**Management's Discussion andAnalysis**

**OVERVIEW**

The recovery of the world's major developed economiesremained fragile through most of 2003, showing signs of sustained improvementonly towards year-end.  As a consequence, world demand growth for aluminum wasmuted and was fueled mainly by the continued rapid development of China'seconomy.  While primary aluminum was in surplus in 2003, the excess ofproduction over demand narrowed as the year progressed.  For 2004, demandgrowth is expected to outstrip production increases, leading to a decline inindustry inventories for the first time in three years.  

                The price of aluminum on the LondonMetal Exchange ended 2003 at US$1,605 per tonne, US$257 per tonne higher thanat the start of the year.  Unlike the situation for other base metals, the run-upin aluminum prices in the second half of the year did not reflect improvedindustry fundamentals but rather the pronounced weakening of the U.S. dollar. When viewed in terms of other currencies, aluminum prices showed little or noimprovement year over year.  In 2004, the anticipated decline in industryinventories is expected to provide a better price environment for aluminum. 

                For Alcan, it was a year of externalchallenges and significant accomplishments. The benefits from higher aluminumprices were offset in the Company's results by the negative impact of the U.S.dollar's depreciation. Likewise, ongoing initiatives to reduce costs weresuccessful, but could not fully offset the external pressures driving increasesin costs for pensions, fuel and recycled metal.  In the opening months of 2004,the U.S. dollar has begun to firm and external cost pressures have largelyabated.

                During 2003, Alcan took a number ofimportant steps in pursuit of its value-maximization agenda, including theacquisition of a flexible packaging business and two composites businesses, aswell as signing a joint venture agreement for a smelter in China.  However, themost significant development in 2003 was the acquisition at year-end ofPechiney, a leading international producer of aluminum and packaging products. This acquisition provides Alcan with considerably increased scale, enhancedtechnological resources and greater opportunities for profitable growth,particularly in the aerospace and packaging markets.  While the addition ofPechiney further builds upon the stable earnings and cash flow foundation ofAlcan's packaging business, it also brings greater earnings leverage to changesin aluminum prices.  

*The graphs andtables presented in Management's Discussion and Analysis exclude Pechiney,unless otherwise stated. *

**MARKET REVIEW**

**Western World* Primary Aluminum Balance**

**Demand**Total Western World aluminum consumption grew by anestimated 1.3% in 2003 to about 28.5 million tonnes (Mt).  A second year ofsub-par growth kept consumption from fully recovering to the record level of29.4 Mt reached in 2000.   Of all aluminum consumed in 2003, 20.7 Mt was in theform of primary aluminum, which was up 5.7% over the prior year. The balance of7.8 Mt was in the form of secondary/recycled metal. The higher rate of primaryconsumption largely reflected the growing influence of China on the aluminummarket. During the year, increased scrap aluminum imports by Chinasubstantially reduced scrap availability in the Western World, pushing upprices for secondary alloys and spurring increased primary usage.   WesternWorld primary smelters also took advantage of the higher prices by increasingthe casting of secondary alloys. 

In 2003, aluminum consumption wasdown in the Americas but up in other regions. A 100-thousand-tonne (kt) declinein the U.S. contributed to a drop of 1% in North America, the world's largestconsuming region.  Similarly, a 5.6% fall in Brazil was the leading contributorto the 2.7% decline in South America. Mixed results in Western Europe producedmodest growth of 1%, while consumption in Russia registered a decline. In Asia,there were increases in every major country, which led to a 5.2% growth in thatregion.  Chinese consumption is estimated to have grown an impressive 25.9%,following 12.2% growth in 2002. 

**Supply**

Total Western World primaryaluminum supply (production plus imports) increased 4.3% to 20.8 Mt in 2003. Ofthis, primary aluminum production represented 17.8 Mt, up 3.2% from theprevious year, with the balance comprising 3.0 Mt of net imports from China andformer Eastern Bloc countries (C.I.S.* and Eastern Europe).   During the year,a total of about 500 kt of primary capacity was idled or closed in the U.S.,Ghana, Brazil, France and New Zealand, but this was more than offset byexpansions in Mozambique, Norway, India, Brazil, and South Africa, a few ofwhich came on stream ahead of schedule. Net imports were up significantly fromboth Russia and China, the latter largely in anticipation of a cut in exporttax rebates effective for 2004.

*Defined as the worldexcluding the Commonwealth of Independent States (C.I.S.), Eastern Europe andChina.

 

**Management's Discussion andAnalysis**

**Western World Primary Aluminum Supply andDemand**

**Balance**With Western World primary aluminum demand increasingmore quickly than supply, the surplus was about 155 kt in 2003, down from about400 kt in 2002. By the end of the year, inventories held by the London MetalExchange (LME), the New York Mercantile Commodities Exchange (COMEX) andaluminum producers had increased to approximately 4.5 Mt, or the equivalent ofabout 11 weeks of consumption. Driven primarily by the weakening U.S. dollar,the average 3-month LME aluminum price rose 5% in 2003 to $1,428/t, up from$1,365/t in the prior year.

**Total Aluminum Inventories and IngotPrices**
* *International Aluminium Institute*
**Outlook**In 2004, primary demand is expected to again rise morequickly than supply due to the continuing strength of China and better economicgrowth in the Western World.   Few major smelter expansions are scheduled tocommence production this year in the Western World, though there will be a fullyear of production from those completed during 2003.  Assuming an improvingeconomic climate and lower exports from China and the former Eastern Bloc, theresulting forecast is a net reduction in total inventories of approximately 100to 200 kt in 2004.

**Western World Consumption**

The pattern of Western World aluminum consumption growthvaried by end-use market in 2003.  Once again, transportation was the fastestgrowing market, as well as the largest end-use market for aluminum. Whileworldwide light vehicle production declined by 0.5%, consumption in this marketwas up 1.9% to 8.6 Mt, an indication of the continued penetration of aluminumin automobiles. Alcan's revenues from the transportation market increased by11.7% to $1.0 billion.

 

**Management's Discussion andAnalysis**

**Western World Consumption by End-useMarket - 2003**

Aluminum consumption in the containers and packagingmarket was down a slight 0.3% to 4.9 Mt. Can stock demand declined by 0.8% in2003, led by an 8% fall in Brazil. Other packaging, principally foil, rose by1% to 1.4 Mt. Alcan's revenues from the packaging and beverage can markets,which represent the largest share of the Company's revenues, increased by 14.1%to $5.9 billion.

Consumption in the building andconstruction sector rose 1.2% to 5.2 Mt. Although U.S. housing starts were up8.4% in 2003 and reached a 25-year record, aluminum consumption was up only0.5% in the U.S. due to material substitution and a weak commercial construction market.There was a sharp drop in the building and construction market in South Americaand only modest growth elsewhere. Alcan's revenues from building andconstruction increased by 8.6% to $1.0 billion.

The electrical market gave upvirtually all of its gain from the previous year, dropping 0.7% in 2003 to 2.3Mt. Small gains in the majority of countries were not enough to offset largedeclines in Brazil and Korea and a small decline in North America.  Mostprivate power projects in Brazil have been put on hold due to new governmentpolicies. Alcan's revenues from the electrical market declined by 5.7% to $0.5billion.

Consumption in all other marketsincreased by 2.3% in 2003 to 7.5 Mt. This segment includes 2.4 Mt from themachinery and equipment market and 1.7 Mt from the consumer durables market. Alcan'srevenues from these other markets, including aluminum ingot, increased by 9.8%to $5.2 billion.

**Western World Consumption by GeographicMarket - 2003**

 

********Management's Discussion and Analysis**

**Alcan's Revenues by Geographic Market- 2003**

** **

**RESULTS OF OPERATIONS**

**Presentation of Financial Information**During 2003, the Company's drive tomaximize value resulted in decisions to sell certain non-core packaging andextrusions operations in order to release cash for higher value-creatingopportunities.   Even though these operations are not major business units,they are classified as held for sale and are treated as discontinuedoperations.  Alcan will not have any significant continuing involvement inthese operations after their disposal.

New accounting standardsrequire that the operating results and any impairment charge for assets heldfor sale be disclosed separately as discontinued operations.  Prior years'financial information has been reclassified to present these businesses asdiscontinued operations on the statement of income, as assets held for sale andliabilities of operations held for sale on the balance sheet and as cash flowsfrom (used for) discontinued operations on the statement of cash flows.  Thefinancial information contained in  Management's Discussion and Analysis hasbeen revised from the information presented in prior annual reports to reflectthe reclassification.  For further details, see note 4 of the consolidatedfinancial statements - Discontinued Operations and Assets Held for Sale.

