----

 

 

SECURITIES ANDEXCHANGE COMMISSIONWashington,D.C. 20549

FORM 10-Q

QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIESEXCHANGE ACT OF 1934

**For thequarterly period ended June 30, 2004**

Commission filenumber 1-3677

**ALCAN INC.**(Exact name ofregistrant as specified in its charter)

| **CANADA**                       | Inapplicable                          |
|----------------------------------|---------------------------------------|
| (State or  Other Jurisdiction of | (I.R.S.  Employer Identification No.) |
| Incorporation  or Organization)  |                                       |

**1188 SherbrookeStreet West, Montreal, Quebec, Canada H3A 3G2**(Address ofPrincipal Executive Offices and Postal Code)

**(514) 848-8000**(Registrant'sTelephone Number, including Area Code)

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes √   No ____

Indicate by check mark whether theregistrant is an accelerated filer (as defined in Rule 12b-2 of the ExchangeAct).

Yes √    No ____

At August 5,2004, the registrant had 368,252,509 shares of common stock (without nominal orpar value) outstanding.

** **

** **

----

**PART I. FINANCIAL INFORMATION**

In this report, all dollar amountsare stated in U.S. dollars and all quantities in metric tons, or tonnes, unlessindicated otherwise.  A tonne is 1,000 kilograms, or 2,204.6 pounds.  The word"Company" refers to Alcan Inc. and, where applicable, one or more ofits consolidated subsidiaries.

**Item 1.****Financial Statements**

**ALCAN INC.**

| **INTERIM CONSOLIDATED STATEMENT OF INCOME**(unaudited) |
|---------------------------------------------------------|
|                                                    | Second Quarter
Six Months
**Periods ended June 30**

**2004  **

2003  

**2004  **

2003  

(*in millions of US$, except  per share amounts)*

**Sales  and operating revenues**

**6,252 **

3,505 

**12,330 **

6,754 
			 
** **

** **

**Costs  and expenses**

** **

** **

Cost  of sales and operating expenses

**4,922 **

2,838 

**9,925 **

5,452 

Depreciation  and amortization

**329 **

216 

**669 **

424 

Selling,  administrative and general expenses

**374 **

177 

**782 **

341 

Research  and development expenses

**58 **

32 

**119 **

61 

Interest  (note 11)

**87 **

54 

**181 **

101 

Other  expenses (income) - net (note 10)

**55 **

20 

**56 **

56 

**5,825 **

3,337 

**11,732 **

6,435 

Income  from continuing operations before income taxes and 

** **

** **

other  items

**427 **

168 

**598 **

319 

Income  taxes (note 8)

**140 **

144 

**191 **

285 

Income  from continuing operations before other items

**287 **

24 

**407 **

34 

Equity  income

**17 **

11 

**33 **

18 

Minority  interests

**(15)**

(12)

**(26)**

(13)

**Income  from continuing operations**

**289 **

23 

**414 **

39 

Income  (Loss) from discontinued operations (note 3)

**42 **

(115)

**23 **

(119)

Income  (Loss) before cumulative effect of accounting change

**331 **

(92)

**437 **

(80)

Cumulative  effect of accounting change, net of income tax of $17

**- **

- 

**- **

(39)

**Net  income (Loss)**

**331 **

(92)

**437 **

(119)

Dividends  on preference shares

**1 **

1 

**3 **

3 

**Net  income (Loss) attributable to common shareholders**

**330 **

(93)

**434 **

(122)

**Earnings  (Loss) Per Share**(note 4)

** **

** **

Basic  and diluted:

** **

** **

Income  from continuing operations 

**0.78 **

0.07 

**1.12 **

0.11 

Income  (Loss) from discontinued operations

**0.11 **

(0.36)

**0.06 **

(0.37)

Cumulative  effect of accounting change

**-  **

- 

**- **

(0.12)

**Net  income (Loss) per common share - basic and diluted**

**0.89 **

(0.29)

**1.18 **

(0.38)

**Dividends  per common share**

**0.30 **

0.30 

**0.45 **

0.45 

*The accompanying notes are anintegral part of the interim financial statements.*

* *

-2-
****
**ALCAN INC.**

 
**INTERIM CONSOLIDATED BALANCESHEET**(unaudited)
** **

**June 30,		2004   **

December 31,		2003        

(*in millions of US$)*

**ASSETS**
 
**Current  assets**

** **

Cash  and time deposits

**351 **

              778 

Trade  receivables (net of allowances of $67 in 2004 and $88 in 2003)

**3,794 **

           3,128 

Other  receivables

**789 **

              681 

Deferred  income taxes

**39 **

                46 

Inventories     -   Aluminum  operating segments

** **

-    Aluminum

**974 **

              943 

-    Raw materials

**429 **

              398 

-    Other supplies

**356 **

              353 
		 
**1,759 **

           1,694 

                    -   Packaging  operating segment

**403 **

              395 

                    -   Pechiney		

**1,505 **

           1,680 
		 
**3,667 **

           3,769 

Current  assets held for sale (note 3)

**627 **

              712 

**Total  current assets**

**9,267 **

           9,114 
		 
** **

Deferred  charges and other assets

**1,618 **

           1,591 

Deferred  income taxes

**849 **

              887 

Property,  plant and equipment

** **

Cost (excluding Construction work in progress)

**21,129 **

        21,882 

Construction work in progress

**780 **

              645 

Accumulated depreciation

**(8,734)**

         (8,216)

**13,175 **

        14,311 

Intangible  assets (net of accumulated amortization of $99

   in  2004 and $86 in 2003)

**1,237 **

           1,218 

Goodwill

**5,360 **

           4,686 

Long-term  assets held for sale (note 3)

**89 **

              141 

**Total  assets**

**31,595 **

        31,948 

*The accompanying notes are anintegral part of the interim financial statements.*
 
-3-
 
**

**ALCAN INC.**

 
**INTERIM CONSOLIDATED BALANCESHEET**(cont'd)****(unaudited)****
** **

**June 30,		2004    **

December 31,		2003        

(*in millions of US$)*

**LIABILITIES  AND SHAREHOLDERS' EQUITY**

**Current  liabilities**

Payables  and accrued liabilities

**5,156 **

           4,964 

Short-term  borrowings

**869 **

           1,764 

Debt  maturing within one year

**445 **

              341 

Deferred  income taxes

**50 **

                86 

Current  liabilities of operations held for sale (note 3)

**680 **

              436 

**Total  current liabilities**

**7,200 **

           7,591 
 
** **

Debt  not maturing within one year 

**7,879 **

           7,437 

Deferred  credits and other liabilities

**4,090 **

           4,099 

Deferred  income taxes

**1,271 **

           1,702 

Long-term  liabilities of operations held for sale (note 3)

**317 **

              323 

Minority  interests

**341 **

              519 
 
** **

**Shareholders'  equity**

** **

Redeemable  non-retractable preference shares

**160 **

              160 

Common  shareholders' equity

** **

Common shares

**6,588 **

           6,461 

Additional paid-in capital

**120 **

              128 

Retained earnings

**3,598 **

           3,331 

Common shares held by a subsidiary

**(56)**

               (56)

Accumulated other comprehensive income

**87 **

              253 

**10,337 **

        10,117 

**10,497 **

        10,277 

** **

Commitments  and contingencies (note 12)

** **

** **

**Total  liabilities and shareholders' equity**

**31,595 **

        31,948 

*The accompanying notes are anintegral part of the interim financial statements.*
 
 
-4-

**ALCAN INC.**

 
**INTERIM CONSOLIDATEDSTATEMENT OF CASH FLOWS**(unaudited)
Second Quarter 

Six Months      

**Periods ended June 30**

**2004**

2003

**2004**

2003

(*in millions of US$)*

**OPERATING  ACTIVITIES**
 
Net  income (Loss)

**       331 **

         (92)

**       437 **

      (119)

Loss  (Income) from discontinued operations

**        (42)**

        115 

**        (23)**

       119 

Income  from continuing operations

**       289 **

          23 

**       414 **

             - 

Adjustments  to determine cash from operating activities:

** **

** **

Cumulative effect of accounting change

**             - **

             - 

**            - **

          39 

Depreciation and amortization

**       329 **

        216 

**       669 **

       424 

Deferred income taxes

**         42 **

          40 

**          (4)**

          74 

Equity income, net of dividends

**          (1)**

            5 

**        (17)**

           (2)

Asset impairment provisions

**            1 **

            9 

**           6 **

          12 

Gain on sale of businesses and investments - net

**        (42)**

         (51)

**        (42)**

        (51)

Stock option compensation

**            2 **

            2 

**           4 **

            4 

Change in operating working capital

** **

** **

Change in receivables

**      (138)**

        109 

**     (538)**

          58 

Change in inventories

**        (11)**

         (31)

**         68 **

        (61)

Change in payables and accrued liabilities

**         21 **

         (46)

**       247 **

        (30)

Change in deferred charges, other assets,		

** **

** **

deferred credits and other liabilities - net

**        (83)**

          75 

**     (104)**

       158 

Other - net

**         48 **

          23 

**         50 **

          21 

Cash  from operating activities in continuing operations

**       457 **

        374 

**       753 **

       646 
 
** **

** **

Cash  used for operating activities in discontinued operations

**          (7)**

         (18)

**        (17)**

        (12)
 
** **

** **

**Cash  from operating activities**

**       450 **

        356 

**       736 **

       634 
 
** **

** **

**FINANCING  ACTIVITIES**

** **

** **
 
** **

** **

Proceeds  from issuance of new debt

**       176 **

        500 

**       718 **

       503 

Debt  repayments

**      (234)**

      (259)

**     (454)**

      (341)

Short-term  borrowings - net

**      (149)**

         (76)

**     (380)**

      (107)

Common  shares issued*

**            8 **

            3 

**         33 **

            8 

Dividends    -     Alcan shareholders (including preference)

**        (56)**

         (50)

**     (113)**

      (100)

-     Minority interests

**          (1)**

           (1)

**          (3)**

        (10)

Cash  from (used for) financing activities in continuing operations

**      (256)**

        117 

**     (199)**

        (47)
 
** **

** **

Cash  from (used for) financing activities in discontinued

** **

** **

   operations

**        (31)**

          19 

**(27)**

          17 
 
** **

** **

**Cash  from (used for) financing activities**

**      (287)**

        136 

**(226)**

        (30)

**  Excludes the non-cash impact of common shares issuedin exchange for Pechiney Securities.  See note 14 - Sales and Acquisitions ofBusinesses.*

*The accompanying notes are anintegral part of the interim financial statements.*

-5-

**ALCAN INC.**

 
**INTERIM CONSOLIDATEDSTATEMENT OF CASH FLOWS**(cont'd)****(unaudited)
Second Quarter       

Six Months      

**Periods ended June 30**

**2004**

2003

**2004**

2003

(*in millions of US$)*

**INVESTMENT  ACTIVITIES**

Purchase  of property, plant and equipment

**(274)**

(200)

**(538)**

(317)

Business  acquisitions and purchase of investments

**(86)**

(313)

**(423)**

(318)

Net  proceeds from disposal of business, investments and other 

** **

** **

assets

**22 **

46 

**36 **

53 

Cash  used for investment activities in continuing operations

**(338)**

(467)

**(925)**

(582)
 
** **

** **

Cash  from (used for) investment activities in discontinued 

** **

** **

operations

**21 **

(2)

**16 **

(6)
 
** **

** **

**Cash  used for investment activities**

**(317)**

(469)

**(909)**

(588)

** **

** **

Effect  of exchange rate changes on cash and time deposits

**(2)**

3 

**(28)**

4 

**Increase  (Decrease) in cash and time deposits**

**(156)**

26 

**(427)**

20 

** **

** **

Cash  and time deposits - beginning of period

**507 **

92 

**778 **

98 

Cash  and time deposits - end of period in continuing operations

**351 **

118 

**351 **

118 

Cash  and time deposits - end of period in discontinued operations 

**- **

- 

**- **

- 

Cash  and time deposits - end of period

**351 **

118 

**351 **

118 

** **

*The accompanying notes are anintegral part of the interim financial statements.*

 

 

-6-

**ALCAN INC.**

**NOTESTO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS**

**June30, 2004**

**(unaudited)**

*(inmillions of US$, except per share amounts)*

**1.         ACCOUNTING POLICIES**

Basis of Presentation

Alcan had historicallyprepared and filed its financial statements in accordance with Canadiangenerally accepted accounting principles (GAAP) with a reconciliation to UnitedStates (U.S.) GAAP.  On January 1, 2004, the Company adopted U.S. GAAP as itsprimary reporting standard for presentation of its consolidated financialstatements and restated historical consolidated financial data, as describedand presented in the Form 8-K filed on June 14, 2004 (Form 8-K).

The unaudited interimconsolidated financial statements are based upon accounting policies andmethods of their application consistent with those used and described in theCompany's annual financial statements as contained in the Form 8-K, except forthe recently adopted accounting policies described in note 2 - AccountingChanges below.  The interim financial statements do not include all of thefinancial statement disclosures included in the annual financial statementsprepared in accordance with U.S. GAAP and therefore should be read inconjunction with the Company's Form 8-K.

In the opinion of managementof the Company, the unaudited interim consolidated financial statements reflectall adjustments, which consist only of normal and recurring adjustments,necessary to present fairly the financial position and the results ofoperations and cash flows in accordance with U.S. GAAP, applied on a consistentbasis.  The results reported in these interim consolidated financial statementsare not necessarily indicative of the results that may be expected for theentire year.

Pechiney - Basis ofPresentation

On December 15, 2003, Alcan acquired Pechiney.  Pechineyrefers to Pechiney, a French *société anonyme*, and where applicable,its consolidated subsidiaries.  The interim consolidated financial statements as at and forthe quarter and six months ended June 30, 2004 include the operations ofPechiney.  The financial statements as at December 31, 2003 include only thebalance sheet of Pechiney.  The interim consolidated financial statements forthe quarter and six months ended June 30, 2003 do not include the operations ofPechiney.

**2.         ACCOUNTING CHANGES**

Asset Retirement Obligations

On January 1, 2003, theCompany retroactively adopted Statement of Financial Accounting Standards(SFAS) No. 143, Accounting for Asset Retirement Obligations.  Under SFAS No.143, the Company recognized additional liabilities, at fair value, ofapproximately $107 as at January 1, 2003, for existing legal asset retirementobligations. Such liabilities are adjusted for accretion costs and revisions inestimated cash flows.  The related asset retirement costs are capitalized asincreases to the carrying amount of the associated long-lived assets andaccumulated depreciation on these capitalized costs is recognized.  Theseliabilities consist primarily of environmental remediation costs, resultingfrom normal operations, associated with certain bauxite residue disposal sitesat its alumina refineries and the disposal of certain of its spent potliningassociated with smelter facilities.  An after-tax charge of $39 for thecumulative effect of accounting change was recorded as a result of the newstandard, relating primarily to costs for spent potlining disposal for potscurrently in operation. 

 

 

 

-7-

**2.         ACCOUNTING CHANGES**(cont'd)

Stock Options and Other Stock-Based Compensation

Effective January 1, 2004,the Company adopted the fair value recognition provisions of SFAS No. 123,Accounting for Stock-Based Compensation.  Under the retroactive restatement methodselected by the Company as described in SFAS No. 148, Accounting forStock-Based Compensation - Transition and Disclosure, compensation costrecognized in the statement of income for the quarter and six months ended June30, 2004 is the same as that which would have been recognized had the fairvalue method of SFAS No. 123 been applied from its original effective date. All prior periods presented have been restated to reflect compensation cost asif the fair value method had been applied from the original effective date ofSFAS No. 123.

