<PAGE> 1
_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 31 December 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-3677
ALCAN ALUMINIUM LIMITED
<TABLE>
<S> <C>
Incorporated in: I.R.S. Employer Identification No.:
CANADA NOT APPLICABLE
1188 Sherbrooke Street West,
Montreal, Quebec, Canada H3A 3G2
Telephone: (514) 848-8000
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title Name of each exchange on which
registered
Common Shares without nominal or par value Chicago Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
Common Share Purchase Rights Chicago Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days: Yes . X. No ...
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
<TABLE>
<S> <C>
The aggregate market value of
the voting stock held by non-affiliates: $7,378 million, as of 20 March 1998
Common Stock of Registrant outstanding: 227,447,459 Common Shares,
as of 20 March 1998
Documents incorporated by reference: Annual Report to security
holders for the fiscal year
ended 31 December 1997
(Parts I, II and IV)
</TABLE>
_______________________________________________________________________________
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CONTENTS
PAGE
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<TABLE>
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PART I
Items 1 and 2 Business and Properties. . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Sales and Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Raw Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Smelting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Other Aluminum Sources . . . . . . . . . . . . . . . . . . . . . . . . . .6
Electricity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Fabricating. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Research and Development . . . . . . . . . . . . . . . . . . . . . . . . .9
Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . .9
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Competition and Government Regulations . . . . . . . . . . . . . . . . . 10
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . .13
PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . .14
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . .15
Item 7a Quantitative and Qualitative Disclosures about Market Risk . . . . . .15
Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . .16
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . .16
PART III
Item 10 Directors and Executive Officers of the Registrant . . . . . . . . . .17
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . .20
Item 12 Security Ownership of Certain Beneficial Owners and Management . . . .31
Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . .32
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . 34
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Consent of Independent Accountants . . . . . . . . . . . . . . . . . . . . 39
Exhibit No. 21 Subsidiaries, Related Companies, etc. . . . . . . . . . . . 40
</TABLE>
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PART I
In this report, unless the context otherwise requires, the following definitions
apply:
"Alcan", "Company" or "Registrant" means Alcan Aluminium Limited and, where
applicable, one or more Subsidiaries,
"Annual Report" means the Annual Report for the year ended 31 December
1997,
"Board" or "Board of Directors" means the Board of Directors of Alcan,
"Dollars" or "$" means U.S. Dollars,
"Related Company" means a company in which Alcan owns, directly or
indirectly, 50% or less of the voting stock and in which Alcan has
significant influence over management,
"Shares" or "Common Shares" means the Common Shares of Alcan,
"Shareholders" means holders of the Shares,
"Subsidiary" means a company controlled, directly or indirectly, by Alcan,
and
"tonne" means a metric tonne of 1,000 kilograms or 2,204.6 pounds.
Unless otherwise expressly indicated herein, the financial and other information
given in this report is presented on a consolidated basis.
Certain information called for by Items of this Form is incorporated by
reference to the Annual Report. Where this is done, the reference will be
preceded by the word "See". A typical reference would be "See Annual Report, the
section titled "Quarterly Financial Data" on page 59". With the exception of
such information specifically incorporated by reference, the Annual Report is
not to be deemed filed as part of this Form 10-K Report.
ITEMS 1 AND 2 BUSINESS AND PROPERTIES
GENERAL
Alcan is a Canadian company, incorporated on 3 June 1902, with headquarters in
Montreal, Canada, engaged, together with Subsidiaries and Related Companies, in
all significant aspects of the aluminum business on an international scale.
Alcan is independent of, and operates in competition with, all other aluminum
companies.
Alcan's operations include the mining and processing of bauxite, the basic
aluminum ore; the refining of bauxite into alumina; the generation of
electricity for use in smelting aluminum; the smelting of aluminum from alumina;
the recycling of used and scrap aluminum; the fabrication of aluminum, aluminum
alloys and non-aluminum
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materials into semi-finished and finished products; the distribution and
marketing of aluminum and non-aluminum products; the production and sale of
industrial chemicals; and research and technology. Alcan, together with its
Subsidiaries and Related Companies, has bauxite holdings in six countries,
produces alumina in nine, smelts primary aluminum in six, operates aluminum
fabricating plants in 14 and has sales outlets and maintains warehouse
inventories in the larger markets of the world. Alcan also operates a global
transportation network which includes bulk cargo vessels, port facilities and
freight trains.
For 1997, the Company reported a net income of $485 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
page 15.
SALES AND MARKETS
Nearly 90% of Alcan's sales and operating revenues are derived from the sale of
aluminum in ingot and fabricated form, including fees charged for converting
customer-owned alumina into primary ingot and for converting customer-owned
metal into fabricated products. Total Western World primary aluminum shipments
(excluding the countries of the CIS, Eastern Europe and China) totalled 17.9
million tonnes in 1995, 17.8 million tonnes in 1996 and 18.9 million tonnes in
1997.
For a discussion of the Western World Market and Western World Consumption
Versus Alcan Sales, see Annual Report, pages 17 and 18.
Alcan's ingot product realizations were $1,739 per tonne in 1997 compared to
$1,658 per tonne in 1996 and $1,983 per tonne in 1995. These figures relate to
primary and secondary ingot and scrap.
For a review of Alcan's Raw Materials and Chemicals Operations, Primary Metals
Operations and Fabricated Products Operations, see Annual Report, pages 22
through 27. For the Geographic Review, see Annual Report, pages 27 through 31
and page 57.
RAW MATERIALS
BAUXITE/ALUMINA
Alumina (aluminum oxide) is produced from bauxite, the basic aluminum-bearing
ore, by a chemical process. Aluminum is, in turn, produced from alumina by an
electrolytic process which uses large quantities of energy to separate the
aluminum from the oxygen in alumina. Depending upon quality, between four and
five tonnes of bauxite are required to produce approximately two tonnes of
alumina which yield approximately one tonne of aluminum. A portion of the
alumina produced by the Company is sold in the metallurgical and chemical
alumina markets.
The Company and its Subsidiaries obtain their requirements of alumina and
bauxite from several sources as described below.
CANADA The Company owns alumina facilities with a capacity of about 1.2 million
tonnes per year at Jonquiere (Quebec). Bauxite for this operation is obtained
from Brazil (see below), Guinea (see below) and other sources. Alumina and
alumina-based chemicals produced at Jonquiere supply, in part, the smelters in
Quebec and are also sold in the North American chemical market.
AUSTRALIA The Company has a 21.4% interest in a company which operates an
alumina plant at Gladstone (Queensland) which has a capacity of about 3.3
million tonnes per year. Each participant in that plant supplies bauxite for
toll conversion. Alcan's bauxite is purchased from a third party in Australia
under long-term
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contracts. Alcan's share of production from Gladstone is used to supply the
Alcan smelter at Kitimat (British Columbia) and is also sold to third parties.
On 3 February 1998, Alcan and the aforementioned Australian third party signed
an agreement providing for the future development of Alcan's Ely bauxite mine in
Cape York, Australia, with that party's adjacent operations.
BRAZIL The Company purchased close to 2 million tonnes of bauxite in 1997 under
contracts in effect through 1999 from a 12.5%-owned company, Minercao Rio do
Norte S.A. ("MRN"). MRN's Trombetas mine in the Amazon region has an operating
capacity of about 10 million tonnes per year. Bauxite purchased from MRN is
processed at the Jonquiere plant (see above) and at the Alumar alumnia refinery
in Sao Luis (Brazil) which has an annual capacity of about 1.2 million tonnes;
the Company owns a 10% interest and future expansion rights in the latter
refinery. Also, a portion of the MRN bauxite is exchanged for bauxite from other
sources.
The Company owns alumina facilities (and related bauxite mining facilities)
with a capacity of about 150,000 tonnes per year at Ouro Preto which supply
smelters in Brazil.
GHANA The Company purchased about 400,000 tonnes of bauxite in 1997 from Ghana
Bauxite Co. Ltd. ("GBC"), in which it held an interest of 45%. As of 19 March
1998, the Company has increased its interest in GBC to 80%. The bauxite
purchased is used for processing at the Burntisland plant (see below), the
Aughinish plant (see below) and the Jonquiere plant (see above).
GUINEA The Company purchased 4 million tonnes of bauxite in 1997 under
contracts in effect through 2011 from Compagnie des Bauxites de Guinee ("CBG").
Alcan has a 33% interest in Halco (Mining) Inc.; Halco holds a 51% interest in
CBG, the remaining 49% being held by the Republic of Guinea. CBG's mine in the
Boke region of Guinea has an operating capacity of about 12 million tonnes per
year. Bauxite purchased from CBG is processed at the Aughinish plant (see
below) and the Jonquiere plant (see above) and is also sold to third parties.
In Guinea, the Company also purchased about 100,000 tonnes of alumina in 1997
from Friguia. The Company holds a 20% interest in Frialco S.A. which holds a
51% interest in Friguia, the remaining 49% being held by the Republic of
Guinea. The Friguia alumina plant has an operating capacity of about 640,000
tonnes per year. Alumina purchased from Friguia is sold to third parties.
IRELAND The Company owns an alumina plant at Aughinish which has a capacity of
about 1.3 million tonnes of alumina per year. Bauxite for this operation is
purchased almost exclusively from Guinea (see above). In 1997, the alumina
produced at Aughinish was consumed by Alcan smelters in the United Kingdom and
North America or sold to third parties.
JAMAICA The Company has a 93% interest in alumina facilities (and related
bauxite mining facilities) with an annual capacity of about 1.1 million tonnes.
The Government of Jamaica owns the remaining 7% interest in these facilities.
The Company is responsible for management of the operations. In 1997, most of
the Company's share of the alumina produced was supplied to Alcan smelters in
Canada and the United States.
UNITED KINGDOM The Company operates an alumina plant in Burntisland (Scotland),
which has an annual capacity of approximately 120,000 tonnes of special aluminas
and other chemicals. Bauxite for this operation is purchased from Ghana (see
above). Production from this plant is sold in the chemical market.
In addition to the foregoing, Alcan owns bauxite-mining and alumina-producing
facilities through Related Companies in India and Japan.
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BAUXITE RESERVES
Through Subsidiaries and Related Companies, Alcan has approximately 400 million
tonnes of demonstrated bauxite reserves, which the Company believes are
sufficient to meet its needs for the next 30 years.
CHEMICALS AND OTHER MATERIALS
The Company, together with its Subsidiaries and Related Companies, produces a
wide range of specialty aluminas and aluminum hydroxides for different markets,
such as ceramics, refractories, water treatment, catalysts and coagulants; its
products are also used as flame retardants and smoke suppressants for plastics
and resins. The principal manufacturing facilities for special aluminas and
aluminum hydroxides are located in Canada, the U.K., Brazil, Japan and India.
Certain chemicals and other materials, e.g., aluminum fluoride, required for the
production of aluminum at the Company's smelters, are also produced by its
chemical operations. Other materials, e.g., caustic soda, fuel oil, fluorspar
and petroleum coke, are purchased from third parties.
SMELTING
At the end of 1997, the Company owned 13 primary aluminum smelters with a total
annual rated capacity of 1,558,000 tonnes. Seven of these smelters, having a
total annual rated capacity of 1,093,000 tonnes, are located in Canada. The
other smelters are located in Brazil, the U.K. and the U.S.A. The Company has
interests, through Related Companies, in a primary smelter in Japan with an
annual rated capacity of 20,000 tonnes and in three primary smelters in India
with a total annual rated capacity of 117,000 tonnes.
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The table below summarizes the primary aluminum production for 1997, together
with annual rated capacities of smelters referred to above at December 31, 1997:
<TABLE>
<CAPTION>
OWNERSHIP AT
31 DECEMBER 1997 RATED
COMPANY AND SUBSIDIARIES 1997 PRODUCTION CAPACITY
- - - ------------------------ ------------ ------------- -------------
(%) ('000 TONNES) ('000 TONNES)
<S> <C> <C> <C>
Canada 100 1,096 1,093*
Brazil 100 93 109
United Kingdom 100 116 176
United States 100 124 180
----- -----
Total 1,429 1,558
----- -----
RELATED COMPANIES
Japan 45.6 17 20
India 34.6 39 117
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Total 56 137
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</TABLE>
[FN]
* See table below
</FN>
The Company's smelter facilities in Canada are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
SMELTER LOCATION RATED CAPACITY
------- -------- ------------------
('000 TONNES P.A.)
Arvida Jonquiere, Quebec 232
Beauharnois Melocheville, Quebec 48
Grande Baie Ville de la Baie, Quebec 180
Isle Maligne Alma, Quebec 73
Laterriere Chicoutimi, Quebec 204
Shawinigan Shawinigan, Quebec 84
Kitimat Kitimat, British Columbia 272
-----
Total 1,093
-----
</TABLE>
Utilization of smelting capacities varies from time to time according to
business conditions. In 1995, a ten- day strike at three of the Quebec smelters
reduced output by approximately 75,000 tonnes. In connection with the restart of
capacity related to the strike, 63,000 tonnes/year of capacity shut down during
the previous year was restarted in Quebec, British Columbia and the U.K. in
1995. Earlier in 1995, the Company had restarted 27,000 tonnes/year of shut-down
capacity in Brazil. As part of the settlement with the British Columbia
Government regarding the Kemano Completion Project, Alcan restarted 22,000
tonnes/year of capacity at Kitimat in 1997.
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For many years, the Company has been engaged in smelter modernization and
rebuilding programs to retrofit or replace some of its older facilities. It
intends to continue these programs with a view to increasing productivity,
improving working conditions and minimizing the impact of its operations on the
environment.
On 19 February 1998, Alcan announced the construction of a 375,000-tonne annual
capacity aluminum smelter in Alma, Quebec. It is intended that the existing Isle
Maligne smelter, also at Alma, will be shut down when this new smelter becomes
operational. The total cost for the new smelter is estimated at $1.6 billion,
and construction is expected to extend over a period of 40 months.
OTHER ALUMINUM SOURCES
Other sources of aluminum include the following: purchases of primary aluminum
under contracts and spot purchases, purchases of aluminum used beverage cans and
aluminum scrap for recycling and purchases of customer scrap returned against
ingot or semi-fabricated product sales contracts. In addition, some aluminum
fabricated products are purchased for re-sale. Purchases in 1997 of aluminum of
all types from all sources amounted to 1,254,000 tonnes, compared with 1,003,000
tonnes in 1996 and 1,365,000 tonnes in 1995.
The Company operates three specialized plants in the U.S.A., with a total annual
capacity of 481,000 tonnes, for the recycling of used beverage cans and process
scrap returned from customers. A similar plant in the U.K. operates with a
capacity of 70,000 tonnes per year. The Company also operates a facility in the
U. K. for the production of 70,000 tonnes per year of sheet ingot from aluminum
scrap. Additionally, the Company started up a dedicated used beverage can
facility in February 1998 in Brazil with an initial capacity of 20,000 tonnes.
The Company operates secondary aluminum smelters in Italy, the U.S.A. and
Thailand which have capacities of 56,000, 59,000 and 30,000 tonnes per year,
respectively, for the production of secondary aluminum from aluminum scrap.
The Company has interests, through Related Companies, in four secondary aluminum
smelters: three in Japan with annual rated capacities totalling 116,000 tonnes
and one in India with an annual rated capacity of 25,000 tonnes.
ELECTRICITY
Aluminum is produced from alumina by an electrolytic process requiring large
amounts of electricity. The smelting of one tonne of aluminum requires between
14 and 18.5 megawatt-hours of electric energy.
The Company produces low-cost electricity at its own hydro-electric generating
plants in Canada. These plants have an installed generating capacity of 3,583
megawatts, of which 2,730 megawatts may be considered to be hydraulically
available over the long term. The Company's generating facilities in Canada are
as follows:
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<TABLE>
<CAPTION>
GENERATING STATION LOCATION INSTALLED CAPACITY
------------------ -------- ------------------
(MEGAWATTS)
<S> <C> <C>
Chute-des-Passes Peribonka River, Quebec 750
Chute-du-Diable Peribonka River, Quebec 205
Chute-a-la-Savane Peribonka River, Quebec 210
Isle Maligne Saguenay River, Quebec 402
Chute-a-Caron Saguenay River, Quebec 224
Shipshaw Saguenay River, Quebec 896
Kemano Kemano, British Columbia 896
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Total 3,583
</TABLE>
In Canada, all water rights are owned by the Company except for those relating
to the Peribonka River in Quebec. In 1984, the Company and the Quebec Government
signed a lease extending the Company's water rights relating to that river to 31
December 2033 against an annual payment based on sales realizations of aluminum
ingot. An additional charge ("redevance additionnelle") is payable to the
provincial government based on total energy generation, escalating at the same
rate as the Consumer Price Index in Canada. In British Columbia, rentals and
generation taxes for electricity used in smelting and related purposes are
directly related to the sales realizations of aluminum produced at Kitimat. For
electricity sold to third parties within that province, the Company pays
provincial water rentals at rates which are fixed by the provincial government.
One-third of the Company's installed hydro-electric capacity in Canada was
constructed prior to the end of 1943, another third by the end of 1956 and the
remainder by the end of 1959. All these facilities are expected to remain fully
operational over the foreseeable future.
In addition to electricity generated at its plants, as described above, the
Company has agreed to purchase, under a long-term agreement, between one and
three billion KWh of electrical energy annually from Hydro-Quebec.
Electricity required by the Company's smelters in Canada is provided from the
foregoing sources. Electricity which is surplus to the Company's needs is sold
to neighbouring utilities or customers under both long-term and short-term
arrangements.
Electricity for the smelters located outside of Canada is supplied from a
variety of sources. The smelters in England and Scotland operate their own
coal-fired and hydro-electric generating plants, respectively. A Related Company
in India operates its own coal-fired generating plant for one of its smelters,
while its two other smelters are dependent upon purchased electricity. The
smelters in Brazil and that of a Related Company in Japan obtain some of their
electricity requirements from owned hydro-electric generating plants and
purchase the balance. The smelter in the U.S.A. purchases electricity under a
long-term contract.
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FABRICATING
The conversion of aluminum ingot into semi-fabricated and finished products
requires the application of a variety of intermediate processes, known generally
as fabricating. Many other producers of primary aluminum are also in the
business of supplying those products. In addition, there are many independent
fabricators which purchase primary and recycled aluminum from the primary
producers and the post consumer market.
Although Alcan is a leader in international markets for aluminum ingot products,
the Company's principal sales are in fabricated aluminum products. In 1997,
Alcan shipped 1,694,000 tonnes of fabricated products and manufactured another
276,000 tonnes from customer-owned metal, which together represented 70% of
Alcan's total volume for the year.
Alcan, together with its Subsidiaries and Related Companies, carries out
fabricating operations in more than 60 plants in 14 countries.
Due to market conditions, certain fabricating facilities in Europe and the
U.S.A. are operating at less than full capacity.
FLAT-ROLLED PRODUCTS
Alcan is the world's largest producer and marketer of flat-rolled aluminum
products (sheet and foil), which constitute over 85% of Alcan's fabricated
product volume. At the end of 1997, the Company's annual sheet and foil
manufacturing capacity in its principal fabricating markets was as follows: in
excess of 1,000,000 tonnes in North America; 140,000 tonnes in South America;
over 950,000 tonnes in Europe; and over 40,000 tonnes in Asia.
A major portion of Alcan sheet is can stock for beverage containers. Other
important end-use markets for sheet include building and construction,
transportation, the printing industry and the industrial distribution market.
Alcan foil is used for household and commercial packaging applications and for
industrial products.
During the year, Alcan commenced a project to expand capacity at its
Pindamonhangaba, Brazil rolling mill from 100,000 tonnes to 280,000 tonnes.
WIRE AND CABLE
Aluminum is also cast and rolled into rod which is then drawn into wire and
stranded into cable for the transmission and distribution of electricity. Rod is
also used for mechanical applications such as screen wire and cable armouring.
Alcan's main wire and cable businesses are located in Canada and the U.S.A.
CASTINGS
Another method of fabrication is the casting of molten aluminum into components
for machinery, automotive products and aircraft. Alcan is a supplier of aluminum
pistons and other engine components to the automotive industry in Germany, the
U.S.A. and Canada. The Company also sells aluminum alloys to independent
foundries in Canada, Italy, the U.K. and the U.S.A.
EXTRUSIONS
The Company's Subsidiaries and Related Companies produce extruded products in
several countries (including France, India, Italy, Japan, Malaysia and Thailand)
and sell these products locally and in other countries for the
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building, construction, transportation and engineering markets. Examples of
end-products using extrusions include windows, doors and automotive components.
The Company is also a major supplier of extrusion ingot in many countries.
Divestments/Restructuring
Since 1994, Alcan has divested several fabricating businesses which were not
considered to be a strategic fit for the Company and which did not create
long-term value for its Shareholders. As part of this process, in 1996,
Alcan sold 12 non-strategic downstream businesses in the U.K. and in the
U.S.A. In 1996, Alcan restructured several of its investments in Related
Companies in the Asia/Pacific region, as a consequence of which Alcan's
effective ownership of Nippon Light Metal Company, Ltd. changed from 47.4%
to 45.6%. In Brazil, Alcan sold three fabricating plants in 1996 and a cable
business in January 1997. In December 1997, Alcan sold its fabricating
Subsidiary in Uruguay.
RESEARCH AND DEVELOPMENT
Alcan's resource for technology is a global system of research laboratories,
applied engineering centres and technical departments. Some of these are
operated on a Company-wide basis by the R&D division of Alcan, while others
are managed and operated locally by Subsidiaries or Related Companies.
The R&D division of Alcan constitutes the largest single body of research
effort within Alcan. Responsible for about 60% of total R&D expenses, the
division plays a major role in innovation, through basic and applied
research. The organization consists of about 500 employees located largely in
three laboratories: two in Canada (at Kingston, Ontario and Jonquiere, Quebec)
and one in the U.K. (Banbury, Oxfordshire). At Kingston and Banbury, efforts
are related mainly to fabricating processes and aluminum product systems as
well as developing and improving aluminum alloys. At Jonquiere, efforts are
directed more towards primary alumina production, smelter operations and molten
metal treatment.
The Company's expenditures on research and development amounted to $72
million in 1997 compared to $71 million in 1996 and $76 million in 1995.
Corresponding expenditures are expected to be approximately $77 million for
1998.
ENVIRONMENTAL PROTECTION
In most of the countries where the Company operates production facilities,
environmental control regulations have been established or are in the process
of being established. The Company believes that its existing and planned
anti-pollution measures will enable it to satisfy statutory and regulatory
demands without material effect on its competitive position. The Company's
capital expenditures to protect the environment and improve working
conditions at the smelters and other locations were $84 million in 1997.
Similar expenditures for 1998 and 1999 are expected to be $90 million and $136
million, respectively. In addition, expenditures charged against revenue for
environmental protection were $88 million in 1997 and are expected to be $99
million in 1998 and $87 million in 1999. In respect of years beyond 1999,
the Company expects that capital and operating expenditures will continue at
approximately the same levels.
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EMPLOYEES
The following table shows the average number of employees of Alcan on a
geographical basis for the year ended 31 December 1997:
<TABLE>
<CAPTION>
COUNTRY/REGION EMPLOYEES ('000)
-------------- ----------------
<S> <C>
Canada 11
United States 4
South America 3
Europe 11
Asia and Pacific 2
Other 2
--
Total 33
--
</TABLE>
A majority of the hourly-paid employees is represented by labour unions.
COMPETITION AND GOVERNMENT REGULATIONS
The aluminum business is highly competitive in price, quality and service.
The Company experiences competition in the sale of aluminum from a large
number of companies in all major markets. In addition, aluminum products
face competition from products fabricated from several other materials such
as plastic, steel, iron, copper, glass, wood, zinc, lead, tin, titanium,
magnesium, cement and paper. The Company believes that its competitive
standing is enhanced by its ability to supply virtually all its own power
requirements for its Canadian and U.K. smelters at low cost.
The operations of the Company, like those of other international companies,
including its access to and cost of raw materials and repatriation of
earnings, may be affected by such matters as fluctuations in monetary
exchange rates, currency and investment controls, withholding taxes and
changes in import duties and import restrictions. Imports of ingot and other
aluminum products into certain markets are subject to import regulations and,
where applicable, import duties. These affect the Company's sales
realizations and may affect the Company's competitive position. Shipments of
the Company's products are also subject to anti-dumping laws of the importing
country, which prohibit sales of imported merchandise at less than defined
fair values.
The Investment Canada Act provides that the acquisition of control of a
Canadian business enterprise, such as Alcan, by a "non-Canadian" (as defined
in the Act) is subject to review under the Act and may not be implemented
unless the Minister of the Government of Canada responsible for the
administration of the Act determines that the proposed acquisition is, or is
likely to be, of net benefit to Canada. The acquisition by a non-Canadian of
a majority of the voting shares of a Canadian company is deemed to constitute
the acquisition of control of that company. The acquisition by a non-Canadian
of more than one-third but less than the majority of the common shares of a
Canadian company is, unless the contrary is established, deemed to constitute
the acquisition of control.
10
<PAGE> 13
ITEM 3 LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
LITIGATION
The Company's U.S. Subsidiary (Alcan Aluminum Corporation, or "Alcancorp") and
third parties are defendants in a litigation, instituted in May 1983 before the
Federal District Court for the Central District of California, by the U.S.
Environmental Protection Agency ("EPA") and the State of California, involving
the Stringfellow hazardous waste site in California. Alcancorp was held liable
in that lawsuit. In January 1992, Alcancorp and the U.S. Justice Department
entered into a four-year Partial Consent Decree. On the basis of that
arrangement, Alcancorp has funded a total of $13,100,000 for a treatment plant
designed to help clean up the site. Alcancorp will seek to recover contributions
over that amount (if any, based on the final determination of clean-up costs)
from other defendants in this case. A decision by the Special Master would
assign as much as 95% of Alcancorp's liability to the State of California. The
decision of the Special Master was appealed to the United States District Court
and the District Court confirmed the decision of the Special Master. The matter
is now being appealed to the U.S. Court of Appeals for the Ninth Circuit.
In a lawsuit instituted before the Federal District Court for the Southern
District of New York in 1985, in which Alcancorp is a party, and involving the
dumping of allegedly hazardous waste at five New York sites, the Court in June
1991 rendered partial summary judgment holding Alcancorp and other defendants
jointly and severally liable for clean-up costs. Alcancorp is planning to appeal
as soon as it has a final appealable order from the Court identifying its
alleged share of the costs. Alcancorp is party to an EPA lawsuit, instituted in
October 1991 before the Federal District Court for the District of New Jersey,
relating to the Quanta Resources site in Edgewater, New Jersey. Alcancorp is a
third-party defendant in a lawsuit filed by other generators in connection with
the Kin Buc site in Edison, New Jersey, instituted in 1988 before the Federal
District Court for the District of New Jersey.
In a lawsuit brought in July 1987 relating to the Pollution Abatement Services
site in Oswego, New York, the Federal District Court for the Northern District
of New York found (in January 1991) Alcancorp liable for a share of the clean-up
costs for the site, and in December 1991 determined the amount of such share to
be $3,175,683. Alcancorp appealed this decision to the United States Circuit
Court of Appeals for the Second Circuit. In April 1993, the Second Circuit
reversed the District Court and remanded the case for a hearing on what, if any,
liability might be assigned to Alcancorp depending on whether Alcancorp can
prove that its waste did not contribute to the response costs at the site.
Furthermore, the case was consolidated with another case, instituted in October
1991, in which the EPA sued Alcancorp in the Federal District Court for the
Northern District of New York seeking clean-up costs in regard to the Fulton
Terminals site in Oswego County, New York.
In an EPA lawsuit in 1989 before the Federal District Court for the Middle
District of Pennsylvania involving the Butler Tunnel site, in which Alcancorp is
a party, the Court in May 1991 granted summary judgment against Alcancorp in the
amount of $473,790. Alcancorp appealed to the United States Court of Appeals for
the Third Circuit, which in May 1992 reversed the District Court decision and
remanded the case to the District Court for a trial on whether Alcancorp can
prove that its waste did not contribute to the response costs at the site. In
June 1995, the District Court upon hearing cross motions for summary judgment
ruled in favour of the government and imposed joint and several liability
against Alcancorp and other defendants. Alcancorp filed a motion for
reconsideration which was denied in December 1995. Alcancorp appealed the
District Court's decision to the United States Circuit Court of Appeals for the
Third Circuit and lost. A petition for rehearing was filed and denied by the
Court. A hearing before the U.S. Supreme Court was sought but not granted.
Alcancorp paid $652,371.09 representing the judgment amount plus interest, and
is disputing about $400,000 associated with that judgment representing
additional enforcement costs incurred after the date of the initial judgment.
11
<PAGE> 14
In May 1992, Alcancorp received an adverse arbitration ruling in Southern
Pacific Railroad v. Alcan in San Francisco, California, in which the
arbitrators awarded the plaintiffs $5.4 million from Alcancorp for a clean-up
of the plaintiffs' land adjacent to the site of Alcancorp's former Berkeley
aluminum powders plant as well as the site itself and for rent claimed to be
owed to the railroad. Alcancorp appealed to the Superior Court of California
for Alameda County, which rejected the appeal. Alcancorp then appealed to
the Court of Appeals of the State of California, First Appellate Division,
Division One, which rejected Alcancorp's appeal. Alcancorp then sought
discretionary review by the California Supreme Court, which was denied. In
1994, Alcancorp paid the amount plus interest (a total of $6.5 million) into
escrow pending a determination of the actual cost of the clean-up. If the
actual cost is less than the escrowed amount, Alcancorp will receive a refund
of the difference.
In September 1993, the EPA issued an order against Alcancorp and other
potentially responsible parties ("PRPs") at the Sealand Restoration site in
Upstate New York. The order directed the PRPs to supply drinking water to
area residents potentially affected by the site. Since the material sent to
the site was the same water-oil emulsion which was the subject of favourable
decisions by the U.S. Courts of Appeals for the Third and Second Circuits
referred to above, Alcancorp refused to supply the water.
In February 1996, the Company's U.K. Subsidiary (British Alcan Aluminium plc)
sold its investments in several of its Subsidiaries, including Magnesium
Elektron, Inc. and Luxfer USA Limited, both located in the U.S.A. However, as
part of the sale, British Alcan has agreed to indemnify the purchaser for
certain liabilities including those, inter alia, arising out of the following
proceedings which are therefore included in this Form 10-K Report:
(a) Magnesium Elektron, Inc. ("MEI"; at the time, a Subsidiary of British Alcan
Aluminium plc) was sued by the Public Interest Research Group of New Jersey
and the Friends of the Earth for exceeding its water discharge limits. The
United States District Court for the District of New Jersey imposed a fine
of $2.6 million for technical violations and an award of attorneys' fees in
the amount of $524,900. MEI appealed the District Court decision to the
United States Court of Appeals for the Third Circuit which reversed the
judgment in its entirety. MEI is currently awaiting a decision by the
plaintiffs to see if they will seek review by the U.S. Supreme Court.
(b) Luxfer USA Limited ("Luxfer"; at the time, a Subsidiary of British Alcan
Aluminium plc) is a participant in a joint defence group with regard to
waste Luxfer sent to the Omega hazardous waste site in Whittier,
California. At various times during 1995, Luxfer contributed various
amounts totalling $11,800 for defence group costs and the removal of waste
from the site, and is now waiting for a report on the cost of the
remediation that is needed at the site.
(c) Luxfer is also a participant in a joint defence group formed to defend
claims by numerous homeowners against various companies who allegedly
disposed of industrial waste at a landfill in Monterey Park, California.
The group is investigating the claims.
INVESTIGATIONS
In certain other previously-reported government investigations of
contamination by alleged hazardous wastes at sites in Illinois, New York,
Pennsylvania, Ohio, New Jersey, North Carolina, Michigan, Missouri and
Massachusetts (on which waste material is alleged to have been deposited by
disposal contractors employed in the past directly or indirectly by Alcancorp
and other industrial companies), Alcancorp has contested that its waste is
hazardous. The EPA has responded that, in the EPA's opinion, Alcancorp's
waste is hazardous and that it may file lawsuits against Alcancorp as to these
sites.
In 1995, Alcancorp was advised of five additional sites being similarly
investigated: two in Ohio, two in New Jersey and one in Kentucky.
12
<PAGE> 15
Alcancorp has been advised by the various authorities that it may be liable
to contribute to the cost of the investigations and any possible remedial
action for such sites. As to those sites not yet subject to litigation,
although Alcancorp does not acknowledge any legal obligation to do so, it is
cooperating with the governments in each matter to seek fair and reasonable
solutions.
REVIEWS AND REMEDIAL ACTIONS
The Company has established procedures for reviewing, on a regular basis,
environmental investigations and any possible remedial action. Although the
Company cannot estimate the costs which may ultimately be borne by it, the
Company has no reason to believe that any remedial action will materially
impair its operations or materially affect its financial condition.
OTHER MATTERS
In March 1996, Alcancorp, along with other U.S. aluminum producers, was sued
by a U.S. bicycle manufacturer for alleged price-fixing stemming from the
Memorandum of Understanding entered into by six Governments in January 1994.
In a summary judgment, rendered in July 1996, the U.S. District court for the
Central District of California (county of Los Angeles) dismissed the case.
The plaintiff has appealed.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has not submitted any matter to a vote of security holders,
through solicitations of proxies or otherwise, during the fourth quarter of
the year ended 31 December 1997.
13
<PAGE> 16
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
See Annual Report, the section titled "Common Shares" on page 64.
The number of holders of record of Shares on 20 March 1998 was approximately
20,658.
While the Company intends to pursue a policy of paying quarterly dividends,
the level of future dividends will be determined by the Board of Directors in
light of earnings from operations, capital requirements and the financial
condition of the Company. The Company's cash flow is generated principally
from operations and also by dividends and interest payments from Subsidiaries
and Related Companies. These dividend and interest payments may be subject,
from time to time, to regulatory or contractual restraints, withholding taxes
(see Annual Report, page 51, note 14 to Consolidated Financial Statements)
and foreign governmental restrictions affecting repatriation of earnings. (See
section titled "Competition and Government Regulations" on page 10 of this
report.)
Dividends paid on Shares held by non-residents of Canada generally will be
subject to Canadian withholding tax. This withholding tax is levied at the
basic rate of 25%, although this rate may be reduced depending on the terms
of any applicable tax treaty. For residents of the United States, the
treaty-reduced rate is currently 15%.
