebec) (United Kingdom) Kingston Norf (Ontario) (Germany) Logan Singen (Kentucky) (Germany) Oswego Nachterstedt (New York) (Germany) Terre Haute Gottingen (Indiana) (Germany) Fairmont Sierre (West Virginia) (Switzerland) Louisville Bresso (Kentucky) (Italy) Warren Pieve Emanuele (Ohio) (Italy) ---- ---- TOTAL NORTH AMERICA 1200 TOTAL EUROPE 1720 ASIA Yeongju (South Korea) SOUTH AMERICA Ulsan Pindamonhangaba (South Korea) (Brazil) Bukit Raja Utinga (Malaysia) (Brazil) Rangsit ---- (Thailand) TOTAL SOUTH AMERICA 260 ---- TOTAL ASIA 430 ---- GRAND TOTAL 3610 ====
5.3.2 Engineered Products 5.3.2.1 Wire and Cable Alcan's main wire and cable businesses are located in Canada (Quebec and Ontario) and the U.S. 14 5.3.2.2 Extrusions Alcan's Subsidiaries, Related Companies and Joint Ventures produce extruded products in Italy and China and sell these products locally and in other countries for the building, construction, transportation and engineering markets. The following key facilities produce extruded products primarily for the European market, namely, Singen (Germany), Sierre (Switzerland), St. Florentin (France), Decin (Czech Republic) and Pieve (Italy). - - Singen operates the largest extrusion press in Western Europe. The facility shipped 33,800 tonnes in 2001, principally for end-users in transportation, electromechanical applications and machinery. A sizeable part of its production is further processed internally into automotive components. - - Sierre's production of 28,400 tonnes in 2001 was delivered mainly to the transportation and industrial markets. - - About 80% of the total output of Saint-Florentin (25,700 tonnes in 2001), was delivered to the French market. The operation targets end-users in the building (50%), transportation (30%) and industrial (20%) sectors. - - At the extrusion plant at Decin in the Czech Republic, shipments of about 32,900 tonnes were made in 2001, approximately equally divided between hard alloy and soft alloy extrusions. - - The Pieve extrusion plant in Italy produced 15,100 tonnes in 2001. 5.3.2.3 Automotive and Other Transportation Among the product lines included in this business area are: - - extrusion-based safety systems and other structural automotive components, airfreight containers, suspension parts and forgings; and - - diecastings produced by Subsidiary Alcan BDW GmbH, and the 66%-owned joint venture activity, Alcan-Tomos d.o.o., in Slovenia. Safety systems include both bumper beams and side impact bars used as door reinforcement in cars. Structural automotive components include both ready to assemble dashboard support beams as currently installed in both VW and Mercedes A-class cars and spaceframe components developed for the new aluminum intensive Audi A2 car. Alcan is the world's leading producer of airfreight containers used for baggage and cargo transport by all airlines. Diecastings for automotive application are produced in Germany and Slovenia. Products are typically machined after casting and delivered ready for assembly on automotive production lines. To expand capacity, the Alcan - Tomos Joint Venture was set up in Slovenia to draw on the available competence in diecasting as well as favorable production costs. Large die casting parts are also supplied for the spaceframe components in the Audi A2 or similar cars. In 2001, revenues from the Auto Systems and Components and Mass Transportation Systems units were $305 million. 5.3.2.4 Composites Composites activities had revenues of $320 million in 2001. The main areas of application are building facade, display and transportation. Products include: aluminum-plastic composites, comprising an outer and inner skin of aluminum sheet surrounding a plastic core; foam plastic materials, covered, if required by specific market requirements, with paper or plastic layers; and fibre-reinforced plastic components, mainly for transportation applications. The main applications for these products are ventilated facades for which composites have a number of advantages over more traditional materials because of their low weight-to-stiffness ratio, ease of application and design variety. In addition to facade applications, composites are now commonly used in display and transportation markets. Composites are produced in 15 Switzerland, Germany, China, the U.K. and the U.S.A. An additional composite operation in Brazil is under construction. Alcan also produces fibre-reinforced components in Switzerland for such applications as rail car driver cabs, bus components and rear spoilers for automobiles. 5.3.3 Recycling Production and Facilities Alcan operates three specialized recycling plants in the U.S.A., with a total annual capacity of 510,000 tonnes, for the recycling of used beverage cans ("UBCs") and process scrap returned from customers. A similar plant in the U.K. operates with a capacity of 77,000 tonnes per year. Alcan also operates a facility in the U.K. for the production of 71,000 tonnes per year of sheet ingot from aluminum scrap. Alcan has a dedicated UBC recycling plant, which has an ultimate capacity of 80,000 tonnes per year, at Pindamonhangaba, Brazil. The Company also operates a secondary aluminum smelter in Borgofranco, Italy, which has a capacity of 70,000 tonnes per year for the production of secondary aluminum from aluminum scrap. This plant serves Alcan's fabricating plants in Germany, Switzerland and Italy, recycles customers' manufacturing scrap and post-consumer aluminum packaging material and recovers aluminum and salt from saline slag, a by-product of aluminum recycling. The Company also operates a facility in Quebec for the recovery of aluminum from the dross that forms on the surface of molten metal. This facility is in the process of being sold. In the case of UBCs, Alcan has a well-established North American recycling network. In 2001, Alcan's U.S. plants processed more than 22 billion cans, or about 40% of all UBCs recycled in the U.S.A. In the United Kingdom, Alcan has an infrastructure of 20 UBC recycling centers. Alcan plays leading roles in joint industry programs to promote aluminum collection and recycling in many of the countries where it operates. As a matter of course, Alcan operates facilities in many plants to recycle aluminum scrap generated internally by fabricating activities. 16 RECYCLING PLANT CAPACITIES -- AS AT 31 DECEMBER 2001
% OF ANNUAL OWNERSHIP CAPACITY LOCATIONS BY ALCAN (THOUSANDS OF TONNES) Foundry alloys and remelt scrap ingot Italy....................................... Borgofranco di Ivrea 100 70(1) (Piemonte region) Total foundry alloys 70 --- Sheet ingot from UBCs and customer process scrap Brazil...................................... Pinda 100 37(2) (Pindamonhangaba, Sao Paulo) United Kingdom.............................. Warrington 100 77 (England) United States............................... Berea 100 ) (Kentucky) Greensboro 100 ) 510(1) (Georgia) Oswego 100 ) (New York) Sheet ingot from miscellaneous scrap United Kingdom.............................. Warrington 100 77 (England) Total sheet ingot 701 --- Total 771 ---
(1) Reflects the continued optimization of current assets. (2) Ultimate annual capacity is 80,000 tonnes. Recycled metal is primarily utilized by Alcan's own rolling facilities to produce can sheet. 6. PACKAGING Following the Combination, Alcan became a leader in the manufacture and sale of individual packages to the producers of consumer goods in North America and Western Europe. Packaging is used to protect and present consumer goods in individual formats; it is also used to collate and transport consumer packages and to protect and transport industrial and agricultural goods. Alcan has 84 packaging plants in 15 countries. Packaging sales were $2.9 billion in 2001. These sales are concentrated in certain product segments where the Company has built a strong competitive position. 6.1 Food Flexibles and Specialty Packaging Food flexibles and specialty packaging accounted for sales of $1,999 million in 2001. There are manufacturing sites in North America, Western Europe, Brazil, Turkey and Kazakhstan. 6.1.1 Food Flexibles Principal activities include the printing, coating and laminating of plastic film, aluminum foil and paper into primary packaging materials for food manufacturers. The food flexibles sector is "materials neutral" (i.e. not only aluminum), with a large stake in the conversion of all the major materials required by customers. The sector's products are typically produced in wide reel format and then slit into narrow reels for delivery to customers, where they are formed into sealed packages (around the customer's product) on automated machinery. Other types of flexible packaging manufactured by the same 17 processes include lidding materials (e.g., for dairy cups) and certain types of labels (especially for carbonated soft drinks packed in plastic bottles). Sales and Marketing/ Customers The main markets served by the food flexibles business are confectionery, beverages, dairy products, savoury snacks, instant dried products, biscuits and breakfast cereal. 6.1.2 Foil products Alcan foil is used for household and commercial packaging applications and for industrial products. Manufacturing sites are located in Germany, Switzerland, the U.K., The Netherlands and Canada. The foil products sector uses cold rolling mills to roll the foil to its required thickness, while retaining shape and surface quality across the whole width of the foil. Other applications involve laminating, coating and printing to convert the foil. Die stamping presses are used to form plain, coated or laminated foil materials into shallow trays for various food markets. One of the largest applications for plain foil is the liquid beverage carton industry. Beverage carton materials for certain products, such as long-life milk and fruit juices, include a layer of aluminum foil to provide the protection necessary to preserve the product. Sales and Marketing/Customers Alcan sells plain and converted foil for industrial applications to a diverse customer base, but there are a number of key external customers in each of its principal product lines. 6.1.3 Specialty Packaging The specialty packaging sector's main activity is the manufacture of tobacco packaging at nine sites: three in North America, four in Western Europe, one in Turkey and one in Kazakhstan. The principal products at all of these sites are folding carton blanks. Apart from its tobacco packaging operations, the sector also has facilities in the United Kingdom focused on providing print finishing services and a facility manufacturing steel cans mostly for the food industry. Sales and Marketing/Customers Cigarette consumption is expected to continue to decline in North America and Western Europe but to continue to increase elsewhere, which may affect overall demand for packaging. The world's cigarette industry has a relatively high concentration with four customer groups accounting for 68% of the total market. 6.2 Pharmaceutical and Cosmetics Packaging The pharmaceutical and cosmetics packaging sector accounted for net sales of $862 million in 2001, of which pharmaceuticals accounted for the major portion. Alcan produces and sells a full range of packaging products for pharmaceutical and cosmetic companies. Principal products include: blister lidding, strip packs, pouches, barrier form packs, flexible tube laminate, plastic containers and closures, molded glass bottles, glass tubing vials, drawn glass tubing, folding cartons, glass ampoules, aluminum seals, rubber stoppers and contract packaging services. In addition, Alcan produces and sells products used primarily in life science laboratories including liquid handling devices, cell culture equipment, and specialty glass apparatus. These products are manufactured in facilities in North and South America and Europe. Sales and Marketing/ Customers The trend towards consolidation on a global basis is prevalent in the pharmaceutical and personal care/cosmetics market. This, coupled with the tendency for industry leaders to rationalise their supply base, creates a premium on understanding and reacting swiftly to the needs of large global industry players. 18 7. RESEARCH AND DEVELOPMENT Research and development (R&D) comprises a global system of research laboratories, applied engineering centers and plant technical departments. The research laboratories, responsible for approximately 60% of the total R&D expenses for Alcan, play a major role in innovation through basic and applied research. Two laboratories are located in Canada (at Kingston, Ontario, and Jonquiere, Quebec), one is in the U.K. (Banbury, Oxfordshire) and one is in Switzerland (Neuhausen). Together, they employ about 600 people. In recent years, Alcan's R&D efforts have been refocused on core processes and products. Expenses for Alcan were $135 million in 2001, $81 million in 2000 and $67 million in 1999. In addition, intellectual property management safeguards Alcan's process and product technologies and trademarks. Alcan's operating companies manage applied engineering centers and technical departments located close to key markets and operating divisions. These include the Applied Materials Center located in North America for canning technology, and technical centers in North America and Europe for automotive technologies. These centers are focused on major products and provide technical and product development support to customers, drawing extensively on the resources and scientific disciplines in the research centers. 8. ENVIRONMENT, HEALTH AND SAFETY MATTERS In 2001, Alcan renewed its commitment to Environment, Health and Safety (EH&S) by producing an updated and integrated EH&S policy and instituting an EH&S Committee of the Board of Directors (replacing the previous Environment Committee). Key features of the new EH&S policy are the integration of environment with health and safety, the ongoing focus on continual improvement and positioning of EH&S as an opportunity to increase value for our stakeholders. Alcan is committed to making the most of the inherent environmental value of aluminum and other materials in every stage of its products' lifecycles. Alcan believes that its existing and planned EH&S measures allow it to exceed statutory and regulatory demands, while improving its competitive position and efficiency. Alcan's capital expenditures to protect the environment and improve working conditions at the smelters and other locations were $65 million in 2001. Similar expenditures for 2002 and 2003 are projected to be $85 million and $110 million, respectively. In addition, expenditures charged against income for environmental protection were $335 million in 2001, including the increase of $246 million in the Company's environmental reserves for the spent potlining treatment and the red mud disposal site remediation. These reserves are expected to be spent over a period of several years. Expenditures charged against income for environmental protection are expected to be $120 million in 2002 and $110 million in 2003. 9. PROPERTIES Alcan believes that its properties, most of which are owned, are suitable and adequate for its operations. For an overview of Alcan's plants, see Annual Report page 9. 19 10. EMPLOYEE RELATIONS At 31 December 2001, Alcan employees were located as follows: approximately 21,400 in North America, 23,100 in Europe, 2,900 in South America, 4,400 in Asia, Pacific and other areas. A majority of the hourly-paid employees are represented by labour unions. In many European locations, union contracts are of relatively short duration (e.g., one year) and are negotiated on a national basis between representatives of the relevant industries and the national unions. There are 26 collective labour agreements in effect in Canada, the majority of which expire in 2003 or later. In January 2002, labour agreements for unionized employees at Alcan facilities in Quebec were extended three years, ending in 2006. 11. PATENTS, LICENSES AND TRADEMARKS Alcan owns, directly or through Subsidiaries, a large number of patents in Canada, the U.S.A. and other countries which relate to the products, uses and processes of its businesses. The life of a patent is most commonly 20 years from the filing of the patent application. Alcan is continually filing new patent applications. All significant patents will be maintained until their normal expiration. Therefore, at any point in time, the range of life of the Company's patents will be from one to 20 years. Alcan owns a number of trademarks that are used to identify its businesses and products. The Company's trademarks have a term of three to ten years. As a result, at any point in time, the Company will have trademarks at the end of their term and others with a full ten-year term. At the end of their term, significant trademarks will be renewed for a further three to ten years. Alcan has also acquired certain intellectual property rights under licenses from others for use in its businesses. Alcan's patents, licenses and trademarks constitute valuable assets; however, the Company does not regard any single patent, license or trademark as being material to its sales and operations viewed as a whole. The Company has no material licenses or trademarks the duration of which cannot, in the judgment of management, be extended or renewed as necessary. 12. COMPETITION AND GOVERNMENT REGULATIONS The aluminum and packaging businesses are highly competitive in price, quality and service. The Company experiences competition from a large number of companies in all major markets. In addition, aluminum products face competition from products fabricated from several other materials such as plastic, steel, iron, copper, glass, wood, zinc, lead, tin, titanium, magnesium, cement and paper. The Company believes that its competitive standing in aluminum production is enhanced by its ability to supply its own power to Canadian and U.K. smelters at low cost. The operations of the Company, like those of other international companies, including its access to and cost of raw materials and repatriation of earnings, may be affected by such matters as fluctuations in monetary exchange rates, currency and investment controls, withholding taxes and changes in import duties and import restrictions. Imports of ingot and other aluminum products into certain markets may be subject to import regulations and import duties. These affect the Company's sales realizations and may affect the Company's competitive position. Shipments of the Company's products are also subject to the anti-dumping laws of the importing country, which 20 prohibit sales of imported merchandise at less than defined fair values. The Investment Canada Act (the "Act") provides that the acquisition of control of a Canadian business, such as Alcan's Canadian business, by a "non-Canadian" (as defined in the Act) may be subject to review under the Act and, if so, may not be implemented unless the Minister of Industry determines that the proposed acquisition is, or is likely to be, of net benefit to Canada. The acquisition by a non-Canadian of a majority of the voting shares of a Canadian company is deemed to constitute the acquisition of control of that company. In addition, the acquisition by a non-Canadian of more than one-third but less than the majority of the voting shares of a Canadian company is presumed to constitute an acquisition of control, unless it can be established that on the acquisition the corporation is not controlled in fact by the non-Canadian. ITEM 3 LEGAL PROCEEDINGS ENVIRONMENTAL MATTERS LITIGATION The Company's U.S. Subsidiary, Alcan Aluminum Corporation ("Alcancorp"), and third parties are defendants in a lawsuit instituted in May 1983 before the Federal District Court for the Central District of California, by the U.S. Environmental Protection Agency ("EPA") and the State of California, involving the Stringfellow hazardous waste site. Alcancorp was held liable in that lawsuit. In January 1992, Alcancorp and the U.S. Justice Department entered into a four-year Partial Consent Decree. On the basis of that arrangement, Alcancorp has funded a total of $13,100,000 for a treatment plant designed to help clean up the site. In December 1998, Alcancorp and several other parties filed appeals with the Circuit Court on numerous counts, including whether liability was correctly imposed on Alcancorp. In January 1999, Alcancorp entered into a structured settlement with the State of California whereby California will accept liability for all clean-up costs from 1 January 1999 onward and Alcancorp will accept responsibility for past clean-up costs; in the event that settlement becomes final, Alcancorp's liability would be limited to the amount it already has paid. In addition, Alcancorp is participating in a third party action against a Potentially Responsible Party ("PRP") seeking recovery of a portion of the amount paid. The settlement is not yet final. In a lawsuit brought in July 1987 relating to the Pollution Abatement Services site in Oswego, New York ("PAS"), the Federal District Court for the Northern District of New York found (in January 1991) Alcancorp liable for a share of the clean-up costs for the site, and in December 1991 determined the amount of such share to be $3,175,683. Alcancorp appealed this decision to the United States Circuit Court of Appeals for the Second Circuit. In April 1993, the Second Circuit reversed the District Court and remanded the case for a hearing on what, if any, liability might be assigned to Alcancorp depending on whether Alcancorp can prove that its waste did not contribute to the response costs at the site. Furthermore, the case was consolidated with another case, instituted in October 1991, in which the EPA sued Alcancorp in the Federal District Court for the Northern District of New York seeking clean-up costs in regard to the Fulton Terminals site in Oswego County, New York. The remand hearing was held in October of 1999. The trial court re-instituted its judgment holding Alcancorp jointly and severally liable. The amount of the judgment plus interest is $13.5 million as of December 2000. The case is being appealed and the briefing was completed in November 2001. Alcancorp has also been sued by other PRPs at PAS seeking contribution for costs incurred in cleaning up the PAS site which are being contested. 21 Alcancorp is a party in a 1989 EPA lawsuit before the Federal District Court for the Middle District of Pennsylvania involving the Butler Tunnel site. In May 1991, the Court granted summary judgment against Alcancorp in the amount of $473,790 for alleged disposal of hazardous waste. After unsuccessful appeals, Alcancorp paid $652,371, representing the judgment amount plus interest, and is disputing about $400,000 associated with that judgment, representing additional enforcement costs incurred after the date of the initial judgment in a separate lawsuit. The EPA has filed a new action for additional sums for further remedial activities at the Butler Tunnel site. In February 1996, the Company's U.K. Subsidiary British Alcan Aluminium plc ("British Alcan") sold its investments in Luxfer USA Limited, located in the U.S.A. As part of the sale, British Alcan agreed to indemnify the purchaser for certain liabilities, including those arising out of the following proceedings: Luxfer USA Limited ("Luxfer"; at the time, a Subsidiary of British Alcan) is a participant in a joint defence group with regard to waste Luxfer sent to the Omega chemical waste site in Whittier, California. At various times during 1995, Luxfer contributed various amounts totalling $11,800 for defence group costs and the removal of waste from the site. Large waste generators are cleaning up the site. Luxfer, being a small contributor, is discussing settlement offers. In 2000, Luxfer and other members of the joint defence group entered into a consent decree to complete the remediation. The remediation will be funded on a "pay as you go" basis; Luxfer's first assessment was $2,325. Under the terms of sale of its metal goods division, Alcancorp retains liability for defending, as a third party defendant, a suit initiated in December 1995 by the State of New Jersey alleging that a disposal company used by the division disposed of hazardous material in a landfill. Including Alcancorp, there are 277 third-party defendants in this action. Third party discovery was to have been completed in November 2001. Various discovery issues remain outstanding and a hearing has been set for January 2002. Wheaton USA Inc. ("Wheaton"), a subsidiary of Alcan, owns a former site used for the manufacture of lead crystal glassware. Three local residents filed suit alleging contamination of wells and exposure to hazardous materials. The New Jersey Department of Environmental Protection ("NJDEP") investigated the manufacturing facilities in the area and has identified another company to be principally responsible. A motion for a class action was before the court. The case has been settled with Wheaton's insurance carrier disbursing an amount of $125,000 and another carrier paying an amount of $62,500. In connection with its Flat River plant in Missouri, Wheaton has been charged with an alleged air emission violation and a permit violation. Negotiations with the Missouri Department of Natural Resources have resulted in a verbal agreement as of December 2001 of $75,000. 22 INVESTIGATIONS In certain government investigations of contamination by alleged hazardous wastes at sites in Kentucky, New York, Pennsylvania, Ohio, New Jersey, and Massachusetts (on which waste material is alleged to have been deposited by disposal contractors employed in the past directly or indirectly by Alcancorp and other industrial companies), Alcancorp has contested its liability. The EPA has responded that it may file lawsuits against Alcancorp regarding this alleged contamination. Alcancorp was advised by various authorities that additional sites are undergoing similar investigation and that it may be liable to contribute to the cost of the investigations and any possible remedial action for such sites. There can be no assurance that Alcancorp will not incur material clean-up costs as a result of these investigations. At a plant site in Indiana, testing has revealed traces of trichloroethylene ("TCE") in the groundwater. Alcancorp investigated the matter with a third party believed to be responsible for the contamination and a voluntary remediation plan was filed with the State of Indiana. The third party refused to pay and Alcancorp filed a lawsuit for indemnification and liability. A settlement in that case has been completed pursuant to which Alcancorp will transfer ownership and full responsibility for the operation and maintenance of a landfill site at its Sebree, Kentucky plant to the third party and Alcancorp will remediate the TCE at the Indiana facility. An industrial neighbour of Wheaton's coated product plant in Mays Landing, New Jersey, has claimed that in the 1970's Wheaton disposed of hazardous waste that was leaching onto its land. The NJDEP investigated and Wheaton was required to perform remediation and monitoring at the site. The soil remediation has been completed and Wheaton USA and its insurance carrier have each paid an amount of $170,000. In 1997, Wheaton began building new furnaces at its Millville, New Jersey glass plant that may not be in compliance with applicable air emission regulations. The NJDEP is involved. Wheaton is making modifications to the furnaces. There were no further developments in 2001. Lawson Mardon USA Inc, a subsidiary of Alcan, is undertaking a site investigation and clean-up of the land at its Clifton plant, in compliance with a NJDEP permit. REVIEWS AND REMEDIAL ACTIONS The Company has established procedures for reviewing environmental investigations and any possible remedial action on a regular basis. Although the Company cannot estimate the costs which may ultimately be borne by it, the Company has no reason to believe that any remedial action will materially impair its operations or materially affect its financial condition. OTHER MATTERS There are no proceedings which, according to management's belief, could have a material effect on the Company's financial position or results of operation. 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 2001. 23 PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required is incorporated by reference to the Annual Report. See section titled "Common Shares" on page 74. The number of holders of record of Shares on 28 February 2002 was approximately 18,000. While the Company intends to pursue a policy of paying quarterly dividends, the level of future dividends will be determined by the Board of Directors in light of earnings from operations, capital requirements and the financial condition of the Company. The Company's cash flow is generated principally from operations and also by dividends and interest payments from Subsidiaries, Joint Ventures and Related Companies. These dividend and interest payments may be subject, from time to time, to regulatory or contractual restraints, withholding taxes (see Annual Report, page 59, note 18 to Consolidated Financial Statements) and foreign governmental restrictions affecting repatriation of earnings. (See section titled "Competition and Government Regulations" on page 20 of this report.) Dividends paid on Shares held by non-residents of Canada will generally be subject to Canadian withholding tax which 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 U.S.A., the treaty-reduced rate is currently 15%. 24 ITEM 6 SELECTED FINANCIAL DATA SELECTED HISTORICAL FINANCIAL DATA (in millions of Dollars except for per Share amounts)
YEARS ENDED 31 DECEMBER ------------------------------------------------------------- 2001 2000 1999 1998 1997 ------ ------ ------- ------- ------ Sales and operating revenues 12,626 9,148 7,324 7,789 7,777 Net income from continuing operations before extraordinary item (Canadian GAAP) 5 618 460 399 468 Net income (loss) from continuing operations before extraordinary item (U.S. GAAP) (54) 606 455 417 504 Net income (Canadian GAAP) 5 618 460 399 485 Net income (loss) (U.S. GAAP) (54) 606 455 417 521 Total assets 17,479 18,407 9,849 9,901 9,374 Long-term debt (including current portion) 3,536 3,528 1,322 1,703 1,277 Net income (loss) per share from continuing operations before extraordinary item (Canadian GAAP) 1 (0.01) 2.45 2.06 1.71 2.02 Net income (loss) per share from continuing operations before extraordinary item (U.S. GAAP) 1 (0.19) 2.40 2.04 1.79 2.18 Net income (loss) per share (Canadian GAAP) 1 (0.01) 2.45 2.06 1.71 2.09 Net income (loss) per share (U.S. GAAP) 1 (0.19) 2.40 2.04 1.79 2.25 Cash dividends per share 0.60 0.60 0.60 0.60 0.60
1 Basic and diluted Commencing 1998, the Company retroactively adopted, without restating prior years, the recommendations of the Canadian Institute of Chartered Accountants ("CICA") concerning accounting for income taxes. Commencing 1998, the Company retroactively adopted the recommendations of the CICA concerning segment disclosures. Commencing 2001, the Company retroactively adopted the recommendations of the CICA concerning earnings per share. See Annual Report, pages 48 to 50, note 6 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. 25 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required is incorporated by reference to the Annual Report, pages 20 through 39, the section titled "Management's Discussion and Analysis". References to "EVA" on page 24 of the Annual Report refer to Economic Value Added, a registered trademark of Stern Stewart & Co. and viewed by the Company as a key measure of its financial performance. EVA represents the difference between the return on capital and the cost of using that capital over the same period. Return on capital for this purpose means reported income before interest, taxes and minority interest, adjusted for such amounts as non-recurring items and goodwill amortization, to which a tax charge, based on a 25% tax rate, is applied. Return on capital for 2001 is $961 million, from which a cost of capital charge of $1,429 million is taken to obtain an EVA, including purchase accounting adjustments, of ($468 million). In 2001, the cost of capital for purposes of EVA was calculated by applying a rate of 9.5% to the average EVA capital for the period from December 2000 to November 2001, compared to a rate 9.5% for 2000 and 11% for 1999. The non-recurring charges of $533 million on page 34 of the Annual Report are detailed in the first paragraph of footnote 1 of the Quarterly Financial Data on page 69 of the Annual Report. As the Company follows Canadian GAAP, reference should be made to note 6 to the Consolidated Financial Statements on pages 48 to 50 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. Beginning in 2001, the Company adopted for supplementary U.S. GAAP reporting purposes only, Financial Accounting Standards Boards Statements 133 and 138. These standards require that all derivatives be recorded in the financial statements and valued at market. Refer to the section titled "Competition and Government Regulations" on page 20 of this report for a brief description of the application of the Investment Canada Act. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. The Company considers EBITDA to be a key financial performance measure used by management for the four operating segments. Management believes that EBITDA provides a measure of operating results that is unaffected by the financing and accounting effects of acquisitions and differences in capital structures among otherwise comparable companies. EBITDA is not a substitute for net income, cash flows and other measures of financial performance as defined by generally accepted accounting principles, and may be defined differently by other companies. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has estimated the impact on 2001 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 2001. INTEREST RATES The net income impact of a 10% movement in interest rates on the Company's variable rate debt outstanding at 31 December 2001 net of its invested surplus cash and time deposits at 31 December 2001 is immaterial. FOREIGN CURRENCY EXCHANGE RATES The effect of an adverse movement of 10% in foreign currency exchange rates on the Company's financial instruments (principally forward and option contracts) outstanding at 31 December 2001 would be to reduce 2002 net income by approximately $10 million. Because all of the Company's foreign currency forward positions are taken out to hedge identifiable foreign currency commitments to purchase or sell goods and services, any negative impact of currency movements on the forward exchange contracts would be offset by an equal and opposite favourable exchange impact on the commitments being hedged. DERIVATIVE COMMODITY CONTRACTS The effect of a reduction of 10% in aluminum prices on the Company's aluminum forward and options contracts outstanding at 31 December 2001 would be to reduce 2002 net income by approximately $49 million, of which $4 million relates to the net cost of option premiums and $45 million to forward contracts (principally forward purchase contracts). These results reflect a 10% reduction from the 2001 year-end, three-month LME aluminum closing price of $1,355 and 26 assume an equal 10% drop has occurred throughout the aluminum forward price curve existing as at 31 December 2001. Consequently, virtually all of the Company's aluminum forward contract positions are taken out to hedge those future purchases of metal which are required for firm sales commitments to fabricated products customers. Consequently, any negative impact of movements in the price of aluminum on the forward contracts would be offset by an equal and opposite impact on the purchases being hedged. Transactions in financial instruments for which there is no underlying exposure to the Company are prohibited, except for a small trading portfolio not exceeding 10,000 tonnes, which is marked to market. In addition, see Annual Report, pages 38 and 39. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required is incorporated by reference to the Annual Report, Consolidated Financial Statements on pages 41 through 68 and the "Auditors' Report" on page 40 and the section titled "Quarterly Financial Data" on page 68. The location of Financial Statements and other material required under this Item is found under Item 14 of this report. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has nothing to report under this Item. PART III INFORMATION IN THIS PART IS BASED ON INFORMATION CONTAINED IN THE COMPANY'S MANAGEMENT PROXY CIRCULAR DATED 28 FEBRUARY 2002. ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) IDENTIFICATION OF DIRECTORS The information required is incorporated by reference to the Management Proxy Circular, pages 7 and 8. The term of office of each Director runs from the time of his or her election to the next succeeding annual meeting or until he or she ceases to hold office as such. 27 (b) IDENTIFICATION OF EXECUTIVE OFFICERS As at 1 January 2002, the required particulars with respect to the Officers of the Issuer are as follows:
- ------------------------------------------------------------------------------------------------------- NAME AND MUNICIPALITY OF RESIDENCE POSITION AGE - ------------------------------------------------------------------------------------------------------- TRAVIS ENGEN President and Chief Executive Officer 57 New Canaan, Connecticut Office of the President - ------------------------------------------------------------------------------------------------------- RICHARD B. EVANS Executive Vice President 54 Montreal, Quebec Office of the President - ------------------------------------------------------------------------------------------------------- BRIAN W. STURGELL * Executive Vice President, 52 Montreal, Quebec Office of the President - ------------------------------------------------------------------------------------------------------- GEOFFERY E. MERSZEI Executive Vice President and 50 Montreal, Quebec Chief Financial Officer - ------------------------------------------------------------------------------------------------------- EMERY P. LeBLANC ** Executive Vice President, 60 Westmount, Quebec President, Primary Metal - ------------------------------------------------------------------------------------------------------- CYNTHIA CARROLL Senior Vice President 45 Westmount, Quebec President, Primary Metal - ------------------------------------------------------------------------------------------------------- MICHAEL HANLEY Senior Vice President 36 Montreal, Quebec President, Bauxite, Alumina and Specialty Chemicals - ------------------------------------------------------------------------------------------------------- KURT WOLFENSBERGER Executive Vice President 61 Winterthur, Switzerland President, Engineered Products, - ------------------------------------------------------------------------------------------------------- CHRISTOPHER BARK-JONES Senior Vice President, 55 Zurich, Switzerland President, Rolled Products, Europe - ------------------------------------------------------------------------------------------------------- ARMIN WEINHOLD Senior Vice President 52 Zurich, Switzerland President, Alcan Packaging - ------------------------------------------------------------------------------------------------------- ROBERT L. BALL Executive Vice President 55 Zurich, Switzerland Value-Added Business and Manufacturing Systems - ------------------------------------------------------------------------------------------------------- DANIEL GAGNIER Senior Vice President 55 Beaconsfield, Quebec Corporate and External Affairs - ------------------------------------------------------------------------------------------------------- DAVID MCAUSLAND Senior Vice President, Mergers and Acquisitions and 47 Beaconsfield, Quebec Chief Legal Officer - ------------------------------------------------------------------------------------------------------- GASTON OUELLET Senior Vice President, Human Resources 59 Montreal, Quebec - ------------------------------------------------------------------------------------------------------- GLENN R. LUCAS Vice President, Treasurer 48 Westmount, Quebec - ------------------------------------------------------------------------------------------------------- RICHARD GENEST Vice President, Controller 48 Montreal, Quebec - ------------------------------------------------------------------------------------------------------- MICHEL JACQUES Vice President, Strategic Management Support 50 Outremont, Quebec - ------------------------------------------------------------------------------------------------------- ROY MILLINGTON Corporate Secretary 42 Westmount, Quebec - -------------------------------------------------------------------------------------------------------
* Also interim President, Rolled Products Americas and Asia ** Mr. LeBlanc retires on 31 March 2002. All of the Officers of the Company have held their present positions or other executive positions with the Company or its Subsidiaries during the past five years, except as hereinafter described: - -- prior to joining the Company on 12 March 2001, Mr. Engen was chairman and chief executive of ITT Industries, Inc.; 28 - - prior to joining the Company in January 1997, Mr. Evans held senior management positions with the Kaiser Aluminum organization; - - prior to joining the Company in September 2001, Mr. Merszei was vice president and treasurer of The Dow Chemical Company; - - prior to joining the Company in June 1998, Mr. Hanley was vice president and chief financial officer of Gaz Metropolitain Inc.; - - prior to joining the Company in April 1998, Mr. Genest was vice-president and controller of Societe Financiere Desjardins -- Laurentienne; and - - prior to joining the Company in June 1999, Mr. McAusland was managing partner at the law firm of Byers Casgrain and was president of the Montreal Board of Trade. ITEM 11 EXECUTIVE COMPENSATION The information required is incorporated by reference to the Management Proxy Circular, pages 15 to 20, the section titled "Executive Officers' Remuneration". ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required is incorporated by reference to the Management Proxy Circular, pages 7 and 8, the section titled "Nominees for Election as Directors". Directors and Executive Officers as a group beneficially own 226,849 Shares (including Shares over which control or direction is exercised). This represents 0.071% of Shares issued and outstanding. In addition, Executive Officers as a group have Options (as defined in the Management Proxy Circular) to purchase 2,102,001 Shares. In the case of each of the Directors and Named Executive Officers of Alcan, the percentage of Shares held amounts to less than 0.059% of the outstanding Shares. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS The information required is incorporated by reference to the Management Proxy Circular, pages 21 and 22, the section titled "Indebtedness of Directors and Executive Officers". The interest rate is currently nil on all outstanding option loans. 29 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The information required is incorporated by reference to the Annual Report, pages 41 to 69 and the Auditors' Report on page 40 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.) 3.1.1 Certificate of Amendment dated 1 March 2001. (Incorporated by reference to exhibit 3.1.1 to the Annual Report on Form 10-K of the Company for 2000.) 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 22 April 1999 between Alcan and the R-M Trust Company as Rights Agent, which Agreement includes the form of Rights Certificates. (Incorporated by reference to exhibit 4 to the Company's Report on Form 8-K filed on 26 April 1999.) 30 (10) Material Contracts 10.1 Alcan Pension Plan (Canada), restated version, as of October 1990. (Incorporated by reference to exhibit 10.1 to the Annual Report on Form 10-K of the Company for 1990.) 10.1.1 Amendments dated 1 January 1992. (Incorporated by reference to exhibit 10.1.1 to the Annual Report on Form 10-K of the Company for 1991.) 10.1.2 Amendments dated 1 January 1990, Schedule 93-2. (Incorporated by reference to exhibit 10.1.2 to the Annual Report on Form 10-K of the Company for 1994.) 10.1.3 Amendments dated 1 January 1994, Schedule 93-3 and Schedule 93-4. (Incorporated by reference to exhibit 10.1.3 to the Annual Report on Form 10-K of the Company for 1994.) 10.1.4 Amendments dated 31 December 1994, Schedule 95-1, 1 January 1996 Schedule 95-2, 1 January 1992, Schedule 95-3 and 1 January 1995, 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, Schedule 96-1, 1 November 1996, Schedule 96-2, 1 January 1992 for paragraphs 1, 2 and 3 of Schedule 96-3 and 1 January 1996 for paragraph 4 of Schedule 96-3. (Incorporated by reference to exhibit 10.1.5 to the Annual Report on Form 10-K of the Company for 1996.) 10.1.6 Amendments dated 1 January 1998, Schedule 97-1, 30 March 1998, Schedule 98-1 and 1 November 1998, Schedule 98-2. (Incorporated by reference to exhibit 10.1.6 to the Annual Report on Form 10-K of the Company for 1998.) 10.1.7 Amendments dated 1 May 1999, Schedule 99-1, 1 October 1999, Schedule 99-2, 1 January 2000 and 1 July 2000, Schedule 00-1, 1 October 2000, Schedule 00-2 and 31 December 2000, Schedule 00-3. (Incorporated by reference to exhibit 10.1.7 to the Annual report on Form 10-K of the Company for 2000.) 10.1.8 Amendments dated 1 July 2001, Schedule 01-1 and 1 October 2001, Schedule 01-2. (Filed herewith) 10.2 Alcan Executive Share Option Plan. (Incorporated by reference to the section titled "The Plan" on pages 3 through 8 and on pages 3 through 7 of the Prospectuses dated 30 April 1990 and 28 April 1993, respectively, filed as part of the Company's Registration Statements on Form S-8, Registration Nos. 33-34716 and 33-61790.) 10.3 Alcan Executive Performance Award Plan revised as of October 1994. (Incorporated by reference to exhibit 10.3 to the Annual Report on Form 10-K of the Company for 1994.) 31 10.4 Alcan Financial Counselling Plan. (Incorporated by reference to the exhibit of that name filed with the Annual Report on Form 10-K of the Company for 1981.) 10.5 Alcan Executive Automobile Programme revised as of 1 January 1992. (Incorporated by reference to exhibit 10.5 to the Annual Report on Form 10-K of the Company for 1991.) 10.6 Alcan Flexible Perquisites Program. (Incorporated by reference to exhibit 10.6 to the Annual Report on Form 10-K of the Company for 1995.) 10.7 Form of Supplemental Retirement Benefits Agreement. (Incorporated by reference to exhibit 10.6 filed with the Annual Report of the Company on Form 10-K for 1983.) 10.8 Alcan Supplemental Retirement Benefit Plan (Canada), February 1992 edition. (Incorporated by reference to exhibit 10.8 to the Annual Report on Form 10-K of the Company for 1991.) 10.8.1 Amendments dated 1 January 1994, Schedule 93-1. (Incorporated by reference to exhibit 10.7.1 to the Annual Report on Form 10-K of the Company for 1994.) 10.8.2 Amendments dated 23 September 1993. (Incorporated by reference to exhibit 10.8.2 to the Annual Report on Form 10-K of the Company for 1994.) 10.8.3 Amendments dated 1 November 1998, Schedule 98-1. (Incorporated by reference to exhibit 10.8.3 to the Annual Report on Form 10-K of the Company for 1998.) 10.8.4 Amendments dated 1 May 1999, Schedule 99-1 and 1 January 2000, Schedule 00-1. (Incorporated by reference to exhibit 10.8.4 to the Annual Report on Form 10-K of the Company for 2000.) 10.9 Alcan Retirement Compensation Plan for Non-Executive Directors dated 27 April 1995. (Incorporated by reference to exhibit 10.10 to the Annual Report on Form 10-K of the Company for 1995.) 10.10 Amendment dated 1 January 1997. (Incorporated by reference to exhibit 10.10.1 to the Annual Report on Form 10-K of the Company for 1996.) 10.11 Alcan Deferred Share Unit Plan for Non-Executive Directors dated 1 January 1997. (Incorporated by reference to exhibit 10.11 to the Annual Report on Form 10-K of the Company for 1996.) 10.12 B.C./Alcan 1997 Agreement. (Incorporated by reference to exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company for the quarter ended 30 June 1997.) 32 10.13 Change of Control Agreement dated 23 July 1999 with Jacques Bougie. Substantially similar agreements have been entered into with B.W. Sturgell, R.B. Evans, E.P. LeBlanc, and Robert L. Ball. (Incorporated by reference to exhibit 10.15 to the Annual Report on Form 10-K of the Company for 1999.) 10.14 Employment Agreement dated 23 February 2001 with Travis Engen. (Incorporated by reference to exhibit 10.14 to the Annual Report on Form 10-K of the Company for 2000.) 10.15 Financial Arrangements dated 16 February 2001 with Jacques Bougie. (Incorporated by reference to exhibit 10.14 to the Annual Report on Form 10-K of the Company for 2000.) 10.16 Alcan Inc. Stock Price Appreciation Plan dated 27 September 2001. (Incorporated by reference to exhibit 99.1 to the Quarterly Report on Form 10-Q of the Company for the quarter ended 30 September 2001.) 10.17 Alcan Inc. 2001 Deferred Share Unit Plan for Non-Executive Directors dated 1 April 2001 (Incorporated by reference to exhibit 99.2 to the Quarterly Report on Form 10-Q of the Company for the quarter ended 30 September 2001.) 10.18 Employment Agreement dated 31 December 2001 with Richard B. Evans. (Filed herewith.) 10.19 Employment Agreement dated 31 December 2001 with Brian W. Sturgell. (Filed herewith.) 10.20 Total Shareholder Return Performance Plan as of 1 January 2002. (Filed herewith.) (13) Annual Report. (Filed herewith.) (21) Subsidiaries and Related Companies of the Company. (Filed herewith.) (23) Consent of Independent Accountants is on page 37. 33 (24) Powers of Attorney. (Filed herewith.) 24.1 Power of attorney of W. Blundell 24.2 Power of attorney of J.R. Evans 24.3 Power of attorney of W. Kerth 24.4 Power of attorney of B.M. Levitt 24.5 Power of attorney of J.E. Newall 24.6 Power of attorney of G. Saint-Pierre 24.7 Power of attorney of G. Schulmeyer 24.8 Power of attorney of P.M. Tellier (99.1) Cautionary statement for purposes of the "Safe Harbour" provisions of the Private Securities Litigation Reform Act of 1995. (Incorporated by reference to exhibit 99 to the Annual Report on Form 10-K of the Company for 1997.) (99.2) Management Proxy Circular. (Filed herewith.) (b) REPORTS ON FORM 8-K No reports were filed under this item during the quarter ended 31 December 2001. 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALCAN INC. 25 March 2002 By : * ------------------------------------ John R. Evans, Chairman of the Board 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 25 March 2002. /s/ Travis Engen - ----------------------------------- Travis Engen, Director, President and Chief Executive Officer (Principal Executive Officer) * - ----------------------------------- W.R.C. Blundell, Director - ----------------------------------- Clarence J. Chandran, Director - ----------------------------------- Martin Ebner, Director * - ----------------------------------- John R. Evans, Chairman of the Board * - ----------------------------------- Willi Kerth, Director 35 * - ----------------------------------- Brian M. Levitt, Director * - ----------------------------------- J. E. Newall, Director * - ----------------------------------- Guy Saint-Pierre, Director * - ----------------------------------- Gerhard Schulmeyer, Director * - ----------------------------------- Paul M. Tellier, Director /s/ Geoffery E. Merszei - ----------------------------------- Geoffery E. Merszei, Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Richard Genest - ----------------------------------- Richard Genest, Vice-President and Controller (Principal Accounting Officer) * By: Roy Millington as Attorney-in-fact 36 CONSENT OF INDEPENDENT ACCOUNTANTS To the Directors of Alcan Inc.: We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (Nos. 33-6070, 33-34716, 33-61790 and 333-89711) and on Form S-3 (Nos. 2-78568, 2-78713, 33-82754, 333-76535 and 333-83336) of Alcan Inc. of our report, dated 8 February 2002 appearing on page 40 of the 2001 Annual Report to Shareholders. Our report is incorporated by reference in this Annual Report on Form 10-K. We also consent to the reference to us under the caption "Experts" in such Prospectuses. Montreal, Canada 25 March 2002 /s/ ------------------------------ PricewaterhouseCoopers LLP 37 EX-10.1.8 3 m06714ex10-1_8.txt EXHIBIT 10.1.8 EXHIBIT 10.1.8.: SCHEDULE OF AMENDMENTS ALCAN PENSION PLAN (CANADA) SCHEDULE OF AMENDMENTS 01-1 1. The following subsection is added immediately following subsection 19.07: 19.08 Pension Augmentation at 1 July 2001 19.08.1 The retirement pension, the deferred retirement pension and the Disability Pension of a Member who has retired, terminated his employment or became disabled as the case may be, before 2 September 2000, including the pension payable under any attached elected pension payment guarantee, either contingent or in payment, and the pension, either deferred or in payment, to a surviving spouse, shall be augmented on 1 July 2001. The monthly amount of the augmentation on any date of calculation on or after 1 July 2001 is equal to the product of the Augmentation Factor and the Monthly Pension. Notwithstanding the preceding, this pension augmentation is not applicable if a Member at his Commencement Date has less than 100% of the Company's contributions to his retirement income vested and has less than 10 years of Credited Service. 1 19.08.2 For the purposes of this subsection 19.08 only, the following expressions shall have the meanings set out below: "Commencement Date" means the earliest of a Member's retirement date; the date he became disabled; the date of termination of service, however, in the case where the date of termination of service falls before 1 January 1983, then in such case the date of termination of service shall be deemed to be 1 January 1983; and, in the case of a pre-retirement surviving spouse's pension, the first of the month following the Member's date of death. "Consumer Price Index" for a month means the Consumer Price Index for the month as published by Statistics Canada under authority of the Statistics Act or the corresponding index of the country in whose currency the Monthly Pension is paid at a fixed rate of exchange. "Monthly Pension" means the monthly equivalent of the pension referred to in paragraph 19.08.1 excluding, in the case where the pension commenced between 1 April 1975 and 1 January 1976 inclusively or in the case where the termination date was before 1 February 1976, any increase paid under the provisions of the Government Annuity Improvement Act, Chapter 83, Statutes of Canada 1974-75-76. "Augmentation Factor" means the factor determined by the following formula: [ (CPI1 / CPI2 ) / (1 + A) ] - 1 2 where "CPI1" equals the average Consumer Price Index for the 12-month period ending 30 June 2000, "CPI2" equals the average Consumer Price Index for the 12-month period ending three calendar months prior to the month during which the Commencement Date occurred, and "A" equals the sum, on a compounded basis, of the augmentation factors under all previous pension augmentations since Commencement Date. Notwithstanding the above, the Augmentation Factor shall equal 20% for a member who at his Commencement Date has less than 100% of the Company's contributions to his retirement income vested and 10 years or more of Credited Service. 19.08.3 Unless it is an integral number of tenths of 1%, the sum, on a compounded basis, of the augmentation factors under this and all previous pension augmentations since Commencement Date shall be rounded to the next higher multiple of 0.1%. 19.08.4 The retirement pension of a Member, who retires on or after 1 July 2001 and who immediately prior to such retirement was in receipt of an Approved Disability Benefit, shall be augmented from his retirement date by the same augmentation percentage that would otherwise have applied 3 to his retirement pension had his date of disability been his Commencement Date for the purpose of calculating such augmentation. 19.08.5 The Monthly Pension payable for a particular month on or after the effective date of this augmentation shall not exceed the maximum pension augmented with increases of the Consumer Price Index as required by Revenue Rules. 2. Subsection 2.09.1 is amended by inserting after the words "returns to work" the words "for a Participating Company". 3. Subsection 2.10 is amended by replacing "Alcan Aluminium Limited" by "Alcan Inc.". 4. Subsection 2.28 is amended by inserting after the first paragraph the following paragraph " In the case where Credited Service is recognized in respect of a period of unpaid leave of absence in accordance with subsection 3.07, the Pensionable Earnings of the Member for such period shall equal the amount of Pensionable Earnings that he would otherwise have earned had he not been on leave based on the Pensionable Earnings he was earning at the time he was granted leave." 5. Paragraph 19.07.2 is amended by replacing in the expression "Monthly Pension Amount" the word "less" by the word "excluding". 6. Annex B, Names and Addresses of Participating Companies, is amended as attached. 4 The above amendments come into force on the following dates: Section Date ------- ---- 1 1 July 2001 2 1 July 2000 3 1 March 2001 4 1 January 1990 5 1 October 2000 6 1 March 2001 5 ANNEX B NAME AND ADDRESSES OF PARTICIPATING COMPANIES 1. ALCAN INC. 5. ALCAN MANAGEMENT SERVICES CANADA LIMITED 1188 Sherbrooke Street West 1188 Sherbrooke Street West Montreal, Quebec Montreal, Quebec H3A 3G2 H3A 3G2 2. ALCAN ADMINCO (2000) INC. 6. ALCAN ASIA PACIFIC LIMITED 1188 Sherbrooke Street West 1188 Sherbrooke Street West Montreal, Quebec Montreal, Quebec H3A 3G2 H3A 3G2 3. ALCAN ALUMINIO (AMERICA LATINA) INC. 7. ALCAN SHIPPING SERVICES LIMITED 1188 Sherbrooke Street West 1188 Sherbrooke Street West Montreal, Quebec Montreal, Quebec H3A 3G2 H3A 3G2 4. ALCAN INTERNATIONAL LIMITED 8. THE ROBERVAL AND SAGUENAY RAILWAY COMPANY 1188 Sherbrooke Street West 1188 Sherbrooke Street West Montreal, Quebec Montreal, Quebec H3A 3G2 H3A 3G2