The impact of the adoptionof the fair value method of accounting for stock-based compensation was anincrease in stock-based compensation expense of $2 and $4 for the quarter andsix months ended June 30, 2004 respectively (2003: $2 and $4).  The impact asat June 30, 2004 was an increase in additional paid-in capital of $46 ($48 asat December 31, 2003), an increase in common shares of $41 ($35 as at December31, 2003), and a decrease in retained earnings of $87 ($83 as at December 31,2003).  The earnings per common share impact of this restatement is nil for thequarter and a reduction of $0.01 per share for the six months ended June 30,2004 (2003: nil and $0.01).  

**3.         DISCONTINUED OPERATIONSAND ASSETS HELD FOR SALE**

In the second quarter of2003, the Company committed to a plan to sell certain non-strategic Packagingoperations, as the businesses are not part of its core operations. Thesebusinesses are classified as held for sale and are included in discontinuedoperations. In the fourth quarter of 2003, the Company recorded the sale ofFibrenyle, one of the non-strategic Packaging operations in the U.K., forproceeds of $29.  In the second quarter of 2004, theCompany recorded the sale of the Boxal Group and Suner Cartons, for proceeds of$6 and $19, respectively. The Boxal Group comprises three manufacturingfacilities in France, the Netherlands and Switzerland as well as a sales officein Germany.  Suner Cartons comprises a facility in Spain.

On December 31, 2003, theCompany classified the aluminum rolling mill in Ravenswood, West Virginia, asheld for sale. Ravenswood was acquired through the acquisition of Pechiney.

In December2003, the Company classified in discontinued operations its extrusions operationsin Milan, Italy (Engineered Products). These operations had been classified asheld and used until their sale in December 2003. 

In the firstquarter of 2004, the Company committed to a plan to sell certain non-strategicassets in the Engineered Products operating segment that are not part of itscore operations.  The Company is actively pursuing potential purchasers andexpects the sale to be completed in the first quarter of 2005. These assets areclassified as held for sale and are included in discontinued operations. 

In the secondquarter of 2004, the Company classified in discontinued operations its copper,ores and concentrates trading businesses previously reported in Pechiney WorldTrade.  The Company is pursuing potential purchasers and expects the sale ofthese businesses to be completed by the end of 2004.

Fair values were determinedbased on either discounted cash flows or expected selling price.  Certainfinancial information has been reclassified in the prior periods to presentthese businesses as discontinued operations on the statement of income, asassets held for sale and liabilities of operations held for sale on the balancesheet and as cash flows from (used for) discontinued operations on thestatement of cash flows.

An impairment charge of niland $5 for the quarter and six months ended June 30, 2004, respectively (2003:$133 and $134), was recorded in discontinued operations to reduce the carryingvalues of these businesses to estimated fair values less costs to sell. 

-8-

**3.         DISCONTINUED OPERATIONSAND ASSETS HELD FOR SALE**(cont'd)

Selected financialinformation for the businesses included in discontinued operations is reportedbelow:
			 
Second  Quarter

Six  Months
			 
*Periods  ended June 30*

**2004**

2003

**2004**

2003
  			 
Sales

**346     **

92     

**702     **

182     
  
** **

** **
			 
Income (Loss) from operations

**18     **

(8)    

**-      **

(11)    
			 
Gain on disposal - net

**27     **

-     

**27     **

-     
			 
Asset impairment provisions

**-      **

(133)    

**(5)    **

(134)    
			 
Pre-tax income (loss)

**45     **

(141)    

**22     **

(145)    
			 
Income tax recovery (expense)

**(3)    **

26     

**1     **

26     
			 
Income (Loss) from discontinued operations

**42     **

(115)    

**23     **

(119)    

** **

            The major classes of Assets heldfor sale and Liabilities of operations held for sale are as follows:
		 
** **

**June 30, 		2004**

December 31,		2003
		 
Current assets held for sale:
		 
Trade receivables

**166**

193
		 
Other receivables

**134**

159
		 
Deferred income taxes

**5**

7
		 
Inventories

**322**

353
 
**627**

712
		 
Long-term assets held for sale:
		 
Deferred charges and other assets

**2**

2
		 
Deferred income taxes

**66**

70
		 
Property, plant and equipment, net

**21**

47
		 
Goodwill, net

**-**

22
 
**89**

141
		 
Current liabilities of operations  held for sale:

** **
		 
Payables and accrued liabilities

**670**

435
		 
Short-term borrowings

**10**

1
 
**680**

436
		 
Long-term liabilities of operations  held for sale:

** **
		 
Deferred credits and other  liabilities

**315**

315
		 
Deferred income taxes

**2**

8
 
**317**

323

 

 

 

 

-9-

**4.         EARNINGSPER SHARE - BASIC AND DILUTED**

Basic and diluted earnings pershare are based on the weighted average number of shares outstanding during theperiod.  The treasury stock method for calculating the dilutive impact of stockoptions is used. The following table outlines the calculation of basic anddiluted earnings per share on income from continuing operations.
 
Second  Quarter

Six  Months
		 
*Periods  ended June 30*

**2004**

2003

**2004**

2003
		 
**Numerator:**
		 
Income from continuing operations

**289     **

23     

**414     **

39     
		 
Less: dividends on preference  shares

**(1)    **

(1)    

**(3)    **

(3)    
		 
Income from continuing operations  attributable to 

** **

** **
		 
   common  shareholders

**288     **

22     

**411     **

36     
  
** **

** **
		 
**Denominator****(number of  common shares in millions):**

** **

** **
		 
Weighted average of outstanding  shares - basic

**368     **

322     

**368     **

322     
		 
Effect of dilutive stock options

**1     **

-     

**1     **

-     
		 
Adjusted weighted average of  outstanding shares - diluted

**369     **

322     

**369     **

322     
		 
**Earnings per common share -  basic and diluted**

**0.78     **

0.07     

**1.12     **

0.11     

In thesecond quarter and six months of 2004, options to purchase 1,016,500 and1,000,000 common shares, respectively (2003: 6,242,883 and 6,222,883) at aweighted average grant price of CAN$60.96 and CAN$61.03 per share, respectively(2003: CAN$49.14 andCAN$49.16) were outstanding during the period but were not included in thecomputation of diluted earnings per share because the options' exercise pricewas greater than the average price of the common shares.

As at June 30, 2004, there were 368,225,632(2003: 321,739,502) common shares outstanding.  

**5.         RESTRUCTURING,IMPAIRMENT AND OTHER SPECIAL CHARGES**

In 2001, the Company implemented arestructuring program aimed at safeguarding its competitiveness, resulting in aseries of plant sales, closures and divestments throughout the organization. In context of the Company's objective of value maximization, a detailedbusiness portfolio review was undertaken in 2001 to identify high costoperations, excess capacity and non-core products.  Impairment charges arose asa result of negative projected cash flows and recurring losses.  These chargesrelated principally to buildings, machinery and equipment and some previouslycapitalized project costs.  This program was completed in 2003.  The followinginformation relates only to the 2001 program.

Restructuring and asset impairment charges

The schedule provided below showsdetails of the provision balances and related cash payments for therestructuring and asset impairment charges relating to the 2001 restructuringprogram.

 

 

-10-

**5.        RESTRUCTURING,IMPAIRMENT AND OTHER SPECIAL CHARGES**(cont'd)
		 
**Severance		Costs    **

**Asset     		Impairment		Provisions **

** **

**Other  **

** **

**Total  **
		 		 
**2001**
		 
Charges

          111 

           268 

          28 

        407 
		 
Cash payments - net

            (6)

               - 

           (7)

         (13)
		 
Non-cash charges

              - 

          (268)

             - 

       (268)
		 
Provision balance as at December 31

          105 

               - 

          21 

        126 
  		 
**2002**
		 
Charges

           35 

            17 

          30 

          82 
		 
Cash payments - net

          (63)

               - 

             - 

         (63)
		 
Non-cash charges

            (6)

           (17)

           (9)

         (32)
		 
Provision balance as at December 31

           71 

               - 

          42 

        113 
  		 
**2003**
		 
Charges (recoveries)

            (3)

               - 

         (26)

         (29)
		 
Cash payments - net

          (45)

               - 

         (26)

         (71)
		 
Non-cash charges

              - 

               - 

          33 

          33 
		 
Provision balance as at December 31

           23 

               - 

          23 

          46 
  		 
**Six months, 2004**
		 
Charges (recoveries)

**- **

**- **

**(6)**

**(6)**
		 
Cash payments - net

**(10)**

**- **

**(8)**

**(18)**
		 
Non-cash charges

**- **

**- **

**7 **

**7 **
		 
Provision balance as at June 30

**13 **

**- **

**16 **

**29 **
  
The remaining provision of $29 asat June 30, 2004 related principally to employee severance costs andenvironmental remediation for which payments will be made over an extendedperiod.

2004 Activities

In the second quarter of 2004, theCompany recorded charges of $1, pretax, consisting of restructuring and closurecosts relating to cable operations in Canada and the United States (EngineeredProducts).  In the first quarter of 2004, the Company recorded recoveries of$7, pre-tax, consisting primarily of sales of assets related to the closure offacilities at Glasgow, U.K.

2003 Activities

In 2003, Restructuring, impairmentand other special charges of $(38), pre-tax were recorded, which includedrecoveries in restructuring and asset impairment charges of $29 and otherspecial charges of $9.  The $29 (Q1: $(2); Q2: $16; Q3: $(5); Q4: $20) recoveryconsists of $3 for the reversal of an excess redundancy provision in the U.K.(Rolled Products Europe), a gain of $19 principally for the sale of theBorgofranco power facilities in Italy (Rolled Products Europe), income of $6 onthe sale of extrusions operations in Malaysia (Rolled Products Americas andAsia), and a gain of $9 relating to sales of assets in the U.K. ($5: Bauxiteand Alumina; $4: Rolled Products Europe), partially offset by other costs of $8principally in the U.K. (Rolled Products Europe).

 

 

-11-

**5.         RESTRUCTURING,IMPAIRMENT AND OTHER SPECIAL CHARGES**(cont'd)

In 2003, the Company completed theclosure of facilities at Glasgow, U.K., sold its extrusions operations inMalaysia for net proceeds of $2 and decided to retain the recycling operationsat the Borgofranco plant in Italy and both cold mills at the light gaugeoperations in Fairmont, West Virginia.

2002 Activities

In 2002, Restructuring, impairmentand other special charges of $63, pre-tax were recorded, which includedrestructuring and asset impairment charges of $82 and gains in other specialcharges of $19.  The $82 charge consisted of severance costs of $35 related toworkforce reductions of approximately 850 employees, impairment of long-livedassets of $17 and other exit costs related to the shutdown of facilities of$30.  Severance charges of $35 (Q1: nil; Q2: $14; Q3: $5; Q4: $16) relatedprimarily to the closure of the Burntisland facility, U.K. (Bauxite andAlumina), certain cable operations in North America (Engineered Products),extrusions operations in Malaysia and light gauge operations in Fairmont, WestVirginia (Rolled Products Americas and Asia).  Asset impairment charges of $17 (Q1:nil; Q2: nil; Q3: $13; Q4: $4) related primarily to the Borgofranco plant inItaly (Rolled Products Europe) and the operations in Korea (Rolled ProductsAmericas and Asia).  Other exit costs of $30 (Q1: $5; Q2: nil; Q3: $(4); Q4:$29) consisted principally of closure costs of $19 for the Burntislandfacility, U.K., a loss of $5 on the sale of the extrusions operations inThailand that arose from the realization of deferred translation losses (RolledProducts Americas and Asia), a loss of $4 on the sale of the rolled productscircles production unit at Pieve, Italy (Rolled Products Europe), other costsof $6 and was offset in part by income of $4 from the write-back of excess contractloss provisions upon settlement with a customer (Engineered Products).

In 2002, the Company completed thesale of certain glass packaging operations located in Park Hills, Missouri,Mays Landing, Williamstown, and Millville, New Jersey for proceeds of $15 equalto book value. As well, the Company sold its rolled product circles productionunit at its Pieve plant in Italy for proceeds of $14 and its two Pharmatechrubber stopper and aluminum seals operations located in Salisbury, Maryland,for proceeds of $9 equal to book value.

2001 Activities

In 2001, Restructuring, impairmentand other special charges of $653 pre-tax were recorded, which includedrestructuring and asset impairment charges of $407 and other special charges of$246.  The charges of $407 included severance costs of $111, which related toworkforce reductions of approximately 2,190 employees, impairment of long-livedassets of $268 and other exit costs related to the shutdown of facilities of$28. 

 

 

 

 

 

-12-

**6.         INFORMATIONBY OPERATING SEGMENT**

The following presents selected information by operating segment,viewed on a stand-alone basis.  The operating management structure iscomprised of seven operating segments.  The seven operating segments areBauxite and Alumina; Primary Metal; Rolled Products Americas and Asia; RolledProducts Europe; Engineered Products; Packaging; and Segregated Businesses. The Company's measure of the profitability of its operating segments isreferred to as business group profit (BGP).  BGP comprises earnings beforeinterest, income taxes, minority interests, depreciation and amortization andexcludes certain items, such as corporate costs, restructuring costs (relatingto major corporate-wide acquisitions or initiatives), impairment and otherspecial charges, and pension actuarial gains, losses and other adjustments,that are not under the control of the business groups or are not considered inthe measurement of their profitability.  These items are generally managed bythe Company's corporate head office, which focuses on strategy development andoversees governance, policy, legal, compliance, human resources and financematters.  The change in fair market value of derivatives is removed fromindividual BGP and is shown on a separate line within total BGP.  This presentationprovides a more accurate portrayal of underlying business group results and isin line with the Company's portfolio approach to risk management.  Transactionsbetween operating segments are conducted on an arm's-length basis and reflectmarket prices.  Thus, earnings from the Primary Metal group represent mainlyprofit on metal produced by the Company, whether sold to third parties or usedin the Company's Rolled Products, Engineered Products or Packaging groups. Earnings from the Rolled Products, Engineered Products and Packaging groupsrepresent only the fabricating profit on their respective products.  

The accounting principles used toprepare the information by operating segment are the same as those used toprepare the consolidated financial statements of the Company, except for thefollowing two items: 

(1)  The operating segments include the Company's proportionate share ofjoint ventures (including joint ventures accounted for using the equity method)as they are managed within each operating segment; and

(2)  Pension costs for the operating segments are based on the normal currentservice cost with all actuarial gains, losses and other adjustments beingincluded in Intersegment and other.

The operating segments aredescribed below.

Bauxite and Alumina

Headquartered in Montreal, Canada,this group comprises Alcan's worldwide activities related to bauxite mining,alumina refining and the production and sale of specialty aluminas, owningand/or operating 20 deposits, plants, and bauxite mines in ten countries.  Thisgroup also comprises the alumina trading businesses previously included inPechiney World Trade.

Primary Metal

Also headquartered in Montreal,this group comprises smelting operations, power generation and production ofprimary value-added ingot in the form of sheet ingot, extrusion billet, rod andfoundry ingot, as well as engineering services, technology sales, a ferroalloys business, and trading operations for alumina and aluminum, operating orhaving interests in 25 smelters in 13 countries.  Alcan has committed to locatein France the operational headquarters of its European primary aluminumbusiness.

Rolled ProductsAmericas and Asia

Headquartered in Cleveland, U.S.A.,this group encompasses aluminum sheet and light gauge products, operating 16plants and three research and development centres in five countries.

Rolled Products Europe

Headquartered in Zurich,Switzerland, this group comprises aluminum sheet, including automotive, can andlithographic sheet, plate and foil stock, operating 19 plants in sevencountries.

 

 

-13-

**6.         INFORMATIONBY OPERATING SEGMENT**(cont'd)

Engineered Products

Headquartered in both Zurich,Switzerland, andParis, France, this group produces fabricated aluminum products, including wireand cable, components for the mass transportation, automotive, aerospace,building, display, electromechanical and other industrial markets, as well assales and service centres throughout Europe, operating 80 facilities in 18countries.  One of these facilities is excluded from the operating segmentinformation as it has been reclassified to discontinued operations and assetsheld for sale.

Packaging

Headquartered in Paris, this groupconsists of the Company's worldwide food, pharmaceutical, beauty and tobaccopackaging businesses, operating 178 plants in 26 countries. 

