SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

Commission file number 1-3677

ALCAN INC.

(Exact name of registrant as specified in its charter)

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

1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A 3G2

(Address of Principal Executive Offices and Postal Code)

(514) 848-8000

(Registrant's Telephone Number, including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes  X

 

   No
____

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

Yes  X

 

   No
____

At August 8, 2005 the registrant had 370,246,490 shares of common stock (without nominal
or par value) outstanding.

PART I. FINANCIAL INFORMATION

In this report,
all dollar amounts are stated in U.S. dollars and all quantities in metric tons,
or tonnes, unless indicated 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 of its consolidated subsidiaries. 

Item 1.

Financial Statements 

ALCAN INC.

 

INTERIM
CONSOLIDATED STATEMENT OF INCOME

(unaudited)

 

Second Quarter

Six Months

Periods ended
    June 30

2005

2004

2005

2004

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

 

 

 

 

Sales and operating revenues

5,206

6,208

10,384

12,228

 

 

 

 

 

Costs and expenses

 

 

 

 

Cost of sales and operating
    expenses, excluding depreciation

 

 

 

 

and amortization noted below

4,130

4,918

8,220

9,890

Depreciation and amortization

268

324

540

660

Selling, administrative and
    general expenses

345

365

725

761

Research and development
    expenses

49

58

98

119

Interest

90

87

175

180

Other expenses (income) - net
    (note 11)

73

54

97

51

 

4,955

5,806

9,855

11,661

Income from continuing
    operations before income taxes and

 

 

 

 

other items

251

402

529

567

Income taxes (note 9)

70

125

168

166

Income from continuing
    operations before other items

181

277

361

401

Equity income

28

17

57

33

Minority interests

(1)

(9)

(2)

(15)

Income from continuing
    operations

208

285

416

419

Income (Loss) from discontinued
    operations (note 3)

(17)

46

(7)

18

Net income

191

331

409

437

Dividends on preference shares

1

1

3

3

Net income attributable to
    common shareholders

190

330

406

434

Earnings (Loss) per share

(note 4)

 

 

 

 

Basic and Diluted:

 

 

 

 

Income from continuing
    operations

       0.56

       0.77

       1.11

       1.13

Income (Loss) from discontinued
    operations

     (0.04)

       0.12

     (0.02)

       0.05

Net income per common share -
    basic and diluted

       0.52

       0.89

       1.09

       1.18

Dividends per common share

       0.30

       0.30

       0.45

       0.45

The
accompanying notes are an integral part of the interim financial statements.

-2-

ALCAN INC.

 

INTERIM
CONSOLIDATED BALANCE SHEET

(unaudited)

 

 

 

 

June 30,  2005

December 31, 2004

(in millions
    of US$)

 

 

 

 

 

ASSETS

 

 

 

 

 

Current assets

 

  

Cash and time deposits

222

184

Trade receivables (net of
    allowances of $62 in 2005 and $99 in 2004)

2,861

3,247

Other receivables

846

936

Deferred income taxes

110

214

Inventories (note 12)

2,863

4,040

Current assets held for sale
    (note 3)

172

791

Total current assets

7,074

9,412

 

 

 

Deferred charges and other
    assets

2,251

2,877

Deferred income taxes

969

870

Property, plant and equipment

 

 

Cost (excluding Construction
    work in progress)

15,383

21,956

Construction work in progress

899

816

Accumulated depreciation

(5,479)

(9,478)

 

10,803

13,294

Intangible assets (net of
    accumulated amortization of $177 in 2005

 

 

   and $172 in 2004)

1,028

1,230

Goodwill

4,992

5,496

Long-term assets held for sale
    (note 3)

30

162

Total assets

27,147

33,341

 

 

 

 

 

 

The
accompanying notes are an integral part of the interim financial statements.

-3-

ALCAN INC.

 

INTERIM
CONSOLIDATED BALANCE SHEET

(cont'd) (unaudited)

 

 

 

 

June 30, 2005

December 31, 2004

(in millions
    of US$)

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS'
    EQUITY

 

 

 

 

 

Current liabilities

 

 

Payables and accrued liabilities

4,415

5,843

Short-term borrowings

339

2,486

Debt maturing within one year

854

569

Deferred income taxes

27

23

Current liabilities of
    operations held for sale (note 3)

104

335

Total current liabilities

5,739

9,256

 

 

 

Debt not maturing within one
    year

5,630

6,345

Deferred credits and other
    liabilities

4,270

4,986

Deferred income taxes

1,279

1,543

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

9

249

Minority interests

91

236

 

 

 

Shareholders' equity

 

 

Redeemable non-retractable
    preference shares

160

160

Common shareholders' equity

 

 

Common shares

6,104

6,670

Additional paid-in capital

692

112

Retained earnings

3,322

3,362

Common shares held by a
    subsidiary

(31)

(35)

Accumulated other comprehensive
    income (loss) (note 16)

(118)

457

 

9,969

10,566

 

10,129

10,726

 

 

 

Commitments and contingencies
    (note 15)

 

 

 

 

 

Total liabilities and
    shareholders' equity

27,147

33,341

 

 

 

The
accompanying notes are an integral part of the interim financial statements.

-4-

ALCAN INC.

 

INTERIM
CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

 

Second Quarter

Six Months

Periods ended
    June 30

2005

2004

2005

2004

(in millions
    of US$)

 

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

Net income

191

331

409

437

Loss (Income) from discontinued
    operations

17

(46)

7

(18)

Income from continuing
    operations

208

285

416

419

Adjustments to determine cash
    from operating activities:

 

 

 

 

Depreciation and amortization

268

324

540

660

Deferred income taxes

(13)

42

42

14

Equity income, net of dividends

2

(1)

(25)

(17)

Asset impairment provisions

25

2

33

10

Loss (Gain) on sale of
    businesses and investments - net

17

(42)

16

(42)

Stock option compensation

5

2

10

4

Change in operating working
    capital

 

 

 

 

Change in receivables

(157)

(137)

(353)

(518)

Change in inventories

(128)

(11)

(114)

44

Change in payables and accrued
    liabilities

(34)

12

(272)

199

Change in deferred charges,
    other assets,

 

 

 

 

deferred credits and other
    liabilities - net

44

(83)

(72)

(103)

Other - net

5

35

(46)

30

Cash from operating activities
    in continuing operations

242

428

175

700

 

 

 

 

 

Cash from (used for) operating
    activities in discontinued

 

 

 

 

operations

(18)

33

50

51

 

 

 

 

 

Cash from operating activities

224

461

225

751

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

Proceeds from issuance of new
    debt - net of issuance costs

780

177

1,166

718

Debt repayments

(610)

(234)

(1,196)

(454)

Short-term borrowings - net

29

(145)

(1,993)

(375)

Common shares issued

6

8

10

33

Dividends -          Alcan
    shareholders (including preference)

(56)

(56)

(114)

(113)

-          Minority interests

(6)

(2)

(6)

(4)

Cash from (used for) financing
    activities in continuing operations

143

(252)

(2,133)

(195)

 

 

 

 

 

Cash from (used for) financing
    activities in discontinued

 

 

 

 

operations

41

(30)

4

(31)

 

 

 

 

 

Cash from (used for) financing
    activities

184

(282)

(2,129)

(226)

 

The accompanying
notes are an integral part of the interim financial statements.

-5-

ALCAN INC.

 

INTERIM
CONSOLIDATED STATEMENT OF CASH FLOWS

(cont'd) (unaudited)

 

Second Quarter

Six Months

Periods ended
    June 30

2005

2004

2005

2004

(in millions
    of US$)

 

 

 

 

 

 

 

 

 

INVESTMENT ACTIVITIES

 

 

 

 

 

 

 

 

 

Purchase of property, plant and
    equipment

(453)

(265)

(745)

(517)

Business acquisitions and
    purchase of investments

(39)

(55)

(42)

(423)

Net proceeds from disposal of
    businesses, investments and

 

 

 

 

other assets

(9)

(24)

3

20

Settlement of amounts due from
    Novelis - net (note 5)

-

-

2,535

-

Cash from (used for) investment
    activities in continuing operations

(501)

(344)

1,751

(920)

 

 

 

 

 

Cash from (used for) investment
    activities in discontinued

 

 

 

 

operations

121

9

64

(4)

 

 

 

 

 

Cash from (used for) investment
    activities

(380)

(335)

1,815

(924)

 

 

 

 

 

Effect of exchange rate changes
    on cash and time deposits

(11)

(1)

(29)

(28)

Increase (Decrease) in cash and
    time deposits

17

(157)

(118)

(427)

 

 

 

 

 

Cash and time deposits - beginning of period

205

508

340

778

Cash and time deposit - end of
    period in continuing operations

222

235

222

235

Cash and time deposits - end of
    period in current assets held

 

 

 

 

for sale

-

116

-

116

Cash and time deposits - end of
    period

222

351

222

351

 

 

 

 

 

The
accompanying notes are an integral part of the interim financial statements.

-6-

ALCAN INC.

 

INTERIM
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

(in millions of US$)

 

Preference Shares - Series C and E

 

 

Common Shares

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

Common Shares Held by a Subsidiary

Accumulated Other Comprehen-sive Income (Loss)

 

 

Total Shareholders' Equity

Balance at
    December 31, 2004

160

6,670

112

3,362

(35)

           457 

10,726

Spin-off of
    Novelis (note 5)

 

(576)

572

(279)

 

(71)

(354)

Net income - six months ended

 

 

 

 

 

 

 

June 30,
    2005

 

 

 

409

 

 

409

Other
    comprehensive loss  (note 16)

 

 

 

 

 

(504)

(504)

Dividends:

 

 

 

 

 

 

 

Preference

 

 

 

(3)

 

 

(3)

Common

 

 

 

(167)

 

 

(167)

Stock option
    expense

 

 

10

 

 

 

10

Exercise of
    stock options

 

2

(2)

 

 

 

-

Common
    shares held by a subsidiary

 

 

 

 

4

 

4

Common
    shares issued for cash:

 

 

 

 

 

 

 

Executive share option plan

 

8

 

 

 

 

8

Dividend reinvestment and share

 

 

 

 

 

 

 

purchase plans

 

2

 

 

 

 

2

Other

 

(2)

 

 

 

 

(2)

Balance at June 30, 2005

160

6,104

692

3,322

(31)

(118)

10,129

The
accompanying notes are an integral part of the interim financial statements.

-7-

Conditional Asset
Retirement Obligations

-13-

-14-

-22-

-23-

-25-

-27-

Common

Preference

2004

Synergy costs

(8)

(7)

Restructuring charges

(5)

(3)

Asset impairment

(1)

-

Gains (losses) from
    non-routine sales of assets, businesses and

investments

42

1

(46)

(27)

Novelis costs

-

(24)

Insurance recovery

-

8

Other

10

7

(8)

(45)

2004 amounts include Novelis but
    have been retroactively adjusted to reflect the reclassification of certain businesses as
    discontinued operations.

Including
results from discontinued operations, the Company reported net income of $191,
or $0.52 per common share, compared to net income of $331 or $0.89 per common
share a year earlier and net income of $218 or $0.58 per common share in the
first quarter of 2005.

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

  
  Changes in
  interest rates, foreign exchange rates and the market price of aluminum are
  among the factors that can impact the Company's cash flow.  See risk factors
  on page 4 of the Company's annual report on Form 10-K for the year ended
  December 31, 2004.
  
  Interest Rates 
  
  The impact of a 10% increase in interest rates
  on the Company's variable rate debt outstanding at June 30, 2005 net of its
  invested surplus cash and time deposits at June 30, 2005 would be to reduce
  net income for a 12-month period by $3.  The fixed rate debt will be held to
  maturity and the Company does not intend to refinance its fixed rate debt
  prior to maturity.  Transactions in interest rate financial instruments for
  which there is no underlying interest rate exposure to the Company are
  prohibited.  For accounting policies for interest rate swaps used to hedge
  interest costs on certain debt, see note 3 - Summary of Significant Accounting
  Policies on page 61 of the Company's annual report.
  
  Currency Derivatives
  
   The schedule below presents fair value
  information and contract terms relevant to determining future cash flows
  categorized by expected maturity dates of the Company's currency derivatives
  (principally forward and option contracts) outstanding as at June 30, 2005.
  

      
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
        
        Total
        
        
         
      
      
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
        
        Nominal
        
        
        
        Fair
      
      
        
        
        
        (In US$ millions,
        except contract rates)
        
        
        
        2005
        
        
        
        2006
        
        
        
        2007
        
        
        
        2008
        
        
        
        2009
        
        
        
        2010
        
        
        
        Amount
        
        
        
        Value
      

    
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      
      FORWARD CONTRACTS
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      
      To
      purchase USD against the foreign currency
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      
       
      
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      GBP
      
      
      Nominal
      amount
      
      
      28
      
      
      6
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      34
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.556
      
      
      0.571
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      CHF
      
      
      Nominal
      amount
      
      
      13
      
      
      15
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      28
      
      
      1
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.228
      
      
      1.239
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      JPY
      
      
      Nominal
      amount
      
      
      4
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      4
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      108.4
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      Other
      
      
      Nominal
      amount
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1
      
      
      -
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      To sell USD against the foreign currency
      
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
    
    
      
      
      
       
      
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      GBP
      
      
      Nominal
      amount
      
      
      54
      
      
      3
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      57
      
      
      (2)
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.539
      
      
      0.540
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      CHF
      
      
      Nominal
      amount
      
      
      5
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      6
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.201
      
      
      1.313
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      AUD
      
      
      Nominal
      amount
      
      
      110
      
      
      205
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      315
      
      
      2
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.741
      
      
      0.751
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      Other
      
      
      Nominal
      amount
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1
      
      
      -
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      To sell EUR against the foreign currency
      
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
    
    
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
       
    
    
      
      
      USD
      
      
      Nominal
      amount
      
      
      380
      
      
      1,277
      
      
      24
      
      
      10
      
      
      -
      
      
      -
      
      
      1,691
      
      
      (28)
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.246
      
      
      1.198
      
      
      1.222
      
      
      1.088
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      GBP
      
      
      Nominal
      amount
      
      
      8
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      8
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.708
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      CHF
      
      
      Nominal
      amount
      
      
      24
      
      
      20
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      44
      
      
      (1)
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.521
      
      
      1.495
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
  

  
  -42-

  

      
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
        
        Total
        
        
         
      
      
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
        
        Nominal
        
        
        
        Fair
      
      
        
        
        
        (In US$ millions,
        except contract rates)
        
        
        
        2005
        
        
        
        2006
        
        
        
        2007
        
        
        
        2008
        
        
        
        2009
        
        
        
        2010
        
        
        
        Amount
        
        
        
        Value
      

    
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      CZK
      
      
      Nominal
      amount
      
      
      6
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      6
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      30.05
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      ZAR
      
      
      Nominal
      amount
      
      
      2
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      3
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      8.103
      
      
      8.043
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      Other
      
      
      Nominal
      amount
      
      
      2
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      2
      
      
      -
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      To buy EUR against the foreign currency
      
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
    
    
      
      
      
       
      
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      USD
      
      
      Nominal
      amount
      
      
      251
      
      
      59
      
      
      21
      
      
      -
      
      
      -
      
      
      -
      
      
      331
      
      
      8
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.205
      
      
      1.090
      
      
      1.201
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      GBP
      
      
      Nominal
      amount
      
      
      25
      
      
      9
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      34
      
      
      (2)
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.700
      
      
      0.715
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      CHF
      
      
      Nominal
      amount
      
      
      2
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      2
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.524
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      AUD
      
      
      Nominal
      amount
      
      
      7
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      7
      
      
      (1)
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.759
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      JPY
      
      
      Nominal
      amount
      
      
      5
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      5
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      134.3
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      Other
      
      
      Nominal
      amount
      
      
      4
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      5
      
      
      -
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      
      To buy CHF
      against the foreign currency
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      AUD
      
      
      Nominal
      amount
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.107
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      JPY
      
      
      Nominal
      amount
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      85.96
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      DKK
      
      
      Nominal
      amount
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.206
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      
      To sell
      CHF against the foreign currency
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      Other
      
      
      Nominal
      amount
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1
      
      
      -
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      OPTIONS
      
      
       
      
       
      
       
      
       
      
       
      
       
    
    
      
      
      To buy USD against
      the foreign currency
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      EUR
      
      
      Nominal amount
      
      
      48
      
      
      18
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      66
      
      
      (2)
    
    
      
      
       
      
      
      Average contract rate
      
      
      0.800
      
      
      0.800
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      To sell USD against
      the foreign currency
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      
       
      
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      EUR
      
      
      Nominal
      amount
      
      
      50
      
      
      137
      
      
      20
      
      
      -
      
      
      -
      
      
      -
      
      
      207
      
      
      6
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.863
      
      
      0.759
      
      
      0.758
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      GBP
      
      
      Nominal
      amount
      
      
      2
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      2
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.585
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
  
   -43-
  
  
  Any negative impact of currency movements on
  the currency contracts that the Company has entered into to hedge identifiable
  foreign currency commitments to purchase or sell goods and services, would be
  offset by an equal and opposite favourable exchange impact on the commitments
  being hedged.  Transactions in currency related financial instruments for
  which there is no underlying foreign currency exchange rate exposure to the
  Company are prohibited.  For accounting policies relating to currency
  contracts, see note 3 - Summary of Significant Accounting Policies on page 61
  of the Company's annual report.
  
  Derivative Commodity Contracts
  
  The effect of
  a reduction of 10% in aluminum prices on the Company's aluminum forward and
  options contracts outstanding at June 30, 2005 would be to increase net income
  over the period ending December 31, 2007 by approximately $88 ($45 in 2005,
  $37 in 2006 and $6 in 2007).  These results reflect a 10% reduction from the
  June 30, 2005, three-month LME aluminum closing price of $1,720 per tonne and
  assume an equal 10% drop has occurred throughout the aluminum forward price
  curve existing as at June 30, 2005.  The Company's aluminum forward contract
  positions, producing the above results, are entered into to hedge anticipated
  future sales of metal. Consequently, any
  negative impact of movements in the price of aluminum on the forward contracts
  would be offset by an equal and opposite impact on the sales
  being hedged.
  
  Transactions
  in metal-related financial instruments for which there is no underlying metal
  price exposure to the Company are prohibited, except for a small trading
  portfolio of metal forwards not exceeding 25,000 tonnes, which is
  marked-to-market.  
  
  -44-
  
  Item 4.   
  Controls and Procedures
  
  
  a)           Evaluation of Disclosure Controls and Procedures
  
  As at June
  30, 2005, an evaluation was carried out under the supervision and with the
  participation of the Company's management, including its Chief Executive
  Officer and Chief Financial Officer, of the effectiveness of the design and
  operation of our disclosure controls and procedures (as defined in Rules
  13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).  Based
  upon that evaluation, the Chief Executive Officer and Chief Financial Officer
  concluded that the design and operation of these disclosure controls and
  procedures were effective.
  
  
  b)           Changes in Internal Control Over Financial Reporting 
  
  Except as
  otherwise discussed herein, there have been no changes in the Company's
  internal control over financial reporting during the quarter ended June 30,
  2005 that have materially affected, or are reasonably likely to materially
  affect, the Company's internal control over financial reporting. The Company
  will assess the effectiveness of its internal control over financial reporting
  in its Annual Report on Form 10-K for 2005.

  
  During the
  second quarter of 2005, a new financial aluminum trading software system was
  implemented, with consequent resulting changes to the Company's internal
  control over financial reporting in relation to aluminum trading operations.
  -45-

PART II.  OTHER INFORMATION
  
  

  Item 1.      Legal Proceedings
  
  
  Pohatcong
  Valley Site. 
  As previously reported, the U.S. Department of the Interior notified Pechiney
  Plastic Packaging Inc. ("PPPI" - a subsidiary of the Company) on November 19,
  1999 that it wanted to geophysically log certain wells at the Washington, New
  Jersey facility as it sought to identify possible contributors of a specific
  contaminant -

  trichloroethylene
  (''TCE'') - to the Pohatcong Valley Superfund Site. This matter involves both
  an on-site remediation of the Washington Plant, New Jersey, which is near
  completion and the Pohatcong Valley Superfund Site, which is in the early
  stages of investigation.   
  
  PPPI had been
  advised that the geophysical logging process had occurred and in 2001, the
  United States Environmental Protection Agency (USEPA) carried out certain
  minor additional investigations at the plant site.   
  
  PPPI has
  performed an on-site remediation at the Washington plant and had received a
  "no further action" letter from the State of New Jersey for certain areas and
  an approval letter dated June 12, 2002 from the State for certain additional
  work.  
  
  In June 2004
  PPPI received a demand letter from the USEPA naming PPPI as a potentially
  responsible party.  The USEPA has also made two supplemental requests for
  information, to which PPPI has responded.  
  

  In June 2005, the USEPA issued a remedial investigation and groundwater
  contamination report.  On July 27, 2005, the USEPA
  publicly issued a draft plan with proposed remedial alternatives.  PPPI
  is continuing to discuss the matter with the USEPA and is awaiting the USEPA's
  record of decision in relation to its report.
  

  Other information called for by this Item is incorporated by reference to the
  first paragraph of Note 15 of Item 1, Part I of this quarterly report on Form
  10-Q.
  
  Items 2., 3.
  and 5.
  
  The registrant has nothing
  to report under these items. 
  
  
  

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

  Information called for by this item with respect to the Annual Meeting of the
  Shareholders of the Company held on April 28, 2005 is incorporated by
  reference to Part II, Item 4 of the Company's quarterly report on Form 10-Q
  for the quarter ended March 31, 2005. 
  
  
  

  Item 6.      Exhibits
  

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

   
  

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

   
  

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

   
  

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

  

   

  -46-

SIGNATURE
  
  Pursuant to the
  requirements of the Securities Exchange Act of 1934, the registrant has duly
  caused this report to be signed on its behalf by the undersigned thereunto
  duly authorized.
  

   
  

                                                                                     
  ALCAN INC.
  

   
  

  Dated: 9 August 2005                                                     By:
  /s/  Thomas J. Harrington               
  
  

                                                                                             Thomas J. Harrington
  

                                                                                             Vice President and Controller
  

                                                                                             (A Duly Authorized Officer)

  

  

  
  

  

  -47-
  
  
  EXHIBIT INDEX
  

  Exhibit  
  

  Number                                                                  
  Description
  

   
  

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

   
  

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

   
  

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

   
  

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

# FORM
10-Q

# Conditional Asset
Retirement Obligations

## Periods
    ended June 30

##  

## Statement of Income

### Sales and operating revenues

### Cost and expenses

### Net income

## Periods
    ended June 30

##  

## Statement of Income

### Sales and operating revenues

### Cost and expenses

### Net income

#### Consolidated Statement of Retained Earnings
-
Canadian GAAP

#### Retained
    earnings - beginning of period

###### Common

###### Preference

## Balance Sheet

## Current assets

## Cash and time
    deposits

## Total assets

## Current liabilities

## Payables and
    accrued liabilities

##  

## Short-term
    borrowings

## Debt maturing
    within one year

## Deferred income
    taxes

##  

## Current
    liabilities of operations held for sale

## Total current liabilities

###  

###  

### Shareholders' equity

#### Overview

####  

####  

#### 2005

#### 2004

####  

####  

####  

####  

#### Other Specified Items

####  

####  

####  

#### Synergy costs

#### (24)

#### (8)

#### (7)

#### Restructuring charges

#### (28)

#### (5)

#### (3)

#### Asset impairment

#### (16)

#### (1)

#### -

#### Gains (losses) from
    non-routine sales of assets, businesses and

####  

####  

####  

#### investments

#### (8)

#### 42

#### 1

#### -

#### (46)

#### (27)

#### Novelis costs

#### 5

#### -

#### (24)

#### Insurance recovery

#### -

#### -

#### 8

#### Other

#### (11)

#### 10

#### 7

#### Other Specified Items

#### (82)

#### (8)

#### (45)

####  

#### 2004 amounts include Novelis but
    have been retroactively adjusted to reflect the reclassification of certain businesses as
    discontinued operations.

#### Net Income

#### Including
results from discontinued operations, the Company reported net income of $191,
or $0.52 per common share, compared to net income of $331 or $0.89 per common
share a year earlier and net income of $218 or $0.58 per common share in the
first quarter of 2005.

#### Synergies

#### Operating Segment Review

#### Corporate Items

#### Liquidity and Capital
Resources

## Debt

## Total debt

## Equity

## Total equity

# Payments due by period

### Total

#### Selected Quarterly Information 

#### Related Party Transactions

#### Accounting Policies

### Joint Ventures

### Accounting for
Derivatives

### Minimum Pension Liability

#### Definitions

# Interest Rates 

# Currency Derivatives

# To sell USD against the foreign currency

# To sell EUR against the foreign currency

# To buy EUR against the foreign currency

# OPTIONS

# Derivative Commodity Contracts

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

Commission file number 1-3677

ALCAN INC.

(Exact name of registrant as specified in its charter)

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


 

1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A 3G2

(Address of Principal Executive Offices and Postal Code)

 

(514) 848-8000

(Registrant's Telephone Number, including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes  X  

    No
____

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

Yes  X 

    No
____

PART I. FINANCIAL INFORMATION

In this report,
all dollar amounts are stated in U.S. dollars and all quantities in metric tons,
or tonnes, unless indicated 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 of its consolidated subsidiaries. 

Item 1.
Financial Statements 

ALCAN INC. 

INTERIM
CONSOLIDATED STATEMENT OF INCOME 
(unaudited)

 
    
    
    
    Second Quarter
    
    
    
    Six Months
  
  
    
    <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">Periods ended
    June 30
    
    
    2005
    
    
    
    2004
    
    
    2005
    
    
    
    2004
  
  
    
    <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">(in millions
    of US$, except per share amounts)
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
  
  
    
    
    Sales and operating revenues
    
    
    
    5,206
    
    
    
    6,208
    
    
    
    10,384
    
    
    
    12,228
  
  
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    
    
    Costs and expenses
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    
    
    
    Cost of sales and operating
    expenses, excluding depreciation 
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    
    <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    and amortization noted below
    
    
    
    4,130
    
    
    
    4,918
    
    
    
    8,220
    
    
    
    9,890
  
  
    
    
    
    Depreciation and amortization
    
    
    
    268
    
    
    
    324
    
    
    
    540
    
    
    
    660
  
  
    
    
    
    Selling, administrative and
    general expenses
    
    
    
    345
    
    
    
    365
    
    
    
    725
    
    
    
    761
  
  
    
    
    
    Research and development
    expenses
    
    
    
    49
    
    
    
    58
    
    
    
    98
    
    
    
    119
  
  
    
    
    
    Interest 
    
    
    
    90
    
    
    
    87
    
    
    
    175
    
    
    
    180
  
  
    
    
    
    Other expenses (income) - net
    (note 11)
    
    
    
    73
    
    
    
    54
    
    
    
    97
    
    
    
    51
  
  
    
    
    
     
    
    
    
    4,955
    
    
    
    5,806
    
    
    
    9,855
    
    
    
    11,661
  
  
    
    
    
    Income from continuing
    operations before income taxes and 
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    
    <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    other items
    
    
    
    251
    
    
    
    402
    
    
    
    529
    
    
    
    567
  
  
    
    
    
    Income taxes (note 9)
    
    
    
    70
    
    
    
    125
    
    
    
    168
    
    
    
    166
  
  
    
    
    
    Income from continuing
    operations before other items
    
    
    
    181
    
    
    
    277
    
    
    
    361
    
    
    
    401
  
  
    
    
    
    Equity income
    
    
    
    28
    
    
    
    17
    
    
    
    57
    
    
    
    33
  
  
    
    
    
    Minority interests
    
    
    
    (1)
    
    
    
    (9)
    
    
    
    (2)
    
    
    
    (15)
  
  
    
    
    Income from continuing
    operations
    
    
    
    208
    
    
    
    285
    
    
    
    416
    
    
    
    419
  
  
    
    
    
    Income (Loss) from discontinued
    operations (note 3)
    
    
    
    (17)
    
    
    
    46
    
    
    
    (7)
    
    
    
    18
  
  
    
    
    Net income 
    
    
    
    191
    
    
    
    331
    
    
    
    409
    
    
    
    437
  
  
    
    
    
    Dividends on preference shares
    
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    3
  
  
    
    
    Net income attributable to
    common shareholders
    
    
    
    190
    
    
    
    330
    
    
    
    406
    
    
    
    434
  
  
    
    
    Earnings (Loss) per share 
    (note 4)
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    
    
    
    Basic and Diluted:
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    
    
    
    Income from continuing
    operations 
    
    
    
           0.56
    
    
    
           0.77
    
    
    
           1.11
    
    
    
           1.13
  
  
    
    
    
    Income (Loss) from discontinued
    operations
    
    
    
         (0.04)
    
    
    
           0.12
    
    
    
         (0.02)
    
    
    
           0.05
  
  
    
    
    Net income per common share -
    basic and diluted
    
    
    
           0.52
    
    
    
           0.89
    
    
    
           1.09
    
    
    
           1.18
  
  
    
    
    Dividends per common share
    
    
    
           0.30
    
    
    
           0.30
    
    
    
           0.45
    
    
    
           0.45
  


The
accompanying notes are an integral part of the interim financial statements.

-2-

ALCAN INC.

 

INTERIM
CONSOLIDATED BALANCE SHEET 
(unaudited)

 
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
  
  
    
     
    <td width="113" valign="top" style="width:85.05pt;border:none;border-bottom:solid windowtext 1.5pt;
  padding:0in 5.4pt 0in 5.4pt">
    
    
    June 30,  2005

December 31, 2004

(in millions
    of US$)
    
    <p class="Normal1" align="center" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:center">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
  
  
    
    <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in"> 
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
  
  
    
    <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">ASSETS
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
  
  
    
    <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in"> 
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
  
  
    
    
    Current assets
    
    
    
     
    
    
    
       
  
  
    
    
    
    Cash and time deposits
    
    
    
    222
    
    
    
    184
  
  
    
    
    
    Trade receivables (net of
    allowances of $62 in 2005 and $99 in 2004)
    
    
    
    2,861
    
    
    
    3,247
  
  
    
    
    
    Other receivables
    
    
    
    846
    
    
    
    936
  
  
    
    
    
    Deferred income taxes
    
    
    
    110
    
    
    
    214
  
  
    
    
    
    Inventories (note 12)
    
    
    
    2,863
    
    
    
    4,040
  
  
    
    
    
    Current assets held for sale
    (note 3)
    
    
    
    172
    
    
    
    791
  
  
    
    
    Total current assets
    
    
    
    7,074
    
    
    
    9,412
  
  
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    
    
    
    Deferred charges and other
    assets
    
    
    
    2,251
    
    
    
    2,877
  
  
    
    
    
    Deferred income taxes
    
    
    
    969
    
    
    
    870
  
  
    
    
    
    Property, plant and equipment
    
    
    
     
    
    
    
     
  
  
    
    
    
    Cost (excluding Construction
    work in progress)
    
    
    
    15,383
    
    
    
    21,956
  
  
    
    
    
    Construction work in progress
    
    
    
    899
    
    
    
    816
  
  
    
    
    
    Accumulated depreciation
    
    
    
    (5,479)
    
    
    
    (9,478)
  
  
    
    
    
     
    
    
    
    10,803
    
    
    
    13,294
  
  
    
    
    
    Intangible assets (net of
    accumulated amortization of $177 in 2005
    
    
    
     
    
    
    
     
  
  
    
    
    
       and $172 in 2004)
    
    
    
    1,028
    
    
    
    1,230
  
  
    
    
    
    Goodwill
    
    
    
    4,992
    
    
    
    5,496
  
  
    
    
    
    Long-term assets held for sale
    (note 3)
    
    
    
    30
    
    
    
    162
  
  
    
    
    Total assets
    
    
    
    27,147
    
    
    
    33,341
  
  
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    <td width="442" valign="top" style="width:331.45pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="113" valign="top" style="width:85.05pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="113" valign="top" style="width:85.05pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
  


The
accompanying notes are an integral part of the interim financial statements.
-3-

ALCAN INC.