On December 15, 2003,Alcan acquired 92.2% of Pechiney, an international producer of aluminum andpackaging products with revenues in 2003 of approximately $12 billion andassets of approximately $10 billion.  The balance sheet of Pechiney is includedin Alcan's consolidated financial statements as at December 31, 2003. However,Pechiney's results of operations and cash flows will only be included in theCompany's consolidated financial statements beginning January 1, 2004.

**Income from Continuing Operations**

    Income from continuing operations decreased    largely due to the negative impact of foreign currency balance sheet    translation. 

**Management's Discussion andAnalysis**

**Net Income**Business conditions in 2003 werechallenging, with Alcan's results negatively impacted by a number of externalfactors including a soft economic environment through most of the year, aweakening U.S. dollar and upward pressure on costs for pensions, fuel andrecycled metal.  Providing a counterbalance to these factors were higher LMEprices, which rose in the second half in response to the decline in the U.S.dollar, benefits from ongoing cost initiatives and profits from newly acquiredbusinesses. 

Income from continuingoperations was $290 million for the year, down $99 million from 2002. Thedeterioration largely reflected the negative effects of foreign currencybalance sheet translation, offset in part by a positive net year-over-yearchange in Other Specified Items. The Company estimates that the weakening ofthe U.S. dollar and  external cost pressures reduced earnings byapproximately $180 million in 2003.

In 2002, cost savings,increased shipment volumes, a higher-value product mix, lower interest expenseand the absence of goodwill amortization more than compensated for the adverseimpact of lower LME prices and higher pension costs.  Income from continuingoperations was $389 million in 2002, compared to $4 million in 2001. Theearlier year was impacted by large restructuring and impairment charges thatwere part of Other Specified Items. 

After including theresults of discontinued operations, the Company's reported net income was $167million in 2003 as compared to $374 million in 2002 and $2 million in 2001. Discontinued operations include the results and impairment charges of certainnon-core packaging and extrusions operations in Europe that the Company hasdesignated as held for sale.  After-tax results from discontinued operationswere a loss of $123 million in 2003 compared to losses of $15 million and $2million in 2002 and 2001, respectively.

***Net Income****(In millions of US$)*

**2003**

**2002**

**2001**

Included in income  from continuing operations are:

** **

Foreign currency  balance sheet translation

**(306)**

(41)

51

Other Specified Items:

** **

     Restructuring  charges

**(26)**

(36)

(104)

     Asset  impairments

**(81)**

(16)

(186)

     Gain (Loss)  from non-routine sales of assets, businesses            and  investments

** 39**

21

(87)

     Tax  adjustments 

**72**

(3)

12

     Legal and  environmental provisions

**(17)**

(76)

(167)

     Pechiney  financing-related gains

**65**

-

-

     Other

**(12)**

3

1

Total Other  Specified Items

**40**

(107)

(531)
  
** **

 

**Income from  continuing operations**

**290**

389

4

Income (Loss) from  discontinued operations

**(123)**

(15)

(2)

**Net Income**

**167**

  374

  2

Foreign currency balancesheet translation effects arise from translating monetary items (principallydeferred income taxes and long-term liabilities) denominated in Canadian andAustralian dollars into U.S. dollars for reporting purposes. The significantweakening of the U.S. dollar in 2003 resulted in the Company recordingtranslation losses of $306 million for the year as compared to losses of $41million in 2002. In 2001, there were translation gains amounting to $51million.  Although balance sheet translation effects are primarily non-cash innature, they can have a significant impact on the Company's net income. 

Income from continuingoperations for 2003 included a net after-tax gain of $40 million from OtherSpecified Items.  The most significant items included a currency-related gain,net of financing costs, of $65 million on the funding of the Pechineyacquisition, favourable tax adjustments of $72 million primarily resulting froma change in tax legislation in Australia and gains of $39 million mainly fromthe sales of assets in the U.K., Malaysia and Italy.  These were partiallyoffset by environmental and legal provisions of $17 million mainly due to anenvironmental reserve for a site in the U.S and impairment charges of $81million.  The latter included a goodwill impairment charge of $28 million inthe extrusions businesses in Europe and asset impairment charges for certainoperations in Europe and North America.  

 

**Management's Discussion andAnalysis**

Income from continuingoperations for 2002 included a net after-tax charge of $107 million from OtherSpecified Items. The largest of these items was a provision of $68 million fora ruling on a contract dispute with Powerex (a subsidiary of BC Hydro), $13million for the impairment of certain businesses in Italy, charges of $21million for the closures of the Burntisland specialty alumina plant and theBanbury R&D facility, both in the U.K., $17 million relating to otherintegration and restructuring costs and $15 million in other miscellaneouscharges.  These items were partially offset by an after-tax gain of $26 millionon the sale of more than half of the Company's remaining portfolio investmentin Nippon Light Metal Company, Ltd. (NLM).

In 2001, anticipatingchallenging economic conditions ahead, Alcan moved to safeguard itscompetitiveness by launching a restructuring program aimed at achieving annualpre-tax savings of $200 million. By the end of 2002, the Company had realized$178 million in cost reductions under the program and reached an annual runrate in excess of $200 million. Costs to implement the program were $270million, half of which involved cash expenditures for redundancy, with thebalance comprising non-cash items such as asset write-downs.  Other SpecifiedItems for 2001 included a loss on the disposal of operations in Jamaica of $90million, charges related to the restructuring program of $104 million, assetimpairment provisions of $186 million and increases to environmental reservesof $167 million. These charges were slightly offset by a favourable prior yeartax adjustment of $12 million. 

**Revenues and AluminumVolumes**

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

Higher revenues reflect the contributions of the    packaging and composites businesses acquired during 2003, higher prices    for aluminum and alumina, increased ingot shipments and the impact of the    stronger euro.

 

**Sales and Operating Revenues**

Sales and operating revenues were$13.6 billion in 2003, up 11% from 2002.   The increase reflected the additionalrevenues from the packaging and composites businesses acquired during the year,higher LME prices, higher alumina prices, increased ingot shipments and theimpact of the stronger euro. 

In 2002, sales andoperating revenues were $12.3 billion, down 1% from 2001 as increased ingot androlled products volumes along with the benefits of a stronger euro offset a 6%reduction in LME prices.

**Revenues by Market - 2003**

**Management's Discussion andAnalysis**

**Sales Price Realizations**

    Realizations for both ingot and rolled products    increased in line with higher LME prices.

**Costs and Expenses**In 2003, Alcan's cost base wasadversely affected by currency movements and external cost pressures. The sharpdecline in the value of the U.S. dollar had an unfavourable impact on costsincurred in other currencies, which are translated into U.S. dollars forreporting purposes.   The economic impact was pronounced in countries such asCanada, Australia and the U.K., where the Company's smelter and raw materialoperations have a local currency cost base, but U.S. dollar determined revenues. External factors also resulted in increased costs for pensions, fuel andfuel-related items and recycled metal, which on a combined basis, increased byapproximately $180 million in 2003. In order to mitigate the negative impact ofcurrency and cost pressures, Alcan remained focused on reducing controllablecosts. The Company estimates that during the year it successfully cut itsannual cost base by approximately $125 million. 

***Value of U.S. Dollar - Average  Annual  Percentage Change***(%)

**2003**

**2002**

**2001**

   Canadian dollar

**-11**

+1

+4

   Australian dollar

**-17**

-5

+12

   Euro

**-16**

-5

+3

Cost of sales andoperating expenses were 79% of sales and operating revenues in 2003, unchangedfrom the previous two years.  While higher LME prices helped boost revenues,the benefits were offset by the unfavourable impact of the weaker U.S. dollaron costs.  The Company's continued emphasis on cost and productivityimprovements helped to offset increases in fuel and recycled metal costs. 

In 2002, while LME priceswere lower, cost of sales and operating expenses as a percentage of sales andoperating revenues were flat compared to 2001. This was mainly due to thebenefits from cost initiatives, including integration synergies and the 2001restructuring program, as well as lower start-up and pre-operating expensesrelated to the Alma smelter in Quebec.

***Total Aluminum Volume andPurchases***

    Increased primary production    reduced the need for purchased metal.

 

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

Depreciation andamortization expense was $923 million compared to $835 million in the previousyear and $798 million in 2001.  The increase in 2003 mainly reflected thestrengthening of the euro against the U.S. dollar and the impact of packagingand composites businesses acquired during the year.  The increase in 2002 wasdue to additional depreciation on the Alma smelter, which reached its fullcapacity at the end of September 2001, and the Company's 40% share of theAlouette smelter in Quebec that was acquired in two tranches of 20% each in2002. These increases to depreciation were offset in part by the impact of thesale of operations in Jamaica in May 2001.

