**Management's Discussion and Analysis**

Alcan's improved earningsdemonstrate its ability to deliver results despite soft economic conditions.

**23 Market Overview24 Merger with algroup25 Results of Operations28 Cash Flows and Liquidity29 Environment, Health and Safety (EHS)29 Operating Segment Review 38 Risks and Uncertainties 40 Responsibility for the Annual Report40 Auditors' Report41 Consolidated Financial Statements44 Notes to Consolidated FinancialStatements78 Quarterly Financial Data 80 Eleven-Year Summary**

**Market OverviewWestern World* Primary Aluminum Balance**

**Demand**Total Western World consumption grew by an estimated 2.8% to about 28.5million tonnes (Mt) in 2002, a weak recoveryfollowing last year's sharp decline of 5.3%. Of this, 19.5 Mt was primarymetal, up 3.2% from 2001, with the balance comprising secondary/recycled metal.Demand was up in all regions except Latin America and Africa, but remainedbelow levels reached in 2000. North American consumption showed the strongestimprovement at 4.6%, rebounding from a steep decline of 11.3% in 2001. Asiandemand rose 4.0% driven by a recovery in exports to China and North America. A slow economy in Europe generated growth of only 1.0% while thebiggest disappointment was in Latin America, where uncertainty in Brazil andturmoil in Argentina and Venezuela led to a decline of 2.5%.

**Supply**Total Western World primary aluminumsupply (production plus imports) increased 3.1% to 20.0 Mt in 2002. Of this,primary aluminum production represented 17.2 Mt, up 3.4% from the previous yearbut still below the 17.3 Mt reached in 2000, with the balance comprising 2.8 Mtof net imports from China and the former Eastern Bloc (C.I.S. and EasternEurope). The increase in Western World primary production was due to restartsof idled capacity in Brazil and the U.S. Pacific Northwest and a full year of production from the newAlma and Mozal smelters in Canada and Mozambique. Netimports from China and the former Eastern Bloc remained essentially flat, withChinese increases largely offset by reductions from the C.I.S.

*** ***((Graph))

***WesternWorld Primary Aluminum Supply and Demand****Mt/y*

*Supply*

| *98:*                          | *19115*  | *19016*  | *19111*  | *19289*  |
|--------------------------------|----------|----------|----------|----------|
| *99:*                          | *19386*  | *19478*  | *19639*  | *19901*  |
| *00:*                          | *19744*  | *19688*  | *19559*  | *19805*  |
| *01:*                          | *19666*  | *19467*  | *19108*  | *19237*  |
| *02:*                          | *19780*  | *20050*  | *19780*  | *20300*  |
| * *                       | * * | * * | * * | * * |
| *Demand (seasonally adjusted)* |
| * *                       | * * | * * | * * | * * |
| *98:*                          | *19454*  | *19010*  | *19201*  | *18610*  |
| *99:*                          | *19560*  | *19201*  | *19385*  | *19825*  |
| *00:*                          | *20132*  | *20646*  | *20062*  | *19862*  |
| *01:*                          | *18908*  | *18897*  | *19072*  | *19072*  |
| *02:*                          | *19480*  | *18880*  | *20050*  | *19900*  |
| * *                       | * * | * * | * * | * * |

* *

----

**Balance**With primaryaluminum supply and demand increasing at almost the same rate, the surplusremained unchanged from 2001 at about 450 thousand tonnes(kt). This registered as a 407 ktincrease in reported stocks with the remainder in unreported stocks. By the endof the year, inventories held by the London Metal Exchange (LME), COMEX andaluminum producers had increased to approximately 4.3 Mt, or the equivalent ofabout 11.0 weeks of consumption. Average LME prices declined 6% during the yearto $1,365 /t from $1,454 /t in 2001. 

*** ***((Graph))

***TotalAluminum Inventories and Ingot Prices***

*Totalinventories (IAI*, LME and COMEX**)MT*

| *98:*                    | *3923*   | *3762*   | *3816*   | *3997*   |
|--------------------------|----------|----------|----------|----------|
| *99:*                    | *3931*   | *3833*   | *3967*   | *4001*   |
| *00:*                    | *3919*   | *3612*   | *3552*   | *3488*   |
| *01:*                    | *3734*   | *3784*   | *3872*   | *3872*   |
| *02:*                    | *4084*   | *4226*   | *4250*   | *4230*   |
| * *                 | * * | * * | * * | * * |
| *LME  three-month price* |
| *US$/t*                  | * * | * * | * * | * * |
| * *                 | * * | * * | * * | * * |
| *98:*                    | *1484*   | *1392*   | *1344*   | *1300*   |
| *99:*                    | *1212*   | *1332*   | *1471*   | *1535*   |
| *00:*                    | *1652*   | *1502*   | *1587*   | *1527*   |
| *01:*                    | *1562*   | *1511*   | *1404*   | *1337*   |
| *02:*                    | *1395*   | *1377*   | *1329*   | *1358*   |

* *International Aluminum Institute** Inventories held by the NewYork Mercantile Exchange*

* Defined as the world excluding theCommonwealth of Independant States (C.I.S.), EasternEurope and China.

**Outlook****Demand is expected to rise at a slightly slower pace than supply in 2003,resulting in a forecast surplus of approximately 495 ktcompared to 450 kt in 2002. Most of the increase insupply is expected to come from expansions of existing capacity in Norway,India, Mozambique and Brazil, although there is some risk that droughtconditions could idle capacity in various areas of the globe.

**Western World Consumption**Western World demand was up in all end-use markets except beverage cans.Transportation remained the largest end-use market for aluminum and the fastestgrowing in 2002, up 5.5% to 8.6 Mt. Global light vehicle production rose anestimated 3% in 2002, including a 35% increase in China. Aluminum use continuedto increase in automobiles. The heavy truck and aerospace markets remainedweak. Alcan's revenues from the transportation market increased by 10% to $0.9billion.

((Graph))

***2002Western World Consumption by End-Use Market***

| *Containers and Packaging*  | *17%* |
|-----------------------------|-------|
| *Building and Construction* | *18%* |
| *Electrical*                | *9%*  |
| *Transportation*            | *30%* |
| Other                       | 26%   |

Consumption inthe containers and packaging market was up a slight 0.7% at 5.0 Mt. Can stockdemand declined by 0.2% in 2002, mirroring the U.S. decline in beverage can shipments. Other packaging, principally foil, rose by almost3%. Alcan's revenues from the packaging and beveragecan markets, which represented the largest share of the Company's revenuesincreased by 2% to $5.3 billion.

Demand fromthe building and construction sector rose a modest 1.7% to 5.1 Mt. Whilehousing starts reached a 16-year high of 1.7 million in the U.S., the buildingand construction market was very weak in Asia and Europe. Alcan's revenues from building andconstruction increased by 2% to $1 billion.

----

 

Afterdeclining more than 7% in 2001, the electrical market saw a 1.4% gain last yearto 2.4 Mt. Much of the increase took place in Brazil (up 21%) in response tothe power crisis of 2001. There was little change in other regions. Alcan's revenuesfrom the electrical market declined by 10% to $0.6 billion.

Demand fromall other markets increased by 2.3% in 2002 to 7.4 Mt. This includes 2.4 Mtfrom the machinery and equipment market, and 1.7 Mt from the consumer durablesmarket. Alcan's revenues from these other markets, including aluminum ingot,decreased by 5% to $4.7 billion.

**Merger with algroup**Alcan completed its merger with algroup in October2000. The merger was recorded under the purchase method of accounting, in atransaction that valued algroup at $5.7 billion. Thisincluded the issue by the Company of 116.1 million shares, having a marketvalue of $3.6 billion, and the assumption of algroup'sdebt totaling $2.1 billion.

As of the fourth quarter of 2000, results from the operations of algroup have been included in the financial results of Alcan.

((Graph))

***WesternWorld Consumption by Geographic Market***

| *North America*       | *33%* |
|-----------------------|-------|
| *South America*       | *7%*  |
| *Western Europe*      | *31%* |
| *Asia/Pacific/Africa* | *29%* |

***Alcan's 2002 Revenues by Geographic Market***

| *North America*       | *42%* |
|-----------------------|-------|
| *South America*       | *3%*  |
| *Western Europe*      | *40%* |
| *Asia/Pacific/Africa* | *15%* |

Mergerintegration synergies in excess of $200 million before tax have been achieved,with benefits of $157 million recorded in 2002 earnings. In 2001, Alcan benefited from about $70 million of synergies. Totalone-time disbursements necessary to obtain these synergies will amount to $89million, of which $19 million was incurred in 2002, with $55 million having beenspent up to 2001. 

**Merger synergies delivered $157 million in savings.**

((Graph))

**Resultsof Operations**

***NetIncome***

|                                             | **2002**  | 2001  | 2000  |
|---------------------------------------------|-----------|-------|-------|
| Net Income (US$M)                           | **374**   | 2     | 610   |
| Non-recurring*  (US$M)                      | **158**   | 482   | 37    |
| LME  (US$/t)                                | **1,365** | 1,454 | 1,567 |
| Exchange rate on balance sheet  translation |           |       |       |

* *Non-recurring items include bothnon-recurring charges (gains) and the effects of foreign currency balance sheettranslation.*

**Benefits from the Company's cost-saving initiatives,diversified portfolio and continued financial discipline helped offset lowerLME prices in 2002.**

Net income was $374 million in 2002 compared to $2 millionin 2001 and $610 million in 2000. The improvement in 2002 reflected the successof the Company's cost-saving initiatives together with higher overall volumes,a higher-value product mix, lower interest expense and the absence of goodwillamortization. These factors combined to offset lower LME prices and higherpension costs.

Net income in2002 included non-recurring charges of $117 million after-tax. The largest ofthese were provisions of $68 million for a ruling on a contract dispute with Powerex (a subsidiary of BC Hydro) and $22 million for theimpairment of certain businesses in Italy. In addition, charges of $21 millionwere taken for the closures of the BurntislandSpecialty Chemicals plant and the Banbury R&Dfacility in the U.K., $17 million relating to other merger synergies andrestructuring as well as $15 million in other special charges. These items werepartially offset by an after-tax gain of $26 million on the sale of more thanhalf of the Company's remaining portfolio investment in Nippon Light MetalCompany, Ltd.

----

 

Foreigncurrency balance sheet translation losses in 2002 were $41 million after-tax,and originated from the revaluation of deferred income taxes and other netmonetary liabilities mostly in Canada and in Australia. In 2001, there weregains amounting to $51 million after-tax and in 2000 gains of $40 millionafter-tax.

Anticipatingchallenging economic conditions, Alcan moved tosafeguard its competitiveness in 2001 by launching a restructuring programaimed at achieving annual savings of pre-tax $200 million. In 2002, the Companyrealized $178 million in cost reductions under the program and reached anannual run rate in excess of the $200 million by year-end. Costs to implementthe program were $270 million compared to an estimate of $276 million, half ofwhich involved cash expenditures for redundancy with the balance comprisingnon-cash items such as asset write-downs.

Results in2001 were adversely affected by large restructuring, impairment and otherspecial charges. Excluding these items, operating income declined from 2000 asa result of lower average metal prices, partially offset by merger synergiesand the inclusion of algroup results for a full year.

Non-recurringafter-tax charges for 2001 consisted mainly of the loss on the disposal ofoperations in Jamaica of $90 million, charges related to the restructuringprogram of $166 million, charges for the synergy program of $37 million, assetimpairment provisions of $88 million and increases to environmental reserves of$167 million. These charges were slightly offset by a favourableprior year's tax adjustment of $12 million.

Non-recurring after-tax charges for 2000 included non-cash merger relatedcosts of $25 million, rationalization charges of $30 million for the closure ofRogerstone Foil operations in the U.K. and of thevillage of Kemano, B.C. in Canada, offset by favourable prior years' tax adjustments of $57 million inCanada and in Germany.

**Economic Value Added (EVA®)**EVA® amounted tonegative $674 million in 2002 as compared to reported amounts of negative $468million in 2001 and positive $15 million in 2000. The decrease in 2002 reflectsa change in assumptions, lower metal prices, the negative effects of foreigncurrency balance sheet translation in the operating segments, and a full yearof commercial production at Alma. The decrease in 2001 was due in large part tothe impact of lower metal prices and difficult economic conditions, in additionto purchase accounting adjustments related to the algroupmerger.

In 2002, the Company changed its cost of capital assumption to 10% from9.5% for the purpose of calculating EVA® only, andstarted to include construction work-in-progress in the capital base. Had thesesame assumptions been used, EVA® would have been a negative $612 millionin 2001 and negative $187 million in 2000.

Restructuring benefits reached $178million.

((Graph))

***Revenuesand Aluminum Volumes***

|                                     | **2002**   | 2001   | 2000  |
|-------------------------------------|------------|--------|-------|
| Sales and operating revenues (US$M) | **12,540** | 12,626 | 9,148 |
| Total  aluminum volume * (kt)       | **4,437**  | 4,253  | 3,509 |

* *Includes ingot products androlled products shipments, conversion of customer-owned metal (tolling) as wellas aluminum used in engineered products and packaging.*

**Increased volumes helped offset a 6% reduction in theaverage 3-month LME price.**

((Graph))

***SalesPrice Realizations***

|                          | **2002**  | 2001  | 2000  |
|--------------------------|-----------|-------|-------|
| Ingot products (US$/t)   | **1,507** | 1,581 | 1,667 |
| Rolled  products (US$/t) | **2,295** | 2,385 | 2,455 |
| LME  (US$/t)             | **1,365** | 1,454 | 1,567 |

**Realizations for both ingot products and rolled productsdeclined in line with lower LME prices.**

----

 

**Sales and Operating Revenues**Sales and operating revenues remainedflat as increased volumes in primary metal and rolled product businesses, and thebenefits of a stronger euro, offset a 6% reduction in the average three-monthLME price.

**Costs and Expenses**Despite a 6% drop in average LME prices, cost of sales and operatingexpenses as a percentage of sales and operating revenues remained flat at 79%compared to 2001 (78% in 2000). The relative improvement was primarily due tothe benefits from cost initiative programs, including merger integrationsynergies and the 2001 restructuring program, as well as the reduction instart-up and pre-operating expenses related to the new smelter in Alma, Quebec.

Depreciationexpense was $859 million as compared to $820 million in the previous year and$545 million in 2000. This increase reflected depreciation on the Alma smelter,which reached its full capacity at the end of September 2001, and the Company's40% share of the Alouette smelter in Quebec that wasacquired in two tranches of 20% each in 2002. Theseincreases were offset in part by the sale of operations in Jamaica in May 2001.

Selling, administrative and general expenses, at $577 million, increasedby 5% from $547 million in 2001, and from $405 million in 2000. The increasein 2002 was due principally to higher pension expenses, and increasedconsultant fees related to performance improvement initiatives. Expressed as apercentage of sales and operating revenues, these expenses increased to 4.6%,representing a slight deterioration relative to the 2001 and 2000 rates of 4.3%and 4.4%, respectively.

((Graph))

***Alcan's 2002 Revenuesby Market***

| *Packaging*                 | *26%* |
|-----------------------------|-------|
| *Beverage cans*             | *16%* |
| *Aluminum ingot*            | *17%* |
| *Building and construction* | *8%*  |
| *Electrical*                | *5%*  |
| *Transportation*            | *7%*  |
| *Other*                     | *21%* |

Alcan's research and development (R&D) activities are closelyaligned with the needs of its core businesses, principally bauxite and alumina,smelting, fabrication, and packaging. The Company maintains a strong effort indeveloping sheet applications and technology for the automotive industry and isworking closely with a number of automotive companies in this regard. In 2002,the Company decided to focus its fabrication R&D in two locations,Kingston, Canada and Neuhausen, Switzerland, and istherefore closing its laboratories in Banbury, U.K.R&D expenses were $115 million for 2002 compared to $135 million in 2001and $81 million in 2000. Most of the increase from 2000 was due to theintegration of algroup and its dedicated research anddevelopment in the engineered products and packaging sectors.

((Graph))

***TotalAluminum Volume and Purchases***

|                             | **2002**  | 2001     | 2000     |
|-----------------------------|-----------|----------|----------|
| Total aluminum volume *(kt) | **4,437** | 4,253    | 3,509    |
| Total  purchases (kt)       | **1,804** | 1,822    | 1,670    |
| * *                    | * *  | * * | * * |

**Includes ingot products androlled products shipments, conversion of customer-owned metal (tolling) as wellas aluminum used in engineered products and packaging.*

**Increased primary production covered higher rolled productshipments and reduced the need for purchased metal.**

----

 

((Graph))

***Interest***

| * *                         | * * | * * | * * |
|----------------------------------|----------|----------|----------|
|                                  | **2002** | 2001     | 2000     |
| Capitalized interest             | **1**    | 30       | 81       |
| Interest  expense                | **203**  | 254      | 78       |
| Effective  average interest rate | **5.0**  | 6.1      | 7.1      |

**Interest expense fell as rates declined and debtdecreased.**

Both theeffective average interest rate and debt levels decreased in 2002 reflectinglower short-term interest rates and the Company's strong free cash flows. Totalinterest costs rose in 2001 due to the inclusion of algroupdebt for a full year and to the debt incurred to finance capital expenditures.

Interestcapitalized in the previous years related mainly to the construction of the newsmelter in Alma, Quebec. The Company does not expect to capitalize interest in2003.

The interestcoverage ratio, excluding non-recurring charges and the effects of foreigncurrency balance sheet translation, improved to 4.7 times in 2002 as comparedto 3.5 times in 2001, and was 5.9 times in 2000.

Other pre-tax expenses (net of other income) of $116 million, compared to$113 million in 2001 and $51 million in 2000, comprised mainly a $100 millionprovision for a ruling on a contract dispute with Powerex(a subsidiary of BC Hydro), partially offset by a gain on the sale of morethan half of the Company's remaining portfolio investment in Nippon Light MetalCompany, Ltd. of $36 million. In 2001, other expenses included a $123-millionloss on the disposal of the Jamaican operations. The 2000 figure included rationalizationcosts of $45 million as well as a non-recurring environmental provision of $14million.

**Income Taxes**The Company's effective tax rate,excluding non-recurring charges and foreign currency balance sheet translationeffects, was 36% in 2002 and 2001 compared to 38% in 2000. The effectiveGenerally Accepted Accounting Principles (GAAP) tax rate was 44% (42% in 2001and 29% in 2000). The differences between the effective tax rate on operatingearnings and the effective tax rate on a GAAP basis were the effects of foreigncurrency balance sheet translation and the income tax provided on non-recurringcharges of $36 million ($236 million in 2001; $89 million in 2000).

The foreigncurrency balance sheet translation included two portions. The first was theloss of $32 million ($33-million gain in 2001 and $18-million gain in 2000) onthe translation of deferred income taxes denominated in foreign currencies, aswell as other currency translation items, that ischarged directly to income taxes. The second relates to the translation of netmonetary liabilities in operating segments that resulted in losses of $9million ($18-million gain in 2001; $22-million gain in 2000) for which norelated tax provisions are required. 

The reported effective tax rate of 44% in 2002 (42% in 2001 and 29% in2000) compares to a composite statutory tax rate of 39% in Canada (40% in 2001and 2000). The difference represents principally the impact of the foreigncurrency items referred to above, net of unrecorded tax benefits on losses,investment and other allowances and lower foreign tax rates. A fullreconciliation between these two rates is presented in note 9 to the financialstatements.

**Goodwill**In 2002, the Company adopted new accounting standards on goodwill. As aresult of this change, goodwill is no longer being amortized. Goodwillamortization was $73 million and $16 million in 2001 and 2000, respectively.Also under these standards, the Company completed a review of goodwill andrecorded an impairment charge of $748 million as a reduction in openingretained earnings as of January 1, 2002. The adjustment reflected the declinein end-market conditions in the period from the algroupmerger in October 2000 to January 1, 2002. This adjustment has no impact on thefuture growth of the Company, nor did it affect its cash flows.

----

 

**Debt decreased as a result of strong free cash flow.**

**CashFlows and Liquidity**

**OperatingActivities**

((Graph))

**Cash from Operations and Free Cash Flow**

|                              | **2002**  | 2001  | 2000  | 1999  | 1998 |
|------------------------------|-----------|-------|-------|-------|------|
| Free Cash Flow (US$M)        | **683**   | 75    | -582  | -135  | -214 |
| Cash  from Operations (US$M) | **1,614** | 1,387 | 1,066 | 1,182 | 739  |

*Free Cash Flow (US$M)Cash from Operations (US$M)*

**Cash from operations reached record levels in 2002.**

The Companyachieved an all-time record cash from operations in 2002,despite lower LME prices, as a result of continued financial discipline. Theimprovement in 2001 was attained despite lower net income, and resulted mainlyfrom improved operating working capital.

Thesubstantial increase in free cash flow (calculated by subtracting dividends andcapital expenditures from cash from operating activities) reflected higher cashfrom operations as well as lower capital expenditures.

Continued focus on working capital management resulted in a decline in netoperating working capital of $155 million in 2002, in addition to the decreaseof $139 million in 2001. Net operating working capital increased in 2000 by$223 million. The improvement in 2001 and 2002 was due to reductions in tradereceivables and inventories (30 kt over the twoyears), offset in part by a decrease in payables. The increase in 2000 was duemainly to a refinancing of trade payables by short-term borrowings in Korea andthe reduction in payables related to the Alma smelter in Quebec.

**Investment Activities**Alcan adopted MaximizingValue as its governing objective in 2001 and as such uses a value-basedapproach to identify investment opportunities. A number of resultingvalue-maximizing initiatives were implemented in 2002.