ITEM 6 SELECTED FINANCIAL DATA
See Annual Report, on pages 60 and 61, for the following items:
- - - - under the heading "Consolidated Income Statement Items":
- Revenues
- Net income (Loss)
- - - - under the heading "Consolidated Balance Sheet Items":
- Total assets
- Total debt
- - - - under the heading "Per Common Share":
- Net income (Loss)
- Dividends paid
Commencing 1992, the Company adopted the accrual basis of accounting for
post-retirement benefits other than pensions.
Commencing 1995, the Company adopted the recommendations of the Canadian
Institute of Chartered Accountants concerning the accounting for joint
ventures.
Commencing 1996, the Company retroactively adopted the recommendations of the
Canadian Institute of Chartered Accountants concerning the disclosure and
presentation of financial instruments.
14
<PAGE> 17
See Annual Report, pages 42 to 43, note 4 to Consolidated Financial
Statements for a comparison, for certain items listed, of the amounts as
reported by the Company under Generally Accepted Accounting Principles
("GAAP") in Canada with amounts that would have been reported under U.S.
GAAP.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
See the Annual Report, pages 16 through 35, the section titled "Management's
Discussion and Analysis".
As the Company follows Canadian GAAP, reference should be made to note 4 to
the Consolidated Financial Statements on pages 42 to 43 of the Annual Report
which compares, for certain items listed, the amounts as reported with the
amounts that would have been reported under U.S. GAAP.
Refer to the section titled "Competition and Government Regulations" on page
10 of this report for a brief description of the Investment Canada Act as it
applies to the Company.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has estimated the impact on 1998 net income of a 10% adverse
change in interest rates, in foreign currency exchange rates or in aluminum
prices based upon its financial instrument and derivative commodity contract
positions outstanding at 31 December 1997.
INTEREST RATES
The net income impact of a 10% movement in interest rates on the Company's
invested surplus cash and time deposits at 31 December 1997 and on its
variable rate debt outstanding at 31 December 1997 is immaterial.
FOREIGN CURRENCY EXCHANGE RATES
The effect of an adverse movement of 10% in foreign currency exchange rates
on the Company's financial instruments (principally Canadian dollar forward
and range forward purchase contracts) outstanding at 31 December 1997 would
be to reduce 1998 net income by approximately $58 million.
Because all of the Company's foreign currency derivatives positions are taken
out to hedge identifiable foreign currency commitments to purchase or sell
goods and services, any negative impact of currency movements on the
financial instruments would be offset by an equal and opposite favourable
exchange impact on the commitments being hedged.
DERIVATIVE COMMODITY CONTRACTS
The effect of a reduction of 10% in aluminum prices on the Company's aluminum
forward purchase and options contracts outstanding at 31 December 1997 would
be to reduce 1998 net income by approximately $49 million, of which $11
million relates to the cost of unexercised option premiums and $38 million to
forward purchase contracts.
Because all of the Company's aluminum forward purchase contract positions are
taken out to hedge future purchases of metal required for firm sales
commitments to fabricated products customers, any negative impact
15
<PAGE> 18
of movements in the price of aluminum on the forward purchase contracts would be
offset by an equal and opposite impact on the purchases being hedged.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Annual Report, Consolidated Financial Statements on pages 37 through 58
and the "Auditors' Report" on page 36; the section titled "Quarterly
Financial Data" on page 59.
Location of Financial Statements and other material required under this Item
is found under Item 14 of this report.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
The Company has nothing to report under this Item.
16
<PAGE> 19
PART III
INFORMATION IN THIS PART IS BASED ON INFORMATION CONTAINED IN THE COMPANY'S
MANAGEMENT PROXY CIRCULAR DATED 4 MARCH 1998.
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(A) IDENTIFICATION OF DIRECTORS
The term of office of each Director runs from the time of his or her election
to the next succeeding annual meeting or until they cease to hold office as
such.
SONJA I. BATA, O.C. - DIRECTOR SINCE 1979
Sonja Bata, 71, has been active in the world-wide Bata Shoe Organization for
many years. Mrs. Bata was a director of Bata Limited from 1973 to 1997.
Presently she is a director of Compass Limited and vice-chairman of the Bata
Shoe Foundation. Mrs. Bata devotes significant time to other business and
philanthropic activities. She is chairman of the Bata Shoe Museum Foundation,
honorary chairman of the World Wildlife Fund Canada and past chairman of the
Board of Governors of Junior Achievement of Canada and North York General
Hospital.
W.R.C. BLUNDELL, O.C. - DIRECTOR SINCE 1987
Bill Blundell, 70, is chairman of The Manufacturers Life Insurance Company,
and a director of a number of Canadian companies. Mr. Blundell is a
vice-chairman of the Canadian Institute of Applied Research, and has served
as a member of the National Forum on Health, chairman of the Wellesley
Hospital and governor of the University of Toronto. He was with General
Electric Canada Inc. from 1949 to 1991, the last six years as chairman and
chief executive officer.
JACQUES BOUGIE, O.C. - DIRECTOR SINCE 1989
Jacques Bougie, 50, has been President and Chief Executive Officer of Alcan
since November 1993, having served as President and Chief Operating Officer
since July 1989. Mr. Bougie joined Alcan in 1979 and held a number of
senior management positions until 1989, including having responsibility for
all of Alcan's fabricating operations in North America other than rolling. Mr.
Bougie is also a director of Royal Bank of Canada and Bell Canada.
WARREN CHIPPINDALE, F.C.A., C.M. - DIRECTOR SINCE 1986
Warren Chippindale, 69, was chairman and chief executive partner of Coopers &
Lybrand (Canada) from 1971 to 1986 and chairman of Coopers & Lybrand
(International) for five years during that period. Mr. Chippindale is a
director of BCE Inc., Bell Canada, BCE Mobile Communications Inc., The
Spectrum United Funds and The Molson Companies Limited.
D. TRAVIS ENGEN - DIRECTOR SINCE 1996
Travis Engen, 53, is chairman, president and chief executive officer of ITT
Industries, Inc. in the United States of America and has held several
important positions within the ITT organization, including that of executive
vice president of ITT Corporation from 1991 to 1995. Mr. Engen is a member
of the U.S. President's National Security Telecommunications Advisory
Committee. He is a director of Fundacion Chile. He is also a director of
Lyondell Petrochemical Company and a member of the Business Round Table and
the Manufacturers Alliance Board of Trustees, all of which are located in the
United States of America.
DR. JOHN R. EVANS, C.C. - DIRECTOR SINCE 1986
John Evans, 68, is Chairman of Alcan as well as chairman of Allelix
Biopharmaceuticals Inc. and Torstar Corporation. Dr. Evans was chairman and
chief executive officer of Allelix Inc. from 1983 to 1989, president of
17
<PAGE> 20
the University of Toronto from 1972 to 1978 and director of the Population,
Health and Nutrition Department of the World Bank from 1979 to 1983. He is past
chairman of the Rockefeller Foundation. He is also a director of Connaught
Laboratories Ltd., MDS Health Group Ltd., Pasteur Merieux Serums & Vaccines
and Royal Bank of Canada.
ALLAN E. GOTLIEB, C.C. - DIRECTOR SINCE 1989
Allan Gotlieb, 70, was Ambassador of Canada to the United States of America from
1981 to 1989 and chairman of the Canada Council from 1989 to 1994. Mr. Gotlieb
is a director of Hollinger Inc., Champion International Corporation, AXA
Insurance Canada, AXA Pacific Insurance Company, Suncor Energy Inc. and Peoples
Jewellers, a senior consultant with the law firm of Stikeman, Elliott, a member
of the advisory boards of Nestle Canada Inc., Hollinger International Inc.,
Investment Co. of America and Julius Baer Investment Advisory (Canada) Ltd.,
co-chairman of Saturday Night magazine and chairman of the Donner Canadian
Foundation.
J.E. NEWALL, O.C. - DIRECTOR SINCE 1985
Ted Newall, 62, is vice-chairman, chief executive officer and a director of NOVA
Corporation. He was chairman and chief executive officer of Du Pont Canada Inc.
from 1980 to 1991. Mr. Newall is a director of BCE Inc., BCI Inc., Canadian
Pacific Ltd., Maple Leaf Foods Inc., Methanex Corporation, Royal Bank of Canada
and is vice-chairman of the Business Council on National Issues.
DR. PETER H. PEARSE, C.M. - DIRECTOR SINCE 1989
Peter Pearse, 65, is a consultant on natural resources economics and policies
and president of a private investment company. He is a Professor Emeritus at the
University of British Columbia where he was a member of the faculty from 1962 to
1996. Dr. Pearse has served on the Economic Council of Canada, the Canadian
Consumer Council, the Board of Governors of the University of British Columbia,
the executive board of the Law of the Sea Institute and the board of directors
of World Wildlife Fund Canada. Dr. Pearse has conducted two Royal Commissions on
natural resources policies and has been an advisor on natural resources matters
to Canadian and foreign governments and to the World Bank.
SIR GEORGE RUSSELL, C.B.E. - DIRECTOR SINCE 1987
Sir George Russell, 62, is chairman of 3i Group plc, an industrial investment
bank in the United Kingdom. Sir George had previously served with Alcan from
1972, becoming managing director of British Alcan Aluminium plc, a Subsidiary of
Alcan, in 1981. He resigned from that company in 1986, but rejoined its board in
1997. He is also chairman of Camelot plc and director of Northern Rock Building
Society and Taylor Woodrow, all of which are located in the United Kingdom.
GUY SAINT-PIERRE, O.C. - DIRECTOR SINCE 1994
Guy Saint-Pierre, 63, is chairman and a director of SNC-Lavalin Group Inc.,
having served as president and chief executive officer from 1989 to 1996. From
1970 to 1976, he served with the Government of Quebec, first as Minister of
Education and then as Minister of Industry and Commerce. Between 1978 and 1989,
he was president and chief executive officer of Ogilvie Mills Ltd. Mr.
Saint-Pierre is currently honorary chairman of the Business Council on National
Issues. Mr. Saint-Pierre is a director of BCE Inc., General Motors of Canada and
Royal Bank of Canada.
GERHARD SCHULMEYER - DIRECTOR SINCE 1996
Gerhard Schulmeyer, 59, has been president and chief executive officer of
Siemens Nixdorf Informationssysteme AG and chairman of its managing board since
1994. Prior to joining Siemens Nixdorf, Mr. Schulmeyer was executive vice
president and a member of the executive committee of Asea Brown Boveri Ltd. as
well as president and chief executive officer of ABB Inc., U.S.A. From 1980 to
1989, he held various senior positions with Motorola Inc., culminating with that
of executive vice president, deputy to the chief executive officer, responsible
for European business. He is a member of the supervisory boards of
Thyssen-Bornemisza Holding N.V. and VOBIS Microcomputer AG. He is also a member
of MIT Corporation.
18
<PAGE> 21
(B) IDENTIFICATION OF EXECUTIVE OFFICERS
The names, ages and positions of the Executive Officers of the Company, at 20
March 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - - ----- --- --------
<S> <C> <C>
J. Bougie 50 President and Chief Executive Officer;
Director since 1989
R.L. Ball 51 Executive Vice President, Corporate Development
and Technology
C. Chamberland 58 Executive Vice President, Smelting and Power
J.-P.M. Ergas 58 Executive Vice President, Europe
R.B. Evans 50 Executive Vice President, Fabricated Products,
North America
D. Gagnier 51 Vice President, Corporate and Environmental Affairs
E.P. LeBlanc 57 Executive Vice President, Raw Materials and Chemicals
G. Ouellet 55 Vice President, Human Resources, Occupational Health
and Safety
P. K. Pal 62 Vice President, Chief Legal Officer and Secretary
E.N. Santos 58 Executive Vice President, South America
B.W. Sturgell 48 Executive Vice President, Asia/Pacific
S. Thadhani 58 Vice President and Chief Financial Officer
G.P. Batt 50 Treasurer
D.G. O'Brien 55 Controller
</TABLE>
Except as described below, all of the Executive Officers named above have held
their present positions or other senior management positions with the Company or
its Subsidiaries during the past five years:
. prior to joining the Company in January 1995, Mr. Ergas held senior
management positions with the Pechiney group of companies;
. prior to joining the Company in January 1997, Mr. Evans held senior
management positions with the Kaiser Aluminum organization; and
. prior to joining the Company in January 1995, Mr. Gagnier was president of a
manufacturers' association in Canada and, prior to that, had held senior
administrative positions with the Government of Canada (including its Privy
Council Office).
The term of office of each officer runs from the time of his appointment to
the next succeeding annual meeting.
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<PAGE> 22
ITEM 11 EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Compensation paid to the Chief Executive Officer and the four other most highly
compensated Executive Officers for each of the three most recently completed
financial years is set out in the table below. These individuals are hereinafter
collectively referred to as the "Named Executive Officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation
-------------------------------
Bonus
(Executive Shares Under
Name and Principal Performance Other Annual Options All Other
Position Year Salary Award) Compensation Granted Compensation
(1) (2) (3)
($) ($) ($) (#) ($)
- - - --------------- ----- ------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
J. Bougie 1997 707,943 See Note 4 31,786 312,800 20,900 (5)
President and 1996 647,415 424,274 45,773 65,000 19,225
Chief Executive
Officer 1995 552,799 582,880 32,084 54,500 16,556
J.-P. M. Ergas 1997 508,750 296,125 2,000 20,000 21,301
Executive Vice
President 1996 453,061 162,319 83,516 20,000 40,202
1995 330,114 195,428 9,755 36,000 10,999
E.N. Santos 1997 501,270 282,305 33,757 16,700 43,093
Executive Vice
President 1996 357,761 168,829 125,942 20,000 12,064
1995 268,195 198,287 32,789 20,000 10,166
R.L. Ball 1997 340,000 246,780 64,516 18,200 46,213
Executive Vice
President 1996 312,500 142,762 54,381 18,200 29,218
1995 286,667 213,953 57,065 16,000 14,275
B.W. Sturgell 1997 284,500 246,780 345,210 20,000 18,099
Executive Vice
President 1996 202,333 92,039 19,073 6,800 13,161
1995 172,000 73,903 15,839 4,200 10,520
</TABLE>
[FN]
(1) See page 22 for description.
(2) See page 23 for details.
(3) See page 24 for description.
(4) Awarded in the form of 21,767 EDSUs under the Executive Deferred Share Unit
Plan (see page 23 for description), based on the Share price (Can. $46.40) at
the end of 1996 (see paragraph 2 on page 27 for details).
(5) See also paragraph 3 on page 27.
</FN>
20
<PAGE> 23
Compensation payments to each Named Executive Officer were determined in the
currency of his normal place of work. Unless otherwise indicated, all
compensation payments reported in this document are stated in U.S. Dollars
converted, where necessary, from the currency of disbursement to U.S. Dollars at
the average exchange rates for the respective year. The currency and exchange
rate details are given in the table below:
CURRENCY AND EXCHANGE RATE TABLE
<TABLE>
<CAPTION>
Currency of Average Exchange Rate
Name Disbursement Year to convert to U.S. Dollars
---- ------------ ---- --------------------------
<S> <C> <C> <C>
J. Bougie Canadian Dollars 1997 0.7199
Canadian Dollars 1996 0.7329
Canadian Dollars 1995 0.7298
J.-P. M. Ergas U.S. Dollars 1997 1.0000
British Pounds 1997 1.6404
U.S. Dollars 1996 1.0000
British Pounds 1996 1.5672
U.S. Dollars 1995 1.0000
E.N. Santos Brazilian Reals 1997 0.9250
Canadian Dollars 1996 0.7329
Brazilian Reals 1996 0.9924
Canadian Dollars 1995 0.7298
R.L. Ball U.S. Dollars 1997 1.0000
U.S. Dollars 1996 1.0000
U.S. Dollars 1995 1.0000
B.W. Sturgell U.S. Dollars 1997 1.0000
U.S. Dollars 1996 1.0000
U.S. Dollars 1995 1.0000
</TABLE>
COMPENSATION - GENERAL
Alcan's executive compensation policies cover cash compensation and benefits,
including pensions, and are designed to enable Alcan to attract and retain
highly qualified people to carry out the objectives of the organization. The
Personnel Committee (the "Committee"), all of whose members with the exception
of the Chief Executive Officer are Non-Executive Directors, has the duty and
responsibility to review and approve these policies periodically and to make
recommendations with respect to such matters either to the Board or to the Chief
Executive Officer, as may be appropriate. The policies provide a compensation
package that is internally equitable, externally competitive and reflects
individual efforts and achievements. The cash compensation structure and
benefits programs, including short- and long-term incentive plans, are designed
to be competitive with the median of selected comparator groups of companies.
These companies, identified as a "Compensation Peer Group", are comparable in
size, are involved in cyclical industries as is Alcan, and have a global
presence. In the case of the Canada-based Executive Officers, the Compensation
Peer Group includes both Canada-based (12) and U.S.-based (15) enterprises. When
establishing the level of compensation, weight is given to U.S. compensation
practices. For certain Canada-based Executive Officers, an equal weighting is
given to both U.S. and Canadian practices while, for the others, more weight is
given to Canadian compensation practices. In the case of the Chief Executive
Officer, the total annual compensation is set at the level of U.S.-based peers.
These different weightings reflect the increasing global importance of the
senior management level positions in the organization.
21
<PAGE> 24
At all other levels in the Company world-wide, the policies governing the
compensation of executives are generally related solely to their relevant
national markets; the competitiveness of senior employees' compensation in
countries other than Canada is derived from consultant surveys of the
Compensation Peer Group in their respective countries.
Alcan retains external consultants to assist its Human Resources Department and
the Committee in collecting the required comparative data and providing advice
concerning all aspects of compensation of its senior employees. From time to
time, the Committee has retained the services of its own consultant to assist it
in its deliberations, and may do so again in the future.
ANNUAL COMPENSATION
Annual compensation of the Executive Officers comprises base salaries, incentive
plans and benefits programs. Base salaries for Executive Officers are reviewed
annually. Any proposed changes are reviewed and approved by the Committee before
implementation and are based on an evaluation of each Executive Officer's
current performance.
EXECUTIVE PERFORMANCE AWARD PLAN
A substantial proportion of the Executive Officers' compensation is related to
the performance of Alcan.
Alcan's short-term incentive plan, known as the Executive Performance Award
("EPA") Plan, has three components, each based on a different aspect of
performance: (1) the overall profitability of Alcan, (2) the performance of
Alcan against key strategic corporate objectives, and (3) the performance of
Alcan's business units. These are explained in the numbered paragraphs below.
1. The award for overall profitability of Alcan is called the Corporate
Profitability Award ("CPA"). The CPA is related to return on equity. The
CPA for the Executive Officers has a guideline payment range of 20% to 35%
of salary grade mid-point against which actual performance is measured. The
minimum CPA payment can be nil and the maximum, in a year of exceptionally
high profits, could be up to three times the guideline amount. The
Personnel Committee of the Board establishes a threshold corporate
profitability performance target which must be met before any CPA payment
will be made. All Executive Officers received an award from this component
of the EPA for the year 1997.
2. The award for achieving corporate objectives, called the Corporate
Objectives Award ("COA"), focuses on Alcan's critical corporate objectives.
These objectives are established as part of the annual business planning
process by the Chief Executive Officer and are submitted to the Personnel
Committee for approval at the start of each year. The COA is independent of
the CPA objective. For Executive Officers, the COA has a guideline payment
range of 15% to 30% of salary grade mid-point. There is a minimum payment
of nil and a maximum of twice the guideline amount. All Executive Officers
received an award from this component of the EPA for the year 1997.
3. The award for business unit performance is called the Business Unit Award
("BUA"). The BUA provides for an award based on the business unit's
performance measured against pre-established objectives for the year. The
BUA is independent of the CPA and COA objectives. For Executive Officers,
the BUA has a guideline payment range of 15% to 20% of salary grade
mid-point. There is a minimum payment of nil and a maximum of twice the
guideline amount. The criteria for rewards under this aspect of the EPA are
set annually by management at various levels and their respective
superiors. There are 17 major business units within Alcan world-wide. All
Executive Officers received awards from this component of the EPA, varying
within the range mentioned above based on their performance in 1997.
22
<PAGE> 25
An exception to the practice described in the preceding paragraphs is made in
the case of employees retiring from or otherwise ceasing employment with Alcan.
In that year, the employee receives guideline CPA, COA and BUA amounts, prorated
for the number of months actually employed.
Effective 1 January 1997, the Executive Deferred Share Unit Plan was introduced,
under which Canada-based Executive Officers may elect, prior to the beginning
of any particular year, to receive Executive Deferred Share Units ("EDSUs") with
a value equal to all or one-half of their EPA in respect of that year, instead
of a cash award under the EPA. The number of EDSUs is determined by dividing the
amount so elected by the average price of a Share on the Montreal, Toronto and
New York stock exchanges at the end of the year preceding the year in question.
Additional EDSUs are credited to each holder thereof corresponding to dividends
declared on Shares. The EDSUs are redeemable only upon termination of employment
(retirement, resignation or death). The amount to be paid by Alcan upon
redemption (which must be on or before 15 December of the calendar year next
following the termination) will be calculated by multiplying the accumulated
balance of EDSUs by the average price of a Share on the said exchanges at the
time of redemption.
The Executive Deferred Share Unit Plan is intended to link the interests of the
eligible Executive Officers more closely with those of Shareholders.
OTHER COMPENSATION
Compensation benefits made available to senior employees under various plans
included those under (a) the Executive Performance Award Plan (including the
Executive Deferred Share Unit Plan) described above, (b) the Alcan Executive
Share Option Plan described on page 24, (c) retirement benefit plans described
on page 28, (d) life insurance plans, (e) savings plans, (f) plans for the use
and parking of automobiles, for professional financial advice through
independent organizations, for deemed interest on loans and for the
reimbursement of club membership fees, and (g) in applicable cases, expatriate
benefits, foreign taxes, housing assistance, and directors' fees from
Subsidiaries and Related Companies.
In the Summary Compensation Table on page 20, the amounts indicated for the year
1997 under the column titled Other Annual Compensation include benefits paid to
the Named Executive Officers under these plans: automobile usage (J. Bougie,
$12,250 and E.N. Santos, $22,548), club membership fees (J.-P. M. Ergas, $2,000
and R.L. Ball, $19,085), deemed interest (E.N. Santos, $11,209), expatriate
benefits (B.W. Sturgell, $238,852), financial advice (J. Bougie, $8,368),
foreign taxes (R.L. Ball, $32,045) and housing assistance (B.W. Sturgell,
$72,889).
23
<PAGE> 26
ALCAN EXECUTIVE SHARE OPTION PLAN
The Alcan Executive Share Option Plan ("Option Plan") provides for the granting
to senior employees of non-transferable options ("Options") to purchase Shares.
The Option Plan, which is administered by the Option Committee of the Board,
composed of Non-Executive Directors, is a long-term incentive plan closely
aligned with the interests of Shareholders and forms part of the Executive
Officers' total compensation. The purpose of the Option Plan is to attract and
retain senior employees and to encourage them to contribute to growth in the
price of Alcan Shares. The number of Options granted is related to salary grade
mid-point but not to the amount of outstanding Options or SARs (described
below). When determining the competitiveness of senior employees' total
compensation, the compensation value of Option grants is taken into account. For
Executive Officers, the number of Options granted generally produces
compensation values which, when expressed as a multiple of annual base salary,
are much lower than those provided by U.S.-based companies within the
Compensation Peer Group but about the same as Canada-based companies within the
Compensation Peer Group.
A OPTIONS
Prior to 22 April 1993, the Option Plan provided for the granting of Options
hereinafter referred to as "A Options". No further A Options have been, or may
be, issued after that date.
The exercise price per Share under A Options was set at not less than 90% of the
market value on the effective date of each grant of an A Option, but all A
Options granted after 1985 were set at 100% of the market value on their
effective dates. The effective date was fixed at the time of each grant. Each A
Option is exercisable in whole or in part during a period commencing not less
than three months after the effective date as determined by the Option Committee
of the Board and ending not later than 10 years after that date. In the event of
retirement or death of the employee, any remainder of this 10-year period in
excess of five years is reduced to five years. Alcan may make loans ("Option
Loans"), at such interest rate, if any, as the above-mentioned committee may
determine, to assist in financing the purchase of Shares through the exercise of
A Options (see INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS on page 32). The
interest rate is currently nil on all outstanding Option Loans. The Option Loans
have terms of up to 9 3/4 years. After exercise of an A Option, the employee may
not dispose of the Shares during a one-year period ("Holding Period"). In the
event of retirement or resignation or other termination of the employee, the
Holding Period terminates upon repayment of the Option Loan. Each A Option has
connected therewith stock appreciation rights ("SARs") in respect of one-half of
the Shares covered by the A Option. Each SAR entitles the optionee to surrender
unexercised the right to subscribe for one Share in return for a cash payment in
an amount equal to the excess of the market value of such Share at the time of
surrender over the subscription price.
B OPTIONS
Since 22 April 1993, the Option Plan has provided for Options hereinafter
referred to as "B Options".
Alcan may issue in any year B Options in respect of a Yearly Allotment, as
defined in the Option Plan, of 0.75% of the Shares outstanding as at the end of
the previous calendar year. In addition, the unused portion of any previous
Yearly Allotment may be carried forward. The cumulative maximum number of Shares
which can be issued under the Option Plan after 31 December 1995 is 20,500,000.
The exercise price per Share under B Options is set at not less than 100% of the
market value on the effective date of the grant of each B Option. The effective
date is fixed at the time of the grant. Each B Option is exercisable in whole or
in part during a period commencing not less than three months after the
effective date as determined by
24
<PAGE> 27
the Option Committee of the Board ("Waiting Period") and ending not later than
10 years after that date. In the event of retirement or death of the employee,
any remainder of this 10-year period in excess of five years is reduced to five
years. Option Loans may not be made in respect of the exercise of Options. The
B Options do not have SARs connected therewith unless the above-mentioned
committee so determines at the time of grant; no such determination has been
made in respect of the B Options currently outstanding.
GRANTS AND EXERCISES DURING 1997
The following table provides information pertaining to Options granted to the
Named Executive Officers during 1997:
OPTION GRANTS DURING 1997
<TABLE>
<CAPTION>
Shares Under Percent of Total Exercise Price and
Name Options Options Granted to Market Value on
(#) Date of Grant Expiration Date
(Can.$/Share)
<S> <C> <C> <C>
J.-P.M. Ergas 20,000(1) 1.8 48.35 24 September 2007
E.N. Santos 16,700(1) 1.5 48.35 24 September 2007
R.L. Ball 18,200(1) 1.7 48.35 24 September 2007
B.W. Sturgell 20,000(1) 1.8 48.35 24 September 2007
J. Bougie 312,800(2) 28.4 48.91 28 May 2007
</TABLE>
[FN]
(1) Date of grant: 24 September 1997. One-quarter of the Options may be
exercised, cumulatively, after Waiting Periods of 12, 24, 36 and 48 months
from the date of grant.
(2) Date of grant: 28 May 1997. Options may be exerciced between 1 January 2000
and 28 May 2007.
</FN>
25
<PAGE> 28
The following table provides certain required information pertaining to Options
exercised by the Named Executive Officers during 1997 as well as year-end
values:
AGGREGATED OPTION EXERCISES DURING 1997 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Underlying Value of
Shares Aggregate Unexercised Unexercised
Acquired Value Options at in-the-Money Options at
Name on Exercise Realized 31 December 1997 (1) 31 December 1997 (1)
(#) (Can. $) (#) (Can. $)
<S> <C> <C> <C> <C>
J. Bougie 25,000 565,925 E: 127,950 E: 701,382
U: 401,950 U: 49,444
J.-P.M. Ergas - - E: 18,500 E: 13,005
U: 57,500 U: 39,015
E.N. Santos 7,450 116,007 E: 25,450 E: 122,652
U: 36,150 U: 16,732
R.L. Ball 4,250 73,962 E: 40,700 E: 278,324
U: 43,900 U: 15,228
B.W. Sturgell - - E: 9,025 E: 66,416
U: 28,425 U: 4,606
<FN>
(1) E: Exercisable U: Unexercisable
</FN>
</TABLE>
During 1997, the Named Executive Officers did not receive or exercise any SARs,
nor did they have any remaining unexercised SARs at the year end.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Chief Executive Officer's annual compensation is administered by the
Non-Executive Directors of the Committee according to the policies described
above. The companies forming the Compensation Peer Group for the Chief Executive
Officer are specifically selected because they and Alcan have chief executive
officers with responsibilities of similar magnitude. Alcan's Chief Executive
Officer participates in the EPA and the relationship between his compensation
and Alcan's performance is based on the same criteria as those discussed
generally for other participants in the EPA.
Given the uniqueness of Alcan as one of the largest global Canadian corporations
with two-thirds of its assets and employees located outside Canada, the
Committee has decided to set the total annual compensation of its Chief
Executive Officer, beginning in 1997, at the level of his U.S.-based peers (15
similar enterprises). In making this change, the Committee has also increased
the proportion of his compensation which is variable and "at risk" and, more
importantly, has placed greater emphasis on long-term performance linked
directly to total shareholder return. With this change, the Committee has
decided to administer the Chief Executive Officer's total compensation on a
longer term perspective rather than through annual adjustments. To this end, the
Chief Executive Officer's compensation is now covered by an agreement with a
three-year term. Under this modified approach, the fixed portion of his total
compensation (the base salary and the value of pension benefits) will represent
some 33% thereof while the "at risk" portion, comprising the short-term,
medium-term and long-term incentive plans, will represent 67% thereof. The "at
risk" portion is linked directly to improved long-term shareholders' return
through a combination of grants under the Option Plan and the Executive Deferred
Share Unit Plan (described on page 23).
26
<PAGE> 29
The three-year (1997-1999) agreement, referred to above, with the Chief
Executive Officer provides for compensation as set out below:
1. A base salary of Can. $1,000,000 per annum, commencing 1 March 1997.
2. An annual short-term incentive grant using the formula under the EPA and
based on a guideline of 85% of salary mid-point but to be received in the
form of EDSUs.
For the year 1997, the Chief Executive Officer received 21,767 EDSUs (the
figure being determined by dividing the value he would have received under
the EPA by the average price of a Share at the end of 1996, Can. $46.40).
3. As a medium-term incentive, the Chief Executive Officer will be entitled to
receive a further award (by way of deferred share units issued under an
arrangement that generally parallels the Executive Deferred Share Unit Plan
- see page 23) if, over a three-year period, Alcan achieves specific
financial targets based on the objective of a sustainable improvement of
$300 million in Alcan's net income over 1996, subject to adjustment if
certain underlying assumptions change. The achievement of this objective
over a three-year cycle will give rise to an award of 19,400 deferred share
units; lower and higher awards will be made if the income improvement falls
short or surpasses that objective. The maximum would be 58,200 deferred
share units for an income improvement of $600 million over 1996.
The grant of the deferred share units, if any, under this medium-term
incentive will be made in the year 2000.
4. As a long-term incentive in respect of the three-year period under the
agreement, the Chief Executive Officer was granted 312,800 Options (see
page 20) at an exercise price of Can. $48.91 per Share, exercisable during
the period from 1 January 2000 up to 28 May 2007 (10 years from the date of
grant).
5. Pensions under the Canadian Plans (see page 28) for eligible Alcan
employees are calculated on the basis of salary plus the EPA guideline
amount but, in view of the increases in the Chief Executive Officer's
direct compensation described above, the pensionable portion of his EPA was
reduced from 85% of salary to 40% thereof. This change results in a
reduction of about 25% in the pension which would otherwise have accrued to
him under the Canadian Plans. However, under certain conditions of
termination of employment, his pension will be subject to a minimum
guaranteed amount which has been based on salary and pensionable EPA at 85%
of salary.
6. The Board may adjust the compensation arrangement set out above in order to
correct for a sudden change in the relative values of the Canadian and U.S.
Dollars; no such adjustment was made in 1997.
27
<PAGE> 30
RETIREMENT BENEFITS
Canadian Plans
The Alcan Pension Plan (Canada) and the Alcan Supplemental Retirement Benefit
Plan (Canada) are together herein referred to as the "Canadian Plans". Pensions
up to a statutory limit are payable under the former and, in excess thereof,
under the latter.
The Canadian Plans provide for pensions calculated on pensionable service and
annual average earnings during the 36 consecutive months when they were the
greatest, which earnings consist of salary and the Executive Performance Award
at its guideline amount (except for J. Bougie; see page 27). The following table
shows estimated annual retirement benefits, expressed as a percentage of annual
average earnings during the said 36 months, payable upon normal retirement at
age 65 to persons in the indicated earnings and pensionable service
classifications.
CANADIAN PLANS
<TABLE>
<CAPTION>
Average Annual Years of Pensionable Service
Earnings
($) 10 15 20 25 30 35
-------------- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
900,000 - 2,000,000 17% 25% 34% 42% 51% 59%
</TABLE>
The Alcan Supplemental Retirement Benefits Plan also provides for an additional
pension to J. Bougie which increases the percentage in the table above by 4%.
Non-Canadian Plans
During 1997, R.L. Ball and B.W. Sturgell participated in an Alcan-sponsored
pension plan in the U.S.A. ("U.S. Plan") which provides for retirement benefits
which are generally comparable with the Canadian Plans, but with a ceiling of
60% of annual average earnings and a maximum pensionable service of 35 years.
The following table shows estimated annual retirement benefits, expressed as a
percentage of annual average earnings during the three consecutive calendar
years when they were the greatest, payable upon normal retirement at age 65 to
persons in the indicated earnings and pensionable service classifications.
U.S. PLAN
<TABLE>
<CAPTION>
Average Annual Years of Pensionable Service
Earnings
($) 10 15 20 25 30 35
-------------- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
500,000 - 900,000 17% 25% 34% 42% 51% 59%
1,000,000 2,000,000 17% 26% 34% 43% 51% 60%
</TABLE>
J.-P.M. Ergas participated in an Alcan-sponsored pension plan in the U.K. and
also in a supplemental retirement benefit agreement which provides for a pension
based on the terms of the U.S. Plan but in excess of statutory limitations in
both countries. E.N. Santos participated in an Alcan-sponsored pension plan in
Brazil, which is comparable to the U.S. Plan.