 

INTERIM
CONSOLIDATED BALANCE SHEET 
(cont'd) (unaudited)

 
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
  
  
    
     
    <td width="113" valign="top" style="width:85.05pt;border:none;border-bottom:solid windowtext 1.5pt;
  padding:0in 5.4pt 0in 5.4pt">
    
    
    June 30, 2005

December 31, 2004

(in millions
    of US$)
    
    <p class="Normal1" align="center" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:center">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
  
  
    
    <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in"> 
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
  
  
    
    
    LIABILITIES AND SHAREHOLDERS'
    EQUITY
    
    
    
     
    
    
    
     
  
  
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    
    
    Current liabilities
    
    
    
     
    
    
    
     
  
  
    
    
    
    Payables and accrued liabilities
    
    
    
    4,415
    
    
    
    5,843
  
  
    
    
    
    Short-term borrowings
    
    
    
    339
    
    
    
    2,486
  
  
    
    
    
    Debt maturing within one year
    
    
    
    854
    
    
    
    569
  
  
    
    
    
    Deferred income taxes
    
    
    
    27
    
    
    
    23
  
  
    
    
    
    Current liabilities of
    operations held for sale (note 3)
    
    
    
    104
    
    
    
    335
  
  
    
    
    Total current liabilities
    
    
    
    5,739
    
    
    
    9,256
  
  
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    
    
    
    Debt not maturing within one
    year 
    
    
    
    5,630
    
    
    
    6,345
  
  
    
    
    
    Deferred credits and other
    liabilities
    
    
    
    4,270
    
    
    
    4,986
  
  
    
    
    
    Deferred income taxes
    
    
    
    1,279
    
    
    
    1,543
  
  
    
    
    
    Long-term liabilities of
    operations held for sale (note 3)
    
    
    
    9
    
    
    
    249
  
  
    
    
    
    Minority interests
    
    
    
    91
    
    
    
    236
  
  
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    
    
    Shareholders' equity
    
    
    
     
    
    
    
     
  
  
    
    
    
    Redeemable non-retractable
    preference shares
    
    
    
    160
    
    
    
    160
  
  
    
    
    
    Common shareholders' equity
    
    
    
     
    
    
    
     
  
  
    
    
    
    Common shares
    
    
    
    6,104
    
    
    
    6,670
  
  
    
    
    
    Additional paid-in capital
    
    
    
    692
    
    
    
    112
  
  
    
    
    
    Retained earnings
    
    
    
    3,322
    
    
    
    3,362
  
  
    
    
    
    Common shares held by a
    subsidiary
    
    
    
    (31)
    
    
    
    (35)
  
  
    
    
    
    Accumulated other comprehensive
    income (loss) (note 16)
    
    
    
    (118)
    
    
    
    457
  
  
    
    
    
     
    
    
    
    9,969
    
    
    
    10,566
  
  
    
    
    
     
    
    
    
    10,129
    
    
    
    10,726
  
  
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    
    
    
    Commitments and contingencies
    (note 15)
    
    
    
     
    
    
    
     
  
  
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    
    
    Total liabilities and
    shareholders' equity
    <td width="113" valign="top" style="width:85.05pt;border:none;border-bottom:solid windowtext 1.5pt;
  padding:0in 5.4pt 0in 5.4pt" align="right">
    
    
    27,147
    <td width="113" valign="top" style="width:85.05pt;border:none;border-bottom:solid windowtext 1.5pt;
  padding:0in 5.4pt 0in 5.4pt" align="right">
    
    
    33,341
  
  
    
    
    
     
    
    
    
     
    
    
    
     
  


The
accompanying notes are an integral part of the interim financial statements.
-4-

ALCAN INC.

 

INTERIM
CONSOLIDATED STATEMENT OF CASH FLOWS 
(unaudited)

 
    
    
    
    Second Quarter
    
    
    
    Six Months
  
  
    
    <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">Periods ended
    June 30
    
    
    
    2005
    
    
    
    2004
    
    
    
    2005
    
    
    
    2004
  
  
    
    <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">(in millions
    of US$)
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
  
  
    
    <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in"> 
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    OPERATING ACTIVITIES
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Net income
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    191
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    331
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    409
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    437
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Loss (Income) from discontinued
    operations
    
    
    
    17
    
    
    
    (46)
    
    
    
    7
    
    
    
    (18)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Income from continuing
    operations
    
    
    
    208
    
    
    
    285
    
    
    
    416
    
    
    
    419
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Adjustments to determine cash
    from operating activities:
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Depreciation and amortization
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    268
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    324
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    540
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    660
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Deferred income taxes
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (13)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    42
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    42
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    14
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Equity income, net of dividends
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    2
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (1)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (25)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (17)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Asset impairment provisions
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    25
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    2
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    33
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    10
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Loss (Gain) on sale of
    businesses and investments - net
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    17
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (42)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    16
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (42)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Stock option compensation
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    5
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    2
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    10
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    4
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Change in operating working
    capital
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Change in receivables
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (157)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (137)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (353)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (518)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Change in inventories
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (128)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (11)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (114)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    44
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Change in payables and accrued
    liabilities
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (34)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    12
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (272)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    199
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Change in deferred charges,
    other assets, 
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    deferred credits and other
    liabilities - net
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    44
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (83)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (72)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (103)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Other - net
    
    
    
    5
    
    
    
    35
    
    
    
    (46)
    
    
    
    30
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Cash from operating activities
    in continuing operations
    
    
    
    242
    
    
    
    428
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    175
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    700
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Cash from (used for) operating
    activities in discontinued
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    operations
    
    
    
    (18)
    
    
    
    33
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    50
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    51
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    Cash from operating activities
    
    
    
    224
    
    
    
    461
    
    
    
    225
    
    
    
    751
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    FINANCING ACTIVITIES
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Proceeds from issuance of new
    debt - net of issuance costs
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    780
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    177
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    1,166
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    718
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Debt repayments
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (610)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (234)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (1,196)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (454)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Short-term borrowings - net
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    29
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (145)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (1,993)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (375)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Common shares issued
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    6
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    8
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    10
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    33
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Dividends -          Alcan
    shareholders (including preference)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (56)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (56)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (114)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (113)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    -          Minority interests
    
    
    
    (6)
    
    
    
    (2)
    
    
    
    (6)
    
    
    
    (4)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Cash from (used for) financing
    activities in continuing operations
    
    
    
    143
    
    
    
    (252)
    
    
    
    (2,133)
    
    
    
    (195)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Cash from (used for) financing
    activities in discontinued
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    operations
    
    
    
    41
    
    
    
    (30)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    4
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (31)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    Cash from (used for) financing
    activities
    
    
    
    184
    
    
    
    (282)
    
    
    
    (2,129)
    
    
    
    (226)
  



 The accompanying
notes are an integral part of the interim financial statements.

-5-

ALCAN INC.

 

INTERIM
CONSOLIDATED STATEMENT OF CASH FLOWS 
(cont'd) (unaudited)

 
    
    
    
    Second Quarter
    
    
    
    Six Months
  
  
    
    <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">Periods ended
    June 30
    
    
    2005
    
    
    
    2004
    
    
    
    2005
    
    
    
    2004
  
  
    
    <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">(in millions
    of US$)
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
    
    <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
     
  
  
    
    <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in"> 
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    INVESTMENT ACTIVITIES
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Purchase of property, plant and
    equipment
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (453)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (265)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (745)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (517)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Business acquisitions and
    purchase of investments
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (39)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (55)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (42)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (423)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Net proceeds from disposal of
    businesses, investments and 
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    other assets
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (9)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (24)
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    3
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    20
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Settlement of amounts due from
    Novelis - net (note 5)
    
    
    
    -
    
    
    
    -
    
    
    
    2,535
    
    
    
    -
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Cash from (used for) investment
    activities in continuing operations
    
    
    
    (501)
    
    
    
    (344)
    
    
    
    1,751
    
    
    
    (920)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Cash from (used for) investment
    activities in discontinued
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    operations
    
    
    
    121
    
    
    
    9
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    64
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
    (4)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    Cash from (used for) investment
    activities
    
    
    
    (380)
    
    
    
    (335)
    
    
    
    1,815
    
    
    
    (924)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Effect of exchange rate changes
    on cash and time deposits
    
    
    
    (11)
    
    
    
    (1)
    
    
    
    (29)
    
    
    
    (28)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    Increase (Decrease) in cash and
    time deposits
    
    
    
    17
    
    
    
    (157)
    
    
    
    (118)
    
    
    
    (427)
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Cash and time deposits - beginning of period
    
    
    
    205
    
    
    
    508
    
    
    
    340
    
    
    
    778
  
  
    
    
    
    Cash and time deposit - end of
    period in continuing operations
    
    
    
    222
    
    
    
    235
    
    
    
    222
    
    
    
    235
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Cash and time deposits - end of
    period in current assets held
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
    <td width="76" valign="top" style="width:56.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt" align="right">
    
    
     
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    for sale 
    
    
    
    -
    
    
    
    116
    
    
    
    -
    
    
    
    116
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
    Cash and time deposits - end of
    period
    
    
    
    222
    
    
    
    351
    
    
    
    222
    
    
    
    351
  
  
    <td width="366" valign="top" style="width:274.7pt;padding:0in 5.4pt 0in 5.4pt;
  height:12.0pt">
    
    
     
    
    
     
    
    
     
    
    
     
    
    
    
     
  


The
accompanying notes are an integral part of the interim financial statements.
-6-

ALCAN INC.

 

INTERIM
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY 
(unaudited)

 
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
    
     
  
  
    
    
    
     

 

 

 

(in millions of US$)
    <td width="66" valign="bottom" style="width:49.6pt;border:none;border-bottom:solid windowtext 1.5pt;
  padding:0in 2.85pt 0in 2.85pt">
    
    
     

Preference Shares - Series C and E
    <td width="57" valign="bottom" style="width:42.55pt;border:none;border-bottom:solid windowtext 1.5pt;
  padding:0in 2.85pt 0in 2.85pt">
    
    
    
    
 

 

Common Shares
    <td width="66" valign="bottom" style="width:49.6pt;border:none;border-bottom:solid windowtext 1.5pt;
  padding:0in 2.85pt 0in 2.85pt">
    
    
     

 

Additional Paid-In Capital
    <td width="57" valign="bottom" style="width:42.55pt;border:none;border-bottom:solid windowtext 1.5pt;
  padding:0in 2.85pt 0in 2.85pt">
    
    
    
    
 

 

Retained Earnings
    <td width="66" valign="bottom" style="width:49.6pt;border:none;border-bottom:solid windowtext 1.5pt;
  padding:0in 2.85pt 0in 2.85pt">
    
    
     

Common Shares Held by a Subsidiary
    <td width="76" valign="bottom" style="width:56.7pt;border:none;border-bottom:solid windowtext 1.5pt;
  padding:0in 2.85pt 0in 2.85pt">
    
    
    Accumulated Other Comprehen-sive Income (Loss) 
    <td width="85" valign="bottom" style="width:63.8pt;border:none;border-bottom:solid windowtext 1.5pt;
  padding:0in 2.85pt 0in 2.85pt">
    
    
    
     

 

Total Shareholders' Equity
  
  
    
    
    Balance at
    December 31, 2004
    
    
    
    160
    
    
    
    6,670
    
    
    
    112
    
    
    
    3,362
    
    
    
    (35)
    
    
    
               457  
    
    
    
    10,726
  
  
    
    
    Spin-off of
    Novelis (note 5)
    
    
    
    
     
    
    
    
    
    (576)
    
    
    
    
    572
    
    
    
    
    (279)
    
    
    
    
     
    
    
    
    
    (71)
    
    
    
    
    (354)
  
  
    
    
    Net income - six months ended 
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
  
  
    
    
    June 30,
    2005
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
    409
    
    
    
    
     
    
    
    
    
     
    
    
    
    
    409
  
  
    
    
    Other
    comprehensive loss  (note 16)
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
    (504)
    
    
    
    
    (504)
  
  
    
    
    Dividends:
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
  
  
    
    
    Preference
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
    (3)
    
    
    
    
     
    
    
    
    
     
    
    
    
    
    (3)
  
  
    
    
    Common
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
    (167)
    
    
    
    
     
    
    
    
    
     
    
    
    
    
    (167)
  
  
    
    
    Stock option
    expense
    
    
    
    
     
    
    
    
    
     
    
    
    
    
    10
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
    10
  
  
    
    
    Exercise of
    stock options
    
    
    
    
     
    
    
    
    
    2
    
    
    
    
    (2)
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
    -
  
  
    
    
    Common
    shares held by a subsidiary
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
    4
    
    
    
    
     
    
    
    
    
    4
  
  
    
    
    Common
    shares issued for cash:
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
  
  
    
    <p class="MsoNormal" style="margin-top:2.0pt;margin-right:9.35pt;margin-bottom:
  0in;margin-left:9.15pt;margin-bottom:.0001pt">
    
    Executive share option plan
    
    
    
    
     
    
    
    
    
    8
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
    8
  
  
    
    <p class="MsoNormal" style="margin-top:2.0pt;margin-right:9.35pt;margin-bottom:
  0in;margin-left:9.15pt;margin-bottom:.0001pt">
    
    Dividend reinvestment and share 
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
  
  
    
    <p class="MsoNormal" style="margin-top:2.0pt;margin-right:9.35pt;margin-bottom:
  0in;margin-left:9.15pt;margin-bottom:.0001pt;text-indent:9.15pt">
    
    purchase plans
    
    
    
    
     
    
    
    
    
    2
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
    
    2
  
  
    
    <p class="MsoNormal" style="margin-top:2.0pt;margin-right:9.35pt;margin-bottom:
  0in;margin-left:0in;margin-bottom:.0001pt">
    
    Other
    
    
    
    
     
    
    
    
    
    (2)
    
    
    
    
     
    
    
    
    
     
    
    
    
    
     
    
    
    
     
    
    
    
    
    (2)
  
  
    
    <p class="MsoNormal" style="margin-top:2.0pt;margin-right:9.35pt;margin-bottom:
  0in;margin-left:0in;margin-bottom:.0001pt">
    
    Balance at June 30, 2005
    
    
    
    
    160
    
    
    
    
    6,104
    
    
    
    
    692
    
    
    
    
    3,322
    
    
    
    
    (31)
    
    
    
    
    (118)
    
    
    
    
    10,129
  

The
accompanying notes are an integral part of the interim financial statements.

-7-

ALCAN INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2005

(unaudited)

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

 

1.        
ACCOUNTING POLICIES

Basis of
Presentation

The unaudited
interim consolidated financial statements are based upon accounting policies and
methods of their application consistent with those used and described in the
Company's annual financial statements as contained in the most recent annual
report.  The interim financial statements do not include all of the financial
statement disclosures included in the annual financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America (U.S. GAAP) and therefore should be read in conjunction with the
Company's annual report.

In the
opinion of management of the Company, the unaudited interim consolidated
financial statements reflect all adjustments, which consist only of normal and
recurring adjustments, necessary to present fairly the financial position and
the results of operations and cash flows in accordance with U.S. GAAP, applied
on a consistent basis.  The results reported in these interim consolidated
financial statements are not necessarily indicative of the results that may be
expected for the entire year.

Spin-off of
Rolled Products Businesses - Basis of Presentation

On January 6,
2005, Alcan completed the spin-off of Novelis Inc. (Novelis), as described in
note 5 - Spin-off of Rolled Products Businesses.  Prior to the spin-off, these
businesses were owned by Alcan.  Alcan's consolidated financial statements as at
December 31, 2004 and for the second quarter and six months ended June 30, 2004
include the operations transferred to Novelis.   Alcan's consolidated financial
statements as at and for the second quarter and six months ended June 30, 2005
exclude the operations transferred to Novelis.   Management concluded that all
income earned and cash flows generated by Novelis entities from January 1 to 5,
2005, were insignificant, except as described in note 5 - Spin-off of Rolled
Products Businesses.

2.    RECENTLY ISSUED ACCOUNTING
STANDARDS

In March
2005, the Financial Accounting Standards Board (FASB) issued Interpretation No.
47 (FIN 47), Accounting for Conditional Asset Retirement Obligations, an
interpretation of FASB Statement No. 143.  FIN 47 clarifies that the term 
conditional asset retirement obligation as used in FASB Statement (SFAS) No.
143, Accounting for Asset Retirement Obligations, refers to a legal obligation
to perform an asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not be within the
control of the entity.  According to FIN 47, uncertainty about the timing and/or
method of settlement of a conditional asset retirement obligation should be
factored into the measurement of a liability when sufficient information
exists.  This interpretation is effective no later than the end of fiscal years
ending after December 15, 2005.  Retrospective application for interim financial
information is permitted but not required.  The Company does not anticipate that
this interpretation will have a material impact on its financial statements.

-8-

2.    RECENTLY ISSUED
ACCOUNTING STANDARDS 
(cont'd)

Accounting
Changes and Error Corrections

In June 2005,
the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20 and FASB Statement No. 3.  This statement
applies to all voluntary changes in accounting principle and changes the
requirements for accounting for and reporting of a change in accounting
principle.  The statement requires retrospective application to prior periods'
financial statements of a voluntary change in accounting principle versus
including the cumulative effect of changing to the new accounting principle in
net income.  SFAS No. 154 carries forward many provisions of APB Opinion No. 20
without change, including the provisions related to the reporting of a change in
accounting estimate, a change in the reporting entity, and the correction of an
error.  SFAS No. 154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. 

3.   
DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

Bauxite
and Alumina and Primary Metal

On December
29, 2004, the Company announced that, following an extensive evaluation of the
Company's operations subsequent to the Pechiney acquisition, it had entered into
a binding agreement for the sale of its controlling interest in Aluminium de
Grèce S.A. (AdG), as well as the transfer of certain related contracts, to
Mytilineos Holdings S.A. of Greece.  The Company classified this business in
discontinued operations and assets held for sale during the fourth quarter of
2004. The Company owned approximately 13 million shares in AdG, representing a
60.2% equity interest.  The transaction was completed on March 15, 2005 at a
value of $104.  Under the terms of this agreement, Mytilineos Holdings and
certain affiliated companies acquired from the Company a 53% equity position in
AdG.  The balance of the Company's interest in AdG, some 7.2%, may be sold by
the Company to Mytilineos Holdings one year after closing pursuant to a
three-month put option at a price equivalent to the selling price of the
shares.  Subsequently, Mytilineos Holdings will have a call option for six
months to purchase any remaining interest, at a price equivalent to the selling
price of the shares. 

Primary
Metal

On December
30, 2004, the Company announced that it had reached agreement on the principal
terms of a sale of Pechiney Électrométallurgie (PEM) to Ferroatlántica, S.L., of
Spain.  The Company classified this business in discontinued operations and
assets held for sale during the fourth quarter of 2004.  The Company's decision
to sell this business was based on an extensive evaluation of the Company's
operations subsequent to the Pechiney acquisition and is consistent with the
Company's strategy of divesting non-core activities.  On June 1, 2005, the
Company completed the sale of PEM for net proceeds of $150.

Engineered
Products

In the first
quarter of 2004, the Company committed to a plan to sell certain non-strategic
assets that are not part of its core operations.  The assets are used to supply
castings and components to the automotive industry.  The Company is actively
pursuing potential purchasers.  These assets are classified as held for sale and
are included in discontinued operations.

Following a
detailed assessment subsequent to the Pechiney acquisition, the Company began
restructuring efforts at certain European sites in the fourth quarter of 2004. 
As a result of this restructuring, the Company committed to a plan to sell two
high purity businesses, Mercus and Froges, in France.  These businesses were
classified in discontinued operations and assets held for sale during the fourth
quarter of 2004.  In the second quarter of 2005, the Company announced a change
in its strategy of selling the businesses due to changes in market and economic
conditions.  The Company envisions suspending one of two activities at the
Mercus high purity metal processing mill and closing the Froges rolling mill. 
As a result of the change in strategy, these two businesses no longer meet the
criteria for discontinued operations and, accordingly, have been reclassified to
assets held and used and are included in continuing operations.

Also in the
fourth quarter of 2004, the Company committed to a plan to sell its service
centres in France that are not part of its core operations.  These assets were
classified as held for sale and were included in discontinued operations.  On
April 20, 2005, the Company completed the sale of these service centres for net
proceeds of $4 to Amari
Metal France Ltd., which specializes in distributing aluminum, stainless steel
and cuprous metal products.

-9-

3.   
DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE 
(cont'd)

Packaging

In the second
quarter of 2003, the Company committed to a plan to sell certain non-strategic
operations (Fibrenyle, Boxal Group, and Suner Cartons), as the businesses were
not part of its core operations. These businesses were classified as held for
sale and were included in discontinued operations. In the fourth quarter of
2003, the Company recorded the sale of Fibrenyle, in the U.K., for proceeds of
$29.  In the second quarter of 2004, the Company recorded the sale of the Boxal
Group and Suner Cartons, for proceeds of $6 and $19, respectively.  As at June
30, 2004, the Company had sold all of the assets of the non-strategic packaging
businesses previously classified as held for sale in the second quarter of 2003.

Other

In the second
quarter of 2004, the Company classified in discontinued operations its copper
and ores and concentrates trading businesses.  In the fourth quarter of 2004,
the Company sold certain assets of its ores and concentrates trading division to
its then current management team, and sold the assets of its zinc and lead metal
trading business to Trafigura Ltd., an independent commodity trading company. 

Fair values
were determined based on either discounted cash flows or expected selling
price.  Certain financial information has been reclassified in the prior periods
to present these businesses as discontinued operations on the statement of
income, as assets held for sale and liabilities of operations held for sale on
the balance sheet and as cash flows from (used for) discontinued operations on
the statement of cash flows.

An impairment
charge of nil for the second quarter and six months ended June 30, 2005 (2004:
nil and $6) was recorded in discontinued operations to reduce the carrying
values of these businesses to estimated fair values less costs to sell.

Selected
financial information for the businesses included in discontinued operations is
reported below:

 
    
    
    Second Quarter
    
    
    Six Months
  
  
    
    Periods
    ended June 30
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
  
  
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    Sales
    
    78
    
    404
    
    276
    
    826
  
  
    
    Income from
    operations
    
    -
    
    38
    
    4
    
    17
  
  
    
    Gain (Loss)
    on disposal - net  
    
    
    (19)
    
    27
    
    
    (10)
    
    27
  
  
    
    Asset
    impairment provisions
    
    -
    
    -
    
    -
    
    
    (6)
  
  
    
    Pre-tax
    income (loss)
    
    
    (19)
    
    65
    
    
    (6)
    
    38
  
  
    
    Income tax
    recovered (expense)  
    
    2
    
    
    (19)
    
    
    (1)
    
    
    (20)
  
  
    
    Income
    (Loss) from discontinued operations
    
    
    (17)
    
    46
    
    
    (7)
    
    18
  

-10-

3.   
DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE 
(cont'd)

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

 

 
    
    
    
    June 30,
    2005

December 31, 2004

Current
    assets held for sale:
    
    
     
    
    
     
  
  
    
    
    Cash and time deposits
    
    
    
    -
    
    
    156
  
  
    
    
    Trade receivables
    
    
    
    45
    
    
    308
  
  
    
    
    Other receivables
    
    
    
    37
    
    
    40
  
  
    
    
    Deferred income taxes
    
    
    
    -
    
    
    2
  
  
    
    
    Inventories
    
    
    
    90
    
    
    285
  
  
    
     
    
    
    
    172
    
    
    791
  
  
    
    Long-term
    assets held for sale:
    
    
     
    
    
     
  
  
    
    
    Deferred charges and other assets
    
    
    
    14
    
    
    21
  
  
    
    
    Deferred income taxes
    
    
    
    5
    
    
    6
  
  
    
    
    Property, plant and equipment, net
    
    
    
    11
    
    
    85
  
  
    
    
    Intangible assets, net
    
    
    
    -
    
    
    50
  
  
    
     
    
    
    
    30
    
    
    162
  
  
    
    Current
    liabilities of operations held for sale:
    
    
    
     
    
    
     
  
  
    
    
    Payables and accrued liabilities
    
    
    
    103
    
    
    330
  
  
    
    
    Short-term borrowings
    
    
    
    1
    
    
    5
  
  
    
     
    
    
    
    104
    
    
    335
  
  
    
    Long-term
    liabilities of operations held for sale:
    
    
    
     
    
    
     
  
  
    
    
    Deferred credits and other liabilities
    
    
    
    6
    
    
    110
  
  
    
    
    Deferred income taxes
    
    
    
    3
    
    
    4
  
  
    
    
    Minority interests
    
    
    
    -
    
    
    135
  
  
    
     
    
    
    
    9
    
    
    249
  





4.    EARNINGS PER SHARE -
BASIC AND DILUTED

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

 
    
    
    Second Quarter
    
    
    Six Months
  
  
    
    Periods
    ended June 30
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
  
  
    
    
    Numerator: 
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    Income from
    continuing operations
    
    
    
    208
    
    
    285
    
    
    
    416
    
    
    419
  
  
    
    Less:
    dividends on preference shares
    
    
    
    (1)
    
    
    (1)
    
    
    
    (3)
    
    
    (3)
  
  
    
    Income from
    continuing operations attributable to  
    
    
    
     
    
    
     
    
    
    
     
    
    
     
  
  
    
       common
    shareholders
    
    
    
    207
    
    
    284
    
    
    
    413
    
    
    416
  
  
    
    
    Denominator (number of common shares in
    millions):
    
    
    
     
    
    
     
    
    
    
     
    
    
     
  
  
    
    Weighted
    average of outstanding shares - basic
    
    
    
    370
    
    
    368
    
    
    
    370
    
    
    368
  
  
    
    Effect of
    dilutive stock options
    
    
    
    -
    
    
    1
    
    
    
    1
    
    
    1
  
  
    
    Adjusted
    weighted average of outstanding shares - diluted
    
    
    
    370
    
    
    369
    
    
    
    371
    
    
    369
  
  
    
    Earnings
    per common share - basic and diluted
    
    
    
         0.56
    
    
         0.77
    
    
    
         1.11
    
    
         1.13
  

 

In the second
quarter and six months of 2005, options to purchase 7,863,990 and 4,739,354
common shares, respectively (2004: 1,016,500 and 1,000,000) at a weighted
average grant price of CAN$46.57 and CAN$50.16 per share, respectively (2004:
CAN$60.96 and CAN$61.03) were outstanding during the period but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average price of the common shares.

As at June 30, 2005, there were
370,234,793 (2004: 368,225,632) common shares outstanding. 

-11-

5.    SPIN-OFF OF ROLLED PRODUCTS BUSINESSES 

On January
6, 2005, Alcan completed the spin-off of Novelis to its shareholders. Alcan
shareholders received one Novelis common share for every five Alcan common
shares held.  Novelis consists of substantially all of the aluminum rolled
products businesses held by Alcan prior to its 2003 acquisition of Pechiney,
together with some of Alcan's alumina and primary metal-related businesses in
Brazil, which are fully integrated with the rolled products operations there, as
well as four former Pechiney rolling facilities in Europe. 

The effect
of the spin-off on the Company's balance sheet is described in the table below.
 The net assets were transferred at their historical cost. 

 

 
    
    

    Adjusted
    
    

    Original
  
  
    
    
     
    
    
      
    Amounts(1)
    
    

    Amounts
  
  
    
    

    Carrying amount of spun-off businesses:
    
    
     
    
    
     
  
  
    
    

    Current assets
    
    
    2,935
    
    
    2,935
  
  
    
    

    Non-current assets
    
    
    2,802
    
    
    2,802
  
  
    
    

    Current liabilities
    
    

    (3,129)
    
    

    (3,160)
  
  
    
    

    Non-current liabilities
    
    

    (2,227)
    
    

    (2,197)
  
  
    
    

    Accumulated other comprehensive income
    
    
    (71)
    
    
    (68)
  
  
    
    
    Total
    
    
    
    
    310
    
    
    312
  
  
    
    
     
    
    
     
    
    
     
  
  
    
    

    Derivatives(2)
    
    
    (31)
    
    
    (31)
  
  
    
    
    Total
    amount recorded in retained earnings
    
    
    279
    
    
    281
  



 

(1) The agreements
giving effect to the spin-off provide for various post-transaction adjustments
and the resolution of outstanding matters, which are expected to be carried out
by the parties by the end of 2005. 

(2) Alcan is the counterparty to certain derivative contracts with Novelis; prior to
the spin-off, these derivatives were eliminated in the consolidated financial
statements.  Subsequent to the spin-off, the derivatives are presented in the
balance sheet at their fair value.  The amount of ($31) represents the
mark-to-market adjustment to the derivatives for the period from January 1 to 5,
2005.  As described in note 1 - Accounting Policies - Spin-Off of Rolled
Products Businesses - Basis of Presentation, all income earned and cash flows
generated by Novelis entities during the period from January 1, 2005 to the
spin-off date of January 6, 2005 were attributed to Novelis due to
immateriality.  In addition, the transactions between Alcan and Novelis during
this period were also immaterial, with the exception of a net derivative gain as
described above.

The spin-off
of Novelis reduced total shareholders' equity by $354 (Q1: $353) by way of a
reduction in common shares of $576 (Q1: $576), an increase in additional paid-in
capital of $572 (Q1: $572), a reduction in retained earnings of $279 (Q1: $281)
and a reduction in accumulated other comprehensive income of $71 (Q1: $68). 