Integrationof Pechiney World Trade

Duringthe second quarter of 2004, the Company ceased to report Pechiney World Tradeas a separate operating segment as its operations have been integrated into theCompany's remaining operating segments.  The operations have been allocated asfollows:
-  The alumina trading business has beenreclassified to Bauxite and Alumina; 
-  The aluminum trading business has beenreclassified to Primary Metal;
-  The sales network has been reclassifiedto Engineered Products; and
-  The coppers, ores and concentratestrading business has been reclassified to discontinued operations and assetsheld for sale.

Alcanreports trading revenues and costs for aluminum contracts on a net rather thangross basis.  This applies only to those third-party metal sales sourcedfrom third parties.  This accounting treatment reduced sales and cost ofgoods sold for the quarter and six months ended June 30, 2004 by $196 and $459,respectively.

Segregated Businesses

In connection with the Pechineyacquisition, the Company has assumed certain obligations, imposed bycompetition law authorities, in relation to certain assets and businesses (the"Segregated Businesses").  The Company's obligations in connection with theSegregated Businesses consist of holding and managing them under a regime thatis separate and distinct from that of other assets of the Company.  In order tocomply with these imposed obligations, the Company has created a separateoperating segment to hold these assets and businesses.  The SegregatedBusinesses consist of the Neuf-Brisach, Rugles, and Annecy rolling mills andcertain packaging operations in the aluminum cartridges businesses.

The Ravenswood rolling mill is alsounder independent management, but its results are included in discontinuedoperations, as U.S. competition regulators have required its divestment.

Intersegment and other

This classification includes thedeferral or realization of profits on intersegment sales of aluminum andalumina, corporate office costs as well as other non-operating items.

 

 

-14-

**6.         INFORMATIONBY OPERATING SEGMENT**(cont'd)    (unaudited)
			 
Second  Quarter     

Six  Months           
			 
*Periods  ended June 30*

**2004 **

2003 

**2004 **

2003 
 			 
**Sales and operating revenues -  intersegment**

** **
			 
Bauxite and Alumina

**415 **

232 

**838 **

433 
			 
Primary Metal

**914 **

591 

**1,749 **

1,196 
			 
Rolled Products Americas and Asia

**22 **

16 

**39 **

36 
			 
Rolled Products Europe

**177 **

161 

**337 **

310 
			 
Engineered Products

**163 **

12 

**303 **

17 
			 
Packaging

**2 **

1 

**4 **

2 
			 
Segregated Businesses

**43 **

- 

**85 **

- 
			 
Other

**(1,736)**

(1,013)

**(3,355)**

(1,994)
  
**- **

- 

**- **

- 
			 
**Sales and operating revenues -  third parties**

** **

** **
			 
Bauxite and Alumina

**352 **

137 

**727 **

257 
			 
Primary Metal

**1,237 **

618 

**2,422 **

1,211 
			 
Rolled Products Americas and Asia

**1,092 **

916 

**2,091 **

1,775 
			 
Rolled Products Europe

**737 **

650 

**1,469 **

1,272 
			 
Engineered Products

**1,026 **

438 

**2,023 **

873 
			 
Packaging

**1,521 **

739 

**3,044 **

1,341 
			 
Segregated Businesses

**271 **

- 

**522 **

- 
			 
Adjustments for equity-accounted  joint ventures 

**10 **

(1)

**18 **

6 
			 
Other

**6 **

8 

**14 **

19 
  
**6,252 **

3,505 

**12,330 **

6,754 
 
 

 

 

 

 

-15-

 

 

**6.         INFORMATION BY OPERATING SEGMENT**(cont'd)    (unaudited)
		 
Second  Quarter    

Six  Months      
		 
*Periods  ended June 30*

**2004**

2003

**2004**

2003
		 
** **
		 
**Business Group Profit (BGP)**
		 
Bauxite and Alumina

**137 **

45 

**231 **

86 
		 
Primary Metal

**476 **

159 

**870 **

366 
		 
Rolled Products Americas and Asia

**103 **

93 

**208 **

174 
		 
Rolled Products Europe

**70 **

65 

**135 **

119 
		 
Engineered Products

**73 **

24 

**140 **

48 
		 
Packaging

**167 **

90 

**335 **

170 
		 
Segregated Businesses

**18 **

- 

**37 **

- 
		 
Adjustments for equity-accounted  joint ventures 

**(52)**

(39)

**(105)**

(70)
		 
Adjustments for mark-to-market of  derivatives

**(12)**

33 

**(16)**

60 
		 
BGP Subtotal

**980 **

470 

**1,835 **

953 
  
** **

** **
		 
Depreciation and amortization

**(329)**

(216)

**(669)**

(424)
		 
Intersegment, corporate offices and  other

**(137)**

(32)

**(387)**

(109)
		 
Equity income

**17 **

11 

**33 **

18 
		 
Interest

**(87)**

(54)

**(181)**

(101)
		 
Income taxes

**(140)**

(144)

**(191)**

(285)
		 
Minority interests

**(15)**

(12)

**(26)**

(13)
		 
**Income from continuing  operations**

**289 **

23 

**414 **

39 

** **

**7.         STOCKOPTIONS AND OTHER STOCK-BASED COMPENSATION**

Stock Options

As described in note 2 - Accounting Changes,effective January 1, 2004, the Company retroactively adopted the fair valuerecognition provisions of SFAS No. 123, Accounting for Stock-BasedCompensation. The Black-Scholes valuation model is used to determine the fairvalue of the options granted.  For the second quarter and six months ended June30, 2004, the stock-based compensation expense for options granted was $2 and$4, respectively (2003: $2 and $4).

Other Stock-Based Compensation 

For the second quarter and six months ended June 30,2004, the stock-based compensation expense (income) for arrangements that canbe settled in cash was ($5) and ($4), respectively (2003: $3 and $5).

**8.         INCOMETAXES**
		 
Second  Quarter

Six  Months
		 
*Periods  ended June 30*

**2004**

2003

**2004**

2003
 		 
Current

**         98**

       104

**       195**

       211
		 
Deferred

**         42**

         40

**          (4)**

         74
 
**       140**

       144

**       191**

       285

 

 

-16-

**8.         INCOMETAXES** (cont'd)

The composite of the applicablestatutory corporate income tax rates in Canada is 32% (2003: 39%).   EffectiveJanuary 1, 2004, the general and manufacturing and processing tax rates inCanada are equivalent.  Prior to 2004, the effect of the reduced tax rate onmanufacturing and processing activities in Canada was disclosed as a deductionfrom the general tax rate.

**9.         LONG-TERMDEBT**

On April 14, 2004, the Companyentered into a long-term, global, five-year multi-currency credit facility witha syndicate of major international banks amounting to $3,000.  The facility isavailable for general corporate purposes including back-up for commercial paperborrowings.  This facility expires in 2009.

**10.       OTHER EXPENSES (INCOME) - NET**
		 
Second  Quarter

Six  Months
		 
*Periods  ended June 30*

**2004**

2003

**2004**

2003
		 		 
Restructuring  costs

**27     **

11     

**45     **

14     
		 
Asset impairment  provisions

**2     **

9     

**10     **

12     
		 
Gain on disposal  of businesses and investment - net

**(42)    **

(51)    

**(42)    **

(51)    
		 
Derivatives

**27     **

(4)    

**33****     **

(32)    
		 
Interest revenue

**(6)    **

(3)    

**(8)    **

(6)    
		 
Exchange (gains)  losses

**(10)    **

79     

**(21)    **

149     
		 
Other

**57     **

(21)    

**39****     **

(30)    
 
**55     **

20     

**56     **

56     

** **

**11.     SUPPLEMENTARY INFORMATION**
		 
Second  Quarter

Six  Months
		 
*Periods  ended June 30*

**2004**

2003

**2004**

2003
 		 
**Income Statement**
		 
Interest on long-term debt

**72     **

45     

**146     **

87     
		 
Capitalized interest

**(2)    **

(1)    

**(4)    **

(2)    
		 
**Statement of Cash Flows**

** **

** **
		 
Interest paid

** **

** **
		 
   Continuing  operations

**123     **

74     

**205     **

129     
		 
   Discontinued  operations

**2     **

1     

**3     **

1     
		 
Income taxes paid (refunded)

** **

** **
		 
   Continuing  operations

**149     **

92     

**307     **

121     
		 
   Discontinued  operations

**(8)    **

(2)    

**(8)    **

(1)    

** **

 

 

-17-
****
**11.        SUPPLEMENTARY INFORMATION** (cont'd)

** **
 
** **

** **

** **
 
** **

**June 30,**

December 31,
 
** **

**2004**

2003
 
** **

** **

** **
 
**Balance Sheet**

** **

** **
 
Payables and  accrued liabilities include the following:

** **

** **
 
Trade  payables

**2,537**

2,486
 
Accrued  liabilities

**2,619**

2,478
 
** **

** **

** **

** **

**12.       COMMITMENTS AND CONTINGENCIES**

In 1997, as part of the claimsettlement arrangements related to the British Columbia Government'scancellation of the Kemano Completion Project, the Company obtained the rightto transfer a portion of a power supply contract with BC Hydro to a thirdparty.  The Company sold the right to supply this portion to Enron PowerMarketing Inc. (EPMI), a subsidiary of Enron Corporation (Enron) for cashconsideration.  In order to obtain the consent of BC Hydro to this sale, theCompany was required to retain a residual obligation for EPMI's performanceunder the power supply contract in the event that EPMI became unable toperform, to a maximum aggregate amount of $100, with mitigation and subrogationrights. BC Hydro assigned its rights to receive the power to BC Hydro'saffiliate, Powerex Corporation (Powerex).  On December 2, 2001, EPMI and Enronfiled for protection under Chapter 11 of the U.S. Bankruptcy Code.  Powerexalleged that the power supply contract with EPMI was terminated and thatPowerex was owed a termination payment of more than $100.  On March 22, 2002,Alcan received a demand for payment in the amount of $100 from Powerex.  OnJanuary 17, 2003, an arbitrator's decision confirmed Powerex's claim for $100. In early 2003, Alcan commenced legal proceedings in the U.S. Federal DistrictCourt (Oregon) seeking judicial review of the arbitration award.  Powerex alsocommenced a proceeding in the British Columbia Supreme Court to recognize andenforce the arbitration award.  On July 10, 2003, the B.C. Supreme Court stayedthe British Columbia proceedings until the U.S. Federal Court had decided thevarious matters before it.  On September 18, 2003, a Magistrate Judge of theU.S. Federal Court issued his recommendations.  The Magistrate Judgerecommended that the Company's motion for judicial review of the arbitrationaward be denied.   On September 29, 2003, the Company filed an objection withthe U.S. Federal Court objecting to the recommendations of the Magistrate Judgeand Powerex shortly thereafter filed a reply to the objection. On December 11,2003, the U.S. Federal Court adopted the findings and recommendations of theMagistrate Judge.  On January 9, 2004, Alcan filed an appeal of that decisionwith the U.S. Federal Court of Appeal (9th Circuit).  On April 7,2004, Powerex proceeded with the hearing in the B.C. Supreme Court of itspetition to, among other things, recognize and enforce the January 17, 2003arbitration award.  On June 30, 2004, the B.C. Supreme Court  adjourned theenforcement of the awardon the condition that Alcan pay to Powerex's lawyers, in trust, the full amountof the arbitration award, including accrued interest.  Powerex is entitled touse the funds deposited with their lawyers on two conditions.  First, Powerexmust repay the funds if Alcan is ultimately successful in the U.S. appeal andsecond, Powerex must post security, satisfactory to Alcan.  Alcan isappealingthis decision.  A provision of $100 pre-tax was recorded in the fourth quarterof 2002. 

The approval of the Pechiney acquisition by the EuropeanCommission was obtained on September 29, 2003.  The approval is subject to thefollowing conditions:

1)   Alcan must divest its anode bakingfurnace designs.

2)  The Company must continue to grantlicenses to third parties for the alumina refining technologies of either Alcanor Pechiney, and Pechiney's smelter cell technologies on terms and conditionsequivalent to those in existence prior to the Pechiney acquisition.

3)   The Company must divest either ofthe following groups of assets:

(a)  Alcan's 50% interest in AluNorf,held through a joint venture with Norsk Hydro ASA, and its Göttingen andNachterstedt rolling mills.  In addition, the Company must transfer theresearch and development capacities related to these assets to the purchaser. The Latchford recycling facility may also, at the purchaser's option, beincluded in the divestiture; or

 

 

-18-

**12.        COMMITMENTS AND CONTINGENCIES** (cont'd)

(b)  Pechiney's interest in the rollingmill at Neuf-Brisach, the Rugles foil mill and, at the purchaser's option, theAnnecy rolling mill. In addition, the Company must transfer the research anddevelopment capacities related to these assets to the purchaser.  The Latchfordrecycling facility may also, at the purchaser's option, be included in thedivestiture.

As described in note 16 - Spin-Off of Rolled ProductsBusinesses, the Company's planned spin-off of substantially all of its rolledproducts businesses would accomplish the requirement for divestiture of theNeuf-Brisach or AluNorf/Göttingen/Nachterstedt rolling facilities.

4)   The Company must also divest eitherof the following operations:

(a)    Alcan's Europeanactivities in relation to aerosol cans and aluminum cartridges; or

(b)    Pechiney'sEuropean activities in relation to aerosol cans and aluminum cartridges.

In the second quarter of 2004, theCompany sold the Boxal Group which comprises the activities in relation toaerosol cans described in 4(a) above.  The Company  has not determined whichgroup of assets in relation to aluminum cartridges to divest.

The divestitures must be completed within a limited period.

In order to obtain the approval of the Pechiney acquisitionby the U.S. Department of Justice (DOJ), the Company entered into a consentdecree, on September 29, 2003, with the DOJ pursuant to which the Company hasundertaken to divest Pechiney's rolling mill located in Ravenswood, WestVirginia, as described in note 3 - Discontinued Operations and Assets Held forSale.  However, an alternative remedy to the existing order to divestRavenswood is described in note 16 - Spin-Off of Rolled Products Businesses.

The Company hasguaranteed the repayment of approximately $193 of indebtedness by thirdparties. Alcan believes that none of these guarantees is likely to be invoked. These guarantees relate primarily to customer contracts, employee housing loansand potential environmental remediation at former Alcan sites. 

Alcan, in thecourse of its operations, is subject to environmental and other claims,lawsuits and contingencies. The Company has environmental contingenciesrelating to approximately 114 existing and former Alcan sites and third-partysites. Accruals have been made in specific instances where it is probable thatliabilities will be incurred and where such liabilities can be reasonablyestimated. 

Although there isa possibility that liabilities may arise in other instances for which noaccruals have been made, the Company does not believe that it is reasonablypossible that losses in excess of accrued amounts are sufficient tosignificantly impair its operations, have a material adverse effect on itsfinancial position or liquidity, or materially and adversely affect its resultsof operations for any particular reporting period, absent unusualcircumstances, will occur.