28
<PAGE> 31
DEDUCTIONS FOR SOCIAL SECURITY
In the Canadian Plans, the retirement benefits described above are reduced by
the excess (if any) of retirement benefits payable from non-Canadian social
security and the Canada Pension Plan or the Quebec Pension Plan ("C/QPP") over
the maximum retirement benefits under the C/QPP. The normal form of payment of
pensions is a lifetime annuity with a guaranteed minimum of 60 monthly payments
or a 50% lifetime pension to the surviving spouse.
PENSIONABLE EARNINGS AND YEARS OF PENSIONABLE SERVICE
The 1997 pensionable earnings and estimated years of pensionable service on
normal retirement at age 65 (subject to a maximum of 35 years where applicable)
for the Named Executive Officers were as follows: J. Bougie, $995,920 and 33
years; J.-P.M. Ergas, $766,250 and 10 years; E. N. Santos, $760,265 and 35
years; R.L. Ball, $559,360 and 35 years; B.W. Sturgell, $503,860 and 25 years.
RETIRING ALLOWANCES
Upon his retirement, E.N. Santos will be paid a retiring allowance equal to
$200,000 plus an amount determined at the rate of $10,000 per year from 1 August
1995 to his retirement date.
BOARD FEES
An employee of Alcan who is a Director is not entitled to receive fees for
serving on the Board or on any Committee thereof.
COMPENSATION OF NON-EXECUTIVE DIRECTORS
FEES AND EXPENSES
During 1997, every Non-Executive Director was paid an annual fee of $25,000 and
an additional annual fee of $5,000 for serving on a Committee of the Board,
except for the Option Committee. If such Director also served as Chairman of a
Committee, a further annual fee of $6,000 was paid. J.R. Evans, as Non-
Executive Chairman of the Board, was paid a fee of $120,000 during 1997 in lieu
of the above fees; effective 1 January 1998, the Chairman's fee was increased to
$155,000 per annum.
Non-Executive Directors are reimbursed for transportation and other expenses
actually incurred in attending Board/Committee meetings. A travel fee of $1,000
is also payable to those Non-Executive Directors who require an extra day of
travel to attend any Board/Committee meeting; during 1997, travel fees were paid
as follows: P.H. Pearse, $8,000; Sir George Russell, $7,000; and G. Schulmeyer,
$7,000.
RETIREMENT ARRANGEMENTS
Effective 1 January 1997, a Non-Executive Directors' Deferred Share Unit Plan
was introduced, under which each Non-Executive Director is credited with a
number of Directors' Deferred Share Units ("DDSUs"), as determined by the Board.
At present, this number has been set at the equivalent of one DDSU for every
$100 of Directors' fees (as described above, but excluding the travel fees)
received by the Director. Until redemption, additional DDSUs are credited to
each Director corresponding to dividends declared on the Shares. The DDSUs are
redeemable only upon termination (retirement, resignation or death). The amount
to be paid by Alcan upon redemption (which must be on or before 15 December of
the calendar year of the Company next
29
<PAGE> 32
following the termination) will be calculated by multiplying the
accumulated balance of DDSUs by the average price of a Share on the Montreal,
Toronto and New York stock exchanges at the time of redemption.
The Non-Executive Directors' Deferred Share Unit Plan is intended to link the
interests of the Non- Executive Directors more closely with those of
Shareholders.
PERFORMANCE GRAPH
The following graph compares the cumulative total Shareholder return on Can.
$100 invested in Shares with the cumulative total return of the Toronto Stock
Exchange 300 Stock Index, assuming reinvestment of all dividends. Additional
comparisons, which the Personnel Committee believes to be appropriate, are
provided with respect to two U.S. Dollar-based indices, the Standard & Poor's
500 Index and the Standard & Poor's Aluminum Index.
(GRAPH - COMPARISON OF FIVE-YEAR CUMULATIVE RETURN)
INDEXED RETURNS
<TABLE>
<CAPTION>
Years Ending
---------------------------------------------------------------
Base
Period
Symbol Company/Index 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- - - --------- ----------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
_________ Alcan Aluminium Ltd. 100.0 119.51 147.95 184.17 202.68 169.57
xxxxxxxxx S&P Aluminum Index 100.0 102.38 125.55 154.72 177.69 180.60
********* S&P 500 Index 100.0 110.08 111.53 153.45 188.68 251.63
+++++++++ TSE 300 Index 100.0 133.00 132.00 152.00 194.00 224.00
</TABLE>
30
<PAGE> 33
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The second column in the table below shows Shares which are beneficially owned
(including Shares over which control or direction is exercised) as well as
Shares subject to Options granted under the Alcan Executive Share Option Plan
described on page 24. The third and fourth columns show Units held under the
Deferred Share Unit Plans described on pages 29 and 23; these Units do not carry
voting rights.
<TABLE>
<CAPTION>
NUMBER OF
NAME NUMBER OF SHARES DEFERRED SHARE UNITS
DIRECTORS' EXECUTIVE
PLAN (1) PLAN(2)
<S> <C> <C> <C>
S.I. Bata 6,840 354 -
W.R.C. Blundell 5,262 415 -
J. Bougie 566,863 (3) - 21,767
W. Chippindale 1,615 465 -
D.T. Engen 5,500 392 -
J.R. Evans 2,902 1,214 -
A.E. Gotlieb 1,523 405 -
J.E. Newall 4,166 465 -
P.H. Pearse 1,996 354 -
G. Russell 4,106 405 -
G. Saint-Pierre 5,778 354 -
G. Schulmeyer 718 341 -
Directors and Executive
Officers as a group 1,383,063 5,164 28,925
</TABLE>
[FN]
(1) See page 29 for description.
(2) See page 23 for description.
(3) Made up as follows: 34,572 Shares, 2,391 Shares in the Alcan Employee
Savings Plan and Options to purchase 529,900 Shares.
</FN>
Mrs. Bata's husband beneficially owns 940 Shares. A trust in which Sir George
Russell's children have an interest owns 10,523 Shares. Mrs. Bata and Sir George
Russell disclaim beneficial ownership in the Shares owned by Mr. Bata and the
Russell children, respectively.
Mr. Blundell and his wife beneficially own, respectively, 2,000 and 1,500
Floating Rate Cumulative Redeemable Preference Shares, Series C.
Mr. Engen owns his Shares jointly with his wife.
31
<PAGE> 34
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
NON-EXECUTIVE DIRECTORS
Non-Executive Directors and former Non-Executive Directors are not indebted
to Alcan.
OPTION LOANS TO EXECUTIVE OFFICERS
The required details with regard to Option Loans given to all Executive
Officers (including the Named Executive Officers) are shown in the following
table. The aggregate indebtedness of all Executive Officers and employees
and former Executive Officers and employees of Alcan and its Subsidiaries
(including the Named Executive Officers) to Alcan in respect of Option Loans at
9 February 1998 was $4,342,563.
The terms of Option Loans are described on page 24.
TABLE OF INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
UNDER OPTION PLAN
<TABLE>
<CAPTION>
Name and Principal Position Involvement Largest Amount Financially Security for
of Amount Outstanding Assisted Indebtedness
Alcan Outstanding as at Share
During 1997 9 February Purchases
1998 During 1997(1)
($) ($) (#)
- - - ------------------------------------------ ----------- ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
G.N. de Aguiar Treasurer Lender 77,158 0 0 (2)
R.L. Ball Executive Vice President Lender 144,987 75,378 4,250 (2)
J. Bougie(3) President and Lender 499,196 492,842 25,000 (2)
Chief Executive Officer
C. Chamberland Executive VicePresident Lender 81,767 30,929 0 (2)
S.B. Heister(4) Executive Vice President Lender 31,782 26,203 0 (2)
E.P. LeBlanc Executive Vice President Lender 26,161 24,784 0 (2)
D.G. O'Brien Controller Lender 7,361 0 0 (2)
G. Ouellet Vice President Lender 61,195 61,195 3,750 (2)
P.K. Pal Vice President Lender 88,121 0 0 (2)
E.N. Santos Executive Vice President Lender 299,343 284,376 0 (2)
S. Thadhani Vice President Lender 125,450 125,450 7,500 (2)
</TABLE>
[FN]
(1) In respect of A Options only.
(2) Security for the indebtedness is provided by the deposit of the
certificates representing the relevant Shares with CIBC Mellon Trust
Company, as trustee, which holds the certificates registered in its name
until full repayment of the particular Option Loan has been made to Alcan.
(3) J. Bougie is a nominee proposed for election as Director.
(4) S.B. Heister retired during 1997.
</FN>
32
<PAGE> 35
OTHER INDEBTEDNESS
The required details with regard to indebtedness of Executive Officers to Alcan
other than in respect of Option Loans is shown in the following table. The
aggregate indebtedness of all officers and employees and former officers and
employees of Alcan and its Subsidiaries to Alcan other than in respect of Option
Loans at 9 February 1998 is $2,095,874.
<TABLE>
<CAPTION>
Largest Amount Amount Outstanding as
Name and Principal Position Involvement of Alcan Outstanding at
at Year-end or Subsidiary during 1997 9 February 1998
($) ($)
- - - ----------------------------------- -------------------- -------------- ---------------------
<S> <C> <C> <C>
R.L. Ball Executive Vice President Lender (1) 43,257 32,250
E.P. LeBlanc Executive Vice President Lender (2) 89,849 80,994
D. Gagnier Vice President Lender (3) 20,389 18,615
G.P. Batt Treasurer Lender (4) 33,858 0
<FN>
(1) The indebtedness consists of a residential loan from Alcan. The loan is
interest-free, is secured by a mortgage on the residence and matures on 23
September 1999.
(2) The indebtedness consists of a residential loan from
Alcan. The loan is interest-free, is secured by a mortgage on the residence
and matures on 13 May 2004.
(3) The indebtedness consists of a residential loan from Alcan. The loan is
interest-free, is secured by a mortgage on the residence and matures on 16
February 2005.
(4) The loan was repaid on 22 July 1997.
</FN>
</TABLE>
33
<PAGE> 36
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
See Annual Report, pages 37 to 58 and the Auditors' Report on page 36
thereof.
2. FINANCIAL STATEMENT SCHEDULES
The required information is shown in the consolidated financial
statements or notes thereto.
3. EXHIBITS
References to documents filed by the Company prior to April 1987 are
to SEC File No. 1-3555. References to documents filed by the Company
after April 1987 are to SEC File No. 1-3677.
(3) Articles of Incorporation and By-laws:
3.1 Certificate of Amalgamation dated 1 January 1995,
Certificate of Amendment dated 8 May 1995. (Incorporated
by reference to exhibit 3.1 to the Annual Report on Form
10-K of the Company for 1996.)
3.2 By-law No. 1A. (Incorporated by reference to exhibit 3.5
to the Annual Report on Form 10-K of the Company for
1987.)
(4) Instruments defining the rights of security holders:
4.1 No long-term debt instrument is required to be filed
herewith, and the Company agrees to furnish a copy of any
such instrument to the Commission upon request.
4.2 Form of certificate for the Registrant's Common Shares.
(Incorporated by reference to exhibit 4.2 to the Annual
Report on Form 10-K of the Company for 1989.)
4.3 Shareholder Rights Agreement as amended and restated on 24
April 1995 between Alcan Aluminium Limited and The R-M
Trust Company as Rights Agent, which Agreement includes
the form of Rights Certificates. (Incorporated by
reference to exhibit 4 to the Company's Report on Form 8-K
filed on 5 May 1995.)
(10) Material Contracts
10.1 Alcan Pension Plan (Canada), restated version, as of
October 1990. (Incorporated by reference to exhibit 10.1
to the Annual Report on Form 10-K of the Company for
1990.)
10.1.1 Amendments dated 1 January 1992. (Incorporated by
reference to exhibit 10.1.1 to the Annual Report on Form
10-K of the Company for 1991.)
10.1.2 Amendments dated 1 January 1990, Schedule 93-2.
(Incorporated by reference to exhibit 10.1.2. to the
Annual Report on Form 10-K of the Company for 1994.)
34
<PAGE> 37
10.1.3 Amendments dated 1 January 1994, Schedule 93-3 and
Schedule 93-4. (Incorporated by reference to exhibit
10.1.3. to the Annual Report on Form 10-K of the Company
for 1994.)
10.1.4 Amendments dated 31 December 1994, for Schedule 95-1, 1
January 1996 for Schedule 95-2, 1 January 1992 for
Schedule 95-3 and 1 January 1995 for Schedule 95-4.
(Incorporated by reference to exhibit 10.1.4 to the Annual
Report on Form 10-K of the Company for 1995.)
10.1.5 Amendments dated 1 July 1996 for Schedule 96-1, 1 November
1996 for Schedule 96-2, 1 January 1992 for paragraphs 1, 2
and 3 of Schedule 96-3 and 1 January 1996 for paragraph 4
of Schedule 96-3. (Incorporated by reference to exhibit
10.1.5 to the Annual Report on Form 10-K of the Company
for 1996.)
10.2 Alcan Executive Share Option Plan. (Incorporated by
reference to the section titled "The Plan" on pages 3
through 8 and on pages 3 through 7 of the Prospectuses
dated 30 April 1990 and 28 April 1993, respectively, filed
as part of the Company's Registration Statements on Form
S-8, Registration Nos. 33-34716 and 33-61790.)
10.3 Alcan Aluminium Limited Executive Performance Award Plan
revised as of October 1994. (Incorporated by reference to
exhibit 10.3 to the Annual Report on Form 10-K of the
Company for 1994.)
10.4 Alcan Aluminium Limited Financial Counselling Plan.
(Incorporated by reference to the exhibit of that name
filed with the Annual Report on Form 10-K of the Company
for 1981.)
10.5 Alcan Aluminium Limited Executive Automobile Programme
revised as of 1 January 1992. (Incorporated by reference
to exhibit 10.5 to the Annual Report on Form 10-K of the
Company for 1991.)
10.6 Alcan Aluminium Limited Flexible Perquisites Program.
(Incorporated by reference to exhibit 10.6 to the Annual
Report on Form 10-K of the Company for 1995.)
10.7 Form of Supplemental Retirement Benefits Agreement.
(Incorporated by reference to exhibit 10.6 filed with the
Annual Report of the Company on Form 10-K for 1983.)
10.8 Alcan Supplemental Retirement Benefit Plan (Canada),
February 1992 edition. (Incorporated by reference to
exhibit 10.8 to the Annual Report on Form 10-K of the
Company for 1991.)
10.8.1 Amendments dated 1 January 1994, Schedule 93-1.
(Incorporated by reference to exhibit 10.7.1 to the Annual
Report on Form 10-K of the Company for 1994.)
10.8.2 Amendments dated 23 September 1993. (Incorporated by
reference to exhibit 10.8.2 to the Annual Report on Form
10-K of the Company for 1994.)
10.9 Indemnity Agreement with Jacques Bougie. Substantially
similar agreements have been entered into with all current
Directors of Alcan Aluminium Limited. (Incorporated by
reference to exhibit 10.9 to the Annual Report on Form
10-K of the Company for 1995.)
35
<PAGE> 38
10.10 Alcan Aluminium Limited Retirement Compensation Plan for
Non-Executive Directors dated 27 April 1995.
(Incorporated by reference to exhibit 10.10 to the Annual
Report on Form 10-K of the Company for 1995.)
10.10.1 Amendment dated 1 January 1997. (Incorporated by
reference to exhibit 10.10.1 to the Annual Report on Form
10-K of the Company for 1996.)
10.11 Alcan Aluminium Limited Deferred Share Unit Plan for
Non-Executive Directors dated 1 January 1997.
(Incorporated by reference to exhibit 10.11 to the Annual
Report on Form 10-K of the Company for 1996.)
10.12 B.C./Alcan 1997 Agreement. (Incorporated by reference to
exhibit 10.1 to the Quarterly Report on Form 10-Q of the
Company for the quarter ended 30 June 1997.)
10.13 Employment Agreement dated 24 July 1997 with Jacques
Bougie. (Filed herewith.)
(13) Annual Report. (Filed herewith.)
(21) Subsidiaries and Related Companies of the Company are listed on
pages 40 to 43.
(23) Consent of Independent Accountants is on page 39.
(24) Powers of Attorney. (Filed herewith.)
24.1 Power of attorney of S.I. Bata
24.2 Power of attorney of W. Chippindale
24.3 Power of attorney of D.T. Engen
24.4 Power of attorney of J.R. Evans
24.5 Power of attorney of A.E. Gotlieb
24.6 Power of attorney of J.E. Newall
24.7 Power of attorney of P.H. Pearse
24.8 Power of attorney of G. Russell
24.9 Power of attorney of G. Saint-Pierre
24.10 Power of attorney of G. Schulmeyer
(27) Financial Data Schedule. (Filed herewith.)
(99) Cautionary statement for purposes of the "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995.
(Filed herewith.)
(B) REPORTS ON FORM 8-K
The Company has not filed any Form 8-K reports during the quarter ended 31
December 1997.
36
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ALCAN ALUMINIUM LIMITED
26 March 1998 By /s/ Serge Fecteau
________________________________________
John R. Evans, Chairman of the Board
By Serge Fecteau, as Attorney-in-fact
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, on 26 March 1998.
/s/ Robert des Trois Maisons
_______________________________________________________________
Sonja I. Bata, Director
By Robert des Trois Maisons, as Attorney-in-fact
_______________________________________________________________
W. R. C. Blundell, Director
/s/ Jacques Bougie
_______________________________________________________________
Jacques Bougie, Director, President and Chief Executive Officer
(Principal Executive Officer)
/s/ P.K. Pal
_______________________________________________________________
Warren Chippindale, Director
By P.K. Pal, as Attorney-in-fact
/s/ P.K. Pal
_______________________________________________________________
D. Travis Engen, Director
By P.K. Pal, as Attorney-in-fact
/s/ Serge Fecteau
_______________________________________________________________
John R. Evans, Chairman of the Board
By Serge Fecteau, as Attorney-in-fact
37
<PAGE> 40
/s/ P.K. Pal
_______________________________________________________________
Allan E. Gotlieb, Director
By P.K. Pal, as Attorney-in-fact
/s/ Robert des Trois Maisons
_______________________________________________________________
J. E. Newall, Director
By Robert des Trois Maisons, as Attorney-in-fact
/s/ Serge Fecteau
_______________________________________________________________
Peter H. Pearse, Director
By Serge Fecteau, as Attorney-in-fact
/s/ Serge Fecteau
_______________________________________________________________
Sir George Russell, Director
By Serge Fecteau, as Attorney-in-fact
/s/ Robert des Trois Maisons
_______________________________________________________________
Guy Saint-Pierre, Director
By Robert des Trois Maisons, as Attorney-in-fact
/s/ P.K. Pal
_______________________________________________________________
Gerhard Schulmeyer, Director
By P.K. Pal, as Attorney-in-fact
/s/ Suresh Thadhani
_______________________________________________________________
Suresh Thadhani, Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Denis G. O'Brien
_______________________________________________________________
Denis G. O'Brien, Controller
(Principal Accounting Officer)
38
<PAGE> 41
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Directors of Alcan Aluminium Limited:
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 33-6070,
33-34716 and 33-61790) and on Form S-3 (Nos. 2-78568, 2-78713 and 33-82754) of
Alcan Aluminium Limited of our Report, dated 12 February 1998 (with the
exception of note 22 which is dated 19 February 1998) appearing on page 36 of
the 1997 Annual Report to Shareholders. Our Report is incorporated by reference
in this Annual Report on Form 10-K. We also consent to the reference to us under
the caption "Experts" in such Prospectuses.
/s/ Price Waterhouse
--------------------
PRICE WATERHOUSE
Montreal, Canada
26 March 1998
39
<PAGE> 42
EXHIBIT INDEX
References to documents filed by the Company prior to April 1987 are
to SEC File No. 1-3555. References to documents filed by the Company
after April 1987 are to SEC File No. 1-3677.
(3) Articles of Incorporation and By-laws:
3.1 Certificate of Amalgamation dated 1 January 1995,
Certificate of Amendment dated 8 May 1995. (Incorporated
by reference to exhibit 3.1 to the Annual Report on Form
10-K of the Company for 1996.)
3.2 By-law No. 1A. (Incorporated by reference to exhibit 3.5
to the Annual Report on Form 10-K of the Company for
1987.)
(4) Instruments defining the rights of security holders:
4.1 No long-term debt instrument is required to be filed
herewith, and the Company agrees to furnish a copy of any
such instrument to the Commission upon request.
4.2 Form of certificate for the Registrant's Common Shares.
(Incorporated by reference to exhibit 4.2 to the Annual
Report on Form 10-K of the Company for 1989.)
4.3 Shareholder Rights Agreement as amended and restated on 24
April 1995 between Alcan Aluminium Limited and The R-M
Trust Company as Rights Agent, which Agreement includes
the form of Rights Certificates. (Incorporated by
reference to exhibit 4 to the Company's Report on Form 8-K
filed on 5 May 1995.)
(10) Material Contracts
10.1 Alcan Pension Plan (Canada), restated version, as of
October 1990. (Incorporated by reference to exhibit 10.1
to the Annual Report on Form 10-K of the Company for
1990.)
10.1.1 Amendments dated 1 January 1992. (Incorporated by
reference to exhibit 10.1.1 to the Annual Report on Form
10-K of the Company for 1991.)
10.1.2 Amendments dated 1 January 1990, Schedule 93-2.
(Incorporated by reference to exhibit 10.1.2. to the
Annual Report on Form 10-K of the Company for 1994.)
<PAGE> 43
10.1.3 Amendments dated 1 January 1994, Schedule 93-3 and
Schedule 93-4. (Incorporated by reference to exhibit
10.1.3. to the Annual Report on Form 10-K of the Company
for 1994.)
10.1.4 Amendments dated 31 December 1994, for Schedule 95-1, 1
January 1996 for Schedule 95-2, 1 January 1992 for
Schedule 95-3 and 1 January 1995 for Schedule 95-4.
(Incorporated by reference to exhibit 10.1.4 to the Annual
Report on Form 10-K of the Company for 1995.)
10.1.5 Amendments dated 1 July 1996 for Schedule 96-1, 1 November
1996 for Schedule 96-2, 1 January 1992 for paragraphs 1, 2
and 3 of Schedule 96-3 and 1 January 1996 for paragraph 4
of Schedule 96-3. (Incorporated by reference to exhibit
10.1.5 to the Annual Report on Form 10-K of the Company
for 1996.)
10.2 Alcan Executive Share Option Plan. (Incorporated by
reference to the section titled "The Plan" on pages 3
through 8 and on pages 3 through 7 of the Prospectuses
dated 30 April 1990 and 28 April 1993, respectively, filed
as part of the Company's Registration Statements on Form
S-8, Registration Nos. 33-34716 and 33-61790.)
10.3 Alcan Aluminium Limited Executive Performance Award Plan
revised as of October 1994. (Incorporated by reference to
exhibit 10.3 to the Annual Report on Form 10-K of the
Company for 1994.)
10.4 Alcan Aluminium Limited Financial Counselling Plan.
(Incorporated by reference to the exhibit of that name
filed with the Annual Report on Form 10-K of the Company
for 1981.)
10.5 Alcan Aluminium Limited Executive Automobile Programme
revised as of 1 January 1992. (Incorporated by reference
to exhibit 10.5 to the Annual Report on Form 10-K of the
Company for 1991.)
10.6 Alcan Aluminium Limited Flexible Perquisites Program.
(Incorporated by reference to exhibit 10.6 to the Annual
Report on Form 10-K of the Company for 1995.)
10.7 Form of Supplemental Retirement Benefits Agreement.
(Incorporated by reference to exhibit 10.6 filed with the
Annual Report of the Company on Form 10-K for 1983.)
10.8 Alcan Supplemental Retirement Benefit Plan (Canada),
February 1992 edition. (Incorporated by reference to
exhibit 10.8 to the Annual Report on Form 10-K of the
Company for 1991.)
10.8.1 Amendments dated 1 January 1994, Schedule 93-1.
(Incorporated by reference to exhibit 10.7.1 to the Annual
Report on Form 10-K of the Company for 1994.)
10.8.2 Amendments dated 23 September 1993. (Incorporated by
reference to exhibit 10.8.2 to the Annual Report on Form
10-K of the Company for 1994.)
10.9 Indemnity Agreement with Jacques Bougie. Substantially
similar agreements have been entered into with all current
Directors of Alcan Aluminium Limited. (Incorporated by
reference to exhibit 10.9 to the Annual Report on Form
10-K of the Company for 1995.)
<PAGE> 44
10.10 Alcan Aluminium Limited Retirement Compensation Plan for
Non-Executive Directors dated 27 April 1995.
(Incorporated by reference to exhibit 10.10 to the Annual
Report on Form 10-K of the Company for 1995.)
10.10.1 Amendment dated 1 January 1997. (Incorporated by
reference to exhibit 10.10.1 to the Annual Report on Form
10-K of the Company for 1996.)
10.11 Alcan Aluminium Limited Deferred Share Unit Plan for
Non-Executive Directors dated 1 January 1997.
(Incorporated by reference to exhibit 10.11 to the Annual
Report on Form 10-K of the Company for 1996.)
10.12 B.C./Alcan 1997 Agreement. (Incorporated by reference to
exhibit 10.1 to the Quarterly Report on Form 10-Q of the
Company for the quarter ended 30 June 1997.)
10.13 Employment Agreement dated 24 July 1997 with Jacques
Bougie. (Filed herewith.)
(13) Annual Report. (Filed herewith.)
(21) Subsidiaries and Related Companies of the Company are listed on
pages 40 to 43.
(23) Consent of Independent Accountants is on page 39.
(24) Powers of Attorney. (Filed herewith.)
24.1 Power of attorney of S.I. Bata
24.2 Power of attorney of W. Chippindale
24.3 Power of attorney of D.T. Engen
24.4 Power of attorney of J.R. Evans
24.5 Power of attorney of A.E. Gotlieb
24.6 Power of attorney of J.E. Newall
24.7 Power of attorney of P.H. Pearse
24.8 Power of attorney of G. Russell
24.9 Power of attorney of G. Saint-Pierre
24.10 Power of attorney of G. Schulmeyer
(27) Financial Data Schedule. (Filed herewith.)
(99) Cautionary statement for purposes of the "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995.
(Filed herewith.)
<PAGE> 1
EMPLOYMENT AGREEMENT
BETWEEN
JACQUES BOUGIE
AND
ALCAN ALUMINIUM LIMITED
<PAGE> 2
THIS EMPLOYMENT AGREEMENT entered into at Montreal, Canada, as of the 1st day
of January 1997 .
BETWEEN: Mr. Jacques Bougie (hereinafter referred to as the "CEO").
AND: ALCAN ALUMINIUM LIMITED, a company incorporated under the laws of
Canada, having its head office at Montreal, Quebec, Canada (hereinafter
referred to as "ALCAN").
AND WHEREAS the Board of Directors of Alcan agrees to maintain Mr. Jacques
Bougie in the position of Chief Executive Officer for the duration of this
Agreement, subject to the terms and conditions of this Agreement.
AND WHEREAS Mr. Jacques Bougie agrees to serve as Chief Executive Officer for
the duration of the Agreement, subject to its terms and conditions.
THE PARTIES AGREE AS FOLLOWS:
1.0 TERM AND TERMINATION
1.1 The Term of this Agreement shall run from the 1st day of January 1997
to the 31st day of December 1999 (3 years) and therewith terminate
unless extended by mutual written Agreement.
1.2 Both parties have the intention to extend this Agreement beyond the
termination date at terms and conditions mutually acceptable to the
parties.
1.3 On or about 1 July 1999 (6 months prior to expiry date) the parties
intend to start outlining the terms and conditions of a new Agreement
with effect from 1 January 2000.
2.0 UNDERTAKING AND DECLARATIONS
2.1 For the Term of this Agreement, the CEO hereby agrees not to accept
employment offers by any other Corporations.
Initials
2
<PAGE> 3
3.0 COMPENSATION (All amounts are in Canadian dollars unless stated otherwise)
3.1 BASE SALARY
For the duration of the Agreement the Base Salary is set at $1,000,000
per year, effective 1 March 1997.
3.2 EXECUTIVE PERFORMANCE AWARD ("EPA")
The total guideline amount defined under the regular Plan is set at
85% of the base salary, i.e. C$850,000 and prorated as follows for
each award.
<TABLE>
<CAPTION>
DSU
---
<S> <C>
- Profitability (%ROE) = 35% or $350,000 7,543
- Corporate (Operating Cash Flow) = 30% or $300,000 6,466
- Business Unit (Agreed Objectives) = 20% or $200,000 4,310
-------- ------
- TOTAL $850,000 18,319
</TABLE>
The annual EPA guideline awards will automatically be converted into
Deferred Share Units (DSU) for each performance period, at the share
price(1) determined under the approved plan. The actual amount
credited to the personal account will be the guideline amount of each
award adjusted by its approved performance factors. A cash payment
will be made at retirement, termination of employment or death (as
defined in the approved plan) equal to the number of DSU multiplied by
the share price of Alcan's common stock. From the date of allocation,
dividends payable on the accumulated DSU will be converted into
additional DSU (as specified in the approved plan).
3.3 MEDIUM TERM INCENTIVE PLAN ("MTIP")
Under the MTIP, a three year performance period ("cycle") is
established with a payout paid if certain minimum, target or maximum
performance thresholds are achieved at the end of the cycle. The Board
of Directors ("Board") has discretion to apply different performance
criteria for different cycles. The Board also has discretion during a
cycle to adjust performance measures set for that period to reflect
changes in accounting principles and practices, mergers, acquisitions
or divestitures or extraordinary non-recurring or unusual items.
The payout, if at all, for the first 3 year cycle (1997-1999) will be
made in February 2000 on the basis of achieving Full Business
Potential ("FBP") and having completed the full
_____________________
[FN]
1 For year 1997 the share price is C$46.40 providing a total guideline share
units of 18,319.
</FN>
Initials
- 3 -
<PAGE> 4
3 year term of employment. The payout will be in the form of DSU,
allocated at the end of the performance cycle, however payable only at
retirement, termination of employment or death, based on the share
price of Alcan's common stock. From the date of allocation to the date
of payment dividends will accrue in the form of additional DSUs.
Performance objectives for the first cycle will relate to the
achievement of the Full Business Potential ("FBP") defined as the
generation of an additional sustainable after tax income of US$300
million per year (over and above the 1996 net income base). Schedule
"A" describes the definition of "FBP" and the adjustments to be taken
into account for its calculation.
The minimum target and maximum payouts for the performance periods are
shown in TABLE 1 below.
TABLE 1
MEDIUM TERM INCENTIVE
DEFERRED SHARE UNITS
DEGREE OF ACHIEVEMENT OF "FBP"
------------------------------
<TABLE>
<CAPTION> LESS THAN S$300 M US$450 M MORE THAN
US$150 M US$600 M
<S> <C> <C> <C> <C>
Performance 0 1.0 x 2.0 x 3.0 x
Rating
Grants of Share2 Nil 19,400 38,800 58,200
Units
</TABLE>
Results between US$150 Million and US$600 Million will be prorated.
3.4 ALCAN EXECUTIVE SHARE OPTION PLAN ("AESOP")
The CEO will be granted 312,800 share options at an exercise price of
C$48.913, exercisable for a period of 10 years from the date of grant
(28 May 1997). Up to 100% of the shares under option may be exercised
on or after 1 January 2000.
3.5 PENSION
3.5.1 The CEO's annual Pensionable Earnings from 1 January 1997 are
equal to 140% of Basic Pay.
_____________________
[FN]
2 For the first 3 year cycle, the number of share units have been established on
a share price of $46.40 ($300,000 p.a. x 3 yr/$46.40)
</FN>
Initials
- 4 -
<PAGE> 5
3.5.2 The Appendix 1 of the Board Resolution dated 22 September 1993 will
be amended to provide for the following minimum guaranteed pension
from all company sources, subject to the conditions below :
<TABLE>
<CAPTION>
AGE AT MINIMUM GUARANTEED
RETIREMENT PENSION (CDN $)
<S> <C>
52 500,000
53 612,500
54 725,000
55 837,500
56 950,000
57 1,000,000
58 1,050,000
59 1,100,000
60 1,150,000
</TABLE>
The minimum guarantee applies at any age from 52 if the CEO's
termination of employment is requested by the Board OR if there is a
mutual agreement between the Board and the CEO, or if the
appointment of a new Chair of the Board is not acceptable to the
CEO. In the case of the CEO's unilateral decision to retire, except
as provided above, the guaranteed level only applies from age 56.
4.0 SPECIAL CONDITIONS
4.1 In the event of a sudden drop in the value of the Canadian dollar in
relation to the US dollar caused by an event deemed by the Board to
justify making an upward correction to the compensation values
stated in paragraphs 3.1 and 3.5, such correction will be made for
the remaining period of the Agreement.
4.2 A sudden drop in the value of the Canadian dollar would translate
into a corresponding increase in the price of Alcan's shares when
quoted in Canadian dollars. Even though the value of DSUs payable
under paragraph 3.2 and 3.3 and the value of stock options payable
under paragraph 3.4 should be self correcting, the Board will
nevertheless review the impact to ensure a just and equitable
treatment.
Initials
5
<PAGE> 6
4.3
5.0 TERMINATION OF EMPLOYMENT
In the event of a termination of employment initiated by the Board, the
parties agree that a separate termination agreement will be negotiated to
arrive at mutually acceptable terms. Notwithstanding the Term of this
Agreement, it is understood by both parties that the employment
relationship between the CEO and Alcan is not for a fixed term but for an
indefinite term, and therefore, such separate termination agreement will be
negotiated in this context.
6.0 DISABILITY
6.1 In the event the CEO becomes disabled prior to 31 December 1999 and
cannot perform the duties of his position, Alcan shall maintain full
payment of the amounts under paragraph 3.1 for a period of 12 months
after the date deemed disabled. Regular EPA amounts will also be
payable during the period. After the period of pay continuance the
CEO will receive regular LTD benefits.
In addition to the pay continuation stated above, the Board may at
its discretion recommend that a portion of the MTIP payment
(paragraph 3.3) be made even though through no fault on the CEO's
part he was not able to complete the performance period (3 years).