**Management's Discussion andAnalysis**

Selling, administrativeand general expenses were $746 million in 2003, $175 million higher than in theprior year.  Excluding the impact of business acquisitions, expenses increasedby $148 million largely due to higher pension expenses and the impact of theweaker U.S. dollar.  In 2002, expenses were $571 million, up from $544 millionin 2001. The increase in 2002 was due principally to higher pension expensesand increased consultant fees related to performance improvement initiatives.

Alcan's research anddevelopment (R&D) activities continue to be closely aligned with the needsof its core businesses, principally bauxite and alumina, smelting, fabricationand packaging. The Company is focused on improving process technology anddeveloping new product applications for a diverse range of markets andcustomers.  R&D spending at central research laboratories, technologycentres and technical departments was $140 million in 2003 compared to $115million in 2002 and $135 million in 2001.  The bulk of the increase in 2003reflected the impact of the weaker U.S. dollar. The decline in 2002 spendingwas primarily due to the achievement of integration synergies following thealgroup acquisition.

***Interest***

    The average interest cost remained low.  The    increase in interest expense largely relates to the additional funding    raised to finance the Pechiney acquisition.

Reflecting the low short-terminterest rate environment, Alcan's effective average interest rate on debt was5.2% in 2003, slightly higher than in the prior year. The effective averageinterest rate is derived by dividing the total interest cost on debt for theyear (see page 38 of the annual report for a calculation of debt) by theaverage quarter-end debt for the year, including the prior year-end debtbalance.  For 2003, the fourth quarter-end debt balance used to calculate theaverage debt for the year is adjusted on a pro-rata basis for the debt raisedto finance Pechiney, in order to arrive at a more representative debt level onwhich interest was incurred.  Pechiney debt assumed is excluded from thecalculation because the interest cost for the year excludes Pechiney and thedebt raised to finance the acquisition is pro-rated because it was onlyoutstanding for a portion of the fourth quarter. Total interest cost increasedby $21 million primarily as a result of the $3.5 billion of short and long-termfinancing raised in December to fund the acquisition of Pechiney.  In 2002,strong free cash flow allowed the Company to reduce debt levels. Total interestcosts rose in 2001 due to the inclusion of algroup debt for a full year and tothe debt incurred to finance capital expenditures.  Interest capitalized in2001 related mainly to the construction of the smelter in Alma, Quebec. 

Restructuring, impairmentand other special charges include amounts related to the Company's 2001restructuring program. Under this program, a detailed business portfolio reviewwas undertaken to identify high cost operations, excess capacity and non-coreproducts.  Charges of $654 million in 2001 and $60 million in 2002 arose as aresult of negative projected cash flows and recurring losses, and relatedprincipally to impairments for buildings, machinery and equipment and somepreviously capitalized project costs.  This program was completed in 2003 and apre-tax gain of $38 million arose mainly from the sale of certain assets in theU.K. and the sale of certain businesses in Malaysia and Italy.

In 2003, other expenses(net of other income) included foreign exchange losses of $83 million frombalance sheet translation, partly offset by currency-related gains on thefinancing of the Pechiney acquisition.  Also included in other expenses in 2003were the pre-tax amounts of certain Other Specified Items.  The mostsignificant items were asset impairment charges of $58 million related tooperations in Germany and Canada, an environmental provision of $25 million fora site in the U.S. and restructuring charges of $10 million for a cable plantin the U.S.  Other expenses of $113 million in 2002 included a $100-millionprovision for a ruling on a contract dispute with Powerex (a subsidiary of BCHydro) and foreign exchanges losses mainly arising from balance sheettranslation of $37 million, which were partially offset by a gain on the saleof the Company's remaining portfolio investment in NLM of $36 million. In 2001,other expenses included a $123-million loss on the disposal of the Jamaicanoperations.  

 

**Management's Discussion andAnalysis**
***Income Taxes***Income tax expense of $325 millionfor 2003 represented an effective tax rate of 52%, compared to 43% in 2002 and42% in 2001.  This compares to a composite statutory tax rate of 39% in Canada(39% in 2002 and 40% in 2001).  In 2003, the difference in the rates was dueprimarily to currency related items, partially offset by one-time tax benefitsin Australia, investment and other allowances and lower tax rates in foreignjurisdictions.  The tax benefits in Australia relate to the implementation of atax consolidation regime together with the conversion to the U.S. dollar as thetax reporting currency.  As a result of these changes in legislation, theCompany was able to reset the tax value of certain assets in Australia andrecord a deferred tax benefit of $74 million.  
In 2002, the difference in the rates was primarily due to currency relateditems, the impact of potential future tax benefits that were not recognizedsince their realization was not likely, partially offset by lower tax rates inforeign jurisdictions and investment and other allowances.  In 2001, theincome tax provision included a non-cash gain of $26 million on the currencyrevaluation of deferred tax balances mainly due to the weaker Canadian dollarduring the year.  This was offset by the impact of potential future taxbenefits that were not recognized since their realization was not likely. 

A full reconciliation between the Canadian composite statutory tax rate andthe effective tax rate is presented in note 10 of the consolidated financialstatements.***Goodwill**In 2002, the Company adopted new accounting standards ongoodwill. As a result of this change, goodwill is no longer being amortized. In 2003, the Company completed a review of goodwill and recorded an impairmentcharge of $28 million relating to the extrusions operations in Europe.  In 2002, a review of goodwill resulted in animpairment charge of $748 million recorded as a reduction in opening retainedearnings as of January 1, 2002.  This non-cash adjustment reflected thedeterioration in end-market conditions in the period from the algroupintegration in October 2000 to January 1, 2002, and did not reflect a change inthe growth prospects of the Company.

**LIQUIDITY AND CAPITAL RESOURCES**
***Operating Activities**

***Cash from Operations and FreeCash Flow from Continuing Operations***

    Cash from operations and free cash flow surpassed the    record levels achieved in 2002 and attained new all-time highs.*
Despite external cost pressures and asoft economic environment, Alcan's pursuit of value maximization has led toimproved cash flow performance. Focused attention on costs, stringentmanagement of working capital and a disciplined approach to capital spendingyielded substantial benefits in 2003.  The Company achieved record cash flowfrom operating activities in continuing operations of $1.8 billion, the thirdconsecutive year of improvement. 

Free cash flow fromcontinuing operations was also a record $734 million, up from $691 million in2002 and $83 million in 2001.  Free cash flow from continuing operations consists ofcash from operating activities in continuing operations less capitalexpenditures and dividends. Management considers this relevant information forinvestors as it provides a measure of the cash generated internally that isavailable for investment opportunities and debt service. 
* ***
**Management's Discussion andAnalysis**
****Free  Cash Flow from Continuing Operations****(In millions of US$)*

**2003**

**2002**

**2001**

Cash from  operating activities in continuing operations

**1,833**

1,603

1,375

Dividends

** **

   Alcan  shareholders (including preference)

**(200)**

(197)

(200)

   Minority  interests

**(11)**

(6)

(2)

Capital  expenditures in continuing operations

**(888)**

(709)

(1,090)

**Free Cash Flow  from Continuing Operations**

**734**

691

83*
For a third year in a row,working capital reduction was a significant contributor to cash flow.Management action resulted in operating working capital being drawn down by$282 million in 2003, following reductions of $153 million in 2002 and $143million in 2001.  The decline in 2003 was due to a substantial reduction inreceivables and inventories.  The declines in 2001 and 2002 were the result ofreductions in receivables and inventories, offset in part by a decrease inpayables.

**Investment Activities**

Alcan adopted value maximization as its governingobjective in 2001 and as such uses a value-based approach to identifyinvestment opportunities. In 2003, the Company made further progress towardsthis objective, executing several value-creating transactions including theacquisition of a packaging business, VAW Flexible Packaging (FlexPac), at acost of $330 million and two composite product businesses, Baltek andUniwood/Fome-Cor (Gator-Cor), at a cost of $38 million and $95 million,respectively. These acquisitions build upon Alcan's already strong marketpositions by extending product range and geographic reach. 

During 2002, the Company acquired a 40% joint ventureinterest in the Aluminerie Alouette consortium in two transactions. The firsttranche of 20% was purchased from the Société Générale de Financement (SGF) andthe second tranche of 20% from the Corus Group plc at costs of $172 million and$171 million, respectively.

While capital expenditures on property, plant andequipment increased in 2003, they remained below the level of depreciationexpense for a second year, a reflection of the Company's continuing financialdiscipline. Capital spending for continuing operations was $888 million in2003, compared to $709 million in 2002 and $1,090 million in 2001. The increase in 2003 was due largely to anacceleration of spending for the expansion of the Alouette smelter in Quebec,in which Alcan has a 40% stake. In 2001, capital spending included $250 millionrelated to the construction of the Alma smelter in Quebec.  