 

 

 

19

**13.      COMPREHENSIVEINCOME**
			 
Second  Quarter

Six  Months
			 
*Periods  ended June 30*

**2004**

2003

**2004**

2003
 			 
Net income (Loss)

**331**

(92)

**437**

(119)
			 
Other comprehensive income

** **

** **
			 
      Net change in deferred  translation adjustments

**(58)**

163

**(152)**

181
			 
      Net change in excess of  market value over book value 

** **

** **
			 
of  "available-for-sale" securities 

**(1)**

-

**(2)**

2
			 
         Reclassification to net  income on disposal of 

** **

** **
			 
         "available  for-sale" securities

**-**

(8)

**-**

(8)
			 
      Valuation of derivatives, net  of tax of ($2) and $5,  

** **

** **
			 
   respectively  for the quarter and six months ended 

** **

** **
			 
June 30, 2004  (2003: ($4) and ($9))

** **

** **
			 
Net change from periodic  revaluations

**1**

14

**(16)**

27
			 
Net amount reclassified to income

**2**

(5)

**6**

(5)
			 
      Net change in minimum pension  liability, net of tax of 

** **

** **
			 
($1) and $1,  respectively for the quarter and six

** **

** **
			 
months ended  June 30, 2004 (2003: nil)

**1**

-

**(2)**

-
			 
**Comprehensive income**

**276**

72

**271**

78

 
 ** **
**June 30, 			2004**

December 31,			2003
 			 
**Accumulated other comprehensive  income**
			 
Unrealized loss on derivatives

**(22)**

           (12)
			 
Deferred translation adjustments

**457**

           609
			 
Minimum pension liability

**(352)**

          (350)
			 
Unrealized gain on  "available-for-sale" securities

**4**

              6
			 
**Accumulated other comprehensive  income**

**87**

           253

 

**14.       SALES AND ACQUISITIONS OF BUSINESSES**

Pechiney

On December 15, 2003, the Companyacquired the Pechiney securities tendered during the initial offer and, asconsideration, issued 42,413,105 common shares (including 1,417,910 shares toPechiney) valued at $39.63 per share and paid $3,544 in cash.  Accordingly,Pechiney became a subsidiary of the Company on December 15, 2003.

On January 15, 2004, the Companyacquired the Pechiney securities tendered in the re-opened offer and, asconsideration, issued 2,082,075 common shares of the Company (including 691,669shares to Pechiney) valued at $39.63 per share and paid $158 in cashincluding $5 as payment of additional consideration for holdersof Pechiney securities who tendered during the re-opened offer.  Theadditional ownership acquired through this re-opened offer was accounted for inthe first quarter of 2004 when the Company settled the purchase price andobtained legal title of the Pechiney securities tendered during the re-openedoffer. 

The withdrawal offer of Alcan, madein accordance with French securities regulations, as a required step to acquireall remaining Pechiney equity securities, was opened from January 23 toFebruary 5, 2004.  It was followed on February 6, 2004, by a compulsoryacquisition by which Alcan became the owner of the remaining Pechiney equitysecurities it did not already own.  On January 23, 2004, Alcan paid $109, whichwas accounted 

 

 

-20-

 

 

**14.       SALES AND ACQUISITIONS OF BUSINESSES**(cont'd)

for in the first quarter of 2004,representing the aggregate consideration for the withdrawal offer andcompulsory acquisition (without taking into account the Pechiney shares thatresulted from exercise of Pechiney options between January 23 and February 5,2004), for distribution in accordance with the provisions ofFrench securities regulations.  On February 6,2004, the Company paid $7, which was accounted for in the first quarter of2004, in order to complete the acquisition of the Pechiney sharesthat were issued between January 23 and February 5, 2004, upon the exercise ofPechiney options.  On February 6, 2004, Pechiney became a wholly-ownedsubsidiary of the Company. 

The acquisition was accounted forusing the purchase method.  The balance sheet of Pechiney is included in theconsolidated financial statements as at December 31, 2003, and the results ofoperations of Pechiney are included in the consolidated financial statementsbeginning January 1, 2004.  Given the magnitude of the acquisition of Pechineyand due to the fact that the transaction was completed at the end of 2003, atentative purchase price allocation has been performed and, as permitted byaccounting standards, the final valuation will be completed in 2004.  The Companyis in the process of completing its valuations of certain assets andliabilities.  Accordingly, the fair value of assets acquired and liabilitiesassumed could differ materially from the amounts presented in the consolidatedfinancial statements.  The significant elements for which the fair values couldbe modified include property, plant and equipment, intangible assets, goodwill,deferred income taxes, deferred charges and other assets, and deferred creditsand other liabilities.  During the first six months of 2004, the Companyrevised the fair value of net assets acquired in its on-going process ofcompleting the valuations of certain assets and liabilities.  The revisionsresulted in an increase in the fair value of net assets acquired of $288, includingan increase in goodwill of $695.

The divestitures required forregulatory reasons as a result of the Pechiney acquisition are described innote 12 - Commitments and Contingencies.

Fair value of net assets acquired

** **
 
Trade receivables

**       1,678**
 
Other receivables

**          106**
 
Deferred income taxes - current

**           46**
 
Inventories

**       1,691**
 
Current assets held for sale

**          611**
 
Deferred charges and other assets

**          159**
 
Deferred income taxes - non-current

**          736**
 
Property, plant and equipment

**       3,441**
 
Intangible assets

**          735**
 
Goodwill			

**       2,978**
 
Long-term assets held for sale

**           82**
 
Total assets

**     12,263**
    
Payables and accrued liabilities

**       2,111**
 
Deferred income taxes - current

**           96**
 
Short-term borrowings

**          849**
 
Debt maturing within one year

**          200**
 
Current liabilities of operations  held for sale

**          377**
 
Debt not maturing within one year

**       1,004**
 
Deferred credits and other  liabilities

**       1,519**
 
Deferred income taxes - non-current

**          283**
 
Long-term liabilities of operations  held for sale

**          314**
 
Minority interests

**          147**
 
**Fair value of net assets acquired  - net of cash and time deposits acquired**

**       5,363**

                                                                                                                                                                                           

-21-

 

 

**14.       SALES AND ACQUISITIONS OF BUSINESSES**(cont'd)

The $2,978 of goodwill has not yetbeen allocated to operating segments.  The goodwill is not expected to bedeductible for tax purposes.
 
**    June 30,**
 
Total  Acquisition Cost

**    2004**
 
Issuance of common shares on  December 15, 2003 (40,995,195* common 
 
   shares without  nominal or par value; average market value of $39.63 per share)

**1,625  **
 
Issuance of common shares on  January 15, 2004 (1,390,406** common shares 
 
   without nominal or par value; average market value of  $39.63 per share)

**55  **
 
Cash paid in 2003 of $3,544 net  of cash and time deposits acquired of $335

**3,209  **
 
Additional consideration for  initial offer, re-offer and compulsory acquisition paid 
 
   in 2004

**   318  **
 
Cost of Pechiney options

**     80  **
 
Transaction costs

**     79  **
 
Other

**(3) **
 
Total acquisition cost - net of  cash and time deposits acquired

**5,363  **

**Represents the issuance of 42,413,105 common shares net of 1,417,910 commonshares held by Pechiney**Represents the issuance of 2,082,075 common shares net of 691,669 common sharesheld by Pechiney*

Qingtongxia Aluminum Company andthe Ningxia Electric Power Development and Investment Co. Ltd

On March 10, 2004, the Company announced that it had securedthe necessary regulatory and government approvals to move forward with itspreviously announced definitive joint venture agreement with the QingtongxiaAluminum Company and the Ningxia Electric Power Development and Investment Co.Ltd.  Under the agreement, Alcan will invest approximately $150, of which $61was invested as at the end of June 2004, for a 50% participation and for asecure power supply in an existing 150-kilotonne modern pre-bake smelterlocated in the Ningxia autonomous region, in the Peoples' Republic of China. The agreement provides for the joint venture to obtain long-term access todedicated power on competitive terms sufficient to meet the energy requirementsof the smelter.  The joint venture also gives Alcan a substantial operatingrole and the option to acquire, through additional investment, up to 80% of anew 250-kt potline, already under construction.

Aluminium & Chemie RotterdamB.V.

In the second quarter of 2004, the Company recorded in Otherexpenses (income) - net a gain of $42 due to the dilution of its ownershipinterest in Aluminium & Chemie Rotterdam B.V. (Primary Metal). 

Coega Smelter Project

On June 29, 2004, the Company announced that Alcan officialsand a South African delegation are continuing to examine the bestvalue-creating alternatives offered by the aluminum smelter project originallyproposed by Pechiney in Coega, South Africa.  As part of this review, thetechnology to be employed will be selected among the leading Pechiney AP30/AP50smelting systems.  Depending on the chosen configuration, the Coega smelterproject could produce up to 660 kilotonnes of aluminum per annum.  Constructioncould start as early as the end of 2005 with the first metal produced in 2008. The proposed site is located on the coast of South Africa in the CoegaIndustrial Zone.

Oman Oil Company and Abu Dhabi Water and ElectricityAuthority

On June 30, 2004, the Company announced the signing of aMemorandum of Understanding with Oman Oil Company (OOC) and with the Abu DhabiWater and Electricity Authority (ADWEA) for a 20 percent equity interest in thedevelopment of a proposed 330-kilotonne per annum aluminum smelter project inSohar, Oman.

The Company has the option of acquiring up to 60 percent of aplanned second potline for an additional 330 kilotonnes per annum of aluminum. The agreement provides that the Company would license its Pechiney AP30 smeltertechnology and take a leading role in the construction and operation of thesmelter.  Subject to successful completion of the project agreements andfinancing arrangements, construction is expected to commence in the second halfof 2005 and result in the first metal production by the end of 2007.

 

 

-22-

**15.       POST-RETIREMENT BENEFITS**

Alcan and its subsidiarieshave established pension plans in the principal countries where they operate,generally open to all employees. Most plans provide pension benefits that arebased on the employee's service and highest average eligible compensationbefore retirement.  Pension benefits are periodically adjusted for cost ofliving increases, either by Company practice, collective agreement or statutoryrequirement.  Plan assets consist primarily of publicly-traded stocks andhigh-rated debt securities.

Components of Net Periodic Benefit Cost
 
** **

**Pension  benefits**

**Other  Benefits**
 
Second  Quarter  

Six Months    

Second  Quarter 

Six Months    
 
*Periods ended June 30*

**2004**

2003

**2004**

2003

**2004**

2003

**2004**

2003
  
Service cost

**47 **

33 

**95 **

66 

**4**

1

**8**

2
 
Interest cost on benefit obligation

**135 **

110 

**272 **

216 

**15**

4

**30**

8
 
Expected return on plan assets

**(127)**

(108)

**(256)**

(212)

**-**

-

**-**

-
 
Amortization:

** **

** **

** **

** **
 
  Actuarial loss			

**16 **

22 

**33 **

42 

**-**

-

**-**

-
 
  Prior service cost

**17 **

17 

**35 **

33 

**-**

-

**-**

-
 
Curtailment/settlement gains

**(23)**

- 

**(23)**

- 

**-**

-

**-**

-
 
Total net periodic benefit costs			

**65 **

74 

**156 **

145 

**19**

5

**38**

10

** **

The expected long-term rateof return on plan assets is 7% in 2004.

Employer Contributions

Alcan previously disclosedin its financial statements for the year ended December 31, 2003, that itexpected to contribute $172 to its funded pension plans in 2004.  Thecontributions are expected to be fully comprised of cash. As of June 30, 2004,$92 has been contributed, and the Company expects to contribute an additional$92 over the remainder of the year. The Company expects to pay in 2004 $65 ofunfunded pension benefits and lump sum indemnities from operating cash flows.

**16.       SPIN-OFF OF ROLLED PRODUCTSBUSINESSES**

The Company announced on May 18,2004 its intention to pursue a spin-off to its shareholders of substantiallyall of the rolled products businesses held by the Company prior to itsacquisition of Pechiney.  The proposed distribution will create the world'slargest aluminum rolled products company.  The plan is for the new company tobe domiciled in Canada with its executive office in the United States. Applications are planned to list the shares of the new company on the New Yorkand Toronto stock exchanges.  

The on-going Alcan, with its globalheadquarters and executive offices in Montreal, Canada, would continue to havea position in bauxite and alumina, aluminum production, an engineered productsbusiness, as well as a flexible and specialty packaging business.  Followingthe separation, the Company would have annual pro forma revenues of approximately$20 billion.

The intended spin-off will be inthe form of a pro-rata distribution to Alcan's existing shareholders of commonstock of the new company.  The Company will determine the respective capitalstructures of the two companies at the time of the spin-off according to theCompany's view of their respective financial requirements and opportunities. It is intended that Alcan would retain its current dividend policy, and thatthe new company would have its own dividend policy in place at the time of thetransaction.

The transaction is contingent upona number of conditions including the receipt of required regulatory approvals,definitive approval by the Company's Board of Directors, and Alcan shareholderapproval.  Assuming these conditions are met, the Company expects to completethe transaction before year-end.

 

-23-

**16.       SPIN-OFFOF ROLLED PRODUCTS BUSINESSES**(cont'd)

On May 26, 2004, the Companyannounced that the planned strategic spin-off of substantially all of itsrolled products businesses will have the collateral benefit of achieving theseparation of competing businesses that Alcan agreed to last year in order toobtain necessary antitrust approvals for its acquisition of Pechiney.  Thespin-off would accomplish the Company's requirement to divest either of theNeuf-Brisach rolling facilities or the AluNorf/Göttingen/Nachterstedt rollingfacilities.  The Company and the European Commission held detailed discussionsconcerning the terms of and rationale for the proposed transaction and theasset composition of the entity to be spun-off.  As part of its planning forthe proposed spin-off, the Company has taken into account the comments receivedfrom the European Commission.

On May 26, 2004, the Company andthe U.S. Department of Justice (DOJ) executed and filed with the United StatesDistrict Court in Washington, D.C. an Amended Final Judgement.  The amendmentrecognizes that the Company's proposed spin-off transaction provides analternative remedy to the existing order to divest Ravenswood.  According tothe terms of the amendment, either the sale of Ravenswood or the execution ofthe proposed spin-off will satisfy the Amended Final Judgement.  The Companyhas 180 days from the filing of the Amended Judgement to complete either thedivestiture or the spin-off.  The DOJ may extend the period by up to 60 days. The Company also agreed to continue operating the Ravenswood businessseparately.

**17.        DIFFERENCESBETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(GAAP)**

Significant differencesbetween United States and Canadian GAAP are described below.

**      (A)   Derivatives**

Beginning in 2001, the Company was required to adopt, for U.S. GAAPpurposes, SFAS Nos. 133 and 138, Accounting for Derivative Instruments andHedging Activities. These standards require that all derivatives be recorded inthe financial statements at fair value.  Beginning in 2001, unrealized gainsand losses resulting from the valuation at fair value of derivatives notmeeting strict hedge accounting criteria are recognized in net income as thegains and losses arise and not concurrently with the recognition of thetransactions being hedged.  Upon initial adoption of the SFAS Nos. 133 and 138in 2001, the cumulative effect of the accounting change resulted in a decreasein net income of $12.

Beginning January 1, 2004, with theadoption of Canadian Institute of Chartered Accountants (CICA) guidelineAcG-13, Hedging Relationships, unrealized gains and losses resulting from thevaluation at fair value of derivatives not meeting strict hedge accountingcriteria are recognized in net income as the gains and losses arise and notconcurrently with the recognition of the transactions being hedged. Uponinitial adoption of CICA accounting guideline 13, the effect of the accountingchange resulted in an increase in Deferred charges and other assets of $5 andan increase in Deferred credits and other liabilities of $5. Under CanadianGAAP, the recognition of embedded derivatives is not permitted.

AcG-13 establishes certain criteria regarding whenhedge accounting may be applied and this guideline is effective for theCompany's fiscal year beginning January 1, 2004.  Each hedgingrelationship is subject to an effectiveness test on a regular basis forreasonable assurance that it is and will continue to be effective.  Under theserules, any derivative instrument that does not qualify for hedge accounting isreported on a mark-to-market basis in earnings. Under U.S. GAAP, hedgeineffectiveness is recognized in the statement of income in the current periodwhereas under Canadian GAAP such recognition is elective.  In order to minimizedifferences with U.S. GAAP, the Company has chosen to record ineffectivenessunder Canadian GAAP.  Under U.S. GAAP, the change in fair value of derivativesthat are treated as cash flow hedges is recorded on the balance sheet in Othercomprehensive income whereas under Canadian GAAP it is recorded in Deferredcharges and other assets or Deferred credits and other liabilities.

**(B) Currency Translation**

The difference between Deferredtranslation adjustments under U.S. GAAP and Canadian GAAP arises from thedifferent treatment of exchange on long-term debt at January 1, 1983, resultingfrom the adoption of Canadian accounting standards on foreign currencytranslation on such date.