7.0 DEATH
7.1 In the event of death prior to age 56, in addition to the regular
benefit payable under the life assurance program and the death
benefits payable under the Alcan Pension Plan using the minimum
guarantee described under paragraph 3.5.2, the Company will pay to
the Estate of the CEO the following amounts:
7.1.1 the EPA guideline amount prorated to the date of death;
7.1.2 the DSU amount payable under the program (paragraph 3.2);
7.1.3 a discretionary amount deemed by the Board to be a just and equitable
payment for the progress toward achieving the objectives under the
MTIP program (paragraph 3.3).
Initials
6
<PAGE> 7
8.0 OTHER EXECUTIVE BENEFITS AND PERQUISITES
All other benefits and perquisites currently available to the CEO will
continue unchanged for the duration of this Agreement, with the exception
of those benefits which are calculated on the basis of the definition of
pensionable earnings.
9.0 ENGLISH LANGUAGE
This contract is written in English at the express request of the Parties.
Ce contrat est redige en anglais a la demande expresse des parties.
10.0 APPLICABLE LAW
This Agreement shall be interpreted according to the laws of the Province
of Quebec. The Parties agree that the courts of the District of Montreal
shall have exclusive jurisdiction.
IN WITNESS WHEREOF the Parties have signed these presents as at the place
and date first hereinabove written.
ALCAN ALUMINIUM LIMITED
By /s/ John Evans
_________________________________
Dr. John Evans
Chairman of the Board
WITNESS: /s/ Robert Maheu
__________________________
/s/ Jacques Bougie
________________________________
Jacques Bougie
<PAGE> 8
SCHEDULE A
FULL BUSINESS POTENTIAL (FBP) OBJECTIVE
By end 1999 to achieve higher run-rate of annual net income.
ASSUMPTIONS:
- - - - 1996 net income
- - - - 1996 average metal price of $1530/t (LME - 3 months)
- - - - C$ exchange rate of .73 cents
- - - - Smelters operating at full capacity
- - - - No major strategic investment, acquisition or merger
TARGET:
US$300 M
ADJUSTMENTS:
- - - - As per the basic assumptions
- - - - For major strategic initiatives
- - - - For large expense portion of Capex taking place in 1999
- - - - Alcan Aluminium Limited
<PAGE> 1
Alcan Aluminium Limited
1997 ANNUAL REPORT
Alcan Aluminium Limited, a Canadian corporation, is the parent company of an
international group involved in all aspects of the aluminum industry. Through
subsidiaries and related companies around the world, the activities of the Alcan
Group include bauxite mining, alumina refining, power generation, aluminum
smelting, manufacturing and recycling as well as research and technology.
Approximately 33,000 people are directly employed by the Company, with thousands
more employed in its related companies.
In the 96 years since it was established, Alcan has developed a unique
combination of competitive strengths, with owned hydroelectricity in Canada,
proprietary process technology and international presence. With operations and
sales offices in more than 30 countries, the Alcan Group is one of the most
international aluminum companies as well as the largest producer of flat-rolled
aluminum products. The word ALCAN and the Alcan symbol are registered trademarks
in more than 100 countries and are synonymous with aluminum the world over.
The Alcan Group is a multicultural and multilingual enterprise reflecting the
differing corporate and social characteristics of the many countries in which it
operates. Within a universal framework of policies and objectives, individual
subsidiaries conduct their operations with a large measure of autonomy.
Alcan Aluminium Limited has approximately 20,700 registered holders of its
common shares and 1,200 registered holders of its preference shares. While
distributed internationally, the Company's shares are mostly held in North
America.
CONTENTS
<TABLE>
<S> <C>
1 Highlights of the Year
2 Message to Shareholders
8 Corporate Social Responsibility
12 The Alcan Group's Businesses at a Glance
16 Management's Discussion and Analysis
36 Responsibility for the Annual Report, OECD Guidelines and Auditors' Report
37 Consolidated Financial Statements
40 Notes to Consolidated Financial Statements
59 Quarterly Financial Data
60 Eleven-Year Summary
62 Corporate Governance
63 Directors and Officers
64 Shareholder Information
65 The Alcan Group Worldwide
</TABLE>
1
<PAGE> 2
TERMS
The word "Alcan" or "Company" means Alcan Aluminium Limited and, where
applicable, one or more consolidated subsidiaries. A "subsidiary" is a company
controlled by Alcan. A "related company" is one in which Alcan has significant
influence over management but owns 50% or less of the voting stock.
The "Alcan Group" refers to Alcan Aluminium Limited, its subsidiaries and
related companies.
In this report, unless stated otherwise, all dollar amounts are stated in United
States dollars and all quantities in metric tons, or tonnes. A tonne is 1,000
kilograms, or 2,204.6 pounds.
The following abbreviations are used:
<TABLE>
<S> <C>
/t per tonne
kt thousand tonnes
kt/y thousand tonnes per year
Mt million tonnes
Mt/y million tonnes per year
</TABLE>
ANNUAL MEETING
The Annual Meeting of the holders of common shares of Alcan Aluminium Limited
will be held on Thursday, April 23, 1998. The meeting will take place at 10:00
a.m. in the Ballroom of the Marriott Chateau Champlain, 1 Place du Canada,
Montreal, Quebec, Canada.
2
<PAGE> 3
HIGHLIGHTS OF THE YEAR
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
FINANCIAL DATA
(in millions of US$, except per common share amounts)
Sales and operating revenues 7,777 7,614 9,287
Net income before extraordinary item 468 410 543
Net income 485 410 263
Return (%) on average common shareholders' equity 10 9 11*
Total assets (at year-end) 9,466 9,325 9,736
Capital expenditures 641 482 441
Ratio of borrowings to equity (at year-end) 23:77 23:77 29:71
Per common share (in US$)
Net income before extraordinary item 2.02 1.74 2.30
Net income 2.09 1.74 1.06
Cash from operating activities 3.17 4.34 4.63
Dividends 0.60 0.60 0.45
Common shareholders' equity (at year-end) 21.43 20.57 19.84
OPERATING DATA
(in thousands of tonnes)
Fabricated products shipments** 1,970 1,797 1,958
Ingot products shipments*** 858 810 801
Primary aluminum production 1,429 1,407 1,278
Secondary/recycled aluminum production 670 639 523
AVERAGE THREE-MONTH LME PRICE
(in US$/tonne)
1,620 1,536 1,830
</TABLE>
[FN]
*** Before extraordinary item.
*** Includes products fabricated from customer-owned metal.
*** Includes primary and secondary ingot and scrap.
</FN>
3
<PAGE> 4
NET INCOME (LOSS) AND AVERAGE THREE-MONTH LME PRICE
US$/t
1993 = 1,161
1994 = 1,500
1995 = 1,830
1996 = 1,536
1997 = 1,620
MILLIONS OF US$
1993 = (104)
1994 = 96
1995 = 543
1996 = 410
1997 = 468
Net income improved in 1997 to reflect higher volumes, although products prices
were lower.
* Before extraordinary item.
FABRICATED PRODUCTS SHIPMENTS
Fabricated products shipments
KT
1993 = 1,651
1994 = 1,952
1995 = 1,958
1996 = 1,797
1997 = 1,970
Fabricated products shipments adjusted for acquisition and divestments
KT
1993 = 1,291
1994 = 1,636
1995 = 1,787
1996 = 1,786
1997 = 1,970
Fabricated products volumes grew 10% to reach their highest-ever level in 1997.
With earlier years adjusted for acquisitions and divestments, compound annual
growth since 1993 was 11%.
4
<PAGE> 5
MESSAGE TO SHAREHOLDERS
OUR STRATEGIC PRIORITIES
* Continue implementation of Full Business Potential with the target of
increasing after- tax returns by $300 million and earning our cost of capital.
* Strengthen the position of aluminum in the marketplace and ensure its future
as the material of choice.
* Aggressively seek out opportunities to maximize shareholder value.
We can take great pride in what Alcan accomplished during 1997. Net income for
the year was US$485 million and we achieved a 10% increase in overall shipments
of fabricated products, which translates into increased market share.
Particularly noteworthy were our results in Europe, where we succeeded in
boosting shipments by 16% -- significantly above the growth in regional demand
- - - -- while holding fabricating costs to levels virtually unchanged from the
previous year. Perhaps most importantly from a shareholder's standpoint, we also
made considerable headway during 1997 in terms of improving Alcan's underlying
profitability.
AN EVENTFUL YEAR FOR THE INDUSTRY
Nineteen ninety-seven was an eventful year for the industry with market
fundamentals showing steady improvement until the onset of economic difficulties
in Asia late in the year. Western World aluminum consumption climbed 5.4%, led
by steadily increasing demand from the transportation industry. Gains were
recorded in all major market sectors -- including can stock, where Alcan has a
leading position. In the U.S., manufacturers of aluminum beverage cans surpassed
the 100-billion-can milestone for the first time.
DELIVERING ON ALCAN'S STRATEGIC PRIORITIES
You may recall the three strategic priorities Alcan identified for 1997:
implementing our "Full Business Potential" program; strengthening the position
of aluminum in the marketplace; and maximizing shareholder value. We are pleased
to report that excellent progress has been made in each of these areas.
In terms of full business potential, we have attained one-third of our targeted
$300 million, after tax, in productivity improvements. To date, these
improvements have come primarily in the areas of raw materials and fabricated
products in Europe and North America. This three-year program is proceeding on
plan as 1998 unfolds, with further significant improvement anticipated.
Such progress notwithstanding, Alcan still is not earning its cost of capital.
While we are confident that the achievement of full business potential will get
us to that point, we have introduced Economic Value Added (EVAregistered
trademark) as a tool that will support decision-making and enable us to measure
our effectiveness in terms of creating increased shareholder value. Here, too,
we are determined to deliver on our commitment.
With regard to promoting aluminum as the material of choice, Alcan has been
active on several fronts. For instance, we have forged partnerships with key
customers that will lead to further increases in the use of aluminum by
important global industries. And we have taken a lead role within our own
industry as an advocate of intensified recycling programs and other initiatives
that will enable us to capitalize on the metal's inherently superior properties.
Such endeavours have taken on added significance, given the heightened public
awareness of environment and energy-related issues in the wake of last fall's
Kyoto, Japan, environmental conference.
5
<PAGE> 6
NOTEWORTHY ACHIEVEMENTS
Other noteworthy developments during 1997 include:
- - - - Settlement of a long-standing dispute with the government of British
Columbia (B.C.) over the Kemano Completion Project, effectively putting B.C.
back on Alcan's investment map;
- - - - Agreement regarding supply of low-cost bauxite through the development
of our Ely reserves in Australia;
- - - - Solid progress on the major expansion of our Pindamonhangaba, Brazil,
fabricating facilities, the success of which entails close cooperation
between Alcan operations in North and South America; and
- - - - The signing of a memorandum of understanding (MOU) with China National
Non- Ferrous Metals Industry Corporation to complete a detailed feasibility
study for a proposed aluminum smelter and dedicated power-generating
station project in China. This MOU was signed with the full support of
China's State Planning Commission.
Subsequent to the year's end, we announced our decision to proceed with
development of a new 375,000-tonne smelter at Alma, Quebec. Preliminary
planning for this very sizeable US$1.6-billion undertaking was completed
during 1997. Environmental clearance for the project has been obtained from
the government of Quebec, and we also have reached agreement with Hydro-Quebec
on the terms of a long-term contract for the supply of electrical energy. A
key consideration for this project is timing; that is, to ensure that the
additional capacity will come on stream during a period of expanding world
aluminum markets. Work at the site will get under way in early March of this
year, with the first aluminum production expected in the fall of 2000.
SUCCESS BREEDS CONFIDENCE AND ENTHUSIASM
The high level of activity evident throughout Alcan's operations is matched
by a high level of confidence and enthusiasm discernable among Alcan
personnel - and with good reason. Our successful initiatives in critical
areas such as cost reduction, strategic focus and, most recently, full
business potential have clearly demonstrated that this organization can
achieve what needs to be done to enhance Alcan's status as a global industry
leader. Faced with significant challenges - both internal and external -
we have developed appropriate action plans and have executed them successfully.
Having significantly improved the internal environment - those factors over
which we exercise direct control - we are intent on sustaining the positive
momentum by addressing some significant external issues.
A CONSISTENT STRATEGY IS KEY
Consistency is the watchword for 1998. We intend to adhere to our successful
approach by continuing to focus on those three key strategic priorities:
- - - - Continuing implementation of full business potential;
- - - - Maintaining our proactive role in promoting aluminum as the material
of choice, and
- - - - Aggressively seeking out further opportunities to maximize shareholder
value.
<PAGE> 7
PURSUING FULL EMPLOYEE POTENTIAL
The success of Alcan's full business potential program clearly is dependent
upon us also achieving "full employee potential".
Accordingly, the Company has undertaken a number of other important
initiatives designed to ensure that Alcan is able to develop and retain the
best people in the industry, while providing them with a safe, healthy,
stimulating and rewarding work environment. These initiatives include:
- - - - A new thrust in employee develop-ment, with the introduction of
training techniques that focus on maximizing learning and are closely aligned
with achievement of Alcan's business objectives;
- - - - A Code of Conduct that reiterates the Company's expectations regarding
a wide range of ethical issues, and
- - - - A new measurement system to ensure global consistency in tracking
health and safety performance.
ASSUMING ENVIRONMENTAL LEADERSHIP
In keeping with our efforts to make certain that Alcan enjoys a reputation
second to none, we revised our corporate Environmental Policy, which commits
us - on the record - to assuming industry leadership in this field.
Further details on many of these initiatives can be found in the Corporate
Social Responsibility section of this report.
YEAR 2000 COMPLIANCE
We should also note that Alcan has in place a Year 2000 compliance action plan.
A program is well under way to examine and resolve Year 2000 issues as they
affect the Company, thus permitting an orderly transition through the year 2000.
ACKNOWLEDGEMENTS
As stated at the outset, 1997 was an eventful - and challenging - year. We are
grateful for the guidance provided by our fellow directors. And, on behalf of
the entire Board, we would like to thank Alcan employees for their exceptional
effort and dedication - knowing that they share our pride in the collective
achievements of 1997. There's no doubt that, working as partners, we can
continue to deliver excellent results in 1998 and beyond.
LOOKING AHEAD
Industry fundamentals remained sound as the year ended, despite an element of
uncertainty stemming from the economic upset in Asia. With inventories
reduced by some 300,000 tonnes from 1996 levels, the market was pretty much
in balance from a supply-demand perspective and activity continued to be
brisk in North America and Europe. We are cautiously optimistic regarding
the outlook for 1998 and anticipate further volume growth in fabricated
products, unless the impact of the Asian situation spills over into other
major markets to a degree not anticipated at this time.
Dr. John R. Evans Jacques Bougie
Chairman of the Board President and Chief Executive Officer
February 19, 1998
<PAGE> 8
EXERGUE
. . . one-third of our full business potential target attained
. . . fundamental characteristics of aluminum make it second to none
. . . pride in our collective achievements
. . . Our ultimate goal maximizing shareholder value
CAPTION
Jacques Bougie (left), President and Chief Executive Officer, and Dr. John R.
Evans, Chairman of the Board.
8
<PAGE> 9
CORPORATE SOCIAL RESPONSIBILITY
OUR WAY OF DOING BUSINESS:
* bullet Youth of today are tomorrow's leaders;
* bullet Communities are partners in growth;
* bullet Environmental Management System initiated at all locations;
* bullet Occupational health and safety is paramount;
* bullet Code of Conduct is our reputation;
* bullet Employees lead us to Full Business Potential.
INVESTING IN THE FUTURE
Investing in the future is more than expanding facilities and upgrading
processes. At Alcan, we believe that a successful future also depends on how
well we nurture the leaders of tomorrow. We must pass on the message that good
business means respecting people and the environment. It means cooperation and
integrity with employees, communities, customers, suppliers, shareholders and
governments.
These are the basic principles of a special partnership formed by Alcan and
Ecole Saint- Pierre, in Alma, Quebec, in 1990. With the support of the
community, the school created a micro-business where the students are the
mastercrafters. They recycle paper into greeting cards and collect and sell used
grocery bags and aluminum cans. This initiative has proven so successful that it
has spawned similar ventures at three other Quebec schools. Another similar
project was launched in British Columbia, and a regional program has received
public recognition in Brazil.
The collection and recycling activities enable the students to make a profit,
while Alcan's specially designed workbooks teach them business management
skills. They also learn the importance of matching business principles with
environmental and social responsibility.
COMMUNITY INVESTMENT PROGRAM
Community investment has long been a part of Alcan's corporate culture. In 1997,
Alcan placed a renewed focus on supporting activities that relate both to the
communities in which it operates and to the Company's business interests.
In Canada, for example, over CAN$5 million was invested in communities where
Alcan has a significant presence. The investments covered programs in the areas
of occupational health and safety, education and training. One such pledge was a
five-year, CAN$250,000 grant to Universite Laval in Quebec, in cooperation with
the federal government, to encourage the participation of women in science and
engineering programs. Investments in medical research programs and sponsorships
of civic and cultural events were also undertaken, especially when the themes
related to health or environmental concerns.
The Company also donated 775 acres of land to Nipissing University in Ontario to
be used for teaching, research and environmental conservation purposes. The land
is home to wildlife such as loons and wolves and also has archaeological
significance.
9
<PAGE> 10
Alcan's donations and sponsorships foster community partnerships and stimulate
local development, illustrating the Company's commitment to the health and
prosperity of the locations in which it operates.
SPECIAL PARTNERSHIPS
Of course, no community investment would be complete without volunteer efforts,
whether it's the Terry Fox Run for cancer research or helping neighbours
stranded by a natural disaster. In 1997, torrential rains hit Kentucky and
Brazil's Belo Horizonte region, forcing many citizens to leave their homes. And,
in early January 1998, an unprecedented ice storm paralyzed southern Quebec and
parts of neighbouring provinces and states, leaving millions of people without
electricity. In each instance, Alcan people were involved, providing relief,
gathering supplies or raising funds.
In the U.S., Alcan joined an initiative of The Aluminum Association and Habitat
for Humanity International in building affordable homes for needy families. The
program, entitled Aluminum Cans Build Habitat for Humanity Homes, is based on
the collection and recycling of aluminum cans to help finance construction.
Assisting young people with career choices continues to distinguish Alcan. In
Switzerland, Alcan Rorschach AG offers work apprenticeships to young people who
have completed their compulsory schooling. With Alcan personnel acting as
mentors, the program sponsors 27 apprentices in eight different functions.
Through a similar program in Canada, Career Edge, Alcan contributed CAN$800,000
and provided 47 apprenticeships.
ENVIRONMENT
Alcan revitalized its Environmental Policy with a 1997 revision that focuses on
the contribution of every employee in order to achieve a leadership position
within our industry.
An Environmental Management System (EMS) has now been initiated in each and
every Alcan facility. This global approach to environmental management focuses
on processes, smoothing the way to earn new environmental certification such as
ISO 14001 from the International Organization of Standardization.
The Company has taken a lead role in several industry initiatives to promote the
image of aluminum in both North America and Europe. And, Alcan helped spearhead
a joint Life- Cycle Inventory (LCI) of a generic North American family-size
vehicle.
An LCI is used to quantify the environmental performance of a product or process
over its life cycle, including raw material extraction, production, use, and
end-of-life disposal. The study was under the auspices of the U.S. Automotive
Materials Partnership, a coalition of the "big three" U.S. car manufacturers and
the aluminum, plastic and steel industries.
Aluminum has many inherent qualities such as its recyclability, energy
efficiency, strength-to-weight ratio, barrier ability, and thermal and
electrical conductivity. All of these contribute to aluminum being specified as
a material of choice, not only in the automotive sector, but also in other
industries around the globe.
HEALTH AND SAFETY
The elimination of work-related injury and illness is the ultimate objective at
all Alcan locations. In 1997, the traditional indices of safety performance
exhibited a positive trend. Many Alcan facilities reported record safety
performances. Of special significance was the Laterriere smelter, which operated
a full year without a lost-time accident -- an accomplishment all but unheard of
a few years ago for a major aluminum smelter.
10
<PAGE> 11
A new health and safety recordkeeping system was implemented at the end of 1997.
Known as AIRS Plus (Alcan Injury and Illness Recordkeeping System), it takes a
global approach, enabling the organization to gather more consistent data and
compare improvements between locations. With AIRs Plus, Alcan looks at health
and safety from the total health perspective, not just at injuries due to
accidents.
The Company encourages and values the involvement of all employees in the
continual improvement of occupational health and safety.
CODE OF CONDUCT
When Alcan published Alcan, Its Purpose, Objectives and Policies some 20 years
ago, it was a demonstration of industry leadership and a commitment to social
responsibility. In 1997, the Company released a companion document - the Code of
Conduct.
The "Code" outlines Alcan's expectations on ethical issues, ranging from
employee behaviour in the workplace to business practices with suppliers and
customers. In an extensive implementation, the Code of Conduct was introduced to
employees around the globe.
In a similar vein in Canada, Alcan voluntarily agreed to a code of international
business practices, dealing with human rights, worker health and safety,
community needs, and environmental responsibility. It also includes a commitment
to conduct business with integrity.
PEOPLE DRIVE SUCCESS
People make the difference at Alcan. In the past year, we saw renewed emphasis
on human resources development, linking training and education directly to the
Company's strategic goals. Whether it was technical training or management
development, the renewed vigour in training and education was highly visible
throughout the year.
Action-learning and other advanced training techniques were incorporated in
programs to make them more relevant and to maximize learning. This was
especially apparent in the new Corporate Management Development Program where
participants work in global teams on strategic issues and undergo individual
development assessments.
Corporate training programs include sessions on Alcan's business environment and
strategy, international competitiveness, leadership and management competencies
for success.
The goal of all Alcan education programs is to build a partnership with each and
every employee. By investing in its people, the Company reinforces its
strengths. When this collective energy is combined with knowledge and
determination, true partnerships are formed and the seamless organization
becomes a reality.
11
<PAGE> 12
CAPTION
As part of the entrepreneurship program at Ecole Saint-Pierre in Alma, Quebec,
kindergarten students fabricate greeting cards from recycled paper made at their
school. In Ouro Preto, Brazil, students benefit from the value of aluminum can
collection activities.
Matching business principles with environmental and social responsibility is
important to Alcan. The Company donated 775 acres of land to Nipissing
University in Ontario for teaching, research and environmental conservation
purposes.
In his third year of apprenticeship at Alcan Rorschach in Switzerland, Vincenzo
Nicosiano learns about rotogravure printing from his trainer Willi Birrer.
Currently 27 young people, having completed their compulsory schooling, are
getting hands-on experience from a choice of eight different functions.
12
<PAGE> 13
THE ALCAN GROUP'S* AT A GLANCE
*includes subsidiaries, related companies and divisions.
1997 HIGHLIGHTS
CUSTOMERS AND MARKETS
- - - - Total fabricated and non-aluminum sales.
Containers and packaging
- - - - $2.5 billion in sales.
- - - - 43% of total sales.
Transportation
- - - - $483 million in sales.
- - - - 8% of total sales.
Electrical
- - - - $579 million in sales.
- - - - 10% of total sales.
Building and construction
- - - - $952 million in sales.
- - - - 17% of total sales.
Other markets
- - - - $1.3 billion in sales.
- - - - 22% of total sales.
FABRICATED PRODUCTS++
- - - - Over 60 manufacturing plants in 11 countries.
Rolled products
- - - - $3.9 billion (1,476 kt) in sales.++++
- - - - Fabricated 276 kt of customer-owned metal.
Other fabricated products
- - - - $1.2 billion (218 kt) in sales.
Total fabricated products
- - - - $5.1 billion in sales.++++
- - - - 2 Mt of aluminum fabricated in Alcan facilities.
13
<PAGE> 14
METAL SUPPLY ++
(Smelting and Power)
- - - - 13 smelters in 4 countries with 1.6 Mt of annual capacity.
- - - - 7 recycling plants in 4 countries with 692 kt of annual capacity.
Purchased ingot and fabricated products
- - - - 730 kt of primary ingot, 2 kt of secondary ingot and 40 kt of fabricated
products purchased.
Primary production
- - - - 1.4 Mt produced.
- - - - $1.2 billion (661 kt) in ingot sales.+++
Secondary recycled aluminum
- - - - 670 kt produced.
- - - - 482 kt of scrap purchased.
- - - - $135 million (82 kt) in ingot sales.
- - - - $164 million (115 kt) in scrap sales.
ALUMINA AND CHEMICALS
(Raw Materials and Chemicals)
- - - - 11 bauxite mines/reserves in 6 countries with 400 Mt of demonstrated
reserves (in subsidiaries+ and related companies).
12 alumina plants in 9 countries with 5.1 Mt of annual capacity (in
subsidiaries+ and related companies).
- - - - 8 specialty chemicals plants in 4 countries (including related companies).
In addition to the sales of bauxite, alumina and specialty chemicals indicated
above, Alcan's non-aluminum products account for $224 million in sales.
Bauxite mining
- - - - 11.5 Mt used (including related companies).
- - - - $47 million in bauxite third-party sales.
Alumina refining
- - - - 5.0 Mt produced (in subsidiaries+ and related companies).
- - - - $311 million in alumina third- party sales.
Specialty chemicals
- - - - $174 million in sales.
+ includes joint ventures, proportionately consolidated.+
++ excluding related companies.
+++ also includes purchased ingot.
++++ excluding fabrication of customer-owned metal.
14
<PAGE> 15
BUSINESS SECTOR REVIEW*
CUSTOMERS AND MARKETS
- - - - Total fabricated and non-aluminum sales.
- - - - The decline in revenues in 1996 was due to business divestments and lower
prices.
Containers and packaging
End uses include beverage cans, household foil, foil dishes and containers,
bottle closures and foil laminates for packaging applications.
Transportation
End uses include automotive structures, body panels and engine parts, wheels
and radiators, aircraft structures, rail carriages, freight cars and ships.
Electrical
End uses include over-head transmission cable, cable wrap, condenser
windings, underground distribution cable and heat sinks.
Building and construction
End uses include windows and doors, roofing and cladding, lighting poles and
fixtures, structures and handrails.
Other markets
End uses include machinery, appliances, heat exchangers, wear components,
synthetic marble and alumina chemicals.
FABRICATED PRODUCTS
- - - - The decline in fabricated products revenues and shipments from 1995 to 1996
is largely attributable to the disposal of a number of downstream businesses.
Third-party sales and operating revenues
In 1997, volumes were up 10% but average prices were lower, principally due
to weaker European currencies.
Total sector operating income
Profits from this sector more than doubled in 1997 with increased volumes and
lower unit costs.
Fabricated products shipments
Shipments were up 10% in 1997, including a 16% increase in Europe.
15
<PAGE> 16
METAL SUPPLY
(Smelting and Power)
- - - - The decline in sales and operating revenues and operating income in 1996
from 1995 reflects the 16% reduction in LME prices.
Third-party sales and operating revenues
Both sales volume and average price realizations increased in 1997.
Total sector operating income
Improved earnings reflect higher metal prices.
Primary production
Continued improvements in process efficiencies resulted in increased output
in 1997. Production in 1995 had been affected by a strike in Quebec.
ALUMINA AND CHEMICALS
(Raw Materials and Chemicals)
- - - - Because many alumina contracts are linked with the LME prices of aluminum,
the decline in aluminum prices in 1996 also affected sales and operating
revenues and operating income for alumina.
Third-party sales and operating revenues
Sales volume was up slightly in 1997 and prices were little-changed.
Total sector operating income
The improvement in profitability in the year arose primarily from reduced
costs.
Alumina hydrate production
Alumina hydrate production reached its highest-ever level with new records
achieved in Jamaica and Ireland from existing assets.
* excluding related companies.
16
<PAGE> 17
STRATEGIC PRIORITIES AND OBJECTIVES
Alcan's ongoing strategic priorities are to continue the implementation of our
Full Business Potential program, to maintain a proactive role in promoting
aluminum as the material of choice and to aggressively seek out further
opportunities to maximize shareholder value. In so doing, Alcan will exploit its
global presence, continuing to work in close relationship with its select
customers. We will focus on market growth and new market opportunities and
continue to provide excellent service and premium quality products to our
customers. The success of Alcan's strategy is clearly dependent upon the full
participation of every employee towards these goals and the Company's ability to
create a safe and healthy environment in which the full potential of each
employee can be realized. The following are the strategic priorities and
objectives by business sector aimed at maximizing shareholder value.
FABRICATED PRODUCTS
Strategic priorities
- - - - Leverage Alcan's position as the world's largest producer of aluminum rolled
products.
- - - - Invest in those downstreambusinesses with superior returns.
Objectives
- - - - To maintain a global supply position in the can sheet and lithographic
markets.
- - - - To develop an automotive sheet business for the 21st century.
- - - - To maintain the leading position in the South American rolled products
market.
- - - - To capture the value of Alcan's recent investments in rolled products
operations in Europe.
- - - - To invest in and grow the electrical cable business.
METAL SUPPLY
(Smelting and Power)
Strategic Priorities
- - - - Grow the power and smelting business while remaining a low-cost producer.
- - - - Retain our position as the world's largest aluminum used beverage can
recycler.
Objectives
- - - - To efficiently return to full capacity as market conditions permit.
- - - - To achieve improved process efficiencies on existing assets through the
implementation of best operating practices and technology applications.
- - - - To develop and implement low-cost expansion/growth alternatives.
- - - - To ensure a cost-effective stream of recycled aluminum to supplement our
primary aluminum position.
ALUMINA AND CHEMICALS
Strategic Priorities
- - - - Optimize Alcan's alumina and bauxite asset base while substantially
reducing the cost of alumina.
- - - - Achieve profitable growth in Alcan's chemicals business.
- - - - Objectives
To achieve best operating practices in alumina refining.
- - - - To secure low-cost bauxite.
- - - - To leverage existing assets.
- - - - To pursue opportunities that strengthen Alcan's alumina position.
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
AIMING FOR FULL BUSINESS POTENTIAL
* Maximizing the penetration of aluminum in existing end uses
* Seizing opportunities in emerging markets
* Reducing costs of raw materials and processing
* Fully developing our employees' potential
WORLD MARKET REVIEW
PRIMARY ALUMINUM
After only a small increase in Western World* demand for aluminum in 1996, the
early part of 1997 saw a strong recovery as the customer destocking that had
characterized much of 1996 was reversed. In North and South America and in
Europe, industry demand continued to be strong throughout the year. In Japan,
however, GDP growth was strong in the first quarter in anticipation of an
increase in consumption tax, but this was followed by a sharp decline. As a
result, Japanese aluminum demand grew in the first half but declined in the
second half of the year to give total year-over-year growth of 2%, largely
driven by higher exports resulting from the weaker yen. Despite this, and the
financial crisis in Southeast Asia, which resulted in a slowing of growth in
demand as the year progressed, total Western World primary aluminum demand is
estimated to have increased over 6% to reach 18.9 million tonnes (Mt).
Primary aluminum production in the Western World increased some 4% in 1997 to
16.1 Mt with capacity additions in Australia and Nigeria as well as some
restarts of idled
capacity, primarily in Europe. At the end of the year, about 750 thousand tonnes
(kt) of capacity remained idle, representing 4.4% of total capacity. Expansions
planned for 1998 are expected to add some 370 kt per year (kt/y) to capacity by
the end of the year.
Exports of primary aluminum from the C.I.S. to the West remained at a similar
level to 1996 at 2.6 Mt with little evidence of a revival in domestic demand.
Chinese primary production is estimated to have increased 8% in 1997, resulting
in a reduction in China's net imports from the previous year's level of 250 kt
to an estimated 50 kt.
* Defined as the world excluding the Commonwealth of Independent States
(C.I.S.), Eastern Europe and China.
Total inventories in the hands of primary aluminum producers and in London Metal
Exchange (LME) warehouses declined over the year by 300 kt to a level of 3.8 Mt,
equivalent to about 10.1 weeks of consumption.
Ingot prices increased during the first part of the year rising to a peak
three-month LME price of $1,755 per tonne (/t) in the third quarter, to be
followed by a decline to $1,558/t by year-end, close to the year's low point.
The average price for the year was $1,620/t, an increase of $84/t over 1996 but
well below the average for 1995 of $1,830/t.
18
<PAGE> 19
WESTERN WORLD CONSUMPTION VERSUS ALCAN SALES
It is estimated that total Western World aluminum consumption in 1997 was 25.5
Mt, three-quarters of which was supplied from primary sources and the remainder
from recycled metal. This represents an estimated increase of 5.4% over 1996.
Alcan's total shipments increased some 8.5% to 2.8 Mt with ingot shipments up
6% and a near 10% increase in shipments of fabricated products. Lower average
prices for fabricated products, resulting from the translation of weaker
European currencies, and product mix changes, however, meant that revenues
increased only 2% over the 1996 level.
The transportation market consolidated its position as the largest market for
aluminum with a 7.4% increase to 6.8 Mt. This resulted from strong production
of light vehicles, up over 4% globally, and the continuing increase in
aluminum penetration. Alcan's revenues from this market increased some 6% in
1997.
The containers and packaging market increased an estimated 3.4% to consume
4.8 Mt of aluminum. Can sheet demand recovered from the decline seen in 1996
to return to the peak levels seen in 1995. In the U.S., can shipments
surpassed the 100 billion mark for the first time and very strong growth
continued to be exhibited in South America. Despite higher can sheet volumes,
Alcan's revenues declined slightly in this market due to soft prices for
flexible packaging in Europe and the effect of weaker European currencies
when revenues are translated into dollars.
Building and construction also posted a healthy gain, rising 3.9% to a level
of 5.1 Mt, with strong growth from Europe and North America offset by a
decline of over 5% in Japan. Alcan's consolidated revenues from this sector
were up 4.5%, primarily in Europe and North America.
Consumption of aluminum in the electrical market was up 6.4% in 1997,
reaching 2.2 Mt, more than reversing a small decline in the previous year.
Alcan's revenues from this market were unchanged. Strong growth in North
America offset the reduction that arose from divestment of a business in
South America.
Other markets include machinery and equipment, durable goods and other
smaller end-use markets. Total aluminum consumption in these markets rose
some 5.6% reflecting generally buoyant economic conditions. Alcan's sales
revenues in this category, which include sales of aluminum ingot and
alumina, were unchanged. Higher alumina volumes and flat prices were offset
by the effect of the divestment of businesses in 1996.
RESULTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C>
(millions of US$) 1997 1996 1995
Net income before
extraordinary item 468 410 543
Extraordinary gain (loss) 17 - (280)
Net income 485 410 263
</TABLE>
Alcan reported consolidated net income for 1997 of $485 million after an
extraordinary gain of $17 million arising from the sale of a portion of a
contract to supply power to B.C. Hydro, net of additional write-downs of
remaining Kemano Completion Project (KCP) assets. As part of the settlement
of the dispute regarding the cancellation of KCP, the Company was able to
sell to a third party the right to supply power to B.C. Hydro under an
ongoing contract. Details of the settlement of the KCP dispute can be found
on page 33. Also included in the 1997 income was a net after-tax gain of
$6 million comprising a favourable tax adjustment relating to prior periods
of $26 million, and a net gain on the sale of businesses of $10 million.
This was partly offset by a $30-million provision in respect of contract
losses and restructuring at the Company's Japanese affiliate.
19
<PAGE> 20
For 1996, consolidated net income was $410 million including net after-tax
charges of $23 million relating to restructuring and early retirement of debt,
offset by gains on business disposals and prior-period tax adjustments.
Net income for 1995 was $263 million after an extraordinary loss of $280 million
after tax for the write-down of the Company's investment in KCP. In addition,
there was a net adverse impact of $61 million, the largest item being the effect
of a labour strike at the Company's operations in Quebec.
In 1997, the Company launched a program of measures aimed at achieving the full
business potential of each of its operating units. A target was sezt to improve
after-tax profitability by $300 million over a three-year period, beginning in
1997. By the end of the year, the Company is approximately one-third of the way
to achievement of this goal. Improvements totalling $160 million before tax have
been achieved. In the raw materials sector, gains of $40 million have been made
through cost reductions and increased production volume. In fabricated products,
improvements totalled $120 million, principally from higher capacity
utilization, $80 million of which arises in Europe and the remainder in North
America. The full impact of these achievements is not visible in the 1997
results due to non-recurring costs associated with the program. These include
pot relining costs at the Company's Lynemouth smelter in the U.K. and expenses
related to information technology and systems.
REVENUES
Sales and Operating Revenues, at $7,777 million, were 2% higher than in 1996 but
16% below the 1995 level. Sales volumes were 8.5% higher than in 1996, but
average price realizations for fabricated products were sharply lower at
$2,999/t compared to $3,279/t in 1996 and $3,557/t in 1995. This reflects the
impact of weaker European currencies when translated into U.S. dollars as well
as changes in product mix due to the sale of certain downstream businesses. The
decline compared to 1995 reflects lower prevailing metal prices and the disposal
of businesses with higher average prices and correspondingly higher
manufacturing costs.
Other income, which comprises interest income and other non-operating gains,
amounted to $88 million in 1997 compared to $75 million and $100 million in 1996
and 1995, respectively. Other than interest received on surplus cash, the main
items included in this category were gains on the disposal of downstream
businesses.
COSTS AND EXPENSES
Despite higher sales volumes, cost of sales and operating expenses increased
only 1.5% in 1997 and this followed a decline of 18% in the previous year. The
improvement in unit costs is due to increased capacity utilization, lower
European costs in dollar terms and some change in product mix, offset in part by
higher cost and increased volume of purchased metal. The decline in 1996 was due
primarily to the impact of business disposals and lower metal purchases.
<TABLE>
<S> <C> <C> <C>
(kt) 1997 1996 1995
Purchases of aluminum
Ingot products 732 509 789
Scrap 482 446 509
Fabricated products 40 48 67
1,254 1,003 1,365
</TABLE>
Purchases of aluminum increased in 1997 to 1,254 kt to support increased sales.
Average prices for ingot on the LME were $1,620/t in 1997 compared to $1,536/t
in 1996 and $1,830/t in 1995.
20
<PAGE> 21
Depreciation expense at $436 million in 1997 compares to $431 million in 1996
and $447 million in 1995. The decline in 1996 over 1995 reflected business
disposals.
Selling, administrative and general expenses increased 5% in 1997, to $444
million, following six consecutive years of decline. The increase is due
primarily to expenses totalling $46 million incurred in renewing and updating
information technology systems. These expenses are expected to continue at
similar levels in 1998 and to decline thereafter.
Research and development expenses were $72 million in 1997, little changed from
1995 and 1996. The stable level of spending over the last three years reflects
the full alignment of R & D activities with the technology needs of the
Company's core businesses: principally raw materials, smelting and rolling.
Alcan continues to maintain a strong effort in developing automotive aluminum
materials and technology. Additionally, there are currently several process
optimization initiatives aimed at assisting in the achievement of full business
potential. In 1998, research and development expenditures are expected to
increase moderately.
INTEREST COSTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(millions of US$) 1997 1996 1995
Interest expense 101 125 204
Interest capitalized 2 - 2
Total interest costs 103 125 206
Effective average interest rate 6.9% 7.3% 8.2%
</TABLE>
Alcan's interest expense continued its declining trend in 1997. Interest expense
fell by 19% in the year to $101 million. From its peak of $254 million in 1992,
the Company's interest expense has now fallen by $153 million or 60%. The
decline reflects Alcan's debt reduction program over this period and the benefit
of falling interest rates. The pre-tax interest expense coverage ratio continued
to improve to 7.4 times from 5.6 times in 1996 and 4.8 times in 1995.
INCOME TAXES
Income taxes of $258 million for 1997 represent an effective tax rate of 34%,
little- changed from 1996, versus a composite statutory rate of 40%. The
difference in the rates is due primarily to investment and other allowances, the
realization of previously unrecorded tax benefits on losses, as well as
favourable adjustments for prior periods. In 1995 there was little difference
between the two rates.
Income taxes for the years 1988 to 1991 have been reassessed by the Canadian tax
authorities. Most of the additional taxes and interest claimed related to
transfer pricing and are recoverable in other countries. Any unrecoverable
amounts are covered by existing provisions.
EQUITY COMPANIES
Alcan's share of the losses of equity-accounted companies was $33 million
compared to $10 million in 1996 and $3 million in 1995. The increased losses
arise from a restructuring and contract loss provision at Alcan's 45.6%-owned
related company in Japan, Nippon Light Metal Company, Ltd. (NLM).
21
<PAGE> 22
PRODUCT SECTOR REVIEW
The following information is reported by major product sector viewing each
sector on a stand-alone basis. Transactions between sectors are conducted on an
arm's-length basis and reflect market prices. Thus, profit on all alumina
produced by the Company, whether sold to third parties or used in the Company's
smelters, is included in the raw materials and chemicals sector. Similarly,
income from primary metal operations includes profit on metal produced by the
Company, whether sold to third parties or used in the Company's fabricating
operations. Income from the fabricated products sector represents only the
fabricating profit from rolled products and downstream businesses. Additional
product sector information is presented in note 21 to the financial statements.
RAW MATERIALS AND CHEMICALS OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(millions of US$) 1997 1996 1995
Sales and operating revenues
Third parties 536 529 618
Intersector 520 507 555
Operating income 125 95 203
Shipments - third parties (kt)
Smelter - grade alumina 1,679 1,585 1,325
Alumina hydrate production (kt) 4,727 4,536 4,209
</TABLE>
Profits for the sector rose substantially over the prior year. The main
contributing factors were lower production costs and a small increase in volume.
Prices for third-party sales of alumina remained at similar levels to 1996.
Unit production costs fell significantly in 1997. The decrease was largely
attributed to lower raw materials prices for caustic soda and purchased bauxite
coupled with cost reduction efforts towards achievement of the full business
potential.
BAUXITE
Through subsidiaries and related companies, Alcan has approximately 400 Mt of
demonstrated bauxite reserves, more than sufficient to meet its needs for the
next 30 years. The Company also has access to additional resources to meet its
needs beyond this period.
During 1997, significant progress was made in Australia towards securing a
low-cost bauxite supply for the Company's share in the Queensland Alumina
Limited refinery for the year 2000 and beyond. Early in 1998, agreement was
reached with Comalco Limited for integrated mining of Alcan's Ely bauxite with
Comalco's reserves. This will achieve significant economies of scale and provide
Alcan with low-cost bauxite. In addition, initiatives to increase equity and
expand a mine in Ghana were launched.
ALUMINA
Alumina hydrate production reached 4.7 Mt in 1997, a 4% increase over 1996 and
the highest level ever for the Company. Aughinish Alumina Limited in Ireland and
Alcan Jamaica Company in Jamaica achieved record production levels. Third-party
sales rose 6% to almost 1.7 Mt.
22
<PAGE> 23
CHEMICALS
Operating results for the year were lower than in 1996, mainly in Europe where
the strengthening of the pound sterling, particularly against continental
European currencies, reduced profit margins. Considerable progress has been made
towards improving Alcan's position in the specialty alumina chemicals markets
and capacity expansions have been undertaken for these higher value-added
products.
PRIMARY METAL OPERATIONS
<TABLE>
<S> <C> <C> <C>
(millions of US$) 1997 1996 1995
Sales and operating revenues
Third parties 1,531 1,472 1,612
Intersector 1,530 1,653 2,286
Operating income 589 519 701
Shipments (kt)
Primary aluminum
Third parties 661 592 549
Intersector 891 1,008 1,193
Primary production (kt) 1,429 1,407 1,278
</TABLE>
Operating profits for the primary metal sector rose in 1997 to reflect higher
average aluminum ingot prices. Profits for this sector arise not only from
third-party sales but also from the sale of metal at market prices to the
Company's fabricating operations. The average realized price on third-party
sales of primary ingot was $1,803/t against $1,721/t in 1996 and $2,057/t in
1995.
Alumina is transferred from the Company's raw materials operations to its
smelters at market prices. Alumina prices were little-changed in 1997 from 1996
and still somewhat lower than in 1995. Alcan's average cost of production of
primary aluminum (mainly in the form of extrusion billet and sheet ingot),
including alumina at market prices, was $1,352/t in 1997 versus $1,328/t in 1996
and $1,336/t in 1995. The principal reason for the increase in 1997 was the cost
of refurbishing the idle potline at the Lynemouth smelter in the United Kingdom
in preparation for restart when market conditions allow. This project will be
completed in the first half of 1998.
PRIMARY PRODUCTION
Primary metal production in 1997 was slightly higher than the 1996 level due to
improved performance in Canada and increased water availability at the Company's
hydroelectric power plant in Scotland. Production in 1995 had been adversely
affected by about 75 kt due to a strike at the Company's Quebec smelters.
Alcan continues to have approximately 134 kt/y, or 8%, of its total rated
capacity temporarily idled. This capacity will be restarted only when warranted
by industry conditions. Alcan restarted 22 kt/y of capacity at its smelter in
Kitimat, British Columbia, in November 1997. This restart was one element of a
legal agreement with the government of British Columbia to settle the
outstanding issues related to the government's rejection of the Kemano
Completion Project. This 1997 B.C.-Alcan settlement agreement also provides for
replacement electricity, at attractive prices, to power a potential future
expansion of the Kitimat smelter, as well as improvements to an existing
electricity sale agreement. Further details are given on page 33.
In Quebec, the environmental review and community consultation processes
relating to the proposed 375-kt/y smelter at Alma have been successfully
completed. In February of this year, the Company announced its decision to
proceed with the project. Construction will commence in early March of 1998, and
the first metal will be produced in the fall of 2000.
23
<PAGE> 24
A new two-year power contract was negotiated for the Aratu smelter in Brazil.
Also in Brazil, flooding temporarily affected production at the Ouro Preto
smelter. In the U.S., Alcan has made progress in its efforts to find an
acceptable solution to the economic problems of the power supplier to the
Sebree, Kentucky, smelter. At Lynemouth in the U.K., a two-year capital program
to upgrade and refurbish the closed potline is nearing completion.
In October, Alcan announced the formation of a team to conduct a feasibility
study on a proposed 225-kt/y expansion of its Kitimat smelter in northern
British Columbia. A month later, a memorandum of understanding was signed with
the China National Non-Ferrous Metals Industry Corporation for a feasibility
study related to the potential construction of an aluminum smelter and power
station in Shanxi province, China. The results of both of these feasibility
studies are expected in the next 15 to 18 months.
SECONDARY PRODUCTION
In addition to its used beverage can recycling operations, which are included in
the fabricated products sector, Alcan recycles other forms of aluminum scrap at
four facilities in Italy, Thailand, the U.K. and the U.S. that have a total
capacity of 192 kt/y. Third-party sales, primarily of foundry alloys for the
automotive industry, were 82 kt in 1997 compared to 119 kt in 1996 and 124 kt in
1995. The decline in 1997 arises from the sale, late in 1996, of the Company's
facility at Guelph, Ontario. These secondary smelters also produce rolling ingot
for use in the Company's own fabricating operations.
FABRICATED PRODUCTS OPERATIONS
<TABLE>
<S> <C> <C> <C>
(millions of US$) 1997 1996 1995
Sales and operating
revenues 5,693 5,593 6,983
Operating income 290 127 346
Shipments (kt) 1,694 1,539 1,733
Fabrication of
customer-owned metal 276 258 225
Total volume 1,970 1,797 1,958
</TABLE>
Alcan's fabricated products volumes, including fabrication of customer-owned
metal, rose 10% in 1997 to a record level of just under two million tonnes, more
than compensating for the 1996 fall that was due mainly to the divestment of
downstream businesses. As well as enjoying strong market conditions in Europe
and North America, the Company achieved an increased share of a number of
important markets. Adjusting for the impact of divestments, fabricated products
sales have grown at a compound annual rate of 11% since 1993.
Operating income, at $290 million, was more than double the 1996 level as a
result of higher volumes and the impact on margins of increased capacity
utilization.
24
<PAGE> 25
ROLLED PRODUCTS
Following capacity expansions in North America and Europe in recent years,
Alcan's focus in these regions has been to consolidate its position as the
world's largest producer of rolled aluminum products. Total rolled products
volume, including conversion of customer-owned metal, rose to 1,752 tonnes, an
increase of 12% over 1996. Sales revenue increased 7% to $3,894 million, the
lower percentage gain reflecting lower realizations primarily due to weaker
European currencies. Rolled products shipments were 1,476 kt compared to 1,304
kt in 1996 and 1,337 kt in 1995. The average realized price of $2,637/t was down
from $2,797/t in 1996 and $2,950/t in 1995. The 1997 decline was attributable to
the lower dollar realizations on translation of European sales.
In North America, total demand increased some 5% and Alcan's shipments were up
slightly more at 5.7%. The beverage can market grew by some 1.6% with can sheet
shipments up about 2% over 1996. Alcan's shipments into domestic can sheet
markets increased over 5% indicating a gain in market share. Distributor markets
were also strong with industry demand up over 10% and Alcan increasing its
shipments by 36%. This was offset to some degree by a reduction in the Company's
shipments of building sheet. Capacity utilization was approximately 90%.
The European rolled products market recovered from its decline in 1996 to grow
by an estimated 6.5% in the year, reflecting stronger economic conditions in all
the major economies and a reversal of the customer destocking that occurred in
1996.
Alcan's European rolling operations increased shipments by 16% with improved
market share and higher exports. This sales growth was broadly-based, with the
most significant increases being in foil stock, can body stock, lithographic
sheet and painted products. German foil markets were particularly competitive
so, despite a significant increase in sales volumes, revenues were insufficient
to prevent a decline in profitability of those businesses. Higher sales volumes
have led to most plants operating at their manned capacity during 1997, although
there is still further potential for increased volumes, particularly at
Nachterstedt in eastern Germany where the program to modernize and expand the
plant has now been completed.
In South America, rolled products consumption continued to be led by can sheet,
which grew 45% in 1997 with the start-up of several new canning lines. During
the year, Alcan commenced a project to expand capacity at its Pindamonhangaba,
Brazil, rolling mill from 100 kt to 280 kt and to build a used beverage can
recycling facility. This mill is the only rolling mill in South America capable
of producing can sheet.
AUTOMOTIVE
During the year, Alcan continued to make significant gains in growing
its automotive sheet business capturing a majority of the autobody sheet
business in North America. Alcan is now the leading supplier of these products
to North American automotive manufacturers.
Ford Motor Company showcased its impressive Project 2000 PNGV (Partnership for a
New Generation of Vehicles) car to the public at the end of 1997. Produced under
a joint auto industry and U.S. government initiative aimed at the development of
fuel-efficient and environmentally-friendly cars, the vehicle improves fuel
consumption to 63 m.p.g. and achieves a 53% mass reduction in the body
structure. As a full development partner, Alcan, with its Aluminum Vehicle
Technology, helped Project 2000 produce the lightest mid-sized vehicle in the
world at just 2,000 lbs.
25
<PAGE> 26
The Ford Project 2000 and General Motors' EV1 (electric vehicle) programs bear
witness to the growing importance the automotive community is placing on
delivering earth- friendly, fuel-efficient vehicles for the next generation of
consumer transportation. Aluminum is positioned to play a key role in helping
the automakers achieve these goals. Alcan's strategic initiatives have put the
Company in a strong position to benefit from these growth opportunities.
OTHER FABRICATED PRODUCTS
Sales of other fabricated products have declined in recent years as a result of
the divestment of non-strategic downstream businesses, most of which was
completed by 1996. Shipments in 1997 were 218 kt compared to 235 kt in 1996 and
396 kt the year before. Sales revenues were also lower, at $1,187 million,
compared to $1,404 million in 1996 and $2,219 million in 1995. Average price
realizations were $5,445/t compared to $5,946/t and $5,611/t respectively in the
two previous years. The 1997 decline arose largely in Europe where currencies
were substantially lower against the U.S. dollar.
Alcan's North American cable business achieved further growth in the year.
Demand for overhead transmission cable and service cable increased moderately,
but building wire exhibited major growth resulting in near-record shipments and
increased profitability. It is expected that this trend will continue in 1998.
Alcan's architectural products business faced highly competitive business
conditions in France but performed well in other markets.
RECYCLING ACTIVITIES
Alcan's North American used beverage can (UBC) recycling plants again increased
output by 7.5%, to a record level of 18.5 billion UBCs processed, of which over
2.1 billion were collected by Alcan in Canada. In the U.K., where Alcan has the
only UBC recycling facility, the rate of beverage can recycling continued to
increase.
In Brazil, as part of Alcan's expansion of can sheet capacity, a new UBC
recycling operation was commissioned in February of 1998.
GEOGRAPHIC REVIEW
The improvement in earnings in most geographic regions that was seen towards the
end of 1996 continued into 1997, as customer destocking was reversed and
economic activity accelerated. The effects of the economic crisis in Asia and
slowdown in Japan were felt in the second half of the year.
Net income data included in this Geographic Review relate to Alcan's operations
in each region, whereas the shipment data are classified according to
third-party customer location. Net income, presented below, does not reflect the
prior year tax reassessment in Canada and related recovery from other
jurisdictions.
CANADA
<TABLE>
<CAPTION>
1997 1996 1995
(millions of US$)
<S> <C> <C> <C>
Net income* 245 175 216
Net income excluding
special items* 219 188 231
Shipments (kt)
Ingot products 101 120 120
Fabricated products 110 120 112
</TABLE>
26
<PAGE> 27
* Net income in 1995 and 1997 is before extraordinary items. Special items
include: 1997 prior year tax adjustments, 1996 rationalization expenses and loss
on early retirement of debt, and 1995 loss on early retirement of debt.
Earnings from Canadian operations improved in 1997 to reflect higher aluminum
ingot prices but remained below the 1995 level. Ingot prices in 1995 were
substantially higher than in 1996 and 1997. Income for 1995 was adversely
affected by some $70 million by a labour strike in Quebec. The Canadian economy
remained robust in 1997, with low interest rates spurring pent-up demand.
Domestic aluminum consumption recovered in the year to increase by 4% following
a 1% decline in 1996.
Expansion of aluminum smelting operations in Canada is planned. In February
1998, the go-ahead was given for a 375-kt smelter at Alma, Quebec. Also, a
feasibility study is under way on a possible 225-kt expansion in British
Columbia.
UNITED STATES
<TABLE>
<S> <C> <C> <C>
(millions of US$) 1997 1996 1995
Net income 136 70 123
Net income excluding
special items* 136 72 99
Shipments (kt)**
Ingot products 379 380 380
Fabricated products 905 874 918
</TABLE>
* Special items include: 1996 loss on sale of business and tax write-backs, and
1995 gain on sale of a business.
** Includes fabrication of customer-owned metal.
Net income in the U.S. almost doubled in 1997 principally due to the strong
increase in fabricated products sales volume.
The U.S. economy continued at a strong, steady pace and total aluminum
consumption was up 6.3% after a flat year in 1996. High levels of vehicle
production and construction activity were key drivers of growth, and can sheet
demand was better than expected with higher can volumes and a slowing in the
rate of downgauging. The aluminum cable market was also robust with a good
financial performance from Alcan Cable.
SOUTH AMERICA
<TABLE>
<S> <C> <C> <C>
(millions of US$) 1997 1996 1995
Net income 27 42 15
Net income excluding
special items* 17 29 15
Shipments (kt)
Ingot products 27 21 13
Fabricated products 146 153 133
</TABLE>
* Special items include: 1997 and 1996 gain on sale of businesses.
South America reported operating results lower than in 1996, largely due to
divestments. This resulted in a change in product mix with a higher proportion
of shipments in the form of primary metal. Adjusted for divestments, fabricated
products shipments increased by 18% in 1997.
27
<PAGE> 28
Despite very high real interest rates introduced in Brazil to protect the
currency in the wake of the Asian crisis, aluminum demand in the region grew by
about 10% in 1997, driven principally by can sheet. Strong regional growth is
expected again in 1998.
An expansion of Alcan's Pindamonhangaba rolling mill from 100 kt to 280 kt with
associated UBC recycling capacity is under way, with the increased capacity
becoming available in stages in 1998 and 1999.
EUROPE
<TABLE>
<S> <C> <C> <C>
(millions of US$) 1997 1996 1995
Net income 55 21 161
Net income excluding
special items* 55 26 161
Shipments (kt)**
Ingot products 106 89 95
Fabricated products 726 630 756
</TABLE>
* Special items include: 1996 rationalization expenses and tax write-backs.
** Includes fabrication of customer-owned metal.
Net income from European operations was sharply higher in 1997 due to a 16%
increase in fabricated products sales volume, offset in part by pressure on
profit margins in some markets.
All the major European economies experienced better economic conditions in 1997
than in the previous year. Aluminum consumption rebounded from the drop in 1996
to record growth estimated at 6.5%, led principally by the building,
transportation and can sheet markets. Alcan's shipments significantly exceeded
the market gains with sales volume up 16%, indicating an increased share in many
markets, as well as increased exports. Most European currencies weakened against
the U.S. dollar. It was not possible to pass on the resultant local-currency
increase in purchased metal costs to customers immediately, leading to downward
pressure on profit margins, especially during the early part of the year.
Shipments from German operations were up 24%, with increased exports helped by
the weaker Deutschmark. Foil markets were subject to increased competitive
pressure, resulting in a decline in earnings from those businesses. Utilization
of the newly expanded capacity at Norf and Nachterstedt improved during the
year.
In the U.K., the volume increase was more modest, at 4%, partly due to the
stronger pound sterling impacting export sales, and partly to production
constraints in the early part of the year. The refurbishment of the idled
potline at the Lynemouth smelter is near to completion and will allow the
restart of 66 kt of annual capacity when market conditions permit. Exceptional
costs of $18 million after tax are included in respect of this project.
Sales volumes from Alcan's operations in Italy were up 17% with strong sales of
painted sheet products.
In France, conditions in the building systems market continued to be highly
competitive, while the overseas business of Alcan France performed well in most
markets.
The alumina refinery in Ireland maintained its low conversion costs and achieved
its highest-ever production volume.
28
<PAGE> 29
ASIA AND PACIFIC
<TABLE>
<CAPTION>
1997 1996 1995
(millions of US$)
<S> <C> <C> <C>
Net income (Loss) (1) 13 43
Net income excluding
special items* 29 25 43
Shipments (kt)
Ingot products 245 199 193
Fabricated products 76 13 32
</TABLE>
* Special items include: 1997 construction contract losses and rationalization
expenses, and 1996 rationalization expenses.
Income, excluding special items, from this region was little changed in the
year, but the second half was marked by a deterioration in business conditions.
The increase in fabricated products shipments reflects the consolidation for the
full year of operations in Malaysia and Thailand following the restructuring of
Alcan's investments in the region in 1996, as well as increased exports into the
region. In the third quarter, a charge to net income of $30 million was made in
respect of construction contract losses and restructuring costs at the Company's
45.6%-owned related company in Japan, Nippon Light Metal Company, Ltd. (NLM).
Aluminum consumption grew by an estimated 3% in the region in 1997 but the trend
reversed sharply with strong growth in the first half of the year and a decline
in the second half. The outlook for 1998 remains uncertain.
In Japan, a consumer boom in the first quarter ahead of an increase in
consumption tax was followed by a severe downturn in demand with the
construction market particularly badly affected. Alcan's affiliate, NLM,
experienced a sharp drop in shipments to the building market and its building
products subsidiary is undergoing a major rationalization program. In addition,
a number of other restructuring and divestment measures are being initiated.
For Alcan's fabricating businesses in Southeast Asia, it was a difficult and
challenging year. The financial crisis, which hit the region in the second half
of 1997, saw currencies plunge and demand for aluminum products fall. In
Thailand, business was particularly hard hit by a collapse in large-scale
construction activity. In Malaysia, lower profits mainly reflected reduced
demand for sheet products. With this tough environment foreseen to continue in
1998, Alcan's businesses in the region are focusing on export opportunities,
cost reduction, and working capital management.
In Australia, earnings from alumina sales improved in 1997 to reflect higher
alumina prices.
Indian aluminum demand growth was lower than in recent years at about 3%. At
Indian Aluminium Company, Limited (Indal), 34.6%-owned by Alcan, prices and
margins were under pressure due to competitors' capacity expansions.
Accordingly, cost reduction and improved asset utilization have emerged as key
priorities for Indal.
29
<PAGE> 30
OTHER AREAS
<TABLE>
<CAPTION>
1997 1996 1995
(millions of US$)
<S> <C> <C> <C>
Net income 35 31 39
Net income excluding
special items* 35 35 39
Shipments (kt)
Ingot products -- 1 --
7 7 7
</TABLE>
* Special items in 1996 were mainly rationalization expenses.
Activities in other areas include raw materials operations in Jamaica, Guinea
and Ghana, and trading, shipping and insurance activities in Bermuda. Alcan also
sells metal in other parts of the world such as the Middle East and Africa.
LIQUIDITY AND CAPITAL RESOURCES
Cash generation in 1997 was slightly ahead of the previous year reflecting the
improvement in profitability. Calculated by taking the net income for the year
and adding back depreciation and deferred income taxes, cash generation was $913
million compared to $856 million in 1996 and $1,164 million in 1995.
Net operating working capital requirements increased $125 million in 1997,
following a $63-million decline the previous year. This was entirely due to
higher sales volumes with tight working capital management reflected by a fall
in the number of days' sales in working capital.
Following reassessment of income taxes relating to prior years, an amount of
$134 million was paid to the Canadian authorities to prevent the further accrual
of interest. Most of this is recoverable from other jurisdictions and has,
accordingly, been included in deferred receivables.
Disposal proceeds from the sale of non-strategic businesses and other assets
were $54 million, sharply lower than the 1996 level of $660 million as the
divestment program reached its conclusion.
Total borrowings were little changed during the year, following the substantial
debt repayments and preference share redemption of the preceding year. Cash and
time deposits increased $62 million in 1997, reaching a level of $608 million at
year-end. The ratio of total borrowings to equity was unchanged from the
previous year at 23:77 which compares to 29:71 at the end of 1995. The ratio
improves further, to 16:84, when adjusted for surplus cash reserves.
30
<PAGE> 31
INVESTMENT ACTIVITIES
Capital investment in the year was $641 million, an increase from $482 million
and $441 million in 1996 and 1995, respectively. On an ongoing basis,
approximately $450 to $500 million is required annually to maintain the
integrity and competitiveness of the Company's assets. Additional expenditures
in 1997 related primarily to the refurbishment and upgrade of the Lynemouth
smelter in the U.K. and the expansion of rolling capacity in Brazil.
In 1998, projects, other than to maintain existing assets, include the
continuation of the rolling mill expansion project in Brazil, with approximately
$150 million expenditure planned in the year. The Alma smelter project in
Quebec, commencing in March 1998, will entail an investment of $1.6 billion over
a three-year period. In addition, the Company intends to bid, in partnership
with Aluminum Company of America, for 70% of the state- owned aluminum assets in
Venezuela that are being privatized in 1998. If successful, Alcan would have an
effective 28% share of those assets.
The program of divestment of non-strategic businesses was largely completed by
early 1997. Over a three-year period, the Company made a number of disposals in
Canada, the U.S., the U.K., Australia and South America which generated proceeds
of $1.25 billion, used mainly to repay debt.
Financing Activities
Total borrowings at the end of 1997 were unchanged from 1996 at $1.5 billion and
$470 million less than in 1995. Alcan's debt to equity ratio of 23:77 is the
lowest in the Company's history and positions Alcan well to take advantage of
attractive investment opportunities as they become available.
The quarterly common share dividend was maintained at 15 cents per share in 1997
compared to 1996. The dividend was increased from 7.5 cents to 15 cents per
share in 1995. Total dividends paid to common shareholders were $136 million in
1996 and 1997 compared to $101 million in 1995. Preference share dividends were
$10 million versus $16 million in 1996 and $24 million in 1995.
Cash reserves totalled $608 million at the end of the year compared to $546
million and $66 million at the end of 1996 and 1995, respectively. In addition,
the Company continues to have a $1 billion global, multi-year and multi-currency
credit facility with a syndicate of major international banks. At December 31,
1997, no funds had been borrowed under this facility and the full amount was
available. The Company's investment grade credit rating also provides Alcan with
ready access to global capital markets through the issuance of debt and equity
instruments.
The Company expects that cash generated from operations, combined with the above
resources, will be more than sufficient to meet the cash requirements of
operations, planned capital expenditures and dividends. Existing resources, and
liquid capital markets also provide ample liquidity to meet unforeseen events.
31
<PAGE> 32
KEMANO COMPLETION PROJECT
In the third quarter of 1995, the Company wrote down its investment in the
Kemano Completion Project (KCP), following the project's cancellation by the
British Columbia government. After estimated disposal proceeds and site
restoration costs, the amount of the write-down was $420 million, resulting in
an extraordinary loss of $280 million on an after-tax basis.
In early 1997, Alcan filed, in the British Columbia Supreme Court, a writ of
summons naming the province of British Columbia as defendant in a lawsuit for
damages arising from the government's rejection of KCP. The Company continued
negotiations with the Province and, on August 5, 1997, a final settlement
agreement was signed that resolved the issues surrounding KCP.
The principal elements of the agreement were the provision of replacement power,
which would be made available if Alcan were to expand its operations in British
Columbia in the future, and the maintenance and enhancement of an existing
contract whereby Alcan sells power to B.C. Hydro. Alcan also agreed to
contribute to environmental improvements in the region. The agreement provided
for the issuance by the Province of Alcan's final Water Licence and Permit of
Occupation.
The availability of replacement power restores to Alcan the opportunity of a
low-cost smelter expansion in British Columbia. The Company believes that the
settlement agreement is in the best interests of shareholders.
Following the settlement, the power sales contract was split and the right to
sell 167 MW to B.C. Hydro, at the California-Oregon border, was sold to Enron
Corp., a U.S.-based energy provider. The gain on this sale, net of the write-off
of remaining KCP assets, amounting to $17 million, is one element of the
settlement that is realized and quantifiable. Accordingly, it has been treated
as an extraordinary gain.
ENVIRONMENTAL MATTERS
Alcan is committed to the continued environmental improvement of its operations
and products. The Company has devoted, and will continue to devote, significant
resources to control air and water pollutants, to dispose of wastes and to
remediate sites of past waste disposal. Alcan estimates that annual
environment-related spending, both capital and expense, will average about $190
million per year over the next several years and is not expected to have a
material effect on its competitive position. While the Company does not
anticipate a material increase in the projected level of such expenditures,
there is always a possibility that such increases may occur in the future in
view of the uncertainties associated with environmental exposures, including new
information concerning sites with identified environmental liabilities and
changes in laws and regulations and their application.
Included in total operating costs and expenses for the year are amounts for
safeguarding the environment and improving working conditions in plants. In
1997, such expenses totalled $88 million. This amount was largely for costs
associated with reducing air emissions and mitigating the impact of waste and
by-products. In 1995 and 1996, these expenses totalled $76 million and $96
million, respectively.
Included in capital spending in 1997 was $84 million for environment-related
projects. Such spending was largely on equipment designed to reduce or contain
air emissions generated by Alcan plants. Spending in 1995 and 1996 was $53
million and $60 million, respectively.
32
<PAGE> 33
RISKS AND UNCERTAINTIES
RISK MANAGEMENT
As a multinational company engaged in a commodity-related business, Alcan's
financial performance is heavily influenced by fluctuations in metal prices and
exchange rates. In order to reduce the associated risks, the Company uses a
variety of financial instruments and commodity contracts. All risk management
activities are governed by clearly defined policies and management controls.
Transactions in financial instruments for which there is no underlying exposure
are prohibited.
The decision whether and when to commence a hedge, along with the duration of
the hedge, can vary from period to period depending on market conditions and the
relative costs of various hedging instruments. The duration of a hedge is always
linked to the timing of the underlying transaction, with the connection between
the two constantly monitored to ensure effectiveness.
FOREIGN CURRENCY EXCHANGE
Exchange rate movements, particularly between the Canadian dollar and the U.S.
dollar, have an important impact on Alcan's results. For example, on an annual
basis, each US$0.01 permanent change in the value of the Canadian dollar has an
after-tax impact of approximately $11 million on the Company's long-term
profitability. Alcan benefits from a weakening in the Canadian dollar, but,
conversely, is disadvantaged if it strengthens. In order to reduce the
short-term volatility in costs arising from movements in exchange rates, Alcan
hedges a substantial portion of its Canadian dollar exposure through the use of
forward exchange contracts and currency options.
For further details, refer to note 16 of the financial statements.
From the beginning of 1998, following a change to the accounting standards of
the Canadian Institute of Chartered Accountants on accounting for income taxes,
the Company's deferred income tax liability is translated into U.S. dollars at
current rates. The resultant exchange gains or losses are included in income.