Financialdiscipline resulted in capital expenditures that were well below depreciationin 2002. Capital expenditures included amounts related to the Alma smelterproject of $250 million in 2001 and $850 million in 2000. The Company expectsto incur $800 to $850 million of capital expenditures in 2003.

During 2002,the Company acquired a 40% joint venture interest in the Aluminerie Alouette consortium. The first trancheof 20% was purchased from the Sociétégénérale de financement (SGF) andthe second tranche of 20% from the Corus Group plc at costs of $172 million and $171 million,respectively, subject to certain post-closing adjustments. 

Asset disposals in 2002 were mainly comprised of the molded glassoperations in the U.S. and China and the rolled products circles operations inItaly, as well as three company-owned ships and more than half of the Company'sremaining portfolio investment in Nippon Light Metal Company, Ltd.

((Graph))

**Capital Expenditures and Depreciation**

|                             | **2002** | 2001  | 2000  | 1999  | 1998 |
|-----------------------------|----------|-------|-------|-------|------|
| Capital Expenditures (US$M) | **728**  | 1,110 | 1,491 | 1,169 | 805  |
| Depreciation  (US$M)        | **859**  | 820   | 545   | 477   | 462  |

**Capital expenditures were well below depreciation.**

----

 

**Financing Activities**In January 2002, the Company redeemed allof its $150-million 8 7/8% debentures originally due on January 15, 2022, for104.15% of their face value. A loss of $6 million was recognized in the firstquarter of 2002. The redemption was financed by commercial paper borrowings ata significantly lower rate of interest. In September 2002, the Company issued$500-million of 4 7/8% global notes due September 15, 2012. Net proceeds wereused to repay existing long-term debt and commercial paper borrowings.

The quarterly common share dividend remained at 15 cents per share in2002. Total dividends paid (common and preference) to shareholders were $197million in 2002 compared to $200 million in 2001 and $155 million in 2000.

((Graph))

**Total Borrowings and Equity**

|                                            | **2002**  | 2001  | 2000  | 1999  | 1998  |
|--------------------------------------------|-----------|-------|-------|-------|-------|
| Borrowings (US$M)                          | **3,867** | 4,091 | 4,608 | 1,489 | 1,789 |
| Equity*  (US$M)                            | **8,775** | 8,902 | 9,253 | 5,738 | 5,629 |
| Debt  as a percent of invested capital (%) | **31**    | 32    | 33    | 21    | 24    |

** Includes minority interests andpreference shares.*

***Total borrowings declined during 2002, resulting in animproved debt/equity ratio.***

Cash and timedeposits totaled $110 million at the end of 2002, which is slightly lower thanthe $119 million at the end of 2001. Alcan hascommitted credit facilities totaling $2 billion. The Company expects that cashfrom operations, combined with the $2 billion still available under its creditfacilities, will be more than sufficient to meet the cash requirements ofoperations, planned capital expenditures and dividends. In addition, theCompany believes that its ability to access global capital markets, consideringits investment grade rating, should provide any additional liquidity that maybe required to meet unforeseen events.

**Environment, Health and Safety (EHS)**Continuous improvement in performancewhile increasing value for stakeholders is the core feature of Alcan's EHS approach. In 2002, the Company began toimplement its revised EHS Policy. An initiative entitled "A Call to Action" wascascaded throughout the organization to capture employee feedback on improving Alcan's safety record at an even faster rate. Otherdevelopments during 2002 included better integration of EHS into businesssystems and the development of improved performance metrics.

Alcan produced its first sustainability report, entitled Alcan's Journey TowardsSustainability, that charts the Company's progress in measuring andmanaging its economic, environmental and social impacts and also draws adefinitive link between Alcan's business success andits EHS activities. Furthermore, Alcan was selectedfor the Dow Jones Sustainability World Index and for the GobalReporters Survey conducted by the United Nations Environment Program (UNEP) andSustainAbility in recognition of its on-going effortsto implement sustainability within its businesses.

Finally, theCompany won a UNEP award for excellence in sustainable development, a result ofpromoting the benefits of recycling and fostering an entrepreneurial spiritamong school children around the world.

Alcan believes that existing and planned EHS measures allow itto exceed statutory and regulatory demands while improving its competitiveposition and efficiency. Alcan's capital expendituresto protect the environment and improve working conditions were $67 million in2002. Similar expenditures for 2003 and 2004 are projected to be $106 millionand $147 million, respectively. In addition, expenditures charged againstincome for environmental protection were $140 million in 2002, and are expectedto be $137 million both in 2003 and 2004.

**Operating Segment Review**At the beginning of 2002, the Companyre-aligned its management structure from four to six business groups in orderto improve its performance, move closer to its markets and increaseresponsiveness. The six business groups or segments are Bauxite, Alumina andSpecialty Chemicals; Primary Metal; Rolled Products Americas and Asia; RolledProducts Europe; Engineered Products; and Packaging. In addition to EVA®, EBITDA(Earnings Before Interest, Taxes, Depreciation andAmortization) continues to be a key financial performance measure for theoperating segments. Additional operating segment information is presented innote 28 to the financial statements.

----

 

((Graph))

**Alcan's 2002 Revenues byBusiness Group**

| *Bauxite, Alumina and Specialty  Chemicals* | *3%*  |
|---------------------------------------------|-------|
| *Primary Metal*                             | *20%* |
| Rolled Products Americas and Asia           | 27%   |
| *Rolled Products Europe*                    | *15%* |
| *Engineered Products*                       | *13%* |
| *Packaging*                                 | *22%* |

Theinformation that follows is reported by operating segment on a stand-alonebasis. Transactions between groups are conducted at arm's-length and reflectmarket prices. Accordingly, earnings from Bauxite, Alumina and SpecialtyChemicals as well as from Primary Metal operations include profit on alumina ormetal produced by the Company, whether sold to third parties or used in theCompany's fabricating and packaging operations. Earnings from the downstreamoperations represent only the value-added portion of the profit from rolledproducts, engineered products and packaging products.

**Bauxite, Alumina and Specialty Chemicals**The Bauxite, Alumina and SpecialtyChemicals (BASC) group operates five refineries and two specialty chemicalsplants and has seven wholly or partially owned bauxite mines/deposits. Thealumina produced is generally used to supply the Company's own smeltingrequirements. BASC spent much of the last few years repositioning its businessportfolio around low-cost bauxite and alumina assets in Australia and has movedfrom the fourth to the second cash-cost quartile in the industry.

In 2002,record production levels at the Gove refinery in Australia and Vaudreuil in Canada refineries helped offset the decreasein production due to the sale of the Jamaican operations in the secondquarter of 2001.

In the firstquarter of 2001, the Company acquired the remaining 30% of the Gove aluminarefinery and related bauxite mine at a cost of $379 million (subject to certainpost-closing adjustments) bringing its interest in these assets to 100%. Thislow-cost refinery has total annual capacity of 1.9 Mt and set productionrecords in 2001 and 2002. This investment has helped the Company to furtherreduce its average alumina cost, while giving it access to Gove'ssignificant low-cost expansion potential in the future.

On May 31,2001, the Company completed the sale of its operations in Jamaica, which had anannual capacity of some 1.1 Mt of alumina.

As a result ofa value-based review of its activities in specialty chemicals, Alcan announced in January 2002 that it would exit thisbusiness in Europe due to the unprofitable nature of this market, and becauseof its disadvantaged cost position. A significant effort was made to sell the Burntisland Specialty Chemicals plant in the U.K., but asuccessful transaction could not be structured. Consequently, Alcan ceased operations in November 2002, following aconsultation process with employees and union representatives. 

The decreasein production and lower alumina prices, partially offset by improved productioncosts, contributed to lower EBITDA in 2002. Higher production and substantialcost reductions, partially offset by lower alumina prices, contributed tohigher EBITDA in 2001 compared to 2000.

Averagerealized prices for alumina decreased both in 2002 and 2001 in line with LMEprices. The Company continues to pursue lower costs in the face of ongoingpricing pressure.

((Graph))

**Sales and Production - BASC**

|                           | **2002**  | 2001  | 2000  |
|---------------------------|-----------|-------|-------|
| Intersegment sales (US$M) | **757**   | 771   | 536   |
| Third-party  sales (US$M) | **435**   | 477   | 470   |
| Alumina  production (kt)  | **4,271** | 4,625 | 3,941 |

***Lower production in 2002 reflected the earlier sale ofJamaican operations partly offset by record production at Gove and Vaudreuil.***

----

 

((Graph))

**EBITDA - BASC**

|               | **2002**  | 2001     | 2000     |
|---------------|-----------|----------|----------|
| EBITDA (US$M) | **249**   | 301      | 265      |
| LME  (US$/t)  | **1,365** | 1,454    | 1,567    |
| * *      | * *  | * * | * * |

***Lower alumina prices and production contributed to lowerEBITDA in 2002.***

**Production costs hit record lows for second consecutiveyear.**

Productioncosts were 6% better in 2002, setting a new record for a second consecutiveyear, due to the divestment of high-cost operations in Jamaica, lower rawmaterial prices and to ongoing cost reduction efforts. Production costsdecreased by 3% in 2001 compared to 2000, as a result of divestment activities,ongoing cost reduction efforts, including synergies from the algroup merger, and improved productivity.

In the secondquarter of 2002, a production optimization project at Gove was initiated. This$40-million project will increase the refinery's capacity by100 kt/y and is expected to furtherreduce costs on a per tonne basis. Construction workshould be completed in the first quarter of 2003.

((Graph))

**Sales and Production - Primary Metal**

* *

|                           | **2002**  | 2001  | 2000  |
|---------------------------|-----------|-------|-------|
| Intersegment sales (US$M) | **2,205** | 2,117 | 1,674 |
| Third-party  sales (US$M) | **2,447** | 2,546 | 1,655 |
| Aluminum  production (kt) | **2,238** | 2,042 | 1,562 |

***Alma and Alouette were majorcontributors to a 10% increase in production.***

**Specialty Chemicals**Operating results for 2002 were 24% lowerthan in 2001 mainly due to an operating loss of $10 million attributable to theEuropean business from which the Company exited in November 2002.

Operatingresults for 2001 were 35% lower than in 2000. While the European business underwenta major restructuring that streamlined the organization and improved processefficiencies, worldwide operations were adversely impacted by the economicslowdown resulting in lower shipments and prices.

**Primary Metal**Alcan is the secondlargest aluminum producer in the Western World. Its Primary Metal groupoperates or has interests in sixteen smelters worldwide, 62% of which aresupplied by company-owned power (compared to the industry average of 28%) - amajor competitive advantage. With its focus on continuous improvement intechnology and cost, the Company has an excellent low-cost primary metalposition with 50% of its smelting capacity in the top tier of industry cashcost. In addition to LME-grade ingot, Primary Metal produces value-added aluminumin the form of sheet ingot, extrusion billet, cable rods and foundry ingot forother Alcan plants or third-party customers servingthe transportation, building and construction, consumer goods and machinerymarkets.

A full year ofproduction at Alma, the 40% acquisition of Alouetteand capacity restarts contributed to the 10% increase in production. 

Eleven of thethirteen smelters operating without any water restrictions set all-timeproduction records in 2002. The Alma smelter reached full production of 405 kt in 2002, after all pots became operational on September30, 2001, as compared to the 272 kt produced in 2001. 

As part of itsmaximizing value initiatives, Alcan acquired a 20%interest in the Aluminerie Alouetteconsortium from Sociétégénéralede financement (SGF) in April 2002. Later, inSeptember 2002, the Company purchased an additional 20% interest in Alouette from Corus Group plc,bringing its total participation to 40%. Alouette isa world-class aluminum smelter located in Sept-Îles,Quebec, with an annual capacity of 243 kt/y;the acquisition will help the Company leverage value maximizing synergieswithin its Quebec smelter system. 

----

 

In 2002,production at the Kitimat smelter in British Columbiawas lower due to production cut-backs that occurred in 2001 as a result ofwater shortages. However, because water levels improved in the Nechako Reservoir in B.C. during 2002, 60 kt/y of idled capacity was gradually restarted beginning inthe third quarter.

Most of Alcan's smelter production is in the form of value-addedingot. Sales of these products increased by 12% in 2002 and in fact were atall-time record levels for each of the three major products: sheet ingot,foundry ingot and extrusion billet.

Recordproduction was also achieved at the partially owned anode plant, Aluchemie, in the Netherlands and calcinedcoke plant in Strathcona, Alberta, as well as at theCompany's power facilities in Quebec.

Additionalsales volumes and lower operating costs (including the reduction in Almastart-up expenses) and benefits from merger synergies and the restructuringprogram more than offset a 6% reduction in LME prices and the unfavourable effects of foreign currency balance sheettranslation of $10 million in 2002.

The mainfactors contributing to the increase in EBITDA in 2001 were additionalproduction volumes, lower operating costs and initial merger synergy savings aswell as a gain on foreign currency balance sheet translation of $18 million,partially offset by lower ingot realizations and increased start-up costs forthe new Alma smelter.

((Graph))

**EBITDA - Primary Metal**

|                                             | **2002**  | 2001  | 2000  |
|---------------------------------------------|-----------|-------|-------|
| EBITDA (US$M)                               | **858**   | 818   | 729   |
| Average  third party realized price (US$/t) | **1,533** | 1,614 | 1,747 |
| LME  (US$/t)                                | **1,365** | 1,454 | 1,567 |

***Higher volumes and improved costs more than offset a 6%reduction in LME prices.***

The decrease of $78 /t in total metal production costs in2002 was attributable to a decrease in Alma start-up expenses, lower rawmaterial costs and the benefits from the merger synergy and restructuring programs.

The largest ofthe special charges in 2002 was related to Kitimat'sidled capacity. The charges also included Alma pre-operating and start-upexpenses of $10 million ($140 million in 2001 and $73 million in 2000). 

((Graph))

**Cost of Production - Primary Metal**

|                             | **2002**  | 2001  | 2000  |
|-----------------------------|-----------|-------|-------|
| Special charges (US$/t)     | **43**    | 111   | 97    |
| Cost  of production (US$/t) | **1,204** | 1,214 | 1,233 |

***Total metal production costs for the year declined by$78/t.***

In September2002, the five co-venturers of Alouetteannounced their approval of the phase II expansion project, which will increaseproduction capacity to 550 kt/y.While the project commenced in late 2002, Alcan's$350-million contribution to the cost will not begin until 2004. The new potswill gradually come on line starting in February 2005 with completion expectedin the fall of 2005. The expansion project was predicated on a 500 MW block ofpower that was awarded to Alouette by the provincialpower authority.

A $66-million,44 kt/y expansion project in Soeral,Norway, in which Alcan has a 50% interest, is onbudget and expected to be completed in the first quarter of 2003.

The highamperage/low energy project at the Lynemouth and Lochaber smelters in the U.K. was approved in June 2002 for$38 million. By increasing the amperage in existing pots, this project willresult in additional production of 16 kt/y, improvedcurrent and power efficiencies and reduced CO2 emissions. 

----

 

Constructionof a pot-relining centre at the Alma smelter was approved in January 2003 for$39 million. The centre will include processes for pot demolition, relining,cathode rodding, as well as minimum storage andshipping facilities for spent potlining.

A project tobuild the Candonga hydropower plant on the Doce River in Brazil, with a total installed capacity of140 MW, was approved in 2001. Alcan is participatingequally in this project with CVRD (Companhia Vale doRio Doce). Construction began in July 2001 with thefirst turbine expected to be in operation by November 2003. Alcan'sshare of the cost is estimated at $48 million. The project is 75% complete, onbudget and ahead of schedule. 

Othervalue-maximizing options were developed in 2002. For example, on June 6, 2002,the Company announced an agreement in principle to form a joint venture with Qingtongxia Aluminum Company (QTX), a leading aluminumcompany in China. The proposed joint venture provides an opportunity for Alcan to acquire a 50% share in a 130 kt/yaluminum smelter that utilizes modern, pre-bake technology. In addition, Alcan would have an option for a 50% share in the plannedand approved 150 kt/y expansion of the smelter. Duediligence and the development of an implementation plan were the main focusesin the latter part of 2002, in preparation for formal negotiations with QTX andChinese officials in 2003.

**Our 40% stake in Alouetteexemplifies value-maximizing investment.**

**Rolled Products Americas and Asia**Alcan Rolled Products Americas and Asia (RPAA), with sixteenproduction facilities in six countries, is focused on meeting the ever-changingneeds of its global and regional fabrication customers through the rapidtransfer and adoption of best technology and management practices. The RPAAgroup manufactures and sells high-quality sheet and light gauge rolled productsserving numerous markets including beverage, automotive, construction, andother durable goods. 

((Graph))

***Sales and Realized Prices - RPAA***

|                                  | **2002**  | 2001     | 2000     |
|----------------------------------|-----------|----------|----------|
| Sales (US$M)                     | **3,327** | 3,316    | 3,391    |
| Average  realized price *(US$/t) | **2,218** | 2,359    | 2,401    |
| * *                         | * *  | * * | * * |

** Excluding conversion ofcustomer-owned metal*

***Revenues increased despite lower price.***

The salesincrease was driven by higher volumes despite lower average realized prices. Highlights for 2002 included record shipments in North America andAsia despite difficult economic and market conditions. Volumes increasedby 4% in North America and 23% in Asia, offsetting market declines in SouthAmerica caused largely by currency volatility. Growth in can demand resulted inhigher sales volumes through the Company's Asian assets, as can companyqualifications were completed during the year. Alcanalso made further inroads into the North American beverage can and industrialproducts markets, as well as in the South American can market. Increased demandfor can stock in North America was attributable to new brand introductions andpackaging innovations by the major soft drink companies. 

RolledProducts Americas and Asia revenues can be broken down by end-use market asfollows:

((Graph))

| * *             | * * |
|----------------------|----------|
| Can and Closures     | 54%      |
| *Distribution*       | *8%*     |
| *Foil and Foilstock* | *17%*    |
| *Industry*           | *10%*    |
| *Automotive*         | *7%*     |
| *Other*              | *4%*     |

The financialresults for RPAA in 2002 reflected a significant increase in EBITDA compared to2001. This was attributable to volume increases along with particularlysuccessful cost reduction efforts in North America and the favourableimpact of metal price movements. These factors more than offset the negativeimpact of a stronger Korean won and a volatile Brazilian economic situation andcurrency. 

----

 

Theimprovement in 2001 EBITDA was mainly due to higher can sheet volume in SouthAmerica and the benefits from cost reduction initiatives, partially offset byhigher energy prices. 

In the pastdecade, Alcan has made important investments in theexpansion, upgrade and acquisition of rolled products facilities in North andSouth America and Asia with a commitment to innovation, cost reduction,manufacturing excellence and maximizing value for the shareholder.

***RPAA Business Units***In North America, record shipments wereachieved in 2002 within the industrial products, container, industrial finstock and converter foil markets. In addition to the increase in overallvolumes, RPAA's shipments of higher value-added canstock grew by 12% as a result of the focus on value-based management. Over thepast few years, industry over-capacity in the common alloys market wasrationalized through the closing of two competitors' plants, which helpedstabilize the market and improve margins. In response to global over-capacityin the light gauge sheet and foil markets and heightened competition fromimports, Alcan announced that it would reduceproduction at its Fairmont, West Virginia, plant effective in the first quarterof 2003. 

((Graph))

***EBITDA and Shipments - RPAA***

|                   | **2002**  | 2001  | 2000  |
|-------------------|-----------|-------|-------|
| EBITDA (US$M)     | **367**   | 296   | 261   |
| Shipments  * (kt) | **1,613** | 1,522 | 1,487 |

** Includes shipments of rolledproducts and conversion of customer-owned metal.*

***Higher volumes and lower costs led to improved EBITDA.***

In 2002, theautomotive sector continued to be a growth market for Alcan.Automotive sheet sales were up over 2001 as North American automobile demandincreased in response to financing incentives offered by the automakers. New Alcan automotive sheet programs for the year includedinnovations in sport utility vehicle (SUV) lift-gate and hood technologiesresulting from continued close co-operation with customers.

South Americaneconomies were severely impacted in 2002 by political uncertainty in Brazil,Argentina and Venezuela. The Brazilian real fell 53% during the year, whichreduced demand for U.S.$-based aluminum products andled to an 8% drop in sheet shipments. Alcan isturning to new export markets and new product introductions, as well asfocusing on higher value-added products, to help mitigate the decline in localdemand. As the only company capable of producing can sheet in South America, Alcan is well positioned to benefit from the improvingeconomic trend that began in late 2002. 

In Asia, Alcan Taihan Aluminum Limited(ATA) in Korea achieved a major milestone when, after two and a half years ofdedicated efforts, it qualified its can-body stock with 28 customer canmanufacturing plants in Australia, China, Korea, Malaysia, Singapore, Taiwan,Thailand and Vietnam. Alcan became the number twosupplier to the Chinese rolled products market, which continues to benefit fromdouble-digit growth in demand. 

***Recycling***During 2002, Alcanremained the world's leader in recycling used aluminum beverage cans (UBCs). Alcan's U.S. operationsrecycled 24 billion UBCs, representing an estimated45% of all aluminum cans recycled in the United States. RPAA operates threealuminum can recycling plants located in Oswego, New York; Berea, Kentucky; andGreensboro, Georgia. At Alcan's Berea recyclingfacility, the largest UBC recycling facility in the world, production increasedby nearly 22% as a result of improved manufacturing efficiencies. 

In SouthAmerica, Brazil with its 85% recycling rate was recognized as the world-wideleader among countries where UBC recycling is not legally mandated. At itsstate-of-the-art recycling operation in Pinda, Alcan recycled 36% of these cans in addition to metalreceived from a third-party metal recycler and utilized 59% of the recycledmaterial to produce can stock. 