Following the
spin-off, the Company settled amounts due from Novelis and used the net proceeds
of $2.6 billion to settle third party debt, as described in note 10 - Long-Term
Debt, and to cover a preliminary payment of $100 made by the Company to Novelis
in accordance with a separation agreement between the parties.

6.    RESTRUCTURING PROGRAMS

2005
Restructuring Activities

Pechiney

In the second
quarter of 2005, the Company incurred an additional $34 of restructuring costs
in connection with the exit of certain Pechiney activities as a result of
changing market conditions and changes in strategy.  These charges consist
principally of severance costs of $32, consisting of $13 related to the
suspension of one of two activities at the Mercus high-purity-metal processing
mill and the closure of the Froges rolling mill in France (Engineered Products),
and $19 related principally to an organizational realignment of the European
Tubes sites of the Packaging Beauty business, mainly in France and Germany, as
well as other charges of $2 relating principally to the consolidation of certain
corporate functions (Other) and the exit of certain packaging facilities in
Mexico.  The Company expects to incur $3 of additional charges in 2005 and $11
in 2006 relating to these restructuring activities.

-12-

6.     RESTRUCTURING PROGRAMS 
(cont'd)

Other 2005
Restructuring Activities

In the second
quarter of 2005, the Company announced the restructuring of its Engineered
Products facilities in Singen, Germany, and Sierre, Switzerland, in order to
improve efficiency and ensure their long-term viability.  Alcan will integrate
its extrusion activities at the Singen and Sierre sites, and restructure the
automotive structures and composites into its operations at Singen.  The Company
incurred $27 of restructuring charges relating principally to severance costs. 
The Company expects to incur $4 of additional charges in 2005 and $5 in 2006
relating to these restructuring activities. 

In the second
quarter of 2005, the Company recorded a severance provision of $1 in relation to
the closure of a Balsa composites plant in Guayaquil, Ecuador (Engineered
Products). 

In the first
quarter of 2005, the Company incurred $1 of restructuring charges relating to
costs to centralize certain packaging operations at two facilities located in
Canada and the U.S.  In the second quarter of 2005, the Company incurred an
additional $1 of restructuring charges in relation to these activities,
consisting primarily of severance costs and costs to relocate equipment.  In
relation to these activities, the Company expects to incur additional charges of
$1 consisting primarily of severance and equipment relocation costs. 

2004
Restructuring Activities

In line with
the Company's objective of value maximization, the Company undertook various
restructuring initiatives in 2004.

Pechiney

In 2004, the
Company recorded liabilities of $193
(Q1: nil; Q2:
$79; Q3: $21; Q4: $93)
for
restructuring costs in connection with the exit of certain operations of
Pechiney, and these costs were recorded in the allocation of the purchase price
of Pechiney.  These costs principally comprise severance costs of $121
(Q1: nil; Q2:
$79; Q3: nil; Q4: $42)
related to the
involuntary termination of Pechiney employees in France (Primary Metal,
Engineered Products, Packaging and Other), as well as other severance costs of
$54 (Q1:
nil; Q2: nil; Q3: $21; Q4: $33),
principally comprising $21 relating to a plant closure in Barcelona, Spain
(Packaging), $17 relating to a planned plant closure in Flemalle, Belgium, $5
relating to a plant closure in Garbagnate, Italy (Packaging), and $1 relating to
the downsizing of a plant in Kolin in the Czech Republic (Packaging).  A
restructuring provision of $21 related to the plant closure in Flemalle has been
transferred to Novelis in 2005 following the spin-off. 

In the first
quarter of 2005, the Company incurred additional restructuring costs of $8 in
relation to the exit of certain Pechiney activities.  These costs consist of
severance costs of $3 relating principally to the termination of Pechiney
employees in France and Italy (Packaging and Other), asset impairment charges of
$3 relating principally to the impairment of assets at a Pechiney facility in
China (Engineered Products), and other costs of $2 relating principally to the
closure of the Barcelona and Garbagnate facilities (Packaging).  In the second
quarter of 2005, the Company incurred additional severance costs of $6 relating
principally to the closure of packaging facilities in Barcelona, as well as
other Engineered Products facilities in the U.K.  All restructuring costs
incurred in 2005 are recorded in the statement of income.

Other 2004
restructuring activities

In the third
quarter of 2004, the Company incurred restructuring charges of $19 relating to
the consolidation of its U.K. aluminum sheet rolling activities in Rogerstone,
Wales, in order to improve competitiveness through better capacity utilization
and economies of scale.  Production ceased at the rolling mill in Falkirk,
Scotland, in December 2004.  The charges include $6 of severance costs, $8 of
asset impairment charges, $2 of pension costs, $2 of decommissioning and
environmental costs and $1 of other charges.  These entities and the related
restructuring provision of $5 have been transferred to Novelis in 2005 following
the spin-off.

In 2004, the
Company incurred restructuring charges of $7 (Q1: nil; Q2: $6; Q3: $2; Q4: ($1))
relating to the closure of two corporate offices in the U.K. and Germany
(Other).  The charges include $4 (Q1: nil; Q2: nil; Q3: $2; Q4: $2) related to
severance costs and $3 (Q1: nil; Q2: $6; Q3: nil; Q4: ($3)) related to lease
exit costs and costs to consolidate facilities.  In the first quarter of 2005,
the Company incurred additional severance charges of $1 in relation to the
closure of its corporate office in the U.K., and incurred an additional $3 of
severance and other exit costs in the second quarter of 2005.  The restructuring
provision of $3 related to the closure of the corporate office in Germany has
been transferred to Novelis in 2005 following the spin-off.

-13-

6.     RESTRUCTURING PROGRAMS 
(cont'd)

In November
2004, the Company announced the downsizing of its Alcan Mass Transportation
Systems business unit in Zurich, Switzerland (Engineered Products) as a result
of changing market conditions and business realities.  The Company incurred
restructuring charges of $5 consisting of $4 of asset impairment charges, and $1
of other charges in the fourth quarter of 2004. 
In the first
quarter of 2005, the Company incurred additional severance charges of $2 and
asset impairment charges of $1 relating to the downsizing of this business. 
During the second quarter of 2005, the Company incurred an additional $1 of
severance costs and expects to incur an additional $2 of charges in relation to
the downsizing of Alcan Mass Transportation Systems.

In addition,
the Engineered Products group incurred restructuring charges of $9
(Q1: $2; Q2:
$1; Q3: $1; Q4: $5)
relating to
both the closure of a composites facility in the U.S., and process reengineering
at certain facilities in Switzerland and Germany.  These charges consist of
severance costs of $6
(Q1: nil; Q2:
$1; Q3: $1; Q4: $4),
asset impairment charges of $2
(Q1: $1; Q2:
nil; Q3: nil; Q4: $1)
and other costs
of $1
(Q1: $1; Q2: nil; Q3: nil; Q4: nil). 
In the first quarter of 2005, the Company incurred additional severance costs of
$1 relating to the process reengineering at its Switzerland facility.

In 2004, the
Company incurred restructuring charges of $39 (Q1: $6; Q2: $1; Q3: $3; Q4: $29) 
relating to exit costs incurred in connection with certain non-strategic
packaging facilities located in the U.S. and Europe.  These charges consist of
severance costs of $23 (Q1: $5; Q2: $1; Q3: nil; Q4: $17), asset impairment
charges of $11 (Q1: nil; Q2: nil;
Q3: nil; Q4: $11) and other charges of $5 (Q1: $1; Q2: nil; Q3: $3; Q4: $1). 
In the
first quarter of 2005, the Company incurred additional severance costs of $2
relating to these activities.  In the second quarter of 2005, the Company
incurred additional costs of $19 relating to severance costs of $2, asset
impairment charges of $16 and other costs of $1.  The Company expects to incur
additional charges of $1 in relation to these activities.

In early 2004,
the Company permanently halted production at its Jonquière Söderberg primary
aluminum facility in Saguenay, Quebec (Primary Metal).  As a result, the Company
recorded charges of $14 (Q1: $5; Q2: $6; Q3: $1; Q4: $2) in 2004 comprising $5
(Q1: $1; Q2: $2; Q3: nil; Q4: $2) of severance costs, $5 (Q1: $4; Q2: $1; Q3:
nil; Q4: nil) of asset impairment charges, and $4 (Q1: nil; Q2: $3; Q3: $1; Q4:
nil) of other costs. 
In the first
quarter of 2005, the Company incurred additional dismantling costs of $1
relating to the closure of this facility.  The Company expects to incur an
additional $11 in relation to this activity.

2001 Restructuring Program

In 2001, the Company implemented a
restructuring program aimed at safeguarding its competitiveness, resulting in a
series of plant sales, closures and divestments throughout the organization. In
the context of the Company's objective of value maximization, a detailed
business portfolio review was undertaken in 2001 to identify high cost
operations, excess capacity and non-core products.  Impairment charges arose as
a result of negative projected cash flows and recurring losses. These charges
related principally to buildings, machinery and equipment and some previously
capitalized project costs. This program was essentially completed in 2003. 

In 2004, the
Company recorded charges related to the 2001 restructuring program of $7 (Q1:
nil; Q2: $1; Q3: $3; Q4: $3) relating principally to the closure of facilities
in the U.K. (Bauxite and Alumina) and the closure of cable operations in Canada
and the U.S. (Engineered Products), and recorded recoveries of $14 (Q1: $7;
Q2: nil; Q3: $7; Q4: nil) relating principally to the sale of assets related to
the closure of facilities in Glasgow, U.K. and other recoveries related to the
closure of facilities in the U.K. (Bauxite and Alumina).  Following the
spin-off, $16 of the restructuring provision has been transferred to Novelis.

-14-

6.     RESTRUCTURING PROGRAMS 
(cont'd)

The schedule
provided below shows details of the provision balances and related cash payments
for the significant restructuring activities:

 
      
      
      
       

Severance Costs
      
      
      
      Asset Impairment Provisions*
      
      
      
       

 

Other
      
      
      
       

 

Total
    

  
    
    Provision
    balance as at January 1, 2004
    
    
    86
    
    
    -
    
    
    46
    
    
    132
  
  
    
    2004:
    
     
    
     
    
     
    
     
  
  
    
    Charges
    recorded in the statement of income
    
    
    44
    
    
    30
    
    
    13
    
    
    87
  
  
    
    Charges
    recorded in the allocation of the
    
     
    
     
    
     
    
     
  
  
    
    
    Pechiney purchase price
    
    
    175
    
    
    -
    
    
    18
    
    
    193
  
  
    
    Cash
    payments
    
    
    (99)
    
    
    -
    
    
    (33)
    
    
    (132)
  
  
    
    Non-cash
    items
    
    
    -
    
    
    (30)
    
    
    8
    
    
    (22)
  
  
    
    Provision
    balance as at December 31, 2004
    
    
    206
    
    
    -
    
    
    52
    
    
    258
  
  
    
    Six
    months, 2005:
    
     
    
     
    
     
    
     
  
  
    
    
    Provisions transferred to Novelis
    
    
    (31)
    
    
    -
    
    
    (14)
    
    
    (45)
  
  
    
    Charges
    recorded in the statement of income
    
    
    78
    
    
    20
    
    
    4
    
    
    102
  
  
    
    Cash
    payments - net 
    
    
    (56)
    
    
    -
    
    
    (10)
    
    
    (66)
  
  
    
    Non-cash
    items
    
    
    (24)
    
    
    (20)
    
    
    (3)
    
    
    (47)
  
  
    
    Provision
    balance as at June 30, 2005
    
    
    173
    
    
    -
    
    
    29
    
    
    202
  


* Fair value
of assets was determined using discounted future cash flows.

The schedule
below shows details of the charges by operating segment: 

Charges
(recoveries) recorded in the statement of income in Other expenses (income) -
net  

Quarter
      ended June 30, 2005
      
      
      
       

Severance Costs
      
      
      
      Asset Impairment Provisions
      
      
      
       

 

Other
      
      
      
       

 

Total
    

  
    
     
    
     
    
     
    
     
    
     
  
  
    
    
    Engineered Products
    
    
    45
    
    
    -
    
    
    -
    
    
    45
  
  
    
    Packaging
    
    
    23
    
    
    16
    
    
    3
    
    
    42
  
  
    
    Other
    
    
    -
    
    
    -
    
    
    (2)
    
    
    (2)
  
  
    
    Total
    
    
    68
    
    
    16
    
    
    1
    
    
    85
  
  
    
    
    Six months  ended June 30, 2005
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    Primary
    Metal
    
    
    -
    
    
    -
    
    
    1
    
    
    1
  
  
    
    
    Engineered Products
    
    
    48
    
    
    3
    
    
    -
    
    
    51
  
  
    
    Packaging
    
    
    28
    
    
    17
    
    
    5
    
    
    50
  
  
    
    Other
    
    
    2
    
    
    -
    
    
    (2)
    
    
    -
  
  
    
    Total
    
    
    78
    
    
    20
    
    
    4
    
    
    102
  

For the second
quarter and six months ended June 30, 2005, $53 and $63, respectively, of the
restructuring charges above are excluded from the measurement of the
profitability of the Company's operating segments (Business Group Profit), as
they relate to major corporate-wide acquisitions or initiatives.  See note 7 -
Information by Operating Segment.

-15-

7.         INFORMATION BY OPERATING SEGMENT

The following presents
selected information by operating segment, viewed on a stand-alone basis.
 Subsequent to the spin-off of
substantially all of the Company's rolled products businesses to Novelis, the
operating management structure is comprised of four operating segments.  The
four operating segments are Bauxite and Alumina; Primary Metal; Engineered
Products; and Packaging.  Prior to the spin-off, there were two additional
operating segments: Rolled Products Americas and Asia and Rolled Products
Europe.  All prior periods have been restated to reflect the new operating
management structure.  The Company's measure of the profitability of its
operating segments is referred to as business group profit (BGP).  BGP comprises
earnings before interest, income taxes, minority interests, depreciation and
amortization and excludes certain items, such as corporate costs, restructuring
costs (relating to major corporate-wide acquisitions or initiatives), impairment
and other special charges, and pension actuarial gains, losses and other
adjustments, that are not under the control of the business groups or are not
considered in the measurement of their profitability.  These items are generally
managed by the Company's corporate head office, which focuses on strategy
development and oversees governance, policy, legal, compliance, human resources
and finance matters.  The change in fair market value of derivatives is removed
from individual BGP and is shown on a separate line in the reconciliation to
income from continuing operations.  This presentation provides a more accurate
portrayal of underlying business group results and is in line with the Company's
portfolio approach to risk management.  Transactions between operating segments
are conducted on an arm's-length basis and reflect market prices.  Thus,
earnings from the Primary Metal group represent mainly profit on metal produced
by the Company, whether sold to third parties or used in the Company's
fabricating operations.  Earnings from the Engineered Products and Packaging
groups represent only the fabricating profit on their respective products. 

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

(1)   The operating segments include the Company's proportionate share of joint
ventures (including joint ventures accounted for using the equity method) and
certain other equity-accounted investments as they are managed within each
operating segment, with the adjustments for equity-accounted joint ventures and
certain investments shown on a separate line in the reconciliation to Income
from continuing operations; and

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

The operating
segments are described below.

Bauxite and Alumina

Headquartered
in Montreal, Canada, this group comprises Alcan's worldwide activities related
to bauxite mining and refining into smelter-grade and specialty aluminas, owning
and/or operating six bauxite mines and deposits in five countries, five
smelter-grade alumina plants in four countries and six specialty alumina plants
in three countries.  This group also comprises sales of alumina technology and
technical assistance and a bauxite and alumina trading business.

Primary Metal

Also
headquartered in Montreal, this group comprises smelting operations, power
generation, production of primary value-added ingot, manufacturing of smelter
anodes and cathodes, as well as aluminum fluoride, smelter technology and
equipment sales, engineering services and trading operations for aluminum,
operating or having interests in 22 smelters in 11 countries. 

-16-

7.     INFORMATION BY OPERATING SEGMENT 
(cont'd)

Engineered Products

Headquartered
in Paris, France, this group produces extruded, rolled and cast aluminum
products, engineered shaped products and structures, including cable, wire and
rod, as well as composite materials such as aluminum-plastic, fibre reinforced
plastic and foam-plastic in 46 plants located in 11 countries. Two of these
facilities are excluded from the operating segment information as they have been
reclassified to discontinued operations and assets held for sale.  Also included
in Engineered Products are 37 service centres in 12 countries offering technical
assistance, cutting, shaping, machining and assembling for smaller customers,
and nearly 33 offices that sell and source products in 29 countries.

Packaging

Headquartered
in Paris, this group consists of the Company's worldwide food, pharmaceutical
and medical, beauty and personal care and tobacco packaging businesses,
operating approximately 180 plants in 30 countries. 

Intersegment
and other

This
classification includes the deferral or realization of profits on intersegment
sales of aluminum and alumina, corporate office costs as well as other
non-operating items.

 
    
    
    Second Quarter  
    
    
    Six Months
  
  
    
    
    Periods ended June 30
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
  
  
    
    Sales and
    operating revenues - intersegment 
    
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    Bauxite and
    Alumina
    
    
    
    418
    
    
    395
    
    
    
    775
    
    
    789
  
  
    
    Primary
    Metal
    
    
    
    539
    
    
    943
    
    
    
    994
    
    
    1,867
  
  
    
    Engineered
    Products
    
    
    
    54
    
    
    192
    
    
    
    168
    
    
    371
  
  
    
    Packaging
    
    
    
    -
    
    
    17
    
    
    
    2
    
    
    33
  
  
    
    Entities
    transferred to Novelis
    
    
    
    -
    
    
    103
    
    
    
    -
    
    
    192
  
  
    
    Other
    
    
    
    (1,011)
    
    
    (1,650)
    
    
    
    (1,939)
    
    
    (3,252)
  
  
    
     
    
    
    
    -
    
    
    -
    
    
    
    -
    
    
    -
  


 

 
    
    
    Second Quarter  
    
    
    Six Months
  
  
    
    
    Periods ended June 30
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
  
  
    
    Sales and
    operating revenues - third parties
    
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    Bauxite and
    Alumina
    
    
    
    369
    
    
    417
    
    
    
    742
    
    
    797
  
  
    
    Primary
    Metal
    
    
    
    1,679
    
    
    1,063
    
    
    
    3,335
    
    
    2,136
  
  
    
    Engineered
    Products
    
    
    
    1,589
    
    
    1,437
    
    
    
    3,149
    
    
    2,816
  
  
    
    Packaging
    
    
    
    1,578
    
    
    1,501
    
    
    
    3,162
    
    
    3,011
  
  
    
    Entities
    transferred to Novelis
    
    
    
    -
    
    
    1,777
    
    
    
    -
    
    
    3,443
  
  
    
    Adjustments
    for equity-accounted joint ventures and
    
    
    
     
    
    
     
    
    
    
     
    
    
     
  
  
    
    
    certain investments
    
    
    
    (21)
    
    
    4
    
    
    
    (30)
    
    
    6
  
  
    
    Other
    
    
    
    12
    
    
    9
    
    
    
    26
    
    
    19
  
  
    
     
    
    
    
    5,206
    
    
    6,208
    
    
    
    10,384
    
    
    12,228
  

 

-17-

7.     INFORMATION BY OPERATING SEGMENT 
(cont'd)

 
    
    
    Second Quarter  
    
    
    Six Months
  
  
    
    
    Periods ended June 30
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
  
  
    
    Business
    Group Profit (BGP)
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    Bauxite and
    Alumina
    
    
    
    111
    
    
    126
    
    
    
    208
    
    
    214
  
  
    
    Primary
    Metal
    
    
    
    425
    
    
    436
    
    
    
    856
    
    
    814
  
  
    
    Engineered
    Products
    
    
    
    101
    
    
    106
    
    
    
    216
    
    
    210
  
  
    
    Packaging
    
    
    
    177
    
    
    168
    
    
    
    331
    
    
    336
  
  
    
    Entities
    transferred to Novelis
    
    
    
    -
    
    
    175
    
    
    
    -
    
    
    342
  
  
    
    Adjustments
    for equity-accounted joint ventures and
    
    
    
     
    
    
     
    
    
    
     
    
    
     
  
  
    
    
    certain investments
    
    
    
    (77)
    
    
    (52)
    
    
    
    (151)
    
    
    (105)
  
  
    
    Adjustments
    for mark-to-market of derivatives
    
    
    
    33
    
    
    (12)
    
    
    
    30
    
    
    (12)
  
  
    
    Depreciation
    and amortization
    
    
    
    (268)
    
    
    (324)
    
    
    
    (540)
    
    
    (660)
  
  
    
    
    Intersegment, corporate offices and other
    
    
    
    (161)
    
    
    (134)
    
    
    
    (246)
    
    
    (392)
  
  
    
    Equity
    income
    
    
    
    28
    
    
    17
    
    
    
    57
    
    
    33
  
  
    
    Interest
    
    
    
    (90)
    
    
    (87)
    
    
    
    (175)
    
    
    (180)
  
  
    
    Income taxes
    
    
    
    (70)
    
    
    (125)
    
    
    
    (168)
    
    
    (166)
  
  
    
    Minority
    interests
    
    
    
    (1)
    
    
    (9)
    
    
    
    (2)
    
    
    (15)
  
  
    
    Income
    from continuing operations
    
    
    
    208
    
    
    285
    
    
    
    416
    
    
    419
  


 

 

 
    
    
    
    June 30,
    2005

December 31, 2004

Total
    Assets
    
    
     
    
    
     
  
  
    
    Bauxite and
    Alumina
    
    
    
    3,945
    
    
    3,496
  
  
    
    Primary
    Metal
    
    
    
    10,317
    
    
    10,342
  
  
    
    Engineered
    Products
    
    
    
    4,306
    
    
    4,601
  
  
    
    Packaging
    
    
    
    7,884
    
    
    8,255
  
  
    
    Entities
    transferred to Novelis
    
    
    
    -
    
    
    5,434
  
  
    
    Adjustments
    for equity-accounted joint ventures and  
    
    
    
     
    
    
     
  
  
    
    
    certain investments
    
    
    
    (365)
    
    
    (313)
  
  
    
    Other
    
    
    
    858
    
    
    573
  
  
    
    Assets held
    for sale:
    
    
    
     
    
    
     
  
  
    
    
    Bauxite and Alumina
    
    
    
    -
    
    
    63
  
  
    
    
    Primary Metal
    
    
    
    157
    
    
    823
  
  
    
    
    Engineered Products
    
    
    
    39
    
    
    63
  
  
    
    
    Packaging
    
    
    
    6
    
    
    4
  
  
    
    Total assets
    held for sale
    
    
    
    202
    
    
    953
  
  
    
     
    
    
    
    27,147
    
    
    33,341
  



Risk Concentration

The Company's consolidated sales
and operating revenues for the second quarter and six months ended June 30, 2005
include $548 and $1,145, respectively, arising from transactions with Novelis. 
These sales and operating revenues represent 11% of the consolidated sales and
operating revenues for each of the second quarter and six months ended June 30,
2005.

The following table includes sales
and operating revenues to Novelis by business group:

 

Periods
    ended June 30, 2005
    
    
    
    Second Quarter
    
    
    
    Six
    Months

Bauxite and
    Alumina
    
    
    
    15
    
    
    
    25
  
  
    
    Primary
    Metal
    
    
    
    512
    
    
    
    1,056
  
  
    
    Engineered
    Products
    
    19
    
    
    
    54
  
  
    
    Packaging
    
    
    
    2
    
    
    
    10
  
  
    
    Total
    
    
    
    548
    
    
    
    1,145
  







-18-

8.    STOCK OPTIONS AND OTHER STOCK-BASED COMPENSATION

Alcan Executive Share Option
Plan

On January 6, 2005, Alcan
executive share options to purchase 1,355,535 shares, granted to Novelis
employees who were Alcan employees immediately prior to the spin-off, were
cancelled and replaced by Novelis with options to purchase Novelis' common
shares. 

As a result of the spin-off of
Novelis, Alcan executive share options held prior to the spin-off of Novelis
have been converted to new options, the number and exercise prices of which were
based on the trading prices of Alcan shares immediately before and immediately
after the effective date of the spin-off to preserve the economic value of the
option grants.  This amounts to a conversion ratio of one share under the
original grants to 1.1404 shares under the new options and the exercise price
per option was reduced accordingly.

Effective January 1, 2004, the
Company retroactively adopted the fair value recognition provisions of SFAS No.
123, Accounting for Stock-Based Compensation. The Black-Scholes valuation model
is used to determine the fair value of the options granted.  For the second
quarter and six months ended June 30, 2005, the stock-based compensation expense
was $5 and $10, respectively (2004: $2 and $4), of which $1 and $2, respectively
(2004: nil) were related to the incremental cost that arose as a result of the
modification of certain stock option terms pursuant to the spin-off of Novelis.

Shares Under
Pechiney Options

As a result of
the spin-off of Novelis, Pechiney options held prior to the spin-off have been
converted in the same manner as described under the Alcan Executive Share Option
Plan.

Compensation to be settled in
cash

Stock Price Appreciation Unit
Plan

On January 6, 2005, 211,035 Stock
Price Appreciation Units (SPAUs), representing SPAUs held by Novelis employees
who were Alcan employees immediately prior to the spin-off, were cancelled and
replaced by Novelis with Novelis' SPAUs.  The remaining SPAUs were converted in
the same manner as described under the Alcan Executive Share Option Plan.

Executive and
Non-Executive Directors Deferred Share Unit Plan

On January 6, 2005, Executive and
Non-Executive Directors Deferred Share Units held prior to the spin-off of
Novelis have been converted
in the same manner as described
under the Alcan Executive Share Option Plan.

Total
Shareholder Return Performance Plan

On January 6,
2005, all Novelis employees who were Alcan employees immediately prior to the
spin-off ceased to actively participate in and accrue benefits under this plan. 
The accrued award amounts for these employees were converted by Novelis into
restricted share units in Novelis.  No cash payments were made to these
employees as a result of the spin-off nor does Alcan have any liability to make
future cash payments to these individuals.

Restricted
Stock Units

As a result of the spin-off,
Restricted Stock Units held prior to the spin-off of Novelis have been converted
in the same manner as
described under the Alcan Executive Share Option Plan.

Deferred Share
Agreements

As a result of the spin-off of
Novelis, 33,500 deferred shares held by a Novelis employee who was an Alcan
employee immediately prior to the spin-off were cancelled and replaced by
Novelis with Novelis deferred shares. 

Compensation Cost

For the second quarter and six
months ended June 30, 2005, the stock-based compensation income for arrangements
that can be settled in cash was $11 and $13, respectively (2004: $5 and $4).

-19-

9.    INCOME TAXES

 
    
    
    Second Quarter  
    
    
    Six Months
  
  
    
    
    Periods ended June 30
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
  
  
    
    Current
    
    83
    
    83
    
    126
    
    152
  
  
    
    Deferred
    
    
    (13)
    
    42
    
    42
    
    14
  
  
    
     
    
    70
    
    125
    
    168
    
    166
  

The composite
of the applicable statutory corporate income tax rates in Canada is 32% (2004:
32%).  

10.   LONG-TERM DEBT

Following the
spin-off, the Company settled amounts due from Novelis and received net proceeds
of $2.6 billion in the first quarter of 2005.  In addition to these proceeds,
approximately $200 in debt was transferred to Novelis.  These net proceeds were
used to reduce two term loans and Alcan's commercial paper balance included in
Short-term borrowings and Debt not maturing within one year as at December 31,
2004.

On May 31,
2005, the Company issued $500 of 5.00% Notes due in 2015 and $300 of 5.75% Notes
due in 2035.  The net proceeds of these offerings were used to repay outstanding
commercial paper debt.

11.   OTHER EXPENSES (INCOME) - NET

 
    
    
    Second Quarter  
    
    
    Six Months
  
  
    
    
    Periods ended June 30
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
  
  
    
    
    Restructuring and other costs (recoveries) - net
    
    74
    
    27
    
    91
    
    45
  
  
    
    
    Asset impairment provisions
    
    25
    
    2
    
    33
    
    10
  
  
    
    
    Loss (Gain) on disposal of businesses
    
     
    
     
    
     
    
     
  
  
    
    
    and investments - net
    
    17
    
    
    (42)
    
    16
    
    
    (42)
  
  
    
    
    Provision for legal claims
    
    10
    
    2
    
    11
    
    2
  
  
    
    
    Environmental provisions
    
    5
    
    -
    
    8
    
    -
  
  
    
    
    Derivatives losses (gains) - net
    
    
    (23)
    
    30
    
    
    (5)
    
    29
  
  
    
    
    Interest revenue
    
    
    (12)
    
    
    (6)
    
    
    (31)
    
    
    (8)
  
  
    
    
    Pechiney integration costs
    
    8
    
    11
    
    14
    
    13
  
  
    
    
    Exchange losses (gains) - net
    
    
    (27)
    
    1
    
    
    (43)
    
    
    (11)
  
  
    
    
    Other
    
    
    (4)
    
    29
    
    3
    
    13
  
  
    
    
     
    
    73
    
    54
    
    97
    
    51
  



12.   INVENTORIES

 
    
    
    
    June 30,
    2005

December 31, 2004

Aluminum
    operating segments
    
    
     
    
    
     
  
  
    
    
    Aluminum
    
    
    
    919
    
    
    1,881
  
  
    
    
    Raw materials
    
    
    
    746
    
    
    733
  
  
    
    
    Other supplies
    
    
    
    390
    
    
    576
  
  
    
    
     
    
    
    
    2,055
    
    
    3,190
  
  
    
    Packaging
    operating segments
    
    
    
     
    
    
     
  
  
    
    
    Raw materials and other supplies
    
    
    
    305
    
    
    347
  
  
    
    
    Work in progress
    
    
    
    154
    
    
    147
  
  
    
    
    Finished goods
    
    
    
    349
    
    
    356
  
  
    
    
     
    
    
    
    808
    
    
    850
  
  
    
    
     
    
    
    
    2,863
    
    
    4,040
  


-20-

13.   SALE OF RECEIVABLES

In March
2005, the Company entered into a new program to sell to a third party an
undivided interest in certain trade receivables, with limited recourse, for
maximum cash proceeds of $200.  The maximum credit exposure to the Company is
held in reserve by the third party and is recorded in Deferred charges and other
assets.  The Company acts as a service agent and administers the collection of
the receivables sold.  As at June 30, 2005, the Company sold trade receivables
of $231 under this program, with $31 held in reserve by the third party.  This
program replaces a $300 program that was discontinued in January 2005 due to the
spin-off of Novelis. 