6 ALCAN PENSION PLAN (CANADA) SCHEDULE OF AMENDMENTS 01-2 7. The following subsection is added immediately following subsection 19.08: 19.09 Pension Augmentation at 1 October 2001 This pension augmentation consists of four successively applied pension augmentations. The first is described in paragraph 19.09.1, the second in paragraph 19.09.2, the third in paragraph 19.09.3 and the fourth in paragraph 19.09.4. 19.09.1 Supplementary Augmentation of Smaller Pensions 19.09.1.1 The retirement pension of a Member aged less than 65 on 1 April 1999, who either retired before 1 November 1998 or terminated employment before 1 November 1998 and retired before 2 May 1999, shall be augmented on 1 October 2001, as applicable, in accordance with subparagraph 19.09.1.2. 19.09.1.2 The monthly amount of the augmentation is determined by the formula: (X - Y) x (1 + the augmentation factor determined under subparagraph 19.06.2.3) x (1 + the augmentation factor determined under paragraph 19.07.3) x 7 (1 + the augmentation factor determined under paragraph 19.08.2) where "X" equals the monthly amount of the augmentation, determined in accordance with the variable "B" only in subparagraph 19.06.1.10; and "Y" equals the monthly amount of the augmentation, determined in accordance with subparagraph 19.06.1.10. 19.09.2 Adjustment for Inflation between Date of Discontinuation of Active Participation and Commencement Date 19.09.2.1 The retirement pension of a Member who discontinued his active participation in the Plan while remaining in the service of the Company or an Affiliated Company until his Commencement Date or who on his Commencement Date was on sick leave and was not eligible to receive an Approved Disability Benefit shall be augmented on 1 October 2001. Notwithstanding the preceding, this pension augmentation is not applicable to the Member who, as a result of having 8 discontinued his active participation in the Plan while remaining in the service of the Company or an Affiliated Company, became a Suspended Member pursuant to subsection 4.05. The monthly amount of the augmentation on any date of calculation on or after 1 October 2001 is equal to the product of the Augmentation Factor and the Monthly Pension. 19.09.2.2 For the purposes of this paragraph 19.09.2 only, the following expressions shall have the meanings set out below: "Commencement Date" means the earliest of a Member's retirement date, the date he became disabled and the date of termination of service. "Consumer Price Index" for a month means the Consumer Price Index for the month as published by Statistics Canada under authority of the Statistics Act. "Monthly Pension" means the monthly equivalent of the pension referred to in subparagraph 19.09.2.1 excluding in the case where the pension commenced between 1 April 1975 and 1 January 9 1976 inclusively or in the case where the termination date was before 1 February 1976, any increase paid under the provisions of the Government Annuity Improvement Act, Chapter 83, Statutes of Canada 1974-75-76. "Augmentation Factor" means the factor determined by the following formula: (CPI1 / CPI2 ) - 1 where "CPI1" equals the average Consumer Price Index for the 12-month period ending three calendar months prior to the month during which the Commencement Date occurred, and "CPI2" equals the average Consumer Price Index for the 12-month period ending three calendar months prior to the month during which the Member discontinued his active participation in the Plan or, as the case may be, prior to the first day of the year during which he began his sick leave. 19.09.3 Adjustment to Reflect Current Early Retirement Factors 10 19.09.3.1 The retirement pension in payment of a Member shall be augmented on 1 October 2001, as applicable, in accordance with subparagraph 19.09.3.5. 19.09.3.2 The pension in payment of a surviving Spouse or of a surviving Contingent Annuitant and the Spouse's or the Contingent Annuitant's pension payment guarantee connected to the retirement pension of a Member shall be augmented on 1 October 2001, as applicable, in accordance with subparagraph 19.09.3.6. 19.09.3.3 Notwithstanding the preceding subparagraphs 19.09.3.1 and 19.09.3.2, this pension augmentation is not applicable: (i) to the retirement pension of a Member who was not entitled to an immediate pension under the Plan at his date of termination of employment; (ii) to the retirement pension of a Member who at his Date of Retirement was in receipt of a Disability Pension in accordance with section 14; 11 (iii) to the retirement pension of a Member, other than a CAW Member, whose Retirement Date falls after 31 December 2000; (iv) to the retirement pension of a CAW Member whose Retirement Date falls after 30 June 2000; (v) to the pension of a Beneficiary payable under the normal guarantee or the ten year guarantee; (vi) to the pension of a limited member, as such term is defined under the Family Relations Act (British Columbia); (vii) to the retirement pension of a Member, either in payment or deferred pursuant to subsection 8.03, who was or is entitled to credits under the Plan pursuant to section 80 of the Pension Benefits Act (Ontario); 12 (viii) to the retirement pension of a Member whose Early Retirement Date was after October 1996, who at such date was in receipt of the Approved Disability Benefit - preretirement for sickness and where the early retirement factor at his Early Retirement Date equaled 100%; and (ix) for greater certainty, either to the retirement pension of a Member who retired pursuant to subsection 6.02 and where the early retirement factor at his Early Retirement Date equaled 100% or to the retirement pension of a Member who retired pursuant to subsection 6.01, 6.03 or 6.04; and is not applicable either to the pension in payment of a surviving Spouse or surviving Contingent Annuitant of such Member or CAW Member referred to above or to the Spouse's or Contingent Annuitant's pension payment guarantee connected to the retirement pension of such a Member or CAW Member referred to above. 13 19.09.3.4 For the purposes of this paragraph 19.09.3, the following expressions shall have the meanings set out below: "Augmentation Factor" means the factor determined by the formula: (ERF1 / ERF2) - 1 where ERF1 means the early retirement factor determined pursuant to subsection 8.02, except that the number 75 shall be read as the number 70 and using the same age and Credited Service of the Member that were used to determine ERF2 and, where the Member had deferred payment of his early retirement pension, increased in accordance with subsection 8.03, plus the greater of the following amounts: (i) 12 %, if the Member was under the age of 55 at his Early Retirement Date less 14 3%, for each year that the sum of his age and Credited Service was less than 84 at his Early Retirement Date, (ii) 12 %, if the Member was under the age of 55 and the sum of his age and Credited Service equaled 70 or more at his Early Retirement Date less 6%, for each year by which the Member's age preceded 54 years and 6 months at his Early Retirement Date, and (iii) nil; ERF2 means the early retirement factor determined at the Member's Early Retirement Date and, where the Member had deferred payment of his early retirement pension, increased in accordance with subsection 8.03 at his Pension Commencement Date; 15 "Monthly Pension" means the monthly equivalent of the pension referred to in either of subparagraphs 19.09.3.1 and 19.09.3.2 or of the pension payment guarantee referred to in subparagraph 19.09.3.2; "Total Monthly Pension" means the sum of the Monthly Pension and as the case may be, the monthly equivalent of the pension or of the pension payment guarantee under the Regime agree de pensions Alcan (Quebec) and the Alcan Supplemental Retirement Benefit Plan; "Adjusted Total Monthly Pension" means the Total Monthly Pension excluding that portion which ceases to be paid at the date when the Member reaches or would have reached age 65. 19.09.3.5 In regard to subparagraph 19.09.3.1, the monthly amount of the augmentation is equal to the product of the Augmentation Factor and one of the following amounts, as applicable: (i) if the Member was not a Suspended Member at his Early Retirement Date and, his retirement 16 pension is subject to a pension conversion currency option or he is receiving a pension under a plan other than the Plan, the Regime agree de pensions Alcan (Quebec) and Alcan Supplemental Retirement Benefit Plan, the lesser of (i.1) the Adjusted Total Monthly Pension and (i.2) $1722.22 / 12 per year of Credited Service x the percentage that would have applied to the Member's retirement pension, depending on the payment option elected at his Early Retirement Date, in application of section 10 as in effect on 1 October 2001; (ii) if the Member was not a Suspended Member at his Early Retirement Date and his retirement pension is not subject to a pension conversion currency option and he is not receiving a pension under a 17 plan other than the Plan, the Regime agree de pensions Alcan (Quebec) and Alcan Supplemental Retirement Benefit Plan, the lesser of (ii.1) the greater of (ii.1.1) $30.00 per year of Credited Service and (ii.1.2) the Adjusted Total Monthly Pension and (ii.2) $1722.22 /12 per year of Credited Service x the percentage that would have applied to the Member's retirement pension, depending on the payment option elected at his Early Retirement Date, in application of section 10 as in effect on 1 October 2001; (iii) if the Member was a Suspended Member immediately prior to his 18 Early Retirement Date and, either was not a member of the Regime agree de pensions Alcan (Quebec) or being a member of the Regime agree the pension Alcan (Quebec) was a suspended member at his early retirement date, the lesser of (iii.1) the Adjusted Total Monthly Pension and (iii.2) $1722.22 /12 per year of Credited Service x the percentage that would have applied to the Member's retirement pension, depending on the payment option elected at his Early Retirement Date, in application of section 10 as in effect on 1 October 2001; or (iv) if the Member was a Suspended Member at his Early Retirement Date and, being a member of the Regime agree the pension Alcan (Quebec), was not a suspended 19 member at his early retirement date, the Monthly Pension; 19.09.3.6 In regard to subparagraph 19.09.3.2, the monthly amount of the augmentation is equal to the product of the Augmentation Factor and one of the amounts determined in accordance with subparagraph 19.09.3.5, as applicable, except that in applying subparagraph 19.09.3.5, the amount of $30.00 shall be read as $18.00 and the amounts determined in clauses (i.2), (ii.2) and (iii.2) shall be multiplied by the percentage guaranteed to the Spouse or Contingent Annuitant. 19.09.4 Inflation Adjustment 19.09.4.1 The retirement pension, the deferred retirement pension and the Disability Pension of a Member who has retired, terminated his employment or became disabled as the case may be, before 2 September 2001, including the pension payable under any attached elected pension payment guarantee, either contingent or in payment, and the pension, either deferred or in payment, 20 to a surviving spouse, shall be augmented on 1 October 2001. The monthly amount of the augmentation on any date of calculation on or after 1 October 2001 is equal to the product of the Augmentation Factor and the Monthly Pension. Notwithstanding the preceding, this pension augmentation is not applicable if a Member at his Commencement Date has less than 100% of the Company's contributions to his retirement income vested and has less than 10 years of Credited Service. 19.09.4.2 For the purposes of this paragraph 19.09.4 only, the following expressions shall have the meanings set out below: "Commencement Date" means the earliest of a Member's retirement date; the date he became disabled; the date of termination of service; the date he became eligible to an unreduced early retirement pension, but not before 1 January 2001, if on 30 December 2000 he had been on the non-active payroll of a Participating Company and, in the case of a pre-retirement surviving spouse's 21 pension, the first of the month following the Member's date of death. "Consumer Price Index" for a month means the Consumer Price Index for the month as published by Statistics Canada under authority of the Statistics Act or the corresponding index of the country in whose currency the Monthly Pension is paid at a fixed rate of exchange. "Monthly Pension" means the monthly equivalent of the pension referred to in subparagraph 19.09.4.1 excluding, in the case where the pension commenced between 1 April 1975 and 1 January 1976 inclusively or in the case where the termination date was before 1 February 1976, any increase paid under the provisions of the Government Annuity Improvement Act, Chapter 83, Statutes of Canada 1974-75-76. "Augmentation Factor" means the factor determined by the following formula 1: the greater of (i) A + B - 1 and - ------------------------------- 22 (ii) nil where "A" equals the lesser of (i) 1.03C/12 and (ii) CPI1 / CPI2, "B" equals the greater of (i) 0.5 x (CPI1 / CPI2 - 1.03C/12) and (ii) nil "C" equals the lesser of (i) 12 and (ii) the number of months that the Commencement Date precedes 1 October 2001, "CPI1" equals the average Consumer Price Index for the 12-month period ending 30 June 2001, and "CPI2" equals the average Consumer Price Index for the 12-month period ending the later of - ------------------------------------------------------------------------------ 23 (i) three calendar months prior to the month during which the Commencement Date occurred and (ii) 30 June 2000. 19.09.4.3 The retirement pension of a Member, who retires on or after 1 October 2001 and who immediately prior to such retirement was in receipt of an Approved Disability Benefit, shall be augmented from his retirement date by the same augmentation percentage that would otherwise have applied to his retirement pension had his date of disability been his Commencement Date for the purpose of calculating such augmentation. 19.09.4.4 The retirement pension of a Member, who retires on or after 1 October 2001 and, who on 30 December 2000 and immediately prior to such retirement was on the non-active payroll of a Participating Company, shall be augmented from his retirement date by the same augmentation percentage that would otherwise have applied to his retirement pension had the date of his eligibility to an unreduced early 24 retirement pension, but not before 1 January 2001, been his Commencement Date for the purpose of calculating such augmentation. 19.09.5 Unless it is an integral number of hundreds of 1%, the sum, on a compounded basis, of the augmentation factors under this and all previous pension augmentations since Commencement Date shall be rounded to the next higher multiple of 0.01%. 19.09.6 The Monthly Pension payable for a particular month on or after the effective date of this augmentation shall not exceed the maximum pension augmented with increases of the Consumer Price Index as required by Revenue Rules. The above amendment shall come into force on 1 October 2001. 25 EX-10.18 4 m06714ex10-18.txt EXHIBIT 10.18 EXHIBIT 10.18: EMPLOYMENT AGREEMENT 31 December 2001 PERSONAL & CONFIDENTIAL Mr. Richard B. Evans Dear Dick: I wish to confirm my discussion with you pertaining to the position of Executive Vice President of Alcan Inc. and a member of the Office of the President, effective on 1 January 2002. You will report to me and you will be located in Montreal. This offer letter contains two sections. The first deals with the on-going annual compensation package while the second section deals with transfer and relocation issues. SECTION 1 SALARY Your base salary will be US$575,000 per annum, effective 1 January 2002. Your salary will be reviewed annually on the basis of competitive US compensation data. Your job grade will be administered at 55 under Alcan's structure. ANNUAL BONUS You will participate in Alcan's Executive Performance Award Plan (EPA) with a guideline bonus of 75% of the mid-point salary (US $588,000). Under the modified EPA program, award payment will be related to the global performance of Alcan Inc. as well as your own personal performance. LONG TERM INCENTIVE (STOCK OPTION AND RELATIVE TSR PROGRAM) At this point in time, we cannot provide you with all the specific details of the new Long Term Incentive Program. These should be available to you over the next few months. On the other hand we can confirm that the combined target compensation value of the two Plans (Stock Option and TSR Performance Plan) will be equal to approximately US $1,750,000 for 2002 with half this value provided in stock options and the other half provided under the new TSR Performance Plan. The compensation value of US $1,750,000 will be revised annually on the basis of competitive US compensation data. The Awards under both Plans are subject to approval by the Personnel Committee of the Board. 1 PENSION PLAN We are currently reviewing the pension coverage of senior executives and may propose some modifications pertaining to the different top hat programs in existence. Changes, if any, will be effective from 1 January 2002, but are not likely to be known before the end of the 1st Quarter 2002. Thus, on an interim basis, from 1 January 2002, you will continue to participate in your current pension plan, at the pensionable earnings level in existence on 31 December 2001. As soon as we complete the design of the executive top hat plan and its valuation, we will communicate the proposed changes. We intend to have this work completed by the end of the 1st Quarter 2002. TAX EQUALIZATION While working in Canada, we will provide you with a tax equalization payment to compensate for the tax differential between Canada and Cleveland (federal, state and local income taxes). The tax equalization will be applied to Base Salary, the EPA bonus payment and payments under the TSR Performance Plan. Recognizing that there are potentially different tax treatments on TSR's and stock options in the US and Canada, the intent is that the net affect be tax neutral to you compared to the US. In order to achieve this result you will be tax equalized on any excess taxes due from exercising TSR's in Canada offset by the savings, if any, of exercising stock options during the same tax year. With regards to the eventual income tax payable on the 75,000 SPAUs granted to you in September 2001, we will provide you with a tax equalization payment to compensate for the tax differential between Canada and Cleveland (Ohio), in the event that you have a larger Canadian tax liability than you would have had in the USA. However, Alcan may through mutual agreement replace those SPAUs with stock options or other more tax effective compensation of equal gross value. In such an event the tax equalization on the SPAUs may not be required. It is recognized that there is a potentially material adverse tax impact on your investment income (interest, dividends, capital gains, rental income, etc.) while a resident in Canada. Alcan will not tax equalize the differential taxes between Canada and the US on investment income, but will provide you with an annual compensatory payment of US$25,000 per year and a lump sum payment of US$10,000 to cover administrative costs. PAY DISBURSEMENT AND BENEFITS You will transfer to the Canadian payroll as a non-resident on 1 January 2002, until you become a resident on or about 1 April 2002. Alcan Inc. (Montreal) will disburse all payments and you will participate in all Employee Benefits and Flexperk Programs available to Canada-based employees, except that we will maintain your participation in the Alcancorp Pension Plan (ACPP) and US Social Security Programs. The employee costs of these programs, if any, will be for your account. Should you be required to contribute to the Quebec Pension Plan (Social Security) Alcan will reimburse you the annual contributions to this plan. 2 Even though you will be covered by Quebec's Medicare Program and Alcan's Medical Plan, Alcan will provide additional coverage under the Alcan Medical Plan for Expatriate employees to be used as payer of last resort in the event you or your wife wish to receive medical treatment in the United States. Other than the Deferred Share Unit Program related to the annual bonus (EPA), there is no other deferral program available in Canada. SECTION II IMMIGRATION REQUIREMENTS You will be required to obtain the proper work permit from the Canadian authorities. Ms. Claire Mallette will work with you to achieve this. RELOCATION TO MONTREAL Your relocation to Montreal will be administered under Alcan Inc's Relocation Policy. You will receive a relocation allowance of US $30,000, net of taxes to cover incidental expenses related to your move (refer to relocation policy). The present arrangement on your Montreal house will be maintained to the end of March 2002 . Furthermore Alcan will be responsible for the costs associated with the termination of your lease in Zurich. LANGUAGE TRAINING PROGRAM You and your wife are encouraged to undertake language lessons after you arrive in Montreal. Reasonable expenses associated with these lessons will be for Alcan's account. TERMINATION Should your employment be terminated without cause, Alcan will pay you a termination allowance equal to 24 months base salary and EPA guideline, calculated at the date of termination, tax-equalized to Cleveland, Ohio if need be. The amount will be paid as a lump sum or as salary continuance at your choice. In the event you elect salary continuance, you will continue to participate in the benefit programs for the period of salary continuance except that the long-term disability plan and the accrual of vacation cease on termination date. No option grants are made during the salary continuance period. Furthermore, the Company will repatriate you and your wife to the United States. The regular relocation policy will be applied. CHANGE IN ORGANIZATIONAL STRUCTURE In the event that the Board makes a change in the current Office of the President structure, which impacts on your future role in the organization, you will have the right to resign from Alcan if there is no mutually acceptable position for you in the new organization structure. You will have up to 3 months from the date of the organizational change to make the decision to resign. In this eventuality you shall be entitled to the termination provisions outlined above. 3 PROFESSIONAL ASSISTANCE FOR THE PREPARATION OF INCOME TAX RETURNS It is strongly recommended that you obtain professional tax advice, both in Canada and in the USA, prior to leaving Zurich, and prior to making any major financial decisions arising from the transfer. Reasonable expenses for tax advice for this purpose will be paid by Alcan. You will be provided with the services of professional consultants for the preparation of your personal income tax requirements in Canada and the United States. The fees for this service in the USA will be for Alcan's account. The Canadian cost is part of your Flexperk program. CHANGE OF CONTROL/CONFIDENTIALITY/NON-COMPETITION Your current Change of Control Agreement continues to be in force. The amounts payable, if any, will be grossed up for the tax differential between your province of residence and Cleveland, Ohio. Furthermore, you are asked to sign the attached confidentiality and non-competitive agreements. ACCEPTANCE Please sign and return a copy of this letter indicating your acceptance of the terms and conditions described in it. This letter is written in English at the express request of the Parties. Cette lettre est redigee en anglais a la demande expresse des parties. The terms and conditions outlined in this letter replace any previous contractual arrangements and constitute the full terms and conditions of employment. /s/ Travis Engen ----------------------- Travis Engen Chief Executive Officer I accept the terms and conditions described above. /s/Richard B. Evans 11 January 2002 ------------------------- ----------------------- Richard B. Evans date 4 CONFIDENTIALITY AGREEMENT To Alcan Inc. In consideration of your agreeing to employ him as your Executive Vice President, the undersigned Employee acknowledges and agrees that his employment by the Employer under this Agreement necessarily involves his understanding of and access to certain trade secrets and confidential information pertaining to the business of the Employer. Accordingly, the Employee agrees that during the Employment Period and for a period of two (2) years following the Date of Termination, he will not, directly or indirectly, without the prior written consent of the Employer, disclose or use for the benefit of any person, corporation or other entity, or for himself any and all files, trade secrets or other confidential information concerning the internal affairs of the Employer or its subsidiaries or affiliates, including, but not limited to, information pertaining to its clients, services, products, earnings, finances, operations, methods or other activities; provided, however, that the foregoing shall not apply to information which is of public record or is generally known, disclosed or available to the general public or the industry generally. Notwithstanding the foregoing, the Employee may disclose such information as required by law during any legal proceeding or to the Employee's personal representatives and professional advisers and, with respect to such personal representatives and professional advisers, the Employee agrees to inform them of his obligations hereunder and take all reasonable steps to ensure that such professional advisers do not disclose the existence or substance hereof. Further, the Employee agrees that he shall not, directly or indirectly, remove or retain, without the express prior written consent of the Employer, and upon termination of employment for any reason shall return to the Employer, any records, computer disks, computer printouts, business plans or any copies or reproductions thereof, or any information or instruments derived therefrom, arising out of or relating to the business of the Employer or obtained as a result of his employment by the Employer. Signed by the Employee as of 11 January, 2002. /s/ Richard B. Evans --------------------------------------------------- Richard B. Evans 5 NON-COMPETITION UNDERTAKING To Alcan Inc. In consideration of your agreeing to employ me as your Executive Vice President, I acknowledge and undertake that until the expiry of two (2) years following the termination of my employment with the Company, I will not be entitled to act as an employee, director of or officer of, advisor to or material investor in any corporation, partnership, person or other entity which carries on any business which is materially competitive with the Company's principal lines of business. Entities which carry on businesses which are so materially competitive include without limitation, those which carry on any business which relates to the mining or refining of bauxite, the production and sale of alumina or primary aluminum, the production and sale of aluminum products and aluminum fabricated products (such as can sheet, foil, litho sheet and other flat rolled products, wire and cable, castings and extrusions), the trading of aluminum, the production and sale of packaging products for tobacco, pharmaceutical, cosmetics, health care, food or beverage products or any line of business carried on by the Company and accounting for at least five percent (5.0%) of its consolidated assets or gross revenues at the time of the termination of my employment. Nevertheless, no such business shall be considered to be materially competitive unless it is carried on in any of the jurisdictions in which the Company carries on business at the time of the termination of my employment. I acknowledge that in view of the position of extreme trust and confidence attached to my position as Employee of the Company, this undertaking is reasonable in all respects and essential to the protection of the Company and its shareholders. I shall continue to be bound by its terms of this undertaking notwithstanding the termination of my employment for any reason. For the purposes of the foregoing: the "Company" means Alcan Inc. as well as its subsidiaries, affiliates and joint ventures, and "Material Investor" means the holder of more than five per cent (5.0% ) of the outstanding voting or equity shares, units or similar interests. Signed by the Employee as of 11 January, 2002. /s/ Richard B. Evans ---------------------------------------------------- Richard B. Evans 6 EX-13 5 m06714ex13.txt EXHIBIT 13: ANNUAL REPORT EXHIBIT 13: Annual Report ALCAN INC. 2001 ANNUAL REPORT [Logo Alcan] PROFILE Alcan Inc. provides global aluminum and packaging solutions that turn today's ideas into tomorrow's innovations. With 2001 revenues of US$12.6 billion, 52,000 employees and a presence in 38 countries, Alcan's diversified business portfolio encompasses bauxite, alumina, specialty chemicals, primary metal, rolled products, engineered products and packaging. A dynamic, multilingual and multicultural organization, Alcan is the No. 1 global producer and marketer of rolled aluminum products, the Western World's second largest producer of primary aluminum and enjoys a strong position in the expanding value-added, engineered products markets. It also ranks among the top five manufacturers of flexible and specialty packaging in the world. Alcan's balanced revenue streams reflect its strength as a leader in the major market regions of the Americas and Europe, as well as its success in key Asian markets. 2 Financial and Operating Highlights 3 Message to Shareholders 7 Alcan at a Glance 10 Creating Value-Added Products 12 Teaming Up with Our Customers 14 Providing Innovative Solutions 16 Empowering Our People 18 Ensuring a Business Approach to Sustainability 20 Management's Discussion and Analysis 40 Financial Section 70 Eleven-Year Summary 72 Corporate Governance 73 Directors and Officers 74 Shareholder Information 75 Glossary 76 Company Information and Definitions WWW.ALCAN.COM THE FLYING "V" OF MIGRATING GEESE IS WIDELY RECOGNIZED AS A SYMBOL OF COOPERATION, ENDURANCE AND TENACITY -- NOT UNLIKE THE TEAMWORK, COMMITMENT AND RESOLVE EVIDENT THROUGHOUT ALCAN AS WE PRESS FORWARD IN PURSUIT OF OUR GOVERNING OBJECTIVE, MAXIMIZING VALUE. [PHOTO OF FIVE PEOPLE] FINANCIAL AND OPERATING HIGHLIGHTS
2001 2000 1999 ------- ------- ------ FINANCIAL DATA (in millions of US$, except where indicated) Sales and operating revenues 12,626 9,148 7,324 Net income 5 618 460 Economic Value Added (EVA(R))(1) Excluding purchase accounting adjustments(2) 8 153 (111) Including purchase accounting adjustments(2) (468) 19 N/A Return (%) on average common shareholders' equity 0 10 9 Total assets (at year-end) 17,479 18,407 9,849 Capital investments 1,514 1,735 1,298 Ratio of borrowings to equity (at year-end) 32:68 33:67 21:79 Per common share (in US$) Net income (loss) (basic and diluted) (0.01) 2.45 2.06 Dividends 0.60 0.60 0.60 Price on NYSE (at year-end) 35.93 34.19 41.38 ------- ------- ------ OPERATING DATA (in thousands of tonnes) Ingot products shipments(3) 1,419 974 859 Rolled products shipments(4) 2,281 2,183 1,924 Aluminum used in engineered products and packaging 553 352 302 Primary aluminum production 2,042 1,562 1,518 ------- ------- ------ AVERAGE LME THREE-MONTH PRICE (in US$/tonne) 1,454 1,567 1,388 ------- ------- ------
(1) EVA is a registered trademark of Stern Stewart & Co. (2) Goodwill and asset revaluation arising from the algroup merger, as well as related depreciation and amortization. (3) Includes primary and secondary ingot and scrap, as well as shipments from metal trading activities. (4) Includes conversion of customer-owned metal. [GRAPH] SALES AND OPERATING REVENUES millions of US$ 97 : 7777 98 : 7789 99 : 7324 00 : 9148 01 : 12626 With the inclusion of a full year's revenues from the former algroup operations, sales and operating revenues increased by 38% in 2001. 2 MESSAGE TO SHAREHOLDERS WITH MAXIMIZING VALUE AS OUR GOVERNING OBJECTIVE, WE ARE CONFIDENT WE WILL BE ABLE TO DELIVER A LEVEL OF FINANCIAL PERFORMANCE AND PROFITABLE GROWTH THAT WILL EXCEED INVESTORS' EXPECTATIONS AND POSITION ALCAN AMONG THE WORLD'S TOP-PERFORMING COMPANIES. [Photo: Travis Engen (left), President and Chief Executive Officer, and John R. Evans, Chairman of the Board.] 3 During the course of 2001, we intensified our focus on value that began several years ago with the introduction of Economic Value Added (EVA) as a key measure of Alcan's performance. Value maximization has clearly taken hold across all our business sectors as the driver -- the single most important consideration -- in terms of identifying the best opportunities for enhanced returns and profitable growth, considering the alternatives and acting on them. Despite extraordinary circumstances that occurred as a prolonged decline in North American industrial production reached its 12th month -- punctuating the sharpest drop in demand for aluminum in more than 20 years -- Alcan delivered a sound underlying performance. Operating earnings were good, astute management of working capital contributed to a significant increase in operating cash flow and inventories decreased. Earnings per share, excluding non-recurring items and the effects of foreign currency translation, amounted to $1.51, compared to $2.25 in 2000. Among more noteworthy 2001 accomplishments, we made great progress on the merger-integration front, from both the operational and strategic standpoints -- significantly advancing our value agenda. Firstly, we are on track in realizing the synergies inherent in the Alcan-algroup merger, completed in October 2000. We fully expect to reach our targeted run rate of $200 million by the end of 2002. Moreover, the merger has enabled us to strengthen Alcan's foundations in important segments -- i.e. bauxite and alumina -- and to build entirely new platforms for future growth in dynamic sectors such as engineered products and packaging. KEY OBJECTIVES ACHIEVED We also achieved some key operational objectives. The most significant of those was the successful start-up of our new Alma, Quebec, smelter. Not only did this project represent a major commitment of resources, it also plays to our competitive advantage in primary metal. As well, there was marked improvement in the operations of our rolling assets in Korea -- although economic conditions somewhat limited upside potential in terms of immediate payoff. These Asian assets will continue to be an area of focus in 2002. Elsewhere, we successfully managed water-shortage issues in British Columbia (B.C.), Canada, and in Brazil. Indeed, our handling of the situation in B.C. -- where we opted to reduce metal output in order to meet previous power-supply obligations and provide additional power for the energy-starved U.S. Pacific Coast -- demonstrated the sort of innovative, value-based thinking that will be increasingly representative of this Company going forward. In October, confronted with an extraordinarily difficult business climate, we responded with a restructuring program that enabled us to remain competitive in the markets we serve. The restructuring will generate incremental pre-tax earnings of about $200 million when fully implemented. Among the major new initiatives of 2001 was our commitment -- mentioned earlier in this message -- to embrace Maximizing Value as the governing objective of the organization. Our pursuit of that objective has two primary WE CONTINUED TO MAKE GREAT PROGRESS ON THE MERGER-INTEGRATION FRONT, SIGNIFICANTLY ADVANCING OUR VALUE AGENDA. 4 thrusts. We began the first by scrutinizing Alcan's businesses to identify high value-at-stake opportunities and establish priorities on the basis of value impact. Then we set out an 18-month timetable to work through and reach decisions on the 17 most important opportunities. Reviewing our value-at-stake opportunities and updating our agenda to resolve them will be a regular activity. Our "no-holds-barred" approach to portfolio review entails reconsidering not only what markets we should be in but also precisely how we ought to be participating in those markets, in order to generate the highest possible returns. That sort of close scrutiny is reflected, for instance, in our new approach to the automotive market, as well as in announced changes impacting our European rolling strategy and the European chemicals business. The second thrust is the development throughout Alcan of enhanced capabilities and increased understanding of Maximizing Value. To accomplish this, we launched a comprehensive training and capability enhancement program -- the most significant investment in Alcan people that we have ever made. Already, this program encompasses hundreds of people and dozens of teams throughout the Company, and it will continue through 2002. STRENGTHENED ORGANIZATIONAL AND MANAGEMENT STRUCTURE As well, we moved to strengthen Alcan's organizational and management structures in a way that will move us closer to our customers and help raise overall performance to new levels. An Office of the President has been formed which, in addition to the President and Chief Executive Officer, includes Executive Vice Presidents Richard B. Evans and Brian W. Sturgell. And there are now six business groups driving operational performance: Bauxite, Alumina and Specialty Chemicals; Primary Metal; Rolled Products Americas and Asia; Rolled Products Europe; Engineered Products; and Packaging. [PHOTO: GEESE] JOHN EVANS: AN ENDURING CONTRIBUTION John Evans will be relinquishing his role as non-executive Chairman of Alcan's Board of Directors following the upcoming Annual General Meeting, having reached the retirement age of 72. Dr. Evans has been a director of Alcan since 1986 and has served as Chairman since 1995. His wealth of knowledge, extensive experience in corporate governance and adept manner of handling meetings and overseeing Board business - -- not to mention his unfailing sense of humour -- has helped Alcan's directors and senior management overcome many challenges. We would like to express our gratitude to John for his enduring contribution and outstanding service rendered over the past 16 years and wish him well in future business and personal pursuits. 5 INTEGRATED ENVIRONMENT, HEALTH & SAFETY POLICY During the latter part of 2001, the Board of Directors adopted a new, integrated Environment, Health and Safety (EH&S) Policy that makes improvement of our record in these crucial areas a responsibility to be shared by individuals at every level throughout the Company. Alcan recognizes that all its businesses must operate on a sustainable basis and that EH&S performance impacts directly on value creation. ACKNOWLEDGEMENTS On behalf of the entire Board, we would like to take this opportunity to thank employees for their valued efforts during a challenging -- and at times, difficult -- year. In addition to becoming an investment of choice and a supplier of choice, Alcan is determined to earn recognition as an employer of choice. To that end, we are committed to providing the sort of stimulating, rewarding environment that will enable current employees to realize their career and personal goals and also help us attract, develop and retain additional world-class talent. We also wish to thank our fellow directors for their wise counsel and support. In particular, we wish to express sincere appreciation to Dr. Peter H. Pearse, a director since 1989, who did not stand for re-election last April. We are grateful to him for his long and valued contribution over the years, particularly to the Environment Committee. Also, the Board expresses its thanks to Rupert Gasser who served on the Board and as a member of the Audit Committee from 2000 to 2001. Lastly, on behalf of the Board, we are pleased to welcome two new Board members, Clarence J. Chandran and Brian M. Levitt. Mr. Chandran is the former chief operating officer of Nortel Networks. Mr. Levitt is Montreal resident co-chair of the law firm Osler, Hoskin & Harcourt LLP and former president and chief executive officer of Imasco Limited. OUTLOOK Business conditions remained challenging as 2002 began to unfold, and we don't anticipate any dramatic improvement through the first half of the year. However, as this report was going to press, the consensus view among economists was that -- barring unforeseen events -- we expect to see a resumption of economic growth during the third and fourth quarters of 2002. And Alcan's own forecasts are calling for an increase of 2.8% in Western World demand for aluminum for the year. Given that scenario, we are optimistic that we can achieve a significant rebound in Alcan's profitability as we continue to advance our value maximization agenda - -- even if metal prices remain at less-than-robust levels. We entered 2002 with major capital investments pretty much behind us, a solid financial position and excellent cash generation prospects. We remain clearly focused on the controllables -- i.e. costs and synergies. And we are continuing to review business portfolios and to build the conditions and capabilities required for sustained value performance, in keeping with our governing objective. All in all, Alcan is well positioned to capitalize when the global economy begins to rebound -- to seek out opportunities for profitable growth that will enable us to deliver on our commitments to shareholders, customers, employees and other stakeholders. /s/ JOHN R. EVANS - ------------------------------------ Chairman of the Board February 7, 2002 /s/ TRAVIS ENGEN - ------------------------------------ President and Chief Executive Officer 6 ALCAN AT A GLANCE TODAY'S ALCAN IS A DIVERSIFIED ORGANIZATION WITH GLOBAL SCALE AND SCOPE. REGIONS OUTSIDE NORTH AMERICA ACCOUNT FOR 59% OF REVENUES, 55% OF CAPITAL ASSETS AND 59% OF EMPLOYEES. 2001 REVENUES: $12.6 BILLION [PIE CHART] BY MARKET Packaging and beverage cans are Alcan's principal markets, accounting for 41% of its revenues in 2001. Packaging 25% Beverage cans 16% Aluminum ingot 18% Building and construction 7% Electrical 5% Transportation 9% Other 20%
[PIE CHART] BY PRODUCT As a result of the algroup merger, Alcan's revenues by product reflect a new distribution, with increases in engineered products and in packaging. Bauxite, alumina and specialty chemicals 5% Aluminum ingot 19% Rolled products 39% Engineered products 13% Packaging 23% Other 1%
7 WORLDWIDE PRESENCE NORTH AMERICA - ------------- (in millions of US$, except where indicated) Sales and operating revenues -- third parties (by destination) 5,183 ------ Capital assets -- net 5,803 ------ Employees (number at year-end) 21,400 ------ EUROPE - ------ (in millions of US$, except where indicated) Sales and operating revenues -- third parties (by destination) 4,994 ------ Capital assets -- net 4,504 ------ Employees (number at year-end) 23,100 ------ SOUTH AMERICA - ------------- (in millions of US$, except where indicated) Sales and operating revenues -- third parties (by destination) 470 ------ Capital assets -- net 731 ------ Employees (number at year-end) 2,900 ------ ASIA/PACIFIC AND ALL OTHER - -------------------------- (in millions of US$, except where indicated) Sales and operating revenues -- third parties (by destination) 1,979 ------ Capital assets -- net 1,887 ------ Employees (number at year-end) 4,400 ------
[MAP] 8 OPERATIONS 2001 DATA - ---------------------------------------------------------- -------------------------------------------------- O 7 BAUXITE MINES/DEPOSITS in 5 countries. o 11.1 MT used(1). o $113 MILLION in bauxite third-party sales. - ---------------------------------------------------------- -------------------------------------------------- o 7 ALUMINA PLANTS in 4 countries with 4.2 Mt of annual o 4.6 MT of alumina hydrate produced(1). capacity, including specialty chemicals. $364 million in alumina and chemicals third- party sales(2). - ---------------------------------------------------------- -------------------------------------------------- o 15 SMELTERS in 7 countries with over 2.2 Mt of nominal o 2.0 MT of ingot produced. rated capacity. o 1.2 MT of ingot purchased. o $1.9 BILLION (1,194 kt) in primary ingot third- party sales. - ---------------------------------------------------------- -------------------------------------------------- o 28 ROLLED PRODUCTS PLANTS in 10 countries. o $5.0 BILLION (2,281 kt) in sales, including conversion of customer-owned metal. - ---------------------------------------------------------- -------------------------------------------------- o 50 ENGINEERED PRODUCTS(3) PLANTS in 19 countries. o $1.7 BILLION (250 kt) in sales. - ---------------------------------------------------------- -------------------------------------------------- TOTAL: 78 plants in 21 countries. 2.5 MT of aluminum fabrication in Alcan facilities, including conversion of customer-owned metal. $6.7 BILLION in sales, including conversion of customer-owned metal. - ---------------------------------------------------------- -------------------------------------------------- o 30 FOOD FLEXIBLE, CONTAINERS and FOIL PLANTS in o $1.7 BILLION in sales. 11 countries. - ---------------------------------------------------------- -------------------------------------------------- o 43 PHARMACEUTICAL, COSMETICS and PERSONAL CARE PLANTS o $862 MILLION in sales. in 10 countries. - ---------------------------------------------------------- -------------------------------------------------- o 11 SPECIALTY PACKAGING PLANTS in 7 countries. o $346 MILLION in sales. - ---------------------------------------------------------- -------------------------------------------------- TOTAL: 84 plants in 15 countries. $2.9 BILLION in sales.