 

-24-
****
**17.        DIFFERENCES BETWEEN UNITEDSTATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)**(cont'd)

**(C) Investments**

Under U.S. GAAP, certain portfolioinvestments, which are considered to be "available-for-sale" securities, aremeasured at market value, with the unrealized gains or losses included inComprehensive income. Under Canadian GAAP, the concept of comprehensive incomedoes not exist and these investments are measured at cost.  

**(D)Minimum Pension Liability**

Under U.S. GAAP, if the accumulatedbenefit obligation exceeds the market value of plan assets, a minimum pensionliability for the excess is recognized to the extent that the liabilityrecorded in the balance sheet is less than the minimum liability.  Any portionof this additional liability that relates to unrecognized past service cost isrecognized as an intangible asset while the remainder is charged toComprehensive income.  Canadian GAAP has no such requirement to record aminimum liability.****

**(E)Asset Retirement Obligations**

Under U.S. GAAP, the Companyretroactively adopted on January 1, 2003 the SFAS No. 143, Accounting for AssetRetirement Obligations, as described in note 2 - Accounting Changes, and thecumulative effect of the accounting change was charged to income.  UnderCanadian GAAP, the standard was retroactively adopted on January 1, 2004,however the cumulative effect of the accounting change was recognized as acharge to retained earnings at January 1, 2001.

**(F) Deferred Translation Adjustments**

Under U.S. GAAP, deferredtranslation adjustments are reported as a component of Comprehensive income.Under Canadian GAAP, the concept of comprehensive income does not exist anddeferred translation adjustments are reported as a component of shareholders'equity.

**(G) Acquired In-Process Research andDevelopment**

Under U.S. GAAP, acquired in-process research anddevelopment costs are expensed immediately upon acquisition. Under CanadianGAAP, these costs are recognized as intangible assets upon acquisition if theyresult from contractual or other legal rights, or the research and developmentis capable of being separated or divided from the acquired company and sold,transferred, licensed, rented, or exchanged. Under Canadian GAAP, these intangibleassets are amortized over their useful lives.

**(H)Joint Ventures**

Under U.S. GAAP, jointventures, other than those over which Alcan has an undivided interest in theassets, are accounted for using the equity method while under Canadian GAAP,joint ventures are accounted for using the proportionate consolidation method.A joint venture is an entity owned and operated by a small group of businessesas a separate and specific business or project for the mutual benefit of themembers of the group. Parties to a joint venture are bound by a contractualarrangement, which establishes that they have joint control over the jointventure, regardless of the difference that may exist in their ownershipinterest. The different accounting treatment affects the display andclassification of financial statement items and not net income or shareholders'equity.

**(I)  Comprehensive Income**

U.S. GAAP requires thedisclosure of Comprehensive income which, for the Company, comprises Netincome, the movement in Deferred translation adjustments, movements inunrealized gains and losses on cash flow hedges, unrealized gains or losses forthe period less gains or losses realized during the period on"available-for-sale" securities and the movement in the minimumpension liability. The concept of Comprehensive income does not exist underCanadian GAAP.

 

 

-25-

**17.       DIFFERENCESBETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(GAAP)**(cont'd)

**Recently Adopted Accounting Standards**

Asset Retirement Obligations

On January 1, 2004, the Company retroactively adopted thenew standard of the CICA, Section 3110, Asset Retirement Obligations.  Theimpact of adopting this standard decreased retained earnings at January 1, 2003by $39 and increased net income for the six months ended June 30, 2003 by $39.

Hedging Relationships

On January 1, 2004, the Company adopted the CICA guidelineAcG-13, HedgingRelationships, which establishes certain conditions regarding when hedgeaccounting may be applied. Each hedging relationship is subject to aneffectiveness test on a regular basis for reasonable assurance that it is andwill continue to be effective.  The fair value of derivatives is recorded onthe balance sheet and any derivative instrument that does not qualify for hedgeaccounting is reported on a mark-to-market basis in earnings.

Stock-BasedCompensation and Other Stock-Based Payments

On January 1,2004, the Company retroactively adopted the provisions of the amendment toSection 3870, Stock-Based Compensation and Other Stock-Based Payments.  Theamendment requires the recognition of an expense computed using the fair valuemethod of accounting for all stock options and payments at grant date. The adoption of this amendment hasthe same impact as the adoption of the fair value method of accounting forstock-based compensation under U.S. GAAP.  See note 2 - Accounting Changes -Stock Options and Other Stock-Based Compensation.

GenerallyAccepted Accounting Principles

On January 1,2004, the Company adopted the new standard of the CICA, Section 1100, GenerallyAccepted Accounting Principles.  This standard establishes accounting standardsfor financial reporting in accordance with Canadian GAAP.  It defines primarysources of Canadian GAAP and requires that the Company apply every relevantprimary source.  

General Standardsof Financial Statement Presentation

On January 1,2004, the Company adopted the CICA Section 1400, General Standards of FinancialStatement Presentation.  This standard clarifies what constitutes fair presentationin accordance with Canadian GAAP, which involves providing sufficientinformation in a clear and understandable manner about certain transactions orevents of such size, nature and incidence that their disclosure is necessary tounderstand the Company's financial statements.  

 

 

 

26

**17.       DIFFERENCESBETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(GAAP)**(cont'd)

**Reconciliation of U.S. and Canadian GAAP                                                                                              **
* **Periods  ended June 30*
**Second Quarter, 2004**

Second Quarter, 2003
 
**As reported**

**Ref.**

**Amount**

**Canadian			GAAP**

As reported

Ref.

Amount

Canadian			GAAP
**Statement of Income****Sales and operating revenues**
**6,252 **

**(h)**

**(10)**

**6,242 **

3,505 

(h)

			(17)

			3,488**Cost and expenses**
** **

** **

** **

** **

Cost of sales and operating expenses

**4,922 **

**(a)**

**(8)**

**4,868 **

2,838 

(h)

			(55)

			2,783

** **

**(h)**

**(46)**

** **

Depreciation and amortization

**329 **

**(g)**

**1 **

**350 **

216 

(h)

18 

234 

** **

**(h)**

**20 **

** **

Selling, administrative and general			

** **

** **

** **

** **

   expenses

**374 **

**(h)**

**1 **

**375 **

177 

(h)

1 

178 

Research and development expenses

**58 **

** **

**- **

**58 **

32 

- 

32 

Interest			

**87 **

**(h)**

**1 **

**88 **

54 

(h)

2 

56 

Other expenses (income) - net

**55 **

**(a)**

**1 **

**58 **

20 

(a)

12 

32 

** **

**(h)**

**2 **

** **

(b)

1 

** **

** **

** **

** **

(h)

(1)

**5,825 **

** **

**(28)**

**5,797 **

3,337 

(5)

3,332 

Income from continuing operations before

** **

** **

** **

** **

   income taxes and other items

**427 **

** **

**18 **

**445 **

168 

5 

173 

Income taxes

**140 **

**(a)**

**4 **

**148 **

144 

(a)

(2)

149 

** **

**(g)**

**(1)**

** **

(h)

7 

** **

**(h)**

**5 **

** **

Income from continuing operations			

** **

** **

** **

** **

  before other items

**287 **

** **

**10 **

**297 **

24 

- 

24 

Equity income

**17 **

**(h)**

**(7)**

**10 **

11 

(h)

(11)

- 

Minority interests

**(15)**

** **

**- **

**(15)**

(12)

- 

(12)

**Income from continuing operations**

**289 **

** **

**3 **

**292 **

23 

(11)

12 

Income (Loss) from discontinued operations

**42 **

** **

**- **

**42 **

(115)

- 

(115)
**Net income (Loss)**
**331 **

** **

**3 **

**334 **

(92)

(11)

(103)

Dividends on preference shares

**1 **

** **

**- **

**1 **

1 

- 

1 
**Net income (Loss) attributable to**
** **

** **

** **

** **

  			**common shareholders**

**330 **

** **

**3 **

**333 **

(93)

(11)

(104)

(a)     Derivatives(b)     Currency translation(c)     Investments(d)     Minimum pension liability(e)     Asset retirement obligations(f)      Deferred translation adjustments(g)     Acquired in-process research anddevelopment(h)     Joint ventures

 

-27-

**17.       DIFFERENCESBETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(GAAP)**(cont'd)

**Reconciliation of U.S. and Canadian GAAP                                                                                              **
* **Periods  ended June 30*
**Six Months, 2004**

Six Months, 2003
 
**As		reported**

** Ref.**

** Amount**

**Canadian		GAAP**

As		reported

Ref.

Amount

Canadian		GAAP
Statement of IncomeSales and operating revenues
**12,330 **

**(h)**

**(18)**

**12,312 **

6,754 

(h)

(6)

6,748 
Cost and expenses
** **

** **

** **

**  **

Cost of sales and operating expenses

**9,925 **

**(a)**

**(15)**

**9,802 **

5,452 

(h)

(75)

5,377 

** **

**(h)**

**(108)**

** **

Depreciation and amortization

**669 **

**(g)**

**2 **

**717 **

424 

(h)

36 

460 

** **

**(h)**

**46 **

** **

Selling, administrative and general		

** **

** **

** **

** **

   expenses

**782 **

**(h)**

**2 **

**784 **

341 

(h)

1 

342 

Research and development expenses

**119 **

** **

**- **

**119 **

61 

- 

61 

Interest 

**181 **

**(h)**

**4 **

**185 **

101 

(h)

3 

104 

Other expenses (income) - net

**56 **

**(a)**

**(2)**

**56 **

56 

(a)

28 

83 

** **

**(h)**

**2 **

** **

(b)

1 

** **

** **

** **

** **

(h)

(2)

**11,732 **

** **

**(69)**

**11,663 **

6,435 

(8)

6,427 

Income from continuing operations before

** **

** **

** **

** **

   income taxes and other items

**598 **

** **

**51 **

**649 **

319 

2 

321 

Income taxes

**191 **

**(a)**

**4 **

**208 **

285 

(a)

(8)

287 

** **

**(g)**

**(1)**

** **

(h)

10 

** **

**(h)**

**14 **

** **

Income from continuing operations		

** **

** **

** **

** **

  before other items

**407 **

** **

**34 **

**441 **

34 

- 

34 

Equity income  (Loss)

**33 **

**(h)**

**(22)**

**11 **

18 

(h)

(21)

(3)

Minority interests

**(26)**

** **

**- **

**(26)**

(13)

- 

(13)

**Income from continuing operations**

**414 **

** **

**12 **

**426 **

39 

(21)

18 

Income (Loss) from discontinued operations

**23 **

** **

**- **

**23 **

(119)

- 

(119)

Income (Loss) before cumulative effect of		

** **

** **

** **

** **

   accounting change

**437 **

** **

**12 **

**449 **

(80)

(21)

(101)

Cumulative effect of accounting change,

** **

** **

** **

** **

   net of income tax

**- **

** **

**- **

**- **

(39)

(e)

39 

- 
**Net income (Loss)**
**437 **

** **

**12 **

**449 **

(119)

18 

(101)

Dividends on preference shares

**3 **

** **

**- **

**3 **

3 

- 

3 
**Net income (Loss) attributable to**
** **

** **

** **

** **

   **common shareholders**

**434 **

** **

**12 **

**446 **

(122)

18 

(104)

 

 

 

-28-

**17.       DIFFERENCESBETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(GAAP)**(cont'd)

**Earnings Per Share - CanadianGAAP**

** **
 
Second  Quarter

Six  Months
		 
*Periods  ended June 30*

**2004**

2003

**2004**

2003
		 
**Earnings (Loss) Per Share**

** **

** **
		 
Basic and diluted:

** **

** **
		 
Income from continuing  operations 

**0.79   **

0.04   

**      1.15   **

      0.05 
		 
Income (Loss) from  discontinued operations

**0.11   **

(0.36)  

**      0.06   **

      (0.37)
		 
**Net income (Loss) per  common share - basic and diluted**

**0.90   **

(0.32)  

**      1.21   **

      (0.32)
		 
** **

** **

** **

**Consolidated Statement of Retained Earnings - CanadianGAAP**

** **
		 
** **

** **
		 
*Periods ended June 30*

**2004**

2003
		  		 Retained earnings - beginning of period
**3,350   **

3,435   
		  
** **
		 
Net income

**449   **

(101)  
  
** **
		 
Dividends

** **
		 
Common
**(167)  **

(145)  
		 
Preference
**(3)  **

(3)  
	 
**Retained earnings - end of period**

**3,629   **

3,186   

** **

 

 

-29-

**17.       DIFFERENCESBETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(GAAP)**(cont'd)

**Reconciliation of U.S. and Canadian GAAP (cont'd)**

**June 30, 2004**

December 31, 2003

**As reported**

**Ref.**

**Amount**

**Canadian		GAAP**

As reported

Ref.

Amount

Canadian		GAAP
**Balance Sheet****Current assets**Cash and  time deposits
**351 **

**(h)**

**16 **

**367 **

         778 

(h)

         26 

        804 

Trade receivables

**3,794 **

**(h)**

**(102)**

**3,692 **

      3,128 

(h)

        (31)

     3,097 

Other receivables

**789 **

**(a)**

**27 **

**883 **

         681 

(a)

        (50)

        685 

** **

**(h)**

**67 **

** **

(h)

         54 

Deferred income taxes

**39 **

**(a)**

**(1)**

**38 **

           46 

            - 

          46 

Inventories - Aluminum operating segments

** **

** **

** **

** **

                          - Aluminum

**974 **

**(h)**

**16 **

**990 **

         943 

(a)

           2 

        954 

** **

** **

** **

** **

(h)

           9 
		 
                          - Raw Materials

**429 **

**(h)**

**62 **

**491 **

         398 

(h)

         25 

        423

                          - Other Supplies

**356 **

**(h)**

**50 **

**406 **

         353 

(h)

         44 

        397 

**1,759 **

** **

**128 **

**1,887 **

      1,694 

         80 

     1,774 

                  - Packaging operating segment

**403 **

** **

**- **

**403 **

         395 

            - 

        395 

                  - Pechiney		

**1,505 **

**(h)**

**40 **

**1,545 **

      1,680 

(h)

         40 

     1,720 

**3,667 **

** **

**168 **

**3,835 **

      3,769 

       120 

     3,889 

Current assets held for sale

**627 **

** **

**- **

**627 **

         712 

            - 

        712 

**Total current assets**

**9,267 **

** **

**175 **

**9,442 **

      9,114 

       119 

     9,233 

Deferred charges and other assets

**1,618 **

**(a)**

**26 **

**908 **

      1,591 

(a)

           5 

        926 

** **

**(c)**

**(4)**

** **

(c)

          (6)

** **

**(h)**

**(732)**

** **

(h)

      (664)

Deferred income taxes

**849 **

**(a)**

**(2)**

**848 **

         887 

            - 

        887 

** **

**(h)**

**1 **

** **

Property, plant and equipment

** **

** **

** **

** **

   Cost (excluding Construction work in

** **

** **

** **

** **

   progress)

**21,129 **

**(h)**

**1,810 **

**22,939 **

    21,882 

(h)

    1,711 

   23,593 

Construction work in progress

**780 **

**(h)**

**22 **

**802 **

         645 

(h)

         26 

        671 

   Accumulated depreciation

**(8,734)**

**(h)**

**(928)**

**(9,662)**

     (8,216)

(h)

      (906)

   (9,122)

**13,175 **

** **

**904 **

**14,079 **

    14,311 

       831 

   15,142 

Intangible assets, net of accumulated

** **

** **

** **

** **

            		

   amortization

**1,237 **

**(a)**

**4 **

**1,077 **

      1,218 

(d)

      (224)

     1,058 

** **

**(d)**

**(224)**

** **

(g)

         50 

** **

**(g)**

**48 **

** **

(h)

         14 

   

** **

**(h)**

**12 **

** **

Goodwill

**5,360 **

**(h)**

**173 **

**5,533 **

      4,686 

(h)

       174 

     4,860 

Long-term assets for sale

**89 **

** **

**- **

**89 **

         141 

            - 

        141 
**Total assets**
**31,595 **

** **

**381 **

**31,976 **

    31,948 

       299 

   32,247 
** 

 **
-30-
****
**17.       DIFFERENCESBETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(GAAP)**(cont'd)

**Reconciliationof U.S. and Canadian GAAP** (cont'd)

**                                                                               **
 
**June 30, 2004**

December 31, 2003
 
**As reported**

**Ref.**

**Amount**

**Canadian		GAAP**

As reported

Ref.