In Korea, ATA's Ulsan plant commissioned anew aluminum recycling furnace that is being used to process scrap from its ownoperations and from customers. The 30-tonne capacity furnace uses technologythat was developed by Alcan, which enhances the scraprecovery rate. 

**Rolled Products Europe**Rolled Products Europe (RPE) produces avariety of flat rolled products through its eleven plants, with Alunorf in Germany as its hub. RPE is focused on fullycapturing the integration synergies from the merger with algroup,and continues to optimize its product portfolio and its production system tobetter serve its customers and reduce costs. RPE supplies a number of Europeanmarkets including beverage can, industrial sheet andplate, foilstock, lithographic and automotive. 

----

 

Higherrealized prices and a 10% increase in shipments resulted in increased sales. RPE's realized prices improved relative to LME prices as aresult of portfolio changes towards higher value-added products in moreeconomically attractive markets.

The Europeanbeverage can market grew 5% in 2002, mainly driven by the growing demand inEastern Europe. RPE can volumes increased at a faster pace than growth indemand. The distribution market was slow at the beginning of the year, butrecovered significantly after the summer period, ending 1.5% above 2001 levels.

Most end-usermarkets remained weak all year. The industrial plate sector suffered fromdifficulties in the aerospace market, while the recovery in the constructionmarket by-passed Germany. The trend toward substitution of aluminum for steelin these markets continued, exemplified by the demand for aluminum automotivesheet which remained strong, with volumes up 16% over 2001.

((Graph))

***Sales and Realized Prices - RPE***

|                                   | **2002**  | 2001  | 2000  |
|-----------------------------------|-----------|-------|-------|
| Sales (US$M)                      | **1,814** | 1,735 | 1,666 |
| Average  realized price * (US$/t) | **2,467** | 2,448 | 2,571 |

** Excluding conversion ofcustomer-owned metal.*

***Higher prices and shipments resulted in increased sales.***

**Significant volume increases drive Rolled Products' EBITDAperformance.**

RolledProducts Europe third-party revenues can be broken down by end-use market asfollows:

((Graph))

| Can and Closures   | 23% |
|--------------------|-----|
| Distribution       | 17% |
| Foil and Foilstock | 7%  |
| Industry           | 16% |
| Lithographic       | 10% |
| Automotive         | 9%  |
| Other              | 18% |

((Graph))

***EBITDA and Shipments - RPE***

|                   | **2002** | 2001 | 2000 |
|-------------------|----------|------|------|
| EBITDA (US$M)     | **132**  | 83   | 144  |
| Shipments  * (kt) | **836**  | 759  | 696  |

** Includes shipments of rolledproducts and conversion of customer-owned metal.*

***Increased volumes and lower costs resulted in higherEBITDA.***

Increasedvolumes, at a sustained higher-value mix, as well asbenefits from merger synergy and restructuring programs resulted in higherEBITDA. The strengthening of the euro and Swiss franc against the U.S. dollarcontributed approximately $7 million to EBITDA in 2002. 

Despiteincreased volumes with the inclusion of algroup's operationsfor a full year, lower EBITDA in 2001 was mainly due to the economic downturnin the second half of the year and lower price realizations. 

After avalue-based review of alternatives, Alcan announcedin late 2001 the restructuring of its rolled products businesses in the U.K.and Italy. The aim of these measures was twofold: to make the businesses morecompetitive in the face of economic difficulties; and to put them in the bestpossible position to meet future industry needs. 

----

 

Virtually allof these measures were completed on plan by the fourth quarter of 2002. Alcan sold its circles business in Pieve,Italy. In addition, the restructuring and downsizing of the rolling mill at Rogerstone in the U.K. have been completed, helping tooptimize the product portfolio and align production capacity across Alcan's European rolling system.

During 2002,the Banbury R&D facility was closed and the mainresources and programs were reallocated to Neuhausen,Switzerland and Kingston, Canada. 

***Recycling***In the U.K., Alcanhas an infrastructure of over 300 independent recyclers. In addition to UBCs, post-consumer and can process scrap support adedicated recycling facility at Latchford in the U.K.with a total annual capacity of 148 kt. 

This facilitysignificantly increased its scrap intake and produced over 10% more sheet ingotthan in 2001. 

**Engineered Products**EngineeredProducts manufactures extruded and cast aluminum products, including cable,wire and rod, as well as composite materials such as aluminum-plastic, fibre-reinforced plastic and foam-plastic. The groupprovides value-added solutions for weight reduction in the automotive and masstransportation markets, as well as for the building façade and display markets.Engineered Products also has the largest aluminum cable position in NorthAmerica. Its focus is to capitalize on profitable growth opportunities byleveraging its superior technology on a global basis.

((Graph))

***Sales and EBITDA -Engineered Products***

|                                     | **2002**  | 2001  | 2000 |
|-------------------------------------|-----------|-------|------|
| EBITDA  (US$M)                      | **96**    | 103   | 55   |
| Sales and operating revenues (US$M) | **1,645** | 1,661 | 724  |

***Difficult businessconditions contributed to slightly lower EBITDA.***

EBITDA wasslightly below 2001 due to the difficult business conditions in light of thestrengthening euro, particularly in extrusions and distribution markets inEurope. 

The increasein both revenues and EBITDA in 2001 was mainly due to the inclusion of algroup for the full year, as well as good volume growth inthe first half of the year. 

Alcan's engineered products revenues can be broken down bybusiness as follows: 

((Graph))

| Extrusions          | 24% |
|---------------------|-----|
| Composites          | 19% |
| Automotive          | 12% |
| Cable               | 26% |
| Service Centres     | 13% |
| Mass Transportation | 6%  |

***Engineered Products Business Units***EBITDA for Alcan'sNorth American cable business is comparable to 2001. A softening trend in thelatter part of the year followed a strong market in the first quarter. Totalshipments were flat with increasing rod sales offset by lower building wire andcable sales. Prices remained under pressure throughout the year, reflectingdifficult conditions in customer markets. 

The overallvolume for Alcan's extrusions was slightly below thatof 2001. Market share in the soft alloys and large profiles industry waslargely maintained, while slight increases in hard alloys and supplies to themass transportation market were achieved. However, specialized industry volumeswere lower due to depressed end-use markets, principally machinery and capitalgoods. 

The use ofcomposites in transport and industrial applications continued to grow,particularly in the wind-power generation market, where the Company is aleading supplier. While display volumes and prices remained under pressurethroughout the year, architectural applications in Europe and North America hadanother year of strong performance. Geographic coverage was improved in 2002with the opening of a new plant for the production of Alucobondin Bahia, Brazil.

----

 

Overall carproduction in Europe decreased by 1.5% compared to the previous year. New car sales dropped by 3.1% in Western Europe and 1.9% in theU.S. Although the market success of each new model is different, Alcan was able to maintain sales and further increase orderbacklogs for structural parts, including bumper systems, extrusions andhigh-pressure die-cast structural parts. For example, sales of cockpit carriersshowed strong growth in 2002. 

Alcan's mass transportation systems again achieved record sales in2002. This trend reflects the continuing growth in public-sector projects,mainly involving new high-speed trains, metro trams and light-rail systems. The"Transrapid" magnetic levitation train project inShanghai, China, received much market and media attention for example.

**Packaging**With 2002 revenues of $2.8 billion, Alcan Packaging has leading positions in the end-usemarkets of food, pharmaceutical, cosmetic and personal care, and tobaccopackaging markets. It offers a variety of packaging solutions using plastics,paper and paperboard as well as aluminum and other materials. Alcan Packaging is capitalizing on profitable growthopportunities, both internally and externally, created by enhanced productranges, broader distribution systems and new customer relationships formed bythe algroup merger. The group is also focused onreorganizing its European foil rolling and container businesses.

Benefits fromcost initiatives, largely related to merger synergy and restructuring programs,compensated for the weak economic environment resulting in comparable EBITDAperformance relative to 2001. 

Marginpressures associated with customer consolidation and over-capacity in aweakened economic environment characterized packaging markets in 2002. Demandfor food, pharmaceutical and technical applications softened in the firstquarter of 2002 reflecting general economic uncertainty, then graduallyrecovered as the year progressed. The divestiture of the molded glassoperations in the third quarter also had an unfavourableimpact on sales and operating revenues compared to 2001.

Both revenuesand EBITDA increased in 2001 largely due to the inclusion of algroup businesses for the full year.

((Graph))

***Sales and EBITDA -Packaging***

|                                     | **2002**  | 2001  | 2000  |
|-------------------------------------|-----------|-------|-------|
| EBITDA  (US$M)                      | **347**   | 352   | 73    |
| Sales and operating revenues (US$M) | **2,812** | 2,861 | 1,216 |

***Significant costimprovements helped offset a weak economic environment.***

Alcan's packaging revenues can be broken down as follows:

((Graph))

**By Market**

| *Food*               | *43%*    |
|----------------------|----------|
| *Pharmaceutical*     | *18%*    |
| *Tobacco*            | *15%*    |
| *Cosmetics*          | *7%*     |
| *Other*              | *17%*    |
| * *             | * * |
| **By Type of Input** |          |
|                      |          |
| *Plastic and Paper*  | *41%*    |
| *Aluminum*           | *38%*    |
| *Paperboard*         | *12%*    |
| *Glass*              | *7%*     |
| *Steel*              | *2%*     |
| * *             | * * |
| **By Region**        |          |
|                      |          |
| *Europe*             | *56%*    |
| *North America*      | *37%*    |
| South America        | 3%       |
| *Asia*               | *4%*     |

 

----

 

**Acquisition of VAW Packaging**At the close of 2002, an agreement wasfinalized to acquire VAW Flexible Packaging (FlexPac)from Norsk Hydro for approximately $370 million. Theproposed acquisition represents an excellent platform for profitable growth andis a good example of Alcan's focus on maximizingvalue. It would significantly enhance Alcan's globalposition in packaging, expanding its footprint technologically and regionally,particularly in the developing markets of Asia. On completion, Alcan would have world-class flexible packaging operationsin Europe, Asia and the Americas. FlexPac includes 14plants in 8 countries and 5,400 employees and posted consolidated sales of $680million in 2001 at today's exchange rates. Based upon projected earnings for2002, the purchase price represents a multiple of approximately 6.9 timesEBITDA.

**Packaging Business Units**Foil and technical products continued toimplement major restructuring programs in the U.K., Germany and Switzerland,which are key to maximizing shareholder value. Tomaintain profitability, these aggressive cost reduction programs were needed tooffset declines in major markets, particularly in the construction industry.

Flexible foodpackaging, particularly in Europe, was the most significantly impacted by pricepressure. European volumes weakened in the early months of the year, althoughNorth American volumes remained strong. EBITDA was nonetheless sustained, andin the case of North America significantly improved, both through leveraging Alcan's strong service offering to key accounts and bysuccesses in restructuring and other cost initiatives. 

Operationsbegan in late 2001 at a new contract packaging and specialty carton facility inPennsylvania, building on Alcan's success in anothersimilar plant in Canada. New investments were also made to relocate onefacility and include it with the construction of a dedicated plant for a majorcustomer in Spain.

Alcan's food container business counterbalanced the generaleconomic slowdown in Europe with its cost initiatives and, despite lower sales,recorded improved profits.

Followingvolume declines in pharmaceutical and cosmetics packaging in the last quarterof 2001, the recovery in 2002 has been mixed. Although flexible pharma packaging has rebounded well, product introductionsby customers in plastics as well as in specialty cartons and contract packaginghave been subject to delays. Aerosol can volumes did recover during the year,but pricing pressure continued due to European overcapacity. The Company'smolded glass operations were sold at the end of the third quarter in 2002, asthey were disadvantaged from a competitive standpoint. Included in the yearwere revenues of $88 million and operating losses of $6 million from theseoperations.

Alcan's tobacco packaging business reached a new milestone in2002, with U.S. carton sales growing by 50% over the prior year as a result ofcommissioning a new plant in Richmond, Virginia during 2001. The second year ofthe new venture in Kazakhstan saw the achievement of additional new customervolume, establishing a strong foothold in the markets of western Asia.Inner-liner volumes also remained very buoyant throughout the year in line withthe projections underpinning Alcan's new metallizing and laminating plant in Berlin, Germany, whichwas at an advanced stage of construction by the end of 2002.

**Proposed acquisition of VAW Packaging anexample of profitable growth.**

**Risks and Uncertainties**For further details, refer to notes 22,23 and 24 of the financial statements.

**Risk Management**As a multinational company, which is to alarge degree engaged in a commodity-related business, Alcan'sfinancial performance is heavily influenced by fluctuations in metal prices andexchange rates. In order to reduce the associated risks, the Company uses avariety of financial instruments and commodity contracts. Clearly definedpolicies and management controls govern all risk management activities.Transactions in financial instruments for which there is no underlying exposureto the Company are prohibited, except for a small metal trading portfolio notexceeding 10,000 tonnes.

The decisionwhether and when to commence a hedge, along with the duration of the hedge, canvary from period to period depending on market conditions and the relativecosts of various hedging instruments. The duration of a hedge is always linkedto the timing of the underlying transaction, with the connection between thetwo being constantly monitored to ensure effectiveness.

----

 

**SensitivitiesEstimated after-tax effect on Alcan's net income of:**

|                                             | Change in full | US$M  | US$       |
|---------------------------------------------|----------------|-------|-----------|
|                                             | year average*  |       | per share |
| Exchange rate on long-term  profitability   |                |       |           |
|    Canadian dollar                | +1  US cent    | $(11) | $  (0.03) |
|    Euro                           | +1  US cent    | $4    | $  0.01   |
| Exchange rate on balance sheet  translation |                |       |           |
|    Canadian dollar                | +1  US cent    | $(17) | $  (0.05) |
|    Australian dollar              | +1  US cent    | $(6)  | $  (0.02) |
| Metal price on long-term  profitability     |                |       |           |
|    Aluminum                       | +US$100/t      | $146  | $  0.45   |

* Except for balancesheet translation which is point-in-time.

***Foreign Currency Exchange***Exchange rate movements, particularlybetween the Canadian dollar and the U.S. dollar, have an impact on Alcan's costs and therefore its net results. Because theCompany has significant operating costs denominated in Canadian dollars whileits reporting currency is the U.S. dollar, it benefits long-term from aweakening in the Canadian dollar, but conversely, is disadvantaged if it strengthens. 

Following the algroup merger, exchange movements have a greater impact onthe Company's net income as a result of translating the euro earnings into U.S.dollars. Alcan benefits from a strengthening of theeuro, but conversely, is disadvantaged if it weakens.

The Company'sdeferred income tax liabilities and net monetary liabilities for operations inCanada and Australia are translated into U.S. dollars at current rates. Theresultant exchange gains or losses are included in income and fluctuate fromquarter to quarter depending on the changes in exchange rates. A decrease inthe Canadian and Australian dollars results in a favourableeffect, whereas an increase results in an unfavourableimpact.

**Aluminum Prices**Depending on market conditions and logisticalconsiderations, Alcan may sell primary aluminum tothird parties and may purchase primary aluminum and secondary aluminum,including scrap, on the open market to meet the requirements of its fabricatingbusinesses. In addition, depending on pricing arrangements with fabricatedproducts customers, Alcan may hedge some of itspurchased metal supply in support of those sales.

Through theuse of forward purchase and sale contracts and options, Alcanseeks to limit the impact of lower metal prices.

**Critical Accounting Policies**The Company's significant accountingpolicies are presented in note 2 to the financial statements. The criticalaccounting policies described below are those that are both most important tothe portrayal of the Company's financial condition and results and requiremanagement's most difficult, subjective or complex judgments, often as a resultof the need to make estimates about the effect of matters that are inherentlyuncertain.

**Post-retirement Benefits**The costs of pension and otherpost-retirement benefits are calculated based on assumptions determined bymanagement, with the assistance of independent actuarial firms and consultants.These assumptions include the long-term rate of return on pension assets,discount rates for pension and other post-retirement benefits obligations,expected service period, salary increases, retirement ages of employees andhealth care cost trend rates. If actual experience differs from the assumptionsmade by management, the pension and other post-retirement benefits expenseswill increase or decrease in future years as a result. See note 26 -Post-retirement Benefits for additional information, including a sensitivityanalysis for assumed health care cost trend rates.

----

 

**Environmental Liabilities andContingencies**Environmental expenses and contingenciesare accrued on an undiscounted basis when it is probable that a liability forpast events exists and the liabilities can be reasonably estimated. Indetermining whether a liability exists, the Company is required to makejudgments as to the probability of a future event occurring. If the Company'sjudgments differ from those of legal or statutory authorities, the provisionsfor environmental expenses and contingencies could increase or decrease in futureperiods.

**Property, Plant and Equipment**Due to changing economic and othercircumstances, the Company regularly reviews and evaluates its property, plantand equipment for impairment in order to record the assets at the lower of costor net recoverable amount. In determining whether the assets are impaired, theCompany makes assumptions and estimates as to future cash flows andprofitability. Actual results could differ from those estimates.

***Goodwill***As reported innote 3, Accounting Changes, effective January 2002, goodwill is no longeramortized but is tested annually for impairment at the reporting unit level.Impairment is determined by comparing the fair value of the reporting unit toits carrying value. The fair value of a reporting unit and assets andliabilities within a reporting unit may be determined using alternative methodsfor market valuation, including quoted market prices, discounted cash flows andnet realizable values. 

In estimating the fair value of areporting unit, the Company chose a valuation method developed by outsideconsultants and made assumptions and estimates in a number of areas, includingfuture cash flows and discount rates. The Company regularly uses independentappraisers and consultants to perform valuations of the assets and liabilities.The use of different judgments and estimates in the test for goodwillimpairment may result in significantly different results.

***Income Taxes***The provision for income taxes iscalculated based on the expected tax treatment of transactions recorded in theCompany's consolidated financial statements. Income tax assets and liabilities,both current and deferred, are measured according to the income tax legislationthat is expected to apply when the asset is realized or the liability settled.The Company regularly reviews the recognized and unrecognized deferred incometax assets to determine whether a valuation allowance is required or needs tobe adjusted. In forming a conclusion about whether it is appropriate torecognize a tax asset, the Company must use judgment in assessing the potentialfor future recoverability while at the same time considering past experience.All available evidence is considered in determining the amount of a valuationallowance. If the Company's interpretations differ from those of taxauthorities or judgments with respect to tax losses change, the income taxprovision could increase or decrease in future periods. 

**Cautionary Statement**Statements made in this report thatdescribe 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 offorward-looking terminology such as "believes", "expects", "may", "will","should", "estimates", "anticipates" or the negative thereof or other variations thereon. TheCompany cautions that, by their nature, forward-looking statements involve riskand uncertainty and that the Company's actual actions or results could differmaterially from those expressed or implied in such forward-looking statementsor could affect the extent to which a particular projection is realized.Important factors that could cause such differences include global supply anddemand conditions for aluminum and other products, aluminum ingot prices andchanges in raw materials' costs and availability, changes in the relative valueof various currencies, cyclical demand and pricing within the principal marketsfor the Company's products, changes in government regulations, particularlythose affecting environmental, health or safety compliance, economicdevelopments, relationships with and financial and operating conditions ofcustomers and suppliers, the effects of integrating acquired businesses and theability to attain expected benefits and other factors within the countries inwhich the Company operates or sells its products and other factors relating tothe Company's ongoing operations including, but not limited to, litigation, labour negotiations and fiscal regimes. The aluminum marketoverview contained in this report is based on research that includesinformation from sources believed to be reliable, but Alcandoes not make any representation that it is accurate in every detail. Thealuminum market overview represents the Company's views as of February 9, 2003.

----

 

       Responsibility for the Annual ReportAlcan's management is responsible for thepreparation, integrity and fair presentation of the financial statements andother information in the Annual Report. The financial statements have beenprepared in accordance with Canadian generally accepted accounting principlesand include, where appropriate, estimates based on the best judgment ofmanagement. A reconciliation with generally accepted accounting principles inthe United States is also presented. Financial and operating data elsewhere inthe Annual Report are consistent with that contained in the accompanyingfinancial statements. 
Alcan's policy is to maintainsystems of internal accounting, administrative and disclosure controls of highquality consistent with reasonable cost. Such systems are designed to providereasonable assurance that the financial information is accurate and reliable andthat Company assets are adequately accounted for and safeguarded. The Board ofDirectors oversees the Company's systems of internal accounting, administrativeand disclosure controls through its Audit Committee, which is comprised ofdirectors who are not employees. The Audit Committee meets regularly withrepresentatives of the shareholders' independent auditors and management,including internal audit staff, to satisfy themselves that Alcan's policy isbeing followed. In addition, a Disclosure Committee of management has beenestablished to manage disclosure of corporate information and oversee thefunctioning of the Company's disclosure controls and procedures.

The Audit Committee has recommended theappointment of PricewaterhouseCoopers LLP as the independent auditors, subjectto approval by the shareholders. 

The financial statements have been reviewed bythe Audit Committee and, together with the other required information in thisAnnual Report, approved by the Board of Directors. In addition, the financialstatements have been audited by PricewaterhouseCoopers LLP, whose report isprovided on this page.

((Signature))Travis Engen, President and Chief Executive Officer 

((Signature))Geoffery E. Merszei, Executive Vice-President and Chief Financial Officer February 9, 2003

        OECDGuidelinesThe Organization for Economic Cooperation andDevelopment (OECD), which consists of 30 industrialized countries includingCanada, has established guidelines setting out an acceptable framework ofreciprocal rights and responsibilities between multinational enterprises andhost governments. Alcan supports and complies with the OECD guidelines and has aWorldwide Code of Employee and Business Conduct, which is consistent with them.
 