With the acquisition of Pechiney, Alcan's capital spending will increasein 2004, and the Company expects it to be approximately $1.2 billion. In themedium term, the Company's objective is to keep its capital spending in linewith depreciation, which should be achievable given the investments in newcapacity made over the last decade. 

In 2003, asset disposals  included the Borgofranco power station in Italy, the Banbury laboratory and the Burntislandspecialty chemical plant, both located in the U.K., as well as the Company'sremaining investment in NLM.  In addition, the Company sold businesses thatwere classified as discontinued operations in its consolidated financialstatements. These included the Fibrenyle packaging business in the U.K. and thePieve extrusions operations in Italy.  Proceeds on the sale of these businessesare included in cash used for investment activities in discontinued operations.Disposals in 2002 mainly comprised moulded glass operations in the U.S. andChina, rolled product circles operations in Italy, three company-owned cargoships and more than half of the Company's investment in NLM.

**PechineyAcquisition**

On December 15, 2003, Alcan acquired92.2% of Pechiney, a French *société anonyme* with international operations in three corebusinesses: primary aluminum, aluminum conversion and packaging. The totalconsideration for this ownership interest was $5.1 billion, which consisted of$3.4 billion in cash (including net transaction costs of $61 million and net ofcash and time deposits acquired of $338 million), $1.6 billion in Alcan commonshares  (41 million shares at $39.63 per share) and $80 million for Pechineystock options held by the employees.  In addition, the Company assumed fromPechiney total debt of $2.1 billion. Subsequent to year-end, Alcan took anumber of steps to acquire the remaining shares of Pechiney and as of February6, 2004, it owned 100% of the company. 

This transaction is animportant step in Alcan's value-maximizing strategy, building upon its positionas one of the world's leading aluminum and packaging companies and providingadvantages of enhanced scale, financial strength and technological resources,as well as an increased capacity to serve customers worldwide.  The combinedentity will also benefit from increased opportunities to leverage Pechiney'sstate-of-the-art smelting technology, a larger and more diversified position inlow-cost primary aluminum production, an advanced aluminum fabricating businesswith a leading position in aerospace, and a global packaging business with aleading position in flexible packaging.  Going forward, the enhanced size andscope of the Company will also provide an increased number of strategicoptions. 
* ***
**Management's Discussion andAnalysis**

Alcan previously announcedthat the combination of the two companies will generate targeted synergies of$250 million in annual cost savings and benefits, on a pre-tax basis, that willbe achieved within two years. These will be realized largely throughstreamlined corporate and head office services, logistical and purchasingefficiencies, the optimization of production facilities and a focused approachto R&D and capital spending.  In order to realize these synergies, Alcanestimates that it will need to incur approximately $200 million in costs andmake capital expenditures of approximately $50 million. There is potential foradditional synergy benefits pending management's ongoing review of the combinedCompany's operations.

                Forfurther details on the transaction, refer to note 6 of the consolidated financialstatements.
***Capital Expenditures and Depreciation inContinuing Operations**

    Capital expenditures were held    below depreciation for the last two years as a result of stringent    financial discipline.*
**Financing Activities**
***Total Borrowings and Equity**

** Includes borrowings of operations    held for sale.*

*** Includes minority interests and    preference shares.*

 

    Total borrowings increased in 2003 reflecting the debt raised to fund the    Pechiney acquisition as well as the Pechiney debt assumed in this transaction.*
In May 2003, the Company issued $500 million of 4.5%global notes, due May 15, 2013.  The proceeds were partially used to fund theFlexPac acquisition, with the remainder used to refinance maturing long-termdebt.   In December, the Company completed a $2.25-billion four-tranche debtoffering in the U.S. capital markets to partially fund the cash considerationportion of the Pechiney purchase price.  The debt offering consisted of twoglobal notes issues, one for $500 million with a coupon of 5.2% due January 15,2014, and the other for $750 million with a coupon of 6.125% due December 15,2033, as well as the issuance of two tranches of floating rate notes: $500-million one-year notes and $500-million two-year callable notes.   Thefloating rate notes, fully and unconditionally guaranteed by the Company, wereissued by its wholly owned U.S. subsidiary, Alcan Aluminum Corporation. Theremaining funding requirements for the acquisition were obtained through acombination of commercial paper, available cash and a short-term bank loan. Inaddition to the issuance of new debt, the Company has also assumed the debt ofcompanies acquired, which amounted to $2.1 billion in 2003.   

In January 2002, the Company redeemed all of its$150-million 8.875% debentures originally due on January 15, 2022, for 104.15%of their face value. A loss of $6 million was recognized in the first quarterof 2002. In September 2002, the Company issued $500 million of 4.875% globalnotes due September 15, 2012. Net proceeds were used to repay existinglong-term debt and commercial paper borrowings. 

Debt as a percentage ofinvested capital does not have a uniform definition. Because other issuers maycalculate debt as a percentage of invested capital differently, Alcan'scalculation may not be comparable to other companies' calculations. The reconciliationbelow explains the calculation. The figure is calculated by dividing borrowingsby total invested capital. Total invested capital is equal to the sum ofborrowings and equity, including minority interests. The Company believes thatdebt as a percentage of invested capital can be a useful measure of itsfinancial leverage as it indicates the extent to which it is financed bydebtholders. The measure is widely used by the investment community and creditrating agencies to assess the relative amounts of capital put at risk bydebtholders and equity investors.
**
**Management's Discussion andAnalysis**

Reflecting the impact ofnew debt issuances and debt assumed on acquisitions, debt as a percentage ofinvested capital at the end of 2003 increased to 46%, up from 31% at the end of2002 and 32% at the end of 2001. In line with its commitment to maintain strongfinancial ratios and solid investment grade credit ratings, Alcan plans toreduce its debt to capitalization ratio to about 35% over the next two years.Given forecasted operating cash flows and anticipated proceeds from divestituresrelated to the Pechiney acquisition, the Company believes this is achievable.The outcome of divestitures required for regulatory reasons as a result of thePechiney acquisition could have a significant impact on future cash flows. The regulatory requirements for divestitures are further described in note 24 ofthe consolidated financial statements.

 
****Debt as a Percentage of Invested  Capital  As at December 31***(In millions of US$, including Pechiney)

**2003**

**2002**

**2001**

Debt

   Short-term  borrowings

**1,802**

381

553

   Debt  maturing within one year

**356**

295

652

   Debt  not maturing within one year

**7,604**

3,186

2,884

   Debt  of operations held for sale

**1**

5

2

Total  debt

**9,763**

3,867

4,091
 
** **

Equity

** **

    Minority interests

**524**

150

132

    Redeemable non-retractable preference shares

**160**

160

160

    Common shareholders' equity

**10,555**

8,465

8,610

Total  equity

**11,239**

8,775

8,902
 
** **

Invested  capital

**21,002**

12,642

12,993

**Debt as  a Percentage of Invested Capital (%)**

**46**

31

32*
The quarterly common sharedividend remained at 15 cents per share in 2003. Total dividends paid (commonand preference) to shareholders were $200 million in 2003 compared to $197million in 2002 and $200 million in 2001.

Cash and time deposits incontinuing operations totaled $803 million at the end of 2003, up from $109million at the end of 2002 and $116 million at the end of 2001. The increase in2003 includes $338 million of cash assumed on the acquisition of Pechiney, aswell as funds held for the purchase of the remaining shares of Pechineysubsequent to year-end. While Alcan has significantly more short-term debt at the end of 2003 as compared to2002 and 2001, forecasted free cash flow and the anticipated proceeds frombusiness divestments in connection with the Pechiney acquisition will beavailable forthe repayment of  short-term debt. Short-term debt (short-term borrowings plus debt maturing within one year plusdebt of operations held for sale) represented 22% of total debt at the end of2003 as compared to 18% at the end of 2002 and 30% at the end of 2001.

Alcan has access to approximately $2.9 billion of corporate committed creditfacilities, of which $500 million was unused as of the date of this report. The Company believes that the cash from continuing operations, together withavailable credit facilities, will be more than sufficient to meet the cashrequirements of operations, planned capital expenditures, dividends and anyshort-term debt refinancing requirements. In addition, the Company believes thatits ability to access global capital markets, considering its investment gradecredit rating, should provide any additional liquidity that may be required tomeet unforeseen events. 
* 

 ***
**Management's Discussion andAnalysis**

**Contractual Obligations**

The Company has future obligationsunder various contracts relating to debt payments, capital and operatingleases, long-term purchase arrangements, pensions and other post-employmentbenefits, and guarantees.  The table below provides a summary of thesecontractual obligations (based on undiscounted future cash flows) as at December 31, 2003.