Amount

Canadian		GAAP
Current liabilities
** **

** **

** **

** **

Payables and accrued liabilities

**5,156 **

**(a)**

**(33)**

**5,212 **

    4,964 

(a)

    (111)

4,986 

** **

**(h)**

**89 **

** **

(h)

     133 
		 
Short term borrowings

**869 **

**(h)**

**8 **

**877 **

    1,764 

(h)

       41 

     1,805 

Debt maturing within one year

**445 **

**(h)**

**34 **

**479 **

       341 

(h)

       16 

        357 

Deferred income taxes

**50 **

**(h)**

**28 **

**78 **

         86 

          - 

          86 

Current liabilities of operations held for sale

**680 **

** **

**- **

**680 **

       436 

          - 

        436 

**Total current liabilities**

**7,200 **

** **

**126 **

**7,326 **

    7,591 

       79 

     7,670 

Debt not maturing within one year

**7,879 **

**(h)**

**173 **

**8,052 **

    7,437 

(h)

     168 

     7,605 

Deferred credits and other liabilities

**4,090 **

**(a)**

**10 **

**3,450 **

    4,099 

(a)

       17 

     3,450 

** **

**(d)**

**(732)**

** **

(d)

    (730)

** **

**(h)**

**82 **

** **

(h)

       64 

Deferred income taxes

**1,271 **

**(a)**

**28 **

**1,566 **

    1,702 

(a)

       27 

     2,002 

** **

**(d)**

**156 **

** **

(d)

     156 

** **

**(g)**

**18 **

** **

(g)

       18 

** **

**(h)**

**93 **

** **

(h)

       99 

Long-term liabilities of operations held		

** **

** **

** **

** **

for sale

**317 **

** **

**- **

**317 **

       323 

          - 

        323 

Minority interests

**341 **

** **

**- **

**341 **

       519 

          - 

        519 

** **

** **

** **

** **
Shareholders' equity
** **

** **

** **

** **

Redeemable non-retractable          

** **

** **

** **

** **

   preference  shares

**160 **

** **

**- **

**160 **

       160 

          - 

        160 

Common shareholder's equity:

** **

** **

**  **

** **

Common shares

**6,588 **

** **

**- **

**6,588 **

    6,461 

          - 

     6,461 

Additional paid-in capital

**120 **

** **

**- **

**120 **

       128 

         		 - 

        128 

Retained earnings

**3,598 **

**(a)**

**56 **

**3,629 **

    3,331 

(a)

       42 

     3,350 

** **

**(b)**

**(55)**

** **

(b)

      (55)

** **

**(g)**

**30 **

** **

(g)

       32 

Common shares held by a subsidiary

**(56)**

** **

**- **

**(56)**

        (56)

          - 

         (56)

Deferred translation adjustment

**- **

**(a)**

**(29)**

**483 **

            - 

(a)

      (29)

        635 

** **

**(b)**

**55 **

** **

(b)

       55 

** **

**(f)**

**457 **

** **

(f)

     609 

Accumulated other comprehensive

** **

** **

** **

** **

   income 

**87 **

**(a)**

**22 **

**- **

       253 

(a)

       12 

             - 

** **

**(c)**

**(4)**

** **

(c)

        (6)

** **

**(d)**

**352 **

** **

(d)

     350 

** **

**(f)**

**(457)**

** **

(f)

    (609)

**10,337 **

** **

**427 **

**10,764 **

 10,117 

     401 

   10,518 

**10,497 **

** **

**427 **

**10,924 **

 10,277 

     401 

   10,678 

**Total liabilities and shareholder's equity**

**31,595 **

** **

**381 **

**31,976 **

 31,948 

     299 

    32,247 

 

 

 

-31-
****
 

**Item 2.  Management's Discussion and Analysis of Financial Condition and Results ofOperations**

*(In millions of US$, except per share amounts,aluminum prices and as otherwise indicated)*

**Overview**

TheCompany reported second quarter income from continuing operations of $289 or$0.78 per common share, up from $23 or $0.07 per common share a year earlier. The year-on-year increase reflects benefits from higher prices, improvedvolumes, contributions from acquisitions and foreign currency balance sheettranslation which were partially offset by Other Specified Itemsmark-to-market losses on derivatives of $0.08 per common share and integration expensesof $0.04 per common share.  Compared to the first quarter of 2004, income fromcontinuing operations increased by $164 reflecting higher London Metal Exchange(LME) prices, improved business conditions,  normal seasonal volume increases.foreign currency balance sheet translation and Other Specified Items.

Income from continuing operations for the second quarter of 2004 included anon-cash, after-tax gain of $63  ($0.17 per common share), for the effects offoreign currency balance sheet translation, compared to an after-tax loss of$156 ($0.48 per common share) in the year-ago quarter and an after-tax gain of $9($0.03 per common share) in the prior quarter.  Also included in net income fromcontinuing operations for the second quarter was a net after-tax charge of $8($0.02 per common share) for Other Specified Items (OSIs) versus a net after-tax gainof $26 ($0.08 per common share) in the corresponding period of 2003 and an after-taxcharge of $64 ($0.18 per common share) in the first quarter of 2004.

The terms "foreigncurrency balance sheet translation" and "Other Specified Items" are definedunder "Definitions" at the end of Management's Discussion and Analysis.

** **
**Second Quarter**
First Quarter
*(US$ millions,		except where indicated)*
**2004**
2003
2004
Sales & operating		revenues
* *
* *
**6,252 **
3,505 
6,078 
Shipments *(thousands		of tonnes)*
** **
Ingot products*
**586 **
379 
565 
Rolled products
**666 **
530 
645 
Conversion of		customer-owned metal
**106 **
99 
100 
Aluminum used in		engineered products & packaging
**177 **
141 
160 
Total aluminum volume
**1,535 **
1,149 
1,470 
Ingot product		realizations*(US$ per tonne)*
**1,862 **
1,599 
1,783 
Average London Metal		Exchange 3-month price
**  ** 
*(US$ per tonne)*
** 1,686 **
1,379 
 1,666 
**Included in income		from continuing operations are:**
** **
Foreign currency		balance sheet translation
**63 **
 (156)
9 
Other Specified Items
** (8)**
26 
 (64)
**Income from		continuing operations**
**289 **
23 
125 
Income (Loss) from		discontinued operations
**42 **
 (115)
 (19)
**Net income (loss)**
**331 **
 (92)
106 
** **
** **
**Earnings per common share***(US$ per share)*
** **
** **
** **
Income from continuing		operations
**0.78 **
0.07 
0.34 
Net income (Loss)
**0.89 **
 (0.29)
0.29 
**Average number of common shares outstanding (millions)**
**368.1 **
321.7 
367.1 
**Includes primary and secondary ingot and scrap*
** **
*Prior period		information has been restated to reflect the adoption of U.S. GAAP,		effective January 1, 2004, and the*
*reclassification of		certain businesses as discontinued operations.*
 

 

-32-

The modeststrengthening of the U.S. dollar in the second quarter of 2004, principallyagainst the Canadian dollar, resulted in the Company recording after-taxtranslation gains of $63 as compared to after-tax losses of $156 in the year-agoquarter.  The strengthening of the U.S. dollar, mainly against the Canadiandollar, also contributed to favourable foreign currency balance sheettranslation effects of $9 in the first quarter of 2004.  Although theseeffects are primarily non-cash in nature, they can have a significant impact onthe Company's net income. 

Other Specified Itemsin the second quarter produced a net after-tax charge of $8 versus a netafter-tax gain of $26 a year ago.  OSIs in the second quarter of 2004included a deferred tax charge of $46 related to a restructuring of Pechiney'ssubsidiaries, a gain of $42 resulting from a dilution in the Company's interestin an anode-producing joint venture in the Netherlands, $8 of costs incurred toachieve synergy benefits related to the Pechiney and FlexPac acquisitions, and again related to changes in a pension program in Brazil (included in Other in thetable below).  In the second quarter of 2003, OSIs comprised mainlyafter-tax gains of $41 on the sale of non-core assets, partially offset by $10of after-tax charges for plant closures.  OSIs in the first quarter of 2004included one-time purchase accounting adjustments of $56 related to Pechineyinventory revaluation, $8 of costs incurred to realize synergy benefits inrelation to the Pechiney and FlexPac acquisitions, restructuring charges of $5for various operations in North America, a gain of $5 on the sale of assets inthe U.K. and favourable tax adjustments of $3 related to the settlement of a taxissue in Germany.  Other Specified Items are detailed in the table below.
 ** **
**Second Quarter**
First Quarter*(US$ millions, except where			indicated)*
**2004**
2003
2004Other Specified Items** *** *Synergy costs
** (8)**
-
 (8)* *Restructuring charges* ** *
** (5)**
 (10)
 (5)Asset impairment
** (1)**
-
-Gain from non-routine sales of assets,			businesses** **    and investments
**42 **
41 
5 Tax adjustments
** (46)**
 (2)
3 Legal and environmental provisions
** (1)**
- 
- Pechiney financing-related loss
**- **
- 
 (2)Purchase accounting adjustments related			to inventory
** **    and in-process			research and development
**- **
- 
 (56)Other
**11 **
 (3)
 (1)Other Specified Items
** (8)**
26 
 (64)*Prior period information has been			restated to reflect the adoption of U.S. GAAP, effective January 1,			2004, and the reclassification of certain businesses as discontinued			operations.* 
**Continuing Operations**

Sales and operatingrevenues were $6.3 billion in the second quarter, up $2.7 billion from a yearearlier.  Of the increase, approximately $2.5 billion was the result ofacquisitions, primarily Pechiney, with the remainder reflecting higher prices, improvedvolumes and the stronger euro.  Revenues were higher than inthe first quarter of 2004 due to higher aluminum prices and seasonally strongervolumes.  

Total aluminum volume,at 1,535 thousand tonnes (kt), was up 386 kt from a year earlier and 65 kt fromthe preceding quarter.  The year-over-year increase largely reflects theacquisition of Pechiney, while the quarter-over-quarter increase largelyreflects normal seasonal volume patterns. 

Ingot productrealizations, at $1,862 per tonne, were $263 per tonne higher than in theyear-ago quarter and $79 per tonne higher than in the first quarter, reflectinga tighter balance between supply and demand for primary aluminum.  As aresult of these conditions, LME prices as well as local market premia haveimproved. 

 

 

-33-

Included in theresults for the second quarter were pre-tax expenses of $20 associated with theintegration of Pechiney.  Year to date, integration costs total $27. These expenses do not form part of the costs to realize synergy benefits, butprincipally reflect those expenses incurred in order to align management andcompliance systems.  

Results for the secondquarter included a pre-tax loss of $27 arising from the marking to market ofderivatives compared to a pre-tax gain of $25 in the year-ago quarter. Also included in the second quarter were stock option expenses of $2, unchangedfrom the year-ago quarter. 

For the quarter, theaverage number of common shares outstanding was 368.1 million compared to 321.7million in the comparable year-ago quarter and 367.1 million in the firstquarter of 2004.  The year-over-year increase reflects the additionalshares issued in connection with the Pechiney acquisition.  At June 30,2004, there were 368.2 million shares outstanding. 

**DiscontinuedOperations**

Discontinuedoperations include the results of the Ravenswood rolled products facility in theU.S., non-core copper, ores and concentrates trading activities and certainnon-core engineered products operations.  After-tax income fromdiscontinued operations was $42 in the second quarter, which included a gain onsale of packaging operations of $27 and mark-to-market gains on derivatives of$30 mainly related to the trading activities referred to above.  Theafter-tax loss of $115 a year earlier was mainly related to impairment chargesof discontinued operations.  After including the results of discontinuedoperations, the Company reported net income of $331 ($0.89 per common share)compared to a net loss of $92 ($0.29 per common share) a year earlier.  Netincome was $106 ($0.29 per common share) in the first quarter of 2004. 

**Operating SegmentReview**

The term "BusinessGroup Profit" (BGP) is defined under "Definitions" at the end of Management'sDiscussion and Analysis.

Financial informationfor individual Business Groups includes the results of certain joint ventures ona proportionately consolidated basis, which is consistent with past practice andreflects the way the Business Groups are managed.  However, with theadoption of U.S. GAAP, the BGP of these joint ventures is now removed from TotalBGP for the Company and their net after-tax results are reported as equityincome.  

The change in fairmarket value of derivatives has been removed from individual Business Groupresults and is shown on a separate line within total BGP.  Thispresentation provides a more accurate portrayal of underlying Business Groupresults and is in line with the Company's portfolio approach to risk management.

During the secondquarter, Pechiney's trading activities were integrated within Alcan's BusinessGroup structure with the exception of the copper, ores and concentratesbusiness, which is now reported in discontinued operations.

For the second quarterof 2004, total BGP was $980, more than double the level in thecomparable year-ago quarter and $125 higher than in the first quarter.

**Bauxite andAlumina:**The group reported BGP for the second quarter of $137, up $92 fromthe year-ago quarter.  The increase reflected benefits from the acquisitionof Pechiney, higher alumina prices, and balance sheet translation gainsresulting from a modest strengthening of the US dollar during the quarter. These favourable variances were reduced by higher raw material prices and by theunfavourable impact of currency movements on operating costs.  Compared tothe first quarter of 2004, BGP increased by $43 mainly due to higher aluminaprices and the favourable impact of foreign currency balance sheet translation. Reduced demand for alumina from China in recent months has resulted in softeningspot market prices.  The Company's alumina realizations, however, areexpected to remain firm in the third quarter as selling prices under long-termcontracts are linked to LME aluminum prices.  Assuming ongoing strength inthe Canadian and Australian dollars relative to the US dollar, year-over-yearoperating cost comparisons will be negatively affected in the third quarter.

** **

 -34-

** **
** **
**Second Quarter**
First Quarter*(US$ millions)*
**2004**
2003
2004**Business Group Profit (BGP)**Bauxite and Alumina 
**137 **
45 
94 Primary Metal
**476 **
159 
394 Rolled Products Americas and Asia
**103 **
93 
105 Rolled Products Europe
**70 **
65 
65 Engineered Products
**73 **
24 
67 Packaging
**167 **
90 
168 Segregated Businesses
**18 **
- 
19 Equity accounted joint venture			eliminations
** (52)**
 (39)
 (53)** **Change in fair market value of			derivatives
** (12)**
33 
 (4)**Total BGP**
**980 **
470 
855 ** **** ****Corporate Items**** **Intersegment, corporate offices and			other
** (137)**
 (32)
 (250)Depreciation & amortization
** (329)**
 (216)
 (340)Interest
** (87)**
 (54)
 (94)Income taxes
** (140)**
 (144)
 (51)** **Equity income
**17 **
11 
16 Minority interests
** (15)**
 (12)
 (11)**Income from continuing operations**
**289 **
23 
125 *Prior period information has been			restated to reflect the reclassification of certain businesses as**discontinued operations and, except			for currency derivatives related to the Company's Korean subsidiary,**the removal of changes in the fair			market value of derivatives from individual Business Group Profits.*
** **

**Primary Metal:**BGP was $476, an increase of $317 from a year earlier.  Higher metal pricerealizations, contributions from Pechiney operations and balance sheettranslation gains were partially offset by the adverse impact of currencymovements on operating costs, and costs related to the closure of Söderbergcapacity at the Arvida complex in Quebec, which was completed in April.  Ona sequential quarter basis, BGP increased by $82 mainly as a result of highermetal price realizations, higher technology and ferro-alloy sales and thefavourable impact of foreign currency balance sheet translation.  This waspartially offset by additional costs related to the shutdown of capacity atArvida. Strong demand for value-added ingot products is foreseen to continue inthe third quarter. Assuming ongoing strength in the Canadian dollar relative tothe US dollar, year-over-year operating cost comparisons will be negativelyaffected in the third quarter.