(1) Includes five months of bauxite and alumina production in Jamaica -- operations that were sold in May 2001. (2) Excludes trading revenues. (3) Includes automotive engineered shaped products, automotive structure and design, cable, composites, extruded products, mass transportation systems and service centres. During the fourth quarter of 2001, Alcan announced its intention to divest some 13 packaging operations and 2 extruded products plants as well as partial product line cutbacks at 2 rolled products plants. [PHOTO] 9 CRASH TESTS HAVE CONFIRMED THAT ADVANCED ALUMINUM BUMPER SYSTEMS DESIGNED AND BUILT BY ALCAN ARE MARKEDLY MORE EFFICIENT AT ABSORBING ENERGY DURING COLLISIONS. That translates into increased safety for passengers and less damage to vehicles. The auto insurance industry is impressed with the aluminum bumper systems, with a number of European insurers already rating the product in their best insurance group category. Being lighter than traditional bumpers, they also contribute to increased fuel efficiency and reduced emissions. Volkswagen, Mercedes, Opel and the Smart minicar are among the list of vehicles already using the aluminum bumpers, manufactured at a new Alcan Automotive plant in Gottmadingen, Germany. Extrusions required to produce this high-volume, value-added product are delivered on a just-in-time basis from another Alcan plant in nearby Singen, Germany. ALCAN'S ALUCORE COMPOSITE PANELS STRUCK JUST THE RIGHT NOTE WITH FRENCH ARCHITECTS SEARCHING FOR A MATERIAL THAT WOULD GIVE THE SOARING ROOF OF SHANGHAI'S STYLISH NEW OPERA HOUSE THE LOOK OF A "PERFECT CURVE". Alucore, which features an aluminum honeycomb sandwiched between aluminum sheets, was selected for use on Shanghai's latest landmark partly on the basis of its attractiveness and weather-resistance. But the deciding factor was the composite's remarkable strength and rigidity -- enabling the building's designers to achieve the desired, perfect-curve visual effect. Alucore is produced at the Singen plant in Germany and is just one of some 90 products in the portfolio of Alcan Composites. Developed in concert with our Research and Development Centre in Neuhausen, Switzerland, these hybrid materials further enhance Alcan's reputation as a provider of innovative products and advanced technologies. In addition to composites, Alcan offers a wide range of other outstanding building products, including the exceptionally durable and weather-resistant anodized aluminum made by Alcan Rolled Products. [Large photo: Sylvia Sorger is an operator at the Gottmadingen plant that produces energy-absorbent aluminum bumpers.] [Photo: Alucore, an innovative composite panel, is manufactured at the Singen plant in Germany.] 10 CREATING VALUE-ADDED PRODUCTS OUTSTANDING PRODUCTS THAT REPRESENT EXCEPTIONAL VALUE -- NOT JUST FOR ALCAN, BUT ALSO FOR OUR CUSTOMERS -- HAVE HELPED MAKE US A SUPPLIER OF CHOICE IN THE GLOBAL ALUMINUM AND PACKAGING MARKETPLACE. ALL ALCAN PRODUCTS ARE BACKED BY A SOLID COMMITMENT TO CUSTOMER SERVICE AND SUPPORT. 11 TEAMING UP WITH OUR CUSTOMERS ALCAN IS COMMITTED TO ENHANCING THE VALUE OF ALL ITS BUSINESS ASSETS, INCLUDING CUSTOMER RELATIONSHIPS. WE ARE CONSTANTLY SEEKING NEW WAYS TO BETTER SERVE OUR CUSTOMERS -- TO FORGE STRATEGIC PARTNERSHIPS THAT CONTRIBUTE IN A SIGNIFICANT WAY TO THEIR SUCCESS. 12 DEVELOPMENT OF A NEW-LOOK DEODORANT CONTAINER FOR COSMETICS GIANT LEVER FABERGE PROVED TO BE "NO SWEAT" FOR ALCAN PACKAGING'S FIBRENYLE UNIT. A quick response to the customer's needs -- along with a successful track record of working together -- helped U.K.-based Fibrenyle land its largest-ever contract for roll-on deodorant bottles. Less than three weeks after being approached regarding a radical new design for a roll-on container, the project team came up with a fully working, pre-production sample that met all requirements. Fibrenyle is the sole supplier of the innovative, angle-neck containers now used by Lever Faberge to package some half-dozen different brands of deodorant for the European market. The containers are produced at Fibrenyle's Norwich plant, utilizing injection blow-moulding technology ideally suited to the technical requirements involved. The facility has earned a Quality Award from Lever Faberge in recognition of its "excellent systems and supply of consistently high-quality products and services." CUSTOMER ALLIANCES ARE KEY DRIVERS OF ALCAN AUTOMOTIVE'S GROWTH-ORIENTED GLOBAL STRATEGY. In May 2001, the entire spectrum of Alcan's automotive portfolio was showcased at General Motors' "TechWorld." It was the first time an aluminum company participated in this annual event where key suppliers exhibit leading technologies to GM engineers and executives. Also in 2001, Alcan partnered with Ford Motor Company to develop a lightweight aluminum liftgate now available on the redesigned Expedition sport-utility vehicle. And Alcan captured top honours from the North American Die Casting Association for its unique "B-Pillar" casting used in Audi's aluminum A2 car. These are just some of the many ways in which Alcan is helping to produce higher-performing, more fuel-efficient and environmentally cleaner vehicles. [Photo: Alcan Automotive's Michael J. Bull (right), Manager, Materials and Applied Technology, discusses Alcan's advanced know-how with G. Richard Wagoner, Jr., GM's President and CEO, at GM TechWorld.] [Large photo: Fibrenyle's Andy Howes (left), Design Manager, and Steve Isherwood, Managing Director, examine a sample of the angle-neck container.] 13 WHEN CONSUMERS PURCHASE BEVERAGES IN ALUMINUM CANS, FEW OF THEM GIVE ANY THOUGHT TO THE ADVANCED ENGINEERING AND SOPHISTICATED SCIENCE THAT HAVE GONE INTO THE EVOLUTION OF THE CAN'S DESIGN. In fact, the ubiquitous aluminum beverage can has become progressively lighter over the past decade, without compromising its strength or performance -- thanks in no small measure to the efforts of Alcan engineers and researchers. Providing scientific guidance to can customers worldwide in their quest for continuous product improvement is a vital role shared by Alcan's Research and Development Centre in Kingston, Ontario, Canada, and by the Applied Materials Center in Aurora, Illinois, U.S.A. Together, they have earned Alcan a reputation throughout the global can manufacturing industry as the source for the latest developments in can-body and can-end manufacturing technology as well as value-creating process improvements. A PACKAGING SOLUTION THAT ENABLES SENIORS TO EASILY ACCESS THEIR MEDICATION WHILE PROVIDING THE HIGHEST LEVEL IN CHILD RESISTANCE HAS WON PRAISE FOR ALCAN FROM THE U.S. CONSUMER PRODUCT SAFETY COMMISSION. Equally noteworthy from a customer perspective is the fact that these new child-resistant and senior-friendly features -- pioneered by Alcan Packaging's Margo unit in Montreal, Canada -- can be applied to existing blister cards with only minimal changes to the original design. That's the sort of key value consideration that helps differentiate Alcan from the competition. AN ACTIVATED, ALUMINA-BASED ADSORBENT DEVELOPED BY ALCAN'S BAUXITE, ALUMINA AND SPECIALTY CHEMICALS GROUP HAS PROVED TO BE AN EFFECTIVE SOLUTION FOR ARSENIC-CONTAMINATED WATER SUPPLIES. Most of us take the availability of drinking water as a given. You simply turn on the tap. But the situation is different for many people in developing countries -- and in a surprising number of industrialized nations -- whose water supplies are contaminated by naturally occurring arsenic, a known carcinogen that also causes other serious health problems. The solution in many situations is the new AAFS50 adsorbent, manufactured at Alcan's Brockville, Ontario, Canada, plant. The system is low-cost and simple, with several thousand already being used by international aid agencies. [Large photo: Martin Dullum (left), Associate Engineer, and Anne Sisco, Engineer, at Alcan's Applied Materials Center, use AutoCAD to design innovative solutions for can customers.] [Photo: Account Manager Jocelyne Desgagne (left) and Daniel Filion, Leader, Design Centre, of Alcan Packaging's Margo unit select blister card samples.] 14 PROVIDING INNOVATIVE SOLUTIONS ALCAN IS MORE THAN A MANUFACTURER OF ALUMINUM AND PACKAGING. WE PROVIDE SOLUTIONS. THAT MEANS WORKING WITH CUSTOMERS TO DEVELOP INNOVATIVE, VALUE-ADDED PRODUCTS AND PROCESSES THAT MEET THEIR PARTICULAR REQUIREMENTS AND HELP THEM ACHIEVE THEIR GOALS. 15 EMPOWERING OUR PEOPLE WHATEVER THE NATURE OF THE CHALLENGE -- MEETING THE CHANGING NEEDS OF OUR CUSTOMERS OR THE EXPECTATIONS OF OUR SHAREHOLDERS -- IT IS PASSIONATE, COMMITTED AND EMPOWERED PEOPLE THAT ULTIMATELY MAKE THE DIFFERENCE. 16 IT'S MISSION ACCOMPLISHED AT ALMA. Alcan completed the accelerated start-up of its state-of-the-art Alma, Quebec, Canada, smelter in September 2001. Literally hundreds of resourceful people contributed to the successful outcome, helping to meet and overcome the challenges that inevitably occur with any undertaking of this magnitude. With the smelter fully up and running, an on-going priority is to ensure that its 865 employees -- including 435 transferred from the old Isle-Maligne, Quebec, facility -- have the skills and training required to perform at peak effectiveness in their new, cutting-edge work environment. With an annual capacity of 400,000 tonnes, the facility is enhancing Alcan's competitiveness by delivering high-quality metal at costs that rank among the most competitive in the global industry. Its value-added output targets the automotive and power-transmission sectors. AN EXCEPTIONALLY WELL-TRAINED AND HIGHLY MOTIVATED WORK FORCE IS CITED AS A KEY FACTOR IN THE REMARKABLE SUCCESS OF ALCAN'S EXTRUSION FACILITY AT DECIN IN THE CZECH REPUBLIC. The former algroup first acquired a majority interest in the plant back in 1990. Over the past decade, operations have been streamlined and the emphasis shifted from former Soviet-bloc countries to export markets in Western Europe -- focusing primarily on the industry sector. The fact that Decin captured the Czech Government's Export Achievement Award for 2001 attests to the success of this strategy. As well, substantial sums have been invested to update and expand the facility, which ranks among the best performing of all Alcan facilities in terms of EVA (Economic Value Added). However, it is the availability in and around Decin of highly qualified personnel -- who enthusiastically embrace an entrepreneurial approach to business -- which remains an essential ingredient of the plant's recipe for success. [Photo: Petr Koneeny is a member of the well-trained, highly motivated workforce at Decin in the Czech Republic.] [Large photo: Concerted effort of operations employees such as Guylaine Jean and Eric Dube were key to the successful start-up of the Alma smelter.] 17 ALCAN, ITS EMPLOYEES AND THEIR FAMILIES ARE ENTHUSIASTIC SUPPORTERS OF THE ALUMINUM CANS BUILD HABITAT FOR HUMANITY HOMES PROGRAM, WHICH HELPS PROVIDE HOUSING FOR FAMILIES IN NEED. Over the last few years, employees assisted with the construction of new homes for families in several U.S. communities -- Cleveland, Ohio; Denver, Colorado; and Logan, Kentucky -- as well as in countries such as Korea and Zambia. Among the events in 2001, 11 female volunteers from Alcan's U.S. facilities joined several hundred other women in a week-long blitz to construct five homes, one of which was sponsored by Alcan, in Denver as part of Habitat's special Women Building a Legacy initiative. In Korea, Alcan Taihan Aluminum Limited supplied cans of juice for thirsty volunteers, along with the requisite can-recycling containers, while employees pitched in on the house-builds with saws and hammers. ALCAN HAS ADOPTED A NEW, INTEGRATED ENVIRONMENT, HEALTH AND SAFETY (EH&S) POLICY. An integrated approach to EH&S better reflects the 21st century world in which we operate and will help ensure that Alcan's initiatives in this vital area are in line with the best practices of other leading global enterprises. The new policy makes it clear that all employees share responsibility for EH&S. It also incorporates a new and important premise -- namely that focusing on EH&S performance is the hallmark of a company that can excel at creating value for all stakeholders. ALCAN'S AMBITIOUS TARGET PROGRAM AIMS TO REDUCE GREENHOUSE GAS (GHG) EMISSIONS BY 500,000 TONNES ON A YEARLY BASIS BY 2004. Moving forward, Alcan has committed to establish rolling reduction objectives, taking into account changes in business conditions and production capacities. This recent initiative is in addition to a reduction in annual GHG emissions in the order of 2 million tonnes as compared to 1990. This was achieved even with increases in overall production capacities over the same period. Additional information on these and other initiatives may be found in Alcan's comprehensive CORPORATE SUSTAINABILITY REPORT, available in the second quarter of 2002. [Large photo: Mimi (right) and Stacey Sturgell, wife and daughter of Brian Sturgell, Alcan Executive Vice President, were among the team of women who pitched in to build this Alcan-sponsored home.] [Photo: In health and safety, Alcan's ultimate goal is zero injuries and illnesses. We are determined to continuously improve our performance.] 18 ENSURING A BUSINESS APPROACH TO SUSTAINABILITY ALCAN'S LONG-TERM SUSTAINABILITY AS A GLOBAL CORPORATION IS VERY MUCH A PART OF THE OVERALL VALUE EQUATION -- AND, HENCE, AN INTEGRAL ELEMENT OF OUR BUSINESS. WE ARE COMMITTED TO EXCEL IN ECONOMIC, ENVIRONMENTAL AND SOCIAL (INCLUDING HEALTH AND SAFETY) PRACTICES AND PERFORMANCE. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS UNDER VERY DIFFICULT MARKET CONDITIONS, THE COMPANY ACHIEVED ITS KEY OBJECTIVES, IMPROVED ITS FINANCIAL SITUATION, MOVED AHEAD OF TARGET ON THE MERGER SYNERGIES AND MADE DECISIONS THAT WILL IMPROVE ITS POSITION, MOVING FORWARD. 21 World Market Review 23 Merger with algroup and Results of Operations 26 Operating Segment Review 34 Geographic Review 35 Liquidity and Capital Resources 37 Environment, Health and Safety Matters 38 Risks and Uncertainties 40 Responsibility for the Annual Report, OECD Guidelines and Auditors' Report 41 Consolidated Financial Statements 44 Notes to Consolidated Financial Statements 68 Quarterly Financial Data 70 Eleven-Year Summary
20 WORLD MARKET REVIEW PRIMARY ALUMINUM Western World+ total consumption decreased by an estimated 6.3% in 2001, which represents the largest drop in more than 25 years. Demand fell in all regions except in Latin America. North American demand was very weak throughout the year, as confidence dipped amid fears of a recession and in light of the September 11 events. Overall, North American demand decreased by 13.3% during the year, a significant decline compared to the 0.7% growth rate in 2000. Asia experienced the second largest decline in consumption, down 5.3%, driven mainly by Japan and other export-oriented countries. In this region, consumer confidence reached its lowest level since 1977. Europe also witnessed a major slowdown, with a reduction in demand of 1.0%, which was far worse than anticipated. Latin America, by comparison, reported a growth of 3.4%, slightly lower than the previous year, but nonetheless healthier than all other regions. Western World consumption totalled about 26.9 million tonnes (Mt) in 2001, 19.0 Mt of which was primary metal, and the balance was recycled metal. Prior to 2001, and since 1982, demand for aluminum had grown at a compound annual growth rate of approximately 3%. [GRAPH] TOTAL ALUMINUM INVENTORIES AND INGOT PRICES Total inventories (IAI*, LME and COMEX**) Mt 97: 4149 3929 4060 3985 98: 3923 3762 3816 3997 99: 3931 3833 3967 4001 00: 3919 3612 3552 3488 01: 3734 3784 3872 3872
LME three-month price US$/t 97: 1625 1610 1640 1602 98: 1484 1392 1344 1300 99: 1212 1332 1471 1535 00: 1652 1502 1587 1527 01: 1562 1511 1404 1337
* International Aluminum Institute ** Inventories held by the New York Mercantile Exchange [GRAPH] Prices fell as surplus led to rising inventories. WESTERN WORLD PRIMARY ALUMINUM SUPPLY AND DEMAND Mt/y Production plus imports from C.I.S. 97: 18497 18656 18756 19041 98: 19115 19016 19111 19289 99: 19386 19478 19639 19901 00: 19744 19688 19559 19805 01: 19666 19467 19108 19237
Shipments (seasonally adjusted) 97: 19496 18931 18549 19478 98: 19454 19010 19201 18610 99: 19560 19201 19385 19825 00: 20132 20646 20062 19862 01: 18908 18897 19072 19072
The surplus in 2001 almost equaled the deficit of 2000. Western World primary aluminum production fell by 3.8% in 2001, to 16.7 Mt. Energy shortages were the major concern in 2001. Power constraints associated with low water levels forced producers in the U.S. Pacific Northwest, British Columbia (B.C.), Canada, and Brazil to idle large amounts of production capacity. At the end of 2001, virtually all of the 1.6 Mt in the U.S. Pacific Northwest was idled as was 0.3 Mt, or 23%, of Brazil's capacity. Though spot energy prices have declined sharply in the U.S. Pacific Northwest, most of the idle capacity will likely be restarted only when demand starts to grow. In Brazil, power restrictions in the north were lifted at the beginning of 2002, and all of the idled capacity in that region has been restarted. In the other regions of Brazil, some smelters are being restarted while others remain partly idle. Imports from the former Eastern Bloc increased by approximately 12.5% to 2.7 Mt in 2001, due to much lower Chinese net imports of unwrought aluminum, partially offset by lower exports from the C.I.S. + Defined as the world excluding the Commonwealth of Independent States (C.I.S.), Eastern Europe and China. 21 In 2001, the reduction in consumption translated into a 6.2% negative growth in demand for primary aluminum, partly offset by a reduction in supply of 1.8%, resulting in an increase in inventories estimated at 446 thousand tonnes (kt). During the year, inventories with aluminum producers, the London Metal Exchange (LME) and COMEX increased to approximately 3.9 Mt, or the equivalent of approximately 10.7 weeks of consumption. For 2002, current expectations are that demand will increase slightly more than supply resulting in a smaller surplus for the year. Ingot prices (LME three-month) were at $1,568 per tonne (/t) at the beginning of 2001, reaching a high of $1,650/t at the end of January, dropping to a low of $1,254/t in early November, and closing the year at $1,356/t. The average LME price of $1,454/t was 7.2% lower than the 2000 average of $1,567/t, which was in turn 12.9% higher than the 1999 average of $1,388/t. WESTERN WORLD CONSUMPTION VS. ALCAN SALES Alcan's total shipments grew to 4.3 Mt in 2001, an increase of 21.2% over the previous year, with ingot shipments rising 46%, and rolled and engineered product shipments increasing by 12%. Most of these increases result from the merger with Alusuisse Group Ltd (algroup) in October 2000, with 2000 including only one quarter's results for algroup, as well as the additional volume from the new Alma smelter in Quebec, Canada. [GRAPH] 2001 WESTERN WORLD ALUMINUM CONSUMPTION BY END-USE MARKET Containers and packaging 18% Building and construction 18% Electrical 9% Transportation 30% Other 25%
Transportation remains the largest and most promising market for aluminum. Western World demand from the transportation sector fell by 8.5% to 7.9 Mt, its first decline since the 1990 recession. Nonetheless, it remains the largest and most promising market for aluminum. Light vehicle sales in the U.S. were at their second highest level ever, down only 1.3% from the 2000 record. But light vehicle production fell 10% as the Big 3 automakers slashed inventories and imports gained market share. Heavy truck and trailer production fell even more. Automobile sales were up slightly last year in Japan and little changed in Western Europe. Alcan's revenues from the transportation market increased by 112%, due in large measure to the merger with algroup. This market accounted for 9% of its total revenues. Demand from the building and construction sector fell by 7%, to 4.9 Mt. While U.S. housing starts rose 2% last year, the industrial and commercial sectors were down sharply and, as with automobiles, de-stocking contributed to the decline. Shipments to this market were down in all regions. Alcan's revenues from building and construction decreased by 1%, accounting for 7% of the Company's revenues. Consumption from the containers and packaging market was down 1% at 4.9 Mt. Canstock demand was stable in 2001, as growth in Europe, Asia and Latin America was offset by downgauging and substitution in North America. Other packaging, principally foil, was down due to declines in the U.S. and Asia. Alcan's revenues from the packaging and beverage can markets increased by 41%, mostly due to the merger with algroup, accounting for 41% of total revenues. After a healthy performance in 2000, the electrical market had the sharpest rate of decline in 2001, down 9.7% to 2.3 Mt, again driven by sharp declines in the U.S. and Asia. Alcan's revenues from the electrical market decreased by 4%, accounting for 5% of total revenues. Demand from other markets declined by 5.6% in 2001 to 6.9 Mt. This includes demand from the machinery and equipment market, which was down 5.7% to 2.5 Mt, as well as demand from the consumer durables market, which fell by 8.4% to 1.7 Mt. Alcan's revenues from these other markets, including aluminum ingot, increased by 41%, due mainly to the merger with algroup, accounting for 38% of the Company's revenues. 22 MERGER WITH ALGROUP Alcan completed its merger with algroup in October 2000. The merger was recorded under the purchase method of accounting, in a transaction that valued algroup at $5.7 billion. This included the issue by the Company of 116.1 million shares, having a market value of $3.6 billion, and algroup's debt of $2.1 billion. As of the fourth quarter of 2000, results from the operations of algroup have been included with the financial results of Alcan. It is estimated that the merger will generate annual synergies of $200 million, with $160 million accruing in 2002. At the end of 2001, Alcan had realized about $50 million of synergies, with an annual run-rate of approximately $90 million. Total one-time disbursements, necessary to obtain these synergies and to be incurred by the end of 2002, are estimated at $90 million. By the end of 2001, $55 million had been disbursed. RESULTS OF OPERATIONS Alcan reported consolidated net income for 2001 of $5 million compared to $618 million in 2000 and $460 million in 1999. The decrease in 2001 net income was attributable in large part to restructuring, impairment and other special charges accounted for in the fourth quarter and to lower average metal prices as compared to 2000. These unfavourable factors were offset in part by merger synergies and the inclusion of a full year of former algroup operations. In 2000, operating results were higher than in the previous year due mainly to higher average metal prices, further improvements made under the Company's Full Business Potential (FBP) earnings improvement program, and the inclusion of algroup's results in the fourth quarter. They were offset in part by higher energy costs and the unfavourable effect of the time lag in fully passing on higher metal prices to customers. Average metal prices in 2001 were approximately 7% lower than in 2000 and 5% higher than in 1999. In 2001, the average LME three-month price was $1,454/t compared to $1,567/t in 2000 and $1,388/t in 1999. The results for 2001 included non-recurring charges of $533 million after tax. These charges consisted mainly of the loss on the disposal of operations in Jamaica of $90 million, charges related to the restructuring program announced on October 17, 2001, of $166 million, charges for the synergy program in relation to the merger with algroup of $37 million, impairment provisions in relation to certain assets and capitalized project costs of $88 million and increases to environmental reserves of $167 million. These charges were slightly offset by a favourable prior year's tax adjustment of $12 million. In addition, there were favourable foreign currency translation gains of $51 million after tax during the year that originated from the revaluation of deferred taxes, and other net monetary liabilities mostly in Canada and in Australia. In 2000, the results included a net non-operating charge of $3 million, after tax. This included mainly non-cash merger related charges of $25 million, rationalization charges of $30 million for the closure of Rogerstone Foil operations in the United Kingdom (U.K.) and of the village of Kemano, B.C. in Canada, offset by favourable prior years' tax adjustments of $57 million in Canada and in Germany. In 1999, the results included a net non-operating gain of $88 million, after tax. It included gains on business disposals of $90 million, as well as a favourable tax adjustment of $31 million in Canada. These were offset in part by rationalization costs of $33 million. 23 [GRAPH] ECONOMIC VALUE ADDED (EVA) Excluding purchase accounting adjustments
millions of US$ US$/t 99 00 01 EVA -111 153 8 LME three-month price 1,388 1,567 1,454
EVA declined during 2001, reflecting a deterioration in economic conditions. Economic Value Added (EVA) was $468 million negative in 2001, including the purchase accounting adjustments related to the algroup merger*. Excluding the purchase accounting adjustments to allow for a more meaningful comparison with prior years, EVA was $8 million positive in 2001. This compares to a positive $153 million in 2000 and a negative $111 million in 1999. The decrease in 2001 over 2000 was due in large part to the impact of lower metal prices and difficult economic conditions. The improvement in 2000 over 1999 was largely due to higher metal prices and to the progress made towards the Company's FBP program. In light of challenging economic conditions in 2001, Alcan implemented a restructuring program aimed at safeguarding its competitiveness. This initiative is expected to have a positive impact of approximately $200 million on annual pre-tax earnings once fully implemented. The savings accruing in 2002 are estimated at $175 million. The measures being undertaken will result in a reduction of about 6% of the workforce, as well as some business consolidations. All of the business sectors are impacted and include locations in Europe, particularly the U.K. and Italy, in North and South America, and in Asia. Also in the fourth quarter of 2001, Alcan recorded an impairment provision of $88 million on an after-tax basis in relation to certain assets and capitalized project costs. The largest single charge, at $28 million, relates to the specialty chemicals business in Europe where, in view of challenging market dynamics and a disadvantaged cost position, the Company has decided to exit the business and is proceeding to sell it. The Company also recorded an after-tax charge of $167 million to increase its environmental reserves, mostly in relation to the spent potlining (SPL) material stored near its smelter facilities in Canada, and to the red mud disposal sites at its refineries in Canada and in the U.K. Following various technical studies to identify the best alternative to stockpiling SPL, the Company intends to initiate a treatment program. The liability recorded represents the Company's best estimate of the cost to eliminate the stored SPL over the next several years. With respect to the red mud disposal sites, the Company believes that it has become likely that they will have to be remediated at some point in the future. The charge recorded in 2001 represents the Company's best estimate of the cost of rehabilitation. In 2001, Alcan adopted a new governing objective, to maximize shareholder value. This represents the logical extension to the previous objective of creating value. In order to achieve this objective, the Company has set up a comprehensive Maximizing Value initiative that will provide the framework and methodology for significantly increasing the value of the Company. REVENUES
2001 2000 1999 ------ ----- ----- Sales and operating revenues (millions of US$) 12,626 9,148 7,324 Total aluminum volume(1) (kt) 4,253 3,509 3,085 Average sales price realizations (US$/t) Ingot products 1,581 1,667 1,511 Rolled products 2,385 2,455 2,209 ====== ====== ======
(1) Includes shipments of ingot products and rolled products, as well as aluminum used in engineered products and packaging. Sales and operating revenues increased by 38% in 2001 to $12.6 billion, and by 72% relative to 1999. The increase in 2001 was attributable mainly to the inclusion of the former algroup results for the full year. Realizations for both ingot products and rolled products declined as compared to 2000, and volumes were impacted by the slowdown in the level of economic activity, particularly in North America and in Europe. * Goodwill and asset revaluation, as well as related depreciation and amortization. 24 COSTS AND EXPENSES Cost of sales and operating expenses increased by 41% in 2001, slightly higher than the increase in sales and operating revenues. The increase was primarily due to the inclusion of algroup for the full year, the increased volume of ingot purchases for the year, and to increased start-up and pre-operating expenses related to the new smelter in Alma, Quebec ($140 million in 2001 as compared to $73 million in 2000). As a percentage of sales and operating revenues, cost of sales and operating expenses slightly increased to 79%, compared to 78% in the two previous years.
(kt) 2001 2000 1999 - ---- ----- ----- ----- Purchases of aluminum Primary and secondary ingot 1,215 1,033 714 Scrap 558 572 538 Fabricated products 49 65 45 ----- ----- ----- 1,822 1,670 1,297 ===== ===== =====
Purchases of primary ingot increased in 2001 mainly as a result of the metal trading activity of the former algroup, which was included only since the fourth quarter of 2000. Depreciation expense was $820 million compared to $545 million in the previous year and $477 million in 1999. This increase reflected depreciation on the algroup assets, the Alma smelter, which reached its full capacity at the end of September 2001, the two rolling mills in Korea acquired in late 1999 and early 2000, and the major expansion of the Pindamonhangaba (Pinda) rolling mill in Brazil, which was completed in late 1999. These increases are offset in part by the impact of the sale of operations in Jamaica in May 2001. Selling, administrative and general expenses, at $547 million, increased by 35% from the 2000 level of $405 million, with 2000 having increased by 8% compared to 1999. The increase in 2001 was due principally to the algroup merger. Expressed as a percentage of sales and operating revenues, these expenses fell to 4.3%, representing a 2% improvement over 2000 and a 15% improvement compared to 1999. Research and development expenses were $135 million for 2001 compared to $81 million and $67 million in 2000 and 1999, respectively. Most of the increase is due to the integration of algroup and its significant research and development in the engineered products and packaging sectors. Alcan's research and development activities are closely aligned with the needs of its core businesses, principally bauxite and alumina, smelting, fabrication, and packaging. The Company continues to maintain a strong effort in developing sheet applications and technology for the automotive industry and is working closely with a number of automotive companies in this regard. Other expenses (net of other income) were $110 million compared to $43 million in 2000 and net other income of $52 million in 1999. In 2001, other expenses (net of other income) included a $123-million loss on the disposal of the Jamaican operations. The 2000 figure included rationalization costs of $45 million as well as a non-recurring environmental provision of $14 million. Included in 1999 were business disposal gains of $110 million, net of rationalization costs of $55 million. INTEREST COSTS
(millions of US$) 2001 2000 1999 - ----------------- ---- ---- ---- Interest expense 254 78 76 Interest capitalized 30 81 41 ---- ---- ---- Total interest costs 284 159 117 Effective average interest rate (%) 6.1 7.1 6.9 ==== ==== ====
Total interest costs rose to $284 million in 2001 due to the inclusion of algroup debt for a full year, and to the debt incurred to finance capital expenditures. In 2001, $30 million of interest was capitalized, compared to $81 million and $41 million in 2000 and 1999, respectively, relating mainly to the construction of the new smelter in Alma, Quebec. The effective average interest rate decreased substantially in 2001 reflecting lower short-term interest rates. The Company does not expect to capitalize interest in 2002. The pre-tax interest expense coverage ratio, excluding special items, was 3.6 times in 2001, compared to 6.0 times in 2000 and 5.5 times in 1999. 25 INCOME TAXES Income taxes of $42 million for 2001 represented an effective tax rate of 40%, compared to 29% in 2000 and 31% in 1999. This compares to a composite statutory tax rate of 40% in Canada. In 2001, the income tax provision included a non-cash gain of $26 million on the currency revaluation of deferred tax balances due to the weaker Canadian dollar during the year. This was offset by the impact of potential future tax benefits that were not recognized since their realization is not likely. In 2000, the difference between the statutory and the effective tax rate was due primarily to prior years' tax adjustments, investment and other allowances, the impact of reduced tax rates on accumulated deferred income taxes and a non-cash gain of $18 million on the currency revaluation of deferred tax balances. In 1999, the difference in the rates was due primarily to prior years' tax adjustments, reduced rate or tax exempt items, and investment and other allowances partially offset by a loss of $26 million for currency revaluation of deferred taxes. [GRAPH:] COSTS AND EXPENSES
millions of US$ 97 98 99 00 01 Cost of sales and operating expenses 6005 6076 5695 7113 9999 Research and development expenses 72 70 67 81 135 Depreciation and amortization 444 448 375 405 547 Interest 101 92 76 78 254 Selling, administrative and general expenses 436 462 477 545 820 7,058 7,148 6,690 8,222 11,755
Despite a 7% drop in average LME prices during the year, cost of sales and operating expenses, as a percentage of sales and operating revenues, remained fairly stable at 79%, compared to 78% in the two prior years. OPERATING SEGMENT REVIEW The following information is reported by major operating segment, viewing each segment on a stand-alone basis. Transactions between segments are conducted on an arm's-length basis and reflect market prices. Thus, earnings from primary metal operations include profit on metal produced by the Company, whether sold to third parties or used in the Company's fabricating and packaging operations. Earnings from the fabricated products and packaging operations represent only the fabricating profit from rolled products, engineered products and packaging products. Following the merger with algroup in 2000, the operations were reorganized to create four operating segments. In addition to EVA, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is a key financial performance measure for the operating segments. Additional operating segment information is presented in note 25 to the financial statements. In 2002, the Company will be composed of six major operating segments: Bauxite, Alumina and Specialty Chemicals; Primary Metal; Rolled Products Americas and Asia; Rolled Products Europe; Engineered Products; and Packaging. This results from a restructuring that was announced in November 2001, in order to substantially raise Alcan's performance, strive to move closer to its markets and improve the Company's responsiveness. PRIMARY METAL
(millions of US$) 2001 2000 1999 - ----------------- ----- ----- ----- Sales and operating revenues Third parties 3,000 2,123 1,689 Intersegment 2,136 1,667 1,317 EBITDA 1,117 994 557 ===== ===== =====
The primary metal segment includes the Company's bauxite, alumina and specialty chemicals operations, the primary aluminum facilities, as well as the trading operations for alumina and aluminum. EBITDA from this segment increased 12% from the 2000 level reflecting the positive impact from the inclusion of algroup's operations for a full year in 2001, and the synergies derived from the merger. The benefits obtained from the additional 26 production at the Alma smelter and the ongoing FBP cost reduction programs were partially offset by lower realizations for alumina and aluminum products, lower production due to cutbacks in response to water shortages in Canada and in Brazil, and the increased costs associated with the start-up of the Alma smelter. In 2000, primary metal segment EBITDA increased compared to 1999 reflecting higher realized prices for alumina and aluminum, the positive impact from continued progress under the FBP program, and the inclusion of algroup's operations for the fourth quarter. BAUXITE, ALUMINA AND SPECIALTY CHEMICALS
(millions of US$) 2001 2000 1999 - ----------------- ----- ----- ----- Sales and operating revenues Third parties 477 470 413 Intersegment 771 536 479 EBITDA 301 265 118 ----- ----- ----- Alumina shipments -- third parties(1) (kt) 1,967 975 1,153 Production (kt) Alumina hydrate 4,625 3,941 3,991 ===== ===== =====
(1) Including shipments resulting from trading activities. Bauxite, alumina and specialty chemicals EBITDA increased 14% compared to the prior year reflecting substantial cost reductions achieved throughout its operations. Operating performance includes the addition of the Gove, Australia, refinery for the full year (compared to only one quarter in the prior year) and the divestment of the Company's operations in Jamaica in May 2001. EBITDA increased 125% in 2000 compared to 1999 due to higher realized prices for alumina and bauxite as well as the addition of algroup's Gove bauxite and alumina operation for the fourth quarter. Average realized prices for alumina, which are largely linked to metal prices, decreased in 2001 as LME metal prices were 7% lower than in 2000. During 2001, spot prices for alumina also fell significantly from $425/t in mid-year 2000 to the current price of approximately $135/t, following smelter cutbacks in the U.S. Pacific Northwest, in Brazil and in Canada. BAUXITE AND ALUMINA Alumina hydrate production was 4.6 Mt in 2001, a 17% increase over 2000. A new production record was reached at the Gove refinery. Production costs decreased by 5% in 2001 compared to 2000, also setting a new record. Cost reductions resulted from merger and divestment activities, ongoing cost reduction efforts, synergies from the algroup merger and improved productivity. The $105-million modernization program announced in December 1998 for the Company's alumina refinery in Jonquiere, Quebec, is nearing completion on schedule and within budget. The start-up has begun in many areas and is expected to reduce costs at the refinery by $22/t in 2002. The project will result in higher productivity, improved process efficiencies and better working conditions. In the first quarter of 2001, the Company acquired the remaining 30% of the Gove alumina refinery and related bauxite mine at a cost of $379 million, subject to certain post-closing adjustments. As a result of this transaction, the Company now owns 100% of these assets. The refinery has a total annual capacity of 1.8 Mt of low-cost alumina. This investment will enable the Company to further reduce its average alumina cost, while giving it access to all of Gove's significant low-cost expansion potential. On May 31, 2001, the Company completed the sale of its operations in Jamaica. SPECIALTY CHEMICALS Operating results for 2001 were 35% lower than in 2000. While the European business underwent a major restructuring, which resulted in a more streamlined organization and improved process efficiencies, worldwide operations were adversely impacted by the economic slowdown resulting in lower shipments and prices. In 2001, the Company recorded an impairment charge of $40 million on a pre-tax basis for its operations in Burntisland, in the U.K. On January 22, 2002, Alcan announced its intention to sell this European business. 27 PRIMARY ALUMINUM
(millions of US$) 2001 2000 1999 - ----------------- ----- ----- ----- Sales and operating revenues Third parties 2,523 1,653 1,276 Intersegment 2,132 1,674 1,312 EBITDA 816 729 439 ----- ----- ----- Shipments(1) (kt) Third parties 1,194 758 649 Intersegment 1,217 932 892 Production of primary aluminum (kt) 2,042 1,562 1,518 ===== ===== =====
(1) Shipments of primary aluminum, including those resulting from metal trading activities. Primary aluminum EBITDA increased by 12% in 2001, reaching $816 million compared to $729 million in 2000 and $439 million in 1999. The main factors contributing to the increase were the addition of the former algroup's primary aluminum business for a full year, the additional volume from the Alma smelter, the benefits arising from lower operating costs, as well as the initial merger synergy savings. These positive elements were partially offset by lower ingot realizations, lower production at the smelters in Kitimat, B.C., Canada, and in Brazil due to energy shortages, as well as increased start-up costs for the new Alma smelter ($140 million in 2001 compared to $73 million in 2000). In the fourth quarter of 2001, additional initiatives were launched to significantly improve profitability in 2002. In 2000, EBITDA was substantially higher than in 1999, due to improved ingot product realizations on third-party sales, which were 10% higher compared to 1999, the addition of the former algroup's primary aluminum business for the fourth quarter, and the FBP program improvements. Early in 2001, rising energy costs triggered additional closures of smelter production in the U.S. Pacific Northwest. Shortages of energy in Brazil and in northern B.C., Canada, required cutbacks in production in these areas as well. Because of energy related issues, LME prices remained higher than might have been expected in a slowing world economy. The average realized price on third-party sales of primary ingot was $1,614/t in 2001 compared to $1,747/t in 2000 and $1,569/t in 1999. Primary aluminum production increased by 31% in 2001 to 2,042 kt. Nine of the Company's fourteen smelters, excluding the new smelter in Alma, Quebec, achieved all-time record production in 2001. The positive contribution to production relating to the algroup merger and the commissioning of Alma more than offset the loss of production in B.C. and in Brazil. The Alma smelter, with an annual capacity of 400 kt, became fully operational on September 30, 2001, producing approximately 270 kt during the year. The horizontal casters and the rod mill have been commissioned and ramp-up to full capacity in the casting area is underway. Alma is one of the lowest-cost smelters in the world and has low-cost expansion capability of a further 133 kt/y. Alcan's average cost of production of primary aluminum, including alumina at market prices, was $1,214/t in 2001 compared to $1,233/t in 2000 and $1,184/t in 1999. Lower operating costs, resulting from FBP initiatives and favourable exchange rates, more than offset the higher cost of raw materials and energy prices, which increased for the second year in a row. The total metal production cost excludes special charges of $111/t in 2001 compared to $97/t in 2000 and $75/t in 1999. The increase in special charges in 2001 was attributable mainly to Alma pre-operating and start-up expenses, and to excess costs related to the Kitimat production cutback due to water shortages. Almost all smelter production is in value-added form, such as sheet ingot, extrusion billet and foundry ingot, which costs more to produce than the remelt ingot sold on the LME. Despite the effect of the weakening U.S. economy throughout 2001, Alcan achieved record sales for value-added ingots, enabled principally by production increases at Alma, Quebec, and Sebree, Kentucky in the U.S. The Company's project to expand Sebree's billet capacity by 65 kt/y is underway and will be operational in early 2002. 28 A $66-million expansion project in the smelter at Soeral, Norway, was approved in 2001, extending each of the two potrooms by 40 pots, representing 33 kt/y of additional capacity. The project is currently ahead of schedule and is expected to be completed by September 2002. Alcan has a 50% share in Soeral. A project to build the Candonga hydropower plant, with a total installed capacity of 140 megawatts, on the Doce River in Brazil was approved in 2001. Alcan participates equally in this project with CVRD (Companhia Vale do Rio Doce). Construction began in July and the project is expected to last three years, with the first turbine in operation by November 2003. Alcan's share of the project cost is estimated at $48 million. On February 8, 2002, the Company announced that it had concluded an agreement to purchase a 20% interest in the 243,000-tonne Aluminerie Alouette smelter located in Sept-Iles, Quebec, Canada, at a cost of approximately $165 million from the Societe generale de financement du Quebec. The transaction is subject to the approval of the Aluminerie Alouette owners in accordance with the requirements of the consortium agreement as well as applicable regulatory approvals and the completion of due diligence and corresponding final approval by the Company's Board of Directors. The transaction is expected to be completed on or about April 30, 2002. FABRICATED PRODUCTS -- AMERICAS AND ASIA
(millions of US$) 2001 2000(1) 1999(1) - ----------------- ---- ----- ----- Sales and operating revenues Third parties 3,816 3,929 3,402 Intersegment 173 82 80 EBITDA 325 296 349 ----- ----- ----- Total aluminum volume2 (kt) 1,679 1,648 1,481 ===== ===== =====
(1) Includes Engineered Cast Products (ECP), which in 2001 is included in Fabricated Products -- Europe. (2) Includes shipments of rolled products, conversion of customer-owned metal and aluminum used in engineered products. Fabricated Products -- Americas and Asia focuses on providing high-quality sheet and light-gauge rolled products as well as rod, cable and wire, serving markets ranging from containers and packaging, building and construction, industrial, electrical, automotive and other transportation sectors. In 2001, EBITDA improved to $325 million. This was due mainly to higher can sheet sales volume in South America and the continued implementation of significant cost reduction initiatives throughout this business segment. The decline in 2000 was attributable mainly to a squeeze in profit margins in North America and Asia, offset in part by an improvement in South America. Highlights for 2001 also include record level shipments for this business segment. This achievement was led by a 20% increase in shipment volumes in South America, where Alcan is the sole regional can sheet producer. Growth in can demand also resulted in higher sales volumes through the Company's Asian assets as it benefited from a full year of production from both of the Korean rolling mills located in Ulsan and Yeongju. In North America, Alcan also experienced market share gains in 2001 in its industrial products and cable sectors and increased shipments in automotive sheet and light-gauge rolled products. [GRAPH:] TOTAL ALUMINUM VOLUME* AND PURCHASES * Includes ingot and rolled products shipments, conversion of customer-owned metal as well as aluminum used in engineered products and packaging.