       Auditors' Report**       To the Shareholders of Alcan Inc.**We haveaudited the consolidated balance sheets of Alcan Inc. as at December 31, 2002,2001 and 2000 and the consolidated statements of income, retained earnings andcash flows for each of the years in the three-year period ended December 31,2002. These financial statements are the responsibility of the Company'smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance withgenerally accepted auditing standards in Canada and the United States. Thosestandards require that we plan and perform an audit to obtain reasonableassurance whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as wellas evaluating the overall financial statement presentation.

In our opinion, these consolidated financialstatements present fairly, in all material respects, the financial position ofthe Company as at December 31, 2002, 2001 and 2000 and the results of itsoperations and its cash flows for each of the years in the three-year periodended December 31, 2002 in accordance with Canadian generally acceptedaccounting principles.

((Signature))PricewaterhouseCoopers LLP, Chartered Accountants     Montreal, Canada, February 9, 2003

       Comments by Auditors on Canada-United States Reporting DifferenceUnited States reporting standards for auditorsrequire the addition of an explanatory paragraph (following the opinionparagraph) when the financial statements are affected by a change in accountingprinciple, such as those changes described in note 3 to the consolidatedfinancial statements. Although we conducted our audits in accordance with bothCanadian and United States generally accepted auditing standards, our report tothe shareholders dated February 9, 2003 is expressed in accordance with Canadianreporting standards which do not permit a reference to such changes inaccounting principles in the auditors' report when the changes are properlyaccounted for and adequately disclosed in the financial statements.
((Signature))PricewaterhouseCoopers LLP, Chartered Accountants     Montreal, Canada, February 9, 2003

 

**Consolidated Financial Statements**

**Consolidated Statement of Income (in millionsof US$, except per share amounts)**
Year      ended December 31
**2002**
2001
2000
 
 
(Restated - note 3)
(Restated - note 3)**Sales and operating revenues**
**12,540**
12,626
9,148**Costs and expenses**
** **
** **
** **Cost      of sales and operating expenses
**9,934**
9,999
7,113      Depreciation and amortization (notes 2 and 6)
**859**
820
545      Selling, administrative and general expenses
**577**
547
405      Research and development expenses
**115**
135
81      Interest 
**203**
254
78      Restructuring, impairment and other special charges(note 8)
**69**
657
-Other expenses (income) - net (note 12)
**116**
113
51
 
**11,873**
12,525
8,273      Income before income taxes and other items
**667**
101
875Income taxes (note 9)
**293**
42
254      Income before other items
**374**
59
621      Equity income
**3**
3
4Minority interests
**(3)**
13
1
 
 
 
 **Net income before amortization of goodwill**
**374**
75
626Amortization of goodwill (notes 2 and 6)
-
73
16**Net income**
**374**
2
610Dividends on preference shares
**5**
8
10**Net income (Loss) attributable to common      shareholders**
**369**
(6)
600**Net income per common share before**
** **
** **
** ****amortization of goodwill  - basic**
**1.15**
0.21
2.47Amortization of goodwill per common share
**-**
0.23
0.05**Net income (Loss) per common share - basic**(note      4)
**1.15**
(0.02)
2.42**Net income (Loss) per common share - diluted**(note      4)
**1.14**
(0.02)
2.42**Dividends per common share**
**0.60**
0.60
0.60
 

 

**Consolidated Statement of Retained Earnings(in millions of US$)**
Year ended December 31**2002**20012000**Retained earnings - beginning of year**** **** **** **As      previously reported**4,095**      4,290      4,227Accounting change - Unamortized exchange loss      (note 3)**(21)**(18)(10)As      restated**4,074**      4,272      4,217      Accounting change - Impairment of goodwill as      at January 1, 2002 (note 3)**(748)**--Net      income**374**2610      Amount related to common shares purchased for      cancellation**-**-      (400)      Dividends
     -      Common**(192)**      (192)      (145)
     -      Preference**(5)**(8)(10)**Retained earnings - end of year**(note      21)**3,503**4,0744,272
The accompanying notes are an integral part ofthe financial statements.

 

**Consolidated Balance Sheet (in millions ofUS$)**
Year      ended December 31**2002**      20012000(Restated - note 3)(Restated - note 3)**ASSETS**** **** **** ****Current assets**** **** **** **Cash      and time deposits**110**119261      Trade receivables (net of allowances of $59 in 2002,           $52 in 2001 and $55 in 2000)(notes 2 and 11)**1,300**      1,216      1,721      Other receivables**553**532559      Inventories          - Aluminum operating segments                - Aluminum**905**875      1,034               - Raw materials**390**413414               - Other supplies**296**269268**1,591**      1,557      1,716     - Packaging operating      segment**396**393399**1,987**1,9502,115**3,950**3,8174,656      Deferred charges and other assets (note 13)**667**716701      Property, plant and equipment(note 14)          Cost (excluding Construction work in progress)**17,798**      16,225      14,807          Construction work in progress**573**613      1,979     Accumulated      depreciation **(8,138)**(7,136)(6,753)**10,233**      9,702      10,033      Intangible assets, net of accumulated amortization           of $56 in 2002, $27 in 2001 and $5 in 2000(note 6)**332**298330Goodwill (note 6)**2,356**2,9252,669**Total assets****17,538**17,45818,389**Liabilities and shareholders' Equity**** **** **** ****Current liabilities**** **** **** **      Payables and accrued liabilities**2,337**      2,328      2,427      Short-term borrowings **385**555      1,080 Debt maturing within one year (note 17)**295**652333**3,017**3,5353,840Debt      not maturing within one year (notes 17 and 24)**3,187**      2,884      3,195      Deferred credits and other liabilities (note 16)**1,419**      1,131874      Deferred income taxes (note 9)**1,140**      1,006      1,227      Minority interests**150**132244**Shareholders' equity**** **** **** **      Redeemable non-retractable preference shares (note 18)**160**160160      Common shareholders' equity          Common shares(note 19)**4,703**      4,687      4,597          Retained earnings (note 21)**3,503**      4,074      4,272      Deferred translation      adjustments (note 23)**259**(151)(20)**8,465**8,6108,849**8,625**8,7709,009Commitments and contingencies (note 22)**Total liabilities and shareholders' equity****17,538**17,45818,389
The accompanying notes are an integral part ofthe financial statements.

 

Approved by the Board:

((Signature))Travis Engen, Director((Signature))Guy Saint-Pierre, Director

 

**Consolidated Statement of Cash Flows (Inmillions of US$)**
Year      ended December 31**2002**      2001      2000(Restated - note 3)(Restated - note 3)**Operating activities**** **** **** **Net      income**374**2610      Adjustments to determine cash from operating activities:      Depreciation and amortization**859**820545      Amortization of goodwill**-**7316      Deferred income taxes**68**      (152)52      Asset impairment provisions**33**232-Loss      (Gain) on sales of businesses and investment - net**(27)**123(9)      Change in operating working capital          Change in receivables**143**122      (25)          Change in inventories**93**75      (117)     Change in payables**(81)**(58)(81)          Total change in operating working capital**155**139      (223)      Change in deferred charges, other assets,           deferred credits and other liabilities - net**149**13436Other - net**3**1639**Cash from operating activities****1,614**1,3871,066**Financing activities**** **** **** **New      debt**848**      1,852      1,586Debt repayments**(1,138)**(1,779)(419)**(290)**73      1,167      Short-term borrowings - net**(207)**      (479)280Sale      of receivables**-**300-      Common shares purchased for cancellation**-**-      (530)      Common shares issued**16**6121      Dividends           - Alcan shareholders (including preference)**(197)**      (200)      (155)      - Minority interests**(6)**(2)(2)**Cash from (used for) financing activities****(684)**(247)781**Investment activities**** **** **** **      Property, plant and equipment**(728)**      (1,110)      (1,491)Business acquisitions (note 15)**(345)**(404)(244)**(1,073)**      (1,514)      (1,735)Net      proceeds from disposal of businesses, investments           and other assets**121**239184      Preacquisition loan to algroup to finance special payment     to algroup      shareholders**-**-(532)**Cash used for investment activities****(952)**(1,275)(2,083)Effect of exchange rate changes on cash and      time deposits**13**(7)2**Decrease in cash and time deposits****(9)**      (142)      (234)Cash      of subsidiaries consolidated (deconsolidated) - net**-**-180Cash and time deposits - beginning of year**119**261315Cash and time deposits - end of year**110**119261
The accompanying notes are an integral part ofthe financial statements.

 

**        Notes to Consolidated Financial Statements        (in millions of US$, except where indicated)**

**        Note 1. Nature of Operations**  Alcan is engaged, together with subsidiaries, joint ventures and related  companies, in a variety of aspects of the aluminum and packaging businesses on  an international scale. Its operations include the mining and processing of  bauxite, the basic aluminum ore; the refining of bauxite into alumina; the  generation of electric power for use in smelting aluminum; the smelting of  aluminum from alumina; the recycling of used and scrap aluminum; the  fabrication of aluminum, aluminum alloys and non-aluminum materials into  semi-fabricated and finished products; the producing and converting of  specialty packaging and packaging products for many industries including the  food, pharmaceutical, cosmetic and health sectors; the distribution and  marketing of aluminum, non-aluminum and packaging products; and, in connection  with its aluminum operations, the production and sale of industrial chemicals.  Alcan, together with its subsidiaries, joint ventures and related companies,  has bauxite holdings in five countries, produces alumina in three countries,  smelts primary aluminum in seven countries, operates rolled products plants in  ten countries, has engineered products plants in seventeen countries, has  packaging facilities in fourteen countries and has sales outlets and maintains  warehouse inventories in the larger markets of the world. Alcan also operates  a global transportation network that includes the operation of bulk cargo  vessels, port facilities and freight trains.

**        Note 2. Summary of Significant Accounting Policies*        Generally Accepted Accounting Principles***  These financial statements conform with Canadian generally accepted  accounting principles (GAAP). Note 7 - Differences between Canadian and United  States Generally Accepted Accounting Principles (GAAP), provides an  explanation and reconciliation of differences between Canadian and U.S. GAAP.

***        Use of Estimates***The preparation of financial statements in conformity with GAAP in Canada  and the United States requires management to make estimates and assumptions  that affect the reported amounts of assets and liabilities and disclosure of  contingent assets and liabilities at the date of the financial statements and  the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

***        Principles of Consolidation***These consolidated financial statements include the accounts of  subsidiaries that are controlled by Alcan, all of which are majority owned.  Joint ventures, irrespective of percentage of ownership, are proportionately  consolidated to the extent of Alcan's participation. Companies subject to  significant influence are accounted for using the equity method. Under the  equity method, Alcan's investment is increased or decreased by Alcan's share  of the undistributed net income or loss and deferred translation adjustments  since acquisition. Investments in companies in which Alcan does not have  significant influence are accounted for using the cost method. Under the cost  method, dividends received are recorded as income.

        Intercompany balances and transactions, including profits in inventories,  are eliminated in the        consolidated financial statements.        All business combinations are accounted for under the purchase method.

***         Foreign Currency***The financial statements of self-sustaining foreign operations (located  principally in Europe and Asia) are translated into U.S. dollars at prevailing  exchange rates. Revenues and expenses are translated at average exchange rates  for the year while assets and liabilities are translated at exchange rates in  effect at year-end. Differences arising from exchange rate changes are  included in the Deferred translation adjustments (DTA) component of Common  shareholders' equity. If there is a reduction in the Company's ownership in a  foreign operation, the relevant portion of DTA is recognized in Other expenses  (income) - net or Restructuring, impairment and other special charges at that  time. All other operations, including those in Canada, are considered to be  integrated foreign operations having the U.S. dollar as the functional  currency. Under this method, monetary items are translated at current rates  and translation gains and losses are included in income. (See note 3 -  Accounting Changes; Deferred Foreign Exchange Translation Gains and Losses).  Non-monetary items are translated at historical rates.

The Company has entered into foreign currency contracts and options that  are designated as hedges of certain future identifiable foreign currency  revenue and operating cost exposures. The exchange gains or losses are not  recorded in the financial statements until the contract is settled or the  designated transaction is recognized. They are then included, together with  related hedging costs, in Sales and operating revenues, Cost of sales and  operating expenses, Depreciation and amortization or Property, plant and  equipment, as applicable, concurrently with recognition of the underlying  items being hedged.

 

Foreign currency forward contracts and swaps are also used to hedge certain  foreign currency denominated debt and intercompany foreign currency  denominated loans. Unrealized currency gains or losses on these contracts are  recorded in earnings concurrently with the unrealized gains or losses on the  foreign currency denominated debt and intercompany foreign currency  denominated loans being hedged.

Other gains and losses from foreign currency denominated items are included  in Other expenses (income) - net.

***         Revenue Recognition***The Company recognizes revenue when significant risks and benefits of  ownership are transferred, which coincides with when the goods are shipped or  services rendered.  

***         Commodity Contracts and Options***Virtually all of the forward metal contracts and options serve to hedge  certain future identifiable aluminum price exposures. Gains or losses on these  hedges are not recorded in the financial statements until early settlement or  recognition of the hedged transaction. They are then included, together with  related hedging costs, in Sales and operating revenues or Cost of sales and  operating expenses, as applicable, concurrently with recognition of the  underlying items being hedged.

Unrealized gains and losses on oil and natural gas futures contracts, swaps  and options are generally not recorded in the financial statements until  recognition of the hedged transactions. In circumstances where a hedging  relationship cannot be demonstrated, the derivatives are recorded at fair  value and the unrealized gains and losses recorded in earnings.

 In circumstances where the Company's purchase or sales contracts for a  commodity contain derivative characteristics, these contracts are generally  not recorded at fair value as they involve quantities that are expected to be  used or sold in the normal course of business over a reasonable period of  time.

***         Interest Rate Swaps***Amounts receivable or payable under interest rate swaps are recorded in  Interest concurrently with the interest expense on the underlying debt.  Unrealized gains and losses are not recorded in the financial statements as  these contracts hedge interest costs on certain debt.

***         Inventories***Aluminum, raw materials, packaging products and other supplies are stated  at cost (determined for the most part on the monthly average cost method) or  net realizable value, whichever is lower.

***         Capitalization of Interest Costs***The Company capitalizes interest costs associated with the financing of  major capital expenditures up to the time the asset is ready for its intended  use.

***         Sale of Receivables***When the Company sells certain receivables, it retains servicing rights and  provides limited recourse, which constitute retained interests in the sold  receivables. No servicing asset or liability is recognized in the financial  statements as the fees received by the Company reflect the fair value of the  cost of servicing these receivables. The related purchase discount is included  in Other expenses (income) - net.

***         Property, Plant and Equipment***Property, plant and equipment is recorded at the lower of cost and net  recoverable amount. Depreciation is calculated on the straight-line method  using rates based on the estimated useful lives of the respective assets. The  principal rates range from 2% to 10% for buildings and structures, 1% to 4%  for power assets and 3% to 20% for chemical, smelter and fabricating assets.

***         Goodwill***As of January 2002, goodwill is no longer amortized and is carried at the  lower of carrying value and fair value. Goodwill is tested for impairment on  an annual basis at the reporting unit level. Fair value is determined using  discounted cash flows.

Under accounting standards in effect until December 31, 2001, goodwill was  recorded at cost less accumulated amortization and was amortized over a period  of 40 years using the straight-line method of amortization. Periodic  assessments were made to determine whether there was permanent impairment in  the remaining unamortized goodwill balance based on the undiscounted cash  flows of the underlying operations. (See note 3 - Accounting Changes; Goodwill  and Other Intangible Assets).

***         Intangible Assets***Intangible assets are primarily trademarks and patented and non-patented  technology, all of which have finite lives. Intangible assets are recorded at  cost less accumulated amortization and are generally amortized over 15 years  using the straight-line method of amortization.

 

**         *Environmental Costs and Liabilities***Environmental expenses are accrued on an undiscounted basis when it is  probable that a liability for past events exists. Such liabilities are  reviewed and adjusted as required on a regular basis to reflect current  conditions. For future removal and site restoration costs, provision is made  in a systematic manner by periodic charges to income, except for assets that  are no longer in use, in which case full provision is charged immediately to  income. Environmental expenses are normally included in Cost of sales and  operating expenses except for large, unusual amounts which are included in  Other expenses (income) - net. For 2001, the environmental provisions for  treatment costs relating to spent potlining (SPL) in Quebec and British  Columbia, Canada, and for remediation costs relating to red mud disposal at  other sites in Canada and the United Kingdom were included in Restructuring,  impairment and other special charges. Accruals related to environmental costs  are included in Payables and accrued liabilities and Deferred credits and  other liabilities.

Environmental expenditures of a capital nature that extend the life,  increase the capacity or improve the safety of an asset or that mitigate or  prevent environmental contamination that has yet to occur are included in  Property, plant and equipment and are depreciated generally over the remaining  useful life of the underlying asset.

**         *Post-retirement Benefits***The costs of pension benefits and post-retirement benefits other than  pensions are recognized on an accrual basis over the working lives of  employees. Post-retirement benefit obligations are actuarially calculated  using management's best estimates and based on expected service period, salary  increases and retirement ages of employees. Post-retirement benefit expense  includes the actuarially computed cost of benefits earned during the current  service period, the interest cost on accrued obligations, the expected return  on plan assets based on fair market value and the straight line amortization  of net actuarial gains and losses and adjustments due to plan amendments. All  net actuarial gains and losses are amortized over the expected average  remaining service life of the employees.

**         *Stock Options and Other Stock-based Compensation***The Company does not recognize compensation expense in earnings for options  granted under the share option plan for employees as stock options are granted  at an exercise price equal to the market price of the underlying stock on the  grant date. The pro forma effect, if the Company had elected to recognize  compensation expense for stock options using the fair value method, is  disclosed in note 20 - Stock Options and Other Stock-Based Compensation. Stock  compensation arrangements that can be settled in cash result in the  recognition of compensation expense.

       *** Income Taxes***The Company uses the liability method for income taxes, under which  deferred income tax assets and liabilities are recorded based on the temporary  differences between the accounting basis and the tax basis of assets and  liabilities. Deferred income tax assets and liabilities are revalued for all  changes in tax rates and exchange rates. The future recoverability of  recognized deferred income tax assets is assessed on a regular basis to  determine whether a valuation allowance is required.

        ***Cash and Time Deposits***All time deposits have original maturities of 90 days or less and qualify  as cash equivalents.

        ***Recently Issued Accounting Standards       **Hedging Relationships*The Canadian Institute of Chartered Accountants (CICA) issued an accounting  guideline which establishes certain conditions regarding when hedge accounting  may be applied and which is effective for the Company's fiscal year beginning  January 1, 2004, with earlier application encouraged. The Company is studying  the new guideline and is preparing for implementation of the hedging  provisions. Each hedging relationship will be subject to an effectiveness test  on a regular basis for reasonable assurance that it is and will continue to be  effective. Under these rules, any derivative instrument that does not qualify  for hedge accounting will be reported on a mark-to-market basis in earnings.

        *Impairment of Long-lived Assets*The CICA issued Section 3063, Impairment of Long-lived Assets, which will  be effective for the Company's fiscal year beginning on January 1, 2003. Under  this standard, an impairment loss should be recognized when the carrying  amount of a long-lived asset is not recoverable and exceeds its fair value.  The policies of this standard are the same as the policies contained in the  recently adopted Financial Accounting Standards Board (FASB) Statement No.  144, Accounting for the Impairment or Disposal of Long-lived Assets. (See note  7 - Differences between Canadian and United States Generally Accepted  Accounting Principles (GAAP)).

 

        *Disposal of Long-lived Assets and Discontinued Operations*The CICA issued Section 3475, Disposal of Long-lived Assets and  Discontinued Operations, which will be effective for disposal activities  initiated by the Company's commitment to a plan on or after May 1, 2003, with  earlier application encouraged. Under this standard, a long-lived asset to be  disposed of by sale should be measured at the lower of its carrying amount or  fair value less cost to sell and should not be amortized while classified as  held for sale. For a long-lived asset to be disposed of other than by sale,  such as by abandonment, before the end of its previously estimated useful  life, depreciation estimates are revised to reflect the use of the asset over  its shortened useful life. Also, the standard requires that the results of  operations of a component of an enterprise that has been disposed of either by  sale or abandonment should be reported in discontinued operations. A component  of an enterprise comprises operations and cash flows that can be clearly  distinguished, operationally and for financial reporting purposes, from the  rest of the enterprise. The policies of this standard are the same as those  policies contained in the recently adopted FASB Statement No.144, Accounting  for the Impairment or Disposal of Long-lived Assets. (See note 7 - Differences  between Canadian and United States Generally Accepted Accounting Principles (GAAP)).  

**         Note 3. Accounting Changes*        Goodwill and Other Intangible Assets***On January 1, 2002, the Company adopted the new standard of the CICA  concerning goodwill and other intangible assets. Under this standard, goodwill  and other intangible assets with an indefinite life are no longer amortized  but are carried at the lower of carrying value and fair value. Goodwill and  other intangible assets with an indefinite life are tested for impairment on  an annual basis. 

Goodwill is tested for impairment using a two-step test. Under the first  step, the fair value of a reporting unit, based upon discounted cash flows, is  compared to its net carrying amount. If the fair value is greater than the  carrying amount, no impairment is deemed to exist. However, if the fair value  is less than the carrying amount, a second test must be performed whereby the  fair value of the reporting unit's goodwill must be estimated to determine if  it is less than its carrying amount. Fair value of goodwill is estimated in  the same way as goodwill is determined at the date of acquisition in a  business combination, that is, the excess of the fair value of the reporting  unit over the fair value of the identifiable net assets of the reporting unit.

An impairment of $748 was identified in the goodwill balance as at January  1, 2002, and was charged to opening retained earnings in 2002 upon adoption of  the new accounting standard. Any further impairment arising subsequent to  January 1, 2002, will be taken as a charge against income. As a result of the  new standard, the Company no longer amortizes goodwill. The amount of goodwill  amortization was $73 in 2001 and $16 in 2000.