**Rolled ProductsAmericas and Asia:** BGP was $103, up $10 from the year-ago quarter,reflecting record shipments on strengthening market conditions in Asia and NorthAmerica and market share improvements in South America.  In addition, pricespreads between recycled metal and primary aluminum continued to improve, morethan offsetting the impact of negative metal price lags.  Compared to thefirst quarter, BGP was largely unchanged. Benefits of improving marketconditions and the normal seasonal pick-up in North American demand were offsetby the negative impact of metal price lags.  The acquisition of Pechineydoes not materially affect this group.  For the third quarter, volumes areexpected to increase marginally in North and South America, but will beseasonally lower in Asia.**

 

-35-
****
**Rolled ProductsEurope:** BGP was $70, an increase of $5 over the year-ago quarter.  Theimprovement mainly reflected positive metal effects, the translation ofeuro-denominated results into US dollars and the contribution of operationsacquired from Pechiney.  While some end markets are slowly recovering inEurope, the strong euro continues to keep margins and volumes under pressure. In response to the challenging market conditions the group is focused onoptimizing its portfolio of products and reducing costs. BGP was $5 higher thanin the first quarter.  Since January 2004, the group includes foil-rollingoperations that were previously included in the Packaging group, and priorperiod information has been restated accordingly.  Due to normal summerseasonal effects, volumes are expected to be slightly lower in the thirdquarter. 

**EngineeredProducts:**BGP for the second quarter was $73, an increase of $49 over theyear-ago quarter.  Two thirds of the increase was due to the acquisition ofPechiney with the remainder coming from higher volumes, mix improvements andcontributions from the Baltek and Gator-Cor acquisitions.  BGP was $6higher than in the first quarter of 2004 reflecting benefits from theacceleration of the Richmond composite plant closure, further volumeimprovements in composites and service centres and continuing good performancesfrom the other engineered products businesses.  In the third quarter, volumes are expectedto decrease due to normal seasonal effects associated with the European summervacation period.

**Packaging:**BGPwas $167, up $77 from a year earlier but essentially unchanged from the firstquarter.  The significant year-over-year increase was primarily due to theacquisitions of Pechiney and FlexPac, the realization of the associated mergersynergies, cost benefits from restructuring programs and the positive impactfrom foreign currency movements.  Compared with the first quarter, volumegrowth, cost savings and incremental merger synergies contributed $13. This improvement was offset mainly by integration costs.  While businessconditions are expected to remain mixed, the progressive realization of mergersynergies should strengthen results during the remainder of 2004.

**SegregatedBusinesses:** These include the BGP of operations identified for potentialdivestment under the terms of the Pechiney acquisition.  These assets arebeing held separate and managed by independent trustees.  Operations inthis category include the Neuf-Brisach, Rugles and Annecy rolling mills andaluminum cartridges packaging operations.  The Ravenswood rolling mill isalso under independent management, but its results are included in discontinuedoperations as U.S. competition regulators have required its divestment. 

**Change in fairmarket value of derivatives:**  For the second quarter of 2004, BGPincluded a loss of $12, with a further loss of $15 included in Intersegment,corporate offices and other.  The Company uses derivatives to hedgespecific, underlying exposures which will offset these largely non-cash,mark-to-market losses over time.  Pending the completion of the rolledproducts spin-off and a review of its ongoing currency exposures, Alcan haselected not to use hedge accounting for most of its currency derivatives. In the future, the Company will adopt hedge accounting where appropriate,largely eliminating the impact of mark-to-market fluctuations on income. 

**Reconciliation toNet Income**

Intersegment,corporate offices and other include the elimination of profits on intersegmentsales of aluminum, corporate head office costs as well as other non-operatingitems.  The sequential quarter decline mainly reflects the fact that thesecond quarter included a pre-tax gain of $42 on the dilution of the Alcan'sinterest in a joint venture, while the first quarter included a pre-tax chargeof $84 for purchase accounting adjustments related to Pechiney inventories. Theyear-over-year increase largely reflects the addition of Pechiney and greaterintercompany profit deferrals, mainly due to increased metal prices. The yearago quarter also included a pre-tax gain of $33 on the sale of an investment.  

Depreciation andamortization, at $329, was $113 higher than in the year-ago quarter primarilyreflecting the impact of the Pechiney acquisition.  Compared with the firstquarter of 2004, depreciation and amortization was $11 lower reflectingpurchase-accounting adjustments to fixed assets.  Capital spending was 83%of depreciation versus 93% in the year-ago quarter and 78% in the prior quarter.

Interest expense of$87 for the second quarter was higher than in the prior-year quarter reflectingthe impact of debt raised to finance the Pechiney transaction together with debtassumed upon acquisition.  Compared to the first quarter of 2004, interestexpense was down $7 mainly due to a reduced level of debt throughout the secondquarter.

Investments inentities over which Alcan has significant influence but does not control areaccounted for using the equity method.  Equity income was $17 in the secondquarter compared to $11 a year earlier and $16 in the prior quarter. 

-36-
****
The Company'seffective tax rate on income from continuing operations was 33% in the secondquarter and 32% year to date. The effective tax rate on income from continuingoperations was 81% for the year-ago quarter and 86% for the first half of 2003,reflecting the effects of foreign currency balance sheet translation and OtherSpecified Items. Excluding the effects of foreign currency balance sheettranslation and Other Specified Items, the Company's effective tax rate was 29%for the second quarter of 2003 and 32% for the first half of 2003. 

**Liquidity and Capital Resources**

***OperatingActivities***Cash generated from operating activities in continuing operations was$457 in the second quarter of 2004 as compared to $374 a year earlier. While the Company's earnings were higher year-over-year, rising metal prices andimproving business conditions led to increased working capital. 

After dividends of $57and capital expenditures of $274, free cash flow from continuing operations was$126 for the second quarter of 2004.  Free cash flow from continuingoperations was $123 a year earlier.  "Free cash flow" is defined under"Definitions" at the end of Management's Discussion and Analysis.

***FinancingActivities***"Debt as a percentage of invested capital" is defined under"Definitions" at the end of Management's Discussion and Analysis.

Debt as a percentage of invested capital at June30, 2004 was 46%, down from 47% at the end of the first quarter of 2004 and upfrom 32% at the end of the prior-year quarter.  The year-on-year increasein leverage reflects new debt raised and assumed on the Pechiney acquisition inDecember 2003.
** **
**30 June**
31 March
31 December*(US$ millions, unless otherwise			noted)*
**2004**
2003
2004
2003Debt Short-term borrowings
**869******
322 
1,472 
1,764  Debt maturing within one year
**445**
187 
198 
341  Debt not maturing within one year
**7,879**
3,455 
7,901 
7,437  Debt of operations held for sale
**10******
1 
2 
1 Total debt
**9,203**
3,965 
9,573 
9,543 Equity** **  Minority interests
**341**
195 
299 
519    Redeemable non-retractable			preference** **      shares
**160**
160 
160 
160  Common shareholders' equity
**10,337**
8,070 
10,165 
10,117 Total equity
**10,838**
8,425 
10,624 
10,796 Total invested capital
**20,041**
12,390 
20,197 
20,339 Debt as a percent of invested capital			(%)
**46%**
32%
47%
47%*Prior period information has been			restated to reflect the adoption of U.S. GAAP, effective January 1,			2004,**and the reclassification of certain			businesses as discontinued operations.*
***InvestmentActivities***Capital expenditures during the second quarter of 2004 were $274compared to $200 a year earlier. Capital expenditures were higher in the currentyear's quarter as a result of the inclusion of Pechiney's spending, as well asfor expenditures related to the 305 kt/y expansion of the Alouette smelter inQuebec, in which Alcan has a 40% stake.  Capital expenditures for the fullyear are expected to be below depreciation expense.

 

-37-
****
 

***Liquidity***The Company has a global, multi-currency, 5-year, $3 billion creditfacility with a syndicate of major international banks.  The creditfacility is available for general corporate purposes including back-up forcommercial paper borrowings.  As of the date of this report, commercialpaper borrowings were $2.5 billion and as a result, the unused portion of thecredit facility was $500.   As at June 30, 2004, Alcan had anadditional $1 billion credit facility which expired in July 2004.  The Company believes that the cash from continuing operations, together with itscredit facility, will be more than sufficient to meet the cash requirements ofoperations, planned capital expenditures, dividends and any short-term debtrefinancing requirements. In addition, the Company's ability to access globalcapital markets, considering its investment grade credit rating, should provideany additional liquidity that may be required to meet unforeseen events.

**ContractualObligations**

TheCompany has future obligations under various contracts relating to debtpayments, capital and operating leases, long-term purchase arrangements,pensions and other post-employment benefits, and guarantees.  There were nomaterial changes in the Company's contractual obligations in the second quarterof 2004 from the amounts reported in the Form 10-Q for the quarterly periodended March 31, 2004.

**Selected Annual Information**

Selected			unaudited financial data for each of the Company's three most			recently completed financial years is as follows:*** *****31 December***($ millions)*
**2003**
** **
**2002**
** **
**2001**Sales and operating revenues
     13,850 
12,483
12,545Income (Loss) from continuing operations
         			262 
         			421
(60)Net income (Loss)
          			64 
(348)
(78)Total assets
     31,948 
17,761 
17,551 Total long-term debt
      			7,437 
      			3,120 
      			2,801 *($ per common share)*
Income (Loss) from continuing operations			per share - 			basic and diluted
       0.79 
        1.29 
(0.21)Net income (Loss) per share - basic and			diluted
        			0.18 
(1.10)
(0.27)Dividends per common share
        			0.60 
0.60 
       			0.60  *Prior period information has been			restated to reflect the adoption of U.S. GAAP, effective January 1,			2004, and the reclassification of certain businesses as discontinued			operations.*    
 

-38-
****
 

**Selected Quarterly Information**

Selected		unaudited financial data for each of the Company's eight most recently		completed quarters is as follows:
** ***($ millions)*
**Q2-04**
**Q1-04**
**Q4-03**
**Q3-03**
**Q2-03**
**Q1-03**
**Q4-02**
**Q3-02** Sales		and operating revenues
		6,252
		6,078
		3,567
		3,529
		3,505
		3,249 
		3,165
		3,215 Income		from continuing operations
		289
		125
		115
  		108 
23
		16 
    		48 
		166  Net		income (Loss)
		331
		106
96
87
  		(92)
		(27)
38
		159*($ per common share)* 
Income from continuing operations per share		- 		basic and diluted
		0.78
		0.34
		0.36
		0.32
		0.07
		0.04 
		0.14
		0.51         Net income (Loss) per share - basic and		diluted
		0.89
		0.29
		0.30
		0.26
		(0.29)
		(0.09)
		0.11
		0.49 *Prior period information has been			restated to reflect the adoption of U.S. GAAP, effective January 1,			2004, and the reclassification of certain businesses as discontinued			operations.*    
**Commitments and Contingencies**

The Company'scommitments and contingencies are fully described in note 12 to the ConsolidatedFinancial Statements.

**Related Party Transactions**

The only related partytransactions are those with the joint ventures accounted for under the equitymethod.  These transactions are undertaken on an arm's length, negotiatedbasis. For more details, refer to note 12 to the Consolidated FinancialStatements in the Form 8-K filed with the U.S. Securities and ExchangeCommission in June 2004. 

**Accounting Policies**

The preparation offinancial statements in conformity with GAAP in Canada and the United Statesrequires management to make estimates, judgements and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting periods. The mostsignificant estimates are associated with the critical accounting policiesrelating to post-retirement benefits; environmental liabilities andcontingencies; property, plant and equipment; goodwill; and income taxes. These critical accounting policies are those that are both most important to theportrayal of the Company's financial condition and results and requiremanagement's most difficult, subjective or complex judgements, often as a resultof the need to make estimates about the effect of matters that are inherentlyuncertain.

The Company's criticalaccounting policies are more fully described in note 3 to the ConsolidatedFinancial Statements, contained in the Form 8-K filed with the U.S. Securitiesand Exchange Commission in June 2004, except for the recently adopted accountingpolicies described in note 2 to the Consolidated Financial Statements.

**Reconciliation ofCanadian to U.S. GAAP**

A reconciliation of Alcan's Consolidated Statementof Income and Consolidated Balance Sheet between U.S. GAAP and Canadian GAAP iscontained in Note 17 of the financial statements.  The impact of materialdifferences is discussed below.

 

-39-
**** 
 

**Second Quarter**
Second Quarter
**Six Months**
Six MonthsGAAP
**2004**
2003
**June 30, 2004**
June 30, 2003*($ per share)*
**Cdn**
**U.S.**
Cdn
U.S.
**Cdn**
**U.S.**
Cdn
U.S.
Income from continuing operations per			share - basic    			0.79     0.78    			0.04    			0.07**     1.15****     1.12**    			0.05     0.11
Net income (Loss) per share - basic
    			0.90
    			0.89
   			(0.32)
   			(0.29)
**    			1.21**
**    			1.18**
   			(0.32)
   			(0.38)
Net income per commonshare under Canadian GAAP was $0.90 and $1.21 compared to $0.89 and $1.18 underU.S. GAAP for the quarter and six months ended June 30, 2004, respectively. The difference relates principally to accounting for derivatives. For thequarter and six months ended June 30, 2003, net loss per common share underCanadian GAAP was $0.32 and $0.32, respectively, compared to $0.29 and $0.38,respectively, under U.S. GAAP.  The principal reason for the difference wasthe cumulative effect of an accounting change for asset retirement obligationsdiscussed below.  The differences in net income had no material impact onthe discussion of results of operations for the periods presented.

***Joint Ventures***

The major ongoingdifference between U.S. GAAP and Canadian GAAP deals with the accounting forjoint ventures.  Under U.S. GAAP, joint ventures, other than those overwhich Alcan has an undivided interest in the assets, are accounted for using theequity method while under Canadian GAAP, joint ventures are accounted for usingthe proportionate consolidation method.  This different accountingtreatment affects only the display and classification of financial statementitems and has no impact on net income or shareholders' equity.   This difference had no material impact on the discussion of the results ofoperations.   The major impact of the difference in accountingtreatment on the balance sheet was to increase operating working capital fromcontinuing operations at June 30, 2004 by $44 ($8 at December 31, 2003) underCanadian GAAP compared to U.S. GAAP.  Under Canadian GAAP, net property,plant and equipment at June 30, 2004 was $904 higher than under U.S. GAAP ($831at December 31, 2003). Under Canadian GAAP, goodwill was higher by $173 at June30, 2004 ($174 at December 31, 2003).  Under Canadian GAAP, deferredcharges and other assets (which include investments accounted for under theequity method) were $732 lower ($664 at December 31, 2003) as compared to U.S.GAAP.

Debt as a percentageof invested capital as at June 30, 2004 and December 31, 2003 was the same underCanadian GAAP as under U.S. GAAP.  For the quarter and six months endedJune 30, 2004, interest expense under Canadian GAAP was higher than under U.S.GAAP by $1 and $4, respectively (2003:  $2 and $3).  

***Accounting forDerivatives***

Beginning in 2004,Canadian GAAP is aligned with U.S. GAAP with respect to the criteria to be metfor hedge accounting.  For certain derivatives as at December 31, 2003,that do not qualify for hedge accounting in 2004 under Canadian GAAP butqualified for hedge accounting prior to 2004 under Canadian GAAP but not underU.S. GAAP, there will be an impact on the Company's Canadian GAAP income for atransitional period ending with the maturities of the derivatives.  UnderU.S. GAAP, these derivatives had been marked-to-market prior to December 31,2003.