 
****Contractual Obligations    As at December 31, 2003***(In millions of US$, including Pechiney)

**Payments due by period**

**Total**

Less than 1  year

1 - 3   years

3 - 5   years

More than  5 years

Long-term debt (1)

**7,960**

356

2,145

599

4,860

Capital leases (2)

**86**

16

23

20

27

Operating leases (2)

**419**

84

127

80

128

Purchase  obligations (2)

**3,275**

607

485

414

1,769

Unfunded  pension plans (3)

**3,032**

68

139

142

2,683

Other  post-employment benefits (3)

**2,544**

69

151

171

2,153

Funded  pension plans (3)

**(4)**

172

391

415

(4)

Guarantees  (2)

**187**

74

74

23

16

Total

1,446

3,535

1,864

*(1)*
*Refer to note 19, Debt Not Maturing Within One Year,    of the accompanying consolidated financial statements.**(2)**Refer to note 24, Commitments and Contingencies, of    the accompanying consoldiated financial statements.**(3)**Refer to note 28, Post-retirement Benefits, of the    accompanying consolidated financial statements.**(4)**Pension funding generallyincludes the contribution required to finance the annual service cost, exceptwhere the plan is largely overfunded, and amortization unfunded liabilitiesover periods of 15 years, with larger payments made over the initial periodwhere required by pension legislation.  Contributions depend on actual returnson pension assets and on deviations from other economic and demographicactuarial assumptions.  Based on management's long-term expected return onassets, annual contributions for years after 2008 are projected to be in thesame range as in prior years and to grow in relation with payroll.*
      

**ENVIRONMENT, HEALTH AND SAFETY(EHS)**

Alcan strives to be arecognized leader of environment, health and safety excellence. To move towardthis vision, Alcan introduced a new EHS management system in 2003, EHS FIRST,which is an integral part of the Company's overall business managementphilosophy and a critical component of its value maximizing agenda. 

EHS FIRST is aligned withISO 14001, an international environmental management standard, and OHSAS 18001,an international occupational health and safety management standard. AllAlcan facilities are expected to implement the necessary management systems tosupport ISO 14001 and OHSAS 18001 certifications. By the end of 2003, 63% ofthe Company's facilities were ISO 14001 certified and 46% of the facilitieswere OHSAS 18001 certified. By the end of March 2004, all Alcan facilitiesshould be certified, with the exception of newly acquired facilities includingthose of Pechiney, which will have two years within which to comply. EHSperformance data can be found in the Company's 2003 Web-based sustainabilityreport under key measures of sustainability.

EHS FIRST provides clearstandards set out in a management system manual, which also includes mandatoryEHS directives. With the aid of an internal gap analysis tool, all facilities,excluding those of Pechiney, have been enabled to check compliance against thenew standards and to plan the measures to fill any gaps in 2004. By the end of2003, 94% of the requirements were fulfilled. The continuousimprovement process drives Alcan's businesses to reduce impacts while improvingtheir competitive position and efficiency. Alcan's capital expenditures toprotect the environment and improve working conditions were $71 million in2003. EHS expenditures are projected to be $137 million in 2004 and $193million in 2005. In addition,expenditures charged against income for environmental protection were $196million in 2003, and are expected to be $222 million in 2004 and $238 millionin 2005.

As of October 2003,Alcan's six business groups took the lead in managing TARGET, aninternationally recognized greenhouse gas management program. The Company wasonce again selected as a component of the Dow Jones Sustainability World Index.
* ***
**Management's Discussion andAnalysis**

**OPERATING SEGMENT REVIEW**

Alcan's six business groups oroperating segments are Bauxite and Alumina, Primary Metal, Rolled ProductsAmericas and Asia, Rolled Products Europe, Engineered Products and Packaging. Starting January 1, 2004, Pechiney's businesses will be aligned with Alcan'sbusiness structure.

The Company'smeasure of the profitability of its operating segments is referred to asbusiness group profit (BGP).  BGP comprises earnings before interest, taxes,depreciation and amortization and excludes certain items, such as corporate costs, asset impairmentsand Other Specified Items that are not under the control of the business groups. These excluded items are managed by the Company's head office, which focuses on strategydevelopment and oversees governance, policy, legal, compliance, human resourcesand finance matters.

Additional operatingsegment information is presented in note 30 of the consolidated financialstatements.  The information that follows is reported by operating segment on astand-alone basis. Transactions between groups are conducted at arm's lengthand reflect market prices. Accordingly, earnings from Bauxite and Alumina aswell as from Primary Metal operations include profit on alumina or metalproduced by the Company, whether sold to third parties or used in the Company'sfabricating and packaging operations. Earnings from the downstream operationsrepresent only the value-added portion of the profit from rolled products,engineered products and packaging products.
***Revenues by Business Group - 2003***
**Bauxite and Alumina**

The Bauxite and Alumina (B&A)group owns or operates seven bauxite mines and deposits and five aluminarefineries. The alumina produced is used to meet the Company's own smeltingrequirements and is also sold to third-party customers. In recent years,B&A has repositioned its business portfolio around low-cost bauxite andalumina assets in Australia, which has substantially lowered cash costs andimproved its competitive position.  The acquisition of Pechiney increases thegroup's alumina production capacity (including specialty aluminas) from 4.4Mt/y to approximately 6.5 Mt/y, making Alcan the second largest aluminaproducer in the world.
***Sales and Production - B&A**

    Higher production in 2003    reflected the benefits of the Gove optimization project, partly offset by    the closure of the European specialty alumina operations.***
**Management's Discussion andAnalysis**

In 2003, record productionlevels at the Gove refinery together with higher production levels at theQueensland Alumina joint venture in Australia were partially offset byproduction lost due to the 2002 closure of the Burntisland specialty aluminaplant in the U.K.   The decline in production in 2002 was due to the sale ofthe Company's Jamaican operations in the second quarter of 2001.

In the second quarter of2002, a production optimization project at Gove was initiated. This $40-millionproject has increased the refinery's capacity by 60 kt/y to date and isexpected to further increase capacity by another 40 kt/y by the end of 2004when the final phase of the project is completed. 

In 2003, Alcan initiated adetailed feasibility study for a proposed expansion of the Gove refinery.  Thepotential expansion would increase Gove's smelter-grade alumina production from2.0 Mt/y to approximately 3.5 Mt/y.  It is expected that the detailedfeasibility study will be completed by mid-2004, with potential commissioningof the expansion in 2007.

As a result of avalue-based review of its activities in specialty alumina-based chemicals,Alcan announced in January 2002 that it would exit this business in Europe dueto the unprofitable nature of this market and because of its disadvantaged costposition.  Alcan ceased these operations in November 2002, following aconsultation process with employees and union representatives.

Increased BGP for 2003resulted from higher alumina prices, partly offset by higher energy costs andthe negative impact of foreign currency movements on balance sheet translationand operating costs.  In 2002,  decreased production and lower alumina prices,partially offset by improved production costs, contributed to lower BGP. 
***BGP - B&A**

    Higher alumina prices contributed    to higher BGP in 2003, despite increased energy costs and negative foreign    currency impacts.*
In 2003, strong demand from Chinacaused the alumina market to be in short supply, resulting in a sharp rise inspot prices.  Long-term contract prices moved up as well in response to rising pricesfor aluminum on the LME.  Average realized prices decreased in 2002 compared to2001 in line with lower LME prices.

Average production costsper tonne were 7% higher in 2003 as ongoing cost reduction efforts were morethan offset by higher energy prices and the impact of foreign currencymovements.  Average production costs per tonne were 6% better in 2002, due tothe divestment of high-cost operations in Jamaica and lower raw materialprices.

The B&A group also ownsand operates three specialty chemical facilities. These facilities producealumina-based products for a wide array of applications, including solidsurfacing, refractories, ceramics, catalysts, absorbants and water treatment. In 2003, operating results were 85% higher than in the prior year, due mainlyto the closure of the Burntisland plant in the U.K. that had operated at a lossin 2002.  Operating results for 2002 were 24% lower than in 2001 due to poormarket conditions.