kt 97 98 99 00 01 Total aluminum volume 2,828 2,941 3,085 3,509 4,253 Total purchases 1,254 1,227 1,297 1,670 1,822
As the increase in total aluminum volume exceeded the increase in primary aluminum production, total purchases increased during 2001 by 152 kt. 29 ROLLED PRODUCTS
2001 2000 1999 ----- ----- ----- Shipments (kt) 1,286 1,269 1,096 Conversion of customer-owned metal (kt) 236 218 218 Total aluminum volume (kt) 1,522 1,487 1,314 ----- ----- ----- EBITDA (millions of US$) 296 261 307 Average price realizations1 (US$/t) 2,359 2,401 2,239 ===== ===== =====
(1) Excluding conversion of customer-owned metal. EBITDA from rolled products was $296 million in 2001, compared to $261 million in 2000 and $307 million in 1999. The improvement in 2001, mainly due to the can sheet volume increase in South America and significant cost reduction initiatives, was partially offset by higher energy prices, the unfavourable impact due to the time lag in fully passing higher raw material prices to customers, as well as losses associated with the integration and start-up of the Korean operations. As compared to 1999, although shipments and price realizations were higher in 2000, this was not sufficient to offset higher energy prices, the unfavourable impact due to the time lag in fully passing higher aluminum prices to customers, as well as losses from the Korean operations. Alcan continued to solidify its leadership position in the rolled products' markets in North and South America. With a capacity expansion and modernization in Brazil and through its acquisitions in Korea, Alcan established a platform for profitable growth in both South American and Asian markets. As evidence of its global leadership position, Alcan is the only producer with operations in North America, South America, Asia and Europe capable of regional production to serve the highly technical can sheet market. In 2001, the rolled products business within the Americas and Asia achieved record shipment levels amid declining market conditions and increased competition across all product lines. Alcan's North American can sheet shipments continued to represent the major portion of the rolled products volume. Although this market declined slightly in 2001 as compared to 2000, Alcan continued to focus on differentiating quality and service to its customers along with new product initiatives. Industrial products markets were lower by approximately 25%. However, Alcan was able to grow its market share in this environment, primarily through increased sales in the distribution sector. Alcan now has an enviable supply position with this important sector and has been able to expand its product offering as a result of the algroup merger. Light gauge was also able to expand its product offering with the introduction of several new products in 2001. Alcan's North American automotive sheet sales also rose in 2001 compared to 2000. Shipments were strong as North American automotive demand increased in response to financing incentives offered by the automakers in an effort to boost vehicle sales. Although shipment volume levels to this market are minor portions of the Company's overall shipments, it remains a strong growth market for Alcan. In South America, Alcan achieved record sales levels through its Brazilian operations. Shipments of rolled products in the region grew by 20% in 2001 compared to 2000, as the Company's expanded and modernized rolling mill in Pinda enjoyed its second full year of production. Alcan is currently the only company capable of producing can sheet in South America and is, therefore, well positioned to benefit from the rapid demand growth currently being experienced in this region of the world. In Asia, shipments of rolled products increased by 13% as compared to 2000, in spite of severely depressed markets throughout the region. This increase was due primarily to the first full year of production at the Ulsan, Korea, rolling mill that was acquired in May 2000. 30 RECYCLING ACTIVITIES As a world leader in recycling, Alcan's aluminum can recycling operations in the U.S. recycled 22.3 billion used beverage cans (UBCs) at its facilities in Oswego, New York; Berea, Kentucky; and Greensboro, Georgia. This represents an estimated 40% of the aluminum beverage cans recycled in the U.S. in 2001. At Berea, already the largest UBC recycling facility in the world, production increased by nearly 20% as a result of improved manufacturing efficiencies. Manufacturing modifications were also made to the Greensboro facility, expanding its recycling capabilities. In South America, Alcan has a state-of-the-art recycling operation at its rolling mill in Pinda, Brazil. The Company recycles and processes 29% of all of the aluminum cans recycled in Brazil, and along with metal received from a third-party recycler, utilizes 50% of the UBCs recycled in that country to produce can stock. As such, it is well positioned to keep pace with the increase in recycling activities as the significant growth in demand for beverage cans continues in South America. ENGINEERED PRODUCTS
2001 2000(1) 1999(1) ---- ----- ----- Aluminum used in engineered products (kt) 157 161 167 Sales and operating revenues (millions of US$) 501 538 494 EBITDA (millions of US$) 29 35 42 === === ===
(1) Includes Engineered Cast Products (ECP), which in 2001 is included in Fabricated Products - Europe. Engineered products is comprised mainly of Alcan's North American cable business, where EBITDA declined in 2001 compared to 2000, mainly as a result of weakening prices. North American cable markets were affected by the economic downturn that exacerbated an already competitive marketplace. These factors notwithstanding, shipments of cable products in 2001 remained fairly consistent with 2000 levels, as Alcan was able to gain market share in key product segments and, therefore, is well positioned for 2002. FABRICATED PRODUCTS -- EUROPE
(millions of US$) 2001(1) 2000 1999 - ----------------- ----- ----- ----- Sales and operating revenues Third parties 2,919 1,854 1,524 Intersegment 231 289 268 EBITDA 159 164 144 ----- ----- ----- Total aluminum volume2 (kt) 852 712 620 ===== ===== =====
(1) Includes Engineered Cast Products (ECP), which was included in Fabricated Products -- Americas and Asia in 2000 and 1999. (2) Includes shipments of rolled products, conversion of customer-owned metal and aluminum used in engineered products. Alcan has a leading position and a significant presence in rolled and engineered products serving the packaging, mass transportation, automotive, building, display, facades and other industrial markets. Sales increased by 57% to $2.9 billion due to the inclusion of algroup's results for the full year. However, EBITDA slightly decreased from $164 million to $159 million largely due to the economic downturn in the second half of 2001. The increase in EBITDA in 2000 compared to 1999 resulted mainly from the inclusion of algroup's operations in the fourth quarter of 2000. ROLLED PRODUCTS
2001 2000 1999 ---- ---- ---- Shipments (kt) 651 586 513 Conversion of customer-owned metal (kt) 108 110 97 Total aluminum volume (kt) 759 696 610 ----- ----- ----- EBITDA (millions of US$) 83 144 142 Average price realizations1 (US$/t) 2,448 2,571 2,145 ===== ===== =====
(1) Excluding conversion of customer-owned metal. EBITDA fell from $144 million in 2000 to $83 million in 2001, due mainly to the economic downturn in the second half of the year. The strength of the pound sterling against other European currencies continued to have a negative impact on the U.K.-based operations. Restructuring plans and cost reduction initiatives were launched in response to market conditions and to improve Alcan's longer term competitive position. EBITDA was higher in 2000 compared to 1999, with an increase in shipment volumes and price realizations offset mainly by the strength of the pound sterling against other European currencies. 31 Rolled products volume in Europe increased by 9% compared to 2000, mainly due to the addition of algroup's operations for a full year. Market conditions for surface finished products were poor particularly in the building sector. The distribution market was also very weak, with sales dropping by 8%, following weak end-user demand and customer de-stocking. The industrial plate market was strong in the first half but deteriorated in the second half of the year, for an overall decline of 3% as compared to 2000. The European beverage can market grew by 5.9%, while aluminum sales in this market grew by 8.7% with good growth in Eastern Europe. The Company's sales increased by 13% compared to 2000, achieving record levels. Alcan's lithographic sheet sales were at 2000 levels despite the market falling by 4%, due mainly to the decline of advertising print demand in the second half of the year. Demand for aluminum automotive sheet continues to be strong. The Company's sales were 10% higher than last year, which was the previous best. The $35-million continuous casting project in Pieve, Italy, was fully commissioned and operational in early 2001. The investment is improving customer service, working capital and cost efficiency in the surface finished products sector. Following the merger with algroup, Alcan completed the undertakings required by the European Commission, which for rolled products in Europe was the divestment of the lithographic sheet business at Bridgnorth in the U.K. ENGINEERED PRODUCTS
2001(1) 2000 1999 ----- ---- ---- Aluminum used in engineered products (kt) 93 16 10 Sales and operating revenues (millions of US$) 1,183 188 58 EBITDA (millions of US$) 76 20 2 ===== === ==
(1) Includes Engineered Cast Products (ECP), which was included in Fabricated Products - Americas and Asia in 2000 and 1999. EBITDA increased from $20 million to $76 million in 2001, which was mainly due to the inclusion of algroup for the full year but also helped by good growth in the first half of the year and the weakness of the euro. Most of the 2000 increase, as compared to 1999, was due to the addition of algroup's operations for the fourth quarter. Overall car production in Europe increased by 1% but fell by around 1% in North America. A number of new models utilizing aluminum parts were launched in 2001, which contributed to the continued increased market share for aluminum. Sales of the Company's structural parts, including bumper systems, extrusions and high-pressure die cast structural parts, continued to grow. Alcan's mass transportation systems showed a sharp increase of orders in 2001, and the sales volume reached a record level. This positive result is due to the strong growth of the number of new projects in the public transportation sector, mainly involving new high-speed trains, metro trams and light-rail systems. The use of composites in transport and industrial applications continued to grow, particularly in the wind-power generation market, where the Company is a leading supplier. Following the economic downturn, the display sector deteriorated, particularly in the U.S. The volume of Alcan's extrusions, mainly destined for specialist sectors, declined by 2%, slightly outperforming the European market trend. 32 PACKAGING
2001 2000 1999 ---- ---- ---- Aluminum used in packaging (kt) 303 175 125 Sales and operating revenues (millions of US$) 2,861 1,216 681 EBITDA (millions of US$) 352 73 43 ===== ===== ===
Alcan's packaging segment is focused on serving specific end-use markets: food, pharmaceutical, tobacco, cosmetics and some technical applications. It is one of the world's largest businesses in its field. Sales revenues from packaging businesses increased by 135% compared to the year earlier. EBITDA for 2001 was $352 million, which represents an increase of 382% over 2000. The most significant factor in these increases was the full year effect on results of the merger of the Alcan and algroup businesses. Margins for the segment as a whole have improved despite intense price pressures in many of the markets and the general decline in the global economy during the year. The main factors contributing to an EBITDA increase since the merger have been a continued focus on a low-cost, high-service business model. Alcan has also reinforced its dedicated plant concept in the two new tobacco carton operations commissioned in 2001. Integration activities, following the merger with algroup in October 2000, have benefited all areas of the business and are proceeding ahead of schedule. For example, significant progress has been made on restructuring the European foil business, product re-routings, technology transfer and savings in information technology costs. As required by the European Commission, Alcan has disposed of part of its European smooth-wall container capacity, but nevertheless this market area remains a key strategic product for its business. The food packaging businesses in Europe and in North America continued to experience margin pressures during the year. This is partly the result of declining general economic conditions, but is also impacted by a consolidating customer base, increasing the pressure on suppliers through centralized purchasing. Nevertheless, Alcan is well positioned in this market and is committed to improving its position through innovation, a continual focus on cost reductions throughout the business, and investment in value maximizing opportunities. To address the margin pressure, Alcan has stepped up its industrial optimization process by dedicating plants and processes, realigning operations and by investing in the most modern equipment to reduce costs. The majority of new capital is directed towards replacement and upgrades rather than increasing capacity. Pharmaceutical markets continued to grow at greater rates than most other packaging end-uses. This market has shown itself to be more resilient to fluctuation in general economic conditions, as consumers do not generally regard the products as discretionary purchases. Alcan's global orientation and strong reputation for quality and consistency are invaluable tools in growing this market further in the future. To the markets of cosmetics and personal care, Alcan supplies a wide range of products including plastic bottles, aluminum aerosol cans, glass tubing, folding cartons, flexible packaging, contract packaging, caps and closures. Following a strong start to the year, market demand declined as the year progressed, in line with the weaker global environment. However, parts of the business successfully grew ahead of market rates, as Alcan gained benefits from rapid concept-to-market capabilities and global presence. As expected, there was no significant growth in the world tobacco market in 2001. Also, legislative changes have affected European volumes due to the resulting de-stocking by major tobacco companies. Despite these conditions, Alcan has increased sales of tobacco cartons by 8% as it demonstrates its commitment to make the necessary investments to support customer needs. In the fourth quarter of 2001, Alcan commissioned two new tobacco carton facilities in Richmond, Virginia in the U.S., and in Almaty, Kazakhstan. 33 Alcan announced the sale of the Pharmatech business (stoppers and seals) in December, as well as the planned sale of the molded glass operations. These businesses are in areas in which Alcan has been disadvantaged from a competitive position and which did not offer value creation opportunities within its portfolio. Construction began on a new contract packaging and specialty carton operation in Pennsylvania in the U.S., which is expected to be commissioned early in 2002. This will build on the strong position that has been established through the success of Alcan's two existing operations in this field in North America. Alcan's packaging revenues(1) can be broken down as follows:
BY MARKET % Food 43 Pharmaceutical 18 Tobacco 12 Cosmetics 8 Other 19 ---- 100%
BY TYPE OF INPUT % Plastic and paper 41 Aluminum 40 Paperboard 9 Glass 8 Steel 2 ---- 100%
BY REGION % Europe 56 North America 36 South America 4 Asia 4 ---- 100%
(1) Based on 2000 data. GEOGRAPHIC REVIEW
Net income (millions of US$) 2001(1) 2001 2000 1999 - ---------------------------- ----- ---- ---- ---- Canada 146 (54) 295 111 United States 160 137 155 178 Brazil 31 29 34 5 United Kingdom 24 (139) 10 18 Germany 16 19 43 30 Switzerland (3) (14) 1 3 Other Europe 38 (4) 25 13 Australia 88 87 59 36 Asia (26) (30) (22) 46 Other 64 (26) 18 20 --- --- --- --- Net income 538 5 618 460 === === === ===
(1) Adjusted to remove the non-recurring charges of $533 million. The review is based on 2001 adjusted for the removal of the non-recurring charges of $533 million. In Canada, the decrease in net income as compared to the previous year was mainly due to lower aluminum prices, higher interest costs, the absence of favourable tax adjustments recorded in 2000, and higher Alma pre-operating and start-up expenses, partially offset by the favourable impact on costs of the lower Canadian dollar and the absence of rationalization costs incurred in 2000. The 2000 increase in net income compared to 1999 resulted mainly from higher aluminum prices, favourable tax adjustments and lower rationalization costs. In the U.S., net income was slightly higher than in 2000 due principally to the inclusion of algroup's packaging operations for the whole year. Also, the results for 2000 included a non-recurring environmental charge. Net income for 2000 was lower than in 1999 due mainly to higher energy costs, the time lag in passing metal prices to customers, lower shipments, a non-recurring environmental provision and a less favourable sales product mix, partially offset by higher earnings from smelting. In Brazil, net income was slightly lower than in 2000 due to lower ingot realizations, partially offset by higher rolled product shipments. Compared to 1999, the improvement in net income for 2000 was attributable mainly to higher rolled product shipments and lower production costs. 34 In the U.K., the increase in net income for 2001 was due primarily to the absence of rationalization charges of $18 million associated with the closure of the foil operations at Rogerstone that were recorded in 2000, increased earnings from smelting because of higher production resulting from the restart of idled capacity at the Lynemouth smelter and the inclusion of algroup's packaging operations for the full year. These favourable elements were offset in part by lower earnings from the rolled products business and the continued negative impact of the strength of the pound sterling against other European currencies. The decline in net income in 2000 as compared to 1999 was due mainly to rationalization charges and the strength of the pound sterling, offset partly by higher ingot realizations and the restart of idled capacity at the Lynemouth smelter during the year. In Germany, the decrease in net income for 2001 was caused mainly by lower earnings from the rolled products operations resulting from the economic downturn in the second half of the year and 2000 including a favourable income tax adjustment. Partly offsetting these factors were higher earnings from packaging due to the inclusion of algroup's packaging operations for the whole year. Net income for 2000 was higher than in 1999 due in most part to a favourable tax adjustment. Other Europe is comprised principally of rolled products and packaging operations in Italy, anodes operations in the Netherlands and smelters in Iceland and in Norway. Net income was higher in 2001 mainly due to the inclusion of algroup's operations for the whole year, offset partly by weaker results at the rolled products operations in Italy. In Australia, net income for 2001 was higher than in 2000 due to the inclusion of the Gove bauxite and alumina operations for the full year. Net income for 2000 was higher than in 1999 due mainly to higher alumina prices, the addition of Gove in the fourth quarter and lower bauxite costs arising from the agreement with Comalco. In Asia, the loss for 2001, incurred mostly by the rolled products operations in Korea, was little changed from 2000. The decline in 2000 net income compared to 1999 resulted primarily from the absence of a $37-million gain on disposal of shares in Nippon Light Metal Company, Ltd. (NLM) recorded in 1999 and from the losses in Korea. Activities in other areas include bauxite mining operations in Guinea and Ghana, and trading, shipping and insurance activities in Bermuda. The bauxite and alumina operations in Jamaica were sold in May 2001. "Other" also includes the deferral or realization of profits on intersegment sales of aluminum. The increase in net income for 2001 was mainly due to the realization of previously deferred profits, as aluminum prices and inventories declined during the year. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Cash generation, calculated by taking the net income for the year and adding back depreciation, amortization and deferred income taxes, was $746 million compared to $1.2 billion in 2000 and $1 billion in 1999. The decline in 2001 mainly reflected lower net income as a result of non-recurring cash charges and decreased metal prices, and was partially offset by the inclusion of algroup's results for a full year. The improvement in 2000 as compared to 1999 was due to higher metal prices and the inclusion of algroup for the fourth quarter. Net operating working capital decreased by $139 million in 2001 compared to an increase of $223 million in 2000 and a decline of $239 million in 1999. The decrease in 2001 is due to reductions in receivables and inventories (29 kt) reflecting an ongoing focus on working capital management, offset partly by a decrease in payables. The increase in 2000 was due mainly to a refinancing of trade payables by short-term borrowings in Korea, as well as a decrease in payables related to the Alma smelter in Quebec. 35 INVESTMENT ACTIVITIES Capital investment in the year was $1.5 billion, as compared to $1.7 billion and $1.3 billion in 2000 and 1999, respectively. Capital investments in 2001 included about $250 million related to the Alma smelter project, as compared to about $850 million in 2000 and $660 million in 1999. Now that major investments are completed, including the Alma smelter and the expansion at the Pinda rolling mill, the Company's objective is to incur a level of capital expenditures below the annual depreciation expense, which is expected to be about $840 million in 2002. In the first quarter of 2001, the Company acquired the remaining 30% of the Gove alumina refinery and related bauxite mine at a cost of $379 million, subject to certain post-closing adjustments. As a result of this transaction, the Company now owns 100% of these assets. The Company realized about $224 million from asset disposals during 2001. In May, it completed the sale of its operations in Jamaica. Alcan also sold some assets in Europe as part of the divestment requirements imposed by the European Commission, as a condition to its approval of the merger between Alcan and algroup in October 2000. [GRAPH] CASH FLOWS
millions of US$ 97 98 99 00 01 Sales of assets and investments 54 221 460 184 239 Cash from operating activities 719 739 1,182 1,066 1,387 Dividends paid 149 148 148 157 202 Capital investments 641 877 1,298 1,735 1,514
Despite lower profitability, cash from operating activities increased by $321 million in 2001, reflecting a significant decrease in operating working capital. FINANCING ACTIVITIES Total debt was reduced by $517 million to $4.1 billion at the end of 2001, from $4.6 billion at the end of 2000. In January 2001, the CHF150-million 6.75% bonds were redeemed at par. The $60-million Caribbean Basin Projects Financing Authority loan was also repaid in May 2001. During 2001, the Company extended the average life of its debt through the issuance of new long-term debt. In March 2001, Alcan issued $400 million of 6.45% debentures due 2011 and $400 million of 7.25% debentures due 2031. In April 2001, the Company issued euro 600 million of 5.5% euro notes due 2006. Proceeds from these issues were used to repay commercial paper, bank debt and for general corporate purposes. On January 15, 2002, the Company redeemed all of its outstanding 8.875% $150-million debentures due on January 15, 2022. The redemption was at a price of 104.15%. A loss of approximately $6 million will be recorded in the first quarter of 2002. The redemption was financed by commercial paper borrowings. In December 2001, Alcan sold $330 million of receivables with limited recourse. Net cash proceeds of $300 million from the sale were used to repay commercial paper borrowings. The Company acts as a service agent and administers the receivables sold. During 2001, the Company did not purchase for cancellation any of its common shares. At the end of 2001, 320.9 million shares were outstanding as compared to 317.9 million at the end of 2000. To complete the acquisition of the remaining shares of algroup, the Company issued 0.7 million of its common shares. 36 [GRAPH:] TOTAL BORROWINGS AND EQUITY At year-end
millions of US$ ratio 97 98 99 00 01 Total borrowings 1,515 1,789 1,489 4,608 4,091 Equity (includes minority interests and preference shares) 5,117 5,629 5,748 9,271 8,923 Ratio of total borrowings to equity 23:77 24:76 21:79 33:67 32:68
Total borrowings declined by $517 million during 2001, resulting in an improved debt/equity ratio. The debt-to-equity ratio improved slightly to 32:68 at the end of 2001 compared to 33:67 at the end of 2000. Cash reserves totalled $119 million at the end of 2001 compared to $261 million at the end of 2000. Alcan has committed credit facilities totalling $2 billion. In addition to the balance available under these facilities, the Company's investment grade rating continues to provide Alcan with access to global capital markets through the issuance of commercial paper, debt and equity instruments. The quarterly common share dividend remained at 15 cents per common share in 2001. Total dividends paid (common and preferred) to shareholders were $200 million in 2001 compared to $155 million in 2000. The Company expects that cash generation from operations, combined with the above resources, will be more than sufficient to meet the cash requirements of operations, planned capital expenditures and dividends. In addition, the Company considers that its ability to access capital markets should provide any additional liquidity that may be required to meet unforeseen events. ENVIRONMENT, HEALTH AND SAFETY MATTERS In 2001, Alcan renewed its commitment to Environment, Health and Safety (EH&S) by producing an updated and integrated EH&S policy and instituting an EH&S Committee of the Board of Directors (replacing the previous Environment Committee). Key features of the new EH&S policy are the integration of environment with health and safety, the ongoing focus on continual improvement and positioning of EH&S as an opportunity to increase value for our stakeholders. Underlying Alcan's EH&S commitments is a clear approach to EH&S management systems, dedicated professionals, and ongoing employee involvement. Alcan is also committed to making the most of the inherent environmental value of aluminum and other materials in every stage of its products' lifecycles. Alcan believes that its existing and planned EH&S measures allow it to exceed statutory and regulatory demands while improving its competitive position and efficiency. Alcan's capital expenditures to protect the environment and improve working conditions at the smelters and other locations were $65 million in 2001. Similar expenditures for 2002 and 2003 are projected to be $85 million and $110 million, respectively. In addition, expenditures charged against income for environmental protection were $335 million in 2001, including the increase in the Company's environmental reserves for the spent potlining treatment and the red mud disposal site remediation. These reserves are expected to be spent over a period of several years. Expenditures charged against income for environmental protection are expected to be $120 million in 2002 and $110 million in 2003. 37 RISKS AND UNCERTAINTIES For further details, refer to notes 19, 20 and 21 of the financial statements. RISK MANAGEMENT As a multinational company, which is to a large degree engaged in a commodity-related business, Alcan's financial performance is heavily influenced by fluctuations in metal prices and exchange rates. In order to reduce the associated risks, the Company uses a variety of financial instruments and commodity contracts. All risk management activities are governed by clearly defined policies and management controls. Transactions in financial instruments for which there is no underlying exposure to the Company are prohibited, except for a small metal trading portfolio not exceeding 10,000 tonnes. The decision whether and when to commence a hedge, along with the duration of the hedge, can vary from period to period depending on market conditions and the relative costs of various hedging instruments. The duration of a hedge is always linked to the timing of the underlying transaction, with the connection between the two being constantly monitored to ensure effectiveness. FOREIGN CURRENCY EXCHANGE Exchange rate movements, particularly between the Canadian dollar and the U.S. dollar, have an impact on Alcan's results. For example, on an annual basis, each US$0.01 permanent change in the value of the Canadian dollar has an after-tax impact of approximately $12 million on the Company's long-term profitability. Alcan benefits from a weakening in the Canadian dollar, but, conversely, is disadvantaged if it strengthens. In 1999, the Company revised its currency risk management strategy for its ongoing Canadian dollar operating cost exposure. The Company used to hedge a portion of such ongoing Canadian dollar requirements for future periods up to a maximum of three years. This deferred the impact of changes in exchange rate, without adding value over the longer term. The Company ceased hedging these exposures, thus eliminating the cost of hedging instruments and program administration. This change in approach did not affect the Company's hedging of its Canadian dollar capital commitments for the construction of the new smelter at Alma, Quebec. Following the algroup merger, exchange movements between the euro and U.S. dollar have a greater impact on the Company's results. It is estimated, based on the current European earnings base, that each US$0.01 permanent change in the value of the euro has an annual after-tax translation impact of approximately $3 million on profitability. Alcan benefits from a strengthening of the euro, but, conversely, is disadvantaged if it weakens. The Company's deferred income tax liability in Canada and the net monetary liabilities for the operations in Canada and Australia are translated into U.S. dollars at current rates, and the resultant exchange gains or losses are included in income. A US$0.01 movement in the value of the Canadian dollar has an after-tax impact of approximately $16 million. A US$0.01 movement in the value of the Australian dollar has an after-tax impact of approximately $4 million. A decrease in the Canadian and Australian dollar represents a favourable effect, whereas an increase results in an unfavourable impact. ALUMINUM PRICES Depending on market conditions and logistical considerations, Alcan may sell primary aluminum to third parties and may purchase primary aluminum and secondary aluminum, including scrap on the open market to meet the requirements of its fabricating businesses. In addition, depending on pricing arrangements with fabricated products customers, Alcan may hedge some of its purchased metal supply in support of those sales. 38 Through the use of forward purchase and sale contracts and options, Alcan seeks to limit the impact of lower metal prices, while retaining the ability to benefit from higher prices. Alcan estimates that, on an annual basis, each $100 per tonne change in the price of aluminum has an after-tax impact of approximately $130 million on the Company's profitability. OTHER In 1997, as part of the claim settlement arrangements related to the British Columbia Government's cancellation of the Kemano Completion Project, Alcan received the right to transfer a portion of a power supply contract with BC Hydro to a third party. Alcan sold the right to supply this portion to Enron Power Marketing Inc. (EPMI), a subsidiary of Enron Corporation (Enron), for cash consideration. In order to obtain the consent of BC Hydro to this sale, Alcan was required to retain residual liability for EPMI's obligations arising from the supply contract, including in the event that EPMI became unable to perform. This contingent liability is subject to a maximum aggregate amount of $100 million, with mitigation and subrogation rights. On December 2, 2001, EPMI and Enron filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The Company is unable to estimate reasonably the amount of the contingent loss, if any, after mitigation, which might arise in respect of this matter. OUTLOOK Alcan has started providing earnings guidance in 2001. For the full year, the Company expects business conditions to be challenging for at least the first six months. Based upon a LME three-month aluminum price of approximately $1,380 per tonne, the Company expects that net income per share (excluding non-recurring items, foreign currency translation effects and goodwill amortization) would be between $1.70 and $2.10 for 2002. CAUTIONARY STATEMENT Statements made in this report that 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 securities laws, which can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "should", "estimates", "anticipates" or the negative thereof or other variations thereon. The Company cautions that, by their nature, forward-looking statements involve risk and uncertainty and that the Company's actual actions or results could differ materially from those expressed or implied in such forward-looking statements or could affect the extent to which a particular projection is realized. Important factors that could cause such differences include global supply and demand conditions for aluminum and other products, aluminum ingot prices and changes in raw materials' costs and availability, changes in the relative value of various currencies, cyclical demand and pricing within the principal markets for the Company's products, changes in government regulations, particularly those affecting environmental, health or safety compliance, economic developments, relationships with and financial and operating conditions of customers and suppliers, the effects of integrating acquired businesses and the ability to attain expected benefits and other factors within the countries in which the Company operates or sells its products and other factors relating to the Company's ongoing operations including, but not limited to, litigation, labour negotiations and fiscal regimes. 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 Canadian generally accepted accounting principles and include, where appropriate, estimates based on the best judgement of management. A reconciliation with generally accepted accounting principles in the United States is also presented. Financial and operating data elsewhere in the Annual Report are consistent with that contained in the accompanying financial statements. Alcan's policy is to maintain systems of internal accounting and administrative controls of high quality consistent with reasonable cost. Such systems are designed to provide reasonable assurance that the financial information is accurate and reliable and that Company assets are adequately accounted for and safeguarded. The Board of Directors oversees the Company's systems of internal accounting and administrative controls through its Audit Committee, which is comprised of directors who are not employees. The Audit Committee meets regularly with representatives of the shareholders' independent auditors and management, including internal audit staff, to satisfy themselves that Alcan's policy is being followed. The Audit Committee has recommended the appointment of PricewaterhouseCoopers LLP as the independent auditors, subject to approval by the shareholders. The financial statements have been reviewed by the Audit Committee and, together with the other required information in this Annual Report, approved by the Board of Directors. In addition, the financial statements have been audited by PricewaterhouseCoopers LLP, whose report is provided on the right. /s/ Travis Engen /s/ Geoffery E. Merszei - ----------------------- ----------------------- Chief Executive Officer Chief Financial Officer February 7, 2002 OECD GUIDELINES The Organization for Economic Cooperation and Development (OECD), which consists of 30 industrialized countries including Canada, has established guidelines setting out an acceptable framework of reciprocal rights and responsibilities between multinational enterprises and host governments. Alcan supports and complies with the OECD guidelines and has a Code of Conduct, which is consistent with them. AUDITORS' REPORT TO THE SHAREHOLDERS OF ALCAN INC. We have audited the consolidated balance sheets of Alcan Inc. as at December 31, 2001, 2000 and 1999 and the consolidated statements of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Canada and the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2001, 2000 and 1999 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2001 in accordance with Canadian generally accepted accounting principles. /s/ PricewaterhouseCoopers LLP Montreal, Canada - ------------------------------ February 8, 2002 Chartered Accountants 40 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (in millions of US$, except per share amounts)
Year ended December 31 2001 2000 1999 - ---------------------- ------- ------- -------- SALES AND OPERATING REVENUES $ 12,626 $ 9,148 $ 7,324 -------- -------- -------- COSTS AND EXPENSES Cost of sales and operating expenses 9,999 7,113 5,695 Depreciation and amortization (note 2) 820 545 477 Selling, administrative and general expenses 547 405 375 Research and development expenses 135 81 67 Interest 254 78 76 Restructuring, impairment and other special charges (note 7) 657 -- -- Other (income) expenses -- net (notes 7, 12 and 13) 110 43 (52) -------- -------- -------- 12,522 8,265 6,638 -------- -------- -------- Income before income taxes and other items 104 883 686 Income taxes (note 8) 42 254 211 -------- -------- -------- Income before other items 62 629 475 Equity income (loss) 3 4 (1) Minority interests 13 1 (14) -------- -------- -------- NET INCOME BEFORE AMORTIZATION OF GOODWILL $ 78 $ 634 $ 460 Amortization of goodwill (note 2) 73 16 -- -------- -------- -------- NET INCOME $ 5 $ 618 $ 460 Dividends on preference shares 8 10 9 -------- -------- -------- NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (3) $ 608 $ 451 NET INCOME PER COMMON SHARE BEFORE AMORTIZATION OF GOODWILL (BASIC AND DILUTED) $ 0.22 $ 2.50 $ 2.06 Amortization of goodwill per common share 0.23 0.05 -- ======== ======== ======== NET INCOME (LOSS) PER COMMON SHARE (BASIC AND DILUTED) (note 4) $ (0.01) $ 2.45 $ 2.06 ======== ======== ======== DIVIDENDS PER COMMON SHARE $ 0.60 $ 0.60 $ 0.60 ======== ======== ========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (in millions of US$)
Year ended December 31 2001 2000 1999 - ---------------------- ------- ------- -------- RETAINED EARNINGS - BEGINNING OF YEAR $ 4,290 $ 4,227 $ 4,078 Net income 5 618 460 ------- ------- ------- 4,295 4,845 4,538 Amount related to common shares purchased for cancellation -- 400 171 Dividends -- Common 192 145 131 -- Preference 8 10 9 ------- ------- ------- RETAINED EARNINGS - END OF YEAR (note 18) $ 4,095 $ 4,290 $ 4,227 ======= ======= =======
The accompanying notes are an integral part of the financial statements. 41 CONSOLIDATED BALANCE SHEET (in millions of US$)
December 31 2001 2000 1999 - ----------- -------- -------- -------- ASSETS CURRENT ASSETS Cash and time deposits $ 119 $ 261 $ 315 Trade receivables (net of allowances of $52 in 2001, $55 in 2000 and $31 in 1999) (notes 2 and 10) 1,216 1,721 1,019 Other receivables 532 559 280 Inventories -- Aluminum operating segments -- Aluminum 875 1,034 709 -- Raw materials 413 414 294 -- Other supplies 269 268 188 -------- -------- -------- 1,557 1,716 1,191 -- Packaging operating segment 393 399 85 -------- -------- -------- 1,950 2,115 1,276 -------- -------- -------- 3,817 4,656 2,890 -------- -------- -------- Deferred charges and other assets (note 11) 737 719 525 Property, plant and equipment (note 12) Cost (excluding Construction work in progress) 16,225 14,807 11,771 Construction work in progress 613 1,979 1,220 Accumulated depreciation (7,136) (6,753) (6,557) -------- -------- -------- 9,702 10,033 6,434 Intangible assets, net of accumulated amortization of $27 in 2001 and $5 in 2000 298 330 -- Goodwill, net of accumulated amortization of $92 in 2001 and $17 in 2000 (note 5) 2,925 2,669 -- -------- -------- -------- TOTAL ASSETS $ 17,479 $ 18,407 $ 9,849 ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Payables $ 2,328 $ 2,427 $ 1,268 Short-term borrowings 555 1,080 167 Debt maturing within one year (note 15) 652 333 311 -------- -------- -------- 3,535 3,840 1,746 -------- -------- -------- Debt not maturing within one year (notes 15 and 21) 2,884 3,195 1,011 Deferred credits and other liabilities (note 14) 1,131 874 563 Deferred income taxes (note 8) 1,006 1,227 781 Minority interests 132 244 207 SHAREHOLDERS' EQUITY Redeemable non-retractable preference shares (note 16) 160 160 160 Common shareholders' equity Common shares (note 17) 4,687 4,597 1,230 Retained earnings (note 18) 4,095 4,290 4,227 Deferred translation adjustments (note 20) (151) (20) (76) -------- -------- -------- 8,631 8,867 5,381 -------- -------- -------- 8,791 9,027 5,541 -------- -------- -------- Commitments and contingencies (note 19) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 17,479 $ 18,407 $ 9,849 ======== ======== ========
The accompanying notes are an integral part of the financial statements. Approved by the Board: /s/ Travis Engen, Director /s/ Guy Saint-Pierre, Director -------------------------- ------------------------------ 42 CONSOLIDATED STATEMENT OF CASH FLOWS (in millions of US$)
Year ended December 31 2001 2000 1999 - ---------------------- ------- ------- ------- OPERATING ACTIVITIES Net income $ 5 $ 618 $ 460 Adjustments to determine cash from operating activities: Depreciation and amortization 820 545 477 Amortization of goodwill 73 16 -- Deferred income taxes (152) 52 110 Loss (Gain) on sales of businesses -- net 123 (9) (110) Asset impairment provisions 232 -- -- Equity income -- net of dividends (1) (3) 2 Change in operating working capital Change in receivables 122 (25) (84) Change in inventories 75 (117) 11 Change in payables (58) (81) 312 ------- ------- ------- 139 (223) 239 Change in deferred charges, other assets, deferred credits and other liabilities -- net 131 28 (26) Other -- net 17 42 30 ------- ------- ------- CASH FROM OPERATING ACTIVITIES 1,387 1,066 1,182 ------- ------- ------- FINANCING ACTIVITIES New debt 1,852 1,586 13 Debt repayments (1,779) (419) (347) ------- ------- ------- 73 1,167 (334) Short-term borrowings -- net (479) 280 45 Sale of receivables 300 -- -- Common shares purchased for cancellation -- (530) (219) Common shares issued 61 21 27 Dividends -- Alcan shareholders (including preference) (200) (155) (140) -- Minority interests (2) (2) (8) ------- ------- ------- CASH FROM (USED FOR) FINANCING ACTIVITIES (247) 781 (629) ======= ======= =======
INVESTMENT ACTIVITIES Property, plant and equipment (1,110) (1,491) (1,169) Business acquisitions (404) (244) (129) ------- ------- ------- (1,514) (1,735) (1,298) Net proceeds from disposal of businesses, investments and other assets 239 184 460 Preacquisition loan to algroup to finance special payment to algroup shareholders -- (532) -- ------- ------- ------- CASH USED FOR INVESTMENT ACTIVITIES (1,275) (2,083) (838) ------- ------- ------- Effect of exchange rate changes on cash and time deposits (7) 2 (11) ------- ------- ------- DECREASE IN CASH AND TIME DEPOSITS (142) (234) (296) Cash of companies consolidated (deconsolidated) -- net -- 180 (4) Cash and time deposits -- beginning of year 261 315 615 ------- ------- ------- Cash and time deposits -- end of year $ 119 $ 261 $ 315 ======= ======= =======
The accompanying notes are an integral part of the financial statements. 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of US$, except where indicated) 1. NATURE OF OPERATIONS Alcan is engaged, together with subsidiaries, joint ventures and related companies, in most aspects of the aluminum and packaging businesses on an international scale. Its operations include the mining and processing of bauxite, the basic aluminum ore; the refining of bauxite into alumina; the generation of electric power for use in smelting aluminum; the smelting of aluminum from alumina; the recycling of used and scrap aluminum; the fabrication of aluminum, aluminum alloys and non-aluminum materials into semi-fabricated and finished products; the producing and converting of specialty packaging and packaging products for many industries including the food, pharmaceutical, cosmetic and health sectors; the distribution and marketing of aluminum, non-aluminum and packaging products; and, in connection with its aluminum operations, the production and sale of industrial chemicals. Alcan, together with its subsidiaries, joint ventures and related companies, has bauxite holdings in five countries, produces alumina in four, smelts primary aluminum in seven, operates aluminum fabricating plants in twenty-one, has packaging facilities in fifteen and has sales outlets and maintains warehouse inventories in the larger markets of the world. Alcan also operates a global transportation network that includes the operation of bulk cargo vessels, port facilities and freight trains. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES These financial statements conform with Canadian generally accepted accounting principles (GAAP). Note 6 provides an explanation and reconciliation of differences in Canadian and U.S. GAAP. USE OF ESTIMATES The preparation of financial statements in conformity with GAAP in Canada and the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION These consolidated financial statements include the accounts of subsidiaries that are controlled by Alcan, all of which are majority owned. Joint ventures, irrespective of percentage of ownership, are proportionately consolidated to the extent of Alcan's participation. Companies subject to significant influence are accounted for using the equity method. Under the equity method, Alcan's investment is increased or decreased by Alcan's share of the undistributed net income or loss and deferred translation adjustments since acquisition. Investments in companies in which Alcan does not have significant influence are accounted for using the cost method. Under the cost method, dividends received are recorded as income. Intercompany balances and transactions, including profits in inventories, are eliminated. FOREIGN CURRENCY The financial statements of self-sustaining foreign operations (located principally in Europe and Asia) are translated into U.S. dollars at prevailing exchange rates. Revenues and expenses are translated at average exchange rates for the year while assets and liabilities are translated at exchange rates in effect at year-end. Differences arising from exchange rate changes are included in the Deferred translation adjustments (DTA) component of Common shareholders' equity. If there is a reduction in the Company's ownership in a foreign operation, the relevant portion of DTA is recognized in Other (income) expenses - - net at that time. All other operations, including those in Canada, are considered to be integrated foreign operations having the U.S. dollar as the functional currency. Under this method, monetary items are translated at current rates and translation gains and losses are included in income except for unrealized gains and losses arising from the translation of long-term monetary assets and liabilities, which are deferred and amortized over the remaining lives of the related items under accounting standards in effect until December 31, 2001. (See Recently Issued Accounting Standards; Deferred Foreign Exchange Translation Gains and Losses on page 46). Non-monetary items are translated at historical rates. Gains or losses on forward exchange contracts or currency options, all of which serve to hedge certain future identifiable foreign currency exposures, are included, together with related hedging costs, in Sales and operating revenues, Cost of sales and operating expenses or Property, plant and equipment, as applicable, concurrently with recognition of the underlying items being hedged. Unrealized gains or losses on currency swaps, all of which are used to hedge certain identifiable foreign currency debt obligations, are recorded concurrently with the unrealized gains or losses on the debt obligations being hedged. Other gains and losses from foreign currency denominated items are included in Other (income) expenses -- net. 44 REVENUE RECOGNITION The Company recognizes revenue when significant risks and benefits of ownership are transferred, which almost always coincides with when the goods are shipped or services rendered. For a very small portion of revenue, recognition occurs before goods have been shipped but when the risks and benefits of ownership have been transferred. COMMODITY CONTRACTS AND OPTIONS Virtually all of the forward metal contracts and options serve to hedge certain future identifiable aluminum price exposures. Gains or losses on these hedges are included, together with related hedging costs, in Sales and operating revenues or Cost of sales and operating expenses, as applicable, concurrently with recognition of the underlying items being hedged. INTEREST RATE SWAPS Amounts receivable or payable under interest rate swaps are recorded in Interest concurrently with the interest expense on the underlying debt. INVENTORIES Aluminum, raw materials, packaging products and other supplies are stated at cost (determined for the most part on the monthly average method) or net realizable value, whichever is lower. CAPITALIZATION OF INTEREST COSTS The Company capitalizes interest costs associated with the financing of major capital expenditures. RECEIVABLE SALES When the Company sells certain receivables, it retains servicing rights and provides limited recourse, which constitutes retained interests in the securitized receivables. No servicing asset or liability is recognized in the financial statements as the costs incurred by the Company to service these receivables are reimbursed by the third party. As the fair value of the assets transferred is equal to book value, there is no gain or loss reported on the sale of the receivables. DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT Depreciation is calculated on the straight-line method using rates based on the estimated useful lives of the respective assets. The principal rates range from 2% to 10% for buildings and structures, 1% to 4% for power assets and 3% to 20% for chemical, smelter and fabricating assets. AMORTIZATION AND IMPAIRMENT OF GOODWILL Goodwill is recorded at cost less accumulated amortization and is amortized over a period of 40 years using the straight-line method of amortization under accounting standards in effect until December 31, 2001. Periodic assessments are made to determine whether there is permanent impairment in the remaining unamortized goodwill balance based on the undiscounted cash flows of the underlying operations. (See Recently Issued Accounting Standards; Goodwill and Other Intangible Assets on page 46.) AMORTIZATION OF INTANGIBLE ASSETS Intangible assets are primarily trademarks and patented and non-patented technology, all of which have finite lives. Intangible assets are recorded at cost less accumulated amortization and are amortized over 15 years using the straight-line method of amortization. ENVIRONMENTAL COSTS AND LIABILITIES Environmental expenses are accrued on an undiscounted basis 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 (income) expenses -- net. For 2001, environmental provisions for treatment costs relating to spent potlining in Quebec and British Columbia, Canada, and for remediation costs relating to red mud disposal and other sites in Canada and the United Kingdom are included in Restructuring, impairment and other special charges. 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. 45 CASH AND TIME DEPOSITS All time deposits have maturities of 90 days or less and qualify as cash equivalents. RECENTLY ISSUED ACCOUNTING STANDARDS STOCK-BASED COMPENSATION The Canadian Institute of Chartered Accountants (CICA) has issued a new standard on the measurement of stock options and other stock-based compensation for fiscal years beginning on or after January 1, 2002. This standard applies to awards granted after January 1, 2002, and is to be applied prospectively. This standard encourages but does not require that the fair value method be used for transactions with employees. The Company will continue to account for stock options granted to employees in the same manner as currently done and will provide the required disclosures on the impact of the fair value method. Stock compensation arrangements that can be settled in cash would result in the recognition of compensation expense. As the effect of applying the fair value method in accounting for stock-based compensation is already included in note 17, the Company will not be affected by this standard. BUSINESS COMBINATIONS All business combinations initiated on or after July 1, 2001, are now required to be accounted for under the purchase method. GOODWILL AND OTHER INTANGIBLE ASSETS Effective for years beginning on or after January 1, 2002, goodwill and all intangible assets with an indefinite life will no longer be amortized but are to be carried at the lower of carrying value and fair value. Goodwill will be tested for impairment on an annual basis under a two-step test. The result of this two-step test could be significantly different from the result obtained from applying the test under the current methodology. Under the first step, the fair value of a reporting unit, based upon discounted cash flows, is compared to its net carrying amount. If the fair value is less than the carrying amount, the fair value of the unit's goodwill must be estimated to determine if it is less than its carrying amount. Fair value of goodwill is estimated in the same way as goodwill is determined at the date of acquisition in a business combination, i.e. the excess of the fair value of the reporting unit over the fair value of the identifiable net assets of the reporting unit. Any impairment identified as at the date the new standard is adopted (January 1, 2002) will be charged to opening retained earnings in 2002. Once written down, goodwill and indefinite life intangible assets cannot be written back up if their value subsequently recovers. After January 1, 2002, any further impairment will be taken as a charge against income. As a result of the new standard, the Company will no longer amortize goodwill. In 2001, the amount of goodwill amortization was $73. DEFERRED FOREIGN EXCHANGE TRANSLATION GAINS AND LOSSES Effective January 1, 2002, the Company will no longer amortize the exchange gains and losses arising on the translation of long-term foreign currency denominated monetary assets and liabilities that have a fixed or ascertainable life extending beyond the end of the following fiscal year. The exchange gains or losses arising on the translation of long-term foreign currency denominated assets and liabilities will be included in earnings as incurred. At December 31, 2001, the unamortized exchange loss relating to the existing long-term foreign currency denominated assets and liabilities amounted to $21. This standard will be applied retroactively and consequently, prior years' financial statements will be restated. HEDGING RELATIONSHIPS Beginning in 2003, the Company will adopt the new CICA accounting guideline, which establishes certain conditions for when hedge accounting may be applied. The Company is studying the new guideline but has not yet determined its impact. 3. ACCOUNTING CHANGE In 2001, the Company adopted the new recommendations of the CICA dealing with earnings per share. The standard requires the disclosure of the calculation of basic and diluted earnings per share and the use of the treasury stock method for calculating the dilutive impact of stock options. This standard was applied retroactively and there was no impact on the diluted net income per common share, both before and after amortization of goodwill, for each year presented. 46 4. NET INCOME PER COMMON SHARE Net income per common share is based on the average number of shares outstanding during the year (2001: 319.8 million; 2000: 248.2 million; 1999: 219.1 million). As at December 31, 2001, there were 320,901,748 common shares outstanding (2000: 317,921,113; 1999: 218,314,946). The following table outlines the calculation of basic and diluted net income per common share.
2001 2000 1999 ---- ---- ---- Numerator for basic and diluted net income per common share: Net income (Loss) attributable to common shareholders $ (3) $ 608 $ 451 ------ ----- ----- Denominator: Denominator for basic net income per common share -- weighted average of outstanding shares (in millions) 320 248 219 Effect of dilutive stock options (in millions) 1 -- -- ------ ----- ----- Denominator for diluted net income per common share -- adjusted weighted average of outstanding shares 321 248 219 (in millions) ------ ----- ----- Net income (Loss) per common share (basic and diluted) $(0.01) $2.45 $2.06 ====== ===== =====
5. COMBINATION WITH ALUSUISSE GROUP LTD On October 17, 2000, the Company entered into a combination agreement with Alusuisse Group Ltd (algroup). At that date, the shareholders of algroup, in response to the Company's share exchange offer, tendered 6,747,707 shares, representing 99.37% of the outstanding registered algroup shares, in exchange for 115,385,790 shares of the Company valued at $30.11 per share. The Company also assumed from algroup total debt of $2,171. The combination was completed and algroup became a subsidiary of the Company on October 17, 2000. During 2001, the Company acquired the remaining shares of algroup in accordance with the provisions of Swiss law. The combination is accounted for using the purchase method of accounting and the results of operations of algroup are included in the Consolidated Financial Statements since acquisition. At the date of acquisition, the purchase price was allocated in the accounts based on the assigned fair values of the assets acquired and liabilities assumed as follows: FAIR VALUE OF NET ASSETS ACQUIRED AT DATE OF ACQUISITION - -------------------------------------------------------- Cash and time deposits $ 175 Other current assets 1,641 Deferred charges and other assets 162 Capital assets 2,822 ------ Current liabilities 2,002 Long-term debt* 1,292 Deferred credits and other liabilities 330 Deferred income taxes 401 ------ FAIR VALUE OF NET ASSETS ACQUIRED AT DATE OF ACQUISITION $ 775 ======
* Includes preacquisition loan from Alcan to finance special payment to algroup shareholders. Determination of fair values was based on valuations performed by independent appraisers and consultants. Allocation of the purchase price involved a number of estimates and information gathering over a number of months following the date of the combination. This estimation process was finalized in 2001. In 2001, the fair values of certain assets and liabilities were adjusted from the amounts originally assigned at the date of combination. As a result, an additional $123 of goodwill was recorded in 2001. Net restructuring costs for plant closures of $54 are recognized in the purchase price allocation. Of the total restructuring costs of $54, an amount of $16 was paid out in 2001 relating primarily to employee severance costs. The difference between the total purchase price and the net fair value of all identifiable assets and liabilities acquired was $2,780 and is accounted for as goodwill, which is being amortized over a period of 40 years using the straight-line method of amortization (under accounting standards in effect until December 31, 2001). CONSIDERATION - ------------- Issuance of common shares on October 17, 2000 (115,385,790 common shares without nominal or par value; average market value of $30.11 per share) $3,474 Issuance of common shares in 2001 (687,882 common shares without nominal or par value; average market value of $44 per share) 30 Other consideration 51 ------ TOTAL CONSIDERATION $3,555 ======
47 SUPPLEMENTAL PRO FORMA INFORMATION (IN MILLIONS OF US$, EXCEPT PER SHARE AMOUNTS) The following unaudited pro forma information for 2000 and 1999 presents a summary of consolidated results of operations of the Company and algroup as if the combination had occurred on January 1, 1999. These pro forma results have been prepared for comparative purposes only.
2000 1999 ---- ---- Sales and operating revenues $13,146 $12,388 ------- ------- Net income before amortization of goodwill $ 737 $ 655 ------- ------- Net income $ 672 $ 590 ------- ------- Earnings per common share before amortization of goodwill $ 2.22 $ 1.93 ------- ------- Earnings per common share $ 2.02 $ 1.74 ======= =======
In 2001, changes to goodwill, net of accumulated amortization, are comprised of the following elements: - -------------------------------------------------------------------------------- GOODWILL, NET OF ACCUMULATED AMORTIZATION AS AT DECEMBER 31, 2000 $ 2,669 Adjustments to fair values of assets and liabilities 123 Issuance of common shares 30 Other consideration 7 Acquisition of the remaining 30% of the Gove alumina refinery 234 Exchange (62) Amortization (73) Amount related to disposal of business (3) ------- GOODWILL, NET OF ACCUMULATED AMORTIZATION AS AT DECEMBER 31, 2001 $ 2,925 =======
6. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) DERIVATIVES Beginning in 2001, the company is required to adopt, for supplementary U.S. GAAP reporting purposes only, financial accounting standards board (FASB) statements 133 and 138. These standards require that all derivatives be recorded in the financial statements and valued at market. However, the Company has elected not to adopt the FASB's optional hedge accounting provisions. Accordingly, for U.S. GAAP reporting purposes only, beginning in 2001, unrealized gains and losses resulting from the valuation of derivatives at market value are recognized in net income as the gains and losses arise and not concurrently with the recognition of the transactions being hedged. In its primary Canadian GAAP financial statements, the company continues to recognize the gains and losses on derivative contracts in income concurrently with the recognition of the transactions being hedged. Upon initial adoption of the FASB standards in 2001, the cumulative effect of the accounting change resulted in a decrease in net income of $12. 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. This difference will no longer exist as of January 1, 2002, due to the issuance of a revised standard by the CICA (see note 2). INVESTMENTS Under U.S. GAAP, certain portfolio investments, which are considered to be "available-for-sale" securities, are measured at market value, with the unrealized gains or losses included in Comprehensive income. Under Canadian GAAP, these investments are measured at cost. COMPREHENSIVE INCOME U.S. GAAP requires the disclosure of Comprehensive income which, for the Company, is Net income under U.S. GAAP plus the movement in Deferred translation adjustments under U.S. GAAP plus the unrealized gains or losses for the period less gains or losses realized during the period on "available-for-sale" securities plus the movement in the minimum liability related to post-retirement benefits. The concept of Comprehensive income does not exist under Canadian GAAP. POST-RETIREMENT BENEFITS Under U.S. GAAP, if the accumulated benefit obligation exceeds the market value of plan assets, a minimum liability for the excess is recognized to the extent that the liability recorded in the balance sheet is less than the minimum liability. Any portion of this additional liability that relates to unrecognized past service cost is recognized as an intangible asset while the remainder is charged to other comprehensive income. Canadian GAAP has no such requirement to record a minimum liability. 48 JOINT VENTURES Under Canadian GAAP, joint ventures are accounted for using the proportionate consolidation method, while under U.S. GAAP, joint ventures are accounted for under the equity method. Under an accommodation of the U.S. Securities and exchange commission, accounting for joint ventures need not be reconciled from canadian to U.S. GAAP. The different accounting treatment affects only the display and classification of financial statement items and not net income or shareholders' equity. See note 9 for summarized financial information about joint ventures. CONSOLIDATED STATEMENT OF INCOME Under U.S. GAAP, separate subtotals for net income, and net income per common share, before amortization of goodwill would not be presented. STATEMENT OF CASH FLOWS Under U.S. GAAP, separate subtotals within operating, financing and investment activities would not be presented. RECENTLY ISSUED ACCOUNTING STANDARDS FASB has issued four new standards: o Statement 141, "Business Combinations", effective July 1, 2001, is the same as the recently issued Canadian accounting standards. Business combinations are now required to be accounted for using the purchase method. o Statement 142, "Goodwill and Other Intangible Assets", which will be effective for fiscal years beginning on or after December 15, 2001, is the same as the recently issued Canadian accounting standards. See note 2 for a description of the impact on the Company. o Statement 143, "Accounting for Retirement Asset Obligations", will be effective for fiscal years beginning after June 15, 2002. The Company is studying this new standard but has not yet determined its impact. o Statement 144, "Accounting for Impairment or Disposal of Long-lived Assets", will be effective for fiscal years beginning after December 15, 2001. The Company is studying this new standard but has not yet determined its impact. RECONCILIATION OF CANADIAN AND U.S. GAAP
2001 2000 1999 ---- ---- ---- $ per $ per $ per Common Common Common Share Share Share (basic & (basic & (basic & $ diluted) $ diluted) $ diluted) - -------- - -------- - -------- Net income -- as reported 5 618 460 Differences due to: Foreign currency translation (3) (8) (9) Valuation of derivatives (49) -- -- Other 5 (4) 4 -- ----- --- ---- --- ---- Net income (Loss) from continuing operations before cumulative effect of accounting change -- U.S. GAAP (42) 606 455 Cumulative effect on prior years of accounting change (12) -- -- -- ----- --- ---- --- ---- Net income (Loss) -- U.S. GAAP (54) 606 455 -- ----- --- ---- --- ---- Net income (Loss) attributable to common shareholders -- as reported (3) (0.01) 608 2.45 451 2.06 -- ----- --- ---- --- ---- Net income (Loss) attributable to common shareholders from continuing operations before cumulative effect of accounting change -- U.S. GAAP (50) (0.16) 596 2.40 446 2.04 -- ----- --- ---- --- ---- Net income (loss) attributable to common shareholders -- U.S. GAAP (62) (0.19) 596 2.40 446 2.04 -- ----- --- ---- --- ----
49
2001 2000 1999 ---- ---- ---- As U.S. As U.S. As U.S. Reported GAAP Reported GAAP Reported GAAP -------- ---- -------- ---- -------- ---- Deferred charges and other assets -- December 31 $ 737 $ 717 $ 719 $ 716 $ 525 $ 534 ------- ------- ------- ------- ------- ------- Intangible assets -- December 31 $ 298 $ 316 $ 330 $ 330 $ -- $ -- ------- ------- ------- ------- ------- ------- Payables -- December 31 $ 2,328 $ 2,401 $ 2,427 $ 2,427 $ 1,268 $ 1,268 ------- ------- ------- ------- ------- ------- Deferred credits and other liabilities -- December 31 $ 1,131 $ 1,364 $ 874 $ 874 $ 563 $ 563 ------- ------- ------- ------- ------- ------- Deferred income taxes -- December 31 $ 1,006 $ 909 $ 1,227 $ 1,231 $ 781 $ 781 ------- ------- ------- ------- ------- ------- Retained earnings -- December 31 $ 4,095 $ 4,070 $ 4,290 $ 4,324 $ 4,227 $ 4,273 ------- ------- ------- ------- ------- ------- Deferred translation adjustments (DTA) -- December 31 $ (151) $ (207) $ (20) $ (76) $ (76) $ (132) ------- ------- ------- ------- ------- -------
2001 2000 1999 ---- ---- ---- COMPREHENSIVE INCOME (LOSS) (U.S. GAAP ONLY) Net income (Loss) $ (54) $ 606 $ 455 Net change in deferred translation adjustments* (131) 56 (108) Net change in market value of available-for-sale securities* (7) (4) (26) Net change in minimum liability for post-retirement benefits (148) -- -- ----- ----- ----- Comprehensive income (Loss) $(340) $ 658 $ 321 ===== ===== =====
* In 1999, $8 of deferred translation adjustments and $24 of the excess of market value over book value of available-for-sale securities were transferred to net income.