In addition, CanadianGAAP does not permit the recognition of embedded derivatives.  

The impact of thedifferent accounting treatments for derivatives was to increase netincome under Canadian GAAP by $3 and $13, respectively, for the quarter andsix months ended June 30, 2004 (decrease of $10 and $20, respectively, to netincome for the quarter and six months ended June 30, 2003).  Thisdifference had no material impact on the discussion of results for the periodspresented.

In addition, becauseCanadian GAAP does not have the concept of Other Comprehensive Income, certainamounts related to cash flow hedges classified in shareholders' equity on thebalance sheet under U.S. GAAP were reclassified to various asset and liabilityaccounts under Canadian GAAP.

 

-40-
****
 

***Minimum Pension Liability***

Canadian GAAP does notrequire the recognition of a minimum pension liability if the accumulatedbenefit obligation exceeds the market value of plan assets.   Thisdifference had no impact on net income but did result in shareholders' equityunder Canadian GAAP being higher by $352 at June 30, 2004 ($350 at December 31,2003).  At June 30, 2004, total assets were lower by $224 ($224 at December31, 2003) and total pension liabilities were lower by $732 ($730 at December 31,2003) under Canadian GAAP.

***Acquired In-Process Research andDevelopment***

In-Process researchand development acquired from Pechiney amounted to $50.  Under CanadianGAAP, the amount is amortized over 15 years.  Under U.S. GAAP, it wasexpensed in the fourth quarter of 2003. 

***Asset Retirement Obligations***

U.S. GAAP net incomefor the six months ended June 30, 2003, included an after-tax charge of $39 forthe cumulative effect of an accounting change which, under Canadian GAAP wastreated as an adjustment to retained earnings.

**CautionaryStatement**

Statements made in this quarterly report which describe the Company's ormanagement's objectives, projections, estimates, expectations or predictions ofthe future may be "forward-looking statements" within the meaning of securitieslaws, which can be identified by the use of forward-looking terminology such as"believes," "expects," "may," "will," "should," "estimates," "anticipates" orthe negative thereof or other variations thereon.  The Company cautionsthat, by their nature, forward-looking statements involve risk and uncertaintyand that the Company's actual actions or results could differ materially fromthose expressed or implied in such forward-looking statements or could affectthe extent to which a particular projection is realized.  Important factorswhich could cause such differences include global supply and demand conditionsfor aluminum and other products, aluminum ingot prices and changes in rawmaterials' costs and availability, changes in the relative value of variouscurrencies, cyclical demand and pricing within the principal markets for theCompany's products, changes in government regulations, particularly thoseaffecting environmental, health or safety compliance, economic developments,relationships with and financial and operating conditions of customers andsuppliers, the effects of integrating acquired businesses, issues related toconducting planned spin-offs and divestitures and the ability to attain expectedbenefits and other factors within the countries in which the Company operates orsells its products and other factors relating to the Company's ongoingoperations including, but not limited to, litigation, labour negotiations andfiscal regimes.

Alcan undertakes noobligation to release publicly the results of any future revisions it may maketo forward-looking statements to reflect events or circumstances after the dateof this report or to reflect the occurrence of unanticipated events.

**Definitions**

"Business Group Profit" (BGP)refers to the Company's measure of the profitability of its operating segments. BGP comprises earnings before interest, income taxes, minority interests,depreciation and amortization and excludes certain items, such as corporatecosts, restructuring costs (that are related to major corporate-wide acquisitionsor initiatives), impairment and other special charges, and pension actuarialgains, losses and other adjustments, that are not under the control of thebusiness groups or are not considered in the measurement of their profitability. These items are generally managed by the Company's corporate head office, whichfocuses on strategy development and oversees governance, policy, legal,compliance, human resources and finance matters.  

"Debt as a percentage of investedcapital" does not have a uniform definition. Because other issuers may calculatedebt as a percentage of invested capital differently, Alcan's calculation maynot be comparable to other companies' calculations. The reconciliation aboveexplains the calculation. The figure is calculated by dividing borrowings bytotal invested capital. Total invested capital is equal to the sum of borrowingsand equity, including minority interests. The Company believes that debt as apercentage of invested capital can be a useful measure of its financial leverageas it indicates the extent to which it is financed by debtholders. The measureis widely used by the investment community and credit rating agencies to assessthe relative amounts of capital put at risk by debtholders and equity investors.

-41-
****
 

 

"Foreign currency balance sheettranslation" effects largely arise from translating monetary items (principallydeferred income taxes and long-term liabilities) denominated in Canadian andAustralian dollars into U.S. dollars for reporting purposes.  Although these effects are primarily non-cash in nature, they can have asignificant impact on the Company's net income.

"Free cash flow" consists of cash from operationsless capital expenditures and dividends. Management believes that free cash flowis relevant to investors as it provides a measure of the cash generatedinternally that is available for investment opportunities and debt service.

"GAAP" means generally acceptedaccounting principles.

"Other SpecifiedItems" (OSIs) include, for example: restructuring charges; asset impairmentcharges; unusual environmental charges; gains and losses on non-routine sales ofassets, businesses or investments; gains and losses from legal claims; gains andlosses on the redemption of debt; income tax reassessments related to prioryears and the effects of changes in income tax rates; and other items that, inAlcan's view, do not typify normal operating activities.

All tonnages are stated in metric tonnes,equivalent to 2,204.6 pounds.

All figures areunaudited.

Additional informationon Alcan is available on the Company's website at www.alcan.com and the Company's regulatoryfilings can be viewed on the Canadian Securities Administrators' site atwww.sedar.com and on theU.S. Securities and Exchange Commission's site at www.sec.gov.  All websiteaddresses contained in this report are textual references and information fromreferenced websites is not incorporated by reference into this report.

The number of commonshares outstanding as at August 5, 2004 is 368,252,509.

 

 

-42-
****
 

I**tem 3. Quantitative and Qualitative Disclosures about Market Risk**(in millions of US$, except LME prices)

Changes in interest rates, foreign exchange rates and themarket price of aluminum are among the factors that can impact the Company'scash flow.  See risk factors on page 4 of the Company's annual report on Form10-K for the year ended December 31, 2003.

**Interest Rates**

The impact of a 10% increase in interest rates on theCompany's variable rate debt outstanding at June 30, 2004 net of its invested surpluscash and time deposits at June 30, 2004 would be to reduce net income by $5. Transactions in interest rate financial instruments for which there is nounderlying interest rate exposure to the Company are prohibited.  Foraccounting policies for interest rate swaps used to hedge interest costs oncertain debt, see note 1 - Accounting Policies.

**Currency Derivatives**

The schedule below presents fair valueinformation and contract terms relevant to determining future cash flowscategorized by expected maturity dates of the Company's currency derivatives(principally forward and option contracts) outstanding as at June 30, 2004.

** **

** **

**Total   **

** **

** **

**Nominal**

**Fair  **

*(In US$ millions, except contract   rates)*

**2004**

**2005**

**2006**

**2007**

**2008**

**2009**

**Amount**

**Value**

** **

** **

** **

**FORWARD  CONTRACTS**

** **

** **

** **

**To  purchase USD against the foreign currency**

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

CHF

Nominal  amount

27

40

24

2

2

1

96

(6)

Average  contract rate

1.356

1.340

1.296

1.287

1.261

1.238

GBP

Nominal  amount

32

14

3

-

-

-

49

(1)

Average  contract rate

1.774

1.726

1.587

-

-

-

CAD

Nominal  amount

1

-

-

-

-

-

1

- 

Average  contract rate

0.740

-

-

-

-

-

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

**To sell USD against the foreign currency**
** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

AUD

Nominal  amount

30

-

-

-

-

-

30

6 

Average  contract rate

0.559

-

-

-

-

-

GBP

Nominal  amount

15

14

-

-

-

-

29

- 

Average  contract rate

1.7343

1.7257

-

-

-

-

EUR

Nominal  amount

111

32

29

9

1

-

182

24 

Average  contract rate

1.1498

0.7273

0.9859

1.045

1.1539

-

CHF

Nominal  amount

8

-

-

-

-

-

8

- 

Average  contract rate

1.2444

-

-

-

-

-
		 	 	 	 	 	 	 
**To sell EUR against the foreign currency**
** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

USD

Nominal  amount

218

188

63

49

10

6

534

(10)

Average  contract rate

1.206

1.192

1.151

1.174

1.088

1.1254

USD

Nominal  amount

-

-

1,208

-

-

-

1,208

(22)

Average  contract rate

-

-

1.1984

-

-

-

CHF

Nominal  amount

18

33

16

4

4

3

78

- 

Average  contract rate

1.5663

1.5200

1.4898

1.4610

1.4430

1.4266

 

-43-

** **

** **

**Total  **

** **

** **

**Nominal**

**Fair  **

*(In US$ millions, except contract   rates)*

**2004**

**2005**

**2006**

**2007**

**2008**

**2009**

**Amount**

**Value**

** **

** **

** **

GBP

Nominal  amount

20

6

5

-

-

-

31

1 

Average  contract rate

1.46

1.418

1.421

-

-

-

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

ZAR

Nominal  amount

22

7

-

-

-

-

29

1 

Average  contract rate

8.04

8.367

-

-

-

-

**To buy EUR against the foreign currency**
** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

GBP

Nominal  amount

30

4

-

-

-

-

34

(1)

Average  contract rate

1.4515

1.3882

-

-

-

-

AUD

Nominal  amount

2

-

-

-

-

-

2

- 

Average  contract rate

1.793

-

-

-

-

-

Other

Nominal  amount

17

1

-

-

-

-

18

- 

**OPTIONS**
** **

** **

** **

** **

** **

** **

**To sell  USD against the foreign currency**

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

AUD

Nominal  amount

22

-

-

-

-

-

22

2 

Average  contract rate

0.6081

-

-

-

-

EUR

Nominal  amount

19

45

-

-

-

-

64

13 

Average  contract rate

0.9370

0.9725

-

-

-

-

GBP

Nominal  amount

4

3

-

-

-

-

7

- 

Average  contract rate

1.71

1.71

-

-

-

-

** **

Any negative impact of currency movementson the currency contracts that the Company has entered into to hedgeidentifiable foreign currency commitments to purchase or sell goods andservices, would be offset by an equal and opposite favourable exchange impacton the commitments being hedged.  Transactions in currency related financialinstruments for which there is no underlying foreign currency exchange rateexposure to the Company are prohibited.  For accounting policies relating tocurrency contracts, see note 1 -  Accounting Policies.

**Derivative Commodity Contracts**

The effect of a reduction of 10% in aluminum prices on theCompany's aluminum forward and options contracts outstanding at June 30, 2004would be to increase net income over the period ending December 2006 byapproximately $44 ($5 in 2004, $29 in 2005 and $10 in 2006).  These resultsreflect a 10% reduction from the June 30, 2004, three-month LME aluminumclosing price of $1,722 per tonne and assume an equal 10% drop has occurredthroughout the aluminum forward price curve existing as at June 30, 2004.  TheCompany's aluminum forward contract positions, producing the above results, areentered into to hedge future sales and future purchases of metal that are required for firmsales and purchase commitments to fabricated products customers.  Consequently, any negative impact movements in the price ofaluminum on the forward contracts would be offset by an equal and oppositeimpact on the sales and purchases being hedged.

Transactions in metal-related financial instruments forwhich there is no underlying metal price exposure to the Company areprohibited, except for a small trading portfolio of metal forwards notexceeding 24,000 tonnes, which is marked-to-market and which includesPechiney.  In addition, see page 26 of the Form 8-K.

 

-44-
****** **
**Item 4.  Disclosure Controls andProcedures**

Asof June 30, 2004, an evaluation was carried out under the supervision and withthe participation of the Company's management, including our Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).  Basedupon that evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that the design and operation of these disclosure controls andprocedures were effective.

 

 

 

 

 

 

-45-

**PART II.  OTHERINFORMATION**

**Item 1.      LegalProceedings**

Information called for by this Item is incorporatedby reference to the first paragraph of Note 12 of Item 1, Part I of thisquarterly report on Form 10-Q.

**Items 2. and 3.**

The registrant hasnothing to report under these items.

**Item 4.     Submission of Matters to a Vote of Security Holders**

At the Annual Meetingof Shareholders of Alcan held on April 22, 2004, the shareholders:
-  elected Messrs. Roland Berger, L. Denis	Desautels, Travis Engen, L. Yves Fortier, Jean-Paul Jacamon, William R.	Loomis, Jr., Yves Mansion, Christine Morin-Postel, J. E. Newall, Guy	Saint-Pierre, Gerhard Schulmeyer, Paul M. Tellier and Milton K. Wong as	directors of Alcan to serve until the close of the next annual meeting or	until they cease to hold office as such, by show of hands; andappointed PricewaterhouseCoopers LLP as auditors	to serve until the close of the next annual meeting, by show of hands.
**Item 5.      OtherInformation**

The registrant hasnothing to report under this item.

**Item 6.     Exhibits and Reports on Form 8-K**
 (a)Exhibits
 
 
       (10.1) 
Employment Arrangement with Brian Sturgell.
       (31.1) 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) underSecurities Exchange Act of 1934. 
       (31.2) 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) underSecurities Exchange Act of 1934. 
       (32.1) 
Certification of Chief Executive Officer pursuant to Section 906 of theSarbanes-Oxley Act of 2002. 
       (32.2) 
Certification of Chief Financial Officer pursuant to Section 906 of theSarbanes-Oxley Act of 2002. 
      (b)
Reports on Form 8-K
     i)
a report on Form 8-K was furnished on May 6, 2004 under Item 12 thereof, inconnection with the earnings release reporting the Company's financial resultsfor the three-month period ended March 31, 2003.
      ii)
a report on Form 8‐K was furnished on May 18, 2004 under Item 5 thereof,announcing the proposed creation of an aluminum rolled products company.
      iii)
a report on Form 8‐K was furnished on June 14, 2004 under Item 5 thereof,supplementing Items 7 and 8 of the Company's Annual Report on Form 10‐K for theyear ended December 31, 2003 reporting that the Company (a) adopted, effectiveJanuary 1, 2004, the U.S. generally accepted accounting principles as itsprimary reporting standard, (b) decided, effective January 1, 2004, to expensestock options, (c) classified certain non‐strategic Engineered Products segmentsassets as held for sale and (d) described certain events occurring after March15, 2004.

 

 

-46-
****
 
  iv)
a report on Form 8‐K / A		was filed on June 28, 2004 amending the report on Form 8‐K filed on June		14, 2004 under Item 5 thereof, to include the consent of		PricewaterhouseCoopers LLP to the incorporation by reference of their reportcontained in the Form 8‐K into specified registration statements and to amendand restate the Exhibit Index to the Form 8‐K.
 

       

 

 

 

 

 

 

 

 

 

 

-47-
****
 

**SIGNATURE**

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

                                                                                   ALCAN INC.

Dated: August 9, 2004                                                    By: /s/  Thomas J. Harrington                                                                                                         Thomas J. Harrington                                                                                           Vice President and Controller                                                                                           (A Duly Authorized Officer)

 

 

 

 

 

 

 

 

 

 

 

-48-

**EXHIBIT INDEX**

Exhibit Number                                                                  Description

 

(10.1)       Employment Arrangement with Brian Sturgell.

(31.1)       Certification of Chief Executive Officer pursuant to Rule 13a-14(a) underSecurities Exchange Act of 1934. 

(31.2)       Certification of Chief Financial Officer pursuant to Rule 13a-14(a) underSecurities Exchange Act of 1934. 

(32.1)       Certification of Chief Executive Officer pursuant to Section 906 of theSarbanes-Oxley Act of 2002. 

(32.2)       Certification of Chief Financial Officer pursuant to Section 906 of theSarbanes-Oxley Act of 2002. 

 

 

 

 

 

 

-49-
**** |