14.   SUPPLEMENTARY INFORMATION

 
    
    
    Second Quarter  
    
    
    Six Months
  
  
    
    
    Periods ended June 30
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
  
  
    
    Income
    Statement
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
    Interest on long-term debt
    
    
    
    83
    
    
    72
    
    
    
    166
    
    
    146
  
  
    
    
    Capitalized interest
    
    
    
    (5)
    
    
    (2)
    
    
    
    (10)
    
    
    (4)
  


 

 
    
    
    
    June 30,
    2005

December 31, 2004

Balance Sheet
    
    
     
    
    
     
  
  
    
    
    Payables and accrued liabilities include the following:
    
    
    
     
    
    
     
  
  
    
    
    Trade payables
    
    
    
    2,117
    
    
    2,816
  
  
    
    
    Accrued liabilities
    
    
    
    2,298
    
    
    3,027
  



  

15.   COMMITMENTS AND CONTINGENCIES

The Company
has guaranteed the repayment of approximately $134 of indebtedness by third
parties.  Alcan believes that none of these guarantees is likely to be invoked.
These guarantees relate primarily to debt held by equity-accounted joint
ventures, customer contracts, employee housing loans and potential environmental
remediation at former Alcan sites.

The Company
carries insurance covering liability, including defence costs, of directors and
officers of the Company, incurred as a result of their acting as such, except in
the case of failure to act honestly and in good faith. The policy provides
coverage against certain risks in situations where the Company may be prohibited
by law from indemnifying the directors or officers.  The policy also reimburses
the Company for certain indemnity payments made by the Company to such directors
or officers, subject to a $10 deductible in respect of each insured loss.

Alcan, in the
course of its operations, is subject to environmental and other claims, lawsuits
and contingencies.  The Company is named as a defendant in relation to
environmental contingencies at approximately 38 existing and former Alcan sites
and third-party sites. Accruals have been made in specific instances where it is
probable that liabilities will be incurred and where such liabilities can be
reasonably estimated. The Company has transferred to Novelis certain
environmental contingencies of Alcan Aluminum Corporation, as described in Item
3(A) - Legal Proceedings - Environmental Matters of the Company's Form 10-K
filed on March 16, 2005.

Alcan has agreed to
indemnify Novelis and each of its directors, officers and employees against
liabilities relating to:

Although
there is a possibility that liabilities may arise in other instances for which
no accruals have been made, the Company does not believe that any losses in
excess of accrued amounts would be sufficient to significantly impair its
operations, have a material adverse effect on its financial position or
liquidity, or materially and adversely affect its results of operations for any
particular reporting period, absent unusual circumstances.
 

-21-

16.  
COMPREHENSIVE INCOME 

 
    
    
    Second Quarter  
    
    
    Six Months
  
  
    
    
    Periods ended June 30
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
  
  
    
    Net income
    
    
    
    
    
    191
    
    
    331
    
    
    
    409
    
    
    437
  
  
    
    Other
    comprehensive income (loss):
    
    
    
     
    
    
     
    
    
    
     
    
    
     
  
  
    
    
      Net change in deferred translation adjustments
    
    
    
    (299)
    
    
    (58)
    
    
    
    (559)
    
    
    (152)
  
  
    
    
      Net change in excess of market value over book value of
    
    
    
     
    
    
     
    
    
    
     
    
    
     
  
  
    
    
         "available-for-sale" securities
    
    
    
    (2)
    
    
    (1)
    
    
    
    (4)
    
    
    (2)
  
  
    
    
      Valuation of derivatives, net of tax of ($45) and
    ($29),  
    
    
    
     
    
    
     
    
    
    
     
    
    
     
  
  
    
    
         respectively, for the quarter and six months ended
    
    
    
    
    
     
    
    
     
    
    
    
     
    
    
     
  
  
    
    
    June 30, 2005 (2004: ($2) and $5)
    
    
    
     
    
    
     
    
    
    
     
    
    
     
  
  
    
    
    Net change from periodic revaluations  
    
    
    
    84
    
    
    1
    
    
    
    43
    
    
    (16)
  
  
    
    
    Net amount reclassified to income
    
    
    
    12
    
    
    2
    
    
    
    20
    
    
    6
  
  
    
    
      Net change in minimum pension liability, net of tax of
    ($7)  
    
    
    
     
    
    
     
    
    
    
     
    
    
     
  
  
    
    
         and ($12), respectively, for the quarter and six
    months
    
    
    
     
    
    
     
    
    
    
     
    
    
     
  
  
    
    
         ended June 30, 2005 (2004: ($1) and $1)
    
    
    
    20
    
    
    1
    
    
    
    (4)
    
    
    (2)
  
  
    
     
    
    
    
    (185)
    
    
    (55)
    
    
    
    (504)
    
    
    (166)
  
  
    
    
    Comprehensive income (loss)
    
    
    
    6
    
    
    276
    
    
    
    (95)
    
    
    271
  



 

 
    
    
    
    June 30,
    2005

December 31, 2004

Accumulated other comprehensive income (loss)
    
    
     
    
     
  
  
    
    Deferred
    translation adjustments
    
    
    
    401
    
    
    1,063
  
  
    
    Unrealized
    gain on "available-for-sale" securities
    
    
    
    4
    
    
    8
  
  
    
    Minimum
    pension liability
    
    
    
    (522)
    
    
    (550)
  
  
    
    Derivatives
    
    
    
    (1)
    
    
    (64)
  
  
    
    
    Accumulated other comprehensive income (loss)
    
    
    
    (118)
    
    
    457
  



17.   SALES AND ACQUISITIONS OF BUSINESSES AND INVESTMENTS

2005

Canada

On May 16,
2005, the Company announced that it had reached an agreement to purchase
Interglass, a privately owned company located in Woodbridge, Ontario, Canada,
specialized in the converting of glass tubing.  The acquisition was completed on
May 31, 2005 for a cost of $9.

 

Asia and
Other Pacific

On March 22,
2005, the Company announced the creation of a new company in the Chinese Suzhou
region, which will be equipped to fabricate packaging for beauty and personal
care products.  The Company has signed an agreement with the local government of
the Mudu New District for the manufacturing site, which will initially produce
plastic and aluminum packaging for cosmetics and skincare.  Production will
commence in the third quarter of 2005.

On April 18,
2005, the Company announced its acquisition of the tobacco packaging interests
of CM Printing Sdn Bhd in Malaysia for a cost of $2.  Located at Rawang, Alcan
Packaging Malaysia Sdn Bhd will incorporate modern equipment and infrastructure
to further complement Alcan Packaging's existing tobacco and flexibles printing
capability in South-East Asia.

France,
Germany, Other Europe

On February
15, 2005, the Company announced that it reached an agreement with the U.K.
administrators of Parkside International, to acquire the assets of Parkside's
flexible food packaging plant in Zlotow, Poland.  The acquisition was completed
on May 2, 2005 for a cost of $14, following the approval of Polish and German
anti-trust authorities.

On March 16,
2005, the Company completed the sale of Guardian Espanola S.A. to its current
local management team.  Located in Vitoria, Spain, Guardian Espanola S.A.
produces flexible packaging and promotional items.

-22-

17.   SALES AND ACQUISITIONS OF BUSINESSES AND INVESTMENTS
(cont'd)

On April 1,
2005, the Company completed the sale of its aluminum tubes business for net
proceeds of $10 to its then current management team and 21 Centrale Partners, an
investment fund specialized in high potential mid-size industrial companies. 
The sale consists of three plants located in Saumur (France), Kolin (Czech
Republic) and Cividate al Piano (Italy).

On June 2,
2005, the Company announced that it has completed the sale of its airfreight
container business, a minor part of its operations at its Singen, Germany,
facility, to Driessen Aerospace Group in the Netherlands, a manufacturer of
containers, trolleys and related products for the aerospace market.  The sale
was not recognized in the second quarter of 2005 due to the Company's continuing
involvement in the business.

On June 7,
2005, the Company completed the sale of Decoplast, its European Beauty
blow-molded bottle business, to IPH Groupe Spid, a French leader in plastic
conversion.  IPH Groupe Spid is specialized in the injection of technical and
design parts for the automotive, food and general packaging markets.  The sale
includes the two sites of Decoplast in La Roche sur Foron and Senlis (France). 

2004

Asia and
Other Pacific

On March 10,
2004, the Company announced that it had secured the necessary regulatory and
government approvals to move forward with its previously announced definitive
joint venture agreement, signed in October 2003, with the Qingtongxia Aluminium
Group Company Limited and the Ningxia Electric Power Development and Investment
Co. Ltd.  Under the agreement, Alcan invested $110 for a 50% participation and
for a secure power supply in an existing 150-kilotonne (kt) modern pre-bake
smelter located in the Ningxia autonomous region in the People's Republic of
China.  The agreement provides for the joint venture to obtain long-term access
to dedicated power on competitive terms sufficient to meet the energy
requirements of the smelter.  The joint venture also gives Alcan a substantial
operating role and the option to acquire, through additional investment, up to
80% of a new 250-kt potline, already under construction.  The investment is
accounted for using the equity method. 

 

Other
Europe    

In 2004, the
Company recorded in Other expenses (income) - net a gain of $46 (Q1: nil; Q2:
$42; Q3: nil; Q4: $4) due to the dilution of its ownership interest in Aluminium
& Chemie Rotterdam B.V. (Primary Metal). 

 

All other

On June 29,
2004, the Company announced that Alcan officials and a South African delegation
are continuing to examine the best value-creating alternatives offered by the
aluminum smelter project originally proposed by Pechiney in Coega, South
Africa.  On November 18, 2004, the Company announced that it will conduct a new
feasibility study for the construction of a new aluminum smelter with the South
African Government and Industrial Development Corporation. 

On November
24, 2004, the Company announced that it had signed a protocol of negotiation
with Alcoa World Alumina LLC (Alcoa) and the Government of the Republic of
Guinea (the Government) for the development of a 1.5-million tonne per year
alumina refinery in the West African nation.  This protocol sets out the items
and framework for the alumina refinery project, which will be negotiated with
the Government during the upcoming months as part of the Memorandum of
Understanding between the parties, announced in May, 2004.

Pursuant to a
Memorandum of Understanding signed in June 2004, on February 23, 2005, the
Company announced the signing of a Shareholders' Agreement with Oman Oil Company S.A.O.C. and the Abu Dhabi Water and Electricity Authority for a 20% equity
interest in the development of a proposed 325-kt aluminum smelter project in Sohar, Oman.  The Company has the option of acquiring up to 60% of a planned
second potline for an additional 330 kt of aluminum.  The agreement provides
that the Company would license its AP35 smelter technology.  Subject to
successful completion of the project agreements and financing arrangements,
construction is expected to commence in the second half of 2005 and result in
the first metal production by 2008.

-23-

18.   POST-RETIREMENT BENEFITS

Alcan and its
subsidiaries have established pension plans in the principal countries where
they operate, generally open to all employees. Most plans provide pension
benefits that are based on the employee's service and highest average eligible
compensation before retirement.  Pension benefits are periodically adjusted for
cost of living increases, either by Company practice, collective agreement or
statutory requirement.  Plan assets consist primarily of publicly-traded stocks
and high-rated debt securities, excluding securities in Alcan, and include only
small amounts in other categories, except for the Swiss plan, whose target
allocation is evenly distributed between equity, bonds and real estate.

Components of Net Periodic Benefit Cost

 
    
    
    

    Pension benefits
    
    
    

    Other Benefits
  
  
    
    

     
    
    

    Second Quarter
    
    

    Six Months
    
    

    Second Quarter
    
    

    Six Months
  
  
    
    
    
    

    Periods ended June 30
    
    
    
    

    2005
    
    

    2004
    
    
    
    

    2005
    
    

    2004
    
    
    
    

    2005
    
    

    2004
    
    
    
    

    2005
    
    

    2004
  
  
    
    
    Service
    cost
    
    41
    
    45
    
    82
    
    91
    
    3
    
    4
    
    6
    
    8
  
  
    
    
    Interest
    cost on benefit obligation
    
    136
    
    134
    
    275
    
    270
    
    14
    
    15
    
    28
    
    30
  
  
    
    
    Expected
    return on plan assets
    
    
    (136)
    
    
    (127)
    
    
    (275)
    
    
    (256)
    
    -
    
    -
    
    -
    
    -
  
  
    
    

    Amortization:
    
     
    
     
    
     
    
     
    
     
    
     
    
     
    
     
  
  
    
    
      Actuarial
    (gains) losses  
    
    24
    
    18
    
    48
    
    34
    
    
    (1)
    
    -
    
    
    (2)
    
    -
  
  
    
    
      Prior
    service cost
    
    15
    
    17
    
    30
    
    35
    
    -
    
    -
    
    -
    
    -
  
  
    
    
    Curtailment/settlement gains
    
    -
    
    
    (23)
    
    -
    
    
    (23)
    
    -
    
    -
    
    -
    
    -
  
  
    
    
    Net
    periodic benefit cost
    
    80
    
    64
    
    160
    
    151
    
    16
    
    19
    
    32
    
    38
  

The expected
long-term rate of return on plan assets is 7% in 2005.

Employer Contributions

Alcan
previously disclosed in its financial statements for the year ended December 31,
2004, that it expected to contribute $206 to its funded pension plans in 2005. 
The contributions are expected to be fully comprised of cash. As at June 30,
2005, $95 has been contributed, and the Company expects to contribute an
additional $94 over the remainder of the year. As previously disclosed in its
financial statements for the year ended December 31, 2004, the Company expected
to pay in 2005, $76 of unfunded pension benefits and lump sum indemnities from
operating cash flows.  As at June 30, 2005, $33 has been paid, and the Company
expects to pay an additional $32 over the remainder of the year.  The lower
contributions are principally due to the spin-off of Novelis.

Spin-off
of Novelis

In 2005, the following transactions transpired related to existing Alcan pension
plans covering Novelis employees:

a)   In the U.S., for Novelis employees previously participating in the Alcancorp
Pension Plan and the Alcan Supplemental Executive Retirement Plan, Alcan agreed
to recognize up to one year of additional service in its plan as long as such
employee worked for Novelis and Novelis paid to Alcan the normal cost (in the
case of the Alcancorp Pension Plan) and the current service cost (in the case of
the Alcan Supplemental Executive Retirement Plan).  During this year, Novelis
will decide whether it will transfer its share of pension assets and liabilities
to a Novelis plan or retain them in the Alcan plans.

b)   In the U.K., the sponsorship of the Alusuisse Holdings U.K. Ltd Pension Plan was
transferred from Alcan to Novelis.  Employees who transferred from British Alcan
Aluminium plc to Novelis continue to participate in the British Alcan Retirement
Income Plan in 2005 and the contribution required to fund their additional
service shall be paid by Novelis.

c)   In Switzerland, employees who transferred from Alcan to Novelis continue to
participate in the Alcan retirement schemes in 2005 and the contribution
required to fund their additional service is being paid by Novelis.   
 

-24-

18.   POST-RETIREMENT BENEFITS
(cont'd)

The benefit
obligation at December 31, 2004 of pension benefits and other benefits of
$11,384 and $1,050, respectively included $550 and $115 of pension and other
benefit obligations, respectively, that were transferred to Novelis on January
6, 2005, as part of the spin-off of Novelis described in note 5 - Spin-off of
Rolled Products Businesses.  The market value of plan assets at December 31,
2004 of pension benefits of $8,468 included $290 that was transferred to
Novelis.  In addition, certain entities of Novelis, prior to the spin-off,
participated in defined benefit pension plans in Canada, the U.S., the U.K., and
Switzerland managed by Alcan.  Included in the net periodic benefit cost for the
second quarter and six months ended June 30, 2004 are $2 and $10 of pension and
$2 and $4 of other benefits, respectively, related to Novelis.  The expected
contribution of $206 to funded pension plans in 2005 included $14 to be paid by
Novelis.  The expected payment of $76 of unfunded pension benefits and lump sum
indemnities in 2005 included $7 to be paid by Novelis.

19.   FINANCIAL INSTRUMENTS 

In conducting
its business, the Company uses various derivative and non-derivative
instruments, including forward contracts, swaps and options, to manage the risks
arising from fluctuations in exchange rates, interest rates, aluminum prices and
other commodity prices.  Generally, such instruments are used for risk
management purposes only.  The Company is the counterparty to a number of such
contracts with the businesses spun-off to Novelis.  In 2004, these contracts
represented intercompany balances and transactions and were eliminated in the
consolidated financial statements.  Subsequent to the spin-off of Novelis, these
contracts represent third party balances and transactions and they have been
included in the relevant disclosures below.  Also, the Company's interest rate
swaps and electricity derivatives outstanding as at December 31, 2004 were
transferred to Novelis at the time of the spin-off.

Derivatives −
Currency

The Company
enters into forward currency contracts and options that are designated as hedges
of certain identifiable foreign currency revenue and operating cost exposures. 
Foreign currency forward contracts and swaps are also used to hedge certain
foreign currency denominated debt and intercompany foreign currency denominated
loans.

 
    
    
    
    June 30, 2005

December
    31, 2004
  
  
    
    
    Financial
    Instrument
    
    
    
    Hedge
    
    
    
    Fair
    Value
    
    
    Fair Value
  
  
    
    
    Forward
    exchange contracts   
    
    
    Future firm
    net operating cash flows
    
    
    
    12
    
    
    (62)
  
  
    
    
    Forward
    exchange contracts
    
    
    To swap
    intercompany foreign currency denominated loans to US$, € and CHF
    
    
    
    (10)
    
    
    (5)
  
  
    
    
    Forward
    exchange contracts
    
    

    To hedge € net equity investment  
    
    
    
    (37)
    
    
    (167)
  
  
    
    
    Forward
    exchange contracts
    
    
    Future
    commitments (1)
    
    
    
    2
    
    
    5
  
  
    
    
    Forward
    exchange contracts
    
    
    To swap
    CAN$ commercial paper borrowings to US$
    
    
    
    10
    
    
    31
  
  
    
    
    Currency
    options
    
    
    Future US$
    sales against € and £
    
    
    
    4
    
    
    15
  
  
    
    
    Cross
    currency interest swap  
    
    
    To swap US$
    third party borrowings to KRW  
    
    
    
    -
    
    
    (8)
  
  
    
    
    Cross
    currency interest swap
    
    
    To swap €
    21 million medium term notes to £14 million
    
    
    
    -
    
    
    2
  


 

(1)            


Mainly Australian dollar, principally for the expansion of the Gove alumina
refinery in Australia.

 

Derivatives and Commodity Contracts - Aluminum

Depending on
supply and market conditions, as well as for logistical reasons, the Company may
sell primary metal to third parties and may purchase primary and secondary
aluminum on the open market to meet its fabricated products requirements. In
addition, the Company may hedge certain commitments arising from pricing
arrangements with some of its customers and the effects of price fluctuations on
inventories.  The Company may also hold for trading purposes physical metal
purchase and sales contracts with third parties.

-25-

 

19.   FINANCIAL INSTRUMENTS 
(cont'd)

Through the
use of forward purchase and sales contracts and options, the Company seeks to
limit the negative impact of low metal prices.

 
    
    
    
    

    June 30,

    2005

December 31, 2004

Financial Instrument
    
    
    

     
    
    

     
  
  
    
    

    Forward contracts (principally forward sales contracts) and physical trading
    contracts
    
    
    

     
    
    

     
  
  
    
    

        Maturing principally in years
    
    
    

    2005 to 2006
    
    

    2005 to 2006
  
  
    
    

        Fair value
    
    
    

    18
    
    

    (104)
  
  
    
    

    Forward fixed price sales agreements
    
    
    

     
    
    

     
  
  
    
    

        Maturing principally in years
    
    
    

    2005 to 2006
    
    

    -
  
  
    
    

        Fair value
    
    
    

    (14)
    
    

    -
  
  
    
    

    Call options purchased
    
    
    

     
    
    

     
  
  
    
    

        Maturing principally in years
    
    
    

    2005
    
    

    2005
  
  
    
    

        Fair value
    
    
    

    5
    
    

    36
  
  
    
    

    Call options sold
    
    
    

     
    
    

     
  
  
    
    

        Maturing principally in years
    
    
    

    2005
    
    

    2005
  
  
    
    

        Fair value
    
    
    

    (5)
    
    

    (10)
  
  
    
    

    Embedded derivatives
    
    
    

     
    
    

     
  
  
    
    

    Maturing principally in years
    
    
    

    -
    
    

    2005
  
  
    
    

    Fair value
    
    
    

    -
    
    

    (10)
  


-26-

20.   DIFFERENCES BETWEEN UNITED STATES AND CANADIAN
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

The following
material adjustments to the unaudited consolidated financial statements would be
required to conform with accounting principles generally accepted in Canada
(Canadian GAAP).  Information on the nature of these adjustments is described in
note 35 of the Company's 2004 annual report.

Reconciliation
of U.S. and Canadian GAAP                                                                                              

Second
    Quarter, 2005
    
    
    Second
    Quarter, 2004
  
  
    
     
    
    
    
    
    As reported
    
    
    
     

Ref.
    
    
    
     

Amount
    
    
    
    Canadian

GAAP
    
    
    As reported
    
    
     

Ref.
    
    
     

Amount
    
    
    Canadian

GAAP
  
  
    
    
    Statement of Income
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
    Sales and operating revenues
    
    
    
    
    5,206
    
    
    
    (g)
    
    
    
    16
    
    
    
    5,222
    
    
    6,208
    
    
    (g)
    
    
    (13)
    
    
    6,195
  
  
    
    
    Cost and expenses
    
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
    Cost of
    sales and operating expenses
    
    
    
    4,130
    
    
    
    (a)
    
    
    
    1
    
    
    
    4,085
    
    
    4,918
    
    
    (a)
    
    
    (8)
    
    
    4,843
  
  
    
    
    excluding
    depreciation and amortization
    noted below
    
    
    
     
    
    
    
    (g)
    
    
    
    (46)
    
    
    
     
    
    
     
    
    
    (g)
    
    
    (67)
    
    
     
  
  
    
    
    Depreciation
    and amortization
    
    
    
    268
    
    
    
    (f)
    
    
    
    1
    
    
    
    291
    
    
    324
    
    
    (f)
    
    
    1
    
    
    352
  
  
    
    
     
    
    
    
     
    
    
    
    (g)
    
    
    
    22
    
    
    
     
    
    
     
    
    
    (g)
    
    
    27
    
    
     
  
  
    
    
    Selling,
    administrative and general  expenses
    
    
    
    345
    
    
    
     
    
    
    
    -
    
    
    
    345
    
    
    365
    
    
    (g)
    
    
    2
    
    
    367
  
  
    
    
    Research and
    development expenses
    
    
    
    49
    
    
    
    (g)
    
    
    
    1
    
    
    
    50
    
    
    58
    
    
     
    
    
    -
    
    
    58
  
  
    
    
    Interest
    
    
    
    
    
    90
    
    
    
    (g)
    
    
    
    4
    
    
    
    94
    
    
    87
    
    
    (g)
    
    
    3
    
    
    90
  
  
    
    
    Other
    expenses (income) - net  
    
    
    
    73
    
    
    
    (a)
    
    
    
    4
    
    
    
    70
    
    
    54
    
    
    (a)
    
    
    1
    
    
    57
  
  
    
    
     
    
    
    
     
    
    
    
    (g)
    
    
    
    (7)
    
    
    
     
    
    
     
    
    
    (g)
    
    
    2
    
    
     
  
  
    
    
     
    
    
    
    4,955
    
    
    
     
    
    
    
    (20)
    
    
    
    4,935
    
    
    5,806
    
    
     
    
    
    (39)
    
    
    5,767
  
  
    
    
    Income from continuing operations
    before
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
       income
    taxes and other items
    
    
    
    251
    
    
    
     
    
    
    
    36
    
    
    
    287
    
    
    402
    
    
     
    
    
    26
    
    
    428
  
  
    
    
    Income taxes
    
    
    
    70
    
    
    
    (a)
    
    
    
    (2)
    
    
    
    83
    
    
    125
    
    
    (a)
    
    
    2
    
    
    135
  
  
    
    
     
    
    
    
     
    
    
    
    (f)
    
    
    
    (1)
    
    
    
     
    
    
     
    
    
    (f)
    
    
    (1)
    
    
     
  
  
    
    
     
    
    
    
     
    
    
    
    (g)
    
    
    
    16
    
    
    
     
    
    
     
    
    
    (g)
    
    
    9
    
    
     
  
  
    
    
    Income from
    continuing operations  
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    

      before other items
    
    
    
    181
    
    
    
     
    
    
    
    23
    
    
    
    204
    
    
    277
    
    
     
    
    
    16
    
    
    293
  
  
    
    
    Equity
    income  
    
    
    
    28
    
    
    
    (g)
    
    
    
    (26)
    
    
    
    2
    
    
    17
    
    
    (g)
    
    
    (11)
    
    
    6
  
  
    
    
    Minority
    interests
    
    
    
    (1)
    
    
    
     
    
    
    
    -
    
    
    
    (1)
    
    
    (9)
    
    
     
    
    
    -
    
    
    (9)
  
  
    
    
    
    Income from
    continuing operations
    
    
    
    208
    
    
    
     
    
    
    
    (3)
    
    
    
    205
    
    
    285
    
    
     
    
    
    5
    
    
    290
  
  
    
    
    Income
    (Loss) from discontinued operations
    
    
    
    (17)
    
    
    
     
    
    
    
    -
    
    
    
    (17)
    
    
    46
    
    
     
    
    
    -
    
    
    46
  
  
    
    
    Net income  
    
    
    
    
    191
    
    
    
     
    
    
    
    (3)
    
    
    
    188
    
    
    331
    
    
     
    
    
    5
    
    
    336
  
  
    
    
    Dividends on
    preference shares
    
    
    
    1
    
    
    
     
    
    
    
    -
    
    
    
    1
    
    
    1
    
    
     
    
    
    -
    
    
    1
  
  
    
    
    Net income attributable to common
    shareholders
    
    
    
    190
    
    
    
     
    
    
    
    (3)
    
    
    
    187
    
    
    330
    
    
     
    
    
    5
    
    
    335
  




 

(a)    
Derivatives

(b)    
Currency translation

(c)    
Investments

(d)    
Minimum pension liability

(e)    
Deferred translation adjustments

(f)     
Acquired in-process research and development

(g)    
Joint ventures

-27-

20.   DIFFERENCES BETWEEN UNITED STATES AND CANADIAN
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) 
(cont'd)

Reconciliation
of U.S. and Canadian GAAP                                                                                              

Six
    Months, 2005
    
    
    Six Months,
    2004
  
  
    
     
    
    
    
    
    As reported
    
    
    
     

Ref.
    
    
    
     

Amount
    
    
    
    Canadian

GAAP
    
    
    As reported
    
    
     

Ref.
    
    
     

Amount
    
    
    Canadian

GAAP
  
  
    
    
    Statement of Income
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
    Sales and operating revenues
    
    
    
    
    10,384
    
    
    
    (g)
    
    
    
    19
    
    
    
    10,403
    
    
    12,228
    
    
    (g)
    
    
    (21)
    
    
    12,207
  
  
    
    
    Cost and expenses
    
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
    Cost of
    sales and operating expenses
    
    
    
    8,220
    
    
    
    (a)
    
    
    
    8
    
    
    
    8,127
    
    
    9,890
    
    
    (a)
    
    
    (15)
    
    
    9,746
  
  
    
    
    excluding
    depreciation and amortization
    noted below
    
    
    
     
    
    
    
    (g)
    
    
    
    (101)
    
    
    
     
    
    
     
    
    
    (g)
    
    
    (129)
    
    
     
  
  
    
    
    Depreciation
    and amortization
    
    
    
    540
    
    
    
    (f)
    
    
    
    2
    
    
    
    590
    
    
    660
    
    
    (f)
    
    
    2
    
    
    715
  
  
    
    
     
    
    
    
     
    
    
    
    (g)
    
    
    
    48
    
    
    
     
    
    
     
    
    
    (g)
    
    
    53
    
    
     
  
  
    
    
    Selling,
    administrative and general expenses
    
    
    
    725
    
    
    
    (g)
    
    
    
    2
    
    
    
    727
    
    
    761
    
    
    (g)
    
    
    3
    
    
    764
  
  
    
    
    Research and
    development expenses
    
    
    
    98
    
    
    
    (g)
    
    
    
    1
    
    
    
    99
    
    
    119
    
    
     
    
    
    -
    
    
    119
  
  
    
    
    Interest
    
    
    
    
    
    175
    
    
    
    (g)
    
    
    
    8
    
    
    
    183
    
    
    180
    
    
    (g)
    
    
    6
    
    
    186
  
  
    
    
    Other
    expenses (income) - net  
    
    
    
    97
    
    
    
    (a)
    
    
    
    1
    
    
    
    73
    
    
    51
    
    
    (a)
    
    
    (2)
    
    
    51
  
  
    
    
     
    
    
    
     
    
    
    
    (g)
    
    
    
    (25)
    
    
    
     
    
    
     
    
    
    (g)
    
    
    2
    
    
     
  
  
    
    
     
    
    
    
    9,855
    
    
    
     
    
    
    
    (56)
    
    
    
    9,799
    
    
    11,661
    
    
     
    
    
    (80)
    
    
    11,581
  
  
    
    
    Income from
    continuing operations before
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
       income
    taxes and other items
    
    
    
    529
    
    
    
     
    
    
    
    75
    
    
    
    604
    
    
    567
    
    
     
    
    
    59
    
    
    626
  
  
    
    
    Income taxes
    
    
    
    168
    
    
    
    (a)
    
    
    
    (4)
    
    
    
    194
    
    
    166
    
    
    (a)
    
    
    4
    
    
    187
  
  
    
    
     
    
    
    
     
    
    
    
    (f)
    
    
    
    (1)
    
    
    
     
    
    
     
    
    
    (f)
    
    
    (1)
    
    
     
  
  
    
    
     
    
    
    
     
    
    
    
    (g)
    
    
    
    31
    
    
    
     
    
    
     
    
    
    (g)
    
    
    18
    
    
     
  
  
    
    

    Income from
    continuing operations before other items
    
    
    
    361
    
    
    
     
    
    
    
    49
    
    
    
    410
    
    
    401
    
    
     
    
    
    38
    
    
    439
  
  
    
    
    Equity
    income  
    
    
    
    57
    
    
    
    (g)
    
    
    
    (55)
    
    
    
    2
    
    
    33
    
    
    (g)
    
    
    (26)
    
    
    7
  
  
    
    
    Minority
    interests
    
    
    
    (2)
    
    
    
     
    
    
    
    -
    
    
    
    (2)
    
    
    (15)
    
    
     
    
    
    -
    
    
    (15)
  
  
    
    
    
    Income from
    continuing operations
    
    
    
    416
    
    
    
     
    
    
    
    (6)
    
    
    
    410
    
    
    419
    
    
     
    
    
    12
    
    
    431
  
  
    
    
    Income
    (Loss) from discontinued operations
    
    
    
    (7)
    
    
    
     
    
    
    
    -
    
    
    
    (7)
    
    
    18
    
    
     
    
    
    -
    
    
    18
  
  
    
    
    Net income  
    
    
    
    
    409
    
    
    
     
    
    
    
    (6)
    
    
    
    403
    
    
    437
    
    
     
    
    
    12
    
    
    449
  
  
    
    
    Dividends on
    preference shares
    
    
    
    3
    
    
    
     
    
    
    
    -
    
    
    
    3
    
    
    3
    
    
     
    
    
    -
    
    
    3
  
  
    
    
    Net income attributable to common
    shareholders
    
    
    
    406
    
    
    
     
    
    
    
    (6)
    
    
    
    400
    
    
    434
    
    
     
    
    
    12
    
    
    446
  

 

-28-

20.   DIFFERENCES BETWEEN UNITED STATES AND CANADIAN
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) 
(cont'd)

Earnings Per Share - Canadian GAAP 

 
    
    
    Second Quarter  
    
    
    Six Months
  
  
    
    
    Periods ended June 30
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
  
  
    
    Earnings
    (Loss) Per Share 
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    Basic and
    Diluted:
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    Income from
    continuing operations  
    
    
    
         0.55
    
    
         0.78
    
    
    
         1.10
    
    
         1.16
  
  
    
    Income
    (Loss) from discontinued operations
    
    
    
        (0.04)
    
    
         0.12
    
    
    
        (0.02)
    
    
         0.05
  
  
    
    Net
    income per common share - basic and diluted
    
    
    
         0.51
    
    
         0.90
    
    
    
         1.08
    
    
         1.21
  

Consolidated Statement of Retained Earnings
-
Canadian GAAP

  
    
    
    
    Six months ended June 30
    
    
    
    2005
    
    
    2004
  
  
    
    Retained
    earnings - beginning of period
    
    
    
    
    3,379
    
    
    3,350
  
  
    
    
     
    
    
    
     
    
    
     
  
  
    
    
    Net income
    
    
    
    403
    
    
    449
  
  
    
    
    Spin-off of
    Novelis
    
    
    
    (272)
    
    
    -
  
  
    
    
    Dividends
    
    
    
     
    
    
     
  
  
    
    
    Common
    
    
    
    
    (167)
    
    
    (167)
  
  
    
    
    Preference
    
    
    
    
    (3)
    
    
    (3)
  
  
    
    
    
    Retained
    earnings -
    end of period
    
    
    
    3,340
    
    
    3,629
  


 -29-

20.   DIFFERENCES BETWEEN UNITED STATES AND CANADIAN
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) 
(cont'd)

Reconciliation
of U.S. and Canadian GAAP

(cont'd)

 
    
    
    
    June 30,
    2005
    
    
    December 31,
    2004
  
  
    
    
     
    
    
    
    As reported
    
    
    
     

Ref.
    