**Primary Metal**

Alcan is the second largest primaryaluminum producer in the world.  The Primary Metal group operates or hasinterests in 16 smelters worldwide with a total capacity of 2.4 Mt/y.  Ofthis capacity, 62% is supplied by Company-owned power, which represents a majorcompetitive advantage when compared to the industry average of 28%. With afocus on continuous improvement in technology and costs, the Company isreinforcing its excellent low-cost primary metal position. Over 50% of Alcan'ssmelting capacity is in the lowest quartile on the industry cash cost curve. In addition to LME-grade ingot, the Primary Metal group produces value-addedaluminum in the form of sheet ingot, extrusion billet, cable rods and foundry ingotfor other Alcan plants or third-party customers serving the transportation,building and construction, consumer goods and machinery markets.  Theacquisition of Pechiney increases smelter capacity to approximately 4.1Mt/y and gives the Company the largest share of low-cost capacity in the world.
* 

 ***
**Management's Discussion andAnalysis**
****Sales and Production - Primary Metal***

****

    Alouette, Kitimat and Soeral were major    contributors to the 5% increase in production in 2003.*
A full year of production from theCompany's 40%-interest in Aluminerie Alouette in Sept-Îles, Quebec, acquired during 2002,capacity restarts at the Kitimat smelter in British Columbia and benefits fromthe Soeral expansion project in Norway contributed to the 5% increase inproduction in 2003.   Nine smelters set annual productionrecords.  Most of Alcan's smelter production is in the form of value-addedingot, and record sales levels were achieved for each of the three majorproducts: extrusion billet, foundry ingot and rod.   Record production was alsoachieved at the partially-owned anode plant, Aluchemie, in the Netherlands.
****BGP - Primary Metal***

    Negative foreign currency exchange and higher raw    material costs more than offset a 5% increase in LME prices and benefits    from profit improvement initiatives.*
In 2003, additional sales volumes,higher metal realizations and benefits from profit improvement initiatives weremore than offset by the negative impact of the weaker U.S. dollar, higheralumina and fuel-related raw material costs, as well as higher pensionexpenses. For the year, there was an unfavourable balance sheet translationimpact of $69 million.

In 2002, BGP increased by5% as compared to 2001. Additional sales volumes, lower operating costs, andbenefits from the algroup integration and restructuring programs more than offseta 6% reduction in LME prices and the unfavourable impact of foreign currencytranslation of $10 million.
****Cost of Production - Primary Metal***

** Includes pre-operating and start-up costs,    general overhead from non-operating sites, underabsorbed fixed costs due to    unused capacity and environmental provisions.*

    Total metal production costs for the year increased    by $91/t or 7%, mainly reflecting negative foreign exchange impacts.***
**Management's Discussion andAnalysis**

The increase of $91/t in total metalproduction costs in 2003 was attributable to the unfavourable impact of theweaker U.S. dollar, higher alumina and fuel-related raw materials, as well ashigher pension expenses. Benefits from cost reduction initiatives helped tooffset some of these unfavourable variances.  Special charges in 2001 and 2002were mainly for Alma pre-operating and start-up expenses. 

Work on the expansion ofthe Alouette smelter in Quebec, in which Alcan has a 40% stake, is proceedingon budget and ahead of schedule.  Start-up is expected in early 2005, with fullproduction later that year. The expansion, of which Alcan's share of the costis $350 million, will increase the capacity of the smelter from 243 kt/y to 550kt/y. In 2003, capital spending on the expansion was $106 million.

The high-amperage/low-energy project at the Lynemouth and Lochaber smelters in the U.K., which wasapproved in June 2002, was completed on budget and on schedule. This projectwill result in incremental production of 16 kt/y, as well as improved energyefficiencies and lower CO2 emissions. 

The construction of theCandonga hydro power plant in Brazil, with an installed capacity of 140 Mw, hasbeen completed at a total cost to Alcan of $47 million.  Alcan participatedequally in the facility with CVRD (Companhia Vale do Rio Doce).   Start-up isexpected in the first quarter of 2004.

Alcan's innovation andcommitment to finding sustainable and financially attractive solutions wasfurther demonstrated in the development of a solution for the treatment ofspent potlining. Spent potlining is considered a hazardous waste composed ofcarbon and the refractory lining of electrolytic cells that are taken out ofservice after a useful life of about six years.  For a total investment of upto CAN$150 million, an 80-kt/y treatment facility will be built in theSaguenay-Lac-Saint-Jean region of Quebec using Alcan technology.

In October, Alcan signed adefinitive joint venture agreement with Qingtongxia Aluminum Company (QTX) andNingxia Electric Power Development and Investment Co. Ltd. (NEI) in China. Underthe agreement, Alcan will invest up to $150 million to acquire a 50% share inan existing modern 150-kt/y pre-bake smelter located in the Ningxia autonomousregion. The agreement provides for the joint venture to obtain long-term accessto dedicated power at competitive terms sufficient to meet the energyrequirements of the smelter. The agreement also gives Alcan a substantialoperating role and the option to acquire, through additional investment, up to80% of a new 250-kt/y potline already under construction. The agreed jointventure proposal is awaiting Chinese government approval. The investment isexpected to take place in the first quarter of 2004.

In line with itscommitment to economic and environmental sustainability, Alcan announced inJanuary 2004 that it will permanently halt production of the four Söderbergpotlines at the 60-year-old Arvida smelter in Jonquière, Quebec. The shutdownwill affect 90 kt/y of production, which represents 3% of Alcan's globalproduction capacity. Total decommissioning costs are expected to beapproximately $26 million consisting mainly of early retirement and demolitionexpenses.

**Rolled Products Americas and Asia**

Alcan Rolled ProductsAmericas and Asia (RPAA), with 15 production facilities in five countries,is focused on meeting the ever-changing needs of its global and regionalfabrication customers through the rapid transfer and adoption of besttechnology and management practices. The RPAA group manufactures and sellshigh-quality sheet and light gauge rolled products serving numerous markets,including beverage, food packaging, automotive, construction and other durablegoods.  The acquisition of Pechiney does not materially impact RPAA.
****Sales and Operating Revenues - RPAA***

    Revenues increased due to higher    metal prices.*
The sales increase in 2003 was drivenmainly by higher-priced metal input costs being passed through to customers. Volumes increased by 18% in Asia and 10% in South America, offsetting a 7%decline in North America.  The Company was able to capitalize on growth inAsian can demand, particularly in China, combined with improved operatingperformance in its Korean operations. Alcan also made further inroads into theSouth American can market, which began to grow towards the end of the year.North American sales were below the record 2002 pace with weakness in someend-use markets and lower can sheet volumes.
* ***
**Management's Discussion andAnalysis**
***Rolled Products Americasand Asia Revenues - 2003**

***BGP and Shipments - RPAA***

** Includes    shipments of rolled products and conversion of customer-owned metal.*

 

    Significantly improved costs helped offset higher energy, pension and recycled metal costs    as well as unfavourable foreign exchange and product mix impacts.*
BGP for RPAA in 2003 declined by 7%compared to the record 2002 performance. While shipments were at all-time highsin Asia and South America, the positive impact was offset by reduced volume inNorth America.  Benefits from aggressive cost reduction efforts in all regionshelped counterbalance higher recycled metal and energy costs, a less favourableproduct mix and metal price lags, as well as the adverse impact of the strengthening Canadiandollar.  BGP in Asiaand South America increased by 66% and 23%, respectively, compared to the prioryear.

The financial results forRPAA in 2002 reflected a significant increase in BGP compared to 2001. This wasattributable to volume increases along with successful cost reduction effortsin North America and the favourable impact of metal price movements. Thesefactors more than offset the negative impact of a stronger Korean won and avolatile Brazilian economic situation and currency. 

RPAA continues to benefitfrom  important investments in the expansion, upgrade and acquisition ofrolled products facilities in the past decade, as well as from its continuingcustomer focus and commitment to innovation, cost reduction and manufacturingexcellence.

***RPAA Business Units***In North America, shipments for 2003were 7% below the prior year's record level due to lower can stock volumes,the transfer of volumes to Alcan's Asian plants and weak market conditions inthe U.S. In contrast, automotive sheet sales reached an all-time record in 2003as sales of light trucks in the North American market remained strong, despitea 3% decline in overall automobile sales.  RPAA benefited from innovations insport utility vehicle (SUV) lift-gate and hood technologies as a result of itscontinued close co-operation with customers.  Industrial product revenuesimproved despite ongoing weakness in the distributor market and severe importprice competition, as Alcan continued to concentrate on new value-creatingproduct applications.  Container and foilstock volumes were essentiallyunchanged from 2002 levels, while package and converter foil shipmentscontinued to be adversely affected by imports. 

South American economiesshowed improvement compared to 2002, but the business environment remainedchallenging.  As the only local can sheet producer, Alcan was well positionedto grow can sheet sales despite a drop in the domestic can market. New productintroductions along with competitive advantages and improvements in thedistribution chain also strengthened the Company's sales position in industrialproducts and light gauge markets.  Efforts to grow export sales continued inorder to mitigate the impact of soft local demand.