***         Deferred Foreign Exchange Translation Gains and Losses***As of January 1, 2002, the Company no longer amortizes the exchange gains  and losses arising on the translation of long-term foreign currency  denominated monetary assets and liabilities that have a fixed or ascertainable  life extending beyond the end of the following fiscal year. These exchange  gains and losses are now recognized in income immediately.

This standard has been applied retroactively and, consequently, prior  years' financial statements have been restated. At December 31, 2001, Retained  earnings have been decreased by $21 (2000: $18) and Deferred charges and other  assets have been reduced by $21 (2000: $18) to reflect the recognition of the  unamortized exchange losses that existed at each year-end.

Related to this accounting change, in 2002, an exchange loss of $7 (2001:  $3; 2000: $8), on the translation of long-term foreign currency denominated  monetary assets and liabilities, has been included in Other expenses (income)  - net.

***         Stock Options and Other Stock-based Compensation***On January 1, 2002, the Company adopted the new standard of the CICA  relating to the measurement of stock options and other stock-based  compensation. This standard is being applied to both options granted after  January 1, 2002, and options granted before that date. This standard  encourages but does not require that the fair value method be used for  transactions with employees. In note 20 - Stock Options and Other Stock-based  Compensation, pro forma net income and net income per common share - basic and  diluted are presented as if the fair value based method had been applied to  all stock option awards.

***         Business Combinations***All business combinations initiated on or after July 1, 2001, are now  required to be accounted for under the purchase method.  

**        Note 4. Net Income per Common Share - Basic and Diluted**Basic and diluted net income per common share are based on the weighted  average number of shares outstanding during the year. The treasury stock  method for calculating the dilutive impact of stock options is used. The  following table outlines the calculation of basic and diluted net income per  common share.

 
**2002**20012000**Numerator for basic and diluted net income      per common share:**** **** **** **Net income (Loss) attributable to common      shareholders**369**(6)600Denominator (number of common shares in      millions):Denominator for basic net income per common      share -     weighted average of outstanding      shares**321**320248Effect of dilutive stock options**1**1-Denominator for diluted net income per common      share -     adjusted weighted average of      outstanding shares**322**321248**Net income (Loss) per common share - basic****1.15**(0.02)2.42**Net income (Loss) per common      share - diluted****1.14**(0.02)2.42
Options to purchase 1,146,500 common shares (2001: 579,000; 2000: nil) at a  weighted average price of CAN$60.16 per share (2001: CAN$59.35) were  outstanding during the year 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 December 31, 2002, there are 321,470,298 common shares outstanding  (2001: 320,901,748; 2000: 317,921,113).

**         Note 5. Combination with Alusuisse Group Ltd**On October 17, 2000, the Company entered into a combination agreement with  Alusuisse Group Ltd (algroup). At that date, the shareholders of algroup, in  response to the Company's share exchange offer, tendered 6,747,707 shares,  representing 99.37% of the outstanding registered algroup shares, in exchange  for 115,385,790 shares of the Company valued at $30.11 per share. The Company  also assumed from algroup total debt of $2,171. The combination was completed  and algroup became a subsidiary of the Company on October 17, 2000. During  2001, the Company acquired the remaining shares of algroup in accordance with  the provisions of Swiss law.The combination was accounted for using the  purchase method of accounting and the results of operations of algroup are  included in the consolidated financial statements since acquisition. At the  date of acquisition, the purchase price was allocated based on the assigned  fair values of the assets acquired and liabilities assumed as follows:
**Fair value of net assets acquired at date      of acquisition**** **Cash and time deposits175Other current assets1,641Deferred charges and other assets162Capital assets2,822Total assets4,800Current liabilities2,002Long-term debt*1,292Deferred credits and other liabilities330Deferred income taxes401**Fair value of net assets acquired at date      of acquisition**775
Determination of fair values was based on valuations performed by  independent appraisers and consultants. Allocation of the purchase price  involved estimates and information gathering during the months following the  date of the combination. This estimation process was finalized in 2001.

Net restructuring and other costs for plant closures of $54 were recognized  in the purchase price allocation. Of the total restructuring and other costs  of $54, an amount of $1 was paid out in 2002 (2001: $16) relating primarily to  employee severance costs.

In 2001, the fair values of certain assets and liabilities were adjusted  from the amounts originally assigned at the date of combination. As a result,  additional goodwill of $123 was recorded.

The difference between the total purchase price and the net fair value of  all identifiable assets and liabilities acquired as at December 31, 2001, was  $2,780 (2000: $2,620) and is accounted for as goodwill. Goodwill was amortized  over a period of 40 years using the straight-line method of amortization until  December 31, 2001. As of January 1, 2002, goodwill is no longer amortized but  is carried at the lower of carrying value and fair value. Goodwill is tested  for impairment on an annual basis. (See note 3 - Accounting Changes; Goodwill  and Other Intangible Assets).

 
**Consideration**** **Issuance of common shares on October 17, 2000      (115,385,790 common shares    without nominal or par value;      average market value of $30.11 per share)3,474Issuance of common shares in 2001 (687,882      common shares without nominal or par value;   average market value of $44 per      share)30Other consideration51**Total consideration**3,555
        ***Supplemental pro forma information (in millions of US$, except per share  amounts)***The following unaudited pro forma information for 2000 presents a summary  of consolidated results of operations of the Company and algroup as if the  combination had occurred on January 1, 1999. These pro forma results have been  prepared for comparative purposes only.

2000
(unaudited)Sales and operating revenues
13,146Net income before amortization of goodwill
737Net income
672Net income per common share before      amortization of goodwill
2.22Net income per common share - basic and      diluted
2.02
        **Note 6. Goodwill and Intangible Assets        *Goodwill***
The changes in the carrying      amount of goodwill for the year ended December 31, 2002, are as follows:       ** ****Balance**** **** **** ****Deferred****Balance**** ****as at****Impairment**** **** ****translation****as at**** ****January 1, 2002****losses****Additions****Adjustments****adjustments****December 31, 2002**Bauxite, Alumina and Specialty Chemicals**543****-****-****3****-****546**Primary Metal**426****-****33****3****49****511**Rolled Products Europe**163****(163)****-****-****-****-**Engineered Products**466****(321)****2****(5)****19****161**Packaging**1,306****(264)****-****(7)****103****1,138**Other**21****-****-****(21)****-****-**Total**2,925****(748)****35****(27)****171****2,356**
Using the newly adopted accounting standard of the CICA concerning goodwill  and other intangible assets (see note 3 - Accounting Changes), the Company  completed a review to determine whether, at January 1, 2002, there was  impairment in the goodwill balance. As a result of this review, an impairment  loss of $748 was recognized as a charge to opening retained earnings in 2002.  The adjustment reflects the decline in end-market conditions in the period  from the algroup merger in October 2000 to January 1, 2002. The fair value of  all reporting units was determined using discounted future cash flows. The  annual test was completed for the year 2002 and no further impairment was  identified.

A reduction in goodwill of $27 was recorded in 2002 principally relating to  a decrease in the valuation allowance related to future income tax assets  acquired in the combination with algroup, but which were not recognized at the  date of the business combination.

 

Changes in the carrying amount of goodwill for the year ended December 31  were as follows:
20012000**Goodwill - beginning of year**2,669-Issuance of common shares to complete algroup      acquisition302,620Adjustments to fair values of algroup assets      and liabilities123-Other consideration to complete algroup      acquisition7-Acquisition of the remaining 30% of the Gove      alumina refinery234-Deferred translation adjustments(62)65Amortization(73)(16)Amount related to disposal of a business(3)-**Goodwill - end of year**2,9252,669
 
**Amortizable intangible assets****Gross Carrying****Accumulated****Net Book**** ****Amount****Amortization****Value**** **** ****December 31, 2002**Trademarks**144****22****122**Patented and non-patented technology**224****33****191**Other**20****1****19****388****56****332**December 31, 2001Trademarks12711116Patented and non-patented technology1981618232527298December 31, 2000Trademarks1312129Patented and non-patented technology20432013355330
The aggregate amortization expense for the year ended December 31, 2002, was  $24. The estimated amortization expense for the five succeeding fiscal years  is approximately $24 per year.

The acquisition of intangible assets amounted to $20 in the year ended  December 31, 2002.

Pro forma net income and net income per common share - basic and diluted,  before goodwill amortization, are presented below.
Year ended December 3120012000Reported net income2610Goodwill amortization7316Adjusted net income75626Net income (Loss) per common share - basic      and diluted   Reported net income (loss)(0.02)2.42   Goodwill amortization0.230.05Adjusted net income per common share - basic      and diluted0.212.47
** **

        **Note 7. Differences between Canadian and United States Generally Accepted  Accounting Principles (GAAP)**Significant differences between Canadian and United States GAAP are  described below.

***         Derivatives***Beginning in 2001, the Company was required to adopt, for U.S. GAAP  reporting purposes, the FASB Statement Nos. 133 and 138, Accounting for  Derivative Instruments and Hedging Activities. These standards require that  all derivatives be recorded in the financial statements at fair value.  However, the Company elected not to adopt the FASB's optional hedge accounting  provisions. Accordingly, for U.S. GAAP reporting purposes only, beginning in  2001, unrealized gains and losses resulting from the valuation of derivatives  at fair value are recognized in net income as the gains and losses arise and  not concurrently with the recognition of the transactions being hedged. In its  primary Canadian GAAP financial statements, the Company continues to recognize  the gains and losses on derivative contracts in income concurrently with the  recognition of the transactions being hedged, except for certain currency  forward contracts and oil put options which are recorded at fair value.

Upon initial adoption of the FASB Statement Nos. 133 and 138 in 2001, the  cumulative effect of the accounting change resulted in a decrease in net  income of $12.

***         Currency Translation***The difference between Deferred translation adjustments under Canadian GAAP  and U.S. GAAP arises from the different treatment of exchange on long-term  debt at January 1, 1983, resulting from the adoption of accounting standards  on foreign currency translation.

***         Comprehensive Income***U.S. GAAP requires the disclosure of Comprehensive income which, for the  Company, comprises Net income under U.S. GAAP, the movement in Deferred  translation adjustments under U.S. GAAP, unrealized gains or losses for the  period less gains or losses realized during the period on "available-for-sale"  securities and the movement in the minimum pension liability. The concept of  Comprehensive income does not exist under Canadian GAAP.

***         Investments***Under U.S. GAAP, certain portfolio investments, which are considered to be  "available-for-sale" securities, are measured at market value, with the  unrealized gains or losses included in Comprehensive income. Under Canadian  GAAP, these investments are measured at cost.

***         Minimum Pension Liability***Under U.S. GAAP, if the accumulated benefit obligation exceeds the market  value of plan assets, a minimum pension liability for the excess is recognized  to the extent that the liability recorded in the balance sheet is less than  the minimum liability. Any portion of this additional liability that relates  to unrecognized past service cost is recognized as an intangible asset while  the remainder is charged to Comprehensive income. Canadian GAAP has no such  requirement to record a minimum liability.

***         Joint Ventures***Under Canadian GAAP, joint ventures are accounted for using the  proportionate consolidation method, while under U.S. GAAP, joint ventures are  accounted for under the equity method. Under an accommodation of the U.S.  Securities and Exchange Commission, accounting for joint ventures need not be  reconciled from Canadian to U.S. GAAP. The different accounting treatment  affects only the display and classification of financial statement items and  not net income or shareholders' equity. (See note 10 - Joint Ventures for  summarized financial information about joint ventures).

***         Consolidated Statement of Income***Under U.S. GAAP, separate subtotals for net income before amortization of  goodwill and net income per common share before amortization of goodwill -  basic would not be presented.

***         Statement of Cash Flows***Under U.S. GAAP, separate subtotals within operating, financing and  investment activities would not be presented.

***         Recently Adopted Accounting Standards for u.s. GAAP Presentation***In 2002, the Company adopted the FASB Statement No. 141, Business  Combinations, and the FASB Statement No. 142, Goodwill and Other Intangible  Assets. Both statements are the same as the recently issued Canadian  accounting standards except that under U.S. GAAP, goodwill impairment  identified as at January 1, 2002, is charged to income as the cumulative  effect of an accounting change. Under Canadian GAAP, an impairment loss of  $748 was recognized as a charge to opening retained earnings in 2002. (See  note 3 - Accounting Changes, for a description of the impact on the Company  and see note 6 - Goodwill and Intangible Assets). 

 

In 2002, the Company adopted the FASB Statement No. 144, Accounting for  Impairment or Disposal of Long-lived Assets. This statement amends previous  accounting and disclosure requirements for impairments and disposals of  long-lived assets and discontinued operations.

The FASB issued Interpretation No. 45, Guarantor's Accounting and  Disclosure Requirements for Guarantees, Including Indirect Guarantees of  Indebtedness of Others. This interpretation addresses disclosure and initial  recognition and initial measurement requirements for a guarantor that issues a  guarantee. In 2002, the Company adopted the disclosure requirements of the  Interpretation, which elaborates on the disclosures to be made by a guarantor  about its obligations under certain guarantees that it has issued.

In 2002, the Company adopted the FASB Statement No. 148, Accounting for  Stock-based Compensation. This statement amends transition and disclosure  provisions provided in the FASB Statement No. 123, Accounting for Stock-based  Compensation. (See note 2 - Summary of Significant Accounting Policies; Stock  Options and Other Stock-based Compensation).

***         Recently Issued Accounting Standards***The FASB has issued Statement No. 143, Accounting for Asset Retirement  Obligations, which will be effective for the Company's fiscal year beginning  on January 1, 2003. This statement establishes accounting standards for  recognition and measurement of a liability for an asset retirement obligation  and the associated asset retirement cost. The Company is studying these  requirements and has not yet determined its impact.

The FASB has recently issued Statement No. 146, Accounting for Costs  Associated with Exit or Disposal Activities, which will be effective for the  Company's fiscal year beginning on January 1, 2003. This standard requires  that a liability associated with an exit or disposal activity be recognized  when the liability is incurred rather than at the date of the Company's  commitment to an exit plan. The provisions of this new standard are generally  to be applied prospectively.

Under the recently issued FASB Interpretation No. 45, Guarantor's  Accounting and Disclosure Requirements for Guarantees, Including Indirect  Guarantees of Indebtedness of Others, the initial recognition and measurement  provisions are to be applied on a prospective basis to guarantees issued or  modified after December 31, 2002. The Company is studying the accounting  requirements of this interpretation and is preparing for its implementation.

In January 2003 the FASB issued Interpretation No. 46, Consideration of  Variable Interest Entities, which applies in the first fiscal year or interim  period beginning after June 15, 2003, to variable interest entities in which  the Company holds a variable interest that it acquired before February 1,  2003. This Interpretation requires existing unconsolidated variable interest  entities to be consolidated by their primary beneficiaries if the entities do  not effectively disperse risks among parties involved. An entity that holds a  significant variable interest but is not the primary beneficiary is subject to  specific disclosure requirements. The Company is studying this Interpretation  and has not yet determined its impact.

 
Reconciliation of Canadian and U.S. GAAP**2002**20012000Net income - as reported(restated for 2001      and 2000 - note 3)**374**2610Differences due to:     - Valuation of derivatives**60**(72)-     - Other**(2)**5(4)     - Deferred tax effect on the above**(20)**23-Net income (Loss) from continuing operations      before cumulative effect of accounting changes     - U.S. GAAP**412**(42)606Cumulative effect of accounting changes     - Valuation of derivatives**-**(12)-     - Impairment of goodwill**(748)**--**Net income (Loss) - U.S. GAAP****(336)**(54)606Dividends on preference shares**(5)**(8)(10)Net income (Loss) attributable to common      shareholders - U.S. GAAP**(341)**(62)596**Net income (Loss) per common share - basic      and diluted - U.S. GAAP****(1.06)**(0.19)2.40Net income (Loss) attributable to common      shareholders from continuing    operations before cumulative      effect of accounting changes - U.S. GAAP **407**(50)596**Net income (Loss) per common share - basic      and diluted- U.S. GAAP****1.26**(0.16)2.40
 
December 31**2002**20012000**As****U.S.**AsU.S.AsU.S.**Reported****GAAP**Reported GAAPReportedGAAP(Restated(Restated - note 3)- note 3)Deferred charges and other assets**667****664**716717701716Intangible assets, net of         accumulated amortization**332****475**298316330330Payables and accrued liabilities**2,337****2,354**2,3282,4012,4272,427Deferred credits and other liabilities**1,419****2,029**1,1311,364874874Deferred income taxes**1,140****983**1,0069091,2271,231Retained earnings**3,503****3,537**4,0744,0704,2724,324Deferred translation adjustments (DTA)**259****205**(151)(207)(20)(76)
 

 
Year ended December 31**2002**20012000**Comprehensive income (loss)**** **** **** **Net income (Loss)**(336)**(54)606Net change in deferred translation      adjustments**412**(131)56Net change in excess of market value over      book value of "available-for-sale" securities**8**(7)(4)Reclassification to net income on disposal of      "available-for-sale" securities**(10)**--Net change in minimum pension liability - net      of taxes of $81 (2001: $67)**(172)**(148)-**Comprehensive income (loss)****(98)**(340)658December 31**2002**20012000**Accumulated other comprehensive loss**** **** **** **Deferred translation adjustments**205**(207)(76)Minimum pension liability**(320)**(148)-Unrealized gain on "available-for-sale"      securities**6**815**Accumulated other comprehensive loss****(109)**(347)(61)
        **Note 8. Restructuring, Impairment and Other Special Charges**Restructuring, impairment and other special charges of $657 pre-tax, which  were recorded in 2001, included restructuring and asset impairment charges of  $411 and other special charges of $246.

***         Restructuring and Asset Impairment Charges***The provision balances and related cash payments for the restructuring and  asset impairment charges consisted of:
AssetSeveranceImpairmentCostsProvisionsOtherTotal2001:Charges11226930411Cash payments - net(7)-(7)(14)Non-cash charges-(269)-(269)Provision balance as at December 31105-23128**2002:**** **** **** **** ****Charges****36****26****27****89****Cash payments - net****(64)****-****(1)****(65)****Non-cash charges****(6)****(26)****(7)****(39)****Provision balance as at December 31****71****-****42****113**
In 2001, the Company recorded charges of $411 pre-tax in Restructuring,  impairment and other special charges as a result of a restructuring program  aimed at safeguarding its competitiveness. The aim of the restructuring  program was twofold: to make the businesses more competitive in the face of  the current economic difficulties; and to put them in the best position to  meet future industry needs. These aims are being achieved through cost  reduction measures, exiting from non-core products and the consolidation of  certain operations and are resulting in a series of plant sales, closures and  divestments throughout the organization. The charges associated with this  program consisted of severance costs of $112 related to workforce reductions  of approximately 2,200 employees, impairment of long-lived assets of $269 and  other exit costs related to the shutdown of facilities of $30.

The workforce reductions of 2,200 employees, which consist principally of  manufacturing employees from all segments of the Company's worldwide  operations, are comprised of:
- 500 employees - Primary Metal (principally Canada)
- 200 employees - Rolled Products Americas and Asia
- 400 employees - Rolled Products Europe (U.K. and Italy)
- 800 employees - Packaging (U.K., Canada, U.S. and other areas)
- 300 employees - Other operating segments

 

In 2002, the Company recorded charges of $69 pre-tax in Restructuring,  impairment and other special charges, including restructuring and asset  impairment charges of $89 and a reduction in other special charges of $20.  Charges of $89 relating to the restructuring program consisted of severance  costs of $36 relating to workforce reductions of approximately 960 employees,  impairment of long-lived assets of $26 and other exit costs related to the  shutdown of facilities of $27.

Severance charges of $36 relate primarily to the closure of the Burntisland  facility, U.K. (Bauxite, Alumina and Specialty Chemicals), certain cable  operations in North America (Engineered Products) and extrusion operations in  Malaysia and light-gauge operations in Fairmont, West Virginia (Rolled  Products Americas and Asia).

Asset impairment charges of $26 relate primarily to the extrusion  operations in Pieve, Italy (Engineered Products) and the Borgofranco plant in  Italy (Rolled Products Europe).

Other exit costs of $27 consist principally of closure costs of $19 for the  Burntisland facility, U.K., a loss of $5 on the sale of the extrusion  operations in Thailand arising from the realization of deferred translation  losses (Rolled Products Americas and Asia), a loss of $4 on the sale of the  rolled products circles production unit at Pieve, Italy (Rolled Products  Europe), other costs of $3 and offset in part by income of $4 from the  write-back of excess contract loss provisions upon settlement with a customer  (Engineered Products). 

The workforce reductions in 2002 of approximately 960 employees were  comprised of 380 employees in Bauxite, Alumina and Specialty Chemicals, 250  employees in Rolled Products Americas and Asia, 200 employees in Engineered  Products and 130 employees in Packaging.

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

As at December 31, 2002, approximately 2,900 of a total of 3,160 employees  (2,200 employees in 2001 and 960 employees in 2002) had been terminated,  consisting of approximately 400 employees in 2001 and 2,500 employees in 2002.

Total impairment charges of $295 consisted of a charge of $269 in 2001  ($227 for assets to be held and used and $42 for assets held for disposal) and  charges of $26 in 2002 ($17 for assets to be held and used and $9 for assets  to be held for disposal). These charges related principally to buildings,  machinery and equipment and some previously capitalized project costs. 

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.