2001 2000 1999 ---- ---- ---- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (U.S. GAAP ONLY) Accumulated other comprehensive income (loss) -- beginning of year $ (61) $(113) $ 21 Change in deferred translation adjustments (131) 56 (108) Change in excess of market value over book value of available-for-sale securities (7) (4) (26) Change in minimum liability for post-retirement benefits (148) -- -- ----- ----- ----- Accumulated other comprehensive income (loss) -- end of year $(347) $ (61) $(113) ===== ===== =====
The difference between DTA under Canadian GAAP and U.S. GAAP arises from the different treatment of exchange on long-term debt at January 1, 1983, resulting from the adoption of accounting standards on foreign currency translation. 7. RESTRUCTURING, IMPAIRMENT AND OTHER SPECIAL CHARGES RESTRUCTURING In 2001, the Company announced a restructuring program largely due to increased competitive pressures and market outlook. The restructuring will result in a series of plant sales, closures and divestments throughout the organization as well as a reduction of approximately 6% of the Company's workforce. As a result of this restructuring the Company incurred costs of $236, pre tax, in 2001, recorded in Restructuring, impairment and other special charges, which includes severance costs of $97 and write-downs of fixed assets and working capital and other costs of $139. At December 31, 2001, there remains approximately $115 of accrued liabilities. Within European Rolled Products, the restructuring program will result in a reduction of up to 310 employees at the Rogerstone plant in the U.K. and 95 in Switzerland. The Company will exit from non-core products at its Pieve plant in Milan, Italy, with a workforce of 200 employees in these product streams. 50 Also, as part of the restructuring program, the Company announced that it will close or divest the following operations: Its foil fabrication plant located in Saint-Laurent, Quebec, Canada, will be closed with all operations transferred to the Company's foil fabrication plant in Toronto, Ontario, Canada. Twenty employees will be affected by this closure. The Company will consolidate its Weston and Toronto, Ontario, Canada food flexible packaging plants at the existing Weston plant, resulting in a reduction of 30 employees. The food flexible plant in Carson, California, U.S., which employs 40 people, will be closed. The Company will divest its extrusion operations in Malaysia, which employs 220 people, and in Thailand, which employs 240 people. Also recorded in Restructuring, impairment and other special charges in 2001 were costs of $52, pre tax, primarily for the closure of facilities at Glasgow, U.K. These costs relate to the synergy program announced in 2000 in relation to the merger with algroup. All 200 employees at the Company's Glasgow site will be affected by this closure. In 2001, the Company signed a letter of intent to sell its glass packaging operations in Park Hills, Missouri; Mays Landing, Williamstown and Millville (two plants), New Jersey, U.S., as well as the Company's 46%-owned joint venture in Beijing, China. Also in 2001, the Company entered into an agreement to sell its two Pharmatech rubber stopper and aluminum seals operations located in Salisbury, Maryland, U.S. IMPAIRMENT CHARGES In 2001, following a detailed business portfolio review, impairment provisions were recorded in Restructuring, impairment and other special charges for asset write-offs of $108, pre tax. The asset write-offs pertain to Alcan Chemicals Europe ($40) and Alcan Chemical Laboratories ($6) in the U.K., Pharma and Cosmetics, U.S. ($12), Rolled Products, Germany ($8), Other Packaging, U.S. ($7), Other Packaging, U.K. ($1), Engineered Cast Products, Canada ($19), rolling assets in Switzerland and Italy ($4), Primary Metal, Canada ($7) and others ($4). As well, impairment provisions were recorded for previously capitalized project costs of $15, pre tax. OTHER SPECIAL CHARGES In 2001, the Company increased its environmental reserves by $246, pre tax, to cover treatment costs of stored spent potlining in Quebec and British Columbia, Canada, as well as to cover remediation costs relating to red mud disposal and other sites in Canada and the United Kingdom. OTHER In 2000, the Company announced the closure of the Rogerstone Foil operations in the U.K. This closure resulted in a reduction of approximately 170 employees. As a result of this closure, the Company provided for costs of $25 in 2000, of which $5 was written back in 2001 and included in Other (income) expenses -- net. Included in Other (income) expenses -- net in 2000 were other asset write-offs and restructuring costs totalling $28. In 1999, the Company undertook a reorganization, which included the implementation of a number of early retirement and severance programs, resulting in a reduction of approximately 570 employees. As a result of this reorganization and other restructuring programs, the Company incurred costs of $49 in 1999 which were included in Other (income) expenses -- net. At December 31, 2001, there remains approximately $8 of accrued liabilities. 8. INCOME TAXES
2001 2000 1999 ---- ---- ---- INCOME BEFORE INCOME TAXES AND OTHER ITEMS Canada $(289) $ 428 $ 174 Other countries 393 455 512 ----- ----- ----- $ 104 $ 883 $ 686 ----- ----- ----- CURRENT INCOME TAXES Canada $ (48) $ 19 $ (78) ----- ----- ----- Other countries 242 183 179 ----- ----- ----- 194 202 101 ----- ----- ----- DEFERRED INCOME TAXES Canada (69) 25 48 Other countries (83) 27 62 ----- ----- ----- (152) 52 110 ----- ----- ----- INCOME TAX PROVISION $ 42 $ 254 $ 211 ===== ===== =====
51 The composite of the applicable statutory corporate income tax rates in Canada is 40% (2000: 40.2%; 1999: 40.4%). The following is a reconciliation of income taxes calculated at the above composite statutory rates with the income tax provision:
2001 2000 1999 ---- ---- ---- Income taxes at the composite statutory rate $ 42 $ 355 $ 277 Differences attributable to: Exchange translation items 2 7 (12) Exchange revaluation of deferred income taxes (26) (18) 26 Effect of tax rate changes on deferred income taxes (8) (20) -- Unrecorded tax benefits on losses -- net 26 (19) (1) Investment and other allowances 8 (38) (29) Large corporations tax 8 6 5 Withholding taxes 8 9 7 Reduced rate or tax exempt items (2) (12) (31) Foreign tax rate differences (6) 7 (4) Prior years' tax adjustments (14) (40) (40) Other -- net 4 17 13 ----- ----- ----- INCOME TAX PROVISION $ 42 $ 254 $ 211 ===== ===== =====
At December 31, the principal items included in Deferred income taxes are:
2001 2000 1999 ---- ---- ---- LIABILITIES: Property, plant, equipment and intangibles $1,178 $1,291 $ 796 Undistributed earnings 24 34 29 Inventory valuation 78 80 47 Other -- net 193 166 83 ------ ------ ------ 1,473 1,571 955 ------ ------ ------ ASSETS: Tax benefit carryovers 297 326 105 Accounting provisions not currently deductible for tax 382 220 173 ------ ------ ------ 679 546 278 VALUATION ALLOWANCE (AMOUNT NOT LIKELY TO BE RECOVERED) 212 202 104 ------ ------ ------ 467 344 174 ------ ------ ------ NET DEFERRED INCOME TAX LIABILITY $1,006 $1,227 $ 781 ====== ====== ======
The valuation allowance relates principally to loss carryforward benefits and tax credits where realization is not likely due to uncertain economic conditions in certain countries, principally Brazil and Korea, as well as time and other limitations in the tax legislation giving rise to the potential benefits. In 2001, $4 (2000: $4; 1999: $13) of the valuation allowance was reversed when it became more likely than not that benefits would be realized. Based on rates of exchange at December 31, 2001, tax benefits of approximately $136 relating to prior and current years' operating losses and $39 of benefits related to capital losses and tax credits carried forward will be recognized in income when it is more likely than not that such benefits will be realized. These amounts are included in the valuation allowance above. Approximately $20 of these potential tax benefits expire in 2002. In 1997, income taxes on Canadian operations for the years 1988 to 1991 were reassessed by the Canadian tax authorities. Most of the additional taxes and interest related to transfer pricing issues and are recoverable in other countries. The process to obtain recoveries from other countries is under way. During 1999, the Canadian tax authorities indicated their intention not to proceed with the reassessments made in 1997 in respect of the years 1988 and 1989. As a result of these favourable prior year tax adjustments, in 1999 the Company received a total of $108 from the Canadian tax authorities and the Company's 1999 income tax provision has been reduced by $31, of which $18 relates to interest. In 2000, certain provinces decided not to proceed with the reassessments pertaining to 1988 and 1989. As a result of this and other adjustments, in 2000 the Company recorded $32 of tax recoveries. See note 24. 52 9. JOINT VENTURES The activities of the Company's major joint ventures are the procurement and processing of bauxite in Australia, Brazil and Guinea, smelting operations in Norway, as well as aluminum rolling operations in Germany and the United States. In 2001, the Company completed the sale of its bauxite and alumina operations in Jamaica. 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 result in the supplying of materials to other operations of the Company, third-party revenues, and related costs and expenses attributable to the Company's participation in these joint ventures is insignificant. Accordingly, summarized income statement information as well as cash flow from operating activities would not provide meaningful information.
2001 2000 1999 ---- ---- ---- FINANCIAL POSITION AT DECEMBER 31 Inventories $ 72 $ 113 $ 103 Property, plant and equipment -- net 551 768 688 Other assets 54 103 90 ----- ----- ----- Total assets $ 677 $ 984 $ 881 ----- ----- ----- Short-term debt $ 45 $ 28 $ 27 Debt not maturing within one year 82 106 117 Other liabilities 167 208 150 ----- ----- ----- Total liabilities $ 294 $ 342 $ 294 ----- ----- ----- CASH FLOW INFORMATION FOR THE YEAR ENDED DECEMBER 31 Cash from (used for) financing activities $ (7) $ (17) $ 2 Cash used for investment activities $ (73) $ (57) $ (61) ===== ===== =====
10. SALES OF RECEIVABLES Under an agreement effective December 18, 2001, the Company sold to a third party an undivided interest in certain trade receivables of $330, with limited recourse. Net cash proceeds from this ongoing agreement were $300 with $30 held in reserve by the third party, which represents the maximum credit exposure to the Company. This amount has been recorded in Deferred charges and other assets. Net proceeds were used to repay commercial paper borrowings in 2001. The Company acts as a service agent and administers the collection of the receivables sold. The related purchase discount is included in Other (income) expenses -- net. 11. DEFERRED CHARGES AND OTHER ASSETS Deferred charges and other assets comprise the following elements:
2001 2000 1999 ---- ---- ---- Prepaid pension costs $ 344 $ 284 $ 189 Income taxes recoverable 51 52 59 Marketable securities 40 44 53 Prepaid mining expenses 57 60 62 Investments* 52 50 32 Costs related to combination (note 5) -- -- 20 Reserve for receivables sold (note 10) 30 -- -- Net assets held for disposal -- 70 -- Premiums on currency and metal options 2 1 10 Unamortized exchange losses 21 18 10 Amount receivable on currency swap of debt (12) 16 6 Long-term notes and other receivables 85 60 30 Other 67 64 54 ----- ----- ----- $ 737 $ 719 $ 525 ===== ===== =====
* INVESTMENTS
2001 2000 1999 ---- ---- ---- Companies accounted for under the equity method $21 $19 $11 Portfolio investments -- at cost, less amounts written off 31 31 21 --- --- --- $52 $50 $32 === === ===
53 12. PROPERTY, PLANT AND EQUIPMENT
2001 2000 1999 ---- ---- ---- COST (EXCLUDING CONSTRUCTION WORK IN PROGRESS) Land and property rights $ 374 $ 366 $ 220 Buildings 2,769 2,514 2,071 Machinery and equipment 13,082 11,927 9,480 ------- ------- ------- $16,225 $14,807 $11,771 ======= ======= =======
Accumulated depreciation relates primarily to Buildings and Machinery and equipment. In 1999, the Company completed the sale of a property in the United Kingdom for a gain of $19 included in Other (income) expenses -- net. On an ongoing basis, capital expenditures of the Company are estimated at $840 per year. 13. SALES AND ACQUISITIONS OF BUSINESSES AND INVESTMENTS AUSTRALIA In 2001, the Company acquired the remaining 30% of the Gove alumina refinery and related bauxite mine at a cost of $379, subject to certain post-closing adjustments. As a result of this transaction, the Company now owns 100% of these assets. The acquisition is accounted for using the purchase method of accounting. The purchase price was allocated in the accounts based on the assigned fair values of the assets acquired and liabilities assumed as follows:
FAIR VALUE OF NET ASSETS ACQUIRED 2001 - --------------------------------- ---- Working capital $ 15 Property, plant and equipment 172 ---- 187 Other liabilities -- net 41 Long-term debt 1 ---- 42 ---- FAIR VALUE OF NET ASSETS $145 ====
The difference between the total purchase price and the net fair value of all identifiable assets and liabilities acquired was $234 and is accounted for as goodwill, which is being amortized over a period of 40 years using the straight-line method of amortization (under accounting standards in effect until December 31, 2001). JAMAICA In 2001, the Company completed the sale of its Jamaican operations. Proceeds from the sale were $153. The total pre-tax loss on the sale was $123, which was recorded in Other (income) expenses -- net. EUROPE The following transactions were completed in 2001 as part of the divestment requirements imposed by the European Commission as a condition to its approval of the merger between Alcan and algroup in October 2000. o The Company sold its alumina specialties production plant, Martinswerk, located in Bergheim, Germany. o The Company sold a number of foil container manufacturing assets in Spain and Germany. o The Company sold its lithographic sheet production plant, Star Litho, located in Bridgnorth, United Kingdom. The Company received proceeds of approximately $54 from these sales. In 1999, the Company completed the sale of the Aughinish alumina refinery in Ireland. The net book value of the assets sold had been written down to net realizable value in 1998 in anticipation of completion of the sale in 1999. In 1999, the Company completed the sale of businesses in Germany and France for gains of $44 and $8, respectively, included in Other (income) expenses -- net. 54 INDIA In 2000, the Company sold its 54.6% interest in Indian Aluminium Company, Limited (Indal) to Hindalco Industries Limited (Hindalco). Net proceeds from the sale were $162 resulting in a gain of $3, included in Other (income) expenses -- net. JAPAN In 1999, the Company sold a portion of its investment in Nippon Light Metal Company, Ltd. (NLM), reducing its holdings to an effective ownership of 5.1%, for net cash proceeds of $38. Included in Other (income) expenses -- net was a gain of $37. The after-tax gain included a previously deferred gain of $17 related to the sale in 1996 of Toyo Aluminium K.K. (Toyal) to NLM. KOREA In 2001, the Company's subsidiary Alcan Taihan Aluminum Limited (ATA) acquired the remaining 5% of Aluminium of Korea Limited (Koralu) for $21. As a result of the transaction, the Company owns 66% of ATA. In 2000, ATA acquired a 95% interest in Koralu for $200 in cash and the assumption of $114 of debt. Included in the Company's balance sheet at the date of acquisition in 2000 were the following assets and liabilities:
FAIR VALUE OF NET ASSETS ACQUIRED 2000 - --------------------------------- ---- Working capital $ (2) Property, plant and equipment 347 Other assets -- net (4) ----- 341 Long-term debt 77 Minority interest 64 ----- FAIR VALUE OF NET ASSETS $ 200 =====
In 1999, the Company purchased a 56% interest in ATA, a newly created company based in Korea. Total cash consideration paid by the Company for its equity interest was $129. In addition, the Company assumed total debt of $58. Included in the Company's balance sheet at the date of acquisition were the following assets and liabilities:
FAIR VALUE OF NET ASSETS ACQUIRED 1999 - --------------------------------- ---- Working capital $ (19) Property, plant and equipment 237 Other assets -- net 1 ----- 219 Long-term debt 2 Minority interest 88 ----- FAIR VALUE OF NET ASSETS $ 129 =====
14. DEFERRED CREDITS AND OTHER LIABILITIES Deferred credits and other liabilities comprise the following elements:
2001 2000 1999 ---- ---- ---- Deferred revenues $ 36 $ 37 $ 43 Post-retirement and post-employment benefits 562 539 378 Environmental liabilities 327 91 44 Rationalization costs 41 23 36 Claims 37 43 39 Amount payable for metal and currency forward contracts (12) 41 -- Long-term payables 70 35 -- Other 70 65 23 ------- ------- ------- $ 1,131 $ 874 $ 563 ======= ======= =======
55 15. DEBT NOT MATURING WITHIN ONE YEAR
2001 2000 1999 ---- ---- ---- ALCAN INC Commercial paper -- CAN$ (a) $ 585 $ 897 $ -- Commercial paper -- US$ (a) 166 578 -- Long-term credit facilities (a) -- 250 -- Bank loans, due 2002/2005 (Euro 119 million) (b) 105 142 175 5.875% Debentures -- -- 150 5.375% Swiss franc bonds, due 2003 (c) 105 109 111 5.5% Euro note, due 2006 (Euro 600 million) 528 -- -- CARIFA loan (d) -- 60 60 6.25% Debentures, due 2008 200 200 200 9.5% Debentures (e) -- -- 100 9.625% Sinking fund debentures (e) -- -- 18 6.45% Debentures, due 2011 400 -- -- 7.25% Debentures, due 2031 400 -- -- 8.875% Debentures, due 2022 (e) 150 150 150 7.25% Debentures, due 2028 100 100 100 Other debt, due 2002 7 7 7 ALCAN DEUTSCHLAND GMBH AND SUBSIDIARY COMPANIES 5.65% Bank loans -- 7 8 5.06% Bank loans -- 12 -- Bank loans, due 2008/2013 (Euro 8 million) (b) 7 8 8 QUEENSLAND ALUMINA LIMITED Bank loans, due 2002/2006 (b) 84 77 70 Other debt -- -- 9 ALCAN HOLDINGS SWITZERLAND AG 6.75% Swiss franc bond -- 92 -- 4.5% Bank loan, due 2002 (CHF100 million) 59 61 -- ALCAN FINANCE LTD Euro Medium Term Note Program (EMTN) EMTN, due 2002 (Euro 400 million) (f) 352 372 -- EMTN, due 2008 (Euro 13 million) (f) 11 12 -- EMTN, due 2008 (Euro 8 million) (f) 7 8 -- ALA (NEVADA) INC 2.75% Bank loan, due 2005 (b) 60 60 -- EMTN -- 33 -- ALCAN PACKAGING CANADA LIMITED 5.69% Bank loan, due 2003 35 35 -- 6.24% Bank loan, due 2004 30 30 -- SWISS ALUMINIUM AUSTRALIA LTD Bank loans (b) -- 62 -- OTHER Bank loans, due 2002/2011 (b) 84 86 117 4% Eurodollar, due 2003 (g) 14 14 14 Other debt, due 2002/2036 47 66 25 ------- ------- ------- 3,536 3,528 1,322 Debt maturing within one year included in current liabilities (652) (333) (311) ------- ------- ------- $ 2,884 $ 3,195 $ 1,011 ======= ======= =======
56 (a) The Company has two long-term, global, multi-year and multi-currency facilities with a syndicate of major international banks each amounting to $1,000 ($1,000 and $1,750 in 2000). The facilities expire in tranches at various dates in 2002, 2005 and 2006. These facilities are also available as back-up for commercial paper issued by the Company in Canada and the U.S. at market rates. At December 31, 2001, the entire amount of commercial paper borrowings has been classified as debt not maturing within one year since the Company had both the intent and ability, through its long-term credit facilities, to refinance the borrowings on a long-term basis. At December 31, 2000, the entire amount of commercial paper borrowings as well as the $250 borrowed under the above facilities had been classified as debt not maturing within one year since the Company had both the intent and ability, through its long-term credit facilities, to refinance the borrowings on a long-term basis. Commercial paper borrowings of principal amount CAN$940 million (CAN$1,368 million in 2000) were swapped for $599 ($894 in 2000) through the use of forward exchange contracts. Commercial paper borrowings of principal amount $307 ($518 in 2000) with a rate tied to U.S. LIBOR had been swapped for CHF505 million (CHF920 million in 2000) with a rate tied to CHF LIBOR for the period to May 2002. (b) Interest rates fluctuate principally with the lender's prime commercial rate, the commercial bank bill rate, or are tied to LIBOR rates. (c) The Swiss franc bonds were issued as CHF178 million and were swapped for $105 at an effective interest rate of 8.98%. (d) The Caribbean Basin Projects Financing Authority (CARIFA) loan was repaid at par. (e) The 8.875% debentures were redeemed in January 2002 at a price of 104.15%. The loss on redemption of $6 will be included in Other (income) expenses -- net in 2002. In 2000, $18 ($132 in 1999) of the 9.625% debentures were redeemed at face value (104.64% in 1999). The 1999 loss on redemption of $6 was included in Other (income) expenses -- net. The 9.5% debentures were redeemed in January 2000 at a price of 104.64%. The loss on redemption of $3 was included in Other (income) expenses -- net in 2000. (f) The EMTN notes of principal amounts of Euro400 million, Euro13 million and Euro8 million with rates tied to EURIBOR or LIBOR were swapped for CHF608 million, (pound)9 million and (pound)5 million, respectively. (g) Debenture holders are entitled to receive at their option 1,772 common shares held by the Company in NLM, a portfolio investment, in exchange for each ten thousand dollar principal amount of debentures. The Company can redeem the debentures at 100% of the principal. The Company has swapped, to 2002, the interest payments on $59 ($61 in 2000) 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 $652 in 2002, $245 in 2003, $103 in 2004, $86 in 2005 and $555 in 2006. 16. 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 2001, 2000 and 1999, there were authorized and outstanding 5,700,000 series C and 3,000,000 series E redeemable non-retractable preference shares with stated values of $106 and $54, respectively. Preference shares, series C and E are eligible for quarterly dividends based on an amount related to the average of the Canadian prime interest rates quoted by two major Canadian banks for stated periods. The dividends on series C and E preference shares are cumulative. Preference shares, series C and E may be called for redemption at the option of the Company on 30 days' notice at CAN$25.00 per share. Any partial redemption of preference shares must be made on a pro rata basis or by lot. 57 17. 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 2001 2000 1999 2001 2000 1999 ---- ---- ---- ---- ---- ---- OUTSTANDING -- BEGINNING OF YEAR 317,921 218,315 226,003 $ 4,597 $ 1,230 $ 1,251 ISSUED FOR CASH: Executive share option plan 2,158 521 886 55 13 19 Dividend reinvestment and share purchase plans 135 237 271 5 8 8 Issued in exchange for tendered algroup shares 688* 115,446** -- 30 3,476 -- Purchased for cancellation -- (16,598) (8,845) -- (130) (48) ------- ------- ------- -------- -------- -------- OUTSTANDING -- END OF YEAR 320,902 317,921 218,315 $ 4,687 $ 4,597 $ 1,230 ======= ======= ======= ======== ======== ========
* The 688 common shares were issued to acquire the remaining algroup shares in accordance with the provisions of Swiss law. ** 115,386 common shares were issued in accordance with the Company's share exchange offer; 60 common shares were issued after the Company's share exchange offer. Under the executive share option plan, certain employees may purchase common shares at market value on the effective date of the grant of each option. The vesting period for options granted beginning in 1998 is linked to Alcan's share price performance, but does not exceed nine years. Options granted before 1998 vest generally over a fixed period of four years from the grant date and expire at various dates during the next 10 years. Changes in the number of shares under option as well as average exercise price are summarized below:
Average exercise price (CAN$) Number (in thousands) ----------------------------- ------------------------ 2001 2000 1999 2001 2000 1999 ---- ---- ---- ---- ---- ---- OUTSTANDING -- BEGINNING OF YEAR $43.20 $40.91 $38.16 7,326 5,472 5,156 Granted $50.96 $46.52 $45.41 1,945 2,422 1,315 Exercised $39.85 $35.75 $32.76 (2,158) (521) (886) Cancelled $39.08 $31.37 $31.80 (5) (47) (113) ------ ------ ------ -- --- ---- OUTSTANDING -- END OF YEAR $46.34 $43.20 $40.91 7,108 7,326 5,472 ====== ====== ====== ===== ===== =====
RANGE OF EXERCISE PRICES FOR OPTIONS OUTSTANDING AT DECEMBER 31, 2001
Range of Exercise Prices (CAN$) Number of Options (in thousands) ------------------------------- -------------------------------- $21.94 - $34.00 93 $34.01 - $40.00 541 $40.01 - $46.00 1,378 $46.01 - $52.00 4,370 $52.01 - $59.35 726 ----- 7,108 =====
58 At December 31, 2001, approximately 4,665,000 (2000: 4,913,000; 1999: 3,099,000) of outstanding options with an average exercise price of CAN$44.91 (2000: CAN$41.56; 1999: CAN$38.12) were vested. Upon consummation of the combination with Alusuisse Group Ltd, described in note 5, all options granted under the Company's executive share option plan prior to the consummation were vested. At December 31, 2001, the Company had reserved for issue under the executive share option plan 15,700,844 shares. The Company does not recognize compensation expense for options granted under the executive share option plan. If the Company had elected to recognize compensation expense for these options in accordance with the methodology prescribed by Statement No. 123 of the U.S. Financial Accounting Standards Board (FASB), net income would have been lower by $5, or $0.02 per share ($29, or $0.12 per share, in 2000 and $13, or $0.06 per share, in 1999). The FASB provides the choice of either recognizing the compensation expense in the financial statements or disclosing it in the notes to the financial statements. To compute the notional compensation expense, the Black-Scholes valuation model was used to determine the fair value of the options granted. Using the model, the fair value of options averages approximately 31% to 37% of the exercise price. In addition, a small number of employees are entitled to receive stock price appreciation units whereby they are entitled to receive cash in an amount equal to the excess of the market value of a share on the date of exercise over the market value of a share as of the date of grant of such units. In 2001, 311,060 such units were granted of which none were vested. The vesting period is linked to Alcan's share price performance, but does not exceed nine years. In June 2000, the Company obtained authorization, which terminated on June 18, 2001, to repurchase up to 21,800,000 common shares under a normal course issuer bid. In 2001, no common shares were purchased under this authorization and in 2000, 16,598,100 common shares were purchased and cancelled at a cost of $530. In 1999, 8,845,000 common shares for an amount of $219 were purchased and cancelled under a previous authorization. SHAREHOLDER RIGHTS PLAN In 1990, shareholders approved a plan whereby each common share of the Company carries one right to purchase additional common shares. The plan, with certain amendments, was reconfirmed at the 1995 Annual Meeting and further amendments were approved at the 1999 Annual Meeting. The rights under the plan are not currently exercisable but may become so upon the acquisition by a person or group of affiliated or associated persons ("Acquiring Person") of beneficial ownership of 20% or more of the Company's outstanding voting shares or upon the commencement of a takeover bid. Holders of rights, with the exception of an Acquiring Person, in such circumstances will be entitled to purchase from the Company, upon payment of the exercise price (currently $100.00), such number of additional common shares as can be purchased for twice the exercise price based on the market value of the Company's common shares at the time the rights become exercisable. The plan has a permitted bid feature which allows a takeover bid to proceed without the rights under the plan becoming exercisable, provided that it meets certain minimum specified standards of fairness and disclosure, even if the Board does not support the bid. The plan expires in 2008, subject to reconfirmation at the Annual Meeting of Shareholders in 2002 and 2005 but may be redeemed earlier by the Board, with the prior consent of the holders of rights or common shares, for $0.01 per right. In addition, should a person or group of persons acquire outstanding voting shares pursuant to a permitted bid or a share acquisition in respect of which the Board has waived the application of the plan, the Board shall be deemed to have elected to redeem the rights at $0.01 per right. 18. RETAINED EARNINGS Consolidated retained earnings at December 31, 2001, include $3,243 of undistributed earnings of subsidiaries and joint ventures, some part of which may be subject to certain taxes and other restrictions on distribution to the parent company; no provision is made for such taxes because these earnings are reinvested in the businesses. 59 19. COMMITMENTS AND CONTINGENCIES The Company has guaranteed the repayment of approximately $17 of indebtedness by third parties. Alcan believes that none of these guarantees is likely to be invoked. Commitments with third parties and certain related companies for supplies of goods and services are estimated at $175 in 2002, $94 in 2003, $103 in 2004, $86 in 2005, $86 in 2006, and $884 thereafter. Total payments to these entities, excluding $218 in relation to the smelter at Alma, were $36 in 2001, $106 in 2000 and $18 in 1999. In 1997, as part of the claim settlement arrangements related to the British Columbia Government's cancellation of the Kemano Completion Project, Alcan received the right to transfer a portion of a power supply contract with BC Hydro to a third party. Alcan sold the right to supply this portion to Enron Power Marketing Inc. (EPMI), a subsidiary of Enron Corporation (Enron) for cash consideration. In order to obtain the consent of BC Hydro to this sale, Alcan was required to retain residual liability for EPMI's obligations arising from the supply contract, including in the event that EPMI became unable to perform. This contingent liability is subject to a maximum aggregate amount of $100, with mitigation and subrogation rights. On December 2, 2001, EPMI and Enron filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The Company is unable to estimate reasonably the amount of the contingent loss, if any, after mitigation, which might arise in respect of this matter. Minimum rental obligations are estimated at $48 in 2002, $36 in 2003, $29 in 2004, $26 in 2005, $20 in 2006 and $100 thereafter. Total rental expenses amounted to $72 in 2001, $58 in 2000 and $57 in 1999. Alcan, in the course of its operations, is subject to environmental and other claims, lawsuits and contingencies. The Company has environmental contingencies relating to approximately 30 existing and former Alcan sites and third-party sites. Accruals have been made in specific instances where it is probable that liabilities will be incurred and where such liabilities can be reasonably estimated. Environmental provisions were recorded in 2001 for treatment costs relating to spent potlining in Canada and for remediation costs relating to red mud disposal and other sites in Canada and the U.K. 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 8, capital expenditures in note 12, debt repayments in note 15, financial instruments and commodity contracts in note 21 and subsequent event in note 27. 20. CURRENCY GAINS AND LOSSES The following are the amounts recognized in the financial statements:
2001 2000 1999 ---- ---- ---- CURRENCY GAINS (LOSSES) EXCLUDING REALIZED DEFERRED TRANSLATION ADJUSTMENTS: Forward exchange contracts and currency options $ 15 $ 34 $ (23) Other (23) (2) (15) ----- ----- ----- $ (8) $ 32 $ (38) ----- ----- ----- DEFERRED TRANSLATION ADJUSTMENTS -- BEGINNING OF YEAR $ (20) $ (76) $ 30 Effect of exchange rate changes (133) 9 (100) Losses (Gains) realized* 2 47 (6) ----- ----- ----- BALANCE -- END OF YEAR $(151) $ (20) $ (76) ===== ===== =====
* The loss realized in 2000 related principally to the sale of the Company's investment in Indian Aluminium Company, Limited. The gain realized in 1999 related principally to the sale of a portion of the Company's investment in Nippon Light Metal Company, Ltd. In 2001, $6 ($26 in 2000 and $25 in 1999) of exchange losses relates to hedging of Canadian dollar construction costs of the new smelter at Alma, Quebec. In 2001, these costs are included in Property, plant and equipment -- cost and in 2000 and 1999, were included in Construction work in progress. In addition, see note 8 for amounts of exchange gains and losses included in income taxes. 60 21. FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS In conducting its business, the Company uses various derivative and non-derivative 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. DERIVATIVES -- CURRENCY In order to hedge certain identifiable foreign currency revenue and operating cost exposures as well as certain capital commitments, the Company enters into forward exchange and option contracts. Also, as indicated in note 15, certain of the Company's foreign currency denominated debts have been swapped.
Outstanding at December 31 2001 2000 1999 - -------------------------- ----------------- ----------------- ----------------- Financial NOTIONAL MARKET NOTIONAL MARKET NOTIONAL MARKET Instrument Hedge AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE - ---------------- ----- ------ ----- ------ ----- ------ ----- Forward exchange Future firm net operating contracts cash flows $ 933 $ (16) $ 2,248 $ 14 $ 507 $ 29 Options Future firm operating cost commitments 220 (1) 58 (2) 199 4 Forward exchange Future commitments(1) 20 -- 212 -- 490 8 contracts Options Future commitments(1) -- -- -- -- 55 1 Forward exchange Intercompany foreign currency contracts denominated loans 415 (7) 193 (3) 204 -- Cross currency To swap US$ commercial interest swap paper borrowings for CHF(2) 307 3 518 (48) -- -- Cross currency To swap CAN$ commercial interest swap paper borrowings to US$(3) 599 (9) 894 17 -- -- Cross currency To swap 5.375% CHF178 million interest swap bonds to US$(4) 105 -- 105 4 105 6 Cross currency To swap Euro 400 million medium interest swap term notes to CHF608 million(5) 360 (8) 373 1 -- -- Cross currency To swap Euro 21 million medium interest swap term notes to (pound)14 million(5) 20 (2) 21 -- -- --
(1) Mainly Canadian dollar, principally for the construction of the smelter at Alma, Quebec. (2) An amount of $8 ($(48) in 2000) has been recorded in the balance sheet. Because the swap is hedging an intercompany CHF loan, it has no net income impact. The CHF920 million swap outstanding at December 31, 2000, matured in February 2001. The CHF505 million swap outstanding at the end of the current year matures in May 2002. (3) An amount of $(12) ($12 in 2000) related to the swap of the principal has been recorded in Deferred charges and other assets. The CAN$1,368 million swap outstanding at December 31, 2000, matured during the current year. The CAN$940 million swap outstanding at December 31, 2001, matures at various dates in 2002. (4) The 5.375% Swiss franc bonds of principal amount of CHF178 million have been swapped for $105 at an effective interest rate of 8.98%. An amount of nil related to the swap of the principal ($4 in 2000 and $6 in 1999) has been recorded in Deferred charges and other assets. The swap matures in April 2003. (5) Part of the Euro Medium Term Note Program. An amount of $(8) ($1 in 2000) has been recorded in the balance sheet. Unrealized gains and losses on outstanding forward contracts and options are not recorded in the financial statements until maturity of the underlying transactions. Included in Deferred charges and other assets and Other receivables is an amount of nil ($1 in 2000 and $42 in 1999) consisting of net losses on terminated forward exchange contracts and options, as well as the net cost of outstanding options, used to hedge future costs. These deferred charges are included in the cost of the items being hedged at the same time as the underlying transactions being hedged are recognized. 61 DERIVATIVES -- INTEREST RATES The Company sometimes enters into interest rate swaps to manage funding costs as well as the volatility of interest rates. Amounts receivable or payable related to swaps are recorded in Interest concurrently with the interest expense on the underlying debt. Changes in the fair value of the interest rate swaps are not recognized on a mark-to-market basis since these relate specifically to interest costs on identifiable debt. If all interest rate swap agreements had been closed out on December 31, 2001, the Company would have paid $1 (received $2 in 2000). There were no significant interest rate swap agreements outstanding at December 31, 1999. DERIVATIVES AND 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 while retaining most of the benefit from higher metal prices. At December 31, 2001, the Company had outstanding forward contracts (principally forward purchase contracts) covering 650,400 tonnes (410,650 tonnes at December 31, 2000 and 326,800 tonnes at December 31, 1999), maturing at various dates principally in 2002, 2003 and 2004 (2001, 2002 and 2003 at December 31, 2000; 2000, 2001 and 2002 at December 31, 1999). In addition, the Company held call options outstanding for 379,925 tonnes (175,650 tonnes at December 31, 2000 and 135,500 tonnes at December 31, 1999) maturing at various dates in 2002 and 2003 (2001 and 2002 at December 31, 2000; 2000 and 2001 at December 31, 1999). At December 31, 2001, the Company had put options outstanding for 42,000 tonnes, maturing in 2002 (151,000 tonnes maturing in 2001, 2002 and 2003 at December 31, 2000 and 27,300 tonnes maturing in 2000 and 2001 at December 31, 1999). Included in Other receivables or Deferred charges and other assets is $12 ($23 in 2000 and $7 in 1999) 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, 2001, if all commodity forward purchase and sale contracts and options had been closed out, the Company would have paid $25 (received $10 in 2000 and $64 in 1999). DERIVATIVES -- OIL As a hedge of future oil purchases, as at December 31, 2001, the Company had outstanding approximately 5.4 million barrels (18.1 million barrels at December 31, 2000) of oil futures, maturing at various times in the years 2002 to 2004 (2001 to 2006 at December 31, 2000). Based on oil prices prevailing on December 31, 2001, if all these futures had been closed out, the Company would have paid $2 (paid $7 in 2000). DERIVATIVES -- NATURAL GAS As a hedge of future natural gas purchases, as at December 31, 2001, the Company had outstanding approximately 184 contracts for a total purchase of 5.3 million decatherms of natural gas, maturing at various times throughout 2002. Based on natural gas prices prevailing at December 31, 2001, if all these futures had been closed out, the Company would have paid $4. 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, 2001, the fair value of the Company's long-term debt totalling $3,536 ($3,528 in 2000 and $1,322 in 1999) was $3,579 ($3,516 in 2000 and $1,323 in 1999), based on market prices for the Company's fixed rate securities and the book value of variable rate debt. At December 31, 2001, the quoted market value of the Company's portfolio investments having a book value of $31 ($31 in 2000 and $21 in 1999) was $39 ($46 in 2000 and $39 in 1999). At December 31, 2001, the market value of the Company's preference shares having a book value of $160 ($160 in 2000 and 1999) was $128 ($139 in 2000 and 1999). The market values of all other financial assets and liabilities are approximately equal to their carrying values. 62 22. SUPPLEMENTARY INFORMATION
2001 2000 1999 ---- ---- ---- INCOME STATEMENT Interest on long-term debt $ 218 $ 123 $ 104 Capitalized interest $ (30) $ (81) $ (41) ------- ------- ------- BALANCE SHEET Payables Income and other taxes $ 203 $ 170 $ 31 Accrued employment costs $ 242 $ 288 $ 205 Short-term borrowings $ 555 $1,080 $ 167
At December 31, 2001, the weighted average interest rate on short-term borrowings was 4.9% (6.5% in 2000 and 6.7% in 1999) STATEMENT OF CASH FLOWS Interest paid $ 265 $ 161 $ 128 Income taxes paid $ 213 $ 203 $ 96 ------- ------- -------
23. POST-RETIREMENT BENEFITS Alcan and its subsidiaries have established pension plans in the principal countries where they operate, generally open to all employees. Most plans provide pension benefits that are based on the employee's highest average eligible compensation before retirement. Pension payments are periodically adjusted for cost of living increases, either by Company practice, collective agreement or statutory requirement. Plan assets consist primarily of listed stocks and bonds. Alcan's funding policy is to contribute the amount required to provide for benefits attributed to service to date, with projection of salaries to retirement, and to amortize unfunded actuarial liabilities for the most part over periods of 15 years or less, generally corresponding to the expected average remaining service life of the employees. All actuarial gains and losses are amortized over the expected average remaining service life of the employees. The Company provides life insurance benefits under some of its retirement plans. Certain early retirement arrangements also provide for medical benefits, generally only until the age of 65. These plans are generally not funded.
Pension Benefits Other Benefits 2001 2000 1999 2001 2000 1999 ---- ---- ---- ---- ---- ---- CHANGE IN BENEFIT OBLIGATION Benefit obligation at January 1 $ 6,317 $ 4,047 $ 3,827 $ 201 $ 186 $ 176 Service cost 120 83 99 5 5 4 Interest cost 376 255 241 15 12 11 Members' contributions 26 21 21 -- -- -- Benefits paid (346) (217) (209) (12) (10) (10) Amendments 153 435 66 -- (1) 3 Acquisitions/divestitures (71) 2,047 (5) -- 27 -- Actuarial (gain) loss 23 (263) 59 8 (18) 2 Currency (gains) losses (84) (91) (52) -- -- -- ------- ------- ------- ------- ------- ------- Benefit obligation at December 31 $ 6,514 $ 6,317 $ 4,047 $ 217 $ 201 $ 186 ======= ======= ======= ======= ======= =======
63
Pension Benefits Other Benefits 2001 2000 1999 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- CHANGE IN MARKET VALUE OF PLAN ASSETS (ASSETS) Assets at January 1 $ 7,014 $ 4,917 $ 4,298 $ 5 $ -- $ -- Actual return on assets (537) 250 800 -- -- -- Members' contributions 26 21 21 -- -- -- Benefits paid (346) (217) (209) (2) -- -- Company contributions 80 44 44 1 -- -- Acquisitions/divestitures (117) 2,087 -- -- 5 -- Currency gains (losses) (73) (88) (37) -- -- -- ------- ------- ------- ------- ------- ------- Assets at December 31 $ 6,047 $ 7,014 $ 4,917 $ 4 $ 5 $ -- ------- ------- ------- ------- ------- ------- Assets in excess of (less than) benefit obligation $ (467) $ 697 $ 870 $ (213) $ (196) $ (186) Unamortized -- actuarial (gains) losses (193) (1,311) (1,115) (24) (39) (17) -- prior service cost 653 590 246 1 1 2 ------- ------- ------- ------- ------- ------- NET ASSET (LIABILITY) IN BALANCE SHEET $ (7) $ (24) $ 1 $ (236) $ (234) $ (201) ======= ======= ======= ======= ======= =======
The accumulated benefit obligation (ABO) of pension plans is $5,938 ($5,867 in 2000 and $3,661 in 1999). For certain plans, the ABO exceeds the market value of the assets. For these plans, the ABO is $2,414 ($588 in 2000 and $158 in 1999) while the market value of the assets is $1,882 ($308 in 2000 and $28 in 1999).
Pension Benefits Other Benefits 2001 2000 1999 2001 2000 1999 ---- ---- ---- ---- ---- ---- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 120 $ 83 $ 99 $ 5 $ 5 $ 4 Interest cost 376 255 241 15 12 11 Expected return on assets (480) (345) (301) (1) -- -- Amortization -- actuarial gains (47) (102) (86) (1) (2) (3) -- prior service cost 89 89 76 -- -- (4) Curtailment/settlement (gains) losses 40 -- -- -- -- -- ----- ----- ----- ----- ----- ----- NET PERIODIC BENEFIT COST $ 98 $ (20) $ 29 $ 18 $ 15 $ 8 ===== ===== ===== ===== ===== =====
Pension Benefits Other Benefits 2001 2000 1999 2001 2000 1999 ---- ---- ---- ---- ---- ---- WEIGHTED AVERAGE ASSUMPTIONS AT DECEMBER 31 Discount rate 6.1% 6.3% 6.5% 6.9% 7.3% 6.9% Average compensation growth 3.6% 3.7% 4.3% 4.4% 4.5% 5.0% Expected return on assets 7.3% 7.0% 7.3% 8.5% n/a n/a ==== ==== ==== ==== ==== ====
The assumed health care cost trend rate used for measurement purposes is 8% for 2002, decreasing gradually to 4.9% in 2006 and remaining at that level thereafter. A one percentage point change in assumed health care cost trend rates would have the following effects:
Other Benefits 1% 1% Increase Decrease -------- -------- SENSITIVITY ANALYSIS Effect on service and interest costs 1 (1) Effect on benefit obligation 10 (9) -- --
64 24. INFORMATION BY GEOGRAPHIC AREAS
Location 2001 2000 1999 -------- ---- ---- ---- SALES AND OPERATING REVENUES Canada $ 585 $ 625 $ 620 - -- THIRD PARTIES (BY DESTINATION) United States 4,598 3,665 3,067 Brazil 470 465 371 United Kingdom 1,065 600 450 Germany 1,388 756 641 Switzerland 194 65 25 Other Europe 2,347 1,475 1,224 Australia 39 131 60 Asia and Other Pacific 1,710 1,228 817 All other 230 138 49 ---------- --------- --------- Total $ 12,626 $ 9,148 $ 7,324 SALES AND OPERATING REVENUES Canada $ 2,127 $ 2,042 $ 1,852 - -- INTERCOMPANY (BY ORIGIN) United States 541 563 528 Brazil 64 44 56 United Kingdom 408 373 327 Germany 242 181 147 Switzerland 676 237 75 Other Europe 612 151 34 Australia 288 114 72 Asia and Other Pacific 5 9 -- All other 190 322 260 ---------- --------- --------- Sub-total 5,153 4,036 3,351 Consolidation eliminations (5,153) (4,036) (3,351) ---------- --------- --------- Total $ -- $ -- $ -- ---------- --------- --------- Sales to subsidiary companies are made at fair market prices recognizing volume, continuity of supply and other factors. SALES AND OPERATING REVENUES Canada $ 1,045 $ 915 $ 941 - -- THIRD PARTIES (BY ORIGIN) United States 4,355 3,713 3,119 Brazil 424 443 334 United Kingdom 913 565 445 Germany 2,022 1,401 1,196 Switzerland 1,436 414 50 Other Europe 1,100 599 470 Australia 208 137 60 Asia and Other Pacific 1,014 857 611 All other 109 104 98 ---------- --------- --------- Total $ 12,626 $ 9,148 $ 7,324 ---------- --------- --------- NET INCOME Canada $ (54) $ 295 $ 111 (LOSS)(*) (**) United States 137 155 178 Brazil 29 34 5 United Kingdom (139) 10 18 Germany 19 43 30 Switzerland (14) 1 3 Other Europe (4) 25 13 Australia 87 59 36 Asia and Other Pacific (30) (22) 46 All other (38) 48 33 Consolidation eliminations 12 (30) (13) ---------- --------- --------- Total $ 5 $ 618 $ 460 ========== ========= =========
(*) In 2001, net income includes after-tax charges (income) pertaining to restructuring and merger integration costs, revisions to environmental provisions, impairment provisions, business disposal loss and a prior year tax adjustment of $200 for Canada, $23 for the United States, $2 for Brazil, $163 for the United Kingdom, $(3) for Germany, $11 for Switzerland, $42 for Other Europe, $1 for Australia, $4 for Asia and Other Pacific and $90 for All other. See note 7. (**) If presented to reflect the effect of prior years' income tax reassessments described in note 8, in addition to the net benefit of $31 recorded in Canada in 1999, net income in Canada in 1999 would be increased by a further $68 and decreased by $52 in the United States, $8 in the United Kingdom and $8 in Germany. In 2000, net income in Canada would be increased by a further $25 and decreased by $14 in the United States, $5 in the United Kingdom and $6 in Germany. 65
Location 2001 2000 1999 -------- ---- ---- ---- CAPITAL ASSETS AND GOODWILL Canada $ 4,114 $ 4,002 $ 3,050 NET AT DECEMBER 31(*) United States 1,689 1,579 681 Brazil 731 736 743 United Kingdom 826 1,047 444 Germany 1,166 1,322 499 Switzerland 718 752 34 Other Europe 1,794 1,713 113 Australia 1,199 959 71 Asia and Other Pacific 607 626 504 All other 81 296 295 ---------- --------- --------- Total $ 12,925 $ 13,032 $ 6,434 ---------- --------- --------- CAPITAL EXPENDITURES Canada $ 399 $ 1,097 $ 845 AND BUSINESS ACQUISITIONS United States 196 113 63 Brazil 61 42 86 United Kingdom 94 49 41 Germany 73 55 49 Switzerland 45 18 2 Other Europe 124 79 19 Australia 416 12 4 Asia and Other Pacific 79 239 154 All other 27 31 35 ---------- --------- --------- Total $ 1,514 $ 1,735 $ 1,298 ---------- --------- --------- AVERAGE NUMBER OF EMPLOYEES Canada 12 11 11 (in thousands) United States 10 5 4 Brazil 3 3 3 United Kingdom 6 3 3 Germany 8 4 4 Switzerland 4 1 -- Other Europe 6 2 2 Australia 1 -- -- Asia and Other Pacific 2 5 8 All other 1 3 3 ---------- --------- --------- Total 53 37 38 ---------- --------- ---------
(*) In 2001, Capital assets and goodwill -- net includes asset write-offs of $31 for Canada, $33 for the United States, $1 for Brazil, $127 for the United Kingdom, $8 for Germany, $4 for Switzerland, $7 for Other Europe and $11 for Asia and Other Pacific. 66 25. INFORMATION BY OPERATING SEGMENT The following presents selected information by operating segment, viewed on a stand-alone basis. The four operating segments are Primary Metal; Aluminum Fabrication, Americas and Asia; Aluminum Fabrication, Europe; and Packaging. Transactions between operating segments are conducted on an arm's-length basis and reflect market prices. Thus, earnings from the Primary Metal group is mainly profit on metal produced by the Company, whether sold to third parties or used in the Company's Fabrication and Packaging groups. Earnings from the Fabrication and Packaging groups represent only the fabricating profit on rolled and packaging products and downstream businesses. The accounting principles used to prepare the information by operating segment are the same as those used to prepare the consolidated financial statements of the Company except that the pension costs for the operating segments are based on the normal current service cost with all actuarial gains, losses and other adjustments being included in Intersegment and other. Some Corporate office and certain other costs have been allocated to the respective operating segments. Effective January 1, 2002, a new operating management structure comprised of six business groups was put in place. The six business groups are Bauxite, Alumina and Specialty Chemicals; Primary Metal; Rolled Products Americas and Asia; Rolled Products Europe; Engineered Products; and Packaging.