    
    
     

Amount
    
    
    
    Canadian

GAAP
    
    
    As reported
    
    
     

Ref.
    
    
     

Amount
    
    
    Canadian

GAAP
  
  
    
    
    Balance Sheet
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
    Current assets
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
    Cash and time
    deposits
    
    
    
    
    222
    
    
    
    (g)
    
    
    
    56
    
    
    
    278
    
    
    184
    
    
    (g)
    
    
    53
    
    
    237
  
  
    
    
    Trade
    receivables
    
    
    
    2,861
    
    
    
    (g)
    
    
    
    (30)
    
    
    
    2,831
    
    
    3,247
    
    
    (g)
    
    
    (133)
    
    
    3,114
  
  
    
    
    Other
    receivables
    
    
    
    846
    
    
    
    (a)
    
    
    
    18
    
    
    
    932
    
    
    936
    
    
    (a)
    
    
    103
    
    
    1,113
  
  
    
    
     
    
    
    
     
    
    
    
    (g)
    
    
    
    68
    
    
    
     
    
    
     
    
    
    (g)
    
    
    74
    
    
     
  
  
    
    
    Deferred
    income taxes
    
    
    
    110
    
    
    
     
    
    
    
    -
    
    
    
    110
    
    
    214
    
    
    (a)
    
    
    (34)
    
    
    180
  
  
    
    
    Inventories
    
    
    
    
    
    2,863
    
    
    
    (g)
    
    
    
    111
    
    
    
    2,974
    
    
    4,040
    
    
    (g)
    
    
    153
    
    
    4,193
  
  
    
    
    Current
    assets held for sale
    
    
    
    172
    
    
    
     
    
    
    
    -
    
    
    
    172
    
    
    791
    
    
     
    
    
    -
    
    
    791
  
  
    
    
    
    Total
    current assets
    
    
    
    7,074
    
    
    
     
    
    
    
    223
    
    
    
    7,297
    
    
    9,412
    
    
     
    
    
    216
    
    
    9,628
  
  
    
    
    Deferred
    charges and other assets
    
    
    
    2,251
    
    
    
    (a)
    
    
    
    22
    
    
    
    950
    
    
    2,877
    
    
    (a)
    
    
    21
    
    
    1,272
  
  
    
    
     
    
    
    
     
    
    
    
    (c)
    
    
    
    (4)
    
    
    
     
    
    
     
    
    
    (c)
    
    
    (8)
    
    
     
  
  
    
    
     
    
    
    
     
    
    
    
    (g)
    
    
    
    (1,319)
    
    
    
     
    
    
     
    
    
    (g)
    
    
    (1,618)
    
    
     
  
  
    
    
    Deferred
    income taxes
    
    
    
    969
    
    
    
     
    
    
    
    -
    
    
    
    969
    
    
    870
    
    
    (g)
    
    
    3
    
    
    873
  
  
    
    
    Property,
    plant and equipment
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
       Cost
    (excluding Construction work in
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
       progress)
    
    
    
    15,383
    
    
    
    (g)
    
    
    
    1,446
    
    
    
    16,829
    
    
    21,956
    
    
    (g)
    
    
    2,343
    
    
    24,299
  
  
    
    
    Construction
    work in progress
    
    
    
    899
    
    
    
    (g)
    
    
    
    14
    
    
    
    913
    
    
    816
    
    
    (g)
    
    
    16
    
    
    832
  
  
    
    

       Accumulated depreciation
    
    
    
    (5,479)
    
    
    
    (g)
    
    
    
    (627)
    
    
    
    (6,106)
    
    
    (9,478)
    
    
    (g)
    
    
    (1,180)
    
    
    (10,658)
  
  
    
    
     
    
    
    
    10,803
    
    
    
     
    
    
    
    833
    
    
    
    11,636
    
    
    13,294
    
    
     
    
    
    1,179
    
    
    14,473
  
  
    
    
    Intangible
    assets, net of accumulated
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    

       amortization
    
    
    
    1,028
    
    
    
    (a)
    
    
    
    4
    
    
    
    925
    
    
    1,230
    
    
    (a)
    
    
    4
    
    
    1,105
  
  
    
    
     
    
    
    
     
    
    
    
    (d)
    
    
    
    (244)
    
    
    
     
    
    
     
    
    
    (d)
    
    
    (253)
    
    
     
  
  
    
    
     
    
    
    
     
    
    
    
    (f)
    
    
    
    44
    
    
    
     
    
    
     
    
    
    (f)
    
    
    46
    
    
     
  
  
    
    
       
    
    
    
     
    
    
    
    (g)
    
    
    
    93
    
    
    
     
    
    
     
    
    
    (g)
    
    
    78
    
    
     
  
  
    
    
    Goodwill
    
    
    
    4,992
    
    
    
    (g)
    
    
    
    685
    
    
    
    5,677
    
    
    5,496
    
    
    (g)
    
    
    837
    
    
    6,333
  
  
    
    
    Long-term
    assets for sale
    
    
    
    30
    
    
    
     
    
    
    
    -
    
    
    
    30
    
    
    162
    
    
     
    
    
    -
    
    
    162
  
  
    
    
    Total assets
    
    
    
    
    27,147
    
    
    
     
    
    
    
    337
    
    
    
    27,484
    
    
    33,341
    
    
     
    
    
    505
    
    
    33,846
  
  
    
    
    Current liabilities
    
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
    Payables and
    accrued liabilities
    
    
    
    
    4,415
    
    
    
    (a)
    
    
    
    2
    
    
    
    4,486
    
    
    5,843
    
    
    (a)
    
    
    (11)
    
    
    5,896
  
  
    
     
    
    
    
    
     
    
    
    
    (g)
    
    
    
    69
    
    
    
     
    
    
     
    
    
    (g)
    
    
    64
    
    
     
  
  
    
    
    Short-term
    borrowings
    
    
    
    
    339
    
    
    
    (g)
    
    
    
    13
    
    
    
    352
    
    
    2,486
    
    
     
    
    
    -
    
    
    2,486
  
  
    
    
    Debt maturing
    within one year
    
    
    
    
    854
    
    
    
    (g)
    
    
    
    101
    
    
    
    955
    
    
    569
    
    
    (g)
    
    
    81
    
    
    650
  
  
    
    
    Deferred income
    taxes
    
    
    
    
    27
    
    
    
    (g)
    
    
    
    2
    
    
    
    29
    
    
    23
    
    
    (a)
    
    
    (2)
    
    
    27
  
  
    
     
    
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
    (g)
    
    
    6
    
    
     
  
  
    
    
    Current
    liabilities of operations held for sale
    
    
    
    
    104
    
    
    
     
    
    
    
    -
    
    
    
    104
    
    
    335
    
    
     
    
    
    -
    
    
    335
  
  
    
    
    Total current liabilities
    
    
    
    
    5,739
    
    
    
     
    
    
    
    187
    
    
    
    5,926
    
    
    9,256
    
    
     
    
    
    138
    
    
    9,394
  
  
    
    
    Debt not
    maturing within one year
    
    
    
    5,630
    
    
    
    (g)
    
    
    
    124
    
    
    
    5,754
    
    
    6,345
    
    
    (g)
    
    
    198
    
    
    6,543
  
  
    
    
    Deferred
    credits and other liabilities
    
    
    
    4,270
    
    
    
    (a)
    
    
    
    19
    
    
    
    3,343
    
    
    4,986
    
    
    (a)
    
    
    21
    
    
    4,044
  
  
    
    
     
    
    
    
     
    
    
    
    (d)
    
    
    
    (975)
    
    
    
     
    
    
     
    
    
    (d)
    
    
    (1,036)
    
    
     
  
  
    
    
     
    
    
    
     
    
    
    
    (g)
    
    
    
    29
    
    
    
     
    
    
     
    
    
    (g)
    
    
    73
    
    
     
  
  
    
    
    Deferred
    income taxes
    
    
    
    1,279
    
    
    
    (a)
    
    
    
    19
    
    
    
    1,681
    
    
    1,543
    
    
    (a)
    
    
    9
    
    
    2,005
  
  
    
    
     
    
    
    
     
    
    
    
    (d)
    
    
    
    209
    
    
    
     
    
    
     
    
    
    (d)
    
    
    233
    
    
     
  
  
    
    
     
    
    
    
     
    
    
    
    (f)
    
    
    
    15
    
    
    
     
    
    
     
    
    
    (f)
    
    
    16
    
    
     
  
  
    
    
     
    
    
    
     
    
    
    
    (g)
    
    
    
    159
    
    
    
     
    
    
     
    
    
    (g)
    
    
    204
    
    
     
  
  
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
    Long-term
    liabilities of operations held for sale
    
    
    
    9
    
    
    
     
    
    
    
    -
    
    
    
    9
    
    
    249
    
    
     
    
    
    -
    
    
    249
  
  
    
    
    Minority
    interests
    
    
    
    91
    
    
    
     
    
    
    
    -
    
    
    
    91
    
    
    236
    
    
     
    
    
    -
    
    
    236
  
  
     
     
     
     
     
     
     
     
    
    
     
  


-30-

20.   DIFFERENCES BETWEEN UNITED STATES AND CANADIAN
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) 
(cont'd)

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

June 30,
    2005
    
    
    December 31,
    2004
  
  
    
     
    
    
    
    
    As reported
    
    
    
     

Ref.
    
    
    
     

Amount
    
    
    
    Canadian

GAAP
    
    
    As reported
    
    
     

Ref.
    
    
     

Amount
    
    
    Canadian

GAAP
  
  
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
    Shareholders' equity
    
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
    Redeemable
    non-retractable         
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    

       preference  shares
    
    
    
    160
    
    
    
     
    
    
    
    -
    
    
    
    160
    
    
    160
    
    
     
    
    
    -
    
    
    160
  
  
    
    
    Common
    shareholders' equity:
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
    Common
    shares
    
    
    
    6,104
    
    
    
     
    
    
    
    -
    
    
    
    6,104
    
    
    6,670
    
    
     
    
    
    -
    
    
    6,670
  
  
    
    
    Additional
    paid-in capital
    
    
    
    692
    
    
    
     
    
    
    
    -
    
    
    
    692
    
    
    112
    
    
     
    
    
    -
    
    
    112
  
  
    
    
    Retained
    earnings
    
    
    
    3,322
    
    
    
    (a)
    
    
    
    31
    
    
    
    3,340
    
    
    3,362
    
    
    (a)
    
    
    42
    
    
    3,379
  
  
    
    
     
    
    
    
     
    
    
    
    (b)
    
    
    
    (42)
    
    
    
     
    
    
     
    
    
    (b)
    
    
    (55)
    
    
     
  
  
    
    
     
    
    
    
     
    
    
    
    (f)
    
    
    
    29
    
    
    
     
    
    
     
    
    
    (f)
    
    
    30
    
    
     
  
  
    
    
    Common
    shares held by a subsidiary
    
    
    
    (31)
    
    
    
     
    
    
    
    -
    
    
    
    (31)
    
    
    (35)
    
    
     
    
    
    -
    
    
    (35)
  
  
    
    
    Deferred
    translation adjustments
    
    
    
    -
    
    
    
    (a)
    
    
    
    (28)
    
    
    
    415
    
    
    -
    
    
    (a)
    
    
    (29)
    
    
    1,089
  
  
    
    
     
    
    
    
     
    
    
    
    (b)
    
    
    
    42
    
    
    
     
    
    
     
    
    
    (b)
    
    
    55
    
    
     
  
  
    
    
     
    
    
    
     
    
    
    
    (e)
    
    
    
    401
    
    
    
     
    
    
     
    
    
    (e)
    
    
    1,063
    
    
     
  
  
    
    
    Accumulated
    other comprehensive
    
    
    
     
    
    
    
     
    
    
    
     
    
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
       income
    
    
    
    
    
    (118)
    
    
    
    (a)
    
    
    
    1
    
    
    
    -
    
    
    457
    
    
    (a)
    
    
    64
    
    
    -
  
  
    
    
     
    
    
    
     
    
    
    
    (c)
    
    
    
    (4)
    
    
    
     
    
    
     
    
    
    (c)
    
    
    (8)
    
    
     
  
  
    
    
     
    
    
    
     
    
    
    
    (d)
    
    
    
    522
    
    
    
     
    
    
     
    
    
    (d)
    
    
    550
    
    
     
  
  
    
    
     
    
    
    
     
    
    
    
    (e)
    
    
    
    (401)
    
    
    
     
    
    
     
    
    
    (e)
    
    
    (1,063)
    
    
     
  
  
    
    
     
    
    
    
    9,969
    
    
    
     
    
    
    
    551
    
    
    
    10,520
    
    
    10,566
    
    
     
    
    
    649
    
    
    11,215
  
  
    
    
     
    
    
    
    10,129
    
    
    
     
    
    
    
    551
    
    
    
    10,680
    
    
    10,726
    
    
     
    
    
    649
    
    
    11,375
  
  
    
    
    
    Total
    liabilities and shareholders' equity
    
    
    
    27,147
    
    
    
     
    
    
    
    337
    
    
    
    27,484
    
    
    33,341
    
    
     
    
    
    505
    
    
    33,846
  


  

21.   PRIOR
YEAR AMOUNTS

Certain prior
year amounts have been reclassified to conform with current period presentation.

22.  
SUBSEQUENT EVENTS 

On July 8,
2005, the Company announced its acquisition of Prewired Systems LLC based in
Pacoima, California, a company specializing in manufactured wiring systems for
the electrical industry. 

Also on July
8, 2005, the Company announced that it will explore the potential sale of its
Food Packaging Plastic Bottle business as part of an ongoing refocusing of its
food packaging activities.  The business, which serves the food and beverage
industry, has facilities in North America and France.

On July 13,
2005, Alcan Service Centres, part of the Engineered Products business group,
announced that it had taken full ownership of Almet AG by purchasing the
outstanding 36.6% minority interest held by its current management team.

-31-

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

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

Prior period
information has been retroactively adjusted to reflect the reclassification of certain
businesses as discontinued operations.
2004 amounts in this report include Alcan's former rolled products
business (Novelis), which was spun-off on 6 January 2005.
 

The Company reported second
quarter income from continuing operations of $208 or $0.56 per common share
versus $285 or $0.77 per common share a year earlier and $208 or $0.56 per share
in the first quarter of 2005. While the Company benefited from higher aluminum
prices upstream, better pricing and sales mix downstream, positive derivative
impacts and further synergy capture, results declined year-over-year due to an
increased charge for Other Specified Items (OSIs), the negative effects of the
weaker U.S. dollar, higher costs for energy and raw materials and the impact of
the rolled products spin-off.  The results were identical to the first quarter,
reflecting the benefit of higher volumes across all business groups, derivative
gains and synergy benefits offset by an increased charge for OSIs. Price and
sales mix improvements in downstream businesses were offset by changes to the
sales mix in upstream businesses. The term
"Other Specified Items" is defined under "Definitions" at the end of
Management's Discussion and Analysis (MD&A).

Income from continuing operations
for the second quarter of 2005 included a primarily non-cash, after-tax gain of
$4, or $0.01 per common share, for the effects of foreign currency balance sheet
translation, compared to an after-tax gain of $63, or $0.17 per common share, in
the year-ago quarter and an after-tax gain of $30, or $0.08 per common share, in
the first quarter of 2005. The gain in the second quarter of 2005 reflected some
strengthening of the U.S. dollar, principally against the Canadian dollar.  Although these effects are primarily non-cash in nature, they can have a
significant impact on the Company's net income.  The term ''Foreign
currency balance sheet translation'' is defined under ''Definitions'' at the end
of the MD&A. Also included in income from
continuing operations for the second quarter was a net after-tax charge of $82,
or $0.22 per common share, for OSIs, as compared to a net after-tax charge of
$8, or $0.02 per common share, in the corresponding period of 2004 and a net
after-tax charge of $45, or $0.12 per common share, in the first quarter of
2005. 

 

 
    
    
    
    Second Quarter
    
    
    
    Six Months
    
    
    First Quarter
  
  
    
     
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
    
    
    2005
  
  
    
     
    
     
    
     
    
     
    
     
    
     
  
  
    
    Sales and operating
    revenues
    
    5,206
    
    6,208  
    
    10,384
    
    12,228
    
    5,178 
  
  
    
    Shipments (thousands
    of tonnes)
    
     
    
     
    
     
    
     
    
     
  
  
    
         Ingot products* 
    
    744
    
    499  
    
    1,468
    
    992
    
    724 
  
  
    
    
         Aluminum used in engineered products
    and packaging
    
    336
    
    386
    
     

663
    

    760
    
    327 
  
  
    
         Subtotal
    
    1,080
    
    885
    
    2,131
    
    1,752
    
    1,051 
  
  
    
         Rolled products 
    
    -
    
    712
    
    -
    
    1,380
    
    
    
    -
  
  
    
    Total aluminum volume 
    
    1,080
    
    1,597  
    
    2,131
    
    3,132
    
    1,051 
  
  
    
    Ingot product
    realizations ($ per tonne)*
    
    2,034
    
    1,812  
    
    2,046
    
    1,801
    
    2,058 
  
  
    
    Average LME 3-month
    price ($ per tonne) 
    
    1,796
    
    1,686
    
    1,842
    
    1,676
    
    1,887 
  
  
    
     
    
     
    
     
    
     
    
     
    
     
  
  
    
    
    Included in
    income from continuing operations:
    
     
    
     
    
     
    
     
    
     
  
  
    
    
    Foreign
    currency balance sheet translation
    
    
    
    4
    
    
    63   
    
    
    
    34
    
    
    72
    
    
    30 
  
  
    
    
    Other
    Specified Items (OSIs)
    
    
    (82)
    
     (8)
    
    
    (127)
    
    (72)
    
    (45) 
  
  
    
     
    
    
    
     
    
    
     
    
    
    
     
    
    
     
    
    
     
  
  
    
    Income from
    continuing operations
    
    
    
    208
    
    
    285  
    
    
    
    416
    
    
    419
    
    
    208 
  
  
    
    Income (Loss) from
    discontinued operations
    
    
    (17)
    
    
    46  
    
    
    (7)
    
    
    18
    
    
    10 
  
  
    
    Net income
    
    
    
    
    191
    
    
    331   
    
    
    
    409
    
    
    437
    
    
    218 
  
  
    
    Earnings per share
    ($ per share)
    
     
    
     
    
     
    
     
    
     
  
  
    
     
    
    Income from continuing
    operations
    
    
    
    0.56
    
    
    0.77 
    
    
    
    1.11
    
    
    1.13
    
    
    0.56  
  
  
    
     
    
    Net income  
    
    
    
    0.52
    
    
    0.89 
    
    
    
    1.09
    
    
    1.18
    
    
    0.58  
  
  
    
    Average number of
    shares outstanding (millions)
    
    
    
      370.2
    
    
      368.1  
    
    
    
      370.1
    
    
      367.5
    
    
      370.0
  
  
    
    
     
    * Includes primary and
    secondary ingot and scrap aluminum.  Realized prices generally lag LME
    price changes by one month. The first quarter 2005 realization was
    corrected from that previously published.  
    
     2004 amounts include Novelis but
    have been retroactively adjusted to reflect the reclassification of certain businesses as
    discontinued operations.
  











-32-

Sales and
operating revenues were $5.2 billion in the second quarter, down $1 billion from
the year-ago quarter mainly reflecting the impact of the spin-off of the rolled
products business on 6 January 2005.  Excluding the impact of the spin-off, sales and operating revenues increased due to
higher prices, improved volumes and currency translation effects.  Compared to
the first quarter of 2005, revenues were up slightly as the impact of higher
volumes across all business groups was largely offset by currency translation
effects.  

Total aluminum
volume, at 1,080 thousand tonnes (kt), was down 517 kt from a year earlier due
to the spin-off of the rolled products business on 6 January 2005.  The increase
in ingot product shipments in the second quarter mainly reflects volumes sold to
Novelis that were previously classified as intercompany sales. 

Ingot product
realizations, at $2,034 per tonne, were $222 per tonne higher than in the
year-ago quarter and $24 per tonne lower than in the first quarter.
The bulk of
Alcan ingot sales are based on the LME 3-month price with a one month lag plus a
local market premium and any applicable product premium. In the second quarter,
the average LME 3-month price with a one month lag was $1,868 per tonne up from
$1,850 in the first quarter.  Average realizations declined from the first
quarter mainly due to a less favourable product mix and softening market premia. 

 
    
    
     
    
    
    Second Quarter
    
    
    First Quarter 2005
  
  
    
    
    2005
    
    
    
    
    2004
    
  
  
    
     
    
    
     
    
    
     
    
    
     
    
  
  
    
    
    Other Specified Items
    
    
     
    
    
     
    
    
     
    
  
  
    
    
    
    Synergy costs
    
    
    
    (24)
    
    
    
    (8)
    
    
    
    (7)
    
  
  
    
    
    
    Restructuring charges
    
    
    
    (28)
    
    
    
    (5)
    
    
    
    (3)
    
  
  
    
    
    
    Asset impairment
    
    
    
    (16)
    
    
    
    (1)
    
    
    
    -
    
  
  
    
    
    
    Gains (losses) from
    non-routine sales of assets, businesses and   
    
    
     
    
    
     
    
    
     
    
  
  
    
    
    
    investments
    
    
    
    (8)
    
    
    
    42
    
    
    
    1
    
  
  
    
    
    Tax adjustments
    
    -
    
    
    
    (46)
    
    
    
    (27)
    
  
  
    
    
    
    Novelis costs
    
    
    5
    
    
    
    -
    
    
    
    (24)
    
  
  
    
    
    
    Insurance recovery
    
    
    -
    
    
    
    -
    
    
    
    8
    
  
  
    
    
    
    Other
    
    
    
    (11)
    
    
    
    10
    
    
    
    7
    
  
  
    
    
    Other Specified Items
    
    
    
    (82)
    
    
    
    (8)
    
    
    
    (45)
    
  
  
    
     
    
    2004 amounts include Novelis but
    have been retroactively adjusted to reflect the reclassification of certain businesses as
    discontinued operations.
    
  


The principal
items included in OSIs in the second quarter were after-tax costs of $30 related
to the restructuring of certain Engineered Products facilities, principally in Europe,
after-tax costs of $23 associated with the Pechiney synergy program and
after-tax asset impairments of $16.  OSIs in the second
quarter of 2004 included a deferred tax charge of $46 related to a restructuring
of Pechiney's subsidiaries, a gain of $42 resulting from a dilution in the
Company's interest in an anode-producing joint venture in the Netherlands, $8 of
costs incurred to achieve synergy benefits related to the Pechiney and FlexPac
acquisitions, and a gain related to changes in a pension program in Brazil
(included in Other). The principal items included in OSIs in the first quarter
of 2005 were non-cash tax charges of $27 mainly related to 2005 restructurings
necessary to complete the spin-off of Novelis, expenses of $24 related to the
spin-off of Novelis, a favourable adjustment of $8 related to insurance claim
and synergy costs of $7. 

Income from
continuing operations for the second quarter of 2005 included after-tax
mark-to-market gains on derivatives of $0.06 per share as compared to a loss of
$0.08 per share a year earlier and a gain of $0.01 per share in the first
quarter of 2005. Results for the second quarter of 2005 included non-cash
pre-tax expenses of $5 for the stock options as compared to $2 in the year-ago
quarter and $5 in the first quarter of 2005.

Results from discontinued
operations in the second quarter of 2005 included the Pechiney
Électrométallurgie (PEM) ferroalloy business, which was sold in June 2005, as
well as the copper trading business and certain non-core Engineered Products
operations.  Collectively, discontinued operations recorded an after-tax loss of
$17 in the second quarter compared to an after-tax profit of $46 in the year-ago
quarter and an after tax profit of $10 in the first quarter of 2005.   The
decline in the second quarter mainly resulted from a loss on the sale of PEM.

-33-

Results for the
second quarter included incremental pre-tax synergy benefits of about $46 over the
year-ago quarter and $10 over the first quarter of 2005. The annualized
synergy run-rate at the end of the second quarter of 2005 was $270, well on
track to reach the total target of $360 by year end.

The term
"Business Group Profit" (BGP) is defined under "Definitions" at the end
of the MD&A. 

 

 
    
    
    
    Second Quarter
    
    
    
    Six Months
    
    
    First Quarter
  
  
    
     
    
    
    
    2005
    
    
    2004
    
    
    
    2005
    
    
    2004
    
    
    2005
  
  
    
    Business Group
    Profit (BGP)
    
    
     
    
     
    
     
    
     
    
     
  
  
    
     
    
    Bauxite and Alumina
    
    
    
    
    
    111
    
    
    126
    
    
    
    208
    
    
    214
    
    
    97
  
  
    
     
    
    Primary Metal 
    
    
    
    425
    
    
    436
    
    
    
    856
    
    
    814
    
    
    431
  
  
    
     
    
    Engineered Products *
    
    
    
    101
    
    
    106
    
    
    
    216
    
    
    210
    
    
    115
  
  
    
     
    
    Packaging 
    
    
    
    177
    
    
    168
    
    
    
    331
    
    
    336
    
    
    154
  
  
    
     
    
    Equity accounted joint
    venture eliminations
    
    
       (77)
    
    
    (52)
    
    (151)
    
    (105)
    
    
    (74)
  
  
    
     
    
    Change in fair market
    value of derivatives
    
    
    
    33
    
    
    (12)
    
    
    
    30
    
    (12)
    
    
    (3)
  
  
    
     
    
         Subtotal
    
    
    
    770
    
    
    772
    
    
    
    1,490
    
    
    1,457
    
    
    720
  
  
    
     
    
    Novelis entities
    
    
    
    -
    
    
    175
    
    
    
    -
    
    
    342
    
    
    -
  
  
    
      
    
    
    
    770
    
    
    947
    
    
    
    1,490
    
    
    1,799
    
    
    720
  
  
    
    Corporate Items 
    
    
    
     
    
    
     
    
     
    
     
    
     
  
  
    
     
    
    Intersegment, corporate
    offices and other
    
    
    (161)
    
    
    (134)
    
    (246)
    
    (392)
    
    
    (85)
  
  
    
     
    
    Depreciation &
    amortization 
    
    
    (268)
    
    
    (324)
    
    (540)
    
    (660)
    
    
    (272)
  
  
    
     
    
    Interest 
    
    
    (90)
    
    
    (87)
    
    (175)
    
    (180)
    
    
    (85)
  
  
    
     
    
    Income taxes 
    
    
    (70)
    
    
    (125)
    
    (168)
    
    (166)
    
    
    (98)
  
  
    
     
    
    Equity income 
    
    
    
    28
    
    
    17
    
    
    
    57
    
    
    33
    
    
    29
  
  
    
     
    
    Minority interests 
    
    (1)
    
    
    (9)
    
    (2)
    
    (15)
    
    
    (1)
  
  
    
    Income from
    continuing operations
    
    
    
    208
    
    
    285
    
    
    
    416
    
    
    419
    
    
    208
  
  
    
     

2004 amounts have been retroactively adjusted
    to reflect the reclassification of certain businesses as discontinued
    operations and the impact of the Novelis spin-off completed on 6 January
    2005. 

*BGP for the second quarter of 2005 includes
    restructuring charges of $30.
  


Bauxite and
Alumina:
BGP for the second quarter was $111, a reduction of $15 from the year-ago
quarter.  While the group benefited from the year-over-year increase in
LME-linked contract prices for alumina, this was more than offset by higher
costs for energy, maritime freight and caustic soda, the impact of the stronger
Australian and Canadian dollars and the loss of a favourable alumina contract
due to the sale of Aluminium de Grèce in March 2005.  On a sequential quarter
basis, BGP increased $14 due to higher shipment volumes and contract prices for
alumina and increased bauxite sales, partially offset by higher costs for energy
and caustic soda.  Group results for the third quarter are expected to be below
second quarter levels due to lower LME-linked contract prices for alumina, which
typically lag LME price changes by one quarter, and rising cost pressure from
energy and caustic soda.