The impact of a US$0.01 movement in the value of the Canadian dollar on deferred
income taxes is approximately $6 million.
ALUMINUM PRICES
Depending on market conditions and logistical considerations, Alcan may sell
primary aluminum to third parties and may purchase primary and secondary
aluminum, including scrap, on the open market to meet the requirements of its
fabricating businesses. In addition, depending on pricing arrangements with
fabricated products customers, Alcan may hedge some of its purchased metal
supply in support of those sales.
Through the use of forward purchase and sale contracts and options, Alcan seeks
to limit the impact of lower metal prices, while retaining the ability to
benefit from higher prices. The Company may also, through a combination of
hedging instruments, establish a range of sales prices for a certain portion of
its future revenues.
Alcan estimates that on an annual basis, each $100 per tonne change in the price
of aluminum has an after-tax impact of approximately $100 million on the
Company's long-term profitability. For further details, refer to note 16 of the
financial statements.
33
<PAGE> 34
THE YEAR 2000 ISSUE
Alcan has a program which is well under way to examine and resolve Year 2000
issues as they affect the Company. The objective of the program is to ensure
that the business-and process-related systems technology relied on by the
Company accurately processes date-related data prior to, during and after, the
year 2000. The program includes the assessment of hardware and software as well
as coordination with third parties where electronic interaction is present. In
the event that Year 2000 issues could not be resolved in a timely fashion, the
Company could face potential business interruptions or delays. Alcan is
therefore dedicating substantial resources to its program to permit an orderly
transition through the year 2000. The Company has not completed its assessment
of Year 2000 issues. Based on information to date, the costs of remediation and
coordination are not expected to have a material adverse impact on the Company's
financial condition.
CAUTIONARY STATEMENT
Statements in this report that describe the Company's objectives, projections,
estimates, expectations or predictions of the future may be-looking statements'
within the meaning of applicable securities laws and regulations. The Company
cautions that such statements involve risk and uncertainty and that actual
results could differ materially from those expressed or implied. Important
factors that could cause differences include global aluminum supply and demand
conditions, aluminum ingot prices and other raw materials' cost or availability,
cyclical demand and pricing in the Company's principal markets, changes in
government regulations, economic developments within the countries in which the
Company conducts business, and other factors relating to the Company's
operations, such as litigation, labour negotiations and fiscal regimes.
CAPTIONS
At left, Michel Villeneuve, smelting operator at Grande-Baie Works in Quebec,
prepares for an anode change. The recent decision to proceed with the 375-kt/y
Alma smelter project in Quebec is in keeping with Alcan's strategic priority to
grow the power and smelting business, building on its low-cost position.
Aluminum's high strength-to-weight ratio, corrosion resistance, recyclability
and especially, today's all-important energy management are reasons why
automobile designers are choosing aluminum. Alcan, with its Aluminum Vehicle
Technology, helped the Ford Motor Company produce the Project 2000-sized
vehicle in the world at just 2,000 lbs.
Aluminum's inherently unique properties, its light-weight formability,
strength-to-weight ratio as well as high recyclability and residual value make
it the material of choice. Alcan, the world's largest producer of aluminum
rolled products, is committed to solidifying aluminum's position in end-use
markets such as transportation, and containers and packaging.
Throughout its worldwide operations, Alcan is committed to excellence in
research and technology, raw materials, chemicals, casting ingot, extrusion
billet, rolled products and downstream fabricated products. At the Petaling Jaya
plant in Malaysia, Harun Sonder Ali removes ingots after casting.
Aluminum cans are, by far, the most recycled beverage container of any kind and
Alcan is the world's largest can recycler. Aluminum's high salvage value
contributes to the success of many fund-raising efforts and substantially covers
the cost of community collection and recycling programs.
Alcan offers the technology and the metal to the automotive industry. Aluminum
is used in fin stock for heat exchanger components as well as engine parts such
as Alcan's high performance pistons made from advanced alloys for the latest
low-emission engines.
34
<PAGE> 35
Architects and designers are finding that aluminum's high strength-to-weight
ratio, versatility, durability and decorative potential offer unique advantages
over alternative materials.
For the packaging market, not only does aluminum provide superior barrier
qualities, blocking out light, oxygen and moisture, it also offers graphic
design possibilities as well as being economical, convenient and recyclable.
Aluminum's high electrical conductivity has long made it a material of choice.
Alcan is a major supplier to all sectors of the electrical industry and has
established growing relationships with power utilities, distributors and
equipment manufacturers.
GRAPHICS
WESTERN WORLD PRIMARY ALUMINUM SUPPLY AND DEMAND
Production plus imports from C.I.S.
Shipments (seasonally adjusted)
Demand eased from the high levels at the beginning of the year, then rebounded
in the fourth quarter. Supply increased steadily throughout the years.
THE ALUMINUM INVENTORIES AND INGOT PRICES
Total inventories (IPAI*, LME)
LME three-month prices
Inventories were declining for most of the year with prices trading in a narrow
range before coming under pressure towards year-end, as the decline in Asian
demand was left.
*International Primary Aluminum Institute
1997 WESTERN WORLD ALUMINUM CONSUMPTION BY END-USE MARKET (25.5 million tonnes)
9% Electrical
19% Containers and packaging
20% Building and construction
26% Transportation
26% Other
35
<PAGE> 36
NUMBER OF EMPLOYEES
Adjusted for business acquisitions and disposals (at year-end)
Productivity improved in 1997, as 10% more fabricated products shipments were
achieved with a similar number of employees.
thousands
1993 - 34.1
1994 - 33.0
1995 - 33.1
1996 - 32.7
1997 - 32.9
ALCAN'S 1997 FABRICATED AND NON-ALUMINUM SALES BY MARKET (US$5.8 billion)
10% Electrical
43% Containers and packaging
17% Building and construction
8% Transportation
22% Other
ALUMINUM SHIPMENTS AND PURCHASES
kt
Ingot products*
1993 - 887
1994 - 897
1995 - 801
1996 - 810
1997 - 858
Fabricated products**
1993 - 1,651
1994 - 1,952
1995 - 1,958
1996 - 1,797
1997 - 1,970
Total purchases
1993 - 865
1994 - 1,350
1995 - 1,365
1996 - 1,003
1997 - 1,254
* Includes primary and secondary ingot and scrap.
** Includes products fabricated from customer-owned metal.
Higher total shipments in 1997 resulted in an increase in third-party purchases
of aluminum.
36
<PAGE> 37
1997 ALUMINUM SHIPMENTS BY REGION
Western World consumption
North America - 38%
South America - 4%
Europe - 27%
Asia and Pacific - 30%
Africa - 1%
Alcan Group Shipments (includes Alcan's share of released companies)
North America - 53%
South America - 6%
Europe - 29%
Asia and Pacific - 12%
Africa - 0%
TOTAL BORROWINGS AND EQUITY (AT YEAR-END)
millions of US$
Total borrowings
1993 - 2,652
1994 - 2,485
1995 - 1,985
1996 - 1,516
1997 - 1,515
Equity (includes minority interests and preference shares)
1993 - 4,519
1994 - 4,689
1995 - 4,863
1996 - 4,937
1997 - 5,117
ratio
Ratio of total borrowings to equity
1993 - 37:63
1994 - 35:65
1995 - 29:71
1996 - 23:77
1997 - 23:77
Alcan's borrowings-to-equity ratio remained at a healthy level in 1997 despite
the working capital requirements of increased volume. Adjusted for surplus cash
at year-end, the ratio was 16:84.
37
<PAGE> 38
CASH FLOWS
million of US$
Sales of assets and investments
1993 - 31
1994 - 427
1995 - 168
1996 - 660
1997 - 54
Cash from operating activities
1993 - 444
1994 - 65
1995 - 1,044
1996 - 981
1997 - 719
Dividends paid
1993 - 85
1994 - 88
1995 - 125
1996 - 152
1997 - 149
Capital expenditures
1993 - 370
1994 - 356
1995 - 441
1996 - 482
1997 - 641
Cash generation remained in excess of capital expenditure and working capital
requirements. Debt levels were unchanged and cash reserves increased to $608
million.
38
<PAGE> 39
RESPONSIBILITY FOR THE ANNUAL REPORT
Alcan's management is responsible for the preparation, integrity and fair
presentation of the financial statements and other information in the Annual
Report. The financial statements have been prepared in accordance with
accounting principles generally accepted in Canada and include, where
appropriate, estimates based on the best judgement of management. They conform
in all material respects with accounting principles established by the
International Accounting Standards Committee. A reconciliation with accounting
principles generally accepted in the United States is also presented. Financial
and operating data elsewhere in the Annual Report are consistent with that
contained in the accompanying financial statements.
Alcan's policy is to maintain systems of internal accounting and administrative
controls of high quality consistent with reasonable cost. Such systems are
designed to provide reasonable assurance that the financial information is
accurate and reliable and that Company assets are adequately accounted for and
safeguarded. The Board of Directors oversees the Company's systems of internal
accounting and administrative controls through its Audit Committee, which is
comprised of directors who are not employees. The Audit Committee meets
regularly with representatives of the shareholders' independent auditors and
management, including internal audit staff, to satisfy themselves that Alcan's
policy is being followed.
The Audit Committee has recommended the reappointment of Price Waterhouse as the
independent auditors, subject to approval by the shareholders.
The financial statements have been reviewed by the Audit Committee and, together
with the other required information in this Annual Report, approved by the Board
of Directors. In addition, the financial statements have been audited by Price
Waterhouse, whose report is provided below.
<TABLE>
<S> <C>
Jacques Bougie, Suresh Thadhani,
Chief Executive Officer Chief Financial Officer
</TABLE>
February 12, 1998
39
<PAGE> 40
OECD GUIDELINES
The Organization for Economic Cooperation and Development (OECD), which consists
of 24 industrialized countries including Canada, has established guidelines
setting out an acceptable framework of reciprocal rights and responsibilities
between multinational enterprises and host governments.
Alcan supports and complies with the OECD guidelines, and the Company's own
statement, Alcan, Its Purpose, Objectives and Policies, is consistent Xwith
them. This statement, first published in 1978, has been distributed in 11
languages to Alcan employees worldwide to strengthen the awareness of the basic
principles and policies which have guided the conduct of Alcan's business over
the years.
The statement of Alcan's purpose, objectives and policies, the Company's annual
information form and its 10-K report are all available to shareholders on
request. The latter two documents contain a complete list of significant Alcan
Group companies worldwide.
AUDITORS' REPORT
TO THE SHAREHOLDERS OF ALCAN ALUMINIUM LIMITED
We have audited the consolidated balance sheet of Alcan Aluminium Limited as at
December 31, 1997, 1996 and 1995 and the consolidated statements of income,
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
1997, 1996 and 1995 and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 1997 in accordance
with Canadian generally accepted accounting principles.
<TABLE>
<S> <C>
Price Waterhouse Montreal, Canada
Chartered Accountants February 12, 1998
(except as to note 22 which is as of February 19, 1998)
</TABLE>
40
<PAGE> 41
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
(in millions of US$, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
<S> <C> <C> <C>
REVENUES
Sales and operating revenues $7,777 $7,614 $9,287
Other income 88 75 100
7,865 7,689 9,387
COSTS AND EXPENSES
Cost of sales and operating expenses 5,995 5,905 7,233
Depreciation (note 2) 436 431 447
Selling, administrative and general expenses 444 422 484
Research and development expenses 72 71 76
Interest 101 125 204
Other expenses 54 88 61
7,102 7,042 8,505
Income before income taxes and other items 763 647 882
Income taxes (note 5) 258 226 340
Income before other items 505 421 542
Equity loss (note 7) (33) (10) (3)
Minority interests (4) (1) 4
Net income before extraordinary item $ 468 $ 410 $ 543
Extraordinary gain (loss) (note 3) 17 -- (280)
Net income $ 485 $ 410 $ 263
Dividends on preference shares 10 16 24
Net income attributable to common shareholders $ 475 $ 394 $ 239
Net income per common share before
extraordinary item (note 2) $ 2.02 $ 1.74 $ 2.30
Extraordinary gain (loss) per common share (note 3) 0.07 -- (1.24)
Net income per common share (note 2) $ 2.09 $ 1.74 $ 1.06
Dividends per common share $ 0.60 $ 0.60 $ 0.45
</TABLE>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(in millions of US$)
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
<S> <C> <C> <C>
Retained earnings - beginning of year $3,217 $2,959 $2,821
Net income 485 410 263
3,702 3,369 3,084
Dividends - Common 136 136 101
- - - - Preference 10 16 24
Retained earnings - end of year (note 14) $3,556 $3,217 $2,959
</TABLE>
41
<PAGE> 42
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED BALANCE SHEET
(in millions of US$)
<TABLE>
<S> <C> <C> <C>
December 31 1997 1996 1995
ASSETS
Current assets
Cash and time deposits $ 608 $ 546 $ 66
Receivables 1,292 1,262 1,449
Inventories
Aluminum 800 736 888
Raw materials 307 325 321
Other supplies 234 244 281
1,341 1,305 1,490
3,241 3,113 3,005
Deferred charges and other assets 424 314 364
Investments (notes 7 and 9) 343 428 695
Property, plant and equipment (note 8)
Cost 11,715 11,517 11,735
Accumulated depreciation 6,257 6,047 6,063
5,458 5,470 5,672
Total assets $ 9,466 $ 9,325 $ 9,736
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Payables $ 1,052 $ 1,008 $ 1,107
Short-term borrowings 238 178 212
Income and other taxes 98 98 101
Debt maturing within one year (note 11) 36 19 28
1,424 1,303 1,448
Debt not maturing within one year
(notes 11 and 16) 1,241 1,319 1,745
Deferred credits and other liabilities
(note 10) 715 770 701
Deferred income taxes 969 996 979
Minority interests (note 9) 43 73 28
Shareholders' equity
Redeemable non-retractable preference shares
(note 12) 203 203 353
Common shareholders' equity
Common shares (note 13) 1,251 1,235 1,219
Retained earnings (note 14) 3,556 3,217 2,959
Deferred translation adjustments (note 15) 64 209 304
4,871 4,661 4,482
5,074 4,864 4,835
Commitments and contingencies (note 17)
Total liabilities and shareholders' equity $ 9,466 $ 9,325 $ 9,736
</TABLE>
<TABLE>
<S> <C>
Approved by the Board:
Jacques Bougie, W.R.C. Blundell,
Director Director
</TABLE>
42
<PAGE> 43
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions of US$)
<TABLE>
<CAPTION>
Year ended December 31 1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 485 $ 410 $ 263
Adjustments to determine cash from operating activities:
Extraordinary loss - - 280
Depreciation 436 431 447
Deferred income taxes (8) 15 174
Equity income 39 21 12
Change in receivables (30) 187 (38)
Change in inventories (37) 185 (107)
Change in payables 44 (99) 11
Change in income and other taxes payable - (3) 78
Changes in operating working capital due to:
Deferred translation adjustments (93) (29) 33
Acquisitions, disposals and
consolidations/deconsolidations (9) (178) (77)
Change in deferred charges, other assets, deferred credits
and other liabilities - net (139) 25 30
Gain on sales of businesses - net (12) (8) (34)
Other - net 43 24 (28)
Cash from operating activities 719 981 1,044
FINANCING ACTIVITIES
New debt 22 56 90
Debt repayments (25) (459) (738)
(3) (403) (648)
Short-term borrowings - net 90 (11) 4
Common shares issued 16 16 24
Shares issued by subsidiary companies - - 1
Redemption of preference shares - (150) -
Dividends - Alcan shareholders (including preference) (146) (152) (125)
- Minority interests (3) - -
Cash used for financing activities (46) (700) (744)
INVESTMENT ACTIVITIES
Property, plant and equipment (641) (482) (390)
Investments - - (38)
Other - - (13)
(641) (482) (441)
Net proceeds from disposal of businesses and other assets 54 660 168
Cash from (used for) investment activities (587) 178 (273)
Effect of exchange rate changes on cash and time deposits (12) (1) 1
Increase in cash and time deposits 74 458 28
Cash of companies consolidated (deconsolidated) - net (12) 22 11
Cash and time deposits - beginning of year 546 66 27
Cash and time deposits - end of year $ 608 $ 546 $ 66
</TABLE>
43
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of US$, except where indicated)
1. NATURE OF OPERATIONS
Alcan is engaged, together with subsidiaries and related companies, in all
aspects of the aluminum business on an international scale. Its operations
include the mining and processing of bauxite, the basic aluminum ore; the
refining of bauxite into alumina; the generation of electric power for use in
smelting aluminum; the smelting of aluminum from alumina; the recycling of used
and scrap aluminum; the fabrication of aluminum, aluminum alloys and
non-aluminum materials into semi-fabricated and finished products; the
distribution and marketing of aluminum and non-aluminum products; and, in
connection with its aluminum operations, the production and sale of industrial
chemicals. Alcan, together with its subsidiaries and related companies, has
bauxite holdings in six countries, produces alumina in nine, smelts primary
aluminum in six, operates aluminum fabricating plants in 14 and has sales
outlets and maintains warehouse inventories in the larger markets of the world.
Alcan also operates a global transportation network that includes bulk cargo
vessels, port facilities and freight trains.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements, which are expressed in U.S. dollars, the
principal currency of Alcan's business, are prepared in accordance with
generally accepted accounting principles (GAAP) in Canada. They include the
accounts of companies controlled by Alcan, virtually all of which are majority
owned. Joint ventures, irrespective of percentage of ownership, are
proportionately consolidated to the extent of Alcan's participation.
Consolidated net income also includes Alcan's equity in the net income or loss
of companies owned 50% or less where Alcan has significant influence over
management, and the investment in these companies is increased or decreased by
Alcan's share of their undistributed net income or loss and deferred translation
adjustments since acquisition. Investments in companies in which Alcan does not
have significant influence over management are carried at cost less amounts
written off.
Intercompany balances and transactions, including profits in inventories, are
eliminated.
FOREIGN CURRENCY
The financial statements of self-sustaining foreign operations are translated
into U.S. dollars at prevailing exchange rates. Differencesarising from exchange
rate changes are included in the Deferred translationadjustments (DTA) component
of Common shareholders' equity. If there is areduction in the Company's
ownership in a foreign operation, the relevantportion of DTA is recognized in
Other income or Other expenses at that time.
Gains or losses on forward exchange contracts or currency options, all of which
serve to hedge certain future identifiable foreign currency exposures, are
included, together with related hedging costs, in Sales and operating revenues
or Cost of sales and operating expenses, as applicable, concurrently with
recognition of the underlying items being hedged.
44
<PAGE> 45
Unrealized gains or losses on currency swaps, all of which are used to hedge
certain identifiable foreign currency debt obligations, are recorded
concurrently with the unrealized gains or losses on the debt obligations being
hedged.
Other gains and losses from foreign currency denominated items are included in
Other income or Other expenses.
COMMODITY CONTRACTS AND OPTIONS
Gains or losses on forward metal contracts and options, all of which serve to
hedge certain future identifiable aluminum price exposures, are included,
together with related hedging costs, in Sales andoperating revenues or Cost of
sales and operating expenses, as applicable, concurrently with recognition of
the underlying items being hedged.
INTEREST RATE SWAPS
Net cash flows related to interest rate swaps are recorded in Interest
concurrently with the interest expense on the underlying debt.
INVENTORIES
Aluminum, raw materials and other supplies are stated at cost (determined for
the most part on the monthly average method) or net realizable value,
whichever is the lower.
DEPRECIATION
Depreciation is calculated on the straight-line method using rates based on
the estimated useful lives of the respective assets. The principal rates are
2 1/2% for buildings and range from 1% to 4% for power assets and 3% to 12 1/2%
for chemical, smelter and fabricating assets.
ENVIRONMENTAL COSTS AND LIABILITIES
Environmental expenses are accrued when it is probable that a liability for
past events exists. For future removal and site restoration costs, provision
is made in a systematic manner by periodic charges to income, except for assets
that are no longer in use, in which case full provision is charged
immediately to income. Environmental expenses are normally included in Cost of
sales and operating expenses except for large, unusual amounts which are
included in Other expenses. Accruals related to environmental costs are
included in Payables and Deferred credits and other liabilities.
Environmental expenditures of a capital nature that extend the life, increase
the capacity or improve the safety of an asset or that mitigate or prevent
environmental contamination that has yet to occur are included in Property,
plant and equipment and are depreciated generally over the remaining useful
life of the underlying asset.
POST-RETIREMENT BENEFITS
The costs of post-retirement benefits other than pensions are recognized on
an accrual basis over the working lives of employees.
NET INCOME PER SHARE
Net income per common share is calculated by dividing Net income attributable
to common shareholders by the average number of common shares outstanding
(1997: 227.0 million; 1996: 226.2 million; 1995: 225.3 million).
45
<PAGE> 46
3.EXTRAORDINARY ITEMS - KEMANO COMPLETION PROJECT
An extraordinary gain of $26 ($17 after tax or 7 cents per common share) in the
fourth quarter of 1997 arises from the sale of a portion of a contract to supply
power to B.C. Hydro, net of additional write-downs of remaining Kemano
Completion Project ("KCP") assets. In addition to the commitment by the
government of British Columbia to supply replacement power at attractive rates
for a possible smelter expansion, the settlement of the dispute regarding the
cancellation of KCP allowed the Company to sell to a third party the right to
supply a specified amount of power to B.C. Hydro under an ongoing contract. An
extraordinary loss of $420 ($280 after tax or $1.24 per common share) was
recorded in 1995 following the cancellation of the project.
4. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
DEFERRED INCOME TAXES
Under Canadian GAAP, deferred income taxes are measured at tax rates prevailing
at the time the provisions for deferred taxes are made. Deferred income taxes
for U.S. GAAP are revalued each period using currently enacted tax rates.
Under Canadian GAAP, deferred income taxes of operations using the temporal
method are translated at historical exchange rates, while under U.S. GAAP,
deferred income taxes of all operations are translated at current exchange
rates.
Beginning in 1998, the Company will adopt the new accounting standards approved
by the Canadian Institute of Chartered Accountants dealing with accounting for
income taxes. These new standards are substantially identical to U.S. GAAP as
contained in FASB Statement No. 109.
CURRENCY TRANSLATION
Under Canadian GAAP, unrealized exchange gains and losses on translation of
long-term monetary items are deferred and amortized over the life of those
items, whereas, under U.S. GAAP, such gains and losses are absorbed in income
immediately.
46
<PAGE> 47
RECONCILIATION OF CANADIAN AND U.S. GAAP
<TABLE>
<CAPTION>
1997 1996 1995
As U.S. As U.S. As U.S.
Reported GAAP Reported GAAP Reported GAAP
<S> <C> <C> <C> <C> <C> <C>
Net income from
continuing operations
before extraordinary
item $ 468 $ 504 $ 410 $ 420 $ 543 $ 561
Extraordinary gain (loss) 17 17 -- -- (280) (295)
Net income* $ 485 $ 521 $ 410 $ 420 $ 263 $ 266
Net income attributable
to common
shareholders $ 475 $ 511 $ 394 $ 404 $ 239 $ 242
Extraordinary gain (loss)
per common share $ 0.07 $ 0.07 $ -- $ -- $(1.24) $(1.31)
Net income per
common share
(basic and diluted) $ 2.09 $ 2.25 $ 1.74 $ 1.79 $ 1.06 $ 1.07
Deferred income taxes
- December 31 $ 969 $ 684 $ 996 $ 755 $ 979 $ 762
Retained earnings
- December 31 $3,556 $3,895 $3,217 $3,520 $2,959 $3,252
Deferred translation
adjustments (DTA)
- December 31 $ 64 $ 3 $ 209 $ 141 $ 304 $ 214
</TABLE>
* In 1997, $37 ($2 in 1996 and $1 in 1995) of the net difference between
"As Reported" and "U.S. GAAP" relates to accounting for deferred income
taxes. In 1997, $23 of this difference arises from changes in tax rates and
regulations enacted during the year.
The principal items included in Deferred income taxes under U.S. GAAP are:
<TABLE>
<CAPTION>
December 31
1997 1996 1995
<S> <C>
Liabilities:
Depreciation $ 767 $ 810 $ 844
Undistributed earnings of equity
companies 29 60 86
Inventory valuation 52 43 48
Other 64 77 57
912 990 1,035
Assets:
Tax benefit carryovers 114 121 184
Accounting provisions not currently
deductible for tax 164 180 199
Other 26 18 9
304 319 392
Valuation allowance
(amount not likely to be recovered) 76 84 119
228 235 273
Net deferred income
tax liability $ 684 $ 755 $ 762
</TABLE>
47
<PAGE> 48
The difference between DTA under Canadian GAAP and U.S. GAAP arises
principally from the impact of FASB Statement No. 109 and from the different
treatment of exchange on long-term debt at January 1, 1983, resulting from
the adoption of accounting standards on foreign currency translation.
Net income (Loss) from continuing operations, before cumulative effect on
prior years of accounting change, on a U.S. GAAP basis for the years 1994 and
1993 was $175 and $(89), respectively, compared to $96 and $(104),
respectively, as reported. Net income (Loss) from continuing operations,
before cumulative effect on prior years of accounting change, per common share
on a U.S. GAAP basis for the years 1994 and 1993 was $0.69 and $(0.47),
respectively, compared to $0.34 and $(0.54), respectively, as reported.
5. INCOME TAXES
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income before income taxes and other items
Canada $ 360 235 $ 300
Other countries 403 412 582
763 647 882
Current income taxes
Canada 251 87 29
Other countries 15 124 137
266 211 166
Deferred income taxes
Canada (28) (5) 114
Other countries 20 20 60
(8) 15 174
Income tax provision $ 258 226 $ 340
</TABLE>
The composite of the applicable statutory corporate income tax rates in
Canada is 40.3% (1996: 40.1%; 1995: 40.3%). The following is a reconciliation
of income taxes calculated at the above composite statutory rates with the
income tax provision:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income taxes at the composite statutory rate $ 307 $ 259 $ 355
Differences attributable to:
Exchange translation items 13 11 17
Unrecorded tax benefits on losses - net (12) (33) (5)
Investment and other allowances (32) (24) (24)
Large corporations tax 3 3 6
Withholding taxes 5 6 6
Reduced rate or tax exempt items (3) 17 (21)
Foreign tax rate differences 1 (9) (6)
Prior years' tax adjustments (31) (11) (6)
Other - net 7 7 18
Income tax provision $ 258 $ 226 $ 340
</TABLE>
In 1997 $19 ($7 in 1996; $2 in 1995) of benefits related to income tax loss
carryforwards were recorded in deferred income tax expense.
Based on rates of exchange at December 31, 1997, additional benefits of
approximately $60 relating to prior and current years' tax losses will only be
recognized in income when realized.
48
<PAGE> 49
In 1997, income taxes on Canadian operations for the years 1988 to 1991 were
reassessed by the Canadian tax authorities. Most of the additional taxes and
interest relate to transfer pricing issues and are recoverable in other
countries. Existing provisions are adequate to cover any amounts not
recoverable.
6. JOINT VENTURES
The activities of the Company's major joint ventures are the procurement and
processing of raw materials in Australia, Brazil and Guinea, as well as aluminum
rolling operations in Germany and the United States.
Alcan's proportionate interest in all joint ventures is included in the
consolidated financial statements. Summarized financial information relating to
Alcan's share of these joint ventures is provided below.
Because most of the activities of the Company's joint ventures relate to
supplying the Company's other operations, the portion of the Company's
third-party revenues, and related costs and expenses, conducted through joint
ventures is insignificant.
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Financial position at December 31
Inventories $ 189 $ 159 $ 158
Property, plant and equipment - net 943 1,001 1,037
Other assets 60 95 114
Total assets $1,192 $1,255 $1,309
Short-term debt $ 38 $ 17 $ 15
Debt not maturing within one year 100 106 102
Other liabilities 156 152 145
Total liabilities $ 294 $ 275 $ 262
Cash flow information for the year ended
December 31
Cash from financing activities $ 10 $ 12 $ 18
Cash used for investment activities $ (78) $ (76) $ (28)
7. INVESTMENTS
Companies accounted for under the equity method $ 337 $ 421 $ 688
Other investments - at cost,
less amounts written off 6 7 7
$ 343 $ 428 $ 695
</TABLE>
The activities of the major equity-accounted companies are diversified aluminum
operations in Japan and India. On December 31, 1997, the quoted market value of
the Company's investments in Nippon Light Metal Company, Ltd. (NLM) and Indian
Aluminium Company, Limited (Indal) exceeds their book value by $36. Their
combined results of operations and financial position are included in the
summary below. In the third quarter of 1997, the Company recorded a special
after-tax charge of $30, included in equity loss, reflecting the Company's share
of construction contract losses and restructuring provisions in NLM. The 1996
information for NLM excludes, from the date of acquisition, the interest in
those subsidiaries acquired by the Company from NLM as a result of the
restructuring of the Company's holdings in Asia, explained in note 9.
49
<PAGE> 50
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Results of operations for the year ended December 31
Revenues $5,572 $6,483 7,896
Costs and expenses 5,622 6,457 7,816
Income (Loss) before income taxes (50) 26 80
Income taxes 35 65 84
Net income (Loss) $ (85) $ (39) $ (4)
Alcan's share of Net income (Loss) $ (33) $ (10) $ (3)
Dividends received by Alcan $ 6 $ 11 $ 9
Financial position at December 31
Current assets $2,600 $3,013 3,842
Current liabilities 2,519 2,735 3,438
Working capital 81 278 404
Property, plant and equipment 1,737 1,916 2,347
Other assets - net 335 261 153
2,153 2,455 2,904
Debt not maturing within one year 1,376 1,422 1,351
Net assets $ 777 $1,033 1,553
Alcan's equity in net assets $ 337 $ 421 $ 688
</TABLE>
8. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cost
Land and property rights $ 219 $ 236 $ 247
Buildings, machinery and equipment 10,914 10,886 11,201
Construction work in progress 582 395 287
$11,715 $11,517 $11,735
</TABLE>
Accumulated depreciation relates primarily to Buildings, machinery and
equipment. Capital expenditures for maintaining the productive capacity of the
Company's existing assets are estimated at $450 to $500 per year. In addition,
the Company expects to spend approximately $150 in 1998 on the continuation of
its rolling mill expansion in Brazil.
50
<PAGE> 51
9. RESTRUCTURING OF HOLDINGS IN ASIA
In the third quarter of 1996, the Company sold its equity-accounted investment
in Toyo Aluminium K.K. (Toyal) to the Company's Japanese affiliate, Nippon Light
Metal Company, Ltd. (NLM), for cash proceeds of $207. The after-tax gain of
$128, including deferred translation adjustments, on this sale was deferred.
Approximately one half of the gain is being recognized over the period related
to the utilization of the underlying assets by Toyal, while the remainder will
be recognized if certain non-depreciable assets are sold by Toyal. In 1997, $7
of the gain was recognized ($3 in 1996).
In November 1996, the Company and NLM created a new company, Alcan Nikkei Asia
Holdings Ltd. (ANAH), owned 60% by Alcan and 40% by NLM. In exchange for shares
in ANAH, the Company contributed a portion of its holdings in NLM while NLM
contributed its shareholdings in a number of companies located in Malaysia,
Thailand and China. The Company's effective ownership of ANAH, including the
interests held through NLM, is 78.2% and the minority interest in ANAH's
subsidiaries is presented on this basis.
As a result of this transaction, Alcan's effective ownership in NLM fell from
47.4% to 45.6%. The gain on the partial sale of the Company's investment in NLM
was deferred and is being recognized over the period related to the utilization
or disposition of the underlying assets by ANAH's subsidiaries. In 1997, $1 of
the after-tax gain was recognized.
Included in the Company's balance sheet at the date of acquisition in 1996 were
the following assets and liabilities of ANAH's Asian subsidiaries:
<TABLE>
<S> <C>
Working capital $ 49
Property, plant and equipment 99
Other assets 9
157
Long-term debt 4
Minority interest 71
Net assets $ 82
</TABLE>
10. DEFERRED CREDITS AND OTHER LIABILITIES
Deferred credits and other liabilities comprise the following elements:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Deferred revenues $ 56 $ 74 $ 87
Deferred profit on sale of investments 106 113 -
Post-retirement and post-employment benefits 390 405 426
Environmental liabilities 37 32 38
Rationalization costs 32 31 27
Claims 40 39 41
Other 54 76 82
$715 $770 $701
</TABLE>
51
<PAGE> 52
11. DEBT NOT MATURING WITHIN ONE YEAR
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Alcan Aluminium Limited
Deutschmark bank loans, due 1998/2005
(DM381 million) (a) $ 213 $ 251 $ 276
5.875% Debentures, due 2000 (b) 150 150 150
5.375% Swiss franc bonds, due 2003 (c) 123 132 154
CARIFA loan, due 2006 (d) 60 60 60
9.5% Debentures, due 2010 (e) 100 100 100
9.625% Sinking fund debentures,
due 2000/2019 (e) 150 150 150
8.875% Debentures, due 2022 (f) 150 150 150
Other debt, due 2001 7 8 8
12.45% Canadian dollar debentures,
due 1997 (c)(g) -- -- 92
9.1% Debentures, due 1998 (g) -- -- 125
9.2% Debentures, due 2001 (g) -- -- --
Alcan Aluminum Aluminum Corporation
7.25% Debentures, due 1999 (h) 100 100 100
Other debt, due 1998/2004 3 6 6
6.375% Debentures, due 1997 (g)(h) -- -- 150
British Alcan Aluminium plc and
subsidiary companies
Other debt -- 7 --
Bank loans -- -- 54
Alcan Deutschland GmbH and subsidiary companies
6.78% Bank loans -- 2 4
5.65% Bank loans, due 2001 (DM15 million) 8 10 11
Bank loans, due 2000/2001 (DM101 million) (a) 56 65 38
Queensland Alumina Limited
Bank loans, due 2000/2003 (a) 79 71 67
Other companies
Bank loans, due 1998/2011 (a) 51 48 48
4% Eurodollar exchangeable debentures,
due 2003 (i) 24 24 24
Other debt, due 2002/2036 3 4 6
1,277 1,338 1,773
Debt maturing within one year included
in current liabilities (36) (19) (28)
$1,241 $1,319 $1,745
</TABLE>
[FN]
(a) Interest rates fluctuate principally with the lender's prime commercial
rate, the commercial bank bill rate, or are tied to LIBOR rates.