Sales and operating revenues Intersegment Third parties 2001 2000 1999 2001 2000 1999 ---- ---- ---- ---- ---- ---- Primary Metal $ 2,136 $ 1,667 $ 1,317 $ 3,000 $ 2,123 $ 1,689 Aluminum Fabrication, Americas and Asia 173 82 80 3,816 3,929 3,402 Aluminum Fabrication, Europe 231 289 268 2,919 1,854 1,524 Packaging 60 58 55 2,861 1,216 681 Intersegment and other (2,600) (2,096) (1,720) 30 26 28 ------ ------ ------ -------- ------- ------- $ -- $ -- $ -- $ 12,626 $ 9,148 $ 7,324 ------ ------ ------ -------- ------- -------
EBITDA 2001 2000 1999 - ------ ---- ---- ---- Primary Metal $ 1,117 $ 994 $ 557 Aluminum Fabrication, Americas and Asia 325 296 349 Aluminum Fabrication, Europe 159 164 144 Packaging 352 73 43 ------- ------- ------- EBITDA from operating segments 1,953 1,527 1,093 Depreciation and amortization (820) (545) (477) Restructuring, impairment and other special charges (657) -- -- Intersegment and other (40) 32 182 Corporate office (75) (49) (37) Interest (254) (78) (76) Income taxes (42) (254) (211) Minority interests 13 1 (14) ------- ------- ------- NET INCOME BEFORE AMORTIZATION OF GOODWILL $ 78 $ 634 $ 460 ------- ------- ------- NET INCOME AFTER AMORTIZATION OF GOODWILL $ 5 $ 618 $ 460 ======= ======= =======
Included in 2001 EBITDA for Primary Metal and Packaging are $1 and $(5) related to rationalization costs (write-back of provision), respectively. Restructuring, impairment and other special charges for 2001 includes $300 for Primary Metal, $20 for Aluminum Fabrication, Americas and Asia, $201 for Aluminum Fabrication, Europe, $95 for Packaging and $41 for Intersegment and other. Included in 2001 Intersegment and other is a loss on the sale of Jamaican bauxite and alumina operations of $123. Included in 2000 EBITDA for Primary Metal and Packaging are $18 and $26 related to rationalization costs, respectively. Included in 1999 EBITDA for Primary Metal is $38 related to rationalization costs. Included in 1999 Intersegment and other are a gain of $44 from the sale of the Company's piston operations in Germany, a gain of $37 from the sale of a portion of the Company's portfolio investment in NLM, a gain of $19 from the sale of property in the U.K. and a gain of $8 from the sale of a subsidiary in France. 67
Total assets at December 31 2001 2000 1999 - --------------------------- ---- ---- ---- Primary Metal $ 7,974 $ 7,772 $ 4,793 Aluminum Fabrication, Americas and Asia 2,717 2,949 2,848 Aluminum Fabrication, Europe 2,919 3,326 1,299 Packaging 3,533 3,712 405 Cash and other corporate items 336 648 504 ------- ------- ------- $17,479 $18,407 $ 9,849 ======= ======= =======
Depreciation and amortization Capital expenditures 2001 2000 1999 2001 2000 1999 ---- ---- ---- ---- ---- ---- Primary Metal $ 351 $ 243 $ 232 $ 941 $1,114 $ 907 Aluminum Fabrication, Americas and Asia 156 154 140 158 365 303 Aluminum Fabrication, Europe 134 76 67 126 110 60 Packaging 166 62 28 266 97 20 Intersegment and other 13 10 10 23 49 8 ------ ------ ------ ------ ------ ------ $ 820 $ 545 $ 477 $1,514 $1,735 $1,298 ====== ====== ====== ====== ====== ======
26. PRIOR YEAR AMOUNTS Certain prior year amounts have been reclassified to conform with the 2001 presentation. 27. SUBSEQUENT EVENT On February 8, 2002, the Company announced that it had concluded an agreement to purchase a 20% interest in the 243,000-tonne Aluminerie Alouette smelter located in Sept-Iles, Quebec, Canada, at a cost of approximately $165 from the Societe generale de financement du Quebec. The transaction is subject to the approval of the Aluminerie Alouette owners in accordance with the requirements of the consortium agreement as well as applicable regulatory approvals and the completion of due diligence and corresponding final approval by the Company's Board of Directors. The transaction is expected to be completed on or about April 30, 2002. QUARTERLY FINANCIAL DATA (in millions of US$, except where indicated)
(unaudited) First Second Third Fourth Year - ----------- -------- -------- -------- -------- -------- 2001 Revenues $ 3,270 $ 3,162 $ 3,157 $ 3,037 $ 12,626 Cost of sales and operating expenses 2,577 2,474 2,484 2,464 9,999 Depreciation and amortization 196 204 204 216 820 Income taxes 58 101 67 (184) 42 Other items 284 291 232 880 1,687 -------- -------- -------- -------- -------- Net income (loss) before amortization of goodwill 155 92 170 (339) 78 Amortization of goodwill 18 18 19 18 73 -------- -------- -------- -------- -------- Net income (loss)(1) $ 137 $ 74 $ 151 $ (357) $ 5 Dividends on preference shares 2 2 2 2 8 -------- -------- -------- -------- -------- Net income (loss) attributable to common shareholders $ 135 $ 72 $ 149 $ (359) $ (3) -------- -------- -------- -------- -------- Net income (loss) per common share before amortization of goodwill (basic and diluted) (in US$)(2) $ 0.48 $ 0.28 $ 0.52 $ (1.06) $ 0.22 Amortization of goodwill per common share (in US$)(2) 0.06 0.05 0.06 0.06 0.23 -------- -------- -------- -------- -------- Net income (loss) per common share (basic and diluted) (in US$)(2) $ 0.42 $ 0.23 $ 0.46 $ (1.12) $ (0.01) Net income (loss) under U.S. GAAP(3) $ 74 $ 94 $ 104 $ (326) $ (54) -------- -------- -------- -------- --------
(1) (2) (3) See page 69 68
(unaudited) First Second Third Fourth Year - ----------- -------- -------- -------- -------- -------- 2000 Revenues $ 1,962 $ 2,025 $ 1,979 $ 3,182 $ 9,148 Cost of sales and operating expenses 1,454 1,560 1,530 2,569 7,113 Depreciation and amortization 116 114 120 195 545 Income taxes 104 88 34 28 254 Other items 114 110 114 264 602 -------- -------- -------- -------- -------- Net income before amortization of goodwill 174 153 181 126 634 Amortization of goodwill -- -- -- 16 16 -------- -------- -------- -------- -------- Net income(1) $ 174 $ 153 $ 181 $ 110 $ 618 Dividends on preference shares 2 3 2 3 10 -------- -------- -------- -------- -------- Net income attributable to common shareholders $ 172 $ 150 $ 179 $ 107 $ 608 -------- -------- -------- -------- -------- Net income per common share before amortization of goodwill (basic and diluted) (in US$)(2) $ 0.78 $ 0.70 $ 0.85 $ 0.39 $ 2.50 Amortization of goodwill per common share (in US$)(2) -- -- -- 0.05 0.05 -------- -------- -------- -------- -------- Net income per common share (basic and diluted) (in US$)(2) $ 0.78 $ 0.70 $ 0.85 $ 0.34 $ 2.45 Net income under U.S. GAAP(3) $ 171 $ 152 $ 179 $ 104 $ 606 ======== ======== ======== ======== ========
1999 Revenues $ 1,822 $ 1,776 $ 1,820 $ 1,906 $ 7,324 Cost of sales and operating expenses 1,468 1,396 1,390 1,441 5,695 Depreciation and amortization 118 117 116 126 477 Income taxes 34 69 71 37 211 Other items 164 123 85 109 481 -------- -------- -------- -------- -------- Net income(1) $ 38 $ 71 $ 158 $ 193 $ 460 Dividends on preference shares 3 1 3 2 9 -------- -------- -------- -------- -------- Net income attributable to common shareholders $ 35 $ 70 $ 155 $ 191 $ 451 -------- -------- -------- -------- -------- Net income per common share (basic and diluted) (in US$)(2) $ 0.16 $ 0.32 $ 0.71 $ 0.87 $ 2.06 Net income under U.S. GAAP(3) $ 38 $ 67 $ 160 $ 190 $ 455 -------- -------- -------- -------- --------
(1) The first quarter of 2001 includes after-tax charges for the impairment in value of fixed assets of $70 for Jamaica and rationalization costs of $1. The second quarter of 2001 includes an after-tax charge of $20 for post-closing adjustments relating to the divestment of Jamaica, partly offset by a write-back of rationalization costs of $4 in the U.K. The results for the fourth quarter of 2001 includes a net non-recurring after-tax charge of $446. This includes a $166 charge related to the restructuring program announced on October 17, 2001, and a $37 charge related to the synergy program announced in the fourth quarter of 2000 in relation to the merger with algroup. Also included are impairment provisions of $88 in relation to certain assets and capitalized project costs, a $167 charge related to environmental reserves, and a favourable prior year tax adjustment of $12. The second quarter of 2000 included an after-tax gain of $6 from disposal of property and a gain of $10 from the demutualization of the Company's life insurance providers. This was offset in part by a non-operating exceptional provision of $9 in the U.S., merger costs of $4 and rationalization costs of $2. The third quarter of 2000 included favourable tax adjustments of $43, partially offset by asset write-offs of $12. The fourth quarter of 2000 included non-cash merger charges related to the merger with algroup of $25, rationalization charges in respect of the closure of foil operations at Rogerstone in the U.K. of $18, asset write-offs of $6, partially offset by favourable tax adjustments of $14. The second quarter of 1999 included an after-tax gain of $26 on the sale of the Company's piston operations in Germany and a restructuring charge of $20 relating to the Company's Full Business Potential program. The third quarter of 1999 included after-tax gains on the sale of businesses, principally a further sale of shares in NLM in Japan and the Company's building products business in France, totalling $47, as well as rationalization costs of $5 in Primary Metal. The fourth quarter of 1999 included a favourable tax adjustment in Canada relating to prior periods of $31, a gain on disposal of property, principally in the U.K. of $17, offset in part by $8 from rationalization costs in the U.K. and Jamaica. (2) Net income per common share calculations are based on the average number of common shares outstanding in each period. See note 4. (3) See note 6 to the consolidated financial statements for explanation of differences between Canadian and U.S. GAAP. 69 ELEVEN-YEAR SUMMARY
2001 2000 1999 1998 1997 1996 ------ ------ ----- ----- ----- ----- CONSOLIDATED INCOME STATEMENT ITEMS (in millions of US$) Sales and operating revenues 12,626 9,148 7,324 7,789 7,777 7,614 Cost of sales and operating expenses 9,999 7,113 5,695 6,076 6,005 5,919 Depreciation and amortization 820 545 477 462 436 431 Selling, administrative and general expenses 547 405 375 448 444 422 Research and development expenses 135 81 67 70 72 71 Interest 254 78 76 92 101 125 Other (income) expenses -- net* 767 43 (52) (12) (34) 13 Income taxes 42 254 211 210 248 212 Equity income (loss) 3 4 (1) (48) (33) (10) Minority interests 13 1 (14) 4 (4) (1) ------ ------ ----- ----- ----- ----- Net income (Loss) before amortization of goodwill and extraordinary item 78 634 460 399 468 410 Amortization of goodwill 73 16 -- -- -- -- ------ ------ ----- ----- ----- ----- Net income (Loss) before extraordinary item 5 618 460 399 468 410 Extraordinary gain (loss) -- -- -- -- 17 -- ------ ------ ----- ----- ----- ----- Net income (Loss) 5 618 460 399 485 410 ------ ------ ----- ----- ----- ----- Net income (Loss) attributable to common shareholders (3) 608 451 389 475 394 ------ ------ ----- ----- ----- ----- CONSOLIDATED BALANCE SHEET ITEMS (in millions of US$) Operating working capital 1,370 1,968 1,307 1,682 1,483 1,461 Capital assets and goodwill -- net 12,925 13,032 6,434 5,897 5,458 5,470 Total assets 17,479 18,407 9,849 9,901 9,374 9,228 Total debt 4,091 4,608 1,489 1,789 1,515 1,516 Deferred income taxes 1,006 1,227 781 747 969 996 Preference shares 160 160 160 160 203 203 Common shareholders' equity 8,631 8,867 5,381 5,359 4,871 4,661 ------ ------ ----- ----- ----- ----- PER COMMON SHARE (in US$) Net income (Loss) before amortization of goodwill and extraordinary item 0.22 2.50 2.06 1.71 2.02 1.74 Net income (Loss) before extraordinary item (0.01) 2.45 2.06 1.71 2.02 1.74 Net income (Loss) (0.01) 2.45 2.06 1.71 2.09 1.74 Dividends paid 0.60 0.60 0.60 0.60 0.60 0.60 Common shareholders' equity 26.90 27.89 24.65 23.71 21.43 20.57 Market price -- NYSE close 35.93 34.19 41.38 27.06 27.63 33.63 ----- ----- ----- ----- ----- ----- OPERATING DATA (in thousands of tonnes except for LME price) CONSOLIDATED ALUMINUM SHIPMENTS Ingot products (includes primary and secondary ingot, trading and scrap) 1,419 974 859 829 858 810 Rolled products 1,937 1,855 1,609 1,603 -- -- Aluminum used in engineered products and packaging 553 352 302 220 -- -- ----- ----- ----- ----- ----- ----- Total fabricated products 2,490 2,207 1,911 1,823 1,694 1,539 Conversion of customer-owned metal 344 328 315 289 276 258 ----- ----- ----- ----- ----- ----- Total aluminum volume 4,253 3,509 3,085 2,941 2,828 2,607 Consolidated primary aluminum production 2,042 1,562 1,518 1,481 1,429 1,407 Consolidated aluminum purchases 1,822 1,670 1,297 1,227 1,254 1,003 Consolidated aluminum inventories (end of year) 539 568 477 469 451 408 PRIMARY ALUMINUM CAPACITY Consolidated subsidiaries 2,252 1,899 1,583 1,706 1,558 1,561 Total consolidated subsidiaries and related companies 2,252 1,899 1,583 1,706 1,695 1,698 Average three-month LME price (US$ per tonne) 1,454 1,567 1,388 1,379 1,620 1,536 ----- ----- ----- ----- ----- ----- OTHER STATISTICS Cash from operating activities (in millions of US$) 1,387 1,066 1,182 739 719 981 Cash from (used for) financing activities (in millions of US$) (247) 781 (629) (95) (46) (700) Cash from (used for) investment activities (in millions of US$) (1,275) (2,083) (838) (656) (587) 178 Capital expenditures (in millions of US$) 1,110 1,491 1,169 805 641 482 Business acquisitions (in millions of US$) 404 244 129 72 -- -- Ratio of total borrowings to equity (%) 32:68 33:67 21:79 24:76 23:77 23:77 Average number of employees (in thousands) 53 37 38 36 33 34 Common shareholders -- registered (in thousands at end of year) 18 19 20 20 21 22 Common shares outstanding (in millions at end of year) 321 318 218 226 227 227 Registered in Canada (%)** 79 76 61 60 61 61 Registered in the United States (%) 21 24 39 39 39 39 Registered in other countries (%) -- -- -- 1 -- -- Return on average common shareholders' equity (%) -- 10 9 7 10 9 ----- ----- ----- ----- ----- -----
70 ELEVEN-YEAR SUMMARY
1995 1994 1993 1992 1991 ------ ------ ----- ----- ----- CONSOLIDATED INCOME STATEMENT ITEMS (in millions of US$) Sales and operating revenues 9,287 8,216 7,232 7,596 7,748 Cost of sales and operating expenses 7,247 6,740 6,002 6,300 6,455 Depreciation and amortization 447 431 443 449 429 Selling, administrative and general expenses 484 528 551 596 635 Research and development expenses 76 72 99 125 131 Interest 204 219 212 254 246 Other (income) expenses -- net* (39) (14) 31 49 81 Income taxes 326 112 (13) (17) (104) Equity income (loss) (3) (29) (12) 53 89 Minority interests 4 (3) 1 (5) -- Net income (Loss) before amortization of goodwill and extraordinary item 543 96 (104) (112) (36) Amortization of goodwill -- -- -- -- -- ------ ------ ----- ----- ----- Net income (Loss) before extraordinary item 543 96 (104) (112) (36) Extraordinary gain (loss) (280) -- -- -- -- ------ ------ ----- ----- ----- Net income (Loss) 263 96 (104) (112) (36) ------ ------ ----- ----- ----- Net income (Loss) attributable to common shareholders 239 75 (122) (135) (56) ------ ------ ----- ----- ----- CONSOLIDATED BALANCE SHEET ITEMS (in millions of US$) Operating working capital 1,731 1,675 1,314 1,460 1,717 Capital assets and goodwill -- net 5,672 5,534 6,005 6,256 6,525 Total assets 9,736 10,003 9,812 10,154 10,843 Total debt 1,985 2,485 2,652 2,794 3,024 Deferred income taxes 979 914 888 955 1,126 Preference shares 353 353 353 353 212 Common shareholders' equity 4,482 4,308 4,096 4,266 4,730 ------ ------ ----- ----- ----- PER COMMON SHARE (in US$) Net income (Loss) before amortization of goodwill and extraordinary item 2.30 0.34 (0.54) (0.60) (0.25) Net income (Loss) before extraordinary item 2.30 0.34 (0.54) (0.60) (0.25) Net income (Loss) 1.06 0.34 (0.54) (0.60) (0.25) Dividends paid 0.45 0.30 0.30 0.45 0.86 Common shareholders' equity 19.84 19.17 18.28 19.06 21.17 Market price -- NYSE close 31.13 25.38 20.75 17.63 20.00 ----- ----- ----- ----- ----- OPERATING DATA (in thousands of tonnes except for LME price) CONSOLIDATED ALUMINUM SHIPMENTS Ingot products (includes primary and secondary ingot, trading and scrap) 801 897 887 870 866 Rolled products -- -- -- -- -- Aluminum used in engineered products and packaging -- -- -- -- -- ----- ----- ----- ----- ----- Total fabricated products 1,733 1,763 1,560 1,389 1,333 Conversion of customer-owned metal 225 189 91 206 145 ----- ----- ----- ----- ----- Total aluminum volume 2,759 2,849 2,538 2,465 2,344 Consolidated primary aluminum production 1,278 1,435 1,631 1,612 1,695 Consolidated aluminum purchases 1,365 1,350 865 675 591 Consolidated aluminum inventories (end of year) 449 435 403 418 463 PRIMARY ALUMINUM CAPACITY Consolidated subsidiaries 1,561 1,561 1,711 1,711 1,676 Total consolidated subsidiaries and related companies 1,712 1,712 1,862 1,862 1,827 Average three-month LME price (US$ per tonne) 1,830 1,500 1,161 1,278 1,333 ----- ----- ----- ----- ----- OTHER STATISTICS Cash from operating activities (in millions of US$) 1,044 65 444 465 659 Cash from (used for) financing activities (in millions of US$) (744) (191) (172) (44) 197 Cash from (used for) investment activities (in millions of US$) (273) 71 (339) (450) (857) Capital expenditures (in millions of US$) 390 264 251 389 819 Business acquisitions (in millions of US$) 51 92 119 85 61 Ratio of total borrowings to equity (%) 29:71 35:65 37:63 37:63 37:63 Average number of employees (in thousands) 39 42 46 49 54 Common shareholders - registered (in thousands at end of year) 23 26 28 32 34 Common shares outstanding (in millions at end of year) 226 225 224 224 223 Registered in Canada (%)** 61 55 59 69 68 Registered in the United States (%) 38 44 40 30 31 Registered in other countries (%) 1 1 1 1 1 Return on average common shareholders' equity (%) 5 2 (3) (3) (1) ----- ----- ----- ----- -----
* 2001 includes Restructuring, impairment and other special charges. ** Shares held by former algroup shareholders are registered in Canada. See note 6 to the consolidated financial statements for U.S. GAAP information. 71 CORPORATE GOVERNANCE The management of the business and affairs of Alcan is supervised by its Board of Directors. 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, other applicable legislation and Company policies. Issues concerning corporate governance receive the active attention of the Board of Directors with the objective of enhancing shareholder value. The Board of Directors and management are of the view that the Board's supervision mandate can best be accomplished by ensuring that the Directors are kept well informed of the affairs of the Company and by allowing management the necessary flexibility to carry out its duties. Alcan's system of governance is consistent with the Toronto Stock Exchange guidelines for effective corporate governance. A point-by-point comparison of these guidelines with the Company's governance practices is outlined in the Management Proxy Circular issued in connection with the forthcoming Annual Meeting of Shareholders, a copy of which is available through CIBC Mellon Trust Company at the address indicated on page 76. Alcan does not have a controlling shareholder. The Committees of the Board assist the full Board in carrying out its functions and make recommendations to it on various matters. Membership of these Committees is made up of non-employee Directors and is indicated on the following page. The CORPORATE GOVERNANCE COMMITTEE has the responsibility for reviewing Board practices and performance. It reviews candidates for Directors and membership of Board Committees and considers appointments to the positions of Chairman of the Board and 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 reviews financial statements as well as proposals for the issue of securities. The ENVIRONMENT, HEALTH AND SAFETY COMMITTEE has the responsibility for reviewing policy, management systems and performance with respect to environment, health and safety matters. The PERSONNEL COMMITTEE has the responsibility for reviewing personnel policy and employee relations matters, including issues relating to compensation. 72 DIRECTORS AND OFFICERS (As at January 1, 2002) DIRECTORS JOHN R. EVANS, C.C.(1, 3, 5, 8) Chairman of the Board, Montreal Age 72, director since 1986 W. R. C. BLUNDELL, O.C.(1, 3, 7) Director of various companies, Toronto Age 74, director since 2000 and formerly from 1987 to 1999 CLARENCE J. CHANDRAN(3, 5, 7) Director of various companies, Cary, North Carolina Age 52, appointed on October 22, 2001 MARTIN EBNER(3, 7) Chairman, BZ Group Holding Limited, Wilen, Switzerland Age 56, director since 2000 TRAVIS ENGEN President and Chief Executive Officer, Alcan Inc., Montreal Age 57, director since 1996 WILLI KERTH(5, 7) Director, Alcan Aluminium Valais Ltd., Neuhausen, Switzerland Age 65, director since 2000 BRIAN M. LEVITT(1, 7) Co-Chair of Osler, Hoskin & Harcourt LLP, Montreal Age 54, appointed on October 22, 2001 J. E. NEWALL, O.C.(4, 5, 7) Chairman, NOVA Chemicals Corporation, Calgary Age 66, director since 1985 GUY SAINT-PIERRE, O.C.(2, 3, 7) Chairman, SNC-Lavalin Group Inc., Montreal Age 67, director since 1994 GERHARD SCHULMEYER(1, 7) President, Gerhard LLC, Greenwich, Connecticut Age 63, director since 1996 PAUL M. TELLIER, C.C.(1, 6, 7) President and Chief Executive Officer, Canadian National Railway Company, Montreal Age 62, director since 1998 OFFICERS TRAVIS ENGEN President and Chief Executive Officer, Office of the President RICHARD B. EVANS Executive Vice President, Office of the President BRIAN W. STURGELL* Executive Vice President, Office of the President GEOFFERY E. MERSZEI Executive Vice President and Chief Financial Officer EMERY P. LEBLANC** Executive Vice President, President, Primary Metal MICHAEL HANLEY Senior Vice President, President, Bauxite, Alumina and Specialty Chemicals CYNTHIA CARROLL Senior Vice President, President, Primary Metal CHRISTOPHER BARK-JONES Senior Vice President, President, Rolled Products Europe KURT WOLFENSBERGER Executive Vice President, President, Engineered Products ARMIN WEINHOLD Senior Vice President, President, Alcan Packaging ROBERT L. BALL Executive Vice President, Value-Added Business and Manufacturing Systems DANIEL GAGNIER Senior Vice President, Corporate and External Affairs*** DAVID MCAUSLAND Senior Vice President, Mergers and Acquisitions and Chief Legal Officer GASTON OUELLET Senior Vice President, Human Resources GLENN R. LUCAS Vice President and Treasurer RICHARD GENEST Vice President and Controller MICHEL JACQUES Vice President, Strategic Management Support ROY MILLINGTON Corporate Secretary (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 * Also interim President, Rolled Products Americas and Asia. ** Retires on March 31, 2002. *** Including Environment, Health and Safety. 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 London and Swiss stock exchanges. The transfer agents for the common shares are CIBC Mellon Trust Company in Montreal, Toronto, Winnipeg, Regina, Calgary and Vancouver, Mellon Investor Services L.L.C. in New York, and CIBC Mellon Trust Company in England. Common share dividends are paid quarterly on or about the 20th of March, June, September and December to shareholders of record on or about the 20th of February, May, August and November, respectively. PREFERENCE SHARES The preference shares are listed on the Toronto Stock Exchange. The transfer agent for the preference shares is CIBC Mellon Trust Company. INVESTMENT PLANS The Company offers holders of common shares two convenient ways of buying additional Alcan common shares without payment of brokerage commissions. These are known as the Dividend Reinvestment Plan and the Share Purchase Plan. Copies of the prospectus describing these Plans may be obtained from CIBC Mellon Trust Company at the address on page 76. SECURITIES REPORTS FOR 2001 The Company's annual filing 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, 2002. Copies may be obtained from CIBC Mellon Trust Company at the address on page 76.
DIVIDEND PRICES* AND AVERAGE DAILY TRADING VOLUMES -------- -------------------------------------------------------------------------------- NEW YORK STOCK EXCHANGE (US$) TORONTO STOCK EXCHANGE (CAN$) ----------------------------------- ---------------------------------- 2001 Quarter US$ High Low Close Avg. Daily High Low Close Avg. Daily Volume Volume - ----------------------------------------------------------------------------------------------------------- First 0.150 39.95 32.00 36.00 1,276,751 61.85 48.05 56.55 1,041,080 Second 0.150 48.75 35.35 42.02 1,457,047 73.88 55.75 63.80 1,080,973 Third 0.150 44.25 28.00 30.00 1,171,068 67.90 42.75 47.42 915,442 Fourth 0.150 38.10 28.65 35.93 1,262,222 60.49 45.50 57.15 821,281 ----- ----- ----- ----- --------- ----- ----- ----- ------- Year 0.600 ----- 2000 Quarter First 0.150 45-15/16 30-4/16 34-1/16 1,364,008 67.25 44.30 48.55 944,659 Second 0.150 35-10/16 29-1/16 31 1,189,854 52.50 42.90 46.00 827,276 Third 0.150 35-4/16 28-3/16 28-15/16 983,691 52.00 41.95 43.70 859,522 Fourth 0.150 35-3/16 28-3/16 34-3/16 1,652,341 53.00 42.50 51.35 1,221,086 ----- ----- ----- ----- --------- ----- ----- ----- ------- Year 0.600 -----
* The share prices are those reported as "New York Stock Exchange -- Consolidated Trading" and reported by the Toronto Stock Exchange. 74 GLOSSARY INDUSTRY-RELATED TERMS ALLOY A substance with metallic properties, composed of two or more chemical elements of which at least one is a metal, such as aluminum, and produced to have certain specific characteristics. ALUMINA A white, powdery substance produced from bauxite by a chemical process during which aluminum oxide is extracted from the ore. Between four and five tonnes of bauxite are required to produce about two tonnes of alumina, which yield one tonne of aluminum. ALUMINUM The most common metal on earth, constituting 8% of the earth's crust but never found in its pure form. Aluminum metal is produced by separating aluminum from oxygen in alumina. BAUXITE An ore or rock composed of hydrous aluminum oxides and aluminum hydroxides. The most economic source of aluminum, it is predominantly found in tropical and sub-tropical regions. CONTRACT PACKAGING A clean room environment, providing solid and liquid dose (tablets, capsules, liquids or ointments) packaging of bulk products into blisters, bottles, cartons, cards, plastic tubes or kits -- many of which one would find on pharmacy shelves. ENGINEERED PRODUCTS A basic aluminum fabricated product that has been mechanically, and at times thermally, altered to create special properties for specific purposes. Examples are rod, wire and cable, castings, composites, extrusions and/or components for various systems or end-use markets. FABRICATED PRODUCTS Generally comprise rolled products and other engineered products. FOIL A thin sheet of metal, around 0.006 inch (0.15 millimeter) thick or less, and widely used in the packaging, household and industrial markets. INGOT A cast form suitable for fabricating or remelting. Sometimes called sheet ingot, foundry ingot or extrusion billet, ingots and billets can be produced in a wide range of alloys and purity levels and in different shapes and sizes. LONDON METAL EXCHANGE (LME) A metals trading centre for the Western World. The LME also determines the metal price (per tonne) for aluminum trading for current and future delivery. PACKAGING A range of flexible and specialty packaging produced from aluminum foil, paper, plastic, glass, paperboard, tinplate and laminated products into custom-designed consumer packaging solutions for the food and beverage, pharmaceutical, cosmetics/personal care and tobacco markets. RECYCLED METAL Remelted used beverage cans (UBCs) or any other post-consumer scrap as well as customer process scrap. Recycling aluminum only requires about 5% of the energy required to produce primary metal. ROLLED PRODUCTS Sheet ingots reduced in thickness by passing them between rollers in a series of reversing hot rolling mills and, finally, in a cold rolling mill. Aluminum sheet, often referred to specifically as either auto, can or lithographic sheet, is primarily used for the can and container, lithography, transportation and building end-use markets. SMELTING The process of producing primary aluminum through the electrolytic reduction of alumina. The molten aluminum is cast into ingots and then fabricated into a variety of products. SPECIALTY CHEMICALS Derived from chemical-grade alumina or alumina hydrate, the starting material for a wide variety of specialty chemical products. TOLLING The activity of converting customer-owned alumina into aluminum or rolling aluminum ingots into sheet products. FINANCIAL TERMS EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. EVA(R), ECONOMIC VALUE ADDED The registered trademark of Stern Stewart & Co. and a key measure of financial performance. The term means the difference between the return on capital and the cost for using that capital over the same period. RETURN ON AVERAGE COMMON SHAREHOLDERS' EQUITY (AT TIMES REFERRED TO AS ROE, OR RETURN ON EQUITY) Net income after preference share dividends, expressed as a percentage of average common shareholders' equity. 75 COMPANY INFORMATION DEFINITIONS The word "Alcan" or "Company" means Alcan Inc. and, where applicable, one or more consolidated subsidiaries. A "subsidiary" is a company controlled by Alcan. A "joint venture" is an association (incorporated or unincorporated) of companies jointly undertaking some commercial enterprise and proportionately consolidated to the extent of Alcan's participation. A "related company" is one in which Alcan has significant influence over management but owns 50% or less of the voting stock. The "Alcan Group" refers to Alcan Inc., its subsidiaries, joint ventures and related companies. "algroup" means Alusuisse Group Ltd (now Alcan Holdings Switzerland Ltd.). In this report, unless stated otherwise, all dollar amounts are stated in United States dollars and all quantities in metric tons, or tonnes. A tonne is 1,000 kilograms, or 2,204.6 pounds. The following abbreviations are used: /t per tonne kt thousand tonnes kt/y thousand tonnes per year Mt million tonnes Mt/y million tonnes per year FURTHER INFORMATION CONTACT FOR SHAREHOLDER ACCOUNT INQUIRIES: CIBC Mellon Trust Company 320 Bay Street, 3rd Floor Toronto, Ontario, Canada M5H 4A6 Telephone: (416) 643-5500 (collect call outside North America) or 1-800-387-0825 (toll free in North America) inquiries@cibcmellon.com MAILING ADDRESS: P.O. Box 7010 Adelaide Street Postal Station Toronto, Ontario, Canada M5C 2W9 INVESTOR CONTACT: Serge Michaud Director, Investor Relations Telephone: (514) 848-8368 investor.relations@alcan.com MEDIA CONTACT: Marc Osborne Director, External Communications Telephone: (514) 848-1342 media.relations@alcan.com Design and production: TM design communications Printing: Transcontinental Litho Acme Photos: All rights reserved 76 VISIT ALCAN'S WEB SITE: WWW.ALCAN.COM Further information on Alcan, its policies and its activities is available on Alcan's Internet site and contained in various Company publications. Copies of its policies and publications are also available by writing to the address on the back cover. VERSION FRANCAISE Pour obtenir la version francaise de ce rapport, veuillez ecrire a la Compagnie Trust CIBC Mellon a l'adresse indiquee a la page 76. ANNUAL MEETING The Annual Meeting of the holders of common shares of Alcan Inc. will be held on Thursday, April 25, 2002. The meeting will take place at 10:00 a.m. (EDT) in the Assembly Hall, International Civil Aviation Organization, Atrium Entrance, 999 University Street, Montreal, Quebec, Canada. [Logo] This report was printed using vegetable-based inks and is recyclable. 77 [Logo Alcan Inc.] 1188 Sherbrooke Street West Montreal, Quebec H3A 3G2 Canada www.alcan.com Mailing Address: P.O. Box 6090 Montreal, Quebec H3C 3A7 Canada Telephone: (514) 848-8000 Telecopier: (514) 848-8115 Printed in Canada EX-10.19 6 m06714ex10-19.txt EXHIBIT 10.19 EXHIBIT 10.19.: EMPLOYMENT AGREEMENT 31 December 2001 PERSONAL & CONFIDENTIAL Mr. Brian Sturgell Dear Brian: I wish to confirm my discussion with you pertaining to the position of Executive Vice President of Alcan Inc. and a member of the Office of the President, effective on 1 January 2002. You will report to me and you will be located in Montreal. This offer letter contains two sections. The first deals with the on-going annual compensation package while the second section deals with transfer and relocation issues. SECTION 1 SALARY Your base salary will be US$575,000 per annum, effective 1 January 2002. Your salary will be reviewed annually on the basis of competitive US compensation data. Your job grade will be administered at 55 under Alcan's structure. ANNUAL BONUS You will participate in Alcan's Executive Performance Award Plan (EPA) with a guideline bonus of 75% of the mid-point salary (US$588,000). Under the modified EPA program, award payment will be related to the global performance of Alcan Inc. as well as your own personal performance. LONG TERM INCENTIVE (STOCK OPTION AND RELATIVE TSR PROGRAM) At this point in time, we cannot provide you with all the specific details of the new Long Term Incentive Program. These should be available to you over the next few months. On the other hand we can confirm that the combined target compensation value of the two Plans (Stock Option and TSR Performance Plan) will be equal to approximately $1,750,000 for 2002 with half this value provided in stock options and the other half provided under the new TSR Performance Plan. The compensation value of $1,750,000 will be revised annually on the basis of competitive US compensation data. The Awards under both Plans are subject to approval by the Personnel Committee of the Board. 1 PENSION PLAN We are currently reviewing the pension coverage of senior executives and may propose some modifications pertaining to the different top hat programs in existence. Changes, if any, will be effective from 1 January 2002, but are not likely to be known before the end of the 1st Quarter 2002. Thus, on an interim basis, from 1 January 2002, you will continue to participate in your current pension plan, at the pensionable earnings level in existence on 31 December 2001. As soon as we complete the design of the executive top hat plan and its valuation, we will communicate the proposed changes. We intend to have this work completed by the end of the 1st Quarter 2002. TAX EQUALIZATION While working in Canada, we will provide you with a tax equalization payment to compensate for the tax differential between Canada and Cleveland (federal, state and local income taxes). The tax equalization will be applied to Base Salary, the EPA bonus payment and payments under the TSR Performance Plan. Recognizing that there are potentially different tax treatments on TSR's and stock options in the US and Canada, the intent is that the net affect be tax neutral to you compared to the US. In order to achieve this result you will be tax equalized on any excess taxes due from exercising TSR's in Canada offset by the savings, if any, of exercising stock options during the same tax year. PAY DISBURSEMENT AND BENEFITS We intend to maintain you as an employee of Alcan Management Services Limited (USA) as we assume that you will continue to be a resident of the USA. Our US payroll will disburse all payments. As such, you will continue to participate in all Employee Benefits and Pension programs available to US based employees. If you are deemed to be a resident of Canada these arrangements will be reviewed. SECTION II IMMIGRATION REQUIREMENTS You will be required to obtain the proper work permit from the Canadian authorities. Ms. Tracy Charpentier will work with you to achieve this. HOUSING AND TRAVELLING Your move will be handled under Alcancorp's Relocation Policy. Alcan will be responsible for the cost of selling your Cleveland property (customary costs) and for shipping your household goods and personal effects to South Carolina. While in Montreal, the Company will make available to you its executive apartment. During the length of this assignment, personal airfare transportation from Montreal to South Carolina (return) will be for your account. 2 TERMINATION Should your employment be terminated without cause, Alcan will pay you a termination allowance equal to 24 months base salary and EPA guideline, calculated at the date of termination, tax-equalized to Cleveland, Ohio if need be. The amount will be paid as a lump sum or as salary continuance at your choice. In the event you elect salary continuance, you will continue to participate in the benefit programs for the period of salary continuance except that the long-term disability plan and the accrual of vacation cease on termination date. No option grants are made during the salary continuance period. CHANGE IN ORGANIZATIONAL STRUCTURE In the event that the Board makes a change in the current Office of the President structure, which impacts on your future role in the organization, you will have the right to resign from Alcan if there is no mutually acceptable position for you in the new organization structure. You will have up to 3 months from the date of the organizational change to make the decision to resign. In this eventuality you shall be entitled to the termination provisions outlined above. CHANGE OF CONTROL/CONFIDENTIALITY/NON-COMPETITION Your current Change of Control Agreement continues to be in force. The amounts payable, if any, will be tax-equalized to Cleveland, Ohio. Furthermore, you are asked to sign the attached confidentiality and non-competitive agreement. ACCEPTANCE Please sign and return a copy of this letter indicating your acceptance of the terms and conditions described in it. The terms and conditions outlined in this letter replace any previous contractual arrangements and constitute the full terms and conditions of employment. /s/ Travis Engen ----------------------- Travis Engen Chief Executive Officer I accept the terms and conditions described above. /s/ Brian W. Sturgell 8 January 2002 - ------------------------------------ -------------- Brian W. Sturgell date 3 CONFIDENTIALITY AGREEMENT To Alcan Inc. In consideration of your agreeing to employ him as your Executive Vice President, the undersigned Employee acknowledges and agrees that his employment by the Employer under this Agreement necessarily involves his understanding of and access to certain trade secrets and confidential information pertaining to the business of the Employer. Accordingly, the Employee agrees that during the Employment Period and for a period of two (2) years following the Date of Termination, he will not, directly or indirectly, without the prior written consent of the Employer, disclose or use for the benefit of any person, corporation or other entity, or for himself any and all files, trade secrets or other confidential information concerning the internal affairs of the Employer or its subsidiaries or affiliates, including, but not limited to, information pertaining to its clients, services, products, earnings, finances, operations, methods or other activities; provided, however, that the foregoing shall not apply to information which is of public record or is generally known, disclosed or available to the general public or the industry generally. Notwithstanding the foregoing, the Employee may disclose such information as required by law during any legal proceeding or to the Employee's personal representatives and professional advisers and, with respect to such personal representatives and professional advisers, the Employee agrees to inform them of his obligations hereunder and take all reasonable steps to ensure that such professional advisers do not disclose the existence or substance hereof. Further, the Employee agrees that he shall not, directly or indirectly, remove or retain, without the express prior written consent of the Employer, and upon termination of employment for any reason shall return to the Employer, any records, computer disks, computer printouts, business plans or any copies or reproductions thereof, or any information or instruments derived therefrom, arising out of or relating to the business of the Employer or obtained as a result of his employment by the Employer. Signed by the Employee as of 8 January, 2002. /s/ Brian W. Sturgell ---------------------------------------------- Brian W. Sturgell 4 NON-COMPETITION UNDERTAKING To Alcan Inc. In consideration of your agreeing to employ me as your Executive Vice President, I acknowledge and undertake that until the expiry of two (2) years following the termination of my employment with the Company, I will not be entitled to act as an employee, director of or officer of, advisor to or material investor in any corporation, partnership, person or other entity which carries on any business which is materially competitive with the Company's principal lines of business. Entities which carry on businesses which are so materially competitive include without limitation, those which carry on any business which relates to the mining or refining of bauxite, the production and sale of alumina or primary aluminum, the production and sale of aluminum products and aluminum fabricated products (such as can sheet, foil, litho sheet and other flat rolled products, wire and cable, castings and extrusions), the trading of aluminum, the production and sale of packaging products for tobacco, pharmaceutical, cosmetics, health care, food or beverage products or any line of business carried on by the Company and accounting for at least five percent (5.0%) of its consolidated assets or gross revenues at the time of the termination of my employment. Nevertheless, no such business shall be considered to be materially competitive unless it is carried on in any of the jurisdictions in which the Company carries on business at the time of the termination of my employment. I acknowledge that in view of the position of extreme trust and confidence attached to my position as Employee of the Company, this undertaking is reasonable in all respects and essential to the protection of the Company and its shareholders. I shall continue to be bound by its terms of this undertaking notwithstanding the termination of my employment for any reason. For the purposes of the foregoing: the "Company" means Alcan Inc. as well as its subsidiaries, affiliates and joint ventures, and "Material Investor" means the holder of more than five per cent (5.0% ) of the outstanding voting or equity shares, units or similar interests. Signed by the Employee as of 8 January, 2002. /s/ Brian W. Sturgell ---------------------------------------------- Brian W. Sturgell 5 EX-10.20 7 m06714ex10-20.txt EXHIBIT 10.20 EXHIBIT 10.20: TOTAL SHAREHOLDER RETURN PERFORMANCE PLAN [LOGO A] ================================================================================ ALCAN INC. ALCAN LONG-TERM INCENTIVE PROGRAM o TSR Performance Plan Approved Plan Text MONTREAL, CANADA DECEMBER 2001 1 ================================================================================ [LOGO A] ================================================================================ 1. GENERAL INFORMATION The Alcan Long-Term Incentive Program is comprised of two separate plans. The first plan is the Alcan Total Shareholder Return Performance Plan and the second plan is Alcan Executive Share Option Plan. The text of the latter is included in the Circular dated April 28,1993. Following is the description of the Alcan Total Shareholder Return Performance Plan. 2. DEFINITIONS In this Plan, the following definitions shall have the following meanings: "ALCAN LTIP" means the Alcan Long-Term Incentive Program which includes the Alcan Executive Share Option Plan and the Alcan Total Shareholder Return Performance Plan; "AUDITORS" means PricewaterhouseCoopers LLP or any successor company; "AWARD" means an earned Award to a Key Employee in accordance with the provisions of the Plan; "AWARD AGREEMENT" means the written agreement evidencing an Award granted to a Key Employee under the Plan and approved by the Committee; "BOARD" means the Board of Directors of the Company; "CLOSING PRICES" means the closing sale prices for record lots for common shares as reported on the New York Stock Exchange - Consolidating Trading; "COMMITTEE" means the Personnel Committee of the Board; "COMPANY" means Alcan Inc. and any successor corporation whether by amalgamation, merger or otherwise; "DISABILITY" means the complete permanent inability of a Key Employee to perform all of his duties under the terms of his employment with the Company, as determined by the Committee upon the basis of such evidence, including independent medical reports and data as the Committee deems appropriate or necessary; "KEY EMPLOYEE" means an employee of the Company or a Subsidiary whose responsibilities and decisions, in the judgement of the Committee, directly affect the performance of the Company and its Subsidiaries and has been designated by the Committee as eligible to participate in the Plan; "PARTICIPANT" means an employee of the Company who is a Key Employee and who has received an Award under the Plan; 2 ================================================================================ [LOGO A] ================================================================================ "PERFORMANCE PERIOD" means the period over which performance for the purposes of an Award shall be measured; "PLAN" means the Alcan Total Shareholder Return Performance Plan; "RETIREMENT" means (unless otherwise determined by the Committee): i) retirement in accordance with the provisions of those retirement benefits plans of the Company or any Subsidiary covering the executive, or ii) the placing of a terminated executive a non-active payroll of the Company or a Subsidiary in order to permit such executive to attain early retirement age. "SHARE" means a common share of the Company; "SUBSIDIARY" means a company controlled, directly or indirectly, by Alcan; "TARGET CASH AWARD" means a target cash award granted to a Key Employee in accordance with the provisions of the Plan and approved by the Committee; "TSR" means the Total Shareholder Return, which is a financial measure as described in section 6.4; 3. ESTABLISHMENT AND PURPOSE 3.1. Establishment. The Company has established an incentive compensation plan known as the Alcan TSR Performance Plan. In an effort to increase the Key Employee's awareness of their role in improving shareholder value, the Committee has approved an executive total compensation plan that recognizes that long-term incentives are an integral part of the executive's compensation. 3.2. Purpose. The purpose of the Plan is to promote the achievement of long-term objectives of the Company i) by tying the Key Employee's long-term incentive opportunities to pre-established goals; ii) by rewarding performance, based on the successful achievement of the pre-established goals; and iii) by attracting, retaining and motivating highly competent Key Employees committed as a group to achieve results through teamwork. 3 ================================================================================ [LOGO A] ================================================================================ 4. ADMINISTRATION 4.1. The Plan shall be administered by the Committee. The Committee shall have full and complete authority to interpret the Plan and prescribe such rules and regulations and make such other determinations as it deems necessary or desirable for the administration of the Plan. 4.2. Amendment, Modification and Termination. The Committee may at any time and from time to time amend, suspend or terminate the Plan in whole or in part. 4.3. Costs of the Plan. All expenses associated with the establishment, maintenance and termination of the Plan shall be borne by the Company. 4.4. Tax Consequences. The Awards shall be subject to taxes as per the income tax rules of the Key Employee's country of residence. Participants are encouraged to inform themselves of their particular tax situation. All taxes shall be paid by the Participant. 4.5. Successors. All obligations of the Company under the Plan shall be binding on any successor to the Company. 5. ELIGIBILITY 5.1. Eligibility. The Plan provides for the granting of a Target Cash Award to designated Key Employees of the Company and its Subsidiaries. The Committee shall determine at its sole discretion, which Key Employees of the Company shall be eligible to be granted a TSR performance Target Cash Award. It shall also determine the conditions (amount, period) applicable to each Award. Eligibility to participate in the Plan does not confer a right to receive a Target Cash Award. There is no automatic entitlement to any grant. 6. AWARDS 6.1. Target Cash Award. The target amount of the Key Employee's Target Cash Award shall be determined through competitive market data using appropriate peer companies. The Committee shall approve annually the target long-term incentive compensation amount to be attributed to Key Employees. Half of this amount shall be delivered through the Plan and the other half through the Alcan Executive Share Option Plan. Employees eligible for participation in the Alcan LTIP but not eligible to participate in this Plan shall receive their long-term compensation amount entirely through the Alcan Executive Share Option Plan. 6.2. Amount of the Award. The amount of the Award, if any, shall be based on the Company's TSR performance at the end of the Performance Period as measured 4 ================================================================================ [LOGO A] ================================================================================ against the TSR performance of the S&P Industrials. 6.3. Award Frequency and Performance Period. Subject to the terms of the Plan (including sections 4.1, 4.2 and 5.1), Target Cash Awards shall generally be granted annually by the Committee, with each Target Cash Award having a Performance Period of 3 years. 6.4. Total Shareholder Return and Performance Measure. TSR shall be measured as a change in the market price of the common stock plus cumulative dividend yield over the Performance Period. At the end of the Performance Period, the TSR performance measurement shall be made for all companies in the S&P Industrials Index and the Company's performance will be ranked relative to the other industrial companies in the Index as of the end of the Performance Period. These measurements will be made by a third party and audited by the Company's Auditors. 6.5. Calculation of TSR Performance. The percentage change in stock price is equal to the ratio of (A) the average of the Closing Prices over the five trading days immediately preceding the end of the Performance Period over (B) the average of the Closing Prices over the five trading days immediately preceding the commencement of the Performance Period. Only companies that have been part of the Index for the full Performance Period shall be included in the calculation of TSR performance. 6.6. Payout Matrix. In order for any payout to be earned, the Company's TSR performance shall be at or above the 30th percentile rank of the companies ranked in the S&P Industrial Index. At the 30th percentile rank, a payout of 60% of the target Award shall be earned. At the 50th percentile rank, a payout of 100% of target Award shall be earned, and at the 75th percentile rank, a payout of 300% of the target Award shall be earned (maximum payout). The payout will be prorated between these rankings (see sample calculation at Appendix A). 6.7. Individual Performance. As with other elements of compensation, an Award shall be earned through individual performance. There shall be no entitlement to an Award. The actual target Award may also be subject to an upward or downward adjustment based on the individual's performance and contribution to the Company. 6.8. Payment of Awards. Subject to applicable law, payment with respect to earned Awards may be made in whole or in part in the form of cash and/or Shares of the Company, at the sole discretion of the Committee. 6.9. Award Agreement. A separate Agreement shall be entered into between the Company and the Participant to cover each Target Cash Award. This document shall be sent in duplicate to each Participant for signature. It describes the conditions applying to that particular Award (see Appendix B). 5 ================================================================================ [LOGO A] ================================================================================ 7. TERMINATION OF EMPLOYMENT 7.1. Termination of Employment Due to Death, Disability or Retirement. In the event of termination of employment due to Retirement (in accordance with the retirement programs rules), Disability or Death, the Participant will be entitled to a pro-rata payment of any Awards earned, payable at the time normally due and in accordance with such rules and regulations as may be adopted by the Committee. 7.2. Termination for Reasons Other than Death, Disability or Retirement. Termination of employment for any other reasons, including resignation, will result in forfeiture of any outstanding Awards under the Plan. In specific circumstances, the Committee may adopt rules to provide for partial payment as above. 8. BENEFICIARY DESIGNATION 8.1. Designation of Beneficiary. Each Participant shall advise the Company in a written designation, on a prescribed form, the name of the beneficiary who shall be entitled to receive a payout, if any, with respect to an Award upon his death (Appendix C). The Participant shall advise the Company of any change in any such information (see Appendix D). In the event that there shall be no designation of beneficiary made, any amounts to be paid to the Participant's beneficiary shall be paid to the Participant's estate. 8.2. Death of Beneficiary. In the event that the beneficiary predeceases the Participant, any amounts that would have been paid to the Participant or the Participant's beneficiary under the Plan shall be paid to the Participant's estate. 9. MISCELLANEOUS PROVISIONS 9.1. The effective date of the Plan is 1 January 2002. 9.2. The Plan shall be governed and interpreted in accordance with the laws of the Province of Quebec and the laws of Canada applicable in Quebec. 9.3. If any provision of the Plan is determined to be void or unenforceable in whole or in part, such determination shall not affect the validity or enforcement of any other provision or part thereof. 9.4. Headings are for reference purposes only and do not limit or extend the meaning of the provisions of the Plan. 9.5. References to the masculine shall include the feminine; references to the singular shall include the plural and vice versa. 6 ================================================================================ [LOGO A] ================================================================================ APPENDIX A [RATING CHART] EXAMPLE Target Award $100,000 Adjustment for personal performance $ 25,000 Adjusted Target Award $125,000 3-year performance rating x 200% at 62.5 percentile -------- $250,000 ========
Amount paid by end of April following the 3-year performance period. ================================================================================ 7 [LOGO A] ================================================================================ APPENDIX B ALCAN INC. TOTAL SHAREHOLDER RETURN (TSR) PERFORMANCE PLAN (LONG-TERM INCENTIVE CASH AWARD) AWARD AGREEMENT NAME AWARD YEAR: PERFORMANCE PERIOD: TARGET AWARD AMOUNT: You have been granted a 2002 Target Cash Award (shown above) under the TSR Performance Plan. This Award was approved by the Personnel Committee of the Board, effective 15 September 2002 and is subject to a three year Performance Period beginning 1 January 2003 and ending 31 December 2005. The payment value of this Award, if any, will be calculated on the Total Shareholder Return and Alcan's percentile rank relative to the Standard and Poor (S&P) Industrials at the end of the Performance Period. Total Shareholder Return is measured as the change in the market price of the common stock plus cumulative dividend yield over the Performance Period. The percentage change in stock price is equal to the ratio of (A) the average of the closing share prices over the five trading days immediately preceding the end of the Performance Period over (B) the average of the closing share prices over the five trading days immediately preceding the Performance Period. At the end of the Performance Period, TSR performance measurements will be made for Alcan and for all companies in the S&P Industrials Index. Alcan's TSR performance will be compared and ranked against the TSR performance of other industrial companies in the Index. Only companies that have been part of the Index for the full 3-year period will be included in the Index. The payout, if any, will be calculated by adjusting the target award by a performance factor related to Alcan's percentile rank relative to the S&P Industrials as follows: o At a relative rank below the 30th percentile no payout will be made o At a relative rank of the 30th percentile a payout of 60% of the target amount o At a relative rank of the 50th percentile a payout of 100% of the target amount o At a relative rank of the 75th percentile a payout of 300% of the target amount (300% is the maximum payout under the Schedule) o The payout will be prorated between these rankings. ================================================================================ 8 [LOGO A] ================================================================================ You must be continuously and actively employed by Alcan over the performance period to be eligible to receive any payment. The actual payment, if any, will be made as soon as practicable following completion of the Performance Period. If you terminate your employment during the Performance Period due to retirement, disability or death, your actual Award will be pro-rated for the period up to termination; the amount being paid at the prescribed time and according to such Rules and Regulations of the Plan adopted by the Committee. Please refer to the Plan description. Please indicate your acceptance of the above award, the terms and conditions as described herein and the attachments by executing both copies of this Award Agreement and returning one copy to Linda Eggeman, Alcan Inc., Maison Alcan, Montreal. I hereby accept the terms and conditions of this award: - -------------------------- ------------------------ Signature Date 9 ================================================================================ [LOGO A] ================================================================================ APPENDIX C ALCAN INC. TOTAL SHAREHOLDER RETURN PERFORMANCE PLAN BENEFICIARY DESIGNATION FORM I, _______________________________, being a Participant of the Total Shareholder Return Performance Plan (TSR Performance Plan), hereby designate the following person as my Beneficiary for purposes of the TSR Performance Plan and acknowledge that said person is: NAME: --------------------------------------------------------------------- ADDRESS: --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- Under the terms of the TSR Performance Plan, I reserve the right to revoke this designation and to designate another person as my Beneficiary. SIGNATURE: --------------------------------------------------------------------- EMPLOYEE NUMBER: --------------------------------------------------------------------- DATE: --------------------------------------------------------------------- ================================================================================ 10 [LOGO A] ================================================================================ APPENDIX D ALCAN INC. TOTAL SHAREHOLDER RETURN PERFORMANCE PLAN CHANGE OF BENEFICIARY FORM I, _______________________________, being a Participant of the Total Shareholder Return Performance Plan (TSR Performance Plan), hereby revoke the designation of ______________________________ as my Beneficiary for purposes of the TSR Performance Plan and designate instead: NAME: --------------------------------------------------------------------- ADDRESS: --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------------------------------------- Under the terms of the TSR Performance Plan, I reserve the right to revoke this designation and to designate another person as my Beneficiary. SIGNATURE: --------------------------------------------------------------------- EMPLOYEE NUMBER: --------------------------------------------------------------------- DATE: --------------------------------------------------------------------- ================================================================================ 11 EX-21 8 m06714ex21.txt EXHIBIT 21 EXHIBIT NO. 21.: SUBSIDIARIES, RELATED COMPANIES, ETC. With the exception of a number of subsidiaries which, considered in the aggregate, would not constitute a significant Subsidiary, the Subsidiaries of Alcan, as of 1 March 2002, are listed below. All subsidiaries and joint ventures named below are consolidated in the financial statements incorporated by reference in this report. The list also includes several Related Companies for which Alcan reports its interest in the net income or loss of such companies. Alcan is the direct owner of the stock of each Subsidiary or Related Company, except where the name is indented. Indentation signifies that the principal ownership by Alcan is through the company under which the indentation is made; where there is additional ownership through another company also listed below, that additional ownership is described in the end-note on page 6. ALCAN INC.