-34-

Primary Metal:
BGP for the second quarter was $425, a decrease of $11 from the year-ago
quarter.  Benefits from higher LME prices and market premia, as well as improved
product mix and synergies, were more than offset by the impact of the weaker
U.S. dollar, higher energy and raw materials costs, as well as lower sales of
smelter equipment. On a sequential quarter basis, BGP declined by $6 as benefits
from increased shipments were more than offset by higher raw material prices,
including energy, and a weaker sales mix, reflecting softer market conditions
for value added products.  The 300-kt/y expansion at the 40%-owned Alouette
smelter in Quebec reached full capacity in June, three months ahead of
schedule.  While the group will benefit in the third quarter from additional
production at Alouette, results are expected to be lower than in the second
quarter due mainly to reduced market premia in North America combined with
higher costs for maintenance and freight.

Engineered
Products:
BGP was
$101 in the second quarter, which included $30 of charges principally related to
the restructuring of the Sierre and Singen facilities in Switzerland. Excluding
these charges, BGP reached a record $131 in the second quarter, which
represented a 24% increase over the year-ago
second quarter and a 14% increase over the first quarter of 2005.
 Higher
aerospace volumes, an improved sales mix in specialty sheet, synergy benefits
from the Pechiney acquisition and favourable market conditions for composites
and cable more than offset the adverse impact of higher raw material costs on
both a year-over-year and sequential quarter basis.  Results for the
third quarter are expected to be below the second quarter level of $101 due
to normal seasonality in Europe.

Packaging:
BGP was $177 in the second quarter, $9 higher than in the year-ago quarter and a
new record for the group.  Results and margins improved in the quarter mainly
reflecting successful efforts to pass through raw material cost increases in
product pricing, as well as benefits from synergy capture and cost initiatives,
volume increases in the Americas and Asia and favourable currency translation
effects.  On a sequential quarter basis, BGP was up $23, or 15%, reflecting a
seasonal pick-up in demand, cost improvements and the continuing recovery of
earlier raw material cost increases.   Results for the third quarter are
expected to be below second quarter levels due to normal seasonality in
Europe. 

The Intersegment, corporate
offices and other expense category includes the elimination of profits on
intersegment sales of aluminum, corporate head office costs as well as other
non-operating items. In the second quarter of 2005, OSIs of $90 pre-tax were
included in this expense category.

Depreciation and amortization
expenses, at $268, were $56 lower than in the year-ago quarter primarily
reflecting the impact of the rolled products business spin-off. 

Interest expense was $90 in the
second quarter compared to $87 in the prior-year quarter and $85 in the first
quarter of 2005.  The year-over-year increase is a result of increased interest
rates and an extended maturity profile which more than offset the benefit of
reduced debt levels.  Besides increased interest rates and an extended maturity
profile, the sequential increase has also been driven by higher debt levels.

Investments in entities over which
Alcan has significant influence but not control are accounted for using the
equity method.  Equity income was $28 in the second quarter, $11 higher than in
the year-ago quarter, and little changed from the first quarter of 2005.  The
year-over-year increase mainly reflects mark-to-market impacts on derivatives as
well as a contribution from the Alcan Ningxia joint venture in China. 

The Company's effective tax rate
on income from continuing operations was 28% in the second quarter and 32% year
to date.  The lower effective tax rate in the second quarter resulted from
balance sheet translation effects due to a further weakening of the Canadian
dollar in the first half of 2005.  In the first quarter, the effective tax rate was 35%, which reflected
the impact of non-cash tax charges in the first half of 2005 offset in part by translation effects.

-35-

Operating
Activities

Cash from operating activities in
continuing operations was $242 in the second quarter of 2005 compared to $428 a
year earlier. The reduced level of cash from operating activities reflects lower
income from continuing operations and increased working capital. After dividends
of $62 and capital expenditures of $453, free cash flow from continuing
operations was negative $273 for the second quarter of 2005.  The term "Free
cash flow" is defined under "Definitions" at the end of Management's Discussion
and Analysis. In the year-ago quarter, after dividends of $58 and capital
expenditures of $265, free cash flow from continuing operations was $105.  The
year-over-year increase in capital spending was mainly due to the expansion of
the Gove alumina refinery in Australia. 

Financing
Activities

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

On May 31, 2005, the Company
issued $500 of 5.00% Notes due in 2015 and $300 of 5.75% Notes due in 2035.  The
net proceeds of these offerings were used to repay outstanding commercial paper
debt.

Debt as a percentage of invested
capital as at 30 June 2005 was 40%, unchanged from the end of the first
quarter-end and down from 46% at the end of the prior-year quarter. 

Debt as a
Percentage of Invested Capital

 

 
    
    
    
    30 June
    
    
    31 March
  
  
    
    
    
    2005
    
    
    2004
    
    
    2005
  
  
    
    Debt
    
    
    
     
    
    
     
    
    
     
  
  
    
    
    Short-term
    borrowings
    
    
    
    339
    
    
    864
    
    
    354
  
  
    
    
    Debt
    maturing within one year
    
    
    
    854
    
    
    445
    
    
    409
  
  
    
    
    Debt not
    maturing within one year
    
    
    
    5,630
    
    
    7,879
    
    
    5,971
  
  
    
    
    Debt of
    operations held for sale
    
    
    
    1
    
    
    15
    
    
    18
  
  
    
    Total debt
    
    
    
    
    6,824
    
    
    9,203
    
    
    6,752
  
  
    
    Equity
    
    
    
    
     
    
    
     
    
    
     
  
  
    
    
    Minority
    interests
    
    
    
    91
    
    
    222
    
    
    96
  
  
    
    
    Redeemable
    non-retractable preference shares
    
    
    
    160
    
    
    160
    
    
    160
  
  
    
    
    Common
    shareholders' equity
    
    
    
    9,969
    
    
    10,337
    
    
    10,067
  
  
    
    Total equity
    
    
    
    
    10,220
    
    
    10,719
    
    
    10,323
  
  
    
    
    
    Total
    invested capital
    
    
    
    17,044
    
    
    19,922
    
    
    17,075
  
  
    
    
    
    Debt as a
    percent of invested capital (%)
    
    
    
    40%
    
    
    46%
    
    
    40%
  


 

Investment
Activities

Capital expenditures during the second quarter of 2005 were $453 compared to
$265 a year earlier. Capital expenditures were higher in the current year's
quarter as a result of the spending on the Gove alumina refinery expansion.
Capital
expenditures for the Gove alumina refinery expansion were $246 for the quarter
and $379 year to date.
Capital expenditures for the full year are expected to be above depreciation
expense.

Liquidity

Alcan has access to $3.1 billion of committed credit facilities, which are used
primarily to support Alcan's commercial paper programs.  As at the date of this
report, 9 August 2005, Alcan has $1.4
billion of commercial paper outstanding, and as a result, the unused portion of
the credit facilities was $1.7
billion. The Company believes that the cash from continuing operations together
with available credit facilities will be more than sufficient to meet the cash
requirements of operations, planned capital expenditures, dividends and any
short-term debt refinancing requirements. In addition, the Company believes that
its ability to access global capital markets, considering its investment grade
credit rating, provides any additional liquidity that may be required to meet
unforeseen events. In the second quarter of 2005, Standard & Poor's Rating
Services downgraded its rating on Alcan's long-term debt to BBB+ from A- with
"Stable" outlook and maintained its rating on short-term debt at A2.  Ratings
from Moody's Investors Services were unchanged at Baa1 and P2, respectively with
a ''Stable'' outlook. 

-36-

Contractual
Obligations 

The Company has future obligations under various contracts relating to debt
payments, capital and operating leases, long-term purchase arrangements,
pensions and other post-employment benefits, and guarantees.  The table below
provides a summary of these contractual obligations (based on undiscounted
future cash flows) as at 30 June 2005.  There are no material off-balance sheet
arrangements other than the sale of receivables securitization program described
in Note 13 to the Consolidated Financial Statements. 

 
    
    
    Payments due by period
    
  
  
    
    
     
    
    
    
    Total
    
    
    Less than 1
    year
    
    
    1 - 3 years
    
    
    3 - 5 years
    
    
    More than 5
    years
  
  
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
    
    
     
  
  
    
    
    Long-term
    debt (1)
    
    
    6,484
    
    
    854
    
    
    97
    
    
    1,450
    
    
    4,083
  
  
    
    
    Capital
    lease obligations
    
    
    19
    
    
    2
    
    
    6
    
    
    3
    
    
    8
  
  
    
    
    Operating
    leases
    
    
    350
    
    
    47
    
    
    146
    
    
    70
    
    
    87
  
  
    
    
    Purchase
    obligations  
    
    
    6,410
    
    
    973
    
    
    831
    
    
    739
    
    
    3,867
  
  
    
    
    Unfunded
    pension plans (3)
    
    
    2,224
    
    
    65
    
    
    131
    
    
    134
    
    
    1,894
  
  
    
    
    Other
    post-employment benefits (3)
    
    
    2,322
    
    
    64
    
    
    130
    
    
    142
    
    
    1,986
  
  
    
    
    Funded
    pension plans (3) (4)
    
    
    (4)
    
    
    189
    
    
    384
    
    
    396
    
    
    (4)
  
  
    
    
    Guarantees
    (2)
    
    
    134
    
    
    70
    
    
    64
    
    
    -
    
    
    -
  
  
    
    Total
    
    
    
     
    
    
    
    2,264
    
    
    
    1,789
    
    
    
    2,934
    
    
     
  



(1) 
Refer
to note 10, Long-Term Debt, of the accompanying financial statements.

(2) 
Refer
to note 15, Commitments and Contingencies, of the accompanying financial
statements.

(3) 
Refer
to note
18,
Post-Retirement Benefits, of the accompanying financial statements.

(4)
Pension
funding generally includes the contribution required to finance the annual
service cost, except where the plan is largely overfunded, and amortization of
unfunded liabilities over periods of 15 years, with larger payments made over
the initial period where required by pension legislation.  Contributions depend
on actual returns on pension assets and on deviations from other economic and
demographic actuarial assumptions.  Based on management's long-term expected
return on assets, annual contributions for years after 2009 are projected to be
in the same range as in prior years and to grow in relation with payroll.

 

Selected Annual Information 

Selected unaudited financial data for each of the Company's three most
    recently completed financial years is as follows:
  
  
    
    
    

     
    
    
    31 December
  
  
    
    
    

     
    
    
    

    2004
    
    
    

    2003
    
    
    

    2002
  
  
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Sales and operating revenues
    
    

    24,948  
    
    

    13,850  
    
    

    12,483
  
  
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Income from continuing operations
    
    

    243
    
    

    262  
    
    

    421  
  
  
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Net income (Loss)
    
    

    258
    
    

    64  
    
    

    (348)
  
  
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Total assets
    
    

    33,341
    
    

    31,948  
    
    

    17,761  
  
  
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Total long-term debt
    
    

    6,914  
    
    

    7,778  
    
    

    3,369
  
  
    
    
    

    ($ per common share)
    
    

     
    
    

     
    
    

     
  
  
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Income from continuing operations per share - basic and diluted
    
    

     

0.64  
    
    

     

0.79  
    
    

    1.29
  
  
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Net income (Loss) per share - basic and diluted
    
    

    0.69  
    
    

    0.18  
    
    

    (1.10)
  
  
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Dividends per common share
    
    

    0.60  
    
    

    0.60  
    
    

    0.60  
  

















-37-

Selected unaudited financial data for each of the Company's eight most recently
completed quarters is as follows: 

 
    
    
    

    Q2-05
    
    
    

    Q1-05
    
    
    

    Q4-04
    
    
    

    Q3-04
    
    
    

    Q2-04
    
    
    

    Q1-04
    
    
    

    Q4-03
    
    
    

    Q3-03
  
  
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Sales and operating revenues
    
    

    5,206
    
    

    5,178
    
    

    6,536
    
    

    6,184
    
    

    6,208
    
    

    6,020
    
    

    3,567
    
    

    3,529
  
  
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Income (Loss) from continuing operations
    
    

    208
    
    

    208
    
    

    (347)
    
    

    171
    
    

    285
    
    

    134
    
    

    115
    
    

       108  
  
  
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Net income (Loss)
    
    

    191
    
    

    218
    
    

    (346)
    
    

    167
    
    

    331
    
    

    106
    
    

    96
    
    

    87
  
  
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    ($ per common share)
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Income (Loss) from continuing operations per share - basic
    
    

    0.56
    
    

    0.56
    
    

    (0.95)
    
    

     

0.46
    
    

     

0.77
    
    

     

0.36
    
    

     

0.36
    
    

     

0.32
  
  
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Income (Loss) from continuing operations per share - diluted
    
    

    0.56
    
    

    0.56
    
    

    (0.94)
    
    

     

0.46
    
    

     

0.77
    
    

     

0.36
    
    

     

0.36
    
    

     

0.32
  
  
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Net income (Loss) per share - basic
    
    

    0.52
    
    

    0.58
    
    

    (0.94)
    
    

    0.45
    
    

    0.89
    
    

    0.29
    
    

    0.30
    
    

    0.26
  
  
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

    Net income (Loss) per share - diluted
    
    

    0.52
    
    

    0.58
    
    

    (0.94)
    
    

    0.45
    
    

    0.89
    
    

    0.28
    
    

    0.30
    
    

    0.26
  


Commitments and Contingencies

The Company's commitments and contingencies are
described in note 15 to the Consolidated Financial Statements.

The only related party transactions are those with
the joint ventures accounted for under the equity method.  These
transactions are undertaken on an arm's length, negotiated basis. For more
details, refer to note 13 to the Consolidated Financial Statements in the most
recent Annual Report on Form 10-K.

The preparation of financial
statements in conformity with GAAP in Canada and the United States requires
management to make estimates, judgements and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. The most significant
estimates are associated with the critical accounting policies relating to
post-retirement benefits; environmental liabilities; property, plant and
equipment; goodwill; income taxes; and business combinations.  These critical
accounting policies are those that are both most important to the portrayal of
the Company's financial condition and results and require management's most
difficult, subjective or complex judgements, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain.

The Company's
critical accounting policies are more fully described in note 3 to the
Consolidated Financial Statements and Management's Discussion and Analysis,
contained in the most recent Form 10-K.

-38-

Comparison of
Canadian and U.S. GAAP

A reconciliation of Alcan's Consolidated
Statement of Income and Consolidated Balance Sheet between U.S. GAAP and
Canadian GAAP is contained in Note 20 of the financial statements.  The impact
of material differences is discussed below.

 
    
    
    

    Second Quarter
    
    

    Second Quarter
    
    
    

    Six Months
    
    

    Six Months
  
  
    
    

    GAAP
    
    
    

    2005
    
    

    2004
    
    
    

    June 30, 2005
    
    

    June 30, 2004
  
  
    
    

    ($ per common share)
    
    
    

    Cdn
    
    
    

    U.S.
    
    

    Cdn
    
    

    U.S.
    
    
    

    Cdn
    
    
    

    U.S.
    
    

    Cdn
    
    

    U.S.
  
  
    
    

    Income from continuing operations  
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
    
    

     
  
  
    
    

        per share - basic
    
    

         0.55
    
    

         0.56
    
    

         0.78
    
    

         0.77
    
    

         1.10
    
    

         1.11
    
    

         1.16
    
    

         1.13
  
  
    
    

    Net income per share - basic
    
    

         0.51
    
    

         0.52
    
    

         0.90
    
    

         0.89
    
    

         1.08
    
    

         1.09
    
    

         1.21
    
    

         1.18
  


Net income per common share under
Canadian GAAP was $0.51
and $1.08
compared to $0.52 and $1.09 under U.S. GAAP for the second quarter and six
months ended June 30, 2005, respectively.  The difference relates principally to
accounting for derivatives. For the second quarter and six months ended June 30,
2004, net income per common share under Canadian GAAP was $0.90
and $1.21,
respectively, compared to $0.89 and $1.18, respectively, under U.S. GAAP.  The
principal reason for the difference was derivatives.  The differences in net
income had no material impact on the discussion of results of operations for the
periods presented.

The major
ongoing difference between U.S. GAAP and Canadian GAAP deals with the accounting
for joint ventures.  Under U.S. GAAP, joint ventures, other than those over
which Alcan has an undivided interest in the assets, are accounted for using the
equity method while under Canadian GAAP, joint ventures are accounted for using
the proportionate consolidation method.  This different accounting treatment
affects only the display and classification of financial statement items and has
no impact on net income or shareholders' equity.    This difference had no
material impact on the discussion of the results of operations.   The major
impact of the difference in accounting treatment on the balance sheet was to
increase operating working capital from continuing operations at June 30, 2005
by $80
($30 at December 31, 2004) under Canadian GAAP compared to U.S. GAAP.  Under
Canadian GAAP, net property, plant and equipment at June 30, 2005 was $833
higher than under U.S. GAAP ($1,179
at December 31, 2004). Under Canadian GAAP, goodwill was higher by $685
at June 30, 2005 ($837
at December 31, 2004).  Under Canadian GAAP, deferred charges and other assets
(which include investments accounted for under the equity method) were $1,319
lower ($1,618
at December 31, 2004) as compared to U.S. GAAP.

Debt as a
percentage of invested capital as at June 30, 2005 and December 31, 2004 was the
same under Canadian GAAP as under U.S. GAAP.  For the second quarter and six
months ended June 30, 2005, interest expense under Canadian GAAP was higher than
under U.S. GAAP by $4
and $8,
respectively (2004:  $3
and $6). 

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

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

The impact of
the different accounting treatments for derivatives was to decrease net income
under Canadian GAAP by $3
and $5, respectively, for the second quarter and six months ended June 30, 2005
(increase of $5
and $13,
respectively, to net income for the second quarter and six months ended June 30,
2004).  This difference had no material impact on the discussion of results for
the periods presented.

In addition,
because Canadian GAAP does not have the concept of Other Comprehensive Income,
certain amounts related to cash flow hedges classified in shareholders' equity
on the balance sheet under U.S. GAAP were reclassified to various asset and
liability accounts under Canadian GAAP.

-39-

Canadian GAAP
does not require the recognition of a minimum pension liability if the
accumulated benefit obligation exceeds the market value of plan assets.   This
difference had no impact on net income but did result in shareholders' equity
under Canadian GAAP being higher by $522 at June 30, 2005 ($550
at December 31, 2004).  At June 30, 2005, total assets were lower by $244
($253 at December 31, 2004) and total pension liabilities were lower by $975
($1,036 December 31, 2004) under Canadian GAAP.

Cautionary
Statement

Statements made in this
quarterly report which describe the Company's or management's objectives,
projections, estimates, expectations or predictions of the future may be
"forward-looking statements" within the meaning of securities laws, which can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "estimates," "anticipates" or the negative
thereof or other variations thereon.  The Company cautions that, by their
nature, forward-looking statements involve risk and uncertainty and that the
Company's actual actions or results could differ materially from those expressed
or implied in such forward-looking statements or could affect the extent to
which a particular projection is realized.  Important factors which could cause
such differences include global supply and demand conditions for aluminum and
other products, aluminum ingot prices and changes in raw materials' costs and
availability, changes in the relative value of various currencies, cyclical
demand and pricing within the principal markets for the Company's products,
changes in government regulations, particularly those affecting environmental,
health or safety compliance, economic developments, relationships with and
financial and operating conditions of customers and suppliers, the effects of
integrating acquired businesses and the ability to attain expected benefits and
other factors within the countries in which the Company operates or sells its
products and other factors relating to the Company's ongoing operations
including, but not limited to, litigation, labour negotiations and fiscal
regimes.

Alcan undertakes no
obligation to release publicly the results of any future revisions it may make
to forward-looking statements to reflect events or circumstances after the date
of this report or to reflect the occurrence of unanticipated events.

''$'' all amounts are in U.S. dollars.

"Business Group
Profit" (BGP) comprises earnings before interest, income taxes, minority
interests, depreciation and amortization and excludes certain items, such as
corporate costs, restructuring costs (relating to major corporate-wide
acquisitions or initiatives), impairment and other special charges, and pension
actuarial gains, losses and other adjustments, that are not under the control of
the business groups or are not considered in the measurement of their
profitability.  These items are generally managed by the Company's corporate
head office, which focuses on strategy development and oversees governance,
policy, legal, compliance, human resources and finance matters. Financial information for individual
business groups includes the results of certain joint ventures and other equity-accounted investments on a
proportionately consolidated basis, which is consistent with the way the
business groups are managed.  However, the BGP of these joint ventures and
equity-accounted investments is removed from total BGP for the Company and the
net after-tax results are reported as equity income. The change in
the fair market value of derivatives has been removed from individual business
group results and is shown on a separate line within total BGP.  This
presentation provides a more accurate portrayal of underlying business group
results and is in line with the Company's portfolio approach to risk
management. 

"Debt as a
percentage of invested capital" does not have a uniform definition. Because
other issuers may calculate debt as a percentage of invested capital
differently, Alcan's calculation may not be comparable to other companies'
calculations. The reconciliation presented earlier explains the calculation. The
figure is calculated by dividing borrowings by total invested capital. Total
invested capital is equal to the sum of borrowings and equity, including
minority interests. The Company believes that debt as a percentage of invested
capital can be a useful measure of its financial leverage as it indicates the
extent to which it is financed by debt holders. The measure is widely used by
the investment community and credit rating agencies to assess the relative
amounts of capital put at risk by debt holders and equity investors.

"Derivatives"
including forward contracts, swaps and options are financial instruments used by
the Company to manage the specific risks arising from fluctuations in exchange
rates, interest rates, aluminum prices and other commodity prices. 
Mark-to-market gains and losses on derivatives will be offset over time by gains
and losses on the underlying exposures.

-40-

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

"Free cash flow" consists of cash from
operating activities in continuing operations less capital expenditures and
dividends. Management believes that free cash flow, for which there is no
comparable GAAP measure, is relevant to investors as
it provides an indication of the cash generated internally that is available for
investment opportunities and debt service.

"GAAP" refers Generally Accepted Accounting
Principles.

"Other
Specified Items" (OSIs) include, for example: restructuring and synergy charges; asset
impairment charges; gains and losses on non-routine sales of assets, businesses
or investments; unusual gains and losses from legal claims and environmental
matters; gains and losses on the redemption of debt; income tax reassessments
related to prior years and the effects of changes in income tax rates; and other
items that, in Alcan's view, do not typify normal operating activities.

"Synergy
run-rate" is the annualized rate of savings resulting from actions taken to
date.

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

All figures are
unaudited.

Additional
information on Alcan is available on the Company's website at www.alcan.com and
the Company's regulatory filings can be viewed on the Canadian Securities
Administrators' site at www.sedar.com and on the U.S. Securities and Exchange
Commission's site at www.sec.gov.  All website addresses contained in this
report are textual references and information from referenced websites is not
incorporated by reference into this report. 

The number of
common shares outstanding as at 8 August 2005 is 370,246,490.  

-41-

Item 3. 
  Quantitative and Qualitative Disclosures about Market Risk

(in millions of US$, except LME prices)

Changes in
  interest rates, foreign exchange rates and the market price of aluminum are
  among the factors that can impact the Company's cash flow.  See risk factors
  on page 4 of the Company's annual report on Form 10-K for the year ended
  December 31, 2004.

The impact of a 10% increase in interest rates
  on the Company's variable rate debt outstanding at June 30, 2005 net of its
  invested surplus cash and time deposits at June 30, 2005 would be to reduce
  net income for a 12-month period by $3.  The fixed rate debt will be held to
  maturity and the Company does not intend to refinance its fixed rate debt
  prior to maturity.  Transactions in interest rate financial instruments for
  which there is no underlying interest rate exposure to the Company are
  prohibited.  For accounting policies for interest rate swaps used to hedge
  interest costs on certain debt, see note 3 - Summary of Significant Accounting
  Policies on page 61 of the Company's annual report.

 The schedule below presents fair value
  information and contract terms relevant to determining future cash flows
  categorized by expected maturity dates of the Company's currency derivatives
  (principally forward and option contracts) outstanding as at June 30, 2005.

 
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
        
        Total
        
        
         
      
      
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
        
        Nominal
        
        
        
        Fair
      
      
        
        
        
        (In US$ millions,
        except contract rates)
        
        
        
        2005
        
        
        
        2006
        
        
        
        2007
        
        
        
        2008
        
        
        
        2009
        
        
        
        2010
        
        
        
        Amount
        
        
        
        Value
      

    
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      
      FORWARD CONTRACTS
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      
      To
      purchase USD against the foreign currency
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      
       
      
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      GBP
      
      
      Nominal
      amount
      
      
      28
      
      
      6
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      34
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.556
      
      
      0.571
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      CHF
      
      
      Nominal
      amount
      
      
      13
      
      
      15
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      28
      
      
      1
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.228
      
      
      1.239
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      JPY
      
      
      Nominal
      amount
      
      
      4
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      4
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      108.4
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      Other
      
      
      Nominal
      amount
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1
      
      
      -
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      To sell USD against the foreign currency
      
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
    
    
      
      
      
       
      
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      GBP
      
      
      Nominal
      amount
      
      
      54
      
      
      3
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      57
      
      
      (2)
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.539
      
      
      0.540
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      CHF
      
      
      Nominal
      amount
      
      
      5
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      6
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.201
      
      
      1.313
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      AUD
      
      
      Nominal
      amount
      
      
      110
      
      
      205
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      315
      
      
      2
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.741
      
      
      0.751
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      Other
      
      
      Nominal
      amount
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1
      
      
      -
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      To sell EUR against the foreign currency
      
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
    
    
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
       
    
    
      
      
      USD
      
      
      Nominal
      amount
      
      
      380
      
      
      1,277
      
      
      24
      
      
      10
      
      
      -
      
      
      -
      
      
      1,691
      
      
      (28)
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.246
      
      
      1.198
      
      
      1.222
      
      
      1.088
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      GBP
      
      
      Nominal
      amount
      
      
      8
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      8
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.708
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      CHF
      
      
      Nominal
      amount
      
      
      24
      
      
      20
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      44
      
      
      (1)
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.521
      
      
      1.495
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
  

  
  -42-

 
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
        
        Total
        
        
         
      
      
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
         
        
        
        
        Nominal
        
        
        
        Fair
      
      
        
        
        
        (In US$ millions,
        except contract rates)
        
        
        
        2005
        
        
        
        2006
        
        
        
        2007
        
        
        
        2008
        
        
        
        2009
        
        
        
        2010
        
        
        
        Amount
        
        
        
        Value
      

    
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      CZK
      
      
      Nominal
      amount
      
      
      6
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      6
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      30.05
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      ZAR
      
      
      Nominal
      amount
      
      
      2
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      3
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      8.103
      
      
      8.043
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      Other
      
      
      Nominal
      amount
      
      
      2
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      2
      
      
      -
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      To buy EUR against the foreign currency
      
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
      
      
      
       
    
    
      
      
      
       
      
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      USD
      
      
      Nominal
      amount
      
      
      251
      
      
      59
      
      
      21
      
      
      -
      
      
      -
      
      
      -
      
      
      331
      
      
      8
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.205
      
      
      1.090
      
      
      1.201
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      GBP
      
      
      Nominal
      amount
      
      
      25
      
      
      9
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      34
      
      
      (2)
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.700
      
      
      0.715
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      CHF
      
      
      Nominal
      amount
      
      
      2
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      2
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.524
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      AUD
      
      
      Nominal
      amount
      
      
      7
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      7
      
      
      (1)
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.759
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      JPY
      
      
      Nominal
      amount
      
      
      5
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      5
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      134.3
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      Other
      
      
      Nominal
      amount
      
      
      4
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      5
      
      
      -
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      
      To buy CHF
      against the foreign currency
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      AUD
      
      
      Nominal
      amount
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      1.107
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      JPY
      
      
      Nominal
      amount
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      85.96
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      DKK
      
      
      Nominal
      amount
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.206
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      
      To sell
      CHF against the foreign currency
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      Other
      
      
      Nominal
      amount
      
      
      1
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      1
      
      
      -
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      OPTIONS
      
      
       
      
       
      
       
      
       
      
       
      
       
    
    
      
      
      To buy USD against
      the foreign currency
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      EUR
      
      
      Nominal amount
      
      
      48
      
      
      18
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      66
      
      
      (2)
    
    
      
      
       
      
      
      Average contract rate
      
      
      0.800
      
      
      0.800
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      To sell USD against
      the foreign currency
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      
       
      
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      EUR
      
      
      Nominal
      amount
      
      
      50
      
      
      137
      
      
      20
      
      
      -
      
      
      -
      
      
      -
      
      
      207
      
      
      6
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.863
      
      
      0.759
      
      
      0.758
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
    
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
      
      
       
    
    
      
      
      GBP
      
      
      Nominal
      amount
      
      
      2
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      2
      
      
      -
    
    
      
      
       
      
      
      Average
      contract rate
      
      
      0.585
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
       
      
      
       
    
  
   -43-

Any negative impact of currency movements on
  the currency contracts that the Company has entered into to hedge identifiable
  foreign currency commitments to purchase or sell goods and services, would be
  offset by an equal and opposite favourable exchange impact on the commitments
  being hedged.  Transactions in currency related financial instruments for
  which there is no underlying foreign currency exchange rate exposure to the
  Company are prohibited.  For accounting policies relating to currency
  contracts, see note 3 - Summary of Significant Accounting Policies on page 61
  of the Company's annual report.

The effect of
  a reduction of 10% in aluminum prices on the Company's aluminum forward and
  options contracts outstanding at June 30, 2005 would be to increase net income
  over the period ending December 31, 2007 by approximately $88 ($45 in 2005,
  $37 in 2006 and $6 in 2007).  These results reflect a 10% reduction from the
  June 30, 2005, three-month LME aluminum closing price of $1,720 per tonne and
  assume an equal 10% drop has occurred throughout the aluminum forward price
  curve existing as at June 30, 2005.  The Company's aluminum forward contract
  positions, producing the above results, are entered into to hedge anticipated
  future sales of metal. Consequently, any
  negative impact of movements in the price of aluminum on the forward contracts
  would be offset by an equal and opposite impact on the sales
  being hedged.

Transactions
  in metal-related financial instruments for which there is no underlying metal
  price exposure to the Company are prohibited, except for a small trading
  portfolio of metal forwards not exceeding 25,000 tonnes, which is
  marked-to-market. 

-44-

Item 4.   
  Controls and Procedures

a)           Evaluation of Disclosure Controls and Procedures

As at June
  30, 2005, an evaluation was carried out under the supervision and with the
  participation of the Company's management, including its Chief Executive
  Officer and Chief Financial Officer, of the effectiveness of the design and
  operation of our disclosure controls and procedures (as defined in Rules
  13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).  Based
  upon that evaluation, the Chief Executive Officer and Chief Financial Officer
  concluded that the design and operation of these disclosure controls and
  procedures were effective.

b)           Changes in Internal Control Over Financial Reporting 

Except as
  otherwise discussed herein, there have been no changes in the Company's
  internal control over financial reporting during the quarter ended June 30,
  2005 that have materially affected, or are reasonably likely to materially
  affect, the Company's internal control over financial reporting. The Company
  will assess the effectiveness of its internal control over financial reporting
  in its Annual Report on Form 10-K for 2005.