(b) Through an interest rate swap the Company had effectively converted the
interest on the debentures to a rate tied to U.S. LIBOR for the period to
October 1996.
(c) The Canadian dollar debentures were issued as CAN$125 million and the Swiss
franc bonds as SFr178 million. Both debts were swapped for $107 and $105 at
effective interest rates of 9.82% and 8.98%, respectively.
(d) The Caribbean Basin Projects Financing Authority (CARIFA) loan bears
interest at a rate related to U.S. LIBOR. The interest was swapped until April
1996 for a fixed rate of 6.74%. </FN>
52
<PAGE> 53
(e) The Company can redeem the 9.5% debentures between the years 2000 and 2007
at amounts declining from 104% to 100% of the principal and can redeem the
9.625% debentures between the years 1999 and 2009 at amounts declining from 105%
to 100% of the principal. In certain circumstances prior to January 30, 2000,
for the 9.5% debentures, or prior to July 30, 1999, for the 9.625% debentures,
the holders may retract the debentures at 100%.
(f) The interest was swapped until 1995 at a rate tied to U.S. LIBOR. The
Company has the right to redeem the debentures during the years 2002 to 2012 at
amounts declining from 104% to 100% of the principal amount.
(g) The Canadian dollar 12.45% debentures due 1997, the 9.1% debentures due
1998, the 9.2% debentures due 2001 (callable in 1998) and the 6.375% debentures
due 1997 were effectively extinguished in February 1996, February 1996, December
1995 and September 1996, respectively, through transactions whereby the Company
placed government securities in trusts, the sole purpose of which was to fund
the repayment of the debentures and related interest.
(h) The following is summarized consolidated financial information for Alcan
Aluminum Corporation, a wholly-owned subsidiary which consolidates virtually all
of the Company's operations in the United States:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Results of operations for the year ended December 31
Revenues $3,624 $3,389 $3,937
Costs and expenses 3,438 3,242 3,708
Income before income taxes 186 147 229
Income taxes 81 55 86
Net income $ 105 $ 92 $ 143
Financial position at December 31
Current assets $ 801 $ 868 $ 615
Current liabilities 376 578 353
Working capital 425 290 262
Property, plant and equipment - net 736 756 795
Other liabilities - net (199) (186) (138)
962 860 919
Debt not maturing within one year 102 105 256
Net assets $ 860 $ 755 $ 663
</TABLE>
The above figures are prepared using the accounting principles followed by the
Company (see note 2), except that inventories have been valued principally by
the last-in, first-out (LIFO) method. Results of operations in 1995 included net
afzter-tax gains on disposals of businesses of $24.
(i) Debenture holders are entitled to receive at their option 1,772 common
shares held by the Company in NLM, a related company, in exchange for each ten
thousand dollar principal amount of debentures. The Company can redeem the
debentures between the years 1998 and 1999 at amounts declining from 100.5% to
100% of the principal.z
The Company has swapped, to 1998, the interest payments on $100 of its floating
rate debt in exchange for fixed interest payments.
Based on rates of exchange at year-end, debt repayment requirements over the
next five years amount to $36 in 1998, $128 in 1999, $216 in 2000, $102 in 2001
and $79 in 2002.
53
<PAGE> 54
12. PREFERENCE SHARES
AUTHORIZED:
An unlimited number of Preference Shares issuable in series. All shares are
without nominal or par value.
AUTHORIZED AND OUTSTANDING:
In each of the years 1997, 1996 and 1995, there were authorized and outstanding
5,700,000 series C, 1,700,000 series D, and 3,000,000 series E, redeemable non-
retractable preference shares with stated values of $106, $43 and $54,
respectively.
The 300 series G redeemable non-retractable preference shares with stated value
of $150, authorized and outstanding throughout 1995, were redeemed in August
1996.
Outstanding shares are eligible for quarterly dividends as follows:
- - - - Preference, series C, D and E - An amount related to the average of the
Canadian prime interest rates for series C and E, and the average of the U.S.
prime interest rates for series D, quoted by two major Canadian banks for stated
periods.
Outstanding shares may be called for redemption at the option of the Company on
30 days' notice as follows:
- - - - Preference, series C and E (denominated in Canadian dollars) and D
(denominated in U.S. dollars) - At $25.00 per share.
Any partial redemption must be made on a pro rata basis or by lot.
13. COMMON SHARES
The authorized common share capital is an unlimited number of common shares
without nominal or par value. Changes in outstanding common shares are
summarized below:
<TABLE>
<CAPTION>
Number (in thousands) Stated Value
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of year 226,620 225,913 224,685 $1,235 $1,219 $1,195
Issued for cash:
Executive share option plan 550 549 1,039 11 11 18
Dividend reinvestment and
share purchase plans 174 158 189 5 5 6
Outstanding - end of year 227,344 226,620 225,913 $1,251 $1,235 $1,219
</TABLE>
54
<PAGE> 55
Under the executive share option plan, certain employees may purchase common
shares at market value on the effective date of the grant of each option. The
average price of the shares covered by the outstanding options is CAN$38.64 per
share. These options vest generally over a period of four years from the grant
date and expire at various dates during the next 10 years. Changes in the number
of shares under option are summarized below:
<TABLE>
<CAPTION>
Number (in thousands) 1997 1996 1995
<S> <C> <C> <C>
Outstanding - beginning of year 3,715 3,473 3,934
Granted 1,100 853 752
Exercised (550) (549) (1,039)
Cancelled (72) (62) (174)
Outstanding - end of year 4,193 3,715 3,473
</TABLE>
At December 31, 1997, the Company had reserved for issue under the executive
share option plan 19,401,061 shares.
The Company does not recognize compensation expense for options granted under
the executive share option plan. If the Company had elected to recognize
compensation expense for these options in accordance with the methodology
prescribed by Statement No. 123 of the U.S. Financial Accounting Standards
Board, net income would have been lower by $10, or $0.04 per share, ($8, or
$0.04 per share in 1996 and $7, or $0.03 per share, in 1995).
SHAREHOLDER RIGHTS PLAN
In 1990, shareholders approved a plan whereby each common share of the Company
carries one right to purchase additional common shares. The plan, with certain
amendments, was reconfirmed at the 1995 Annual Meeting. The rights under the
plan are not currently exercisable but may become so upon the acquisition by a
person or group of affiliated or associated persons ("Acquiring Person") of
beneficial ownership of 20% or more of the Company's outstanding voting shares
or upon the commencement of a takeover bid. Holders of rights, with the
exception of an Acquiring Person, in such circumstances will be entitled to
purchase from the Company, upon payment of the exercise price (currently
$100.00), such number of additional common shares as can be purchased for twice
the exercise price based on the market value of the Company's common shares at
the time the rights become exercisable.
The plan has a permitted bid feature which allows a takeover bid to proceed
without the rights under the plan becoming exercisable, provided that it meets
certain minimum specified standards of fairness and disclosure, even if the
Board does not support the bid.
The rights expire in 1999, but may be redeemed earlier by the Board, with the
prior consent of the holders of rights or common shares, for 1 cent per right.
In addition, should a person or group of persons acquire outstanding voting
shares pursuant to a permitted bid or a share acquisition in respect of which
the Board has waived the application of the plan, the Board shall be deemed to
have elected to redeem the rights at 1 cent per right.
14. RETAINED EARNINGS
Consolidated retained earnings at December 31, 1997, includes $138 of
undistributed earnings of companies accounted for under the equity method and
$2,124 of undistributed earnings of subsidiaries and joint ventures, some part
of which may be subject to certain taxes and other restrictions on distribution
to the parent company; no provision is made for such taxes because these
earnings are reinvested in the business.
55
<PAGE> 56
15. CURRENCY GAINS AND LOSSES
The following are the amounts recognized in the financial statements:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Currency gains (losses) excluding realized
deferred translation adjustments:
Forward exchange contracts and currency options $ 22 $ 40 $ (56)
Other 1 (4) (1)
$ 23 $ 36 $ (57)
Deferred translation adjustments:
Balance - beginning of year $ 209 $ 304 $ 292
Effect of exchange rate changes (143) (94) 12
Gains realized (2) (1) -
Balance - end of year $ 64 $ 209 $ 304
</TABLE>
16. FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS
In conducting its business, the Company uses various instruments, including
forward contracts and options, to manage the risks arising from fluctuations in
exchange rates, interest rates and aluminum prices. All such instruments are
used for risk management purposes only.
FINANCIAL INSTRUMENTS - CURRENCY
The Company seeks to manage the risks arising from movements in exchange rates
on identifiable firm cost commitments (principally Canadian dollar) and certain
foreign currency denominated revenues. A combination of forward exchange
contracts and options, covering periods of up to three years, are used to manage
these risks.
At December 31, 1997, the contract amount of forward exchange contracts
outstanding used to hedge future firm cost commitments was $1,296 ($1,791 in
1996 and $2,017 in 1995) while the contract amount of purchased options (range
forward contracts) outstanding used to hedge future firm cost commitments was
$1,512 ($614 in 1996 and $550 in 1995). At December 31, 1997, the contract
amount of outstanding forward exchange contracts used to hedge future revenues
was $268 ($387 in 1996 and $256 in 1995).
The market value of outstanding forward exchange contracts related to hedges of
costs or revenues at December 31, 1997, was such that if these contracts had
been closed out, the Company would have paid $24 (received $17 in 1996 and
received $37 in 1995). Based on prevailing market prices, if the currency option
contracts (range forward contracts) had been closed out on December 31, 1997,
the Company would have paid $36 (received $1 in 1996 and paid $2 in 1995).
Unrealized gains and losses on outstanding forward contracts and options are not
recorded in the financial statements until maturity of the underlying
transactions.
In addition, certain intercompany foreign currency denominated loans are hedged
through the use of forward exchange contracts. At December 31, 1997, the
contract amount of such forward contracts was $220 ($231 in 1996 and $236 in
1995) and the market value was such that if these contracts had been closed out,
the Company would have received $16 (received $2 in 1996 and received $4 in
1995).
56
<PAGE> 57
Included in Deferred charges and other assets was an amount of $2 in 1996 and
$3 in 1995 consisting of net losses on terminated forward exchange contracts and
options used to hedge future costs. These deferred charges were included in Cost
of sales and operating expenses at the same time as the underlying transactions
being hedged were recognized.
FINANCIAL INSTRUMENTS - DEBT NOT MATURING WITHIN ONE YEAR
As explained in note 11, the 5.375% swiss franc bonds of
principal amount sfr178 have been swapped for $105 at an effective interest rate
of 8.98%. if the swap had been closed out at December 31, 1997, the Company
would have received a net amount of $15 ($32 in 1996 and $47 in 1995) of which
an amount of $18 related to the swap of the principal ($27 in 1996 and $49 in
1995) has been recorded in Deferred charges and other assets.
FINANCIAL INSTRUMENTS - INTEREST RATES
As stated in note 11, the Company sometimes enters into interest rate swaps to
manage funding costs as well as the volatility of interest rates. Net cash flows
related to swaps are recorded in interest concurrently with the interest expense
on the underlying debt.
Changes in the fair value of the interest rate swaps are not recognized on a
mark to market basis since these relate specifically to interest costs on
identifiable debt.
If all interest rate swap agreements had been closed out on December 31, 1997,
the Company would have paid $2 ($6 in 1996 and $12 in 1995), based on prevailing
interest rates.
COMMODITY CONTRACTS - METAL
Depending on supply and market conditions, as well as for logistical reasons,
the Company may sell primary metal to third parties and may purchase primary and
secondary aluminum on the open market to meet its fabricated products
requirements. in addition, the Company may hedge certain commitments arising
from pricing arrangements with some of its customers. Through the use of forward
purchase and sales contracts and options, the Company seeks to limit the
negative impact of low metal prices whilst retaining most of the benefit from
higher metal prices.
At December 31, 1997, the Company had outstanding forward purchase contracts
covering 418,800 tonnes (474,300 tonnes in 1996 and 472,400 tonnes at December
31, 1995), maturing at various dates in 1998, 1999 and 2000 (1997, 1998 and 1999
at December 31, 1996 and 1996 and 1997 at December 31, 1995). in addition, the
Company held call options outstanding for 657,800 tonnes (591,300 tonnes at
December 31, 1996 and 146,500 tonnes at December 31, 1995) maturing at various
dates in 1998 and 1999 (1997 and 1998 at December 31, 1996 and 1996 and 1997 at
December 31, 1995).
At December 31, 1997, the Company held put options, maturing in 1998 and 1999,
which establish a minimum price for the metal component of 60,000 tonnes of the
Company's future sales.
57
<PAGE> 58
Included in Receivables or Deferred charges and other assets is $33 ($25 in 1996
and $7 in 1995) representing the net cost of outstanding options.
The option premiums paid and received, together with the realized gains or
losses on the contracts, are included in Sales and operating revenues or Cost of
sales and operating expenses, as applicable, concurrently with recognition of
the underlying items being hedged.
Based on metal prices prevailing on December 31, 1997, if all commodity forward
purchase contracts and options had been closed out, the Company would have paid
$9 (received $20 in 1996 and received $5 in 1995).
COUNTERPARTY RISK
As exchange rates, interest rates and metal prices fluctuate, the above
contracts will generate gains and losses that will be offset by changes in the
value of the underlying items being hedged. the Company may be exposed to losses
in the future if the counterparties to the above contracts fail to perform.
However, the Company is satisfied that the risk of such non-performance is
remote, due to its controls on credit exposures.
FINANCIAL INSTRUMENTS - MARKET VALUE
On December 31, 1997, the fair value of the Company's long-term debt totalling
$1,277 ($1,338 in 1996 and $1,773 in 1995) was $1,321 ($1,363 in 1996 and $1,868
in 1995), based on market prices for the Company's fixed rate securities and the
book value of variable rate debt. The market values of all other financial
assets and liabilities and preference shares are approximately equal to their
carrying values.
17. COMMITMENTS AND CONTINGENCIES
The company has guaranteed the repayment of approximately $10 of indebtedness by
third parties. Alcan believes that none of these guarantees is likely to be
invoked. Commitments with third parties and certain related companies for
supplies of goods and services are estimated at $52 in 1998, $41 in 1999, $26 in
2000, $23 in 2001, $23 in 2002, and $99 thereafter. Total fixed charges from
these entities were $9 in 1997, $14 in 1996 and $62 in 1995.
Minimum rental obligations are estimated at $55 in 1998, $52 in 1999, $27 in
2000, $16 in 2001, $16 in 2002 and $26 thereafter. Total rental expenses
amounted to $70 in 1997, $80 in 1996 and $94 in 1995.
Alcan, in the course of its operations, is subject to environmental and other
claims, lawsuits and contingencies. Accruals have been made in specific
instances where it is probable that liabilities will be incurred and where such
liabilities can be reasonably estimated. Although it is possible that
liabilities may arise in other instances for which no accruals have been made,
the Company does not believe that such an outcome will significantly impair its
operations or have a material adverse effect on its financial position.
In addition, see reference to income taxes in note 5, capital expenditures in
note 8, debt repayments in note 11, and financial instruments and commodity
contracts in note 16.
58
<PAGE> 59
18. SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income statement
Interest on long-term debt $ 91 $109 $175
Capitalized interest (2) -- (2)
Balance sheet
Payables
Accrued employment costs $170 $167 $150
Short-term borrowings (principally from banks) 238 178 212
At December 31, 1997, the weighted average
interest rate on short-term borrowings was
5.3% (4.8% in 1996 and 7.3% in 1995).
Statement of cash flows
Interest paid $101 $133 $218
Income taxes paid 261 214 71
All time deposits qualify as cash equivalents.
</TABLE>
59
<PAGE> 60
19. POST-RETIREMENT BENEFITS
PENSION PLANS
Alcan and its subsidiaries have established pension plans in the principal
countries where they operate, for the greater part contributory and generally
open to all employees. Most plans provide pension benefits that are based on the
employee's highest average eligible compensation during any consecutive 36-month
period before retirement. Plan assets consist primarily of listed stocks and
bonds.
Alcan's funding policy is to contribute the amount required to provide for
benefits attributed to service to date, with projection of salaries to
retirement, and to amortize unfunded actuarial liabilities for the most part
over periods of 15 years or less.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost for the year $ 73 $ 69 $ 76
Interest cost on projected benefit obligation 231 225 215
Actual return on assets (607) (505) (483)
Variance of actual return from expected long-term
rate of 7.3% (7.3% in 1996 and 7.5% in 1995)
being deferred, and amortization of gains and
losses and of prior service costs 327 241 221
Net cost for the year $ 24 $ 30 $ 29
Included in the net cost for 1996 are $27
of settlement gains ($16 in 1995)
and $22 of curtailment losses ($1 in 1995)
related to the disposal of certain businesses.
The plans' funded status at December 31 was:
Actuarial accumulated benefit obligation,
which is substantially vested* $3,156 $3,136 $2,818
Plan assets at market value $4,231 $3,986 $3,447
Actuarial projected benefit obligation based
on average compensation growth of 4.9%
(4.9% in 1996 and 4.8% in 1995) and
discount rate of 6.8% (7.2% in 1996
and 7.1% in 1995) 3,550 3,506 3,210
Plan assets in excess of projected benefit
obligation 681 480 237
Unamortized actuarial gains - net** (943) (779) (495)
Unamortized prior service cost** 276 313 287
Unamortized portion of net surplus
at January 1, 1986** (48) (71) (93)
Net pension liability in balance sheet $ (34) $ (57) $ (64)
</TABLE>
* Includes commitments for which the actuarial accumulated benefit
obligation exceeds plan assets by $135 in 1997 ($147 in 1996 and $108 in
1995). These have been fully provided in the Company's accounts
(see note 10).
** Being amortized over expected average remaining service of employees,
generally 15 years.
60
<PAGE> 61
OTHER
The Company provides life insurance benefits under some of its retirement plans.
Certain early retirement arrangements also provide for medical benefits,
generally only until the age of 65. These plans are not funded.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost for the year $ 4 $ 4 $ 4
Interest cost on accumulated benefit obligation 12 12 13
Amortization of gains and losses (6) (5) (15)
Total cost for the year $10 $11 $ 2
</TABLE>
Included in the total cost for 1996 is $1 of curtailment gains ($12 in 1995)
related to the disposal of certain businesses.
Accumulated benefit obligation (ABO) based on average compensation growth of
4.9% (5.2% in 1996 and 5.2% in 1995) and discount rate of 6.7% (7.0% in 1996 and
7.0% in 1995):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Active employees
- not fully eligible $ 58 $ 61 $ 66
- fully eligible 28 29 28
Retired employees 86 88 97
Total ABO 172 178 191
Unamortized gains - net 31 24 11
ABO in balance sheet $203 $202 $202
</TABLE>
The assumed health care cost trend rate used in calculating the ABO was 8.5% in
1997 (8.5% in 1996 and 11% in 1995), decreasing gradually to 4.5% (5.0% in 1996
and 5.0% in 1995) in 2006. If the average of such rate was increased by 1%, the
ABO would increase by approximately $8 and the periodic cost of post-retirement
benefits other than pensions would increase by approximately $1 per year.
61
<PAGE> 62
20. INFORMATION BY GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
Location 1997 1996 1995
<S> <C> <C> <C> <C>
Canada $1,926 $2,169 $2,740
Sales and operating
revenues - subsidiaries United States 541 499 552
South America 41 25 41
Europe 226 216 222
Asia and Pacific 68 78 96
All other 350 349 338
Sub-total 3,152 3,336 3,989
Consolidation eliminations (3,152) (3,336) (3,989)
Total $- $ - $ -
Sales to subsidiary companies
are made at fair market prices
recognizing volume, continuing
of supply and other factors. Canada $1,169 $1,210 $1,258
Sales and operating
revenues - third parties United States 3,063 2,871 3,306
South America 395 579 719
Europe 2,609 2,633 3,632
Asia and Pacific 515 290 326
All other 26 31 46
Total $7,777 $7,614 $9,287
Net income* Canada $ 245 $ 175 $ 216
United States 136 70 123
South America 27 42 15
Europe 55 21 161
Asia and Pacific (1) 13 43
All other 35 31 39
Consolidation eliminations (29) 58 (54)
Net income before
extraordinary item 468 410 543
Extraordinary gain (loss)
- Canada 17 - (280)
Total $ 485 $ 410 $ 263
Total Assets
at December 31 Canada $4,077 $4,159 $4,033
United States 1,848 1,820 1,679
South America 729 739 854
Europe 3,162 3,189 3,520
Asia and Pacific 833 983 1,078
All other 498 477 463
Consolidation eliminations (1,681) (2,042) (1,891)
Total $9,466 $9,325 $9,736
Capital expenditures
and investments Canada $ 186 $ 143 $ 99
United States 71 55 63
South America 118 43 45
Europe 206 185 196
Asia and Pacific 21 7 3
All other 39 49 35
Total $ 641 $ 482 $ 441
</TABLE>
62
<PAGE> 63
<TABLE>
<S> <C> <C> <C>
Average number Canada 11 11 11
of employees United States 4 4 4
(in thousands) South America 3 4 6
Europe 11 12 15
Asia and Pacific 2 1 -
All other 2 2 3
Total 33 34 39
</TABLE>
* If presented to reflect the effect of prior years' income tax reassessments
described in note 5, net income in Canada in 1997 would be reduced by $109 and
increased by $93 in the United States and $16 in Europe.
21. INFORMATION BY PRODUCT SECTORS
The following presents selected information by major product sector, viewed on a
stand- alone basis. Transactions between product sectors are conducted on an
arm's length basis and reflect market prices. Thus, profit on all alumina
produced by the Company, whether sold to third parties or used in the Company's
smelters, is included in the raw materials and chemicals sector. Similarly,
income from primary metal operations is mainly profit on metal produced by the
Company, whether sold to third parties or used in the Company's fabricating
operations. Income from fabricated products businesses represents only the
fabricating profit on rolled products and downstream businesses.
The information presented below is consistent with recently approved accounting
standards in Canada and the U.S. that take effect in 1998 and deal with
segmented information. The Company will adopt all provisions of the new
standards in 1998.
<TABLE>
<CAPTION>
Sales and operating revenues
Intersector Third parties Operating income
1997 1996 1995 1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Raw materials
and chemicals $ 520 $ 507 $ 555 $ 536 $ 529 $ 618 $ 125 $ 95 $ 203
Primary metal 1,530 1,653 2,286 1,531 1,472 1,612 589 519 701
Fabricated products - - - 5,693 5,593 6,983 290 127 346
Intersector and
other items (2,050) (2,160) (2,841) 17 20 74 (18) 147 (49)
$ - $ - $ - $7,777 $7,614 $9,287 $ 986 $ 888 $1,201
Reconciliation to net income
before extraordinary item
Equity loss (33) (10) (3)
Corporate offices (126) (117) (111)
Interest (101) (125) (204)
Income taxes (258) (226) (340)
Net income before extraordinary item $ 468 $ 410 $ 543
Total Assets at December 31 1997 1996 1995
Raw materials and chemicals $1,409 1,357 $1,354
Primary metal 2,880 2,795 2,971
Fabricated products 4,318 4,198 4,737
Cash, equity companies and other items 859 9 75 674
$9,466 $9,325 $9,736
</TABLE>
63
<PAGE> 64
22. SUBSEQUENT EVENT
On February 19, 1998, the Company announced it was proceeding with the
construction of a 375,000-tonne smelter at Alma, Quebec. Total cost is
estimated at $1,600, most of which will be incurred over the next three
years. Approximately $220 is expected to be spent in 1998.
64
<PAGE> 65
QUARTERLY FINANCIAL DATA
(in millions of US$, except where indicated)
<TABLE>
<CAPTION>
First Second Third Fourth Year
(unaudited)
<S> <C> <C> <C> <C> <C>
1997
Revenues $1,898 $2,030 $1,965 $1,972 $7,865
Cost of sales and operating
expenses 1,450 1,552 1,504 1,489 5,995
Depreciation 107 110 106 113 436
Income taxes 45 72 78 63 258
Other items 153 180 197 178 708
Net income before
extraordinary item 143 116 80 129 468
Extraordinary gain -- -- -- 17 17
Net income(1) $ 143 $ 116 $ 80 $ 146 $ 485
Dividends on preference shares 3 2 2 3 10
Net income attributable to
common shareholders $ 140 $ 114 $ 78 $ 143 $ 475
Net income before extraordinary
item per common share
(in US$)(2) $ 0.62 $ 0.50 $ 0.34 $ 0.56 $ 2.02
Extraordinary gain per
common share (in US$) -- -- -- 0.07 0.07
Net income per common
share (in US$)(2) $ 0.62 $ 0.50 $ 0.34 $ 0.63 $ 2.09
Net income before extraordinary
item under U.S. GAAP(3) $ 142 $ 141 $ 90 $ 131 $ 504
Net income under U.S. GAAP(3) $ 142 $ 141 $ 90 $ 148 $ 521
1996
Revenues $2,015 $1,972 $1,881 $1,821 $7,689
Cost of sales and operating
expenses 1,528 1,501 1,460 1,416 5,905
Depreciation 110 108 108 105 431
Income taxes 69 74 57 26 226
Other items 183 177 155 202 717
Net income(1) $ 125 $ 112 $ 101 $ 72 $ 410
Dividends on preference shares 5 5 4 2 16
Net income attributable to
common shareholders $ 120 $ 107 $ 97 $ 70 $ 394
Net income per common share
(in US$)(2) $ 0.53 $ 0.47 $ 0.43 $ 0.31 $ 1.74
Net income under U.S. GAAP(3) $ 120 $ 118 $ 111 $ 71 $ 420
</TABLE>
65
<PAGE> 66
<TABLE>
<CAPTION>
1995
<S> <C> <C> <C> <C> <C>
Revenues $2,455 $2,449 $2,288 $2,195 $9,387
Cost of sales and operating expenses 1,874 1,843 1,750 1,766 7,233
Depreciation 109 113 115 110 447
Income taxes 102 99 86 53 340
Other items 196 214 194 220 824
Net income before extraordinary item 174 180 143 46 543
Extraordinary loss - - 280 - 280
Net income (Loss)(1) $ 174 $ 180 $ (137) $ 46 $ 263
Dividends on preference shares 6 6 5 7 24
Net income (Loss) attributable to
common shareholders $ 168 $ 174 $ (142) $ 39 $ 239
Net income before extraordinary item
per common share (in US$)(2) $0.75 $0.77 $ 0.61 $0.17 $ 2.30
Extraordinary loss per common share
(in US$) - - 1.24 - 1.24
Net income (Loss) per common share
(in US$)(2) $0.75 $0.77 $(0.63) $0.17 $ 1.06
Net income before extraordinary
item under U.S. GAAP(3) $ 176 $ 172 $ 119 $ 94 $ 561
Net income (Loss) under U.S. GAAP(3) $ 176 $ 172 $ (176) $ 94 $ 266
</TABLE>
[FN]
(1) The first quarter of 1997 included an after-tax gain of $10 from the sale
of a business and $26 from a favourable tax adjustment related to prior years.
The third quarter of 1997 included a special charge of $30 after tax related to
Alcan's share of contract losses and restructuring provisions at 45.6% owned
Nippon Light Metal Company, Ltd., in Japan.
(1) The first quarter of 1996 included an after-tax charge of $12 on the in-
substance defeasance of debentures. The third quarter of 1996 included an after-
tax gain of $8 from the sale of businesses. (1) The first quarter of 1995
included an after-tax gain of $24 from the sale of Alcan's metal distribution
business in the U.S. The second, third and fourth quarters of 1995 included
after-tax charges of $3, $4 and $8 respectively on the in-substance defeasance
of debentures.
(2) Net income (Loss) per common share calculations are based on the average
number of common shares outstanding in each period.
(3) See note 4 to the consolidated financial statements for explanation of
differences between Canadian and U.S. GAAP.
</FN>
66
<PAGE> 67
ELEVEN-YEAR SUMMARY
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT ITEMS
(in millions of US$)
REVENUES
Sales and operating revenues 7,777 7,614 9,287 8,216 7,232 7,596 7,748 8,757 8,839 8,529 6,797
Other income 88 75 100 109 75 69 82 162 208 97 81
Total revenues 7,865 7,689 9,387 8,325 7,307 7,665 7,830 8,919 9,047 8,626 6,878
COSTS AND EXPENSES
Cost of sales and operating
expenses 5,995 5,905 7,233 6,740 6,002 6,300 6,455 6,996 6,682 6,072 5,117
Depreciation 436 431 447 431 443 449 429 393 333 316 296
Selling, administrative and
general expenses 444 422 484 528 551 596 635 659 600 525 447
Research and development expenses 72 71 76 72 99 125 131 150 136 132 95
Interest 101 125 204 219 212 254 246 197 130 137 177
Other expenses 54 88 61 95 106 118 163 65 62 91 113
Income taxes 258 226 340 112 (13) (17) (104) 126 350 497 230
Equity income (loss) (33) (10) (3) (29) (12) 53 89 211 97 97 35
Minority interests (4) (1) 4 (3) 1 (5) -- (1) (16) (22) (5)
Net income (Loss) before
extraordinary item 468 410 543 96 (104) (112) (36) 543 835 931 433
Extraordinary gain (loss) 17 -- (280) -- -- -- -- -- -- -- --
Net income (Loss) 485 410 263 96 (104) (112) (36) 543 835 931 433
Preference dividends 10 16 24 21 18 23 20 22 21 30 36
Net income (Loss) attributable to
common shareholders 475 394 239 75 (122) (135) (56) 521 814 901 397
CONSOLIDATED BALANCE SHEET ITEMS
(in millions of US$)
Operating working capital 1,483 1,461 1,731 1,675 1,314 1,460 1,717 1,842 1,774 1,764 1,735
Property, plant and equipment - net 5,458 5,470 5,672 5,534 6,005 6,256 6,525 6,167 5,260 4,280 3,965
Total assets 9,466 9,325 9,736 10,003 9,812 10,154 10,843 10,681 9,518 8,627 7,693
Total debt 1,515 1,516 1,985 2,485 2,652 2,794 3,024 2,648 1,734 1,530 1,558
Deferred income taxes 969 996 979 914 888 955 1,126 1,092 1,044 1,006 754
Preference shares 203 203 353 353 353 353 212 212 212 211 405
Common shareholders' equity 4,871 4,661 4,482 4,308 4,096 4,266 4,730 4,942 4,610 4,109 3,565
PER COMMON SHARE (in US$)
Net income (Loss) before
extraordinary item 2.02 1.74 2.30 0.34 (0.54) (0.60) (0.25) 2.33 3.58 3.85 1.68
Net income (Loss) 2.09 1.74 1.06 0.34 (0.54) (0.60) (0.25) 2.33 3.58 3.85 1.68
Dividends paid 0.60 0.60 0.45 0.30 0.30 0.45 0.86 1.12 1.12 0.59 0.39
Common shareholders' equity 21.43 20.57 19.84 19.17 18.28 19.06 21.17 22.19 20.30 18.06 15.05
Market price - NYSE close 27.69 33.63 31.13 25.38 20.75 17.63 20.00 19.50 22.88 21.75 17.92
</TABLE>
67
<PAGE> 68
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
(in thousands of tonnes)
Consolidated aluminum shipments
Ingot products* 858 810 801 897 887 870 866 857 743 832 787
Fabricated products 1,694 1,539 1,733 1,763 1,560 1,389 1,333 1,488 1,518 1,446 1,410
Fabrication of customer-mowned metal 276 258 225 189 91 206 145 81 75 80 99
Total aluminum shipments 2,828 2,607 2,759 2,849 2,538 2,465 2,344 2,426 2,336 2,358 2,296
Consolidated primary aluminum
production 1,429 1,407 1,278 1,435 1,631 1,612 1,695 1,651 1,643 1,619 1,587
Consolidated aluminum purchases 1,254 1,003 1,365 1,350 865 675 591 646 718 716 593
Consolidated aluminum inventories
(end of year) 451 408 449 435 403 418 463 447 539 480 496
Primary aluminum capacity **
Consolidated subsidiaries 1,558 1,561 1,561 1,561 1,711 1,711 1,676 1,685 1,685 1,680 1,680
Total consolidated subsidiaries and
related companies 1,695 1,698 1,712 1,712 1,862 1,862 1,827 1,836 1,836 1,831 1,861
OTHER STATISTICS
Cash from operating activities
(in millions of US$) 719 981 1,044 65 444 465 659 760 970 1,370 879
Capital expenditures
(in millions of US$) 641 482 441 356 370 474 880 1,367 1,466 676 415
Ratio of total borrowings to equity (%) 23:77 23:77 29:71 35:65 37:63 37:63 37:63 33:67 26:74 26:74 27:73
Average number of employees
(in thousands) 33 34 39 42 46 49 54 57 57 56 63
Common shareholders - registered
(in thousands at end of year) 21 22 23 26 28 32 34 38 40 41 46
Common shares outstanding
(in millions at end of year) 227 227 226 225 224 224 223 223 227 228 237
Registered in Canada (%) 61 61 61 55 59 69 68 54 44 54 44
Registered in the United States (%) 39 39 38 44 40 30 31 44 54 43 53
Registered in other countries (%) - - 1 1 1 1 1 2 2 3 3
Return on average common
shareholders' equity (%) 10 9 5 2 (3) (3) (1) 11 19 24 12
Before extraordinary item (%) 10 11
</TABLE>
[FN]
** Includes primary and secondary ingot and scrap. All per-share amounts reflect
the three-for-two share splits on May 5, 1987, and May 9, 1989.
** Primary aluminum capacity has been restated to reflect better the actual
production levels achieved over a period of time. See note 4 to the consolidated
financial statements for U.S. GAAP information.
** Includes primary and secondary ingot and scrap. All per-share amounts reflect
the three-for-two share splits on May 5, 1987, and May 9, 1989.
** Primary aluminum capacity has been restated to reflect better the actual
production levels achieved over a period of time. See note 4 to the consolidated
financial statements for U.S. GAAP information.
</FN>
68
<PAGE> 69
CORPORATE GOVERNANCE
The business and affairs of Alcan are managed by its Board of Directors
acting through the Management of the Company. The Directors and Officers of
Alcan are named on the opposite page. In discharging its duties and
obligations, the Alcan Board acts in accordance with the provisions of the
Canada Business Corporations Act, the Company's constituting documents and
by-laws and other applicable legislation and Alcan policies.