% OF VOTING ORGANIZED UNDER SHARES HELD BY SUBSIDIARIES, RELATED COMPANIES, ETC. THE LAWS OF IMMEDIATE OWNER - ------------------------------------- --------------- --------------- 3712001 CANADA INC. Canada 100.00 ALCAN-SPROSTONS LIMITED Jamaica 100.00 ALCAN ADMINCO (2000) INC. Canada 100.00 ALCAN ALLUMINIO S.p.A. Italy 100.00 ALCAN ALUMINIO (AMERICA LATINA) INC. Canada 100.00 ALCAN ALUMINUM CORPORATION Ohio 100.00 ALCAN ALUMINUM EXPORT, INC. Georgia 100.00 ALCAN CONNECTICUT, INC. Connecticut 100.00 ALCAN DE MEXICO, S.A. DE C.V. Mexico 100.00 ALCAN MANAGEMENT SERVICES USA INC. Ohio 100.00 ALCAN POWER MARKETING, INC. Ohio 100.00 LOGAN ALUMINUM INC. Delaware 40.00 ALCAN ASIA PACIFIC LIMITED Canada 100.00 ALCAN COMPOSITES DO BRASIL LTDA. Brazil 99.90 ALCAN EMPREENDIMENTOS LTDA. Brazil 100.00 ALCAN ALUMIINIO DO BRASIL LTDA. Brazil 100.00 MINERACAAO RIO DO NORTE S.A. Brazil 12.50 PETROCOQUE S.A. -- INDUSTRIA E COMERCIO Brazil 25.00 ALCAN EUROPE LIMITED England 100.00 ALCAN FINANCES B.V. The Netherlands 100.00 ALCAN FINANCES (Bda) LTD. Bermuda 100.00 ALCAN ASIA LIMITED Hong Kong 100.00 ALCAN NIKKEI ASIA HOLDINGS LTD. Bermuda 60.00 ALCAN NIKKEI SIAM LIMITED Thailand 63.00(9) ALCOM NIKKEI SPECIALTY COATINGS SDN. BHD. Malaysia 49.00(10) ALUMINIUM COMPANY OF MALAYSIA BERHAD Malaysia 49.15(12) NIKKEI HOLDINGS PTE. LIMITED Singapore 100.00 NIPPON LIGHT METAL COMPANY, LTD. Japan 8.40 NONFEMET INTERNATIONAL (China-Canada-Japan) ALUMINIUM COMPANY LIMITED China 45.00 ALCAN NIKKEI CHINA LIMITED Hong Kong 49.00 ALCAN (BERMUDA) LIMITED Bermuda 100.00 ALCAN SHIPPING (BERMUDA) LIMITED Bermuda 100.00 CHAMPLAIN INSURANCE COMPANY LTD. Bermuda 100.00 HALCO (MINING) INC. Delaware 33.00 COMPAGNIE DES BAUXITES DE GUINEE Delaware 51.00 QUADREM INTERNATIONAL HOLDINGS LTD. Bermuda 9.00 WHEATON PUERTO RICO INC. New Jersey 100.00 ALCAN FINANCES (IRELAND) LIMITED Canada 100.00 3088405 CANADA INC. Canada 100.00 ALCAN FINANCES (IRELAND) COMPANY Ireland 99.99(4) ALCAN SOUTH PACIFIC PTY LTD Australia 100.00 ALCAN NORTHERN ALUMINA PTY LIMITED Australia 100.00 ALCAN NORTHERN TERRITORY ALUMINA PTY LIMITED Australia 100.00
1 ALCAN INC.
% OF VOTING ORGANIZED UNDER SHARES HELD BY SUBSIDIARIES, RELATED COMPANIES, ETC. THE LAWS OF IMMEDIATE OWNER - ------------------------------------- ---------------- ---------------- GOVE ALUMINIUM LIMITED Australia 100.00 NABALCO Pty. LIMITED Australia 50.00 (21) ALCAN QUEENSLAND SMELTER PTY LTD Australia 100.00 QUEENSLAND ALUMINA LIMITED Australia 21.39 QUEENSLAND ALUMINA SECURITY CORPORATION Delaware 20.00 WENLOCK BAUXITE PTY LIMITED Australia 100.00 ALCAN ALUMINIUM AG Switzerland 100.00 ALCAN RORSCHACH AG Switzerland 100.00 ALCAN FINANCES (U.K.) England 100.00 ALCAN HOLDINGS IRELAND CO. Ireland 100.00 ALCAN DEUTSCHLAND HOLDINGS GmbH & Co. KG Germany 99.99 ALCAN DEUTSCHLAND GmbH Germany 90.00 (3) ALCAN LAMINES FRANCE France 40.00 (7)(8) ALUMINIUM HANDELSGESELLSCHAFT m.b.H. Austria 100.00 ALUMINIUM NORF GmbH Germany 50.00 DEUTSCHE ALUMINIUM VERPACKUNG RECYCLING GmbH Germany 16.70 (15) FRANCE ALUMINIUM RECYCLAGE SA France 20.00 (16) ALCAN HOLDINGS SWITZERLAND AG (SA/LTD.) Switzerland 100.00 AL HOLDING USA LLC Delaware 100.00 ALA (NEVADA) INC. Nevada 62.50 (1) ALCAN COMPOSITES USA INC. Missouri 100.00 ALUSUISSE ALUMINUM USA INC. Delaware 100.00 LAWSON MARDON THERMAPLATE CORPORATION New Jersey 100.00 LAWSON MARDON USA INC. Delaware 100.00 PHARMA CENTER SHELBYVILLE INC. Delaware 100.00 WHEATON USA INC. New Jersey 100.00 BEIJING WHEATON GLASS CORP. LTD. China 45.70 HBE FERMENTATION SYSTEMS INC. California 10.00 INTERNATIONAL GLASS EQUIPMENT LTD. Bahamas 100.00 LAWSON MARDON WHEATON OF CANADA INC. Ontario 100.00 POLAR MATERIALS INC. Pennsylvania 86.21 PC MATERIALS INC. Pennsylvania 50.00 POLYPLASMA INC. Canada 100.00 WHEATON PACIFIC LIMITED Hong Kong 99.80 ALCAN AIREX AG Switzerland 100.00 ALCAN ALESA ENGINEERING AG Switzerland 100.00 ALCAN ALESA TECHNOLOGIES LTD. Canada 100.00 ALCAN ALUCOBOND (FAR EAST) PTE LTD. Singapore 100.00 ALCAN ALUMINIO ESPANA, S.A. Spain 100.00 ALUSUISSE PORTUGAL LDA. Portugal 98.00 ALCAN ALUMINIUM VALAIS SA Switzerland 100.00 ALCAN AUSTRIA GmbH Austria 100.00 ALCAN HUNGARIA Kft. Hungary 100.00 ALUSUISSE ALPE ADRIA D.O.O. Slovenia 100.00 ALCAN CAPITAL JERSEY LIMITED The Island of Jersey 100.00 ALCAN FINANCE JERSEY LIMITED The Island of Jersey 100.00 ALCAN INVESTMENTS JERSEY LIMITED The Island of Jersey 100.00 ALCAN CAPITAL MARKET LTD. Switzerland 100.00 ALCAN DECIN EXTRUSIONS s.r.o. Czech Republic 100.00 ALCAN HOLDINGS EUROPE B.V. The Netherlands 72.73 (5) A-L FINANCIAL PRODUCTS LTD. England 100.00 ALCAN HOLDINGS FRANCE S.A. France 99.99 ALCAN CMIC SA France 100.00 ALCAN FRANCE EXTRUSIONS SA France 100.00
2 ALCAN INC.
% OF VOTING ORGANIZED UNDER SHARES HELD BY SUBSIDIARIES, RELATED COMPANIES, ETC. THE LAWS OF IMMEDIATE OWNER - ------------------------------------- --------------- --------------- ALCAN PACKAGING FRANCE SA France 100.00 BOXAL (FRANCE) S.A. France 100.00 CHARMETTES S.A. France 100.00 CIVILE IMMOBILIERE CELI France 99.50(14) COPAL SNC France 49.00 TECHPION RECHERCHE France 49.00 LAWSON MARDON MORIN S.A. France 100.00 LAWSON MARDON TRENTESAUX S.A. France 99.99 WHEATON FRANCE S.A. France 99.99 ALCAN HOLDINGS GERMANY GmbH Germany 99.24(6) ALCAN BDW BETEILIGUNGS GmbH Germany 100.00 ALCAN BDW GmbH & CO. KG Germany 100.00 ALCAN COMPOSITES LTD, SHANGHAI China 80.00 ALCAN KAPA GmbH Germany 100.00 ALCAN SINGEN GmbH Germany 100.00 TULE THYSSEN UMFORMTECHNIK Germany 24.90 ALCAN TOMOS d.o.o. Slovenia 66.67 LAWSON MARDON HANSE-DRUCK GmbH Germany 100.00 LAWSON MARDON SINGEN GmbH Germany 99.90(20) WERKWOHNUNGSGEMEINSCHAFT GbR Germany 99.00(23) ALUMINIUM-INDUSTRIE-WOHNBAU GmbH Germany 75.10(11) ALCAN HOLDINGS NEDERLAND B.V. The Netherlands 100.00 ALCAN NEDERLAND B.V. The Netherlands 100.00 S.A. ALCAN BELGIUM N.V. Belgium 99.37(22) ALU-VASTGOED B.V. The Netherlands 100.00 ALUMINIUM & CHEMIE ROTTERDAM B.V. The Netherlands 65.82(13) BOXAL NETHERLANDS B.V. The Netherlands 100.00 BOXAL SALES GmbH Germany 100.00 LAWSON MARDON AMSTERDAM B.V. The Netherlands 100.00 LAWSON MARDON BRABANT B.V. The Netherlands 100.00 LAWSON MARDON PICOPAC B.V. The Netherlands 100.00 ALCAN HOLDINGS UK LIMITED England 100.00 ALUSUISSE UK LIMITED England 100.00 LAWSON MARDON PACKAGING LTD. England 100.00 FLEATHAM ESTATES LIMITED England 100.00 FORMAN MARSHALL LIMITED England 100.00 HEADLEY (READING) LIMITED England 100.00 CELLOGLAS HOLDINGS LTD. England 100.00 ALCAN PRINT FINISHERS LTD. England 100.00 FIVE STAR CORPORATION LIMITED England 100.00 PROTECTA PRINT LIMITED England 100.00 UNIVERSAL COATINGS LIMITED England 100.00 WEST MIDLANDS FOIL BLOCKING LIMITED England 100.00 LUSTRETEX LTD. England 100.00 UV COMPANY LIMITED (THE) England 100.00 UVIPAK (FINISHING) LIMITED England 100.00 HEADLEY TRUSTEES LIMITED England 100.00 LAWSON MARDON GROUP INTERNATIONAL LIMITED England 100.00 LAWSON MARDON BAK GRAVUR BASKILI KARTON SANAYI VE TICARET A.S. Turkey 100.00 LAWSON MARDON KAZAKHSTAN LIMITED LIABILITY PARTNERSHIP Kazakhstan 100.00 LAWSON MARDON SELEPRINT s.r.l. Italy 75.00(19) LAWSON MARDON LIMITED England 100.00 LAWSON MARDON PACKAGING PENSION TRUST (1994) LIMITED England 100.00 LAWSON MARDON PACKAGING UK LTD. England 100.00
3 ALCAN INC.
% OF VOTING ORGANIZED UNDER SHARES HELD BY SUBSIDIARIES, RELATED COMPANIES, ETC. THE LAWS OF IMMEDIATE OWNER - ------------------------------------- --------------- --------------- KOTERS (LIVERPOOL) LIMITED England 100.00 LAWSON MARDON FIBRENYLE LTD. England 100.00 FIBRENYLE (CORBY) LIMITED England 100.00 LAWSON MARDON FLEXIBLE LIMITED England 100.00 MARDON FLEXIBLE PACKAGING (KENTON) LIMITED England 100.00 LAWSON MARDON SMITH BROTHERS LTD. England 100.00 LAWSON MARDON SUTTON LTD. England 100.00 MARDON PELOREX LIMITED England 100.00 LMG IRIDON LIMITED England 100.00 LAWSON MARDON THERMOPLASTICS LTD. England 100.00 WHEATON UK LTD. England 100.00 LAWSON MARDON NORTHERN LIMITED England 100.00 LAWSON MARDON READING LTD. England 100.00 STALCON PLASTICS LIMITED England 100.00 LAWSON MARDON SUNER SA Spain 100.00 LAWSON MARDON THYNE LTD. Scotland 100.00 LAWSON MARDON (WITHAM) LIMITED England 100.00 LMG FINANCE LIMITED England 100.00 LMG LLOYDS LIMITED England 100.00 MARDON COMPOSITES LIMITED England 100.00 MARDON WRAPPINGS LIMITED England 100.00 PRONTOSEAL LIMITED Scotland 100.00 WILLIAM THYNE (PLASTICS) LIMITED Scotland 100.00 WILLIAM THYNE (SECURITIES) LIMITED Scotland 100.00 LAWSON MARDON PACKAGING SALES LTD. England 100.00 LAWSON MARDON STAR LTD. England 100.00 PHARMAFLEX LTD. England 100.00 ALCAN JAPAN LTD. Japan 100.00 ALUSUISSE DISTRIBUZIONE srl Italy 100.00 ALUSUISSE ITALIA S.p.A. Italy 100.00 LMG (IRELAND) LIMITED Ireland 100.00 LAWSON MARDON SUPERIOR LTD. Ireland 100.00 WCL FLEXIBLE PACKAGING LIMITED Ireland 100.00 WAXED CARTONS (EXPORT) LIMITED Ireland 100.00 ZITELI LIMITED Ireland 100.00 ALCAN PACKAGING CANADA LIMITED Ontario 100.00 LAWSON MARDON PACKAGING OVERSEAS (BRISTOL) LIMITED England 99.00 (18) ALCAN PACKAGING DO BRASIL LTDA. Brazil 100.00 CBA-ALUSUISSE LTDA. Brazil 50.00 ALCAN PACKAGING SERVICES LTD. Switzerland 100.00 ALCAN SERVICE CENTRE ALLEGA AG Switzerland 100.00 ALCAN TECHNOLOGY & MANAGEMENT LTD. Switzerland 100.00 ALCAN TRADING AG Switzerland 100.00 ALG AG Switzerland 100.00 ALGROUP AG Switzerland 100.00 ALUFLUOR AB Sweden 50.00 ALUSUISSE OF AUSTRALIA LIMITED Australia 100.00 ALCAN ENGINEERING PTY LIMITED Australia 100.00 SWISS ALUMINIUM AUSTRALIA LIMITED Australia 100.00 GOVE JOINT VENTURE (THE) Australia 70.00 (17) ALUSUISSE SERVICIOS S.A., Panama Panama 100.00 ALUSUISSE SERVICIOS S.A., Venezuela Venezuela 100.00 A.P.A. GROUP AG Switzerland 100.00 BOXAL (SUISSE) S.A. Switzerland 100.00
4 ALCAN INC.
% OF VOTING ORGANIZED UNDER SHARES HELD BY SUBSIDIARIES, RELATED COMPANIES, ETC. THE LAWS OF IMMEDIATE OWNER - ------------------------------------- --------------- --------------- ICELANDIC ALUMINIUM COMPANY LTD. Iceland 100.00 LAWSON MARDON NEHER AG Switzerland 100.00 METALLICA S.A. Switzerland 35.00 METALLWERKE REFONDA AG Switzerland 100.00 PRESSWERK DER ALUSUISSE SCHWEIZERISCHE ALUMINIUM AG Switzerland 100.00 SIERRA LEONE ORE & METAL COMPANY LTD. Sierra Leone 100.00 SOCIETE MINIERE ET DE PARTICIPATIONS GUINEE-ALUSUISSE Guinea 50.00 SOR-NORGE ALUMINIUM AS Norway 50.00 VIAL GROUP AG Switzerland 100.00 ALCAN INTERNATIONAL LIMITED Canada 100.00 ALCAN IRELAND LIMITED Ireland 100.00 ALCAN MANAGEMENT SERVICES CANADA LIMITED Canada 100.00 ALCAN NIKKEI ASIA COMPANY LTD. Bermuda 60.00 ALCAN NIKKEI ASIA CORPORATION SDN. BHD Malaysia 60.00 ALCAN NIKKEI KOREA LIMITED Hong Kong 49.00 ALCAN REALTY LIMITED Canada 100.00 ALCAN SHANNON COMPANY Ireland 100.00 ALCAN SHIPPING SERVICES LIMITED Canada 100.00 ALCAN SMELTERS AND CHEMICALS LIMITED Canada 100.00 ALCAN TAIHAN ALUMINUM LIMITED Korea 66.35 ALUMINIUM OF KOREA LIMITED Korea 99.95 ALPAC ALUMINIUM INC. Canada 50.00 ALUMINUM COMPANY OF CANADA LIMITED Canada 100.00 BAA HOLDINGS S.A. Luxembourg 100.00 BRITISH ALCAN ALUMINIUM plc England 100.00 ALCAN AUTOMOTIVE STRUCTURES (UK) LIMITED England 100.00 ALCAN CHEMICALS EUROPE LIMITED England 100.00 ALCAN CHEMICALS LIMITED England 100.00 ALCAN COLWICK HOLDINGS LIMITED England 100.00 ALCAN COLWICK LIMITED England 100.00 ALCAN FARMS LIMITED England 100.00 ALCAN SWINTON LIMITED England 100.00 BA METALS LIMITED England 100.00 PEARHOUSE LIMITED England 100.00 TBAC LIMITED England 100.00 ALCAN ALUMINIUM UK LIMITED England 85.00(2) BRITISH ALCAN OVERSEAS INVESTMENTS LIMITED England 100.00 SARATOGA RESOURCES N.V. Netherland Antilles 20.00 VIGELAND METAL REFINERY A/S Norway 50.00 GHANA BAUXITE COMPANY LIMITED Ghana 80.00 KINLOCHLEVEN ROAD TRANSPORT COMPANY LIMITED Scotland 25.00 VENESTA FOILS LIMITED England 100.00 VIGELANDS BRUG A/S Norway 100.00 THE BOWLING BACK LAND COMPANY England 50.00 N.V. ALCAN ALUMINIUM PRODUCTS BENELUX S.A. Belgium 100.00 SOCIETE DES ALUMINES ET BAUXITES DE PROVENCE SARL France 100.00 THE ROBERVAL AND SAGUENAY RAILWAY COMPANY Quebec 100.00 UTKAL ALUMINA INTERNATIONAL LIMITED India 35.00
5 END-NOTE: ADDITIONAL OWNERSHIP [%] THROUGH THE FOLLOWING SUBSIDIARIES: (1) WHEATON USA INC. [37.50] (2) BRITISH ALCAN ALUMINIUM plc [15.00] (3) ALCAN INC. [10.00] (4) ALCAN ALUMINIUM AG [.01] (5) ALCAN HOLDINGS UK LIMITED [27.27] (6) ALCAN HOLDINGS SWITZERLAND AG (SA/LTD.) [.76] (7) ALCAN ALLUMINIO S.p.A. [30.00] (8) BRITISH ALCAN ALUMINIUM plc [30.00] (9) NIKKEI HOLDINGS PTE. LIMITED [37.00] (10) ALUMINIUM COMPANY OF MALAYSIA BERHAD [51.00] (11) ALCAN HOLDINGS GERMANY GmbH [24.90] (12) ALCAN NIKKEI SIAM LIMITED [10.00] (13) SOR-NORGE ALUMINIUM AS [13.00] (14) ALCAN HOLDINGS FRANCE S.A. [.50] (15) ALCAN HOLDINGS GERMANY GmbH [16.67] (16) ALCAN HOLDINGS FRANCE S.A. [20.00] (17) GOVE ALUMINIUM LIMITED [30.00] (18) LAWSON MARDON PACKAGING LTD. [1.00] (19) LAWSON MARDON PACKAGING UK LTD. [25.00] (20) ALCAN SINGEN GmbH [.10] (21) SWISS ALUMINIUM AUSTRALIA LIMITED [50.00] (22) ALCAN HOLDINGS SWITZERLAND AG (SA/LTD.) [.62] (23) ALCAN SINGEN GmbH [1.00] 6 EX-24.1 9 m06714ex24-1.txt EXHIBIT 24.1 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints R. Millington, D. McAusland and P. Chenard and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of March 2002. /s/ W.R.C. Blundell --- --- ---------------- Name: W.R.C. Blundell Title: Director EX-24.2 10 m06714ex24-2.txt EXHIBIT 24.2 Exhibit 24.2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints R. Millington, D. McAusland and P. Chenard and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of March 2002. /s/ John R. Evans --------------------------------- Name: John R. Evans Title: Director EX-24.3 11 m06714ex24-3.txt EXHIBIT 24.3 Exhibit 24.3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints R. Millington, D. McAusland and P. Chenard and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of March 2002. /s/ Willi Kerth --- ----- --------- Name: Willi Kerth Title: Director EX-24.4 12 m06714ex24-4.txt EXHIBIT 24.4 Exhibit 24.4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints R. Millington, D. McAusland and P. Chenard and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of March 2002. /s/ Brian M. Levitt --- ----- -- ---------- Name: Brian M. Levitt Title: Director EX-24.5 13 m06714ex24-5.txt EXHIBIT 24.5 Exhibit 24.5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints R. Millington, D. McAusland and P. Chenard and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of March 2002. /s/ J.E. Newall --- ---- ---------- Name: J.E. Newall Title: Director EX-24.6 14 m06714ex24-6.txt EXHIBIT 24.6 Exhibit 24.6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints R. Millington, D. McAusland and P. Chenard and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of March 2002. /s/ Guy Saint-Pierre --- --- ---------------- Name: Guy Saint-Pierre Title: Director EX-24.7 15 m06714ex24-7.txt EXHIBIT 24.7 Exhibit 24.7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints R. Millington, D. McAusland and P. Chenard and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of March 2002. /s/ Gerhard Schulmeyer --------------------------------- Name: Gerhard Schulmeyer Title: Director EX-24.8 16 m06714ex24-8.txt EXHIBIT 24.8 Exhibit 24.8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS, ALCAN INC., a Canadian corporation (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS, the undersigned is an Officer and/or a Director of the Company as indicated below; NOW, THEREFORE, the undersigned hereby constitutes and appoints R. Millington, D. McAusland and P. Chenard and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Company, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of March 2002. /s/ Paul M. Tellier --------------------------------- Name: Paul M. Tellier Title: Director EX-99.2 17 m06714ex99-2.txt EXHIBIT 99.2 Exhibit (99.2) Management Proxy Circular Alcan Inc. LOGO Notice of Annual Meeting of Shareholders 25 April 2002 Management Proxy Circular LOGO Dear Shareholder: You are cordially invited to attend the 100(th) Annual Meeting of Shareholders of Alcan Inc., which will take place on Thursday, 25 April 2002, in the Assembly Hall of the International Civil Aviation Organization, 999 University Street, Montreal, Quebec, Canada at 10:00 a.m. At the Meeting, the Shareholders will be asked to consider the matters set out in the enclosed Notice. Your vote is important. Please complete, sign and date the form of proxy and return it in the enclosed envelope, whether or not you plan to attend the Meeting. Returning the proxy will not limit your right to vote in person if you attend the Meeting. The Meeting will be webcast through Alcan's web site (www.alcan.com). If you have any questions regarding the matters to be dealt with at the Meeting or require additional copies of this material, please call Alcan's transfer agent, CIBC Mellon Trust Company, at 1-800-387-0825 (toll free) or collect at 416-643-5500. Yours sincerely, /s/ John R. Evans --------------------------------- John R. Evans Chairman of the Board of Alcan Inc. 6 March 2002 - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 i ALCAN INC. What's Inside: 1 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS OF ALCAN INC. 2 MANAGEMENT PROXY CIRCULAR 2 Definitions 3 Questions and Answers on Voting and Proxies 5 Business to be Transacted at the Meeting 7 Nominees for Election as Directors 9 Corporate Governance Practices 11 Performance Graph 12 Report on Executive Compensation 15 Executive Officers' Remuneration 20 Directors' Remuneration 21 Indebtedness of Directors and Executive Officers 22 Directors' and Officers' Liability Insurance 22 Approval of the Board of Directors 23 Schedules
La version francaise du present document ainsi que la formule de procuration qui l'accompagne seront envoyees aux actionnaires sur demande. Veuillez communiquer avec la Compagnie Trust CIBC Mellon, en appelant au 1-800-387-0825 (sans frais) ou a frais vires au 416-643-5500. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 ii ALCAN INC. LOGO Notice of Annual Meeting of Shareholders of Alcan Inc. The 100(th) Annual Meeting of the holders of the Common Shares of Alcan Inc. will be held on Thursday, 25 April 2002 at 10:00 a.m. in the Assembly Hall, International Civil Aviation Organization, 999 University Street (Atrium entrance), Montreal, Quebec, Canada, for the following purposes: 1. receiving the financial statements and the Auditors' Report for the year ended 31 December 2001, 2. electing Directors, 3. appointing Auditors and authorizing the Directors to fix their remuneration, 4. re-confirming the Shareholder Rights Plan as described in the attached Management Proxy Circular, 5. amending the Articles of Alcan as described in the attached Management Proxy Circular, and 6. confirming the amendments to By-Law No. 1A as described in the attached Management Proxy Circular. Shareholders who cannot attend the Annual Meeting may submit their proxies in accordance with the procedures set out in the attached Management Proxy Circular. By order of the Board of Directors, /s/ Roy Millington - ---------------------------------- Roy Millington Corporate Secretary Montreal, Canada 6 March 2002 - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 1 ALCAN INC. LOGO Management Proxy Circular (As of 28 February 2002, except as otherwise provided) This Management Proxy Circular is furnished in connection with the solicitation of proxies by the Board of Directors and Management of Alcan Inc. for use at the Annual Meeting of Shareholders to be held in Montreal on 25 April 2002 (and any adjournment thereof) for the purposes set out in the attached Notice of Annual Meeting. Definitions Unless stated otherwise, the following expressions used in this Management Proxy Circular have the meanings indicated: "Alcan" or "Company" means Alcan Inc., "Algroup" means Alusuisse Group Ltd. (now Alcan Holdings Switzerland Ltd., a Subsidiary of Alcan following the Combination), "Board" or "Board of Directors" means the board of directors of Alcan, "CBCA" means the Canada Business Corporation Act, "CIBC Mellon" means CIBC Mellon Trust Company, "Circular" means this management proxy circular prepared in connection with the Meeting together with the Schedules attached hereto, "Combination" means the process by which Algroup became a Subsidiary of Alcan on 18 October 2000, through the completion of a share exchange offer by Alcan for the shares of Algroup, "Director" means a director of Alcan, "Executive Officers" means the President and Chief Executive Officer, the Executive Vice Presidents, the Senior Vice Presidents, the Vice Presidents, the Treasurer, the Controller and the Secretary of Alcan. "Meeting" means the Annual Meeting of Shareholders to be held on 25 April 2002 and any adjournment thereof, "Non-Executive Director" means a Director of Alcan who is not an employee of Alcan or its Subsidiaries or related companies, "Option Plan" means the Alcan Executive Share Option Plan described on page 16, "Notice" means the attached Notice of Annual Meeting, "Shareholder" means a holder of Shares, "Share" or "Common Share" means a common share in the capital of Alcan, "Subsidiary" means a company controlled, directly or indirectly, by Alcan, and "$" means U.S. Dollars. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 2 ALCAN INC. Questions and Answers on Voting and Proxies IF YOU ARE NOT A REGISTERED SHAREHOLDER, PLEASE REFER TO PAGE 4 FOR A DESCRIPTION OF THE PROCEDURE TO BE FOLLOWED TO VOTE YOUR SHARES. Q: WHO IS SOLICITING MY PROXY? A: This Circular is furnished in connection with the solicitation by Alcan's Management of proxies to be used at the Meeting to vote your Shares. The solicitation of proxies will be made primarily by mail, but may also be made by electronic means, by telephone or in person. The cost of soliciting proxies will be borne by Alcan. Georgeson Shareholder Communications Canada, Inc. and Morrow & Co., Inc. have been retained by Alcan to assist in the solicitation of proxies from Shareholders. For these services in relation to U.S. Shareholders, Morrow & Co. will receive fees of approximately $20,000. Georgeson will receive aggregate fees of Can. $50,000 for these services in relation to all other Shareholders, provided that the 40% quorum requirements for the Meeting are met and the items of special business are approved by the Shareholders at the Meeting. In addition, employees of Alcan may solicit proxies without compensation. CIBC Mellon is responsible for the tabulation of proxies. Q: WHAT AM I VOTING ON? A: Shareholders will be voting on the: - Election of Directors - Appointment of PricewaterhouseCoopers LLP as the auditors and authorization of the Directors to fix their remuneration - Re-confirmation of the Shareholder Rights Plan - Amendments to the Articles of the Company - Confirmation of amendments to By-Law No. 1A of the Company Q: WHAT DOCUMENTS ARE SENT TO SHAREHOLDERS? A: Shareholders will receive a package of the usual annual corporate documents (i.e., Alcan's 2001 Annual Report, this Circular and the form of proxy). Registered Shareholders will also receive a consent form which will allow the Company to deliver documents to them in electronic form in the future. Q: WHO IS ENTITLED TO VOTE? A: On 6 March 2002, 321,072,334 Shares were outstanding. Shareholders of record as of the close of business on that date are entitled to receive notice of the Meeting and they or their duly appointed proxyholders will be entitled to attend the Meeting and vote. Q: HOW DO I VOTE? A: There are two ways that you can vote your Shares if you are a registered Shareholder. You may vote in person at the Meeting or you may complete and sign the enclosed form of proxy appointing the named persons or some other person you choose to represent you and vote your Shares at the Meeting. Completing, signing and returning your form of proxy does not preclude you from attending the Meeting in person or changing your vote. If you do not wish to attend the Meeting or do not wish to vote in person, your proxy will be voted for or against or be withheld from voting in accordance with your wishes as specified thereon on any ballot that may be called at the Meeting. If the Shareholder is a body corporate or association, the form of proxy must be signed by a person duly authorized by that body corporate or association. If your Shares are registered in the name of a nominee, please see "Voting by Non-Registered Shareholders" on page 4. Q: WHAT IF I PLAN TO ATTEND THE MEETING AND VOTE IN PERSON? A: If you plan to attend the Meeting on 25 April 2002 and wish to vote your Shares in person at the Meeting, it is not necessary for you to complete or return the form of proxy. Your vote will be taken and counted at the Meeting. Please register with the transfer agent, CIBC Mellon, upon arrival at the Meeting. Q: WHAT HAPPENS WHEN I SIGN AND RETURN THE FORM OF PROXY? A: Signing the enclosed proxy gives authority to the named proxyholders on the form, or to another person you have appointed, to vote your Shares at the Meeting. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 3 ALCAN INC. Q: CAN I APPOINT SOMEONE OTHER THAN THE NAMED PROXYHOLDERS TO VOTE MY SHARES? A: Yes. Write the name of your chosen person, who need not be a Shareholder, in the blank space provided in the form of proxy. It is important to ensure that any other person you appoint is attending the Meeting and is aware that his or her appointment has been made to vote your Shares. Proxyholders should, at the Meeting, present themselves to a representative of CIBC Mellon. Q: WHAT DO I DO WITH MY COMPLETED FORM OF PROXY? A: Return it to the transfer agent, CIBC Mellon, in the envelope provided, or forward it by facsimile to (416) 368-2502, so that it arrives no later than 5:00 p.m. EST on 24 April 2002. All Shares represented by a properly executed proxy received by CIBC Mellon prior to such time will be voted for or against or be withheld from voting, in accordance with your instructions as specified in the proxy, on any ballot that may be called at the Meeting. Q: HOW WILL MY SHARES BE VOTED IF I RETURN MY PROXY? A: The persons named in the form of proxy must vote or withhold from voting your Shares in accordance with your instructions. In the absence of such instructions, however, your Shares will be voted FOR THE ELECTION OF DIRECTORS, FOR THE APPOINTMENT OF AUDITORS, FOR THE RE-CONFIRMATION OF THE SHAREHOLDER RIGHTS PLAN, FOR THE AMENDMENT TO THE ARTICLES AND FOR THE CONFIRMATION OF AMENDMENTS TO BY-LAW NO. 1A. Q: IF I CHANGE MY MIND, CAN I TAKE BACK MY PROXY ONCE I HAVE GIVEN IT? A: Yes. A Shareholder who has given a proxy may revoke it with a letter of revocation or another proxy with a later date delivered to CIBC Mellon, 200 Queen's Quay East, Unit 6, Toronto, Ontario, M5A 4K9 or by telecopier at (416) 368-2502, no later than 5:00 p.m. EST on 24 April 2002 or to the Chairman on the day of the Meeting. It should be noted that the participation in person by a Shareholder in a vote by ballot at the Meeting would revoke any proxy that has been previously given by the Shareholder in respect of business covered by that vote. Q: WHAT IF AMENDMENTS ARE MADE TO THESE MATTERS OR IF OTHER MATTERS ARE BROUGHT BEFORE THE MEETING? A: The persons named in the form of proxy will have discretionary authority with respect to amendments or variations to matters identified in the Notice of Annual Meeting and to other matters which may properly come before the Meeting. As of the date of this Circular, the Management of Alcan knows of no such amendment, variation or other matter expected to come before the Meeting. If any other matters properly come before the Meeting, the persons named in the form of proxy will vote on them in accordance with their best judgment. Q: HOW CAN I CONTACT THE TRANSFER AGENT? A: You can contact the transfer agent at: CIBC Mellon Trust Company 320 Bay Street, 3(rd) floor Toronto, Ontario, Canada M5H 4A6 Telephone: (416) 643-5500 1-800-387-0825 (toll free throughout North America) Telecopier: (416) 643-5501 Q: WHAT IS THE FINAL DATE TO SUBMIT A SHAREHOLDER PROPOSAL FOR THE 2003 ANNUAL MEETING? A: The final date for submitting Shareholder proposals to Alcan is 6 December 2002. VOTING BY NON-REGISTERED SHAREHOLDERS Non-registered or beneficial Shareholders are not personally listed in the Share register of Alcan. If you are a non-registered Shareholder, there are two ways that you can vote your Shares held in the name of a nominee. Applicable securities laws require your nominee to seek voting instructions from you in advance of the meeting. Accordingly, you will receive or have already received from your nominee either a request for voting instructions or a form of proxy for the number of Shares you hold. Every nominee has its own mailing procedures and provides its own signing and return instructions, which should be carefully followed by non-registered Shareholders to ensure that their Shares are voted at the Meeting. If you wish to vote in person at the Meeting, insert your own name in the space provided on the request for voting instructions or form of proxy to appoint yourself as proxyholder. Non-registered Shareholders who instruct their nominee to appoint themselves as proxyholders should, at the Meeting, present themselves to a representative of CIBC Mellon. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 4 ALCAN INC. Business to be Transacted at the Meeting (See Notice of Annual Meeting of Shareholders of Alcan Inc.) 1. PRESENTATION OF FINANCIAL STATEMENTS The consolidated financial statements for the year ended 31 December 2001 and the Auditors' Report for 2001 will be submitted to Shareholders at the Meeting, but no vote with respect thereto is required or proposed to be taken. The consolidated financial statements are included in the Alcan 2001 Annual Report that is being mailed to Shareholders with the Notice of Annual Meeting and this Circular. 2. ELECTION OF DIRECTORS Nine Directors are to be elected to serve until the close of the 2003 Annual Meeting or until they cease to hold office as such. The Board of Directors and Management recommend the election of the nominees listed on pages 7 and 8. In accordance with normal Company practices, Dr. John R. Evans and Mr. Bill Blundell are not nominees, having reached retirement age. Messrs. Martin Ebner and Willi Kerth have requested not to be nominated for re-election as Directors. 3. APPOINTMENT OF AUDITORS Auditors are to be appointed to serve until the next Annual Meeting of the Company and the Directors are to be authorized to fix the remuneration of the Auditors so appointed. The Board of Directors and Management, on the advice of the Audit Committee, recommend that PricewaterhouseCoopers LLP, Montreal, Canada, be appointed as Auditors. PricewaterhouseCoopers LLP and its predecessor, Price Waterhouse, have been the Auditors of Alcan since 1936. A representative of PricewaterhouseCoopers LLP will be present at the Meeting and will have the opportunity to make a statement should he desire to do so. He will also be available to answer questions. 4. RE-CONFIRMATION OF SHAREHOLDER RIGHTS PLAN As an item of special business, the Shareholders will be asked at the Meeting to adopt a resolution, as set out in Schedule A hereto, re-confirming the Shareholder Rights Plan ("Rights Plan") which is embodied in the Shareholder Rights Agreement ("Plan Agreement") amended and restated on 22 April 1999. Under the terms of the Plan Agreement, the Rights Plan must be submitted to the Shareholders at every third annual meeting for re-confirmation. The Rights Plan was approved at the 1999 annual meeting by 86% of the votes cast and is being submitted for re-confirmation without change. Alcan has no knowledge at the present time of any take-over bid or intended take-over bid by any person. A summary of the Plan Agreement is set out in Schedule D hereto. The primary objective of the Rights Plan is to provide the Board with sufficient time to explore and develop alternatives for maximizing Shareholder value if a take-over bid is made for Alcan and to provide all Shareholders with an equal opportunity to participate in such bid. To be adopted, the resolution must be approved by a majority of the votes cast on the matter at the Meeting. 5. AMENDMENT TO ARTICLES As an item of special business, the Shareholders will be asked at the Meeting to adopt a special resolution, as set out in Schedule B hereto, making an amendment to the Articles of Alcan. The amendment will authorize, as permitted by the CBCA, the holding of meetings of Shareholders at such place within Canada as the Directors may determine, or outside of Canada, if so determined by the Directors, in New York City, United States of America, in London, England, or in Zurich, Switzerland. The amendment is intended to reflect recent changes to the CBCA allowing increased flexibility in fixing the location of Shareholder meetings. Alcan has an international shareholder base and it may be appropriate and advantageous for purposes of Shareholder relations, on occasion, to hold meetings in the cities mentioned. In addition to The Toronto Stock Exchange, Alcan's Shares are traded on stock exchanges in those cities. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 5 ALCAN INC. Alcan has no immediate intention to change its practices in relation to Shareholder meetings. To be adopted, the special resolution must be approved by at least two-thirds of the votes cast on the matter at the Meeting. 6. CONFIRMATION OF AMENDMENTS TO BY-LAW NO. 1A As an item of special business, the Shareholders will be asked at the Meeting to adopt a resolution, as set out in Schedule C hereto, confirming certain amendments which have been made by the Board to By-Law No. 1A of Alcan. The Board amended Sections 1.01, 1.02, 1.06, 2.03, 2.04 and 2.08 to make certain minor changes and to reflect recent amendments to the CBCA, including to permit the use of electronic or other technologically enhanced means in relation to providing notice and to participating and voting in meetings of Shareholders and Directors. Shareholders will not be required to participate or vote electronically as a result of these changes. To be adopted, the resolution must be approved by a majority of the votes cast on the matter at the Meeting. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 6 ALCAN INC. Nominees for Election as Directors The nine nominees for election as Directors of Alcan, their shareholdings, holdings of Directors' Deferred Share Units (see page 21) and their current membership on Board Committees is as follows: ROLAND BERGER 64, nominated in 2002 PICTURE Mr. Berger is chairman and global managing partner of Munich-based Roland Berger Strategy Consultants, founded in 1967, a leading global strategy consultancy operating in 22 countries world-wide. He is a member of various supervisory boards and consultancy associations, pursues extensive commitments in the public sector and is a well-known speaker on corporate management, economic and social issues. He has been conferred the State Medal for Special Services to the Bavarian Economy and the Federal Service Cross of Germany. CLARENCE. J. 52, Director since 2001 CHANDRAN Mr. Chandran is chairman of Chandran Family PICTURE Foundation Inc. He retired as chief operating officer of Nortel Networks Corporation in 2001. During his 28-year career, he has held executive management positions with Nortel and with the Bell Group. He is a director of MDS Inc., Airprime Inc. and Sirific Wireless Corp., a member of the board of visitors of the Kenan-Flagler Business School, University of North Carolina, a member of the board of the North Carolina Center for Non-Profit and a trustee of the America-India Foundation. (1), (3), (4) 4,000 COMMON SHARES 1,556 DEFERRED SHARE UNITS TRAVIS ENGEN 57, Director since 1996 PICTURE Mr. Engen is President and Chief Executive Officer of Alcan since 12 March 2001. He was previously chairman and chief executive officer of ITT Industries, Inc. He is a member of the U.S. President's National Security Telecommunications Advisory Committee. He is a director of Fundacion Chile, Lyondell Chemical Company and a member of the Business Roundtable and the Manufacturers Alliance Board of Trustees. 125,500 COMMON SHARES 579,000 OPTIONS TO PURCHASE SHARES 1,812 DEFERRED SHARE UNITS L. YVES FORTIER, 66, nominated in 2002 C.C., Q.C. Mr. Fortier is chairman and a senior partner of PICTURE the law firm Ogilvy Renault in Montreal. From 1988 to 1992, he was Ambassador and Permanent Representative of Canada to the United Nations. He is also governor of Hudson's Bay Company and a director of DuPont Canada Inc., Groupe TVA Inc., Nortel Networks Corporation, Nova Chemicals Corporation and Royal Bank of Canada. 1,000 COMMON SHARES BRIAN M. LEVITT 54, Director since 2001 PICTURE Mr. Levitt is a partner and the Montreal resident co-chair of the law firm Osler, Hoskin & Harcourt LLP. From 1991 to 2000, he was president and then chief executive officer of Imasco Limited. He is a director of BCE Inc., Cossette Communication Group Inc. and Domtar Inc. (1), (2) 3,000 COMMON SHARES 1,556 DEFERRED SHARE UNITS J.E. NEWALL, 66, Director since 1985 O.C. Mr. Newall is chairman and a director of NOVA PICTURE Chemicals Corporation. He is Chairman of Canadian Pacific Railway Limited and a director of BCE Inc., Bell Canada, Maple Leaf Foods Inc. and Royal Bank of Canada. (1), (3*), (4) 8,372 COMMON SHARES 3,502 DEFERRED SHARE UNITS
- -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 7 ALCAN INC. GUY. SAINT-PIERRE, 67, Director since 1994 O.C. Mr. Saint-Pierre is chairman of PICTURE SNC-Lavalin Group Inc. He is also chairman of Royal Bank of Canada and a director of BCE Inc., Bell Canada, General Motors of Canada and Telesat Canada. (1), (2*), (3) 12,708 COMMON SHARES 2,780 DEFERRED SHARE UNITS GERHARD SCHULMEYER 63, Director since 1996 PICTURE Mr. Schulmeyer is professor of practice at the MIT Sloan School of Business and president of Gerhard, LLC. He was president and chief executive officer of Siemens Corporation. He is chairman of the supervisory board of Alcan Deuschtland GmbH, serves on the supervisory board of Thyssen- Bornemisza Holding N.V., the boards of Zurich Financial Services, Arthur D. Little, Inc., Ingram Micro, FirePond, Poet Holdings Inc. and Korn/Ferry as well as the international advisory board of Banco Santander Central Hispano. (1), (2) 1,746 COMMON SHARES 2,642 DEFERRED SHARE UNITS PAUL M. TELLIER, 62, Director since 1998 P.C., C.C., Q.C. Mr. Tellier is president and chief PICTURE executive officer of the Canadian National Railway Company. He is a director of Bombardier Inc., McCain Foods and BCE Inc. (1), (2), (4*) 1,926 COMMON SHARES 2,570 DEFERRED SHARE UNITS COMMITTEE MEMBERSHIPS 1. Corporate Governance 2. Audit 3. Personnel 4. Environment, Health & Safety * Committee Chairman
- -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 8 ALCAN INC. Corporate Governance Practices The mandate of the Board is to supervise the management of the business and affairs of the Company and to discharge its duties and obligations in accordance with the provisions of (a) the CBCA, (b) the Company's constituting documents and by-laws, and (c) other applicable legislation and Company policies.(1) Of the present Board of 11 Directors, Travis Engen is President and Chief Executive Officer of Alcan. Mr. Engen resigned from all committees of the Board upon becoming Chief Executive Officer. Gerhard Schulmeyer is chairman of the supervisory board of Alcan Deutschland GmbH and Willi Kerth is a director of Alcan Aluminium Valais S.A. Both Mr. Schulmeyer and Mr. Kerth serve in non- executive capacities with these wholly-owned Subsidiaries at the Company's request. All Directors except for Mr. Engen are unrelated Directors. Alcan does not have a controlling Shareholder.(2)(3) The Corporate Governance Committee recommends candidates for appointment to the Board. Nominees are selected as potential representatives of Shareholders as a whole and not as representatives of any particular Shareholder or group of Shareholders. Care is taken to ensure that the Board of Directors is constituted with a majority of individuals who qualify as unrelated Directors.(4) The Corporate Governance Committee is also responsible for assessing the performance of the Board. The Committee ensures the adequacy of the time commitment of individuals to Alcan matters.(5) Alcan's Secretary prepares a Directors' Manual which is updated as necessary. Visits by Directors are made to Alcan's plants and business locations to give additional insight into Alcan's business.(6) The Board is satisfied that its number of Directors provides for an efficient Board.(7) The mandate of the Corporate Governance Committee includes recommending levels of Directors' compensation. In determining Directors' compensation, the Committee considers factors such as time commitment, risks and responsibilities.(8) The Board has appointed four Committees as described below. Each Committee is made up solely of Non-Executive and unrelated Directors.(9) The mandate of the Corporate Governance Committee also includes the review of corporate governance practices in general.(10) The Board's prime stewardship responsibility is to ensure the viability of the Company and to ensure that it is managed in the interest of the Shareholders as a whole, while taking into account the interests of other stakeholders. In addition, the Board sets out, at least once a year, objectives for the Chief Executive Officer.(11) The Board has a Chairman (Dr. John R. Evans) who is not a member of Alcan's management; this structure allows the Board to function independently of management.(12) The mandate of the Audit Committee, which is composed entirely of Non-Executive Directors, is described below. The Committee has direct discussions with the Company's external and internal auditors.(13) The Board does not have a formal system for Directors to engage outside advisors; however the Board may do so and has in the past sought out separate advice.(14) In addition to the statutory duties under the CBCA, the Company's corporate governance practices require that the following matters be subject to Board approval: (1) capital expenditure budgets and significant investments and divestments, (2) at the discretion of the Chief Executive Officer, any matter which may have the potential for important impact on the Company, (3) the number of Directors within the minimum (9) and maximum (20) limits provided in the Company's Articles of Incorporation, (4) the terms of appointment of Non-Executive Directors, and - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 9 ALCAN INC. (5) the appointment and remuneration of Officers of the Company. In order to respond to Shareholders' questions and concerns, Alcan maintains an experienced investor relations staff whose primary responsibility is to provide information and analysis to the investing community in accordance with Alcan's policy on public disclosure. This policy has been established in compliance with applicable legal disclosure requirements in Canada and in the United States and is reviewed periodically. The investor relations staff meets periodically with investors and analysts and is accessible to Shareholders by telephone during business hours. These services facilitate the receiving of Shareholder comments. The management of Alcan is responsible for conducting the business and operations of the Company in accordance with a business strategy approved by the Board. Management's authority to act in certain matters which may have the potential for important impact on the Company, is subject to prior Board approval as described above. Before being submitted to the Board, certain matters such as dividends, securities issues, annual reports and significant investment/divestment proposals are prepared and reviewed by management with external professional advice, as necessary. BOARD MEETINGS AND BOARD COMMITTEES The Board held ten meetings during 2001, two of which were via telephone conference. There are four Committees of the Board: the Corporate Governance Committee, the Audit Committee, the Environment, Health & Safety Committee and the Personnel Committee. These Committees meet at preset times throughout the year or as needed. The Corporate Governance Committee met five times in 2001, the Audit Committee met four times, the Environment, Health & Safety Committee met once and the Personnel Committee met six times. There is no executive committee of the Board. CORPORATE GOVERNANCE COMMITTEE As mentioned above, the Committee has the broad responsibility of reviewing corporate governance within Alcan. The Committee also maintains an overview of the composition of the Board and reviews candidates for nomination as Directors as well as membership of all Board Committees. It also considers the appointments of the Chairman of the Board and the Chief Executive Officer of Alcan. AUDIT COMMITTEE The objective of the Committee is to assist the Board in fulfilling its functions relating to corporate accounting and reporting practices as well as financial and accounting controls, to provide an effective oversight of the financial reporting process, and to review financial statements and proposals for issues of securities. This Committee is established in accordance with the requirements of the CBCA. ENVIRONMENT, HEALTH & SAFETY COMMITTEE The Committee has the broad responsibility to review the policy, management practices and performance of Alcan in environmental, health and safety matters and make recommendations to the Board on such matters. PERSONNEL COMMITTEE The Committee has the broad responsibility to review any and all personnel policy and employee relations matters and to make recommendations with respect to such matters to the Board or the Chief Executive Officer, as appropriate. It also reviews and approves Alcan's executive compensation policy. Notes 1 through 14 refer to the corresponding guidelines relating to issues of corporate governance, set out in the Toronto Stock Exchange Company Manual. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 10 ALCAN INC. Performance Graph 31 December 31 December 31 December 31 December 31 December 31 December 1996 1997 1998 1999 2000 2001 Alcan 0 84 84 131 110 117 S&P 500 0 139 192 220 207 194 TSE 300 0 115 113 149 160 140 S&P Metals Mining 0 70 54 97 70 66
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 Metals Mining Index. GRAPH - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 11 ALCAN INC. Report on Executive Compensation GENERAL The following information refers to calendar year 2001. Alcan's executive compensation policies cover cash compensation and benefits, including pensions, and are designed to enable Alcan to attract, motivate and retain highly qualified people to carry out the objectives of the organization. The Personnel Committee of the Board (the "Committee") has the duty and responsibility to review and approve these policies periodically and to make recommendations with respect to such matters either to the Board or to the Chief Executive Officer, as may be appropriate. The policies provide a compensation package that is internally equitable, externally competitive and reflects individual efforts and achievements. The cash compensation structure and benefits programs, including short-and long-term incentive plans, are designed to be competitive with the median of selected comparator groups of companies. These companies, identified as a "Compensation Peer Group", are comparable to Alcan in size, are also involved in cyclical industries and have a global presence. Alcan retains external consultants to assist its Human Resources Department and the Committee in collecting the required comparative data and providing advice concerning all aspects of compensation of its senior employees. From time to time, the Committee has retained the services of its own consultant to assist it in its deliberations, and may do so again in the future. COMPENSATION OF THE EXECUTIVE OFFICERS Total compensation comprises base salaries, annual short-term incentives, long-term incentives and perquisites. Total compensation levels are set to reflect both the responsibility of each position (internal equity) and the competitive level of the market place (external competitiveness). The total compensation policy is set at the median of the Compensation Peer Group. Base Salary The target salary is the mid-point of a salary range for an Executive Officer and reflects the competitive level of similar positions in the Compensation Peer Group. Base salaries for Executive Officers are then determined to reflect the individual's performance and contribution to the group. Base salaries of Executive Officers are reviewed annually and any proposed changes are approved by the Committee before implementation. Annual Short-Term Incentives Alcan's short-term incentive plan, known as the Executive Performance Award ("EPA") Plan, is administered by the Committee, and 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 measured against a quantifiable financial metric, the Economic Value Added ("EVA"). All Executive Officers received an award from this component of the EPA Plan for the year 2001 but the awards were well below the target amounts. ("EVA" is a registered trademark of Stern Stewart & Co.). 2. The award for achieving corporate objectives focuses on corporate objectives as approved by the Committee. For 2001, the corporate objective was to achieve a pre-determined Earnings Before Interest, Tax, Depreciation and Amortization ("EBITDA") level. Given that the threshold level was not met, no award was paid to Executive Officers from this component of the EPA Plan for the year 2001. 3. The business unit award is based on the business unit's performance measured against pre-established levels of EVA and EBITDA and other operating objectives critical to the success of the business such as safety, environment, efficiencies, etc. The Committee may, at its discretion, approve the payment of a business unit award in excess of the maximum in cases of exceptional individual performance. All Executive Officers received awards from this component of the EPA Plan for the year 2001. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 12 ALCAN INC. Overall, for the three components of the EPA, the Executive Officers received awards that were well below the target amounts. Under the Executive Deferred Share Unit Plan, Executive Officers based in Canada may elect, prior to the beginning of any particular year, to receive Executive Deferred Share Units ("EDSUs") with a value equal to either 50% or 100% of their EPA in respect of that year, instead of a cash payment. The number of EDSUs is determined by dividing the amount so elected by the average price of a Share on the Toronto and New York stock exchanges at the end of the preceding year. 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 will be calculated by multiplying the accumulated balance of EDSUs by the average price of a Share on the said exchanges at the time of redemption. Under the terms of a Non-Qualified Deferred Compensation Plan, the Executive Officers based in the U.S. may elect, prior to the beginning of any particular year, to defer up to 75% of their base salary and up to 90% of their EPA award in respect of that year, instead of cash payments. Long-Term Incentives The purpose of the Option Plan is to attract and retain employees and to encourage them to contribute to growth in the price of Alcan Shares. When determining the competitiveness of senior employees' total compensation, the value of Option grants is taken into account. For Executive Officers, the number of Options granted annually generally produces annual compensation values which are lower than those provided by U.S.-based companies within the Compensation Peer Group, but higher than those of Canada-based companies within the Compensation Peer Group (see description on page 16). Certain Executive Officers participated in the Alcan Stock Price Appreciation Unit Plan ("SPAU Plan") instead of the Option Plan (see description on page 18). Alcan entered into change of control agreements with certain Executive Officers including R.B. Evans and B.W. Sturgell which are due to expire on 31 July 2002; these agreements are expected to be renewed. The terms of the change of control agreements are effective upon the occurrence of two events: (1) a change of control of Alcan, and (2) the termination of the Executive Officer's employment with Alcan either by Alcan without cause or by the Executive Officer himself for defined reasons. In such cases the Executive Officer will be entitled to an amount equal to 36 times the sum of his monthly (a) base salary on the date of termination, (b) EPA guideline amount in force at the date of termination, and (c) other applicable incentive plan guideline amount at the date of termination. COMPENSATION OF CHIEF EXECUTIVE OFFICERS Mr. Bougie resigned from Alcan on 10 January 2001 with an effective date of early retirement of 15 February 2001. From 1 January 2001 to 15 February 2001, he was paid a base salary of $106,250 (pro-rated on the basis of his annual salary of $850,000) and 100% of his EPA for this period for an amount of $106,250. Mr. Blundell acted as Interim Chief Executive Officer from 11 January to 11 March 2001. During this period he was paid a base salary of $136,575, but did not receive remuneration as a Non-Executive Director. Furthermore, he received 16,500 C Options under the Option Plan (see on page 16). These Options were granted on 14 February 2001 at an exercise price of Can. $56.60 per Share. The Chief Executive Officer's annual compensation is administered by the Committee according to the policies described above. Mr. Engen became Chief Executive Officer on 12 March 2001. Mr. Engen entered into a five-year employment agreement which thereafter can be renewed annually. The Board of Directors has set his compensation on a competitive level with other U.S. chief executives of global companies of similar size and also provided Mr. Engen with comparable levels of compensation to those received from his previous employer. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 13 ALCAN INC. The terms of this agreement are the following: o A base salary of $1,200,000 per year. o An annual bonus based on an established target and on performance objectives. For 2001, the target was to be at least 100% of the base salary and the bonus will be paid for the full year. o 226,000 C Options as an incentive for joining Alcan and 353,000 C Options as part of his annual compensation. These Options were granted on 12 March 2001 at an exercise price of Can. $59.35 per Share. These Options will remain outstanding and exercisable for the full 10-year period. At the time of exercise of Options, an adjustment of Can. $3.52 per Share will be paid in the form of Deferred Share Units. o The agreement provides for a retirement adjustment program where Mr. Engen will be entitled to the same level of retirement benefit had he remained employed with his previous employer. Under this program, the monthly pension is calculated by multiplying $6,432 by the number of years of service as of 1 April 2001 with a maximum of 5 years. o The portion of Mr. Engen's compensation attributable to services rendered in Canada is adjusted so that his net income after taxes is the same as it would have been in the United States. o Mr. Engen is eligible for a termination payment if he is terminated without cause or in certain cases involving a change of control of the Company. APPROVAL OF THIS REPORT ON EXECUTIVE COMPENSATION The Committee, whose members are set out below, has approved the issue of this Report and its inclusion in this Circular. J.E. Newall, Chairman of the Committee W.R.C. Blundell C.J. Chandran M. Ebner J.R. Evans G. Saint-Pierre - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 14 ALCAN INC. Executive Officers' Remuneration Compensation paid to the Chief Executive Officers and the four other most highly compensated Executive Officers in 2001 is set out in the table below. These individuals are hereinafter collectively referred to as the "Named Executive Officers".