During the
  second quarter of 2005, a new financial aluminum trading software system was
  implemented, with consequent resulting changes to the Company's internal
  control over financial reporting in relation to aluminum trading operations.
  -45-
  

  PART II.  OTHER INFORMATION

Item 1.      Legal Proceedings

Pohatcong
  Valley Site. 
  As previously reported, the U.S. Department of the Interior notified Pechiney
  Plastic Packaging Inc. ("PPPI" - a subsidiary of the Company) on November 19,
  1999 that it wanted to geophysically log certain wells at the Washington, New
  Jersey facility as it sought to identify possible contributors of a specific
  contaminant -

  trichloroethylene
  (''TCE'') - to the Pohatcong Valley Superfund Site. This matter involves both
  an on-site remediation of the Washington Plant, New Jersey, which is near
  completion and the Pohatcong Valley Superfund Site, which is in the early
  stages of investigation. 

PPPI had been
  advised that the geophysical logging process had occurred and in 2001, the
  United States Environmental Protection Agency (USEPA) carried out certain
  minor additional investigations at the plant site. 

PPPI has
  performed an on-site remediation at the Washington plant and had received a
  "no further action" letter from the State of New Jersey for certain areas and
  an approval letter dated June 12, 2002 from the State for certain additional
  work.

In June 2004
  PPPI received a demand letter from the USEPA naming PPPI as a potentially
  responsible party.  The USEPA has also made two supplemental requests for
  information, to which PPPI has responded.

In June 2005, the USEPA issued a remedial investigation and groundwater
  contamination report.  On July 27, 2005, the USEPA
  publicly issued a draft plan with proposed remedial alternatives.  PPPI
  is continuing to discuss the matter with the USEPA and is awaiting the USEPA's
  record of decision in relation to its report.

Other information called for by this Item is incorporated by reference to the
  first paragraph of Note 15 of Item 1, Part I of this quarterly report on Form
  10-Q.

Items 2., 3.
  and 5.

The registrant has nothing
  to report under these items. 

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

Information called for by this item with respect to the Annual Meeting of the
  Shareholders of the Company held on April 28, 2005 is incorporated by
  reference to Part II, Item 4 of the Company's quarterly report on Form 10-Q
  for the quarter ended March 31, 2005. 

Item 6.      Exhibits

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

 

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

 

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

 

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

  

   

  -46-

  SIGNATURE

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

 

                                                                                   
  ALCAN INC.

 

Dated: 9 August 2005                                                     By:
  /s/  Thomas J. Harrington              

                                                                                           Thomas J. Harrington

                                                                                           Vice President and Controller

                                                                                           (A Duly Authorized Officer)

-47-

EXHIBIT INDEX

Exhibit

Number                                                                  
  Description

 

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

 

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

 

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

 

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












-48-

 

- liabilities of the Company
  other than those of an entity forming part of Novelis or otherwise assumed by
  Novelis pursuant to its separation agreement with Novelis;
- any liability of the
  Company or its subsidiaries, other than Novelis, retained by Alcan under the
  separation agreement; and
- any breach by the Company
  of its separation agreement with Novelis or any of its ancillary agreements
  with Novelis.

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

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---

---

---

---

---

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---

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

|   | Second Quarter | Six Months |
| --- | --- | --- |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">Periods ended
    June 30 | 2005 | 2004 | 2005 | 2004 |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">(in millions
    of US$, except per share amounts) | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      |
| Sales and operating revenues | 5,206 | 6,208 | 10,384 | 12,228 |
|   |   |   |   |   |
| Costs and expenses |   |   |   |   |
| Cost of sales and operating
    expenses, excluding depreciation |   |   |   |   |
| <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    and amortization noted below | 4,130 | 4,918 | 8,220 | 9,890 |
| Depreciation and amortization | 268 | 324 | 540 | 660 |
| Selling, administrative and
    general expenses | 345 | 365 | 725 | 761 |
| Research and development
    expenses | 49 | 58 | 98 | 119 |
| Interest | 90 | 87 | 175 | 180 |
| Other expenses (income) - net
    (note 11) | 73 | 54 | 97 | 51 |
|   | 4,955 | 5,806 | 9,855 | 11,661 |
| Income from continuing
    operations before income taxes and |   |   |   |   |
| <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    other items | 251 | 402 | 529 | 567 |
| Income taxes (note 9) | 70 | 125 | 168 | 166 |
| Income from continuing
    operations before other items | 181 | 277 | 361 | 401 |
| Equity income | 28 | 17 | 57 | 33 |
| Minority interests | (1) | (9) | (2) | (15) |
| Income from continuing
    operations | 208 | 285 | 416 | 419 |
| Income (Loss) from discontinued
    operations (note 3) | (17) | 46 | (7) | 18 |
| Net income | 191 | 331 | 409 | 437 |
| Dividends on preference shares | 1 | 1 | 3 | 3 |
| Net income attributable to
    common shareholders | 190 | 330 | 406 | 434 |
| Earnings (Loss) per share 
    (note 4) |   |   |   |   |
| Basic and Diluted: |   |   |   |   |
| Income from continuing
    operations |        0.56 |        0.77 |        1.11 |        1.13 |
| Income (Loss) from discontinued
    operations |      (0.04) |        0.12 |      (0.02) |        0.05 |
| Net income per common share -
    basic and diluted |        0.52 |        0.89 |        1.09 |        1.18 |
| Dividends per common share |        0.30 |        0.30 |        0.45 |        0.45 |

| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">  | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      |
| --- | --- | --- |
|   | June 30,  2005 | December 31, 2004 |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">(in millions
    of US$) | <p class="Normal1" align="center" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:center">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">  | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">ASSETS | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">  | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      |
| Current assets |   |    |
| Cash and time deposits | 222 | 184 |
| Trade receivables (net of
    allowances of $62 in 2005 and $99 in 2004) | 2,861 | 3,247 |
| Other receivables | 846 | 936 |
| Deferred income taxes | 110 | 214 |
| Inventories (note 12) | 2,863 | 4,040 |
| Current assets held for sale
    (note 3) | 172 | 791 |
| Total current assets | 7,074 | 9,412 |
|   |   |   |
| Deferred charges and other
    assets | 2,251 | 2,877 |
| Deferred income taxes | 969 | 870 |
| Property, plant and equipment |   |   |
| Cost (excluding Construction
    work in progress) | 15,383 | 21,956 |
| Construction work in progress | 899 | 816 |
| Accumulated depreciation | (5,479) | (9,478) |
|   | 10,803 | 13,294 |
| Intangible assets (net of
    accumulated amortization of $177 in 2005 |   |   |
|    and $172 in 2004) | 1,028 | 1,230 |
| Goodwill | 4,992 | 5,496 |
| Long-term assets held for sale
    (note 3) | 30 | 162 |
| Total assets | 27,147 | 33,341 |
|   |   |   |
|   |   |   |

| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">  | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      |
| --- | --- | --- |
|   | June 30, 2005 | December 31, 2004 |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">(in millions
    of US$) | <p class="Normal1" align="center" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:center">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">  | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      |
| LIABILITIES AND SHAREHOLDERS'
    EQUITY |   |   |
|   |   |   |
| Current liabilities |   |   |
| Payables and accrued liabilities | 4,415 | 5,843 |
| Short-term borrowings | 339 | 2,486 |
| Debt maturing within one year | 854 | 569 |
| Deferred income taxes | 27 | 23 |
| Current liabilities of
    operations held for sale (note 3) | 104 | 335 |
| Total current liabilities | 5,739 | 9,256 |
|   |   |   |
| Debt not maturing within one
    year | 5,630 | 6,345 |
| Deferred credits and other
    liabilities | 4,270 | 4,986 |
| Deferred income taxes | 1,279 | 1,543 |
| Long-term liabilities of
    operations held for sale (note 3) | 9 | 249 |
| Minority interests | 91 | 236 |
|   |   |   |
| Shareholders' equity |   |   |
| Redeemable non-retractable
    preference shares | 160 | 160 |
| Common shareholders' equity |   |   |
| Common shares | 6,104 | 6,670 |
| Additional paid-in capital | 692 | 112 |
| Retained earnings | 3,322 | 3,362 |
| Common shares held by a
    subsidiary | (31) | (35) |
| Accumulated other comprehensive
    income (loss) (note 16) | (118) | 457 |
|   | 9,969 | 10,566 |
|   | 10,129 | 10,726 |
|   |   |   |
| Commitments and contingencies
    (note 15) |   |   |
|   |   |   |
| Total liabilities and
    shareholders' equity | 27,147 | 33,341 |
|   |   |   |

|   | Second Quarter | Six Months |
| --- | --- | --- |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">Periods ended
    June 30 | 2005 | 2004 | 2005 | 2004 |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">(in millions
    of US$) | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">  |   |   |   |   |
| OPERATING ACTIVITIES |   |   |   |   |
|   |   |   |   |   |
| Net income | 191 | 331 | 409 | 437 |
| Loss (Income) from discontinued
    operations | 17 | (46) | 7 | (18) |
| Income from continuing
    operations | 208 | 285 | 416 | 419 |
| Adjustments to determine cash
    from operating activities: |   |   |   |   |
| Depreciation and amortization | 268 | 324 | 540 | 660 |
| Deferred income taxes | (13) | 42 | 42 | 14 |
| Equity income, net of dividends | 2 | (1) | (25) | (17) |
| Asset impairment provisions | 25 | 2 | 33 | 10 |
| Loss (Gain) on sale of
    businesses and investments - net | 17 | (42) | 16 | (42) |
| Stock option compensation | 5 | 2 | 10 | 4 |
| Change in operating working
    capital |   |   |   |   |
| Change in receivables | (157) | (137) | (353) | (518) |
| Change in inventories | (128) | (11) | (114) | 44 |
| Change in payables and accrued
    liabilities | (34) | 12 | (272) | 199 |
| Change in deferred charges,
    other assets, |   |   |   |   |
| deferred credits and other
    liabilities - net | 44 | (83) | (72) | (103) |
| Other - net | 5 | 35 | (46) | 30 |
| Cash from operating activities
    in continuing operations | 242 | 428 | 175 | 700 |
|   |   |   |   |   |
| Cash from (used for) operating
    activities in discontinued |   |   |   |   |
| <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    operations | (18) | 33 | 50 | 51 |
|   |   |   |   |   |
| Cash from operating activities | 224 | 461 | 225 | 751 |
|   |   |   |   |   |
| FINANCING ACTIVITIES |   |   |   |   |
|   |   |   |   |   |
| Proceeds from issuance of new
    debt - net of issuance costs | 780 | 177 | 1,166 | 718 |
| Debt repayments | (610) | (234) | (1,196) | (454) |
| Short-term borrowings - net | 29 | (145) | (1,993) | (375) |
| Common shares issued | 6 | 8 | 10 | 33 |
| Dividends -          Alcan
    shareholders (including preference) | (56) | (56) | (114) | (113) |
| -          Minority interests | (6) | (2) | (6) | (4) |
| Cash from (used for) financing
    activities in continuing operations | 143 | (252) | (2,133) | (195) |
|   |   |   |   |   |
| Cash from (used for) financing
    activities in discontinued |   |   |   |   |
| <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    operations | 41 | (30) | 4 | (31) |
|   |   |   |   |   |
| Cash from (used for) financing
    activities | 184 | (282) | (2,129) | (226) |

|   | Second Quarter | Six Months |
| --- | --- | --- |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">Periods ended
    June 30 | 2005 | 2004 | 2005 | 2004 |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">(in millions
    of US$) | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      | <p class="Normal1" align="right" style="margin-top:6.0pt;margin-right:0in;
  margin-bottom:6.0pt;margin-left:0in;text-align:right">
    
      |
| <p class="Normal1" style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;
  margin-left:0in">  |   |   |   |   |
| INVESTMENT ACTIVITIES |   |   |   |   |
|   |   |   |   |   |
| Purchase of property, plant and
    equipment | (453) | (265) | (745) | (517) |
| Business acquisitions and
    purchase of investments | (39) | (55) | (42) | (423) |
| Net proceeds from disposal of
    businesses, investments and |   |   |   |   |
| <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    other assets | (9) | (24) | 3 | 20 |
| Settlement of amounts due from
    Novelis - net (note 5) | - | - | 2,535 | - |
| Cash from (used for) investment
    activities in continuing operations | (501) | (344) | 1,751 | (920) |
|   |   |   |   |   |
| Cash from (used for) investment
    activities in discontinued |   |   |   |   |
| <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    operations | 121 | 9 | 64 | (4) |
|   |   |   |   |   |
| Cash from (used for) investment
    activities | (380) | (335) | 1,815 | (924) |
|   |   |   |   |   |
| Effect of exchange rate changes
    on cash and time deposits | (11) | (1) | (29) | (28) |
| Increase (Decrease) in cash and
    time deposits | 17 | (157) | (118) | (427) |
|   |   |   |   |   |
| Cash and time deposits - beginning of period | 205 | 508 | 340 | 778 |
| Cash and time deposit - end of
    period in continuing operations | 222 | 235 | 222 | 235 |
| Cash and time deposits - end of
    period in current assets held |   |   |   |   |
| <p class="Normal1" style="margin-top:3.0pt;margin-right:0in;margin-bottom:0in;
  margin-left:7.1pt;margin-bottom:.0001pt">
    
    for sale | - | 116 | - | 116 |
| Cash and time deposits - end of
    period | 222 | 351 | 222 | 351 |
|   |   |   |   |   |

|   |   |   |   |   |   |   |   |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  
    
    
     
    
    
     
    
    
     
    
    
    (in millions of US$) |  
    
    
    Preference Shares - Series C and E |  
    
    
     
    
    
    Common Shares |  
    
    
     
    
    
    Additional Paid-In Capital |  
    
    
     
    
    
    Retained Earnings |  
    
    
    Common Shares Held by a Subsidiary | Accumulated Other Comprehen-sive Income (Loss) |  
    
    
    
     
    
    
    
    Total Shareholders' Equity |
| Balance at
    December 31, 2004 | 160 | 6,670 | 112 | 3,362 | (35) |            457  | 10,726 |
| Spin-off of
    Novelis (note 5) |   | (576) | 572 | (279) |   | (71) | (354) |
| Net income - six months ended |   |   |   |   |   |   |   |
| June 30,
    2005 |   |   |   | 409 |   |   | 409 |
| Other
    comprehensive loss  (note 16) |   |   |   |   |   | (504) | (504) |
| Dividends: |   |   |   |   |   |   |   |
| Preference |   |   |   | (3) |   |   | (3) |
| Common |   |   |   | (167) |   |   | (167) |
| Stock option
    expense |   |   | 10 |   |   |   | 10 |
| Exercise of
    stock options |   | 2 | (2) |   |   |   | - |
| Common
    shares held by a subsidiary |   |   |   |   | 4 |   | 4 |
| Common
    shares issued for cash: |   |   |   |   |   |   |   |
| <p class="MsoNormal" style="margin-top:2.0pt;margin-right:9.35pt;margin-bottom:
  0in;margin-left:9.15pt;margin-bottom:.0001pt">
    
    Executive share option plan |   | 8 |   |   |   |   | 8 |
| <p class="MsoNormal" style="margin-top:2.0pt;margin-right:9.35pt;margin-bottom:
  0in;margin-left:9.15pt;margin-bottom:.0001pt">
    
    Dividend reinvestment and share |   |   |   |   |   |   |   |
| <p class="MsoNormal" style="margin-top:2.0pt;margin-right:9.35pt;margin-bottom:
  0in;margin-left:9.15pt;margin-bottom:.0001pt;text-indent:9.15pt">
    
    purchase plans |   | 2 |   |   |   |   | 2 |
| <p class="MsoNormal" style="margin-top:2.0pt;margin-right:9.35pt;margin-bottom:
  0in;margin-left:0in;margin-bottom:.0001pt">
    
    Other |   | (2) |   |   |   |   | (2) |
| <p class="MsoNormal" style="margin-top:2.0pt;margin-right:9.35pt;margin-bottom:
  0in;margin-left:0in;margin-bottom:.0001pt">
    
    Balance at June 30, 2005 | 160 | 6,104 | 692 | 3,322 | (31) | (118) | 10,129 |

|   | Second Quarter | Six Months |
| --- | --- | --- |
| Periods
    ended June 30 | 2005 | 2004 | 2005 | 2004 |
|   |   |   |   |   |
| Sales | 78 | 404 | 276 | 826 |
| Income from
    operations | - | 38 | 4 | 17 |
| Gain (Loss)
    on disposal - net | (19) | 27 | (10) | 27 |
| Asset
    impairment provisions | - | - | - | (6) |
| Pre-tax
    income (loss) | (19) | 65 | (6) | 38 |
| Income tax
    recovered (expense) | 2 | (19) | (1) | (20) |
| Income
    (Loss) from discontinued operations | (17) | 46 | (7) | 18 |

|   | June 30,
    2005 | December 31, 2004 |
| --- | --- | --- |
| Current
    assets held for sale: |   |   |
| Cash and time deposits | - | 156 |
| Trade receivables | 45 | 308 |
| Other receivables | 37 | 40 |
| Deferred income taxes | - | 2 |
| Inventories | 90 | 285 |
|   | 172 | 791 |
| Long-term
    assets held for sale: |   |   |
| Deferred charges and other assets | 14 | 21 |
| Deferred income taxes | 5 | 6 |
| Property, plant and equipment, net | 11 | 85 |
| Intangible assets, net | - | 50 |
|   | 30 | 162 |
| Current
    liabilities of operations held for sale: |   |   |
| Payables and accrued liabilities | 103 | 330 |
| Short-term borrowings | 1 | 5 |
|   | 104 | 335 |
| Long-term
    liabilities of operations held for sale: |   |   |
| Deferred credits and other liabilities | 6 | 110 |
| Deferred income taxes | 3 | 4 |
| Minority interests | - | 135 |
|   | 9 | 249 |

|   | Second Quarter | Six Months |
| --- | --- | --- |
| Periods
    ended June 30 | 2005 | 2004 | 2005 | 2004 |
| Numerator: |   |   |   |   |
| Income from
    continuing operations | 208 | 285 | 416 | 419 |
| Less:
    dividends on preference shares | (1) | (1) | (3) | (3) |
| Income from
    continuing operations attributable to |   |   |   |   |
|    common
    shareholders | 207 | 284 | 413 | 416 |
| Denominator (number of common shares in
    millions): |   |   |   |   |
| Weighted
    average of outstanding shares - basic | 370 | 368 | 370 | 368 |
| Effect of
    dilutive stock options | - | 1 | 1 | 1 |
| Adjusted
    weighted average of outstanding shares - diluted | 370 | 369 | 371 | 369 |
| Earnings
    per common share - basic and diluted |      0.56 |      0.77 |      1.11 |      1.13 |

|   | Adjusted | Original |
| --- | --- | --- |
|   |   
    Amounts(1) | Amounts |
| Carrying amount of spun-off businesses: |   |   |
| Current assets | 2,935 | 2,935 |
| Non-current assets | 2,802 | 2,802 |
| Current liabilities | (3,129) | (3,160) |
| Non-current liabilities | (2,227) | (2,197) |
| Accumulated other comprehensive income | (71) | (68) |
| Total | 310 | 312 |
|   |   |   |
| Derivatives(2) | (31) | (31) |
| Total
    amount recorded in retained earnings | 279 | 281 |

|   |  
      
      
      Severance Costs | Asset Impairment Provisions* |  
      
      
       
      
      
      Other |  
      
      
       
      
      
      Total |
| --- | --- | --- | --- | --- |
| Provision
    balance as at January 1, 2004 | 86 | - | 46 | 132 |
| 2004: |   |   |   |   |
| Charges
    recorded in the statement of income | 44 | 30 | 13 | 87 |
| Charges
    recorded in the allocation of the |   |   |   |   |
| Pechiney purchase price | 175 | - | 18 | 193 |
| Cash
    payments | (99) | - | (33) | (132) |
| Non-cash
    items | - | (30) | 8 | (22) |
| Provision
    balance as at December 31, 2004 | 206 | - | 52 | 258 |
| Six
    months, 2005: |   |   |   |   |
| Provisions transferred to Novelis | (31) | - | (14) | (45) |
| Charges
    recorded in the statement of income | 78 | 20 | 4 | 102 |
| Cash
    payments - net | (56) | - | (10) | (66) |
| Non-cash
    items | (24) | (20) | (3) | (47) |
| Provision
    balance as at June 30, 2005 | 173 | - | 29 | 202 |

| Quarter
      ended June 30, 2005 |  
      
      
      Severance Costs | Asset Impairment Provisions |  
      
      
       
      
      
      Other |  
      
      
       
      
      
      Total |
| --- | --- | --- | --- | --- |
|   |   |   |   |   |
| Engineered Products | 45 | - | - | 45 |
| Packaging | 23 | 16 | 3 | 42 |
| Other | - | - | (2) | (2) |
| Total | 68 | 16 | 1 | 85 |
| Six months  ended June 30, 2005 |   |   |   |   |
| Primary
    Metal | - | - | 1 | 1 |
| Engineered Products | 48 | 3 | - | 51 |
| Packaging | 28 | 17 | 5 | 50 |
| Other | 2 | - | (2) | - |
| Total | 78 | 20 | 4 | 102 |

|   | Second Quarter | Six Months |
| --- | --- | --- |
| Periods ended June 30 | 2005 | 2004 | 2005 | 2004 |
| Sales and
    operating revenues - intersegment |   |   |   |   |
| Bauxite and
    Alumina | 418 | 395 | 775 | 789 |
| Primary
    Metal | 539 | 943 | 994 | 1,867 |
| Engineered
    Products | 54 | 192 | 168 | 371 |
| Packaging | - | 17 | 2 | 33 |
| Entities
    transferred to Novelis | - | 103 | - | 192 |
| Other | (1,011) | (1,650) | (1,939) | (3,252) |
|   | - | - | - | - |

|   | Second Quarter | Six Months |
| --- | --- | --- |
| Periods ended June 30 | 2005 | 2004 | 2005 | 2004 |
| Sales and
    operating revenues - third parties |   |   |   |   |
| Bauxite and
    Alumina | 369 | 417 | 742 | 797 |
| Primary
    Metal | 1,679 | 1,063 | 3,335 | 2,136 |
| Engineered
    Products | 1,589 | 1,437 | 3,149 | 2,816 |
| Packaging | 1,578 | 1,501 | 3,162 | 3,011 |
| Entities
    transferred to Novelis | - | 1,777 | - | 3,443 |
| Adjustments
    for equity-accounted joint ventures and |   |   |   |   |
| certain investments | (21) | 4 | (30) | 6 |
| Other | 12 | 9 | 26 | 19 |
|   | 5,206 | 6,208 | 10,384 | 12,228 |

|   | Second Quarter | Six Months |
| --- | --- | --- |
| Periods ended June 30 | 2005 | 2004 | 2005 | 2004 |
| Business
    Group Profit (BGP) |   |   |   |   |
| Bauxite and
    Alumina | 111 | 126 | 208 | 214 |
| Primary
    Metal | 425 | 436 | 856 | 814 |
| Engineered
    Products | 101 | 106 | 216 | 210 |
| Packaging | 177 | 168 | 331 | 336 |
| Entities
    transferred to Novelis | - | 175 | - | 342 |
| Adjustments
    for equity-accounted joint ventures and |   |   |   |   |
| certain investments | (77) | (52) | (151) | (105) |
| Adjustments
    for mark-to-market of derivatives | 33 | (12) | 30 | (12) |
| Depreciation
    and amortization | (268) | (324) | (540) | (660) |
| Intersegment, corporate offices and other | (161) | (134) | (246) | (392) |
| Equity
    income | 28 | 17 | 57 | 33 |
| Interest | (90) | (87) | (175) | (180) |
| Income taxes | (70) | (125) | (168) | (166) |
| Minority
    interests | (1) | (9) | (2) | (15) |
| Income
    from continuing operations | 208 | 285 | 416 | 419 |

|   | June 30,
    2005 | December 31, 2004 |
| --- | --- | --- |
| Total
    Assets |   |   |
| Bauxite and
    Alumina | 3,945 | 3,496 |
| Primary
    Metal | 10,317 | 10,342 |
| Engineered
    Products | 4,306 | 4,601 |
| Packaging | 7,884 | 8,255 |
| Entities
    transferred to Novelis | - | 5,434 |
| Adjustments
    for equity-accounted joint ventures and |   |   |
| certain investments | (365) | (313) |
| Other | 858 | 573 |
| Assets held
    for sale: |   |   |
| Bauxite and Alumina | - | 63 |
| Primary Metal | 157 | 823 |
| Engineered Products | 39 | 63 |
| Packaging | 6 | 4 |
| Total assets
    held for sale | 202 | 953 |
|   | 27,147 | 33,341 |

|  
    Periods
    ended June 30, 2005 | Second Quarter | Six
    Months |
| --- | --- | --- |
| Bauxite and
    Alumina | 15 | 25 |
| Primary
    Metal | 512 | 1,056 |
| Engineered
    Products | 19 | 54 |
| Packaging | 2 | 10 |
| Total | 548 | 1,145 |

|   | Second Quarter | Six Months |
| --- | --- | --- |
| Periods ended June 30 | 2005 | 2004 | 2005 | 2004 |
| Current | 83 | 83 | 126 | 152 |
| Deferred | (13) | 42 | 42 | 14 |
|   | 70 | 125 | 168 | 166 |

|   | Second Quarter | Six Months |
| --- | --- | --- |
| Periods ended June 30 | 2005 | 2004 | 2005 | 2004 |
| Restructuring and other costs (recoveries) - net | 74 | 27 | 91 | 45 |
| Asset impairment provisions | 25 | 2 | 33 | 10 |
| Loss (Gain) on disposal of businesses |   |   |   |   |
| and investments - net | 17 | (42) | 16 | (42) |
| Provision for legal claims | 10 | 2 | 11 | 2 |
| Environmental provisions | 5 | - | 8 | - |
| Derivatives losses (gains) - net | (23) | 30 | (5) | 29 |
| Interest revenue | (12) | (6) | (31) | (8) |
| Pechiney integration costs | 8 | 11 | 14 | 13 |
| Exchange losses (gains) - net | (27) | 1 | (43) | (11) |
| Other | (4) | 29 | 3 | 13 |
|   | 73 | 54 | 97 | 51 |

|   | June 30,
    2005 | December 31, 2004 |
| --- | --- | --- |
| Aluminum
    operating segments |   |   |
| Aluminum | 919 | 1,881 |
| Raw materials | 746 | 733 |
| Other supplies | 390 | 576 |
|   | 2,055 | 3,190 |
| Packaging
    operating segments |   |   |
| Raw materials and other supplies | 305 | 347 |
| Work in progress | 154 | 147 |
| Finished goods | 349 | 356 |
|   | 808 | 850 |
|   | 2,863 | 4,040 |

|   | Second Quarter | Six Months |
| --- | --- | --- |
| Periods ended June 30 | 2005 | 2004 | 2005 | 2004 |
| Income
    Statement |   |   |   |   |
| Interest on long-term debt | 83 | 72 | 166 | 146 |
| Capitalized interest | (5) | (2) | (10) | (4) |

|   | June 30,
    2005 | December 31, 2004 |
| --- | --- | --- |
| Balance Sheet |   |   |
| Payables and accrued liabilities include the following: |   |   |
| Trade payables | 2,117 | 2,816 |
| Accrued liabilities | 2,298 | 3,027 |

|   | Second Quarter | Six Months |
| --- | --- | --- |
| Periods ended June 30 | 2005 | 2004 | 2005 | 2004 |
| Net income | 191 | 331 | 409 | 437 |
| Other
    comprehensive income (loss): |   |   |   |   |
|   Net change in deferred translation adjustments | (299) | (58) | (559) | (152) |
|   Net change in excess of market value over book value of |   |   |   |   |
|      "available-for-sale" securities | (2) | (1) | (4) | (2) |
|   Valuation of derivatives, net of tax of ($45) and
    ($29), |   |   |   |   |
|      respectively, for the quarter and six months ended |   |   |   |   |
| June 30, 2005 (2004: ($2) and $5) |   |   |   |   |
| Net change from periodic revaluations | 84 | 1 | 43 | (16) |
| Net amount reclassified to income | 12 | 2 | 20 | 6 |
|   Net change in minimum pension liability, net of tax of
    ($7) |   |   |   |   |
|      and ($12), respectively, for the quarter and six
    months |   |   |   |   |
|      ended June 30, 2005 (2004: ($1) and $1) | 20 | 1 | (4) | (2) |
|   | (185) | (55) | (504) | (166) |
| Comprehensive income (loss) | 6 | 276 | (95) | 271 |

|   | June 30,
    2005 | December 31, 2004 |
| --- | --- | --- |
| Accumulated other comprehensive income (loss) |   |   |
| Deferred
    translation adjustments | 401 | 1,063 |
| Unrealized
    gain on "available-for-sale" securities | 4 | 8 |
| Minimum
    pension liability | (522) | (550) |
| Derivatives | (1) | (64) |
| Accumulated other comprehensive income (loss) | (118) | 457 |

|   | Pension benefits | Other Benefits |
| --- | --- | --- |
|   | Second Quarter | Six Months | Second Quarter | Six Months |
| Periods ended June 30 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 |
| Service
    cost | 41 | 45 | 82 | 91 | 3 | 4 | 6 | 8 |
| Interest
    cost on benefit obligation | 136 | 134 | 275 | 270 | 14 | 15 | 28 | 30 |
| Expected
    return on plan assets | (136) | (127) | (275) | (256) | - | - | - | - |
| Amortization: |   |   |   |   |   |   |   |   |
|   Actuarial
    (gains) losses | 24 | 18 | 48 | 34 | (1) | - | (2) | - |
|   Prior
    service cost | 15 | 17 | 30 | 35 | - | - | - | - |
| Curtailment/settlement gains | - | (23) | - | (23) | - | - | - | - |
| Net
    periodic benefit cost | 80 | 64 | 160 | 151 | 16 | 19 | 32 | 38 |

|   | June 30, 2005 | December
    31, 2004 |
| --- | --- | --- |
| Financial
    Instrument | Hedge | Fair
    Value | Fair Value |
| Forward
    exchange contracts  | Future firm
    net operating cash flows | 12 | (62) |
| Forward
    exchange contracts | To swap
    intercompany foreign currency denominated loans to US$, € and CHF | (10) | (5) |
| Forward
    exchange contracts | To hedge € net equity investment | (37) | (167) |
| Forward
    exchange contracts | Future
    commitments (1) | 2 | 5 |
| Forward
    exchange contracts | To swap
    CAN$ commercial paper borrowings to US$ | 10 | 31 |
| Currency
    options | Future US$
    sales against € and £ | 4 | 15 |
| Cross
    currency interest swap | To swap US$
    third party borrowings to KRW   | - | (8) |
| Cross
    currency interest swap | To swap €
    21 million medium term notes to £14 million | - | 2 |

|   | June 30,

    2005 | December 31, 2004 |
| --- | --- | --- |
| Financial Instrument |   |   |
| Forward contracts (principally forward sales contracts) and physical trading
    contracts |   |   |
|     Maturing principally in years | 2005 to 2006 | 2005 to 2006 |
|     Fair value | 18 | (104) |
| Forward fixed price sales agreements |   |   |
|     Maturing principally in years | 2005 to 2006 | - |
|     Fair value | (14) | - |
| Call options purchased |   |   |
|     Maturing principally in years | 2005 | 2005 |
|     Fair value | 5 | 36 |
| Call options sold |   |   |
|     Maturing principally in years | 2005 | 2005 |
|     Fair value | (5) | (10) |
| Embedded derivatives |   |   |
| Maturing principally in years | - | 2005 |
| Fair value | - | (10) |

| Periods
    ended June 30 | Second
    Quarter, 2005 | Second
    Quarter, 2004 |
| --- | --- | --- |
|   | As reported |  
    