The cumulative impairment charge of $244 for assets to be held and used  consisted of $45 for Bauxite, Alumina and Specialty Chemicals; $22 for Primary  Metal; $17 for Rolled Products Americas and Asia; $79 for Rolled Products  Europe; $16 for Engineered Products; $44 for Packaging; and $21 for Other. The  impairment charge arose as a result of negative projected cash flows and  recurring losses. The charges principally related to the cold mill at the  Rogerstone plant in the U.K. (Rolled Products Europe); the foil facilities at  Glasgow, U.K. (Packaging); the specialty chemicals plant at Burntisland, U.K.  (Bauxite, Alumina and Specialty Chemicals) and the engineered cast products  plant in Quebec, Canada (Primary Metal). An impairment provision was recorded  to the extent that the net recoverable amount, which approximates fair value  based on discounted cash flows, was below the net book value.

The cumulative impairment charge of $51 for assets held for disposal  consisted of $8 for Rolled Products Americas and Asia; $31 for Rolled Products  Europe; and $12 for Packaging. The charges principally related to the  extrusion operations in Malaysia and Thailand (Rolled Products Americas and  Asia); certain rolled products and recycling operations at the Pieve and  Borgofranco plants in Italy (Rolled Products Europe); and the Pharmatech  rubber stopper and aluminum seals operations in the U.S. (Packaging). An  impairment provision was recorded to bring the net book value to net  realizable value. These assets were disposed of in 2002, except for the  extrusion operations in Malaysia and the recycling operations at the  Borgofranco plant in Italy. The assets held for disposal had:
- sales and operating revenues of $250 in 2001    (Rolled Products Americas and Asia - $30; Rolled Products Europe - $90;    Packaging - $130) and $190 in 2002, (Rolled Products Americas and Asia -    $16; Rolled Products Europe - $84; and Packaging - $90).
- net operating losses of $(10) in 2001    (Rolled Products Americas and Asia - nil; Rolled Products Europe - nil;    Packaging - $(10)) and losses of $(9) in 2002 (Rolled Products Americas and    Asia - $(2); Rolled Products Europe - $(1); and Packaging - $(6)).
- assets of $200 at December 2001 (Rolled    Products Americas and Asia - $20; Rolled Products Europe - $100; Packaging -    $80) and $15 at December 2002 (Rolled Products Americas and Asia - $10;    Rolled Products Europe - $5 and Packaging - nil).
- liabilities of $110 at December 2001 (Rolled    Products Americas and Asia - $10; Rolled Products Europe - $30; Packaging -    $70) and $40 at December 2002 (Rolled Products Americas and Asia - $5;    Rolled Products Europe - $35 and Packaging - nil).

 

The restructuring program was completed in 2002, with the exception of the  closure of facilities at Glasgow, U.K., which is expected to be completed in  mid-2003, the shut-down of one of the two cold mills at the Fairmont, West  Virginia, plant in the first quarter for 2003, and the sales of the extrusion  operations in Malaysia and the recycling operations at the Borgofranco plant  in Italy, which are expected to be completed in 2003, as scheduled per the  Company's plans. The closure plans include the orderly shutdown of facilities  after existing customer requirements have been satisfied and in some  situations, the transfer of production operations to other facilities. The  provision balance of $113 at December 31, 2002, is expected to be largely paid  out in 2003.

***         Other Special Charges***In 2001, the Company increased its environmental provisions by $246 pre-tax  to cover treatment costs of $150 for stored spent potlining (SPL) in Quebec  and British Columbia, Canada, as well as to cover remediation costs of $96  relating to red mud disposal at other sites in Canada and the U.K. The charges  were recorded in the income statement in Restructuring, impairment and other  special charges and on the balance sheet in Deferred credits and other  liabilities $(235) and in Payables and accrued liabilities $(11).

SPL, which is a waste material generated by the smelting process, needs to  be treated in a safe and environmentally sound manner. The Company's  objectives have been to find the best alternative to stockpiling SPL and  various technical studies were carried out to identify treatment alternatives  that are economically viable. Following these studies, which were completed in  2001, and in accordance with local laws and regulations, the Company has  initiated a project to identify the best treatment technology to treat the  stored SPL. The liability of $150 reflected the Company's best estimate of the  cost to treat the stored SPL in Quebec and to have the SPL in British Columbia  treated by a third party. The liability recorded in 2001 is being paid over a  period of approximately twenty years.

The liability of $96 relating to red mud disposal reflected the Company's  best estimate of the cost of rehabilitation. Red mud is the normal residue  associated with extracting alumina from bauxite. The charge represents the  cost to fill and seal the sites.

In 2002, the environmental provision of $150 for SPL was reduced by $4 for  the recovery from a third party of a portion of the environmental provision.  In addition, the environmental provision of $96 for red mud disposal was  reduced by $18 due to lower remediation costs at the Burntisland facility in  the U.K. The reductions in the provisions were recorded in the income  statement in Restructuring, impairment and other special charges and on the  balance sheet as an increase in Other receivables and a reduction in Deferred  credits and other liabilities.

**         Note 9. Income Taxes**
**2002**20012000(Restated(Restated   - note 3)- note 3)**Income before income taxes and other items**** **** **** **Canada**(65)**(303)431Other countries**732**404444**667**101875**Current income taxes**** **** **** **Canada**(9)**(48)19Other countries**234**242183**225**194202**Deferred income taxes**** **** **** **Canada**56**(69)25Other countries**12**(83)27**68**(152)52**Income tax provision****293**42254
 

 

The composite of the applicable statutory corporate income tax  rates in Canada is 39.0% (2001: 40.0%; 2000: 40.2%). The following is a  reconciliation of income taxes calculated at the above composite statutory  rates with the income tax provision:

                                                                                                                                                                        
 **2002**      2001       2000(Restated(Restated   - note 3)- note 3)Income taxes at the composite statutory rate**261**41352Differences attributable to:   Exchange translation items**35**310   Exchange revaluation of deferred      income taxes**16**(26)(18)   Effect of tax rate changes on      deferred income taxes**-**(8)(20)   Unrecorded tax benefits on      losses - net**23**26(19)   Investment and other allowances **(18)**8(38)   Large corporations tax**7**86   Withholding taxes**5**89   Reduced rate or tax exempt items** (18)**(2)(12)   Foreign tax rate differences** (25)**(6)7   Prior years' tax adjustments** (3)**(14)(40)   Other - net**10**417**Income tax provision****293**42254
At December 31, the principal items included in Deferred income taxes are:
**2002**20012000(Restated(Restated   - note 3)- note 3)**Liabilities:**** **** **** **Property, plant, equipment and intangibles**1,361**1,1781,291Undistributed earnings (note 21)**17**2434Inventory valuation**66**7880Other - net**175**193166**1,619**1,4731,571**Assets:**** **** **** **Tax benefit carryovers**361**297326Accounting provisions not currently      deductible for tax**363**382220**724**679546**Valuation allowance (amount not likely to      be recovered)****245**212202**479**467344**Net deferred income tax liability****1,140**1,0061,227
The valuation allowance relates principally to loss carryforward benefits and  tax credits where realization is not likely due to time and other limitations  in the tax legislation giving rise to the potential benefits, as well as  uncertain economic conditions in certain countries, principally Brazil and  Korea. In 2002, $11 (2001: $4; 2000: $4) of the valuation allowance was  reversed when it became more likely than not that benefits would be realized.  Of that amount, $5 reduced goodwill since it related to a future income tax  asset acquired in the combination with algroup in 2000, but which was not  recognized at the date of the business combination.

Based on rates of exchange at December 31, 2002, tax benefits of  approximately $145 relating to prior and current years' operating losses and  $49 of benefits related to capital losses and tax credits carried forward will  be recognized in income when it is more likely than not that such benefits  will be realized. These amounts are included in the valuation allowance above.  Approximately $17 of these potential tax benefits expire in 2003.

In 1997, income taxes on Canadian operations for the years 1988 to 1991  were reassessed by the Canadian tax authorities. Most of the additional taxes  and interest related to transfer pricing issues and are recoverable in other  countries. The process to obtain recoveries from other countries is underway.  During 1999, the Canadian tax authorities indicated their intention not to  proceed with the reassessments made in 1997 in respect of the years 1988 and  1989. In 2000, certain provinces decided not to proceed with the reassessments  pertaining to 1988 and 1989. As a result of this and other adjustments, in  2000 the Company recorded $32 of tax recoveries. During 2002, the Canadian and  U.S. tax authorities settled the majority of the transfer pricing issues  related to the 1997 reassessments. As a result of this and other adjustments,  in 2002 the Company recorded $4 of tax recoveries. (See note 27 - Information  by Geographic Areas).

 

        **Note 10. Joint Ventures**The activities of the Company's major joint ventures are the procurement  and processing of bauxite in Australia, Brazil and Guinea, smelting operations  in Norway and Canada, as well as aluminum rolling operations in Germany and  the United States. In 2002, the Company acquired a 40% interest in the  Aluminerie Alouette consortium in Quebec, Canada. In 2001, the Company sold  its bauxite and alumina operations in Jamaica. (See note 15 - Sales and  Acquisitions of Businesses and Investments).

Alcan's proportionate interest in all joint ventures is included in the  consolidated financial statements. Summarized financial information relating  to Alcan's share of these joint ventures is provided on the next page. Except  for the Company's interest in the Aluminerie Alouette consortium, most of the  activities of the Company's joint ventures result in the supplying of  materials to other operations of the Company.
**2002**20012000**Statement of income information for the      year ended December 31**** **** **** **Revenues**72**119Expenses**60**86Net income**12**33**Financial position at December 31**** **** **** **Inventories**99**72113Property, plant and equipment - net**945**551768Other assets**130**54103Total assets**1,174**677984Short-term debt**50**4528Debt not maturing within one year**67**82106Other liabilities**253**167208Total liabilities**370**294342**Cash flow information for the year ended      December 31**** **** **** **Cash from operating activities**14**34Cash used for financing activities** (13)**(7)(17)Cash used for investment activities** (85)**(73)(57)
        **Note 11. Sales of Receivables**Under an agreement effective December 18, 2001, the Company sold to a third  party an undivided interest in certain trade receivables of $330, with limited  recourse. Net cash proceeds from this ongoing agreement were $300 with $30,  which represents the maximum credit exposure to the Company, held in reserve  by the third party. This amount has been recorded in Deferred charges and  other assets. Net proceeds were used to repay commercial paper borrowings in  2001. The Company acts as a service agent and administers the collection of  the receivables sold.

**         Note 12. Other Expenses (Income) - Net**Other expenses (income) - net comprise the following elements:
**2002**20012000Rationalization expenses**3**(1)45Loss (Gain) on disposal of businesses and      investment - net(note 15)** (36)**123(9)Legal provisions**113**-14Interest revenue** (13)**(26)(22)Exchange (gains) losses**37**(8)(5)Other**12**2528**116**11351
 

 

**        Note 13. Deferred Charges and Other Assets**Deferred charges and other assets comprise the following elements:
**2002**20012000(Restated(Restated   - note 3)- note 3)Prepaid pension costs**314**344284Income taxes recoverable**-**5152Marketable securities**37**4044Prepaid mining expenses**56**5760Investments***46**5250Reserve for receivables sold (note 11)**30**30-Net assets held for disposal**-**-70Premiums on currency and metal options**-**21Amount receivable on currency swap of debt**-**(12)16Long-term notes and other receivables**106**8560Other**78**6764**667**716701  *** Investments**** **** **** **Companies accounted for under the equity      method**18**2119Portfolio investments - at cost**28**3131**46**5250
**        Note 14. Property, Plant and Equipment**
**2002**20012000**Cost (excluding Construction work in      progress)**** **** **** **Land and property rights**373**301293Buildings**3,180**2,8872,631Machinery and equipment**14,245**13,03711,883**17,798**16,22514,807
Accumulated depreciation relates primarily to Buildings and Machinery and  equipment.

Capital expenditures are expected to be approximately $800 to $850 in 2003  of which $42 is subject to firm commitments with suppliers.

**         Note 15. Sales and Acquisitions of Businesses and Investments        *2002           Canada***In April 2002, the Company acquired the Société générale de financement (SGF)  20% joint venture interest in the Aluminerie Alouette consortium at a cost of  $172 and in September 2002, the Company acquired the Corus Group plc's 20%  joint venture interest at a cost of $171 giving the Company a 40% ownership in  Alouette. These business combinations are accounted for using the purchase  method of accounting and the results of operations are included in the  consolidated financial statements since acquisition.

 

Determination of fair values of property, plant and equipment was based on  valuations performed by independent appraisers and consultants. Allocation of  the purchase price involves estimates and information gathering during the  months following the date of the combination. This estimation process will be  finalized in 2003. Accordingly, there may be some changes to the assigned  values presented below. The total purchase price was allocated based on the  assigned fair values of the assets acquired and liabilities assumed as  follows:
**2002**Current assets**31**Deferred charges and other assets**3**Property, plant and equipment**300**Intangible assets**20****354**Current liabilities**9**Deferred credits and other liabilities**15**Deferred income taxes**20**Fair value of net assets**310**
The difference between the total purchase price of $343 and the net fair value  of all identifiable assets and liabilities was $33 and is accounted for as  goodwill. (See note 6 - Goodwill and Intangible Assets).

In September 2002, the five co-venturers of the Aluminerie Alouette  consortium announced their final approval of the plant expansion in Sept-Îles,  Quebec. Alcan's share of the cost will be approximately $350. Construction  will begin in the spring of 2003.

***         Japan***In 2002, the Company sold a portion of its investment in Nippon Light Metal  Company, Ltd (NLM), included in the geographic area Asia and Other Pacific,  for net cash proceeds of $22, reducing its holdings to an effective ownership  of 2.2%. Included in Other expenses (income) - net is a gain of $36. The  after-tax gain included a previously deferred gain of $8 related to the sale  in 1996 of Toyo Aluminium K.K. to NLM.

***         Germany, Other Europe and Asia and Other Pacific***In December 2002, the Company announced that it signed a definitive  agreement with Norsk Hydro to purchase VAW Packaging (FlexPac) for  approximately €345 million (approximately $370). FlexPac includes 14 plants in  8 countries and has 5,400 employees. FlexPac comprises a set of custom  manufacturing businesses producing high-quality flexible packaging products  for a wide variety of end-use customers and manufacturers of consumer goods,  including those in the food, dairy and pharmaceutical industries. The  transaction is expected to be completed in the first half of 2003 subject to  the necessary regulatory approvals.

***         2001            Australia***In 2001, the Company acquired the remaining 30% of the Gove alumina  refinery and related bauxite mine for a cash consideration of $379 subject to  certain post-closing adjustments. As a result of this transaction, the Company  owns 100% of these assets. The acquisition was accounted for using the  purchase method of accounting. The purchase price was allocated based on the  assigned fair values of the assets acquired and liabilities assumed as  follows:
**Fair value of net assets acquired**2001Working capital15Property, plant and equipment172187Other liabilities - net41Long-term debt142**Fair value of net assets**145
The difference between the total purchase price and the net fair value of all  identifiable assets and liabilities acquired was $234 and is accounted for as  goodwill, which, until December 31, 2001, was being amortized over a period of  40 years using the straight-line method of amortization. (See note 3 -  Accounting Changes).

 

 

***        Jamaica***In 2001, the Company completed the sale of its Jamaican operations,  included in the geographic area All other. Proceeds from the sale were $153.  The total pre-tax loss on the sale was $123, which was recorded in Other  expenses (income) - net.

***         United Kingdom, Germany and Other Europe***The following transactions were completed in 2001 as part of the divestment  requirements imposed by the European Commission as a condition to its approval  of the merger between Alcan and algroup in October 2000.
- The Company sold its alumina specialties production plant, Martinswerk,  located in Bergheim, Germany.
- The Company sold a number of foil container manufacturing assets in Spain  and Germany.
- The Company sold certain assets at its lithographic sheet production plant,  Star Litho, located in Bridgnorth, U.K.

        The Company received proceeds of approximately $54 from these sales.

        ***Korea***In 2001, the Company's subsidiary Alcan Taihan Aluminum Limited (ATA)  acquired the remaining 5% of Aluminium of Korea Limited (Koralu), included in  the geographic area Asia and Other Pacific, for $21. As a result of the  transaction, the Company's ownership of ATA was reduced to 66% from 68%.

***         2000            Korea***In 2000, ATA acquired a 95% interest in Koralu for $200 in cash and the  assumption of $114 of debt.

Included in the Company's balance sheet at the date of acquisition in 2000  were the following assets and liabilities:
**Fair value of net assets acquired**2000Working capital(2)Property, plant and equipment347345Other liabilities - net4Long-term debt77Minority interest64**Fair value of net assets**200
        ***India***In 2000, the Company sold its 54.6% interest in Indian Aluminium Company,  Limited, included in the geographic area Asia and Other Pacific, to Hindalco  Industries Limited. Net proceeds from the sale were $162 resulting in a gain  of $3, included in Other expenses (income) - net.

**         Note 16. Deferred Credits and Other Liabilities**Deferred credits and other liabilities comprise the following elements:
**2002**20012000Post-retirement and post-employment benefits**640**562539Environmental liabilities**327**32791Rationalization costs**27**4123Claims**206**3743Fair value of foreign currency forward      contracts**25**(12)41Long-term payables**77**7035Other**117**106102**1,419**1,131874
 

 

**        Note 17. Debt Not Maturing Within One Year**
**2002**20012000**Alcan Inc.**** **** **** **Commercial paper - CAN$ (a)**390**585897Commercial paper - US$ (a)**246**166578Long-term credit facilities (a)**-**-250Bank loans, due 2003/2005 (€87 million)       (b)**91**1051425.375% Swiss franc bonds, due 2003 (c)**129**1051095.5% Euro note, due 2006 (€600 million)**629**528-4.875% Global notes, due 2012**500**--          CARIFA loan (d)**-**-606.25% Debentures, due 2008**200**2002006.45% Debentures, due 2011**400**400-7.25% Debentures, due 2031**400**400-8.875% Debentures, due 2022 (e)**-**1501507.25% Debentures, due 2028**100**100100Other debt**-**77          **Alcan Deutschland GmbH and subsidiary      companies**** **** **** **5.65% Bank loans**-**-75.06% Bank loans**-**-12Bank loans, due 2008/2013 (€7 million)       (b)**7**78     **Queensland Alumina Limited**** **** **** **Bank loans, due 2003/2006 (b)**52**8477     **Alcan Holdings Switzerland AG**** **** **** **6.75% Swiss franc bond**-**-924.5% Bank loan (CHF 100 million)**-**5961          **Alcan Finance Jersey Limited**** **** **** **Euro Medium Term Note Program (EMTN)     EMTN, (€400 million) (f)**-**352372     EMTN, due 2008 (€13 million) (f)**14**1112     EMTN, due 2008 (€8 million) (f)**8**78     **ALA (Nevada) Inc.**** **** **** **     Bank loan, due 2005 (b)**60**6060     EMTN**-**-33          **Alcan Packaging Canada Limited**** **** **** **     5.69% Bank loan, due 2003**35**3535     6.24% Bank loan, due 2004**30**3030          **Swiss Aluminium Australia Limited**** **** **** **     Bank loans (b)**-**-62     **Other**** **** **** **Bank loans, due 2003/2011 (b)**138**84864% Eurodollar, due 2003 (g)**14**1414Other debt, due 2003/2024**39**4766**3,482**3,5363,528Debt maturing within one year included in      current liabilities**(295)**      (652)      (333)**3,187**2,8843,195
 

 

(a)   The Company has two long-term, global, multi-year and  multi-currency facilities with a syndicate of major international banks each  amounting to $1,000 (2001: $1,000 and $1,000; 2000: $1,000 and $1,750). One of  the facilities expires in tranches in 2005 and 2006 while the other facility  is renewed annually. These facilities are also available as back-up for  commercial paper issued by the Company in Canada and the U.S. At December 31,  2000, the $250 borrowed under these facilities was classified as Debt not  maturing within one year since the Company had both the intent and ability to  refinance the borrowings on a long-term basis.

At December 31, 2002, 2001 and 2000, the entire amount of commercial paper  borrowings has been classified as Debt not maturing within one year since the  Company had both the intent and ability, through its long term credit  facilities, to refinance the borrowings on a long-term basis.

In 2002, 2001 and 2000, commercial paper borrowings of principal amounts of  CAN$616 million, CAN$940 million and CAN$1,368 million, respectively, were  swapped for $391, $599 and $894, respectively, through the use of forward  exchange contracts. In 2001 and 2000, commercial paper borrowings of principal  amounts of $307 and $518, respectively, with a rate tied to U.S. LIBOR had  been swapped for CHF505 million and CHF920 million, respectively, with a rate  tied to CHF LIBOR for the period to May 2002.

(b)     Interest rates fluctuate principally with the  lender's prime commercial rate, the commercial bank bill rate, or are tied to  LIBOR rates. 

(c)     The Swiss franc bonds were issued as CHF178  million and were swapped for $105 at an effective interest rate of 8.98%.  

(d)     The Caribbean Basin Projects Financing  Authority (CARIFA) loan was repaid at par. 

(e)   The 8.875% debentures were redeemed in January 2002 at a  price of 104.15%. The loss on redemption of $6 pre-tax is included in Other  expenses (income) - net.

                 In 2000, $18 of the 9.625% debentures were redeemed at face value. The 9.5%  debentures were redeemed in January 2000 at a price of 104.64%. The loss on  redemption of $3 pre-tax was included in Other expenses (income) - net in  2000.

(f)    The Euro Medium Term Note Program (EMTN) notes of  principal amounts of €13 million and €8 million with rates tied to EURIBOR or  LIBOR were swapped for £9 million and £5 million, respectively.

(g)   Debenture holders are entitled to receive at their option  1,772 common shares held by the Company in NLM, a portfolio investment, in  exchange for each ten thousand dollar principal amount of debentures. The  Company can redeem the debentures at 100% of the principal.