Taking full advantage ofcan sheet qualifications achieved in 2002 and improvements in operating performancein 2003, Alcan Taihan Aluminum Limited (ATA) capitalized on strong demand inKorea and China, achieving record production and sales volumes. In order toreinforce its strategic position in Southeast Asia, Alcan increased itsownership position in Aluminium Company of Malaysia from 36% to 59%.  Theadditional ownership stake was acquired from Nippon Light Metal Company, Ltd.,in exchange for Alcan's shareholding in Alcan Nikkei Siam Limited in Thailand.
**
**Management's Discussion andAnalysis**
****Recycling***Alcan continues to be the world'sleader in recycling used aluminum beverage cans (UBCs). Alcan's U.S. operationsrecycled 23 billion UBCs in 2003, representing an estimated 45% of all aluminumcans recycled in the United States.  The Company operates three aluminum canrecycling plants located in Oswego, New York; Greensboro, Georgia; and Berea,Kentucky, the largest UBC recycling facility in the world. 

Brazil, with its 87%recycling rate, was recognized as the worldwide leader among countries whereUBC recycling is not legally mandated.  The state-of-the-art recycling operationat the Company's Pinda  facility in Brazil recycles UBCs and scrap purchasedfrom a third-party metal recycler. Throughout 2003, Alcan made strides in theNorth American and Brazilian markets in its efforts to strengthen thereturnable aluminum can concept with the public.  In Asia, ATA's Ulsan plant isdeveloping its recycling business using Alcan technology.

**Rolled Products Europe**

Rolled Products Europe (RPE) produces a broad variety of flat rolledproducts through its 11 plants, with AluNorfin Germany as its large-scale modern hub for several further downstreamoperations. RPE continues to optimize its market and product portfolio and itsproduction system to better serve its customers and markets and further reducecosts and working capital.  RPE serves a number of European markets includingbeverage can, building and construction, foilstock and automotive markets, as well assome global markets, such as lithographic sheet and industrial plate.  Throughthe Pechiney transaction, Alcan has acquired rolled products facilities inEurope.  As a condition to the acquisition, Alcan has made commitments to theEuropean Commission to divest certain groups of assets (refer to note 24 of theconsolidated financial statements). As of the date of this report, Alcan hasnot yet determined which assets to divest.
****Sales and Operating Revenues - RPE***

    The stronger euro and a change in sales mix led    to increased sales.*
Higher realized prices, asa result of the stronger euro and a change in business mix, more than offsetthe decline in RPE's shipments, leading to higher revenues in 2003.

While the Europeanbeverage can market was negatively impacted by the introduction of the depositlegislation in Germany, demand growth in Eastern Europe compensated for thissituation. The demand for high quality lithographic sheet was strong, ending 4%above 2002 levels; however the distribution market was weak throughout theyear. 

Other end-use markets weremixed in 2003.  The demand for bright surface products was robust, whereaspainted products and industrial plate showed only modest improvement over 2002.In addition to the difficult economic situation, the strengthening euro versusthe U.S. dollar exacerbated the already very competitive market conditions.  

Asin the prior year, the demand for aluminum automotive sheet remained strong in2003 and represented the key driver for overall market growth, with automotivesheet volumes up 12% over 2002. Through its automotive finishing facility in Nachterstedt, Germany, RPE is the exclusive supplier to the all-aluminum structuredJaguar XJ, which entered production in 2003 at an estimated build rate of30,000 cars per year.
* ***
**Management's Discussion andAnalysis**

**Rolled Products Europe Third-Party Revenues - 2003**
****BGP and Shipments - RPE***

** Includes shipments of rolled    products and conversion of customer-owned metal.*
   
    Higher realized prices and tight cost control    resulted in higher BGP.*
In 2003, RPE continued toconcentrate on value-added market sectors and products, while focusing on costand working capital reduction in its operations. To support the working capitalreduction initiative, a standard mill scheduling optimizer was introduced atseveral plants during the year. 

Higher price realizations,a better product mix and plant restructuring programs were the main drivers forhigher BGP compared to 2002.   The translation impact from the stronger euroand Swiss franc also helped to boost U.S. dollar results.

**Engineered Products**

The Engineered Products (EP) groupmanufactures extruded and cast aluminum products, cable, wire and rod, as wellas composite materials such as aluminum-plastic, fibre-reinforced plastic andfoam-plastic. The group provides value-added solutions for the aerospace,automotive and mass transportation markets, as well as for the architecturaland display markets. The group also has one of the largest aluminum cablepositions in North America. Its focus is to capitalize on profitable growthopportunities by leveraging its superior technology on a global basis.  As aresult of the acquisition of Pechiney, the group will become a leading supplierof high value-added aircraft sheet and plate.
* 

 ***
**Management's Discussion andAnalysis**
***Sales and BGP -Engineered Products**

    Group-wide cost reduction initiatives and the    contribution from composites' acquisitions mid-year offset the weak economic    environment and higher costs for raw materials.*
In 2003, sales and BGP were 10% and1% higher, respectively. Despite difficult business conditions for theextrusions and distribution markets in Europe and for the cable market in NorthAmerica, cost reduction initiatives across all businesses helped mitigate theweak economic environment and higher costs for raw materials.  Revenues and BGPin 2003 also benefited from the acquisitions of Baltek and Uniwood/FomeCor, sincerenamed Alcan Gator-Cor (Gator-Cor).

 

**Engineered Products Revenues - 2003**
***Engineered Products Business Units**Auto sales in Europe in 2003 were1.7% below 2002, the second consecutive year of decline. The group's increasedsales of safety systems for new model cars largely offset the impact of delayedprojects in cockpit carriers, but were not sufficient to compensate for areduction in die casting sales. Two new dedicated plants for the production ofsafety systems are under construction in North America, which will help to replicatethe Company's strong European position. Sales of safety systems for high-speedtrains, metro trams and light-rail systems were below 2002 record levels aslimited public sector spending led to the postponement of some projects. 

Results for Alcan's NorthAmerican cable business declined primarily due to softening markets,competitive pricing and cost pressures.  Market demand for transmission cablefailed to materialize, as electric utilities did not increase spending asexpected.  Additionally, the commercial/industrial sector showed noimprovement.  The only strong markets for cable products in 2003 were rod andstrip and residential construction, driven by housing starts.  Overall, totalcable sales were lower than in 2002. While price levels improved compared to2002, margins remained under pressure due to higher raw material costs.

With the acquisition andrapid integration of Baltek and Alcan Gator-Cor in 2003, Alcan secured a leadershipposition in the growing market for composites materials. In July, Alcanacquired Baltek Corporation, the world's leading supplier of balsa-basedstructural core materials, for approximately $38 million. The addition ofBaltek's high performance materials will significantly enhance Alcan's range ofcomposite products.  In October, the acquisition of Gator-Cor for $95 millionwas completed. Gator-Cor is one of the largest U.S.-based manufacturers offoam-based display boards. The successful completion of this transactionenables Alcan to offer a wide range of products to its customers in thegraphics market. In addition to growth opportunities, the acquisition offersvalue-creating synergies particularly in best-practice transfers, logisticaland operational improvements. Gator-Cor's two products, Gator-Foam andFome-Cor, are complementary to Alcan's existing product range and are also soldthrough the same distribution channels. 

In line with Alcan'sstrategy to maximize value, the extrusions operations in Italy were sold in2003, while investments were made to modernize the extrusions plants in Decin,Czech Republic, and Saint-Florentin, France. While volumes for extrusions wereonly slightly higher than in 2002, higher aluminum prices led to a 24% increasein sales and a 17% improvement in results. 
* ***
**Management's Discussion andAnalysis**

Alcan's European servicecentres business experienced a decline in volumes particularly during thesecond half of 2003.  The weakening U.S. dollar contributed to a 14%improvement in sales over 2002. Low volumes combined with high stock levels atdistributors put pressure on margins and resulted in a 14% decline in resultscompared to 2002.