    
    Ref. |  
    
    
    Amount | Canadian
    
    
    GAAP | As reported |  
    
    Ref. |  
    
    Amount | Canadian
    
    GAAP |
| Statement of Income |   |   |   |   |   |   |   |   |
| Sales and operating revenues | 5,206 | (g) | 16 | 5,222 | 6,208 | (g) | (13) | 6,195 |
| Cost and expenses |   |   |   |   |   |   |   |   |
| Cost of
    sales and operating expenses | 4,130 | (a) | 1 | 4,085 | 4,918 | (a) | (8) | 4,843 |
| excluding
    depreciation and amortization
    noted below |   | (g) | (46) |   |   | (g) | (67) |   |
| Depreciation
    and amortization | 268 | (f) | 1 | 291 | 324 | (f) | 1 | 352 |
|   |   | (g) | 22 |   |   | (g) | 27 |   |
| Selling,
    administrative and general  expenses | 345 |   | - | 345 | 365 | (g) | 2 | 367 |
| Research and
    development expenses | 49 | (g) | 1 | 50 | 58 |   | - | 58 |
| Interest | 90 | (g) | 4 | 94 | 87 | (g) | 3 | 90 |
| Other
    expenses (income) - net | 73 | (a) | 4 | 70 | 54 | (a) | 1 | 57 |
|   |   | (g) | (7) |   |   | (g) | 2 |   |
|   | 4,955 |   | (20) | 4,935 | 5,806 |   | (39) | 5,767 |
| Income from continuing operations
    before |   |   |   |   |   |   |   |   |
|    income
    taxes and other items | 251 |   | 36 | 287 | 402 |   | 26 | 428 |
| Income taxes | 70 | (a) | (2) | 83 | 125 | (a) | 2 | 135 |
|   |   | (f) | (1) |   |   | (f) | (1) |   |
|   |   | (g) | 16 |   |   | (g) | 9 |   |
| Income from
    continuing operations |   |   |   |   |   |   |   |   |
|   before other items | 181 |   | 23 | 204 | 277 |   | 16 | 293 |
| Equity
    income | 28 | (g) | (26) | 2 | 17 | (g) | (11) | 6 |
| Minority
    interests | (1) |   | - | (1) | (9) |   | - | (9) |
| Income from
    continuing operations | 208 |   | (3) | 205 | 285 |   | 5 | 290 |
| Income
    (Loss) from discontinued operations | (17) |   | - | (17) | 46 |   | - | 46 |
| Net income | 191 |   | (3) | 188 | 331 |   | 5 | 336 |
| Dividends on
    preference shares | 1 |   | - | 1 | 1 |   | - | 1 |
| Net income attributable to common
    shareholders | 190 |   | (3) | 187 | 330 |   | 5 | 335 |

| Periods
    ended June 30 | Six
    Months, 2005 | Six Months,
    2004 |
| --- | --- | --- |
|   | As reported |  
    
    
    Ref. |  
    
    
    Amount | Canadian
    
    
    GAAP | As reported |  
    
    Ref. |  
    
    Amount | Canadian
    
    GAAP |
| Statement of Income |   |   |   |   |   |   |   |   |
| Sales and operating revenues | 10,384 | (g) | 19 | 10,403 | 12,228 | (g) | (21) | 12,207 |
| Cost and expenses |   |   |   |   |   |   |   |   |
| Cost of
    sales and operating expenses | 8,220 | (a) | 8 | 8,127 | 9,890 | (a) | (15) | 9,746 |
| excluding
    depreciation and amortization
    noted below |   | (g) | (101) |   |   | (g) | (129) |   |
| Depreciation
    and amortization | 540 | (f) | 2 | 590 | 660 | (f) | 2 | 715 |
|   |   | (g) | 48 |   |   | (g) | 53 |   |
| Selling,
    administrative and general expenses | 725 | (g) | 2 | 727 | 761 | (g) | 3 | 764 |
| Research and
    development expenses | 98 | (g) | 1 | 99 | 119 |   | - | 119 |
| Interest | 175 | (g) | 8 | 183 | 180 | (g) | 6 | 186 |
| Other
    expenses (income) - net | 97 | (a) | 1 | 73 | 51 | (a) | (2) | 51 |
|   |   | (g) | (25) |   |   | (g) | 2 |   |
|   | 9,855 |   | (56) | 9,799 | 11,661 |   | (80) | 11,581 |
| Income from
    continuing operations before |   |   |   |   |   |   |   |   |
|    income
    taxes and other items | 529 |   | 75 | 604 | 567 |   | 59 | 626 |
| Income taxes | 168 | (a) | (4) | 194 | 166 | (a) | 4 | 187 |
|   |   | (f) | (1) |   |   | (f) | (1) |   |
|   |   | (g) | 31 |   |   | (g) | 18 |   |
| Income from
    continuing operations before other items | 361 |   | 49 | 410 | 401 |   | 38 | 439 |
| Equity
    income | 57 | (g) | (55) | 2 | 33 | (g) | (26) | 7 |
| Minority
    interests | (2) |   | - | (2) | (15) |   | - | (15) |
| Income from
    continuing operations | 416 |   | (6) | 410 | 419 |   | 12 | 431 |
| Income
    (Loss) from discontinued operations | (7) |   | - | (7) | 18 |   | - | 18 |
| Net income | 409 |   | (6) | 403 | 437 |   | 12 | 449 |
| Dividends on
    preference shares | 3 |   | - | 3 | 3 |   | - | 3 |
| Net income attributable to common
    shareholders | 406 |   | (6) | 400 | 434 |   | 12 | 446 |

|   | Second Quarter | Six Months |
| --- | --- | --- |
| Periods ended June 30 | 2005 | 2004 | 2005 | 2004 |
| Earnings
    (Loss) Per Share |   |   |   |   |
| Basic and
    Diluted: |   |   |   |   |
| Income from
    continuing operations |      0.55 |      0.78 |      1.10 |      1.16 |
| Income
    (Loss) from discontinued operations |     (0.04) |      0.12 |     (0.02) |      0.05 |
| Net
    income per common share - basic and diluted |      0.51 |      0.90 |      1.08 |      1.21 |

| Six months ended June 30 | 2005 | 2004 |
| --- | --- | --- |
| Retained
    earnings - beginning of period | 3,379 | 3,350 |
|   |   |   |
| Net income | 403 | 449 |
| Spin-off of
    Novelis | (272) | - |
| Dividends |   |   |
| Common | (167) | (167) |
| Preference | (3) | (3) |
| Retained
    earnings -
    end of period | 3,340 | 3,629 |

|   | June 30,
    2005 | December 31,
    2004 |
| --- | --- | --- |
|   | As reported |  
    
    
    Ref. |  
    
    
    Amount | Canadian
    
    
    GAAP | As reported |  
    
    Ref. |  
    
    Amount | Canadian
    
    GAAP |
| Balance Sheet |   |   |   |   |   |   |   |   |
| Current assets |   |   |   |   |   |   |   |   |
| Cash and time
    deposits | 222 | (g) | 56 | 278 | 184 | (g) | 53 | 237 |
| Trade
    receivables | 2,861 | (g) | (30) | 2,831 | 3,247 | (g) | (133) | 3,114 |
| Other
    receivables | 846 | (a) | 18 | 932 | 936 | (a) | 103 | 1,113 |
|   |   | (g) | 68 |   |   | (g) | 74 |   |
| Deferred
    income taxes | 110 |   | - | 110 | 214 | (a) | (34) | 180 |
| Inventories | 2,863 | (g) | 111 | 2,974 | 4,040 | (g) | 153 | 4,193 |
| Current
    assets held for sale | 172 |   | - | 172 | 791 |   | - | 791 |
| Total
    current assets | 7,074 |   | 223 | 7,297 | 9,412 |   | 216 | 9,628 |
| Deferred
    charges and other assets | 2,251 | (a) | 22 | 950 | 2,877 | (a) | 21 | 1,272 |
|   |   | (c) | (4) |   |   | (c) | (8) |   |
|   |   | (g) | (1,319) |   |   | (g) | (1,618) |   |
| Deferred
    income taxes | 969 |   | - | 969 | 870 | (g) | 3 | 873 |
| Property,
    plant and equipment |   |   |   |   |   |   |   |   |
|    Cost
    (excluding Construction work in |   |   |   |   |   |   |   |   |
|    progress) | 15,383 | (g) | 1,446 | 16,829 | 21,956 | (g) | 2,343 | 24,299 |
| Construction
    work in progress | 899 | (g) | 14 | 913 | 816 | (g) | 16 | 832 |
|    Accumulated depreciation | (5,479) | (g) | (627) | (6,106) | (9,478) | (g) | (1,180) | (10,658) |
|   | 10,803 |   | 833 | 11,636 | 13,294 |   | 1,179 | 14,473 |
| Intangible
    assets, net of accumulated |   |   |   |   |   |   |   |   |
|    amortization | 1,028 | (a) | 4 | 925 | 1,230 | (a) | 4 | 1,105 |
|   |   | (d) | (244) |   |   | (d) | (253) |   |
|   |   | (f) | 44 |   |   | (f) | 46 |   |
|     |   | (g) | 93 |   |   | (g) | 78 |   |
| Goodwill | 4,992 | (g) | 685 | 5,677 | 5,496 | (g) | 837 | 6,333 |
| Long-term
    assets for sale | 30 |   | - | 30 | 162 |   | - | 162 |
| Total assets | 27,147 |   | 337 | 27,484 | 33,341 |   | 505 | 33,846 |
| Current liabilities |   |   |   |   |   |   |   |   |
| Payables and
    accrued liabilities | 4,415 | (a) | 2 | 4,486 | 5,843 | (a) | (11) | 5,896 |
|   |   | (g) | 69 |   |   | (g) | 64 |   |
| Short-term
    borrowings | 339 | (g) | 13 | 352 | 2,486 |   | - | 2,486 |
| Debt maturing
    within one year | 854 | (g) | 101 | 955 | 569 | (g) | 81 | 650 |
| Deferred income
    taxes | 27 | (g) | 2 | 29 | 23 | (a) | (2) | 27 |
|   |   |   |   |   |   | (g) | 6 |   |
| Current
    liabilities of operations held for sale | 104 |   | - | 104 | 335 |   | - | 335 |
| Total current liabilities | 5,739 |   | 187 | 5,926 | 9,256 |   | 138 | 9,394 |
| Debt not
    maturing within one year | 5,630 | (g) | 124 | 5,754 | 6,345 | (g) | 198 | 6,543 |
| Deferred
    credits and other liabilities | 4,270 | (a) | 19 | 3,343 | 4,986 | (a) | 21 | 4,044 |
|   |   | (d) | (975) |   |   | (d) | (1,036) |   |
|   |   | (g) | 29 |   |   | (g) | 73 |   |
| Deferred
    income taxes | 1,279 | (a) | 19 | 1,681 | 1,543 | (a) | 9 | 2,005 |
|   |   | (d) | 209 |   |   | (d) | 233 |   |
|   |   | (f) | 15 |   |   | (f) | 16 |   |
|   |   | (g) | 159 |   |   | (g) | 204 |   |
|   |   |   |   |   |   |   |   |   |
| Long-term
    liabilities of operations held for sale | 9 |   | - | 9 | 249 |   | - | 249 |
| Minority
    interests | 91 |   | - | 91 | 236 |   | - | 236 |
|   |   |   |   |   |   |   |   |  |   |

|   | June 30,
    2005 | December 31,
    2004 |
| --- | --- | --- |
|   | As reported |  
    
    
    Ref. |  
    
    
    Amount | Canadian
    
    
    GAAP | As reported |  
    
    Ref. |  
    
    Amount | Canadian
    
    GAAP |
|   |   |   |   |   |   |   |   |   |
| Shareholders' equity |   |   |   |   |   |   |   |   |
| Redeemable
    non-retractable          |   |   |   |   |   |   |   |   |
|    preference  shares | 160 |   | - | 160 | 160 |   | - | 160 |
| Common
    shareholders' equity: |   |   |   |   |   |   |   |   |
| Common
    shares | 6,104 |   | - | 6,104 | 6,670 |   | - | 6,670 |
| Additional
    paid-in capital | 692 |   | - | 692 | 112 |   | - | 112 |
| Retained
    earnings | 3,322 | (a) | 31 | 3,340 | 3,362 | (a) | 42 | 3,379 |
|   |   | (b) | (42) |   |   | (b) | (55) |   |
|   |   | (f) | 29 |   |   | (f) | 30 |   |
| Common
    shares held by a subsidiary | (31) |   | - | (31) | (35) |   | - | (35) |
| Deferred
    translation adjustments | - | (a) | (28) | 415 | - | (a) | (29) | 1,089 |
|   |   | (b) | 42 |   |   | (b) | 55 |   |
|   |   | (e) | 401 |   |   | (e) | 1,063 |   |
| Accumulated
    other comprehensive |   |   |   |   |   |   |   |   |
|    income | (118) | (a) | 1 | - | 457 | (a) | 64 | - |
|   |   | (c) | (4) |   |   | (c) | (8) |   |
|   |   | (d) | 522 |   |   | (d) | 550 |   |
|   |   | (e) | (401) |   |   | (e) | (1,063) |   |
|   | 9,969 |   | 551 | 10,520 | 10,566 |   | 649 | 11,215 |
|   | 10,129 |   | 551 | 10,680 | 10,726 |   | 649 | 11,375 |
| Total
    liabilities and shareholders' equity | 27,147 |   | 337 | 27,484 | 33,341 |   | 505 | 33,846 |

|   | Second Quarter | Six Months | First Quarter |
| --- | --- | --- | --- |
|   | 2005 | 2004 | 2005 | 2004 | 2005 |
|   |   |   |   |   |   |
| Sales and operating
    revenues | 5,206 | 6,208 | 10,384 | 12,228 | 5,178  |
| Shipments (thousands
    of tonnes) |   |   |   |   |   |
|      Ingot products*  | 744 | 499 | 1,468 | 992 | 724  |
|      Aluminum used in engineered products
    and packaging | 336 | 386 |  
    663 | 760 | 327  |
|      Subtotal | 1,080 | 885 | 2,131 | 1,752 | 1,051  |
|      Rolled products  | - | 712 | - | 1,380 | - |
| Total aluminum volume  | 1,080 | 1,597 | 2,131 | 3,132 | 1,051  |
| Ingot product
    realizations ($ per tonne)* | 2,034 | 1,812 | 2,046 | 1,801 | 2,058  |
| Average LME 3-month
    price ($ per tonne)  | 1,796 | 1,686 | 1,842 | 1,676 | 1,887  |
|   |   |   |   |   |   |
| Included in
    income from continuing operations: |   |   |   |   |   |
| Foreign
    currency balance sheet translation | 4 | 63  | 34 | 72 | 30  |
| Other
    Specified Items (OSIs) | (82) |  (8) | (127) | (72) | (45)  |
|   |   |   |   |   |   |
| Income from
    continuing operations | 208 | 285 | 416 | 419 | 208  |
| Income (Loss) from
    discontinued operations | (17) | 46 | (7) | 18 | 10  |
| Net income | 191 | 331  | 409 | 437 | 218  |
| Earnings per share
    ($ per share) |   |   |   |   |   |
|   | Income from continuing
    operations | 0.56 | 0.77  | 1.11 | 1.13 | 0.56 |
|   | Net income | 0.52 | 0.89  | 1.09 | 1.18 | 0.58 |
| Average number of
    shares outstanding (millions) |   370.2 |   368.1 |   370.1 |   367.5 |   370.0 |
|  
    * Includes primary and
    secondary ingot and scrap aluminum.  Realized prices generally lag LME
    price changes by one month. The first quarter 2005 realization was
    corrected from that previously published.  
    
     2004 amounts include Novelis but
    have been retroactively adjusted to reflect the reclassification of certain businesses as
    discontinued operations. |

|  
      |  
    
    
    Second Quarter | First Quarter 2005 |
| --- | --- | --- |
| 2005 | 2004 |
|   |   |   |   |
| Other Specified Items |   |   |   |
| Synergy costs | (24) | (8) | (7) |
| Restructuring charges | (28) | (5) | (3) |
| Asset impairment | (16) | (1) | - |
| Gains (losses) from
    non-routine sales of assets, businesses and |   |   |   |
| investments | (8) | 42 | 1 |
| Tax adjustments | - | (46) | (27) |
| Novelis costs | 5 | - | (24) |
| Insurance recovery | - | - | 8 |
| Other | (11) | 10 | 7 |
| Other Specified Items | (82) | (8) | (45) |
|  
    
    2004 amounts include Novelis but
    have been retroactively adjusted to reflect the reclassification of certain businesses as
    discontinued operations. |

|  
      | Second Quarter | Six Months | First Quarter |
| --- | --- | --- | --- |
|   | 2005 | 2004 | 2005 | 2004 | 2005 |
| Business Group
    Profit (BGP) |   |   |   |   |   |
|   | Bauxite and Alumina | 111 | 126 | 208 | 214 | 97 |
|   | Primary Metal  | 425 | 436 | 856 | 814 | 431 |
|   | Engineered Products * | 101 | 106 | 216 | 210 | 115 |
|   | Packaging  | 177 | 168 | 331 | 336 | 154 |
|   | Equity accounted joint
    venture eliminations |    (77) | (52) | (151) | (105) | (74) |
|   | Change in fair market
    value of derivatives | 33 | (12) | 30 | (12) | (3) |
|   |      Subtotal | 770 | 772 | 1,490 | 1,457 | 720 |
|   | Novelis entities | - | 175 | - | 342 | - |
|    | 770 | 947 | 1,490 | 1,799 | 720 |
| Corporate Items  |   |   |   |   |   |
|   | Intersegment, corporate
    offices and other | (161) | (134) | (246) | (392) | (85) |
|   | Depreciation &
    amortization  | (268) | (324) | (540) | (660) | (272) |
|   | Interest  | (90) | (87) | (175) | (180) | (85) |
|   | Income taxes  | (70) | (125) | (168) | (166) | (98) |
|   | Equity income  | 28 | 17 | 57 | 33 | 29 |
|   | Minority interests  | (1) | (9) | (2) | (15) | (1) |
| Income from
    continuing operations | 208 | 285 | 416 | 419 | 208 |
|  
    
    
    2004 amounts have been retroactively adjusted
    to reflect the reclassification of certain businesses as discontinued
    operations and the impact of the Novelis spin-off completed on 6 January
    2005. 
    
    
    *BGP for the second quarter of 2005 includes
    restructuring charges of $30. |

|  
    
      | 30 June | 31 March |
| --- | --- | --- |
| 2005 | 2004 | 2005 |
| Debt |   |   |   |
| Short-term
    borrowings | 339 | 864 | 354 |
| Debt
    maturing within one year | 854 | 445 | 409 |
| Debt not
    maturing within one year | 5,630 | 7,879 | 5,971 |
| Debt of
    operations held for sale | 1 | 15 | 18 |
| Total debt | 6,824 | 9,203 | 6,752 |
| Equity |   |   |   |
| Minority
    interests | 91 | 222 | 96 |
| Redeemable
    non-retractable preference shares | 160 | 160 | 160 |
| Common
    shareholders' equity | 9,969 | 10,337 | 10,067 |
| Total equity | 10,220 | 10,719 | 10,323 |
| Total
    invested capital | 17,044 | 19,922 | 17,075 |
| Debt as a
    percent of invested capital (%) | 40% | 46% | 40% |

|   | Payments due by period |
| --- | --- |
|   | Total | Less than 1
    year | 1 - 3 years | 3 - 5 years | More than 5
    years |
|   |   |   |   |   |   |
| Long-term
    debt (1) | 6,484 | 854 | 97 | 1,450 | 4,083 |
| Capital
    lease obligations | 19 | 2 | 6 | 3 | 8 |
| Operating
    leases | 350 | 47 | 146 | 70 | 87 |
| Purchase
    obligations | 6,410 | 973 | 831 | 739 | 3,867 |
| Unfunded
    pension plans (3) | 2,224 | 65 | 131 | 134 | 1,894 |
| Other
    post-employment benefits (3) | 2,322 | 64 | 130 | 142 | 1,986 |
| Funded
    pension plans (3) (4) | (4) | 189 | 384 | 396 | (4) |
| Guarantees
    (2) | 134 | 70 | 64 | - | - |
| Total |   | 2,264 | 1,789 | 2,934 |   |

| Selected unaudited financial data for each of the Company's three most
    recently completed financial years is as follows: |
| --- |
|   | 31 December |
|   | 2004 | 2003 | 2002 |
|   |   |   |   |
| Sales and operating revenues | 24,948 | 13,850 | 12,483 |
|   |   |   |   |
| Income from continuing operations | 243 | 262 | 421 |
|   |   |   |   |
| Net income (Loss) | 258 | 64 | (348) |
|   |   |   |   |
| Total assets | 33,341 | 31,948 | 17,761 |
|   |   |   |   |
| Total long-term debt | 6,914 | 7,778 | 3,369 |
| ($ per common share) |   |   |   |
|   |   |   |   |
| Income from continuing operations per share - basic and diluted |  
    

    0.64 |  
    

    0.79 | 1.29 |
|   |   |   |   |
| Net income (Loss) per share - basic and diluted | 0.69 | 0.18 | (1.10) |
|   |   |   |   |
| Dividends per common share | 0.60 | 0.60 | 0.60 |

|   | Q2-05 | Q1-05 | Q4-04 | Q3-04 | Q2-04 | Q1-04 | Q4-03 | Q3-03 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|   |   |   |   |   |   |   |   |   |
| Sales and operating revenues | 5,206 | 5,178 | 6,536 | 6,184 | 6,208 | 6,020 | 3,567 | 3,529 |
|   |   |   |   |   |   |   |   |   |
| Income (Loss) from continuing operations | 208 | 208 | (347) | 171 | 285 | 134 | 115 |    108 |
|   |   |   |   |   |   |   |   |   |
| Net income (Loss) | 191 | 218 | (346) | 167 | 331 | 106 | 96 | 87 |
|   |   |   |   |   |   |   |   |   |
| ($ per common share) |   |   |   |   |   |   |   |   |
|   |   |   |   |   |   |   |   |   |
| Income (Loss) from continuing operations per share - basic | 0.56 | 0.56 | (0.95) |  
    

    0.46 |  
    

    0.77 |  
    

    0.36 |  
    

    0.36 |  
    

    0.32 |
|   |   |   |   |   |   |   |   |   |
| Income (Loss) from continuing operations per share - diluted | 0.56 | 0.56 | (0.94) |  
    

    0.46 |  
    

    0.77 |  
    

    0.36 |  
    

    0.36 |  
    

    0.32 |
|   |   |   |   |   |   |   |   |   |
| Net income (Loss) per share - basic | 0.52 | 0.58 | (0.94) | 0.45 | 0.89 | 0.29 | 0.30 | 0.26 |
|   |   |   |   |   |   |   |   |   |
| Net income (Loss) per share - diluted | 0.52 | 0.58 | (0.94) | 0.45 | 0.89 | 0.28 | 0.30 | 0.26 |

|   | Second Quarter | Second Quarter | Six Months | Six Months |
| --- | --- | --- | --- | --- |
| GAAP | 2005 | 2004 | June 30, 2005 | June 30, 2004 |
| ($ per common share) | Cdn | U.S. | Cdn | U.S. | Cdn | U.S. | Cdn | U.S. |
| Income from continuing operations |   |   |   |   |   |   |   |   |
|     per share - basic |      0.55 |      0.56 |      0.78 |      0.77 |      1.10 |      1.11 |      1.16 |      1.13 |
| Net income per share - basic |      0.51 |      0.52 |      0.90 |      0.89 |      1.08 |      1.09 |      1.21 |      1.18 |

|   |   |   |   |   |   |   | Total |   |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|   |   |   |   |   |   |   | Nominal | Fair |
| (In US$ millions,
        except contract rates) | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | Amount | Value |
|   |   |   |   |   |   |   |   |   |
| FORWARD CONTRACTS |   |   |   |   |   |   |   |   |
| To
      purchase USD against the foreign currency |   |   |   |   |   |   |
|   |   |   |   |   |   |   |   |   |   |
| GBP | Nominal
      amount | 28 | 6 | - | - | - | - | 34 | - |
|   | Average
      contract rate | 0.556 | 0.571 | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| CHF | Nominal
      amount | 13 | 15 | - | - | - | - | 28 | 1 |
|   | Average
      contract rate | 1.228 | 1.239 | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| JPY | Nominal
      amount | 4 | - | - | - | - | - | 4 | - |
|   | Average
      contract rate | 108.4 | - | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| Other | Nominal
      amount | 1 | - | - | - | - | - | 1 | - |
|   |   |   |   |   |   |   |   |   |   |
| To sell USD against the foreign currency |   |   |   |   |   |   |
|   |   |   |   |   |   |   |   |   |   |
| GBP | Nominal
      amount | 54 | 3 | - | - | - | - | 57 | (2) |
|   | Average
      contract rate | 0.539 | 0.540 | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| CHF | Nominal
      amount | 5 | 1 | - | - | - | - | 6 | - |
|   | Average
      contract rate | 1.201 | 1.313 | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| AUD | Nominal
      amount | 110 | 205 | - | - | - | - | 315 | 2 |
|   | Average
      contract rate | 0.741 | 0.751 | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| Other | Nominal
      amount | 1 | - | - | - | - | - | 1 | - |
|   |   |   |   |   |   |   |   |   |   |
| To sell EUR against the foreign currency |   |   |   |   |   |   |
|   |   |   |   |   |   |   |   |   |   |
| USD | Nominal
      amount | 380 | 1,277 | 24 | 10 | - | - | 1,691 | (28) |
|   | Average
      contract rate | 1.246 | 1.198 | 1.222 | 1.088 | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| GBP | Nominal
      amount | 8 | - | - | - | - | - | 8 | - |
|   | Average
      contract rate | 0.708 | - | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| CHF | Nominal
      amount | 24 | 20 | - | - | - | - | 44 | (1) |
|   | Average
      contract rate | 1.521 | 1.495 | - | - | - | - |   |   |

|   |   |   |   |   |   |   | Total |   |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|   |   |   |   |   |   |   | Nominal | Fair |
| (In US$ millions,
        except contract rates) | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | Amount | Value |
|   |   |   |   |   |   |   |   |   |
| CZK | Nominal
      amount | 6 | - | - | - | - | - | 6 | - |
|   | Average
      contract rate | 30.05 | - | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| ZAR | Nominal
      amount | 2 | 1 | - | - | - | - | 3 | - |
|   | Average
      contract rate | 8.103 | 8.043 | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| Other | Nominal
      amount | 2 | - | - | - | - | - | 2 | - |
|   |   |   |   |   |   |   |   |   |   |
| To buy EUR against the foreign currency |   |   |   |   |   |   |
|   |   |   |   |   |   |   |   |   |   |
| USD | Nominal
      amount | 251 | 59 | 21 | - | - | - | 331 | 8 |
|   | Average
      contract rate | 1.205 | 1.090 | 1.201 | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| GBP | Nominal
      amount | 25 | 9 | - | - | - | - | 34 | (2) |
|   | Average
      contract rate | 0.700 | 0.715 | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| CHF | Nominal
      amount | 2 | - | - | - | - | - | 2 | - |
|   | Average
      contract rate | 1.524 | - | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| AUD | Nominal
      amount | 7 | - | - | - | - | - | 7 | (1) |
|   | Average
      contract rate | 1.759 | - | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| JPY | Nominal
      amount | 5 | - | - | - | - | - | 5 | - |
|   | Average
      contract rate | 134.3 | - | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| Other | Nominal
      amount | 4 | 1 | - | - | - | - | 5 | - |
|   |   |   |   |   |   |   |   |   |   |
| To buy CHF
      against the foreign currency |   |   |   |   |   |   |
|   |   |   |   |   |   |   |   |   |   |
| AUD | Nominal
      amount | 1 | - | - | - | - | - | 1 | - |
|   | Average
      contract rate | 1.107 | - | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| JPY | Nominal
      amount | 1 | - | - | - | - | - | 1 | - |
|   | Average
      contract rate | 85.96 | - | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| DKK | Nominal
      amount | 1 | - | - | - | - | - | 1 | - |
|   | Average
      contract rate | 0.206 | - | - | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| To sell
      CHF against the foreign currency |   |   |   |   |   |   |
|   |   |   |   |   |   |   |   |   |   |
| Other | Nominal
      amount | 1 | - | - | - | - | - | 1 | - |
|   |   |   |   |   |   |   |   |   |   |
| OPTIONS |   |   |   |   |   |   |
| To buy USD against
      the foreign currency |   |   |   |   |   |   |
|   |   |   |   |   |   |   |
| EUR | Nominal amount | 48 | 18 | - | - | - | - | 66 | (2) |
|   | Average contract rate | 0.800 | 0.800 | - | - | - | - |   |   |
|   |   |   |   |   |   |   |
|   |   |   |   |   |   |   |
| To sell USD against
      the foreign currency |   |   |   |   |   |   |
|   |   |   |   |   |   |   |   |   |   |
| EUR | Nominal
      amount | 50 | 137 | 20 | - | - | - | 207 | 6 |
|   | Average
      contract rate | 0.863 | 0.759 | 0.758 | - | - | - |   |   |
|   |   |   |   |   |   |   |   |   |   |
| GBP | Nominal
      amount | 2 | - | - | - | - | - | 2 | - |
|   | Average
      contract rate | 0.585 | - | - | - | - | - |   |   |