The Company has swapped, to 2003, the interest payments on $3 (2001: $59;  2000: $61) of its floating rate debt in exchange for fixed interest payments.  Also, the interest payments on $9 of its fixed rate debt have been swapped to  2004 in exchange for floating rate payments.

Based on rates of exchange at year-end, debt repayment requirements over  the next five years amount to $295 in 2003, $135 in 2004, $98 in 2005, $658 in  2006 and $8 in 2007.

**         Note 18. Preference Shares*****        Authorized***An unlimited number of preference shares issuable in series. All shares are  without nominal or par value. 

***         Authorized and Outstanding***In each of the years 2002, 2001 and 2000, there were authorized and  outstanding 5,700,000 series C and 3,000,000 series E redeemable  non-retractable preference shares with stated values of $106 and $54,  respectively.

Preference shares, series C and E are eligible for quarterly dividends  based on an amount related to the average of the Canadian prime interest rates  quoted by two major Canadian banks for stated periods. The dividends on series  C and E preference shares are cumulative.

Preference shares, series C and E may be called for redemption at the  option of the Company on 30 days' notice at CAN$25.00 per share. 

Any partial redemption of preference shares must be made on a pro rata  basis or by lot.

 

**        Note 19. Common Shares**The authorized common share capital is an unlimited number of common shares  without nominal or par value. Changes in outstanding common shares are  summarized below: 
Number (in thousands)Stated Value**2002**20012000**2002**20012000**Outstanding - beginning of year****320,902**317,921218,315**4,687**4,5971,230Issued for cash:     Executive share option plan**292**2,158521**7**5513     Dividend reinvestment and share                purchase plans**276**135237**9**58Issued in exchange for tendered           algroup shares**-**688)*115,446)****-**303,476Purchased for cancellation**-**-(16,598)--(130)**Outstanding - end of year****321,470**320,902317,921**4,703**4,6874,597
* The 688 common shares were issued to acquire the remaining algroup shares  in accordance with the provisions of Swiss law.  * * 115,386 common shares were issued in accordance with the Company's share  exchange offer; 60 common shares were issued after the Company's share  exchange offer.

In June 2000, the Company obtained authorization, which terminated on June  18, 2001, to repurchase up to 21,800,000 common shares under a normal course  issuer bid. In 2001, no common shares were purchased under this authorization  and in 2000, 16,598,100 common shares were purchased and cancelled at a cost  of $530. 

***         Shareholder Rights Plan***In 1990, shareholders approved a plan whereby each common share of the  Company carries one right to purchase additional common shares. The plan, with  certain amendments, was reconfirmed at the 1995 Annual Meeting and further  amendments were approved at the 1999 Annual Meeting. The plan was reconfirmed  at the 2002 Annual Meeting with no amendments. The rights under the plan are  not currently exercisable but may become so upon the acquisition by a person  or group of affiliated or associated persons ("Acquiring Person") of  beneficial ownership of 20% or more of the Company's outstanding voting shares  or upon the commencement of a takeover bid. Holders of rights, with the  exception of an Acquiring Person, in such circumstances will be entitled to  purchase from the Company, upon payment of the exercise price (currently  $100.00), such number of additional common shares as can be purchased for  twice the exercise price based on the market value of the Company's common  shares at the time the rights become exercisable.

The plan has a permitted bid feature which allows a takeover bid to proceed  without the rights under the plan becoming exercisable, provided that it meets  certain minimum specified standards of fairness and disclosure, even if the  Board does not support the bid.

The plan expires in 2008, subject to reconfirmation at the Annual Meeting  of Shareholders in 2005 but may be redeemed earlier by the Board, with the  prior consent of the holders of rights or common shares, for $0.01 per right.  In addition, should a person or group of persons acquire outstanding voting  shares pursuant to a permitted bid or a share acquisition in respect of which  the Board has waived the application of the plan, the Board shall be deemed to  have elected to redeem the rights at $0.01 per right.

 

**        Note 20. Stock Options and Other Stock-based Compensation**Under the executive share option plan, certain employees may purchase  common shares at an exercise price that is based on the market value of the  shares on the date of the grant of each option. The vesting period for options  granted beginning in 1998 is linked to Alcan's share price performance, but  does not exceed nine years. Options granted before 1998 vest generally over a  fixed period of four years from the grant date and expire at various dates  during the next 10 years. Changes in the number of shares under option as well  as the average exercise price are summarized below:

Number of Options (in thousands)
Weighted Average Exercise Price      (CAN$)**2002**20012000**2002**20012000**Outstanding - beginning of year****7,108**7,3265,472**46.34**43.2040.91Granted**1,937**1,9452,422**44.19**50.9646.52Exercised**(292)**(2,158)(521)**39.69**39.8535.75Forfeited**(66)**(5)(42)**46.53**39.0832.42Expired**-**-(5)**-**-22.56**Outstanding - end of year****8,687**7,1087,326**46.08**46.3443.20**Exercisable - end of year****5,007**4,6654,913**45.47**44.9141.56
**Options Outstanding at December 31, 2002**
** **** **** **** ****Weighted**** **** **** ****Weighted****Average****Number of**** Range of** ** Average****Remaining**** Options****Exercise Price**** ****Exercise Price****Contractual Life****(in thousands)****(CAN$)**** ****(CAN$)****(Years)****73****23.31-34.00**** ****29.37****0.91****1,957****34.01-40.00**** ****37.92****8.24****1,251****40.01-46.00**** ****44.07****4.51****4,259****46.01-52.00**** ****46.93****5.12****1,147****52.01-64.25**** ****60.16****8.62****8,687**** **** **** **** **
 

**Options Exercisable at December 31, 2002**
** **** ****Weighted****Number of****Range of****Average**** Options****Exercise Price****Exercise Price****(in thousands)****(CAN$)****(CAN$)****73****23.31-34.00****29.37****470****34.01-40.00****35.07****1,236****40.01-46.00****44.07****2,975****46.01-52.00****47.00****253****52.01-64.25****58.23****5,007**** **** **
Upon consummation of the combination with Alusuisse Group Ltd, described in  note 5 - Combination with Alusuisse Group Ltd, all options granted under the  Company's executive share option plan prior to the consummation were vested.

At December 31, 2002, the Company had reserved for issue under the  executive share option plan 15,408,702 shares.

Stock options are generally granted at an exercise price equal to the  market price on the grant date. The weighted average fair value of stock  options granted in 2002 is $8.69 (2001: $12.00; 2000: $10.87).

To compute the pro forma compensation expense, the Black-Scholes valuation  model was used to determine the fair value of the options granted. Using the  model, the fair value of options averages approximately 27% to 41% of the  exercise price. (See note 2 - Summary of Significant Accounting Policies;  Stock Options and Other Stock-based Compensation).

 

The fair value of each option grant is estimated on the date of grant with  the following weighted average assumptions used for the option grants:
**2002**20012000Dividend yield (%)**1.65**1.932.11Expected volatility (%)**35.73**30.8333.10Risk-free interest rate (%)**3.50**5.575.75Expected life (years)**6**1010
  For pro forma income purposes, the fair value of options granted is being  amortized over their respective vesting periods.

Pro forma net income and net income per common share - basic and diluted,  as if the fair value method had been applied to all stock option awards, are  presented below.
**2002**20012000Net income as reported**374**2610Compensation expense if the fair value method      was used** (11)**(24)(27)Pro forma net income (Loss)**363**(22)583Net income (Loss) per common share - basic -      as reported**1.15**(0.02)2.42Pro forma net income (loss) per common share      - basic**1.12**(0.10)2.31Net income (Loss) per common share - diluted      - as reported**1.14**(0.02)2.42Pro forma net income (loss) per common share      - diluted**1.11**(0.10)2.31
***         Compensation To Be Settled in Cash***In addition, a small number of employees are entitled to receive stock  price appreciation units whereby they are entitled to receive cash in an  amount equal to the excess of the market value of a share on the date of  exercise over the market value of a share as of the date of grant of such  units. In 2002, 275,600 units (2001: 311,060 units) were granted of which  214,635 units (2001: nil units) were vested. The vesting period is linked to  Alcan's share price performance, but does not exceed nine years. At December  31, 2002, 580,305 units (2001: 311,060 units) were outstanding.

A number of employees are entitled to receive cash awards under a cash  incentive plan which provides performance awards to eligible employees based  on the relative performance of the Company's share value and share dividend  yield compared to other corporations included in the Standard & Poor's  Industrials Index measured over a 3-year period commencing on October 1, 2002.  If the performance results for the shares is below the 30th percentile  compared to all companies in the Standard & Poor's Industrials Index, the  employee will not receive an award. At or above the 75th percentile rank, the  employee will be paid the maximum award, which is equal to 300% of the target  set for the period. The actual amount of the award (if any) will be prorated  between the percentile rankings. In 2002, a total target cash award of $12 was  granted to specific key employees. 

Under the Executive Deferred Share Unit Plan, executive officers based in  Canada may elect, prior to the beginning of any particular year, to receive  Executive Deferred Share Units (EDSUs) with a value equal to either 50% or  100% of their Executive Performance Award in respect of that year, instead of  a cash payment. The number of EDSUs is determined by dividing the amount so  elected by the average price of a share on the Toronto and New York stock  exchanges at the end of the preceding year. Additional EDSUs are credited to  each holder thereof corresponding to dividends declared on shares. The EDSUs  are redeemable only upon termination of employment (retirement, resignation or  death). The amount to be paid by the Company upon redemption will be  calculated by multiplying the accumulated balance of EDSUs by the average  price of a share on the said exchanges at the time of redemption. In 2002,  9,771 units (2001: 36,214 units; 2000: 70,673 units) were granted and 939  units (2001: 12,467 units; 2000: nil units) were redeemed. At December 31,  2002, 224,869 units (2001: 216,037 units; 2000: 192,290 units) were  outstanding.

Under the Non-Executive Directors Deferred Share Unit Plan, non-executive  directors receive 50% of compensation payable in the form of Directors'  Deferred Share Units (DDSUs) and 50% in the form of either cash or additional  DDSUs at the election of each non-executive director. The number of DDSUs is  determined by dividing the quarterly amount so elected by the average price of  a share on the Toronto and New York stock exchanges on the last five trading  days of each quarter. Additional DDSUs are credited to each holder thereof  corresponding to dividends declared on shares. The DDSUs are redeemable only  upon termination (retirement, resignation or death). The amount to be paid by  the Company upon redemption will be calculated by multiplying the accumulated  balance of DDSUs by the average price of a share on the said exchanges at the  time of redemption. In 2002, 25,913 units (2001: 15,859 units; 2000: 5,777  units) were granted and 8,876 units (2001: 5,905 units; 2000: 921 units) were  redeemed. At December 31, 2002, 48,212 units (2001: 31,175 units; 2000: 21,221  units) were outstanding.

 

The compensation cost for stock-based employee compensation awards that can  be settled in cash, which is based on the change in the share price during the  year, is recognized in income. Total compensation cost for such awards was $2  in 2002 (2001: $4; 2000: $1).

**         Note 21. Retained Earnings**Consolidated retained earnings at December 31, 2002, include $3,146 (2001:  $3,243; 2000: $3,118) of undistributed earnings of subsidiaries and joint  ventures, some part of which may be subject to certain taxes and other  restrictions on distribution to the parent company. No provision is made for  such taxes as these earnings are considered to be permanently reinvested in  the businesses.

**         Note 22. Commitments and Contingencies**In 1997, as part of the claim settlement arrangements related to the  British Columbia Government's cancellation of the Kemano Completion Project,  the Company obtained the right to transfer a portion of a power supply  contract with BC Hydro to a third party. The Company sold the right to supply  this portion to Enron Power Marketing Inc. (EPMI), a subsidiary of Enron  Corporation (Enron) for cash consideration. In order to obtain the consent of  BC Hydro to this sale, the Company was required to retain a residual  obligation for EPMI's performance of the power supply contract in the event  that EPMI became unable to perform. This contingent obligation is  contractually subject to a maximum aggregate amount of $100, with mitigation  and subrogation rights. On December 2, 2001, EPMI and Enron filed for  protection under Chapter 11 of the U.S. Bankruptcy Code. Powerex Corporation (Powerex),  the BC Hydro affiliate which now holds the rights to the portion of the power  supply contract transferred to EPMI, maintains that it has terminated the  power supply contract and as a result filed a claim for $100 against Enron on  March 15, 2002. Neither Enron nor EPMI responded to that claim and the Company  received, on March 22, 2002, a demand for payment in the amount of $100 from  Powerex. The Company disputed its obligation to pay on the demand by Powerex  and the matter was submitted to arbitration in accordance with applicable  contractual requirements. The arbitration hearings took place in December and  on January 17, 2003, the decision was issued confirming Powerex's claim for  $100. The decision will become enforceable after the expiry of the delays to  apply for judicial review and the completion by Powerex of the necessary  filing process before the appropriate Court. Under the circumstances the  Company has recorded a pre-tax charge of $100 in Other expenses (income) - net  in the fourth quarter of 2002.

The Company has guaranteed the repayment of approximately $3 of  indebtedness by third parties. Alcan believes that none of these guarantees is  likely to be invoked. Commitments with third parties and certain related  companies for supplies of goods and services are estimated at $140 in 2003,  $131 in 2004, $109 in 2005, $109 in 2006, $97 in 2007 and $988 thereafter.  Total payments to these entities were $50 in 2002, $36 in 2001 and $106 in  2000, excluding $218 and $749 in 2001 and 2000, respectively, in relation to  the Alma smelter.

Minimum rental obligations are estimated at $58 in 2003, $48 in 2004, $43  in 2005, $35 in 2006, $31 in 2007 and $133 thereafter. Total rental expenses  amounted to $82 in 2002, $72 in 2001 and $58 in 2000.

Alcan, in the course of its operations, is subject to environmental and  other claims, lawsuits and contingencies. The Company has environmental  contingencies relating to approximately 29 existing and former Alcan sites and  third-party sites. Accruals have been made in specific instances where it is  probable that liabilities will be incurred and where such liabilities can be  reasonably estimated. Environmental provisions were recorded in 2002 and 2001  for treatment costs relating to spent potlining in Canada and for remediation  costs relating to red mud disposal at other sites in Canada and the U.K.

Although it is possible that liabilities may arise in other instances for  which no accruals have been made, the Company does not believe that such an  outcome will significantly impair its operations or have a material adverse  effect on its financial position.

In addition, see reference to income taxes in note 9, capital expenditures  in note 14, debt repayments in note 17 and financial instruments and commodity  contracts in note 24.

**         Note 23. Currency Gains and Losses**The following are the amounts recognized in the financial statements:
**2002**20012000**Currency gains (losses) excluding realized      deferred translation adjustments:**Gains (Losses) realized and unrealized on      exchange derivatives **(146)**1534Gains (Losses) on translation of monetary      assets and liabilities**106**(23)(2)**(40)**(8)32
 

 
**Deferred translation adjustments -      beginning of year****(151)**(20)(76)Effect of exchange rate changes**463**(129)9Losses (Gains) realized***(11)**247Debt designated as an equity hedge of foreign      subsidiaries**(42)**(4)-**Balance - end of year****259**(151)(20)
* The gain realized in 2002 relates to a gain on the partial sale of the  Company's investment in Nippon Light Metal Company, Ltd., which was offset in  part by a loss on the sale of Alcan Nikkei Thai Limited. The loss realized in  2000 related principally to the sale of the Company's investment in Indian  Aluminium Company, Limited.

In 2001, $6 (2000: $26) of exchange losses relates to hedging of Canadian  dollar construction costs of the new smelter at Alma, Quebec. In 2002 and  2001, these costs are included in Property, plant and equipment - cost and in  2000, were included in Construction work in progress. (See note 9 - Income  Taxes for amounts of exchange gains and losses included in income taxes).

**         Note 24. Financial Instruments and Commodity Contracts**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.

***         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.

 
Outstanding at December 31**2002**20012000Financial**Notional****Fair**NotionalFairNotionalFair InstrumentHedge**Amount****Value**AmountValueAmountValueForward exchange      Future firm net operating cash flows (1)**876**(16)933(16)2,248  14     contracts Currency optionsFuture firm operating cost commitments (1)**163**6220(1)58(2)Cross currency      To swap CAN$ commercial**391**-599(9)89417     interest swap     paper borrowings to US$ (2) Forward exchange      Intercompany foreign**797**(34)415(7)193(3)     contracts     currency denominated loans (3) Cross currency      To swap 5.375% CHF178 million**105**24105-1054     interest swap     bonds to US$ (4) Cross currency      To swap US$ third party**271**(5)----     interest swap and           borrowings to KRW (5)      forward exchange            contracts Cross currency      To swap €400 million medium term      **-**-360(8)3731     interest swap     notes to CHF608 million (6) Cross currency      To swap  €21 million medium**23**(1)20(2)21-     interest swap     term notes to £14 million (6) Forward exchange      Future commitments (7)**-**-20-212-     contracts Cross currency      To swap US$ commercial**-**-3073518(48)     interest swap     paper borrowings for CHF (8) 
(1)   Included in Deferred charges and other assets and Other  receivables is an amount of $1 (2001: nil; 2000: $1) consisting of net losses  on terminated forward exchange contracts and options, as well as the net cost  of outstanding options, used to hedge future costs. These deferred charges  will be included in the cost of the underlying transactions being hedged upon  their recognition. Included in Payables and accrued liabilities is an amount  of $1 which offsets the revaluation of the underlying items being hedged.

(2)   An amount of nil (2001: liability of $12; 2000: asset of  $12) related to the swap of the principal has been recorded in Deferred  charges and other assets. The CAN$616 million swap, outstanding at December  31, 2002, matures at various dates in 2003. The CAN$940 million swap,  outstanding at December 31, 2001, matured in 2002. The CAN$1,368 million swap,  outstanding at December 31, 2000, matured in 2001.

(3)   A net liability of $34, which is recorded in the balance  sheet, offsets the revaluation of the underlying intercompany foreign currency  denominated loans being hedged.

(4)   The 5.375% Swiss franc bonds of principal amount of CHF178  million have been swapped for $105 at an effective interest rate of 8.98%. An  asset of $24 related to the swap of the principal (2001: nil; 2000: asset of  $4) has been recorded in Other receivables (2000: Deferred charges and other  assets). The swap matures in April 2003.

(5)   A liability of $4 which is recorded in Payables and accrued  liabilities, offsets the revaluation of the underlying third party borrowings  being hedged.

(6)   Part of the EMTN Program, whereby an amount of nil (2001:  liability of $8; 2000: asset of $1) has been recorded in the balance sheet.

(7)   Mainly Canadian dollar, principally for the construction of  the smelter at Alma, Quebec.

(8)   An amount of nil (2001: asset of $8; 2000: liability of  $48) has been recorded in the balance sheet. Because the swap is hedging an  intercompany CHF loan, it has no net income impact. The CHF920 million swap,  outstanding at December 31, 2000, matured in February 2001. The CHF505 million  swap, outstanding at December 31, 2001, matured in May 2002.

 

 

***        Derivatives - Interest Rates***The Company sometimes enters into interest rate swaps to manage funding  costs as well as the volatility of interest rates. 

If all interest rate swap agreements had been closed out on December 31,  2002, the Company would have paid nil (2001: paid $1; 2000: received $2).

***         Derivatives and Commodity Contracts - Metal***

Depending on supply and market conditions, as well as for logistical  reasons, the Company may sell primary metal to third parties and may purchase  primary and secondary aluminum on the open market to meet its fabricated  products requirements. In addition, the Company may hedge certain commitments  arising from pricing arrangements with some of its customers.

Through the use of forward purchase and sales contracts and options, the  Company seeks to limit the negative impact of low metal prices.
Outstanding at December 31**2002**20012000**Financial Instrument**** **** **** **Forward contracts (principally forward      purchase contracts)      Tonnes covered**556,051**650,400410,650     Maturing principally in years**2003 to 2004**2002 to 20042001 to 2003Call options purchased     Number of tonnes**88,050**379,925175,650     Maturing principally in years**2003**2002 to 20032001 to 2002Put options purchased     Number of tonnes**-**42,000151,000     Maturing principally in years**-**20022001 to 2003Fair value**15**(25)10
Included in Other receivables or Deferred charges and other assets is $4  (2001: $12; 2000: $23) representing the net cost of outstanding options. Also  included in Other receivables is an amount of $5 consisting of net losses on  terminated forward metal contracts used to hedge future costs. These deferred  charges will be included in the cost of the items being hedged at the same  time as the underlying transactions being hedged are recognized.

***        Derivatives - Oil***As a hedge of future oil purchases, the Company had outstanding as at  December 31:
**2002**20012000Futures, swaps and options   Number of barrels (in millions)**14.0**17.118.1Maturing at various times in the years**2003 to 2006**2002 to 20062001 to 2006Fair value**9**(12)(7)
In 2002, a net liability of $4 (2001: $10) relating to the oil derivatives is  recorded in the balance sheet.

 

***        Derivatives - Natural gas***As a hedge of future natural gas purchases, the Company had outstanding as  at December 31:
**2002**20012000Swaps    Number of decatherms (in      millions)**1.5**--Options   Number of decatherms (in      millions)**0.4**--Fixed price contracts   Number of decatherms (in      millions)**0.8**5.3-Maturing in various times throughout**2003**2002-Fair value**2**(4)-
***         Counterparty Risk***As exchange rates, interest rates, metal, oil and natural gas prices  fluctuate, the above contracts will generate gains and losses that will be  offset by changes in the value of the underlying items being hedged. The  Company may be exposed to losses in the future if the counterparties to the  above contracts fail to perform. However, the Company is satisfied that the  risk of such non-performance is remote, due to its monitoring of credit  exposures.