- ----------------------------------------------------------------------------------------------------------------------------- Annual Compensation Long-Term Compensation ------------------------------------------ ----------------------------- Bonus (Executive Shares Under Restricted Name and Performance Other Annual Options Share All Other Principal Position Year Salary Award) Compensation Granted Units Compensation (1) (2) (3) (4)(5) (2) ($) ($) ($) (#) (#) ($) - ----------------------------------------------------------------------------------------------------------------------------- T. Engen 2001 968,182 1,200,000(6) 65,414 579,000(7) 0 29,565 President and Chief 2000 -- -- -- -- -- -- Executive Officer 1999 -- -- -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------- J. Bougie 2001 106,250(8) 106,250(8) 59,726 0 0 18,915(9) Former President and 2000 800,000 See Note(10) 49,979 975,000(7) 23,250(10) 128,933 Chief Executive 1999 740,700 See Note(11) 426,486 200,000(7) 71,955(11) 27,173 Officer - ----------------------------------------------------------------------------------------------------------------------------- E.P. LeBlanc(12) 2001(15) 520,000 206,713 23,836 75,000(7) 2,899(13) 18,710 Executive Vice 2000 451,250 346,500 23,725 51,000(7) 0 327,660(14) President 1999 393,438 418,815 23,523 51,000(7) 0 141,583(16) - ----------------------------------------------------------------------------------------------------------------------------- R.B. Evans 2001 520,000 125,770 367,361 0 75,000(17) 31,208 Executive Vice 2,899(13) President 2000 451,250 316,800 104,125 51,000(7) 0 34,427 1999 388,750 398,057 32,957 51,000(7) 0 122,835(16) - ----------------------------------------------------------------------------------------------------------------------------- B.W. Sturgell 2001 465,000 153,975 26,007 75,000(7) 2,899(13) 29,677 Executive Vice 2000 432,500 307,500 38,275 32,100(7) 0 26,952 President 1999 395,000 484,550 175,092 51,000(7) 0 13,771 - ----------------------------------------------------------------------------------------------------------------------------- H. van de Meent(18) 2001 400,000 327,000 9,482 0(20) 50,000(17) 1,207,038(19) Executive Vice 2,899(13) President 2000 78,349 50,502 1,903 43,320 0 5,491 1999 -- -- -- -- -- -- - -----------------------------------------------------------------------------------------------------------------------------
(1) See page 12 for description of the Executive Performance Award Plan. (2) See Other Compensation on page 16. (3) See page 16 for description of the Alcan Executive Share Option Plan. (4) See page 13 for description of the Executive Deferred Share Unit Plan. (5) See page 18 for description of the Stock Price Appreciation Unit Plan. (6) See Compensation of Chief Executive Officers on page 13. (7) Granted as C Options (see page 17 for description). (8) See Compensation of Chief Executive Officers on page 13. (9) See page 15 of the 2001 Management Proxy Circular, paragraph (a) under caption "Resignation of the Chief Executive Officer". (10) Received 100% of the EPA in the form of 23,250 EDSUs under the Executive Deferred Share Unit Plan based on the Share price ($40.19) at the end of 1999; these qualify for additional EDSUs corresponding to dividends declared subsequently (see page 13 for description). (11) Received 100% of the EPA in the form of 41,205 EDSUs, based on the Share price ($26.89) at the end of 1998; these qualify for additional EDSUs corresponding to dividends declared subsequently (see page 13 for description). Received also in the form of 30,750 deferred share units under the Medium-Term Incentive Plan. (12) E.P. LeBlanc will retire on 31 March 2002. (13) Granted as deferred share units, based on the share price ($34.50) at the end of 2000. (14) Including payment of $229,000 under the Medium-Term Incentive Plan. (15) For a part of 1999, the compensation was disbursed in Canadian Dollars converted to U.S. Dollars at the average exchange rate of 0.6740. (16) Including payment under the Medium-Term Incentive Plan: R.B. Evans $100,000 and E.P. LeBlanc $125,000. (17) Granted as SPAUs (see page 18 for description). (18) H. van de Meent became an Executive Officer of Alcan following the Combination. (19) Including a deferred amount received of $1,200,000 upon retirement on 31 December 2001 following the Combination, under the terms of a change of control agreement entered into with Algroup. (20) Granted as E Options (see page 17 for description). - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 15 ALCAN INC. EXECUTIVE PERFORMANCE AWARD The Executive Performance Award Plan and the related Executive Deferred Share Unit Plan are described on pages 12 and 13. OTHER COMPENSATION Compensation benefits made available to senior employees under various plans included those under (a) the Executive Performance Award Plan mentioned above, (b) the Alcan Executive Share Option Plan described below, (c) the Stock Price Appreciation Unit Plan described below, (d) retirement benefit plans, (e) life insurance plans, (f) savings plans, (g) plans for the use and parking of automobiles, for professional financial advice, for deemed interest on loans and for club membership fees, and (h) in applicable cases, expatriate benefits, foreign taxes and housing assistance. In the Summary Compensation Table on page 15, the amounts indicated for the year 2001 under the column titled Other Annual Compensation include benefits paid to the Named Executive Officers under these plans: automobile usage (E.P. LeBlanc, $11,594; H. van de Meent, $9,482; J. Bougie, $15,440;), financial advice (J. Bougie, $31,142), flexible perquisite program (B.W. Sturgell, $16,680), housing assistance (R.B. Evans, $122,285) and domestic and foreign taxes (T. Engen, $59,621). ALCAN EXECUTIVE SHARE OPTION PLAN The Option Plan provides for the granting to senior employees of non-transferable options ("Options") to purchase Shares (see REPORT ON EXECUTIVE COMPENSATION -- Compensation of the Executive Officers on page 12). The Option Plan is administered by a sub-committee of the Personnel Committee. A Options Prior to 22 April 1993, the Option Plan provided for the granting of Options hereinafter referred to as "A Options". No further A Options have been, or may be, issued after that date. The exercise price per Share under A Options was initially set in 1981 at not less than 90% of the market value of the Share 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 of the Share on their effective dates. The effective date was fixed at the time of each grant. Each A Option is exercisable in whole or in part during a period commencing not less than three months after the effective date and ending not later than 10 years after that date. In the event of retirement or death of the employee, any remainder of this 10-year period in excess of five years is reduced to five years. Alcan may make loans ("Option Loans"), at such interest rate, if any, as the above-mentioned committee may determine, to assist in financing the purchase of Shares through the exercise of A Options, but not in the case of the other Options hereinafter described (see INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS on page 21). 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 Beginning on 22 April 1993, the Option Plan provides for Options hereinafter referred to as "B Options". The exercise price per Share under B Options is set at not less than 100% of the market value of the Share on the effective date of the grant of each B Option. The effective date is fixed at the time of the grant. Each B Option is exercisable (not less than three months after the effective date) in respect of 25%, 50%, 75% or 100% of the grant after a Waiting Period of 12, 24, 36 and 48 months, respectively, following the effective date. The Options expire 10 years after the effective date; in the event of retirement or death of the employee, any remainder of this 10-year period in excess of five years is reduced to five years. The B Options do not have connected SARs. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 16 ALCAN INC. C Options Beginning on 23 September 1998, the Option Plan provides for Options hereinafter referred to as "C Options". The exercise price per Share under C Options is set at not less than 100% of the market value of the Share on the effective date of the grant of each C Option. The effective date is fixed at the time of the grant. Each C Option is exercisable (not less than three months after the effective date) in respect of one-third of the grant when the market value of the Share has increased by 20% over the exercise price, two-thirds of the grant when the market value of the Share has so increased by 40% and the entire amount of the grant when the market value of the Share has so increased by 60%. The said market values must exceed those thresholds for at least 21 consecutive trading days. The said thresholds are waived 12 months prior to the expiry date, which is 10 years after the effective date. In the event of death or retirement, any remainder of this 10-year period in excess of five years is reduced to five years, and the said thresholds are waived. The C Options do not have connected SARs. D Options In respect of B and C Options granted to certain senior executives in 1996, 1997 and 1998, Alcan has granted further Options, hereinafter referred to as "D Options", which grant shall become effective upon the exercise of associated B or C Options and upon the executive placing at least one-half of the Shares resulting from the exercise of the B or C Option, as the case may be, in trust with an agency named by Alcan for a minimum period of five years. The exercise price per Share of each D Option is set at not less than 100% of the market value of the Share on the exercise date of the associated B or C Option. D Options are exercisable in the same manner as the associated B or C Option. The option period for the D Option will terminate on the same date as the associated B or C Option. In the event of death or retirement, any remainder of this Option period in excess of five years is reduced to five years. The vesting provisions of the D Options are identical to those of the associated B or C Option. The D Options do not have connected SARs. E Options Options granted under the Algroup share option plan on 3 May 2000 were converted into Options of Alcan under the Option Plan as a result of the Combination. These Options are hereinafter referred to as "E Options". The exercise price per Share was originally set at 110% of market price and the right to purchase one share of Algroup was converted in the right to purchase 21.66 Shares of Alcan. Each E Option is exercisable in whole or in part during a period commencing not less than three years after the date of grant and ending not later than five years after that date. In the event of death or disability, the three year waiting period is waived. As this was a transitional measure related to the Combination, no further E Options will be issued. Limits on Grants of B, C and D Options As stated above, no further A Options may be issued. Alcan may issue in any year B, C or D Options in respect of a Yearly Allotment, as defined in the Option Plan, in aggregate not exceeding 0.75% of the Shares outstanding as at the end of the previous calendar year. In addition, the unused portion of any previous Yearly Allotment may be carried forward. The cumulative maximum number of Shares which can be issued under the Option Plan after 31 December 1995 is 20,500,000. Options Exercisable The Personnel Committee had determined that upon the completion of the Combination, all Options granted prior thereto became immediately exercisable in accordance with the terms of the Option Plan. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 17 ALCAN INC. ALCAN STOCK PRICE APPRECIATION UNIT PLAN The Alcan Stock Price Appreciation Unit Plan ("SPAU Plan") also provides for the granting to senior employees of non-transferable Stock Price Appreciation Units ("SPAU"). The purpose of the SPAU Plan is to attract and retain employees and to encourage them to contribute to growth in the price of Alcan Shares. The SPAU Plan is administered by the Personnel Committee and was approved on 26 September 2001. A SPAU is a right to receive cash in an amount equal to the excess of the market value of a Share on the date of exercise of a SPAU over the market value of a Share as of the date of grant of such SPAU. The exercise price per SPAU is set at not less than 100% of the market value of the Share on the effective date of the grant of each SPAU. The effective date is fixed at the time of the grant. Each SPAU is exercisable (not less than three months after the effective date) in respect of one-third of the grant when the market value of the Share has increased by 20% over the exercise price, two-thirds of the grant when the market value of the Share has so increased by 40% and the entire amount of the grant when the market value of the Share has so increased by 60%. The said market values must exceed those thresholds for at least 21 consecutive trading days. The said thresholds are waived 12 months prior to the expiry date which is 10 years after the effective date. In the event of death or retirement, any remainder of this 10-year period in excess of five years is reduced to five years, and the said thresholds are waived. The following table provides information pertaining to Options granted to the Named Executive Officers during 2001: OPTION GRANTS DURING 2001 - ---------------------------------------------------------------------------------------------------------------------------- Shares Under Percent of Total Exercise Price and Name Options Granted Options Granted To Market Value on Expiration (#)(1) Employees Date of Grant Date in 2001 (Can. $/Share) - ---------------------------------------------------------------------------------------------------------------------------- T. Engen 579,000 (2) 29.8 59.35 11 Mar 2011 - ---------------------------------------------------------------------------------------------------------------------------- E.P. LeBlanc 75,000 (3) 3.9 46.60 25 Sept 2011 - ---------------------------------------------------------------------------------------------------------------------------- B.W. Sturgell 75,000 (3) 3.9 46.60 25 Sept 2011 - ----------------------------------------------------------------------------------------------------------------------------
(1) C Option grant. (2) Date of grant: 12 March 2001. (3) Date of grant: 26 September 2001. The following table provides information pertaining to SPAUs granted to the Named Executive Officers during 2001: SPAU GRANTS DURING 2001 - ---------------------------------------------------------------------------------------------------------------------------- Percent of Total Exercise Price and Name Units Granted SPAUs Granted To Market Value on Expiration (#) Employees Date of Grant Date in 2001 (Can. $/Share) - ---------------------------------------------------------------------------------------------------------------------------- R.B. Evans 75,000 (1) 24.1 46.60 25 Sept 2011 - ---------------------------------------------------------------------------------------------------------------------------- H. van de Meent 50,000 (1) 16.1 46.60 25 Sept 2011 - ----------------------------------------------------------------------------------------------------------------------------
(1) Date of grant: 26 September 2001. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 18 ALCAN INC. The following table provides certain required information pertaining to Options exercised by the Named Executive Officers during 2001 as well as year-end values: AGGREGATED OPTION EXERCISES DURING 2001 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 Dec. 2001 (1) 31 Dec. 2001 (1) (#) (Can. $) (#) (Can. $) - -------------------------------------------------------------------------------------------------------------------------------- T. Engen 0 0 E : 193,000 E : 0 U : 386,000 U : 0 - -------------------------------------------------------------------------------------------------------------------------------- J. Bougie 382,100 11,257,136 E :1,322,800 E :14,116,752 U : 0 U : 0 - -------------------------------------------------------------------------------------------------------------------------------- E. P. LeBlanc 14,700 401,555 E : 188,700 E : 2,971,422 U : 92,000 U : 1,018,040 - -------------------------------------------------------------------------------------------------------------------------------- R. B. Evans 40,300 1,072,887 E : 110,000 E : 1,440,900 U : 17,000 U : 191,165 - -------------------------------------------------------------------------------------------------------------------------------- B. W. Sturgell 52,100 1,441,611 E : 86,850 E : 1,126,761 U : 85,700 U : 947,197 - -------------------------------------------------------------------------------------------------------------------------------- H. van de Meent 0 0 E : 0 E : 0 U : 43,320 U : 449,878 - --------------------------------------------------------------------------------------------------------------------------------
(1) E: Exercisable U: Unexercisable ---------------------------------------- RETIREMENT BENEFITS Canadian Plans During 2001, J. Bougie and E. P. LeBlanc participated in both the Alcan Pension Plan (Canada) and the Alcan Supplemental Retirement Benefits Plan (Canada), which 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 up to a maximum. 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 - --------------------------------------------------------------------------------- 600,000 -- 17% 25% 34% 42% 51% 59% 900,000 - --------------------------------------------------------------------------------- 1,000,000 -- 17% 26% 34% 43% 51% 60% 2,000,000 - ---------------------------------------------------------------------------------
In view of Mr. Bougie's resignation, specific retirement arrangements provide for a pension of 60% of his average annual earnings and payable at his date of resignation or, at his option, at any later date prior to age 56 with an actuarial equivalence. Non-Canadian Plans During 2001, B.W. Sturgell and R.B. Evans participated in an Alcan-sponsored pension plan in the United States ("U.S. Plan") which provides for retirement benefits which are generally comparable - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 19 ALCAN INC. with the Canadian Plans, but with a ceiling of 60% of annual average earnings and a maximum pensionable service of 35 years. The following table shows estimated annual retirement benefits, expressed as a percentage of annual average earnings during the three consecutive calendar years when they were the highest, payable upon normal retirement at age 65 to persons in the indicated earnings and pensionable service classifications. U.S. PLAN - --------------------------------------------------------------------------------- Average Annual Years of Pensionable Service ------------------------------------------ Earnings ($) 10 15 20 25 30 35 - --------------------------------------------------------------------------------- 500,000 -- 17% 25% 34% 42% 51% 59% 1,000,000 - --------------------------------------------------------------------------------- 1,100,000 -- 17% 26% 34% 43% 51% 60% 2,000,000 - ---------------------------------------------------------------------------------
During 2001, H. van de Meent participated in an Alcan-sponsored pension plan in Switzerland. His retirement started on 1 January 2002 with total annual pension of $150,900 from the various pension plans in which he participated during his career with Algroup. Deductions for Social Security and Normal Form of Payment 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% (60% in Switzerland) lifetime pension to the surviving spouse. Pensionable Earnings and Years of Pensionable Service The 2001 pensionable earnings and estimated years of pensionable service (subject to a maximum of 35 years where applicable) on normal retirement at age 65 for the Named Executive Officers were as follows: B.W. Sturgell, $752,000 and 25 years; E.P. LeBlanc, $673,690 and 33 years; R.B. Evans, $836,800 and 16 years. At his date of resignation, Mr. Bougie's average earnings were $988,800. RETIRING ALLOWANCES Upon his retirement, R. B. Evans will be paid a retiring allowance equal to $38,700 increased by 7% per annum from 31 December 1999. ---------------------------------------- Directors' Remuneration FEES AND EXPENSES For the first quarter of 2001, every Non-Executive Director was paid fees based on an annual fee of $25,000 and an additional annual fee of $5,000 for serving on a Committee of the Board. If such Director also served as chairman of a Committee, a further fee based on an annual fee of $6,000 was paid. The annual fee for the Non-Executive Chairman of the Board was $155,000 in lieu of the above fees. A travel fee of $1,000 was also payable to those Non-Executive Directors who require an extra day of travel to attend any Board/Committee meeting. During the first quarter of 2001, travel fees were paid as follows: M. Ebner, $3,000; R. Gasser, $2,000; W. Kerth, $3,000; and P.H. Pearse, $6,000. Some of these payments were for travel in 2000. On 1 April 2001, the compensation of Non-Executive Directors was modified. Each Non-Executive Director is now entitled to receive compensation equal to $100,000 per annum, payable quarterly, regardless of membership on Committees of the Board. The Chairman is entitled to receive additional compensation equal to $150,000 per annum, payable quarterly over and above the $100,000 referred to herein. 50% of the compensation is payable in the form of Director's Deferred Share Units (see below) and 50% in the form of either cash or additional - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 20 ALCAN INC. Deferred Share Units at the election of the individual Director. Travel fees are no longer paid. Non-Executive Directors are reimbursed for transportation and other expenses incurred in attending Board and Committee meetings. Non-Executive Directors who are not Canadian residents are entitled to paid tax advice. During 2001, G. Schulmeyer was reimbursed $1,500 for this purpose. DIRECTORS' DEFERRED SHARE UNIT PLAN For the first quarter of 2001, Non-Executive Directors received Share Units as retirement arrangements. Under the Non-Executive Director Deferred Share Unit Plan, each Non-Executive Director was credited with a number of Directors' Deferred Share Units ("DDSUs"), as determined by the Board. This number was 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. On 1 April 2001, the Non-Executive Director Deferred Share Unit Plan was modified to reflect the changes to the remuneration of Non-Executive Directors, as described on page 20. Until redemption, additional DDSUs are credited to each Non-Executive 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 will be calculated by multiplying the accumulated balance of DDSUs by the average price of a Share on the Toronto and New York stock exchanges at the time of redemption. SHARE INVESTMENT PLAN FOR DIRECTORS Non-Executive Directors may invest all or part of the cash portion of their fees in Shares through the Share Investment Plan for Directors. BOARD FEES An employee of Alcan who is a Director is not entitled to receive fees for serving on the Board. ---------------------------------------- Indebtedness of Directors and Executive Officers Non-Executive Directors Non-Executive Directors and former Non-Executive Directors are not indebted to Alcan. Option Loans to Executive Officers The required details with regard to Option Loans given to Executive Officers are shown in the following table. The aggregate indebtedness of all Executive Officers and employees and former Executive Officers and employees of Alcan and its Subsidiaries (including the Named Executive Officers) to Alcan in respect of Option Loans at 28 February 2002 was $1,374,414. The terms of Option Loans are described on page 16. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 21 ALCAN INC. TABLE OF INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS UNDER OPTION PLAN - ---------------------------------------------------------------------------------------------------------------------------------- Amount Financially Largest Amount Outstanding Assisted Share Involvement Outstanding as at 28 February Purchases Security for Name and Principal Position of During 2001 2002 During 2001 (1) Indebtedness Alcan ($) ($) (#) - ---------------------------------------------------------------------------------------------------------------------------------- R.L. Ball Lender 60,606 53,274 0 (2) Executive Vice President - ---------------------------------------------------------------------------------------------------------------------------------- E.P. LeBlanc Lender 43,914 41,269 0 (2) Executive Vice President - ---------------------------------------------------------------------------------------------------------------------------------- G.R. Lucas Lender 49,406 33,429 0 (2) Vice President and Treasurer - ---------------------------------------------------------------------------------------------------------------------------------- G. Ouellet Lender 46,536 43,799 0 (2) Senior Vice President - ----------------------------------------------------------------------------------------------------------------------------------
(1) In respect of A Options only. (2) Security for the indebtedness is provided by the deposit of the certificates representing the relevant Shares with CIBC Mellon, as trustee, which holds the certificates registered in its name until full repayment of the particular Option Loan has been made to Alcan. Directors' and Officers' Liability Insurance Alcan carries insurance covering liability, including defence costs, of directors and officers of Alcan and its Subsidiaries, incurred as a result of their acting as such, except in the case of failure to act honestly and in good faith. The policy provides coverage against certain risks in situations where Alcan may be prohibited by law from indemnifying the directors or officers. The policy also reimburses Alcan for certain indemnity payments made by Alcan to such director or officer, subject to a $10 million deductible in respect of each insured loss. The premium paid by Alcan for coverage in 2001 was $380,150 and the limit of insurance is $125 million per occurrence and in the aggregate per year. Approval of the Board of Directors The Board of Directors has approved the contents of this Management Proxy Circular and its issue to Shareholders. /s/ Roy Millington - --------------------- Roy Millington Corporate Secretary LOGO - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 22 ALCAN INC. Schedule A RE-CONFIRMATION OF THE SHAREHOLDER RIGHTS PLAN THAT the Shareholder Rights Plan included in the Shareholder Rights Agreement made as of 14 December 1989, between the Company and CIBC Mellon Trust Company, as amended, (as summarized in Schedule D of the Management Proxy Circular dated 6 March 2002), be and is hereby re-confirmed in accordance with its terms. Schedule B AMENDMENT TO ARTICLES THAT, as a special resolution, the Articles of the Corporation be amended by adding the following in item 7: "Meetings of Shareholders shall be held at such place within Canada as the Directors of the Corporation may determine, or outside of Canada, if so determined by the Directors, in New York City, United States of America, in London, England, or in Zurich, Switzerland". Schedule C CONFIRMATION OF AMENDMENTS TO BY-LAW NO. 1A THAT the amendments approved by the Board of Directors to By-Law No. 1A replacing Sections 1.01 -- Meetings, 1.02 -- Notice of Meetings, 1.06 -- Voting, 2.03 -- Meetings of Directors and Notices, 2.04 -- Quorum and 2.08 -- Participation in their entirety with the following be hereby confirmed: "SECTION 1.01 -- MEETINGS. The Directors shall call an annual meeting of Shareholders not later than 15 months after the holding of the last preceding annual meeting and may at any time call a special meeting of Shareholders. Meetings shall be held at such place as the Directors may determine. Failing any determination as to the location of the meeting by the Directors, the meeting shall take place in the city of Montreal. Meetings shall be held at such time as the Directors may determine. Any person entitled to attend a meeting of Shareholders may participate in the meeting by means of a telephonic, electronic or other communication facility which may be made available by the Corporation, provided that the Chairman is satisfied that all participants will be able to communicate adequately with each other during the meeting. A meeting of Shareholders may be held by means of a telephonic, electronic or other communication facility which may be made available by the Corporation, unless the Directors otherwise determine and provided that the Chairman is satisfied that all participants will be able to communicate adequately with each other during the meeting. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 23 ALCAN INC. SECTION 1.02 -- NOTICE OF MEETINGS. Notice of time and place of each meeting of Shareholders shall be given by sending the notice to each Shareholder entitled to vote at the meeting, not less then 21 nor more then 60 days before the date of the meeting. Any notice, communication or document to be given by the Corporation pursuant to the Canada Business Corporations Act, the Articles, the By-laws or otherwise, to a Shareholder, Director, officer or auditor shall be sufficiently given if delivered personally to the person to whom it is to be given, or if delivered to his recorded address, or if mailed by prepaid mail addressed to him at his recorded address. In addition to the foregoing, any such notice, communication or document required to be given may instead be delivered by the Corporation in an electronic or other technologically enhanced format, provided that the requirements of the applicable law in respect of such delivery have been complied with in all respects, including, where required, receipt by the Corporation of the prior consent of the recipient to the delivery of such notice, communication or document in electronic or other technologically enhanced format and the designation by the recipient of the information system for receipt thereof. The accidental failure to give notice of a meeting of Shareholders to any person entitled thereto or any error in such notice not affecting the substance thereof shall not invalidate any action taken at the meeting. SECTION 1.06 -- VOTING. Voting at every meeting of Shareholders shall be by a show of hands except where, either before or after a show of hands, a ballot is required by the chairman of the meeting or is demanded by any person present and entitled to vote at the meeting. Any vote may be held, in accordance with the laws and regulations governing the Corporation, by means of a telephonic, electronic or other communication facility, provided the Corporation makes available such a communication facility. SECTION 2.03 -- MEETINGS OF DIRECTORS AND NOTICES. Meetings of the Directors may be called at any time by or by order of the Chairman of the Board, the Vice Chairman of the Board if one is in office, the President or any two Directors, and may be held at the registered office of the Corporation, or at any other place determined by the Directors. Notice specifying the place and time of each such meeting shall be delivered to each Director or left at his usual residence or usual place of business, or shall be mailed, sent by telefax or in an electronic or other technologically enhanced format at least 72 hours prior to the time fixed for such meeting. Notice of any meeting or any irregularity in any meeting or the notice thereof may be waived by any Director either before or after the meeting is held. In conjunction with the annual meeting of Shareholders each year, the Directors shall meet to appoint the officers of the Corporation and to transact such other business as may come before the meeting. SECTION 2.04 -- QUORUM. The Directors may from time to time fix the quorum for meetings of Directors, but unless so fixed, five Directors shall constitute a quorum. SECTION 2.08 -- PARTICIPATION. Subject to the laws governing the Corporation, any Director may, if all of the Directors consent, participate at any meeting of Directors or of a committee of Directors by means of a telephonic, electronic or other communication facility that permits all participants to communicate with each other during the meeting. In the case of any such participation at any such meeting, each such Director so participating shall be deemed to be present at such meeting and such meeting shall be deemed to be held at the place specified in the notice calling such meeting or in the waiver thereof and, in the - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 24 ALCAN INC. absence of any such specification, at the place where or from which the Chairman of the meeting shall have presided." Schedule D The following is an explanation and a summary of the Rights Plan as embodied in the Plan Agreement made as of 14 December 1989, between the Company and CIBC Mellon, as amended to date. Shareholders requiring the full text of the Plan Agreement may obtain a copy from CIBC Mellon at 1-800-387-0825 (toll free) or collect at 416-643-5500. The primary objective of the Rights Plan is to provide the Board with sufficient time to explore and develop alternatives for maximizing Shareholder value if a take-over bid is made for Alcan and to provide every Shareholder with an equal opportunity to participate in such a bid. The Rights Plan encourages a potential acquiror to proceed either by way of a Permitted Bid (as defined in the Plan Agreement), which requires the take-over bid to satisfy certain minimum standards designed to promote fairness, or with the concurrence of the Board. The Board of Directors believes that the current legislation in Canada does not provide the Board with adequate time to evaluate and respond to a take-over bid in the best interests of the Shareholders. The key objective of the Board in a take-over bid context will be to maximize value for Shareholders. The Rights Plan creates a sufficient opportunity for the Board, in the face of a take-over bid, to make a proper recommendation to the Shareholders -- whether to accept the bid, or to negotiate with the bidder for a higher value or to explore and develop alternatives for maximizing Shareholder value, such as locating other potential bidders or developing a corporate restructuring alternative. As for the Shareholders themselves, the legislated bid period may not provide sufficient time to consider a take-over bid and the recommendations of the Board (including alternatives to the bid) and, thus, to make a fully informed decision. The Rights Plan helps address these issues. A large percentage of Alcan Shares are currently held outside Canada. The Rights Plan is also intended to ensure equal treatment of Shareholders and prevent an acquiror from exploiting differences in securities laws in a way that could be detrimental to some Shareholders. While the Rights Plan is intended to regulate certain aspects of take-over bids for Alcan, it is not intended to deter a bona fide attempt to acquire control of Alcan if the offer is made fairly. The Rights Plan does not diminish or otherwise affect Board duties in relation to the due and proper consideration of any offer that is made. The Rights Plan may be terminated by the Board with Shareholder approval through a redemption process prior to the accumulation of 20% or more of the Shares by any person or group of persons. The Rights Plan will not interfere with any amalgamation or other business reorganization approved by the Board. Nor does the Rights Plan inhibit any Shareholder from utilizing the proxy mechanism of the CBCA to promote a change in the management or direction of Alcan. If the Rights Plan is re-confirmed as proposed in the resolution in Schedule A, it will continue in effect until 1 May 2008, unless terminated earlier in accordance with its terms or unless it is not re-confirmed by the Shareholders at the 2005 Annual Meeting. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 25 ALCAN INC. Summary of the Rights Plan Capitalized terms used in this summary have the meanings specified in the Rights Plan. Pursuant to the Plan Agreement, one Right to purchase additional securities, subject to the terms and conditions of the Plan Agreement, has been issued for each Share outstanding and Rights will likewise be issued in respect of Shares issued in the future until the Separation Time (as defined below) or until the termination of the Rights Plan. The Rights are not exercisable until the Separation Time. Until the Separation Time (or earlier termination or expiration of the Rights), the Rights are evidenced by the certificates for the Shares to which the Rights attach. The Rights are transferred with, and only with, the associated Shares. Furthermore, until such time, Share certificates issued will contain a notation incorporating the Plan Agreement by reference. The Rights will separate and trade independently of the Shares after the Separation Time. Promptly following the Separation Time, separate Rights Certificates will be given to holders of record of Shares as of the close of business at the Separation Time and such separate Rights Certificates alone will evidence the Rights. The Separation Time is the close of business on the tenth business day after either the first date that a person has acquired beneficial ownership of 20% or more of the Shares, thereby becoming an Acquiring Person, or the date of commencement or announcement of a Take-Over Bid. A Flip-In Event occurs when a Person becomes an Acquiring Person. Upon the occurrence of a Flip-In Event, each Right (except for Rights beneficially owned by an Acquiring Person, its affiliates and associates) shall constitute the right to receive, upon the exercise thereof at the then current Exercise Price of the Right, Shares having an aggregate Market Price on the date of occurrence of such Flip-In Event equal to twice the Exercise Price. For example, if at the time of the Flip-In Event, the Exercise Price is $200 and the Shares have a Market Price of $50, the holder of each Right will be entitled to receive $400 in market value of the Shares (8 Shares) for $200, i.e. at a 50% discount. The Board of Directors may determine to waive the application of the provisions of the Flip-In Event section of the Plan Agreement to a particular Flip-In Event or any particular acquisition or other transaction or event that would, but for the waiver, constitute or result in a Flip-In Event, provided that such waiver shall automatically constitute a waiver of the application of such provisions to all contemporaneous Flip-In Events. The Rights Plan has a Permitted Bid feature which allows a take-over bid to proceed in the face of the Rights Plan even if the Board does not support the bid, provided that the bid meets certain minimum specified standards of fairness and disclosure. Specifically, the Permitted Bid procedure allows persons to make a take-over bid for all or part of the outstanding Shares, provided it is made to all Shareholders, and is held open for a specified period. The Permitted Bid procedure provides Shareholders and the Board with this additional time to assess a bid properly and to permit alternative bids to emerge. If more than 50% of the Shares held by parties other than the bidder, its affiliates and associates are tendered and not withdrawn at the end of the specified period, the bid may proceed and must be held open for an additional 10 business days to allow Shareholders who have not tendered their Shares additional time to do so after having had an opportunity to determine that the bid will otherwise be successful. This two-stage requirement, which separates evaluation of the bid from the tender process, helps remove any element of coercion that might otherwise be present in a one-stage bid process. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 26 ALCAN INC. At every third annual meeting following the 1999 annual meeting, the Board of Directors shall submit a resolution to the Shareholders for approval ratifying the continued existence of the Rights Plan. If a majority of the votes cast on such a resolution is against the continued existence of the Rights Plan, then the Plan Agreement, the Rights Plan and any outstanding Rights shall be of no further force or effect. Tax Consequences For Canadian federal income tax purposes, Alcan has not had any income as a result of the issuance of the Rights. Under the Income Tax Act (Canada) (the "Act"), the issuance of the Rights may be a taxable benefit which must be included in the income of the recipient. However, no amount must be included in the income of the recipient if the Rights do not have a monetary value at the date of issue. Alcan views the Rights as currently having negligible monetary value. A holder of Rights may have income or be subject to withholding tax under the Act if the Rights become exercisable, are exercised or are otherwise disposed of. This statement does not address the Canadian income tax consequences of other events, e.g., separation of the Rights from Shares, a Flip-In Event, lapse of Alcan's right to redeem the Rights and redemption of the Rights. For United States federal income tax purposes, the adoption and approval of the resolution re-confirming the Rights Plan should not be a taxable transaction to the Shareholders. The United States federal income tax consequences of other events in connection with the Rights Plan, e.g., separation of the Rights from the Shares, a Flip-In Event, lapse of Alcan's right to redeem the Rights, redemption of the Rights and exercise of the Rights, are uncertain. The tax consequences, including the likelihood that an event will be a taxable transaction (which, in certain cases, is probable) or, if taxable, whether it is a distribution or a sale or exchange of a Right, can vary depending on the facts and circumstances at the time of the event. Shareholders should consult their own tax advisors regarding the consequences of approval of the resolution and of receiving, holding, exercising, exchanging or otherwise disposing of the Rights. - -------------------------------------------------------------------------------- MANAGEMENT PROXY CIRCULAR 2002 27 ALCAN INC. LOGO M - Official mark of Environment Canada. M - Marque officielle d'Environnement Canada.
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