Alcan does not have a controlling shareholder nor do any of the Directors
represent the investment of any minority shareholder.
Corporate governance has traditionally received the active attention of Alcan's
Board. For instance, an intensive review of the guiding principles of Alcan
conducted by the Board in the 1970s led to the publication in 1978 of a policy
statement entitled Alcan, Its Purpose, Objectives and Policies, which has
remained fundamentally unchanged. This statement represents the basic business
principles that guide Alcan employees in conducting a widespread international
enterprise and has helped Alcan achieve public understanding and trust. To that
original document, a Code of Conduct has been added to reinforce it with more
detailed guidelines for Alcan employees as well as consultants and contractors
engaged by Alcan.
The Montreal and Toronto stock exchanges now require a formal description of
corporate governance practices by all listed companies. Alcan's disclosure in
this regard is published in the Management Proxy Circular issued in connection
with the forthcoming Annual Meeting; a copy is available from Shareholder
Services at the address on page 65.
Committees of the Board (described briefly below) assist the Board in carrying
out its functions and make recommendations to it on various matters. Membership
of these Committees is indicated on the opposite page.
The Corporate Governance Committee has the responsibility for reviewing Board
practices and performance, candidates for directorship and Board Committee
membership. It also considers recommendations from the Personnel Committee
regarding Board compensation and the appointments of the Chairman of the Board
and the Chief Executive Officer.
The Audit Committee assists the Board in fulfilling its functions relating to
corporate accounting and reporting practices as well as financial and accounting
controls, in order to provide effective oversight of the financial reporting
process; it also reviews financial statements as well as proposals for issues of
securities.
The Environment Committee has the responsibility for reviewing policy,
management practices and performance of Alcan in environmental matters.
The Personnel Committee has the responsibility for reviewing all personnel
policy and employee relations matters (including compensation), and for making
recommendations to the Corporate Governance Committee on Board compensation and
on the appointments of the Chairman of the Board and the Chief Executive
Officer. All matters relating to the Chief Executive Officer are dealt with by
non-executive members of the Committee.
A special committee composed of members of the Personnel Committee, ezxcept the
Chief Executive Officer, administers the Alcan Executive Share Option Plan.
69
<PAGE> 70
DIRECTORS AND OFFICERS (AS AT FEBRUARY 12, 1998)
DIRECTORS
DR. JOHN R. EVANS, C.C.1, 3, 8
Chairman of the Board
of Alcan Aluminium Limited,
Montreal
Age 68, director since 1986
SONJA I. BATA, O.C.5, 7
Director of Bata Limited,
Toronto
Age 71, director since 1979
W. R. C. BLUNDELL, O.C.2, 7
Director of various companies,
Toronto
Age 70, director since 1987
JACQUES BOUGIE, O.C.3, 5
President and Chief Executive Officer
of Alcan Aluminium Limited,
Montreal
Age 50, director since 1989
WARREN CHIPPINDALE, F.C.A., C.M.1, 4, 7
Director of various companies,
Montreal
Age 69, director since 1986
D. TRAVIS ENGEN1, 5, 7
Chairman, President and Chief Executive Officer of ITT Industries, Inc.,
New York
Age 53, director since 1996
ALLAN E. GOTLIEB, C.C.3, 5, 7
Director of various companies,
Toronto
Age 69, director since 1989
J. E. NEWALL, O.C.3, 6, 7
Vice Chairman and Chief Executive Officer of NOVA Corporation,
Calgary
Age 62, director since 1985
DR. PETER H. PEARSE, C.M.5, 7
President of Pearse Ventures Limited,
Vancouver
Age 65, director since 1989
70
<PAGE> 71
SIR GEORGE RUSSELL, C.B.E.1, 3, 7
Chairman of 3i Group plc,
London
Age 62, director since 1987
GUY SAINT-PIERRE, O.C.1, 7
Chairman of SNC-Lavalin Group Inc.,
Montreal
Age 63, director since 1994
GERHARD SCHULMEYER1, 7
President and Chief Executive Officer
of Siemens Nixdorf Informations systeme AG,
Munich
Age 59, director since 1996
OFFICERS
JACQUES BOUGIE
President and Chief Executive Officer
ROBERT L. BALL
Executive Vice President,
Corporate Development and Technology
CLAUDE CHAMBERLAND
Executive Vice President,
Smelting and Power
JEAN-PIERRE M. ERGAS
Executive Vice President,
Europe
RICHARD B. EVANS
Executive Vice President,
Fabricated Products - North America
EMERY P. LEBLANC
Executive Vice President,
Raw Materials and Chemicals
EVERALDO N. SANTOS
Executive Vice President,
South America
BRIAN W. STURGELL
Executive Vice President,
Asia/Pacific
71
<PAGE> 72
DANIEL GAGNIER
Vice President, Corporate and
Environmental Affairs
GASTON OUELLET
Vice President, Human Resources,
Occupational Health and Safety
P. K. PAL
Vice President, Chief Legal Officer
and Secretary
SURESH THADHANI
Vice President and Chief Financial Officer
GEOFFREY P. BATT
Treasurer
DENIS G. O'BRIEN
Controller
1 Member of Audit Committee
2 Chairman of Audit Committee
3 Member of Personnel Committee
4 Chairman of Personnel Committee
5 Member of Environment Committee
6 Chairman of Environment Committee
7 Member of Corporate Governance Committee
8 Chairman of Corporate Governance Committee
72
<PAGE> 73
SHAREHOLDER INFORMATION
COMMON SHARES
The principal markets for trading in Alcan's common shares are the New York and
Toronto stock exchanges. The common shares are also traded on the Montreal,
Vancouver, Chicago, Pacific, London, Paris, Brussels, Amsterdam, Frankfurt and
Swiss stock exchanges.
The transfer agents for the common shares are CIBC Mellon Trust Company in
Montreal, Toronto, Winnipeg, Regina, Calgary and Vancouver, Chase Mellon
Shareholder Services, L.L.C. in New York, and CIBC Mellon Trust Company in
England.
Common share dividends are paid quarterly on or about the 20th of March, June,
September and December to shareholders of record on or about the 20th of
February, May, August and November, respectively.
PREFERENCE SHARES
The preference shares are listed on the Montreal, Toronto and Vancouver stock
exchanges. The transfer agent for the preference shares is CIBC Mellon Trust
Company.
INVESTMENT PLANS
The Company offers holders of common shares two convenient ways of buying
additional Alcan common shares without payment of brokerage commissions. These
are known as the Dividend Reinvestment Plan and the Share Purchase Plan. Copies
of the prospectus describing these Plans may be obtained from Shareholder
Services at the address on page 65.
SECURITIES REPORTS FOR 1997
The Company's annual information form, to be filed with the Canadian securities
commissions, and the annual 10-K report, to be filed with the Securities and
Exchange Commission in the United States, will be available to shareholders
after April 1, 1998. Copies of both may be obtained from Shareholder Services at
the address on page 65.
<TABLE>
<CAPTION>
Dividend Prices* and Average Daily Trading Volumes
New York Stock Exchange (US$) Toronto Stock Exchange (CAN$)
1997 US$ High Low Close Avg. Daily High Low Close Avg. Daily
Quarter Volume Volume
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First 0.150 381/4 333/8 337/8 562,300 52.25 45.70 46.75 641,900
Second 0.150 377/8 301/2 3411/16 430,900 52.10 42.65 47.10 587,800
Third 0.150 405/16 331/2 343/4 470,600 55.70 46.65 48.40 547,600
Fourth 0.150 3513/16 261/16 275/8 499,133 49.25 37.10 39.40 679,694
Year 0.600
1996
Quarter
First 0.150 337/8 283/8 321/4 398,500 46 383/4 44 709,100
Second 0.150 341/8 301/8 301/2 367,400 46.40 40.75 41.55 468,100
Third 0.150 323/8 285/8 30 327,200 44.45 39.35 40.70 406,500
Fourth 0.150 361/8 293/4 335/8 435,200 48.50 40.10 46.25 664,500
Year 0.600
</TABLE>
[FN]
* The share prices are those reported as New York Stock Exchange -- Consolidated
Trading and reported by the Toronto Stock Exchange. Since April 15, 1996, share
prices on the Toronto Stock Exchange are expressed in decimals. </FN>
73
<PAGE> 74
FURTHER INFORMATION
Contact for shareholder account inquiries:
Linda Burton
Manager, Shareholder Services
Telephone: (514) 848-8050
or 1-888-252-5226 (toll free)
[email protected]
Investor contact:
Alan G. Brown
Director, Investor and Media Relations
Telephone: (514) 848-8368
[email protected]
Media contact:
Alain Bergeron
Manager, Investor and Media Relations
Telephone: (514) 848-8232
[email protected]
74
<PAGE> 75
THE ALCAN GROUP WORLDWIDE
PARENT COMPANY AND WORLD HEADQUARTERS
Alcan Aluminium Limited
1188 Sherbrooke Street West
Montreal, Quebec, Canada
H3A 3G2
Mailing Address:
P.O. Box 6090
Montreal, Quebec, Canada
H3C 3A7
Telephone: (514) 848-8000
Telecopier: (514) 848-8115
www.alcan.com
NORTH AMERICA
Bermuda
Alcan (Bermuda) Limited
Alcan Nikkei Asia Holdings Ltd. (78.2%)1
Canada
Alcan Aluminium Limited
Alcan Cable
Alcan Chemicals
Alcan Foil Products
Alcan International Limited
Alcan Smelters and Chemicals Limited
Jamaica
Alcan Jamaica Company
United States
Alcan Aluminum Corporation
Alcan Automotive Products
Alcan Cable
Alcan Chemicals
Alcan Foil Products
Alcan Ingot
Alcan Light Gauge Products
Alcan Sheet Products
SOUTH AMERICA
Brazil
Alcan Aluminio do Brasil Ltda.
Consorcio Aluminio do Maranhao
(Alumar Consortium) (10%)
Mineracao Rio do Norte S.A. (12.5%)
Petrocoque S.A. - Indusria & Comercio (25%)
75
<PAGE> 76
AFRICA
Ghana
Ghana Bauxite Company Limited (45%)
Guinea
Compagnie des Bauxites de Guinee (16.8%)
Friguia (10.2%)
EUROPE
France
Alcan France (Technal)
Germany
Alcan Deutschland GmbH
Aluminium Norf GmbH (50%)
Ireland
Aughinish Alumina Limited
Italy
Alcan Alluminio S.p.A.
Norway
Vigeland Metal Refinery A/S (50%)
Spain
Alcan Palco S.A.
Switzerland
Alcan Aluminium AG
Alcan Rorschach AG
United Kingdom
British Alcan Aluminium plc
PACIFIC
Australia
Alcan South Pacific Pty Ltd.
Queensland Alumina Limited (21.4%)
China
Alcan Asia Limited
Alcan Asia Pacific Limited
Alcan Nikkei China Limited (72.3 %)2
Alcan Nikkei Korea Limited (72.3 %)2
Nonfemet International (China-Canada-Japan)
Aluminium Company Limited (35.2%)3
India
Indian Aluminium Company, Limited (34.6%)
76
<PAGE> 77
Japan
Alcan Asia Limited (Tokyo Branch)
Nippon Light Metal Company, Ltd. (NLM) (45.6%)
Korea
Alcan Nikkei Korea Limited (Seoul Branch)
Malaysia
Alcan Nikkei Asia Company Ltd. (78.2%)1
Aluminium Company of Malaysia Berhad (46.3%)3
Alcom Nikkei Specialty Coatings Sdn Bhd (62.2%)4
Thailand
Alcan Nikkei Siam Limited (54.8%)3
Alcan Nikkei Thai Limited (60.7%)3
* This list names only the principal businesses of the Alcan Group. A complete
list is contained in the Company's 10-K Report, available from Alcan's
headquarters in Montreal.
1 Alcan's direct interest is 60%, the remaining interest is held through Nippon
Light Metal Company, Ltd. (NLM).
2 Alcan's direct interest is 49%, the remaining interest is held through NLM.
3 Interest held through Alcan Nikkei Asia Holdings Ltd., which is 78.2% owned by
Alcan.
4 Interest held through Aluminium Company of Malaysia Berhad and Alcan Nikkei
Asia Holdings Ltd.
Visit Alcan's Web Site: www.alcan.com
Further information on Alcan and its activities is available on Alcan's World
Wide Web site and contained in various Company publications. These publications,
such as A Commitment to Continual Environmental Improvement, published in 1996,
are available by writing to the address shown at upper left.
VERSION FRANCAISE
Pour obtenir la version francaise de ce rapport, veuillez ecrire aux Services
aux actionnaires dont l'adresse figure dans le coin superieur gauche.
This report was printed using vegetable-based inks and is recyclable.
77
<PAGE> 1
EXHIBIT NO. 21.: SUBSIDIARIES, RELATED COMPANIES, ETC. - VOTING SHARES
With the exception of a number of Subsidiaries which, considered in the
aggregate, would not constitute a significant Subsidiary, the Subsidiaries of
Alcan, as of 1 March 1998, are listed below. All Subsidiaries and joint ventures
named below are consolidated in the financial statements incorporated by
reference in this report. The list also includes several Related Companies for
which Alcan reports its interest in the net income or loss of such companies.
Alcan is the direct owner of the shares of each Subsidiary or Related Company,
except where the name is indented. Indentation signifies that the principal
ownership by Alcan is through the company under which the indentation is made;
where there is additional ownership through another company also listed below,
that additional ownership is described in the end-note on page 43.
<TABLE>
<CAPTION>
SUBSIDIARIES, RELATED COMPANIES, ETC. ORGANIZED UNDER % OF VOTING
THE LAWS OF SHARES HELD BY
IMMEDIATE
OWNER
- - - ------------------------------------- --------------- --------------
<S> <C> <C>
Alcan Adminco Inc. Canada 100
Alcan Aluminio (America Latina) Inc. Canada 100
Alcan Aluminum Corporation Ohio 100
Alcan Automotive Castings, Inc. Ohio 100
Altek Automotive Castings
Partnership Delaware 50
Alcan Cable (Mexico), Inc. Georgia 100
Alcan Management Services U.S.A. Inc. Ohio 100
Erieview Cartage, Inc. Ohio 100
Logan Aluminum Inc. Delaware 40
Alcan Asia Pacific Limited Canada 100
Alcan Empreendimentos Ltda. Brazil 100
Alcan Aluminio do Brasil Ltda. Brazil 100
Alcan Aluminio Pocos de Caldas S.A. Brazil 100
Consorcio de Aluminio do Maranhao
("Consorcio Alumar") (unincorporated) Brazil 10
Petrocoque S.A. - Industria e Comercio Brazil 25
Mincracao Rio do Norte S.A. Brazil 12.5
Alcan Europe Limited England 100
Alcan Finances (Bda) Ltd. Bermuda 100
Alcan Asia Limited Hong Kong 100
Alcan (Bermuda) Limited Bermuda 100
Alcan Shipping (Bermuda) Limited Bermuda 100
Alcan Limerick Limited Ireland 100
Alcan Nikkei Asia Holdings Ltd. Bermuda 60 (1)
Alcan Nikkei Siam Limited Thailand 33 (2)
Alcan Nikkei Thai Limited Thailand 75 (3)
Alcom Nikkei Specialty Coatings Sdn. Bhd. Malaysia 50 (4)
Aluminium Company of Malaysia Berhad Malaysia 59.2
Aluminium Development Company
(Thailand) Limited Thailand 16 (5)
Nikkei Holdings Pte. Limited Singapore 100
Nonfemet International (China-Canada-Japan)
Aluminium Company Limited China 45
Alcan Nikkei China Limited China 49 (6)
Champlain Insurance Company Ltd. Bermuda 100
Frialco S.A. Cayman Islands 20
Friguia Guinea 51
Halco (Mining) Inc. Delaware 33
Compagnie des Bauxites de Guinee Delaware 51
Alcan Finances B.V. Netherlands 100
</TABLE>
40
<PAGE> 2
<TABLE>
<CAPTION>
SUBSIDIARIES, RELATED COMPANIES, ETC. ORGANIZED UNDER % OF VOTING
THE LAWS OF SHARES HELD BY
IMMEDIATE
OWNER
-------------------------------------- --------------- --------------
<S> <C> <C>
Alcan Finances (Ireland) Limited Canada 100
Alcan Aluminium AG Switzerland 100
Alcan Rorschach AG Switzerland 100
Alcan Finances (Ireland) Company Ireland 100
Alcan Finances (U.K.) England 100
Alcan France Holdings France 100
Alcan France France 91.1 (7)
Evolutis S.A. France 100
Evolutis Espinos-Roy France 95 (8)
Technal AB Sweden 99
Technal Aluminium Systems SA Switzerland 100
Technal Iberica Spain 100
Technal Portuguesa Systemas de Aluminio Ltda Portugal 100
Evolutis Ltda Portugal 100
Technal Limited England 100
Technal South East Asia Co. Ltd. Thailand 49
Transports et Aluminium Industries Transalumin France 100
Alcan Iberica, S.A. Spain 100
Alcan International Limited Canada 100
Alcan Ireland Limited Ireland 100
Aughinish Alumina Limited Ireland 40 (9)
Aughinish Estates Limited Ireland 40 (9)
Aughinish Property (Nominees) Limited Ireland 40 (9)
Alcan Luxembourg S.A. Luxembourg 100
Alcan Alluminio S.p.A. Italy 100
Alcanital Services S.r.l. Italy 100
Alcan Deutschland GmbH Germany 98.6 (10)
Alcan Austria GmbH Austria 100
Alcan Lamines France France 40 (11)
Aluminium Norf GmbH Germany 50
BAA Holdings S.A. Luxembourg 100
British Alcan Aluminium plc England 100
Alcan Automotive Structures (UK) Ltd. England 100
Alcan BAP Limited England 100
Alcan BAS Limited England 100
Alcan Chemicals Europe Limited England 100
Alcan Chemicals Limited England 100
Alcan Colwick Holdings Limited England 100
Alcan Colwick Limited England 100
Alcan Contracts Limited England 100
Alcan Enfield Alloys Limited England 50
Alcan Farms Limited England 100
Alcan Metal Centres (Midlands) Limited England 100
Alcan Metal Centres Limited Scotland 100
Alcan Shipping Services (UK) Limited England 100
Alcan Speciality and Aerospace Limited England 100
Alcan St Helens Limited England 100
Alcan Stockists South Limited England 100
Alcan Swinton Limited England 100
Alcan Systems and Conservatories Limited England 100
Alcan Systems Limited England 100
</TABLE>
41
<PAGE> 3
<TABLE>
<CAPTION>
SUBSIDIARIES, RELATED COMPANIES, ETC. ORGANIZED UNDER % OF VOTING
THE LAWS OF SHARES HELD BY
IMMEDIATE
OWNER
------------------------------------- --------------- --------------
ALCAN LUXEMBOURG S.A. (CONTINUED)
BAA HOLDINGS S.A. (CONTINUED)
BRITISH ALCAN ALUMINIUM PLC (CONTINUED)
<S> <C> <C>
Alcan Windows Limited England 100
Alliance Aluminium Holdings Limited England 100
Aluminium Corporation Limited England 100
Aluminium Sulphate Limited England 50
Aluminium Supply (Aerospace) Limited England 100
Aylesford (Packaging) Limited England 100
BA Chemicals Limited England 100
BA Finance Limited England 100
BA Metals Limited England 100
Belfast Aluminium Limited Northern Ireland 100
British Alcan Conductor Limited England 100
British Alcan Consumer Products Limited England 100
British Alcan Extrusions Limited England 100
British Alcan Highland Estates Limited England 100
British Alcan Primary and Recycling Limited England 100
British Alcan Rolled Products Limited England 100
British Alcan Snappies Limited England 100
British Alcan Wire and Conductor Limited England 100
Four County Windows Limited England 100
Gentrin Limited England 100
Pearhouse Limited England 100
Pentagon Radiator (Stafford) Limited England 100
Propax Packaging Products Limited England 100
Saguenay Shipping (U.K.) Limited England 100
TBAC Limited England 100
Alcan Aluminium UK Limited England 90 (12)
British Alcan Overseas Investments Limited England 100
Saratoga Resources N.V. Netherland Antilles 20
Vigelands Metal Refinery A/S Norway 50
Ghana Bauxite Company Limited Ghana 45 **
Isleburn Limited Scotland 21.7
MacKay & MacLeod Engineering Limited Scotland 100
Kinlochleven Road Transport Company Limited Scotland 25
The Lochaber Power Company Scotland 100
Venesta Foils Limited England 100
Vigelands Brug A/S Norway 100
Thames Alum Limited England 100
Ulster Aluminium Stockists Limited Northern Ireland 100
Westbro Welding Wire Limited England 100
Alcan Management Services Canada Limited Canada 100
Alcan Nikkei Asia Company Ltd. Bermuda 60 (1)
Alcan Nikkei Korea Limited China 49 (6)
Alcan Palco, S.A. Spain 100
Alcan Realty Limited Canada 100
</TABLE>
[FN]
** Increased to 80% on 19 March 1998.
</FN>
42
<PAGE> 4
<TABLE>
<CAPTION>
% OF VOTING
Organized Under Shares Held by
Subsidiaries, Related Companies, Etc. the Laws of Immediate Owner
- - - ------------------------------------- ---------------- ----------------
<S> <C> <C>
Alcan Shannon Company Ireland 100
Alcan Shipping Services Limited Canada 100
Alcan Smelters and Chemicals Limited Canada 100
Alcan-Sprostons Limited Jamaica 100
Alpac Aluminium Inc. Canada 50 (13)
Aluminio de Venezuela, C.A. Venezuela 49
Aluminum Company of Canada, Limited Canada 100
Handy Chemicals Limited Quebec 100
Indian Aluminium Company, Limited India 34.6
Jamalcan (unincorporated) Jamaica 93
Nippon Light Metal Company, Ltd. Japan 37.2 (14)(15)
N.V. Alcan Aluminium Products Benelux S.A. Belgium 100
Societe des Alumines et Bauxites de Provence France 100
The Roberval and Saguenay Railway Company Quebec 100
3088405 Canada Inc. Canada 100
Alcan South Pacific Pty Ltd. Australia 100
Alcan Queensland Smelter Pty Ltd. Australia 100
Queensland Alumina Limited Australia 21.4
Queensland Alumina Security Corporation Delaware 20
Wenlock Bauxite Pty Limited Australia 100
</TABLE>
<TABLE>
<CAPTION>
% of Voting
Note Additional Ownership Through Shares Held
- - - --------------------------------- -----------
<S> <C> <C>
(1) Nippon Light Metal Company, Ltd. 40.0
(2) Nikkei Holdings Pte. Limited 37.0
(3) Nikkei Holdings Pte. Limited 2.6
(4) Aluminium Company of Malaysia Berhad 50.0
(5) Alcan Nikkei Thai Limited 84.0
(6) Nippon Light Metal Company, Ltd. 51.0
(7) Alcan Aluminium Limited 8.9
(8) Transports et Aluminium Industries Transalumin 5.0
(9) Alcan Shannon Company 25.0
Alcan Limerick Limited 35.0
(10) Alcan Aluminium AG 1.4
(11) British Alcan Aluminium plc 30.0
Alcan Alluminio S.p.A. 30.0
(12) British Alcan Aluminium plc 10.0
(13) Nippon Light Metal Company, Ltd. 50.0
(14) Alcan Adminco Inc. 1.6
Alcan Asia Pacific Limited 0.2
Alcan Nikkei Asia Holdings Ltd 8.5
</TABLE>
[FN]
(15) Nippon Light Metal Company, Ltd., a major aluminum company in Japan, has
its principal operations in Japan and has subsidiaries and related
companies in many countries including Brazil, Canada, China, Indonesia,
Malaysia and Thailand.
</FN>
43
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS
WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (the "Company"),
proposes shortly to file with the Securities and Exchange Commission, under the
provisions of the Securities Act of 1934 as amended (the "Act"), the Annual
Report on Form 10-K pursuant to Section 13 or 15(d) of the Act.
WHEREAS the undersigned is an Officer and/or a Director of the Company as
indicated below;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des
Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead, and in each of the
undersigned's offices and capacities as an Officer and/or a Director of the
Corporation, to execute and file such Annual Report on Form 10- K, hereby giving
and granting to said attorneys full power and authority to do and perform all
and every act and thing whatsoever requisite and necessary to be done in and
about the premises as fully, to all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March
1998.
/s/ Sonja I. Bata
---------------------
Name: Sonja I. Bata
Title: Director
<PAGE> 2
Exhibit 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS
WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (the "Company"),
proposes shortly to file with the Securities and Exchange Commission, under the
provisions of the Securities Act of 1934 as amended (the "Act"), the Annual
Report on Form 10-K pursuant to Section 13 or 15(d) of the Act.
WHEREAS the undersigned is an Officer and/or a Director of the Company as
indicated below;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des
Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead, and in each of the
undersigned's offices and capacities as an Officer and/or a Director of the
Corporation, to execute and file such Annual Report on Form 10- K, hereby giving
and granting to said attorneys full power and authority to do and perform all
and every act and thing whatsoever requisite and necessary to be done in and
about the premises as fully, to all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March
1998.
/s/ Warren Chippindale
----------------------------
Name: Warren Chippindale
Title: Director
<PAGE> 3
Exhibit 24.3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS
WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (the "Company"),
proposes shortly to file with the Securities and Exchange Commission, under the
provisions of the Securities Act of 1934 as amended (the "Act"), the Annual
Report on Form 10-K pursuant to Section 13 or 15(d) of the Act.
WHEREAS the undersigned is an Officer and/or a Director of the Company as
indicated below;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des
Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead, and in each of the
undersigned's offices and capacities as an Officer and/or a Director of the
Corporation, to execute and file such Annual Report on Form 10- K, hereby giving
and granting to said attorneys full power and authority to do and perform all
and every act and thing whatsoever requisite and necessary to be done in and
about the premises as fully, to all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March
1998.
/s/ D. Travis Engen
-------------------------
Name: D. Travis Engen
Title: Director
<PAGE> 4
Exhibit 24.4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS
WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (the "Company"),
proposes shortly to file with the Securities and Exchange Commission, under the
provisions of the Securities Act of 1934 as amended (the "Act"), the Annual
Report on Form 10-K pursuant to Section 13 or 15(d) of the Act.
WHEREAS the undersigned is an Officer and/or a Director of the Company as
indicated below;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des
Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead, and in each of the
undersigned's offices and capacities as an Officer and/or a Director of the
Corporation, to execute and file such Annual Report on Form 10- K, hereby giving
and granting to said attorneys full power and authority to do and perform all
and every act and thing whatsoever requisite and necessary to be done in and
about the premises as fully, to all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March
1998.
/s/ John R. Evans
------------------------
Name: John R. Evans
Title: Chairman
<PAGE> 5
Exhibit 24.5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS
WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (the "Company"),
proposes shortly to file with the Securities and Exchange Commission, under the
provisions of the Securities Act of 1934 as amended (the "Act"), the Annual
Report on Form 10-K pursuant to Section 13 or 15(d) of the Act.
WHEREAS the undersigned is an Officer and/or a Director of the Company as
indicated below;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des
Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead, and in each of the
undersigned's offices and capacities as an Officer and/or a Director of the
Corporation, to execute and file such Annual Report on Form 10- K, hereby giving
and granting to said attorneys full power and authority to do and perform all
and every act and thing whatsoever requisite and necessary to be done in and
about the premises as fully, to all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March
1998.
/s/ Allan E. Gotlieb
--------------------------
Name: Allan E. Gotlieb
Title: Director
<PAGE> 6
Exhibit 24.6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS
WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (the "Company"),
proposes shortly to file with the Securities and Exchange Commission, under the
provisions of the Securities Act of 1934 as amended (the "Act"), the Annual
Report on Form 10-K pursuant to Section 13 or 15(d) of the Act.
WHEREAS the undersigned is an Officer and/or a Director of the Company as
indicated below;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des
Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead, and in each of the
undersigned's offices and capacities as an Officer and/or a Director of the
Corporation, to execute and file such Annual Report on Form 10- K, hereby giving
and granting to said attorneys full power and authority to do and perform all
and every act and thing whatsoever requisite and necessary to be done in and
about the premises as fully, to all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March
1998.
/s/ J.E. Newall
-----------------------
Name: J.E. Newall
Title: Director
<PAGE> 7
Exhibit 24.7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS
WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (the "Company"),
proposes shortly to file with the Securities and Exchange Commission, under the
provisions of the Securities Act of 1934 as amended (the "Act"), the Annual
Report on Form 10-K pursuant to Section 13 or 15(d) of the Act.
WHEREAS the undersigned is an Officer and/or a Director of the Company as
indicated below;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des
Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead, and in each of the
undersigned's offices and capacities as an Officer and/or a Director of the
Corporation, to execute and file such Annual Report on Form 10- K, hereby giving
and granting to said attorneys full power and authority to do and perform all
and every act and thing whatsoever requisite and necessary to be done in and
about the premises as fully, to all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March
1998.
/s/ Peter H. Pearse
-------------------------
Name: Peter H. Pearse
Title: Director
<PAGE> 8
Exhibit 24.8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS
WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (the "Company"),
proposes shortly to file with the Securities and Exchange Commission, under the
provisions of the Securities Act of 1934 as amended (the "Act"), the Annual
Report on Form 10-K pursuant to Section 13 or 15(d) of the Act.
WHEREAS the undersigned is an Officer and/or a Director of the Company as
indicated below;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des
Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead, and in each of the
undersigned's offices and capacities as an Officer and/or a Director of the
Corporation, to execute and file such Annual Report on Form 10- K, hereby giving
and granting to said attorneys full power and authority to do and perform all
and every act and thing whatsoever requisite and necessary to be done in and
about the premises as fully, to all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March
1998.
/s/ G. Russell
----------------------
Name: Sir George Russell
Title: Director
<PAGE> 9
Exhibit 24.9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS
WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (the "Company"),
proposes shortly to file with the Securities and Exchange Commission, under the
provisions of the Securities Act of 1934 as amended (the "Act"), the Annual
Report on Form 10-K pursuant to Section 13 or 15(d) of the Act.
WHEREAS the undersigned is an Officer and/or a Director of the Company as
indicated below;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des
Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead, and in each of the
undersigned's offices and capacities as an Officer and/or a Director of the
Corporation, to execute and file such Annual Report on Form 10- K, hereby giving
and granting to said attorneys full power and authority to do and perform all
and every act and thing whatsoever requisite and necessary to be done in and
about the premises as fully, to all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March
1998.
/s/ Guy Saint-Pierre
------------------------------
Name: Guy Saint-Pierre
Title: Director
<PAGE> 10
Exhibit 24.10
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS
WHEREAS ALCAN ALUMINIUM LIMITED a Canadian company (the "Company"),
proposes shortly to file with the Securities and Exchange Commission, under the
provisions of the Securities Act of 1934 as amended (the "Act"), the Annual
Report on Form 10-K pursuant to Section 13 or 15(d) of the Act.
WHEREAS the undersigned is an Officer and/or a Director of the Company as
indicated below;
NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des
Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the
undersigned and in the undersigned's name, place and stead, and in each of the
undersigned's offices and capacities as an Officer and/or a Director of the
Corporation, to execute and file such Annual Report on Form 10- K, hereby giving
and granting to said attorneys full power and authority to do and perform all
and every act and thing whatsoever requisite and necessary to be done in and
about the premises as fully, to all intents and purposes, as the undersigned
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March
1998.
/s/ Gerhard Schulmeyer
-------------------------------
Name: Gerhard Schulmeyer
Title: Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-K OF ALCAN ALUMINIUM LIMITED FOR THE YEAR ENDED 31 DECEMBER 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 608
<SECURITIES> 0
<RECEIVABLES> 1,292
<ALLOWANCES> 0
<INVENTORY> 1,341
<CURRENT-ASSETS> 3,241
<PP&E> 11,715
<DEPRECIATION> 6,257
<TOTAL-ASSETS> 9,466
<CURRENT-LIABILITIES> 1,424
<BONDS> 1,241
0
203
<COMMON> 1,251
<OTHER-SE> 3,620
<TOTAL-LIABILITY-AND-EQUITY> 9,466
<SALES> 7,777
<TOTAL-REVENUES> 7,865
<CGS> 5,995
<TOTAL-COSTS> 5,995
<OTHER-EXPENSES> 436
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> 763
<INCOME-TAX> 258
<INCOME-CONTINUING> 468
<DISCONTINUED> 0
<EXTRAORDINARY> 17
<CHANGES> 0
<NET-INCOME> 485
<EPS-PRIMARY> 2.09
<EPS-DILUTED> 2.09
</TABLE>
<PAGE> 1
EXHIBIT NO. 99: CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- - - -----------------------------------------------------------------------
Written or oral statements made by Alcan or its representatives, including
statements set forth in Alcan's Form 10-K for the year ended 31 December 1997,
which describe the Company's or management's objectives, projections, estimates,
expectations or predictions of the future may be "forward-looking statements"
within the meaning of the United States Private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "believes," "expects," "may," "will," "should," "estimates," "anticipates" or
the negative thereof or other variations thereon. The Company cautions that, by
their nature, forward-looking statements involve risk and uncertainty and that
the Company's actual results could differ materially from those expressed or
implied in such forward-looking statements or could affect the extent to which a
particular projection is realized.
Important factors which could cause the Company's actual performance to differ
materially from projections or expectations included in forward-looking
statements include global aluminum supply and demand conditions, aluminum ingot
prices and changes in other raw materials costs and availability, cyclical
demand and pricing within the principal markets for the Company's products,
changes in government regulations, particularly those affecting environmental,
health or safety compliance, economic developments and other factors within the
countries in which the Company operates or sells its products and other factors
relating to the Company's ongoing operations including, but not limited to,
litigation, labour negotiations and fiscal regimes.
Additional information concerning factors that could cause actual results to
differ materially from those in forward-looking statements include, but are not
necessarily limited to, those discussed under the heading "Risks and
Uncertainties" in the Management's Discussion and Analysis section of Alcan's
Annual Report 1997, incorporated by reference in Part II, Item 7 of, and filed
as an exhibit to, the Company's report on Form 10-K for the year ended 31
December 1997. The text under such heading is incorporated herein by reference.
Copies of the Company's filings may be obtained by contacting the Company or the
United States Securities and Exchange Commission.