***         Financial Instruments - Fair Value***On December 31, 2002, the fair value of the Company's long-term debt  totalling $3,482 (2001: $3,536; 2000: $3,528) was $3,700 (2001: $3,579; 2000:  $3,516), based on market prices for the Company's fixed rate securities and  the book value of variable rate debt.

At December 31, 2002, the quoted market value of the Company's portfolio  investments having a book value of $28 (2001 and 2000: $31) was $34 (2001:  $39; 2000: $46).

At December 31, 2002, the fair value of the Company's preference shares  having a book value of $160 (2001 and 2000: $160) was $131 (2001: $128; 2000:  $139).

The fair values of all other financial assets and liabilities are  approximately equal to their carrying values.

**        Note 25. Supplementary Information**
**2002**20012000**Income statement**** **** **** **Interest on long-term debt**158**218123Capitalized interest** (1)**(30)(81)**Balance sheet**** **** **** **Payables and accrued liabilities include the      following:   Income and other taxes**159**203170   Accrued employment costs**281**242288At December 31, 2002, the weighted average      interest rate on short-term borrowings was 4.1% (2001: 4.9%; 2000: 6.5%).**Statement of cash flows**** **** **** **Interest paid**205**265161Income taxes paid**187**213203
 

 

**        Note 26. Post-retirement Benefits**Alcan, its subsidiaries and joint ventures have established pension plans  in the principal countries where they operate, generally open to all  employees. Most plans provide pension benefits that are based on the  employee's highest average eligible compensation before retirement. Pension  payments are periodically adjusted for cost of living increases, either by  Company practice, collective agreement or statutory requirement. Plan assets  consist primarily of listed stocks and bonds. 

Alcan's funding policy is to contribute the amount required to provide for  benefits attributed to service to date, with projection of salaries to  retirement, and to amortize unfunded actuarial liabilities for the most part  over periods of 15 years or less. All actuarial gains and losses are amortized  over the expected average remaining service life of the employees which is 12  years in 2002 (2001 and 2000: 13 years).

The Company provides life insurance benefits under some of its retirement  plans. Certain early retirement arrangements also provide for medical  benefits, generally only until the age of 65. These plans are generally not  funded.

**Pension Benefits**
**Other Benefits****2002**20012000**2002**20012000**Change in benefit obligation**** **** **** **** **** **** **Benefit obligation at January 1**6,514**6,317 4,047**217**201186Service cost**126**12083**5**55Interest cost**405**376255**15**1512Members' contributions**27**2621**-**--Benefits paid**(388)**(346)(217)**(14)**(12)(10)Amendments**111**153435**1**-(1)Acquisitions/divestitures**(6)**(71)2,047**(2)**-27Actuarial (gains) losses**(38)**23(263)**19**8(18)Currency (gains) losses**447**(84)(91)**-**--**Benefit obligation at December 31**** 7,198**6,514 6,317**241**217201**Change in market value of plan assets      (Assets)**** **** **** **** **** **** **Assets at January 1**6,047**7,0144,917 **4**5-Actual return on assets**(349)**(537)250**-**--Members' contributions**27**2621**-**--Benefits paid**(388)**(346)(217)**(1)**(2)-Company contributions**128**8044**-**1-Acquisitions/divestitures**(4)**(117)2,087**-**-5Currency gains (losses)**316**(73)(88)**-**--**Assets at December 31****5,777**6,047 7,014**3**45**Assets in excess of (less than)**** **** **** **** **** **** ****   benefit obligation****(1,421)**(467)697**(238)**(213)(196)Unamortized           - actuarial (gains) losses      **656**(193)(1,311)**(9)**(24)(39)     - prior service cost**687**653590**1**11**Net liability in balance sheet****(78)**(7)(24)**(246)**(236)(234)
For certain plans, the accumulated benefit obligation (ABO) exceeds the  market value of the assets. For these plans, the projected benefit obligation  is $3,862 (2001: $2,495; 2000: $657), the ABO is $3,576 (2001: $2,414; 2000:  $588) while the market value of the assets is $2,608 (2001: $1,882; 2000:  $308).

 

**Pension Benefits**
**Other Benefits****2002**20012000**2002**20012000**Components of net periodic benefit cost**** **** **** **** **** **** **Service cost**126**12083**5**55Interest cost**405**376255**15**1512Expected return on assets**(437)**(480)(345)**-**(1)-Amortization     - actuarial (gains) losses**9**(47)(102)**(2)**(1)(2)     - prior service cost**69**8989**-**--Curtailment/settlement (gains) losses**9**40-**(2)**--**Net periodic benefit cost****181**98(20)**16**1815**Weighted average assumptions at December      31**** **** **** **** **** **** **Discount rate (%)5.86.16.36.56.97.3Average compensation growth (%)3.33.63.73.94.44.5Expected return on assets (%)7.17.37.08.58.5n/a
The assumed health care cost trend rate used for measurement purposes is  8.9% for 2003, decreasing gradually to 4.6% in 2008 and remaining at that  level thereafter. A one percentage point change in assumed health care cost  trend rates would have the following effects:
** **** **
**Other Benefits**** **** ****1%****1%**** **** ****Increase****Decrease**Sensitivity AnalysisEffect on service and interest costs1(1)Effect on benefit obligation12  (10)
**         Note 27. Information by Geographic Areas**
 Location**2002**20012000**Sales and operating revenues**Canada**708**585625**- third parties (by destination)**United States**4,574**4,5983,665Brazil**395**470465United Kingdom**1,030**1,065600Germany**1,431**1,388756Switzerland**202**19465Other Europe**2,329**2,3471,475Australia**103**39131Asia and Other Pacific**1,648**1,7101,228All other**120**230138Total**12,540**12,6269,148**Sales and operating revenues**Canada**2,354**2,1272,042**- intercompany (by origin)**United States**602**541563Brazil**54**6444United Kingdom**385**408373Germany**319**242181Switzerland**770**676237Other Europe**626**612151Australia**299**288114Asia and Other Pacific**13**59All other**97**190322Sub-total**5,519**5,1534,036Consolidation eliminations** (5,519)**(5,153)(4,036)Total--**-** 
     Sales to subsidiary companies are made at fair market prices recognizing    volume, continuity of supply and other factors.     Location**2002**20012000**Sales and operating revenues**Canada**999**1,045915**- third parties (by origin)**United States**4,389**4,3553,713Brazil**420**424443United Kingdom**912**913565Germany**2,028**2,0221,401Switzerland**1,371**1,436414Other Europe**1,168**1,100599Australia**183**208137Asia and Other Pacific**972**1,014857 All other**98**109104Total**12,540**12,6269,148**Net income (Loss) (*) (**)**Canada**94**(57)287United States**74**137155Brazil**38**2934United Kingdom**9**(139)10Germany**36**1943Switzerland**8**(14)1Other Europe**15**(4)25Australia**68**8759Asia and Other Pacific**3**(30)(22)All other**24**(38)48Consolidation eliminations**5**12(30)Total**374**2610
(*)     In 2002, net income includes after-tax  non-recurring charges (income) pertaining to restructuring and other special  charges, revisions to environmental provisions, impairment provisions and  business and investment disposal gains and losses of $85 for Canada, $20 for  the United States, $(2) for Brazil, $12 for the United Kingdom, $(5) for  Germany, $2 for Switzerland, $26 for Other Europe, $(16) for Asia and Other  Pacific and $(5) for All other.

In 2001, net income included after-tax non-recurring charges (income)  pertaining to restructuring and merger integration costs, revisions to  environmental provisions, impairment provisions, business disposal loss and a  prior year's tax adjustment of $200 for Canada, $23 for the United States, $2  for Brazil, $163 for the United Kingdom, $(3) for Germany, $11 for  Switzerland, $42 for Other Europe, $1 for Australia, $4 for Asia and Other  Pacific and $90 for All other. (See note 8 - Restructuring, Impairment and  Other Special Charges).

In 2002, net income includes income (charges) for transfer pricing  adjustments of $69 for Canada, $(70) for the United States and $5 for the  United Kingdom. (See note 9 - Income Taxes).

(**)   If presented to reflect the effect of prior years' income  tax reassessments described in note 9, in 2000, net income in Canada would be  increased by $25 and decreased by $14 in the United States, $5 in the United  Kingdom and $6 in Germany.

 
Location**2002**20012000**Property, plant and equipment,**Canada**4,317**4,1144,002**Intangible assets and Goodwill at**United States**1,500**1,6891,579**December 31 (*) (**)**Brazil**743**731736United Kingdom**880**8261,047Germany**1,108**1,1661,322Switzerland**645**718752Other Europe**1,821**1,7941,713Australia**1,215**1,199959Asia and Other Pacific**627**607626All other**65**81296Total**12,921**12,92513,032**Cash paid for capital expenditures**Canada**477**3991,097**and business acquisitions**United States**96**196113Brazil**78**6142United Kingdom**77**9449Germany**85**7355Switzerland**43**4518Other Europe**113**12479Australia**58**41612Asia and Other Pacific**33**79239 All other**13**2731Total**1,073**1,5141,735**Average number of employees**Canada**12**1211(in thousands - unaudited)United States**9**105Brazil**3**33United Kingdom**5**63Germany**8**84Switzerland**3**41Other Europe**6**62Australia**1**1-Asia and Other Pacific**2**25 All other**1**13Total**50**5337
(*)     In 2002, Property, plant and equipment,  Intangible assets and Goodwill - net includes goodwill impairment charges of  $9 for Canada, $130 for the United States, $34 for the United Kingdom, $208  for Germany, $172 for Switzerland and $195 for Other Europe.

(**)   In 2001, Property, plant and equipment, Intangible assets  and Goodwill - net included asset write-offs of $31 for Canada, $33 for the  United States, $1 for Brazil, $127 for the United Kingdom, $8 for Germany, $4  for Switzerland, $7 for Other Europe and $11 for Asia and Other Pacific.

**        Note 28. Information by Operating Segments**The following presents selected information by operating segment, viewed on  a stand-alone basis. Effective January 1, 2002, a new operating management  structure comprised of six operating segments was put in place. The six  operating segments are Bauxite, Alumina and Specialty Chemicals; Primary  Metal; Rolled Products Americas and Asia; Rolled Products Europe; Engineered  Products; and Packaging. Prior to 2002, there were four operating segments:  Primary Metal; Aluminum Fabrication, Americas and Asia; Aluminum Fabrication,  Europe; and Packaging. Comparative information has been restated to conform to  the 2002 organizational structure. 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 Rolled  Products, Engineered Products and Packaging groups. Earnings from the Rolled  Products, 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  that the pension costs for the operating segments are based on the normal  current service cost with all actuarial gains, losses and other adjustments  being included in Intersegment and other. Some corporate office and certain  other costs have been allocated to the respective operating segments. The  operating segments are described below.

***         Bauxite, Alumina and Specialty Chemicals***This segment, which consists of a network of bauxite mines/deposits in five  countries and alumina refineries and specialty chemical plants in three  countries, supplies the primary metal operations and third-party sales of  alumina and specialty chemicals.

***         Primary Metal***This segment produces primary aluminum in seven countries. The alumina is  sourced primarily from the Bauxite, Alumina and Specialty Chemicals segment  and the ingot produced is used by the Company's fabricating businesses as well  as sold to third-parties. The segment produces value-added products in the  form of sheet ingot, extrusion billet, cable rods and foundry ingot for  end-use markets in consumer goods, transportation, building and construction  and other industrial applications.

***         Rolled Products Americas and Asia***This segment, which has an extensive network of 16 rolled products  facilities in North and South America and Asia, manufactures sheet and  light-gauge products, including can stock, automotive sheet and industrial  products. In addition, the segment has a well-established used beverage can  recycling capability in North and South America.

***         Rolled Products Europe***This segment has 11 rolled products plants and serves a number of European  markets with advanced value-added sheet products, including automotive sheet,  lithographic sheet, industrial sheet, can sheet and foil stock.

***         Engineered Products***This segment, which has 47 engineered products plants in 17 countries,  develops, manufactures and sells value-added engineered products for a variety  of applications, including extrusions, composites, systems and components for  mass transportation and automotive applications and electrical cables.

***         Packaging***This segment has 76 plants in 14 countries and is focused on serving  specific end-use markets: food, pharmaceutical and personal care, and tobacco  packaging.

 

***        Intersegment and other***This classification includes the deferral or realization of profits on  intersegment sales of aluminum and alumina as well as other non-operating  items.
**Sales and operating revenues**
Intersegment
Third parties**2002**20012000**2002**20012000Bauxite, Alumina and Specialty Chemicals**757**771536**435**477470Primary Metal**2,205**2,1171,674**2,447**2,5461,655Rolled Products Americas and Asia**185**17371**3,327**3,3163,391Rolled Products Europe**333**338319**1,814**1,7351,666Engineered Products**17**2218**1,645**1,661724Packaging**21**6058**2,812**2,8611,216Other**(3,518)**(3,481)(2,676)**60**3026**-**--**12,540**12,6269,148 
 
**EBITDA (Earnings before interest, taxes,      depreciation and amortization)****2002**20012000Bauxite, Alumina and Specialty Chemicals**249**301265Primary Metal**858**818729Rolled Products Americas and Asia**367**296261Rolled Products Europe**132**83144Engineered Products**96**10355Packaging**347**35273EBITDA from operating segments**2,049**1,9531,527Depreciation and amortization**(859)**(820)(545)Restructuring, impairment and other special      charges**(69)**(657)-Intersegment and other**(152)**(43)24Corporate office**(96)**(75)(49)Interest**(203)**(254)(78)Income taxes**(293)**(42)(254)Minority interests**(3)**131**Net income before amortization of goodwill**** ****374**75626**Net income after amortization of goodwill**** ****374**2610
Included in 2002 EBITDA for Bauxite, Alumina & Specialty Chemicals is a gain  of $5 related to the sale of fixed assets.

Restructuring, impairment and other special charges for 2002 includes $14  for Bauxite, Alumina & Specialty Chemicals , $(6) for Primary Metal, $15 for  Rolled Products Americas and Asia, $13 for Rolled Products Europe, $10 for  Engineered Products, $8 for Packaging and $15 for Intersegment and other.

Included in 2002 Intersegment and other are net charges of $84 relating  principally to a provision of $100 for the ruling on a contract dispute with  Powerex (a subsidiary of BC Hydro), an increase of $9 to legal provisions, a  loss of $6 on redemption of debt, and partially offset by a gain of $36 on the  sale of a portfolio investment.

Included in 2001 EBITDA for Primary Metal and Packaging were $1 and $(5)  related to rationalization costs (write-back of provision), respectively.

 

Restructuring, impairment and other special charges for 2001 included $149  for Bauxite, Alumina & Specialty Chemicals, $201 for Primary Metal, $16 for  Rolled Products Americas and Asia, $148 for Rolled Products Europe, $7 for  Engineered Products, $95 for Packaging and $41 for Intersegment and other.

Included in 2001 Intersegment and other is a loss on the sale of Jamaican  bauxite and alumina operations of $123.

Included in 2000 EBITDA for Bauxite, Alumina & Specialty Chemicals, Primary  Metal and Packaging are $3, $15 and $26 related to rationalization costs,  respectively.
**Total assets at December 31****2002**20012000Bauxite, Alumina and Specialty Chemicals**2,073**2,1642,176Primary Metal**6,316**5,8895,682Rolled Products Americas and Asia**2,496**2,5222,709Rolled Products Europe**1,620**1,6382,139Engineered Products**1,373**1,4901,438Packaging**3,561**3,5333,712Other**99**222533**17,538**17,45818,389
 

      Depreciation and      amortization
Cash paid for      capital expenditures       and business acquisitions **2002**20012000**2002**20012000Bauxite, Alumina and Specialty Chemicals**83**9377**104**479105Primary Metal**295**260167**556**4621,009Rolled Products Americas and Asia**146**146143**73**149355Rolled Products Europe**77**8265**63**7389Engineered Products**69**6021**63**6130Packaging**178**16662**205**26697Other**11**1310**9**2450**859**820545**1,073**1,5141,735
        **Note 29. Prior Year Amounts**Certain prior year amounts have been reclassified to conform with the 2002  presentation.

 

**        Quarterly Financial Data        (in millions of US$, except where indicated)**
(unaudited)**First****Second****Third****Fourth****Year****2002**** **** **** **** **** **Revenues**2,937****3,199****3,224****3,180****12,540**Cost of sales and operating expenses**2,331****2,520****2,546****2,537****9,934**Depreciation and amortization**205****217****213****224****859**Income taxes**78****122****63****30****293**Other items**237****269****211****363****1,080**Net income (1)**86****71****191****26****374**Dividends on preference shares**1****1****1****2****5**Net income attributable to common        shareholders**85****70****190****24****369**Net income per common share (basic) (in        US$) (2)**0.26****0.22****0.59****0.08****1.15**Net income per common share (diluted) (in        US$) (2)**0.26****0.22****0.59****0.08****1.14**Net income (Loss) under U.S. GAAP (3)**(595)****58****160****41****(336)**   
 
(unaudited)FirstSecondThirdFourthYear2001(Restated - note 3)Revenues3,2703,1623,1573,03712,626Cost of sales and operating expenses2,5772,4742,4842,4649,999Depreciation and amortization196204204216820Income taxes5810167(184)42Other items2862912348791,690Net income (Loss) before amortization of      goodwill15392168(338)75Amortization of goodwill1818191873Net income (Loss) (1)13574149(356)2Dividends on preference shares22228Net income (Loss) attributable to common      shareholders13372147(358)(6)Net income (Loss) per common share before      amortization   of goodwill (basic) (in US$) (2)0.480.280.52(1.05)0.21Amortization of goodwill per common share (in      US$) (2)0.060.050.060.060.23Net income (Loss) per common share (basic)      (in US$) (2)0.420.230.46(1.11)(0.02)Net income (Loss) per common share (diluted)      (in US$) (2)0.410.220.46(1.11)(0.02)Net income (Loss) under U.S. GAAP (3)7494104(326)(54)
 
(unaudited)**First****Second****Third****Fourth****Year**** **** **** **** **** **** **2000(Restated - note 3)Revenues1,9622,0251,9793,1829,148Cost of sales and operating expenses1,4541,5601,5302,5697,113Depreciation and amortization116114120195545Income taxes104883428254Other items117111116266610Net income before amortization of goodwill171152179124626Amortization of goodwill---1616Net income (1)171152179108610Dividends on preference shares232310Net income attributable to common      shareholders169149177105600Net income per common share before      amortization of goodwill   (basic) (in US$) (2)0.770.690.840.382.47Amortization of goodwill per common share (in      US$) (2)---0.050.05Net income per common share (basic) (in US$) (2)0.770.690.840.332.42Net income per common share (diluted) (in      US$) (2)0.770.680.840.332.42Net income under U.S. GAAP (3)171152179104606
(1) The first quarter of 2002 includes net after-tax charges of $7 relating  mainly to the restructuring program announced in 2001. The charges include a  fixed asset impairment charge of $9 relating to the recycling operations at  the Borgofranco plant in Italy and a loss of $5 on the sale of extrusion  operations in Thailand. The second quarter of 2002 includes net after-tax  charges of $8 relating mainly to the restructuring program announced in 2001.  The charges include severance and pension costs of $7 relating to the closure  of the Bracebridge cable plant in Ontario, Canada. The third quarter of 2002  includes net after-tax charges of $16 relating mainly to the restructuring  program in 2001 and increases to legal provisions. The restructuring program  net charges include fixed asset impairment charges of $12 relating principally  to the extrusion operations in Pieve, Italy, severance costs of $4 for the  extrusion operations in Malaysia, light-gauge operations in Fairmont, West  Virginia, and certain cable operations in North America and income of $8,  primarily for the write-back of excess contract loss provisions. The fourth  quarter of 2002 includes net after-tax charges of $86 relating mainly to a  provision of $68 for the ruling on a contract dispute with Powerex (a  subsidiary of BC Hydro) and charges of $20 for the closures of the specialty  chemicals plant at Burntisland, U.K. and the Banbury, U.K. R&D facilities.  These charges are partially offset by a gain of $26 on the sale of a portfolio  investment. 

The first quarter of 2001 included after-tax charges for the impairment in  value of fixed assets of $70 for Jamaica and rationalization costs of $1. The  second quarter of 2001 included an after-tax charge of $20 for post-closing  adjustments relating to the divestment of Jamaica, partly offset by a  write-back of rationalization costs of $4 in the U.K. The results for the  fourth quarter of 2001 included a net non-recurring after-tax charge of $446.  This included a $166 charge related to the restructuring program announced on  October 17, 2001, and a $37 charge related to the synergy program announced in  the fourth quarter of 2000 in relation to the merger with algroup. Also  included are impairment provisions of $88 in relation to certain assets and  capitalized project costs, a $167 charge related to environmental provisions,  and a favourable prior year's tax adjustment of $12.

 

The second quarter of 2000 included an after-tax gain of $6 from disposal  of property and a gain of $10 from the demutualization of the Company's life  insurance providers. This was offset in part by a non-operating exceptional  provision of $9 in the U.S., merger costs of $4 and rationalization costs of  $2. The third quarter of 2000 included favourable tax adjustments of $43,  partially offset by asset write-offs of $12. The fourth quarter of 2000  included non-cash merger charges related to the merger with algroup of $25,  rationalization charges in respect of the closure of foil operations at  Rogerstone in the U.K. of $18, asset write-offs of $6, partially offset by  favourable tax adjustments of $14.

(2) Net income per common share calculations are based on the average  number of common shares outstanding in each period. (See note 4 - Net Income  per Common Share - Basic and Diluted).

(3) See note 7 - Differences between Canadian and United States Generally  Accepted Accounting Principles (GAAP) for explanation of differences between  Canadian and U.S. GAAP.