**Packaging**

Revenues reached a record $3.2billion in 2003, confirming the Packaging group as a world leader in theend-use packaging markets for food, pharmaceuticals, personal care and tobacco.The group offers a broad technical and geographical range of packagingsolutions using plastics, engineered films, paper and paperboard, as well asaluminum and other materials. It is continuing to capitalize on profitablegrowth opportunities, both internal and external, created by enhanced productranges, new geographies and new customer relationships resulting from both thealgroup and VAW Flexible Packaging (FlexPac) additions.  The acquisition ofPechiney at the end of 2003 will further build on Alcan's leading positions inflexible and pharmaceutical packaging and is expected to increase group salesto approximately $6 billion annually.  
****Sales and BGP - Packaging***

    Cost reductions    and the contribution of the FlexPac acquisition offset weak market    conditions in 2003.*
Cost reductions related tointegration and restructuring programs helped offset pronounced weakness acrossmost markets in the second half of 2003. Substantial BGP growth was achievedthrough the acquisition of FlexPac, which brought with it asubstantial European flexible packaging position, a leadership presence in Asiaand Turkey, and complementary materials technologies. At the close of 2003, theprogram to realize $40 million in annual integration savings was on track.  BGPwas further enhanced as a result of foreign exchange benefits due mainly to thestrength of the euro against the U.S. dollar.  Cash flow from operations wasvery strong, reflecting major efforts to reduce working capital and adisciplined approach to capital spending.
***Packaging Revenues by Market - 2003**

 

 *********
**Management's Discussion andAnalysis**
****Packaging Revenues byRegion - 2003***

**Packaging Revenues by Type of Input -2003**

*** ****
In April 2003, Alcan completed theacquisition of FlexPac for $330 million. The acquisition provides an excellentplatform for profitable growth and is a good example of Alcan's focus onmaximizing value. It significantly enhances Alcan's global leadership positionin packaging by adding one of the world's leading producers of high-qualityflexible packaging, expanding its footprint technologically and regionally,particularly in the rapidly developing markets of Asia. As a result of theacquisition, Alcan has world-class flexible packaging operations in Europe,Asia and the Americas. 
***Packaging Business Units**In 2003, foil and technical productscontinued to implement major restructuring programs in the U.K., Germany andSwitzerland, which are key to maximizing shareholder value. At mid-year,profitability improved as the sector's fixed cost burden was reduced throughplant consolidation. Profit targets were achieved through aggressive costreduction programs in order to offset soft demand in major markets,particularly in the second half of the year.

The food flexibles marketin Europe was flat overall in 2003, despite a promising start in the firstquarter. The difficult conditions in the general food market were exacerbatedby a hot summer and weak market conditions in France. Volume and marginpressures were, however, partly offset by the benefits of ongoing costreduction and integration programs. A notable success in 2003 was theoutstanding performance of the European food container business following thecompletion of an asset optimization program. The year also saw the opening of amajor new, customer-dedicated facility in Spain. North American food flexiblesconsolidated its number of sites through a plant specialization program. Ongoing growth in beverage pouch and roll labels, however, strengthened theCompany's niche market position in the U.S. for these products.

The pharmaceutical andpersonal care sector posted strong sales gains compared to 2002. This was dueprimarily to continued worldwide growth of the pharmaceutical packagingbusiness, which benefited from new product launches and market growth. Marketpressures in plastics and specialty cartons have resulted in lower margins. Inresponse, rationalization programs were instituted during the summer of 2003and it is anticipated that the benefits will be fully realized in 2004.   

Alcan's tobacco packagingbusiness grew its market position overall, with consolidation of the growthachieved in North America in 2002 and significant growth in the Europeanmarketplace in 2003.  Investments made in Germany, Turkey and Kazakhstan areexpected to achieve full-year potential in 2004.  A new tobacco inner linerproduction facility was successfully established in Bridgnorth in the U.K. andthe new metallizing and laminating plant in Berlin, Germany, was officiallyopened in June, achieving full production targets by year-end 2003.
* ***
**Management's Discussion andAnalysis**
* *
**RISKS AND UNCERTAINTIES**

For further details, referto notes 24, 25 and 26 of the consolidated financial statements.

**Risk Management**

As a multinationalcompany, which is to a large degree engaged in a commodity-related business,Alcan's financial performance (including Pechiney) is heavily influenced byfluctuations in metal prices and exchange rates. In order to reduce a portionof the associated risks, the Company uses a variety of financial instrumentsand commodity contracts. Clearly defined policies and management controlsgovern all risk management activities. Transactions in financial instrumentsfor which there is no underlying exposure to the Company are prohibited, exceptfor a small metal trading portfolio not exceeding 24,000 tonnes, which ismarked to market.  

The decision whether andwhen to commence a hedge, along with the duration of the hedge, can vary fromperiod to period depending on market conditions and the relative costs ofvarious hedging instruments. The duration of a hedge is always linked to thetiming of the underlying exposure, with the connection between the two beingconstantly monitored to ensure effectiveness.

**Sensitivities**
****Estimated after-tax effecton Alcan's net income of:***

 
 Changein
US$M    
US$    
  
 rate/price 
pershare
Economic impact of changes in 
   
   period-average exchange rates
   
      Canadian dollar       
+1US cent $  (11)$ (0.03)
      Australian dollar
+1US cent $    (3)$ (0.01)
      Euro      
+1US cent$    (1) $ (0.00)
Balance sheet translation impact of changes
   
   in period-end exchange rates    
   
      Canadian dollar     
+1US cent $  (17)$ (0.05)
      Australian dollar          
+1US cent$    (4)$ (0.01)
Economic impact of changes in
   
period-average LME prices *        
   
      Aluminum     
+US$100/t$ 180 $ 0.49 
**   Average price realizations acrossAlcan's total product portfolio generally lag LME price changes by three to sixmonths.  Changes in local and regional premia may also impact aluminum pricesensitivity.  All sensitivities reflect the acquisition of Pechiney. * 

**Foreign Currency Exchange**Exchange rate movements,particularly between the Canadian dollar and the U.S. dollar, have an impact on Alcan's costs and therefore its net results. Because the Company hassignificant operating costs denominated in Canadian dollars while itsfunctional currency is the U.S. dollar, it benefits from a weakening in theCanadian dollar but, conversely, is disadvantaged if it strengthens. 

The Company's deferredincome tax liabilities and net monetary liabilities for operations in Canadaand Australia are translated into U.S. dollars at current rates. The resultantexchange gains or losses are included in income and fluctuate from quarter toquarter depending on the changes in exchange rates. A decrease in the Canadianand Australian dollars results in a favourable effect, whereas an increaseresults in an unfavourable impact.  

**Aluminum Prices**Depending on marketconditions and logistical considerations, 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 its purchased metal supply insupport of those sales.Through the use of forwardpurchase and sale contracts and options, Alcan seeks to limit the impact oflower metal prices. 
****
**Management's Discussion andAnalysis**
****Critical Accounting Policies and Estimates****
The Company's significant accountingpolicies are presented in note 2 to the consolidated financial statements.  Thecritical accounting policies and estimates described below are those that areboth most important to the portrayal of the Company's financial condition andresults and require management's most difficult, subjective or complexjudgments, often as a result of the need to make estimates about the effect ofmatters that are inherently uncertain.

**Post-retirement Benefits**The costs of pension andother post-retirement benefits are calculated based on assumptions determinedby management, with the assistance of independent actuarial firms andconsultants.  These assumptions include the long-term rate of return on pensionassets, discount rates for pension and other post-retirement benefit obligations,expected service period, salary increases, retirement ages of employees andhealth care cost trend rates.  These assumptions are subject to the risk ofchange as they require significant judgment and have inherent uncertaintiesthat management may not be able to control. The two most significantassumptions used to calculate the obligations in respect of employee benefitplans are the discount rates for pension and other post-retirement benefits,and the expected return on assets.  The discount rate for pension and otherpost-retirement benefits is the interest rate used to determine the presentvalue of benefits.  It is based on the yield on long-term high-qualitycorporate fixed income investments at the end of each fiscal year.  Theweighted-average discount rate was 5.6% as at December 31, 2003 compared to5.8% for 2002 and 6.1% for 2001. An increase in thediscount rate of 0.5%, assuming inflation remains unchanged, will result in areduction of approximately $554 million in the pension and otherpost-retirement obligations and a reduction of approximately $46 million in thenet periodic benefit cost. A reduction in the discount rate by 0.5%, assuminginflation remains unchanged, will result in an increase of approximately $593million in the pension and other post-retirement obligations and an increase ofapproximately $48 million in the net periodic benefit cost. Thecalculation of the estimate of the expected return on assets is described innote 28, Post-retirement Benefits.  The weighted-average expected return onassets was 7.1% for 2003, 7.1% for 2002 and 7.3% for 2001.  The expected returnon assets is a long-term assumption whose accuracy can only be measured over along period based on past experience.  Over the 15-year period ended December31, 2003, the average actual return on assets exceeded the expected return by1.5% per year. A variation in the expected return on assets by 0.5% will resultin a variation of approximately $37 million in the net periodic benefit cost.

**Environmental Liabilities**Environmental expenses areaccrued on an undiscounted basis when it is probable that a liability for pastevents exists. In determining whether a liability exists, the Company isrequired to make judgments as to the probability of a future event occurring. The Company's judgments regarding the probability are subject to the risk ofchange, as it must make assumptions about events that may or may not occur inthe distant future.  If the Company's judgments differ from those of legal orregulatory authorities, the provisions for environmental expense could increaseor decrease significantly in future periods. The Company consults withits external legal counsel on all material environmental matters.  In order toestimate the likelihood of a future event occurring, the Company and itsexternal legal counsel exercise their professional judgement based on casefacts and experience.

**Property, Plant and Equipment**Due to changing economicand other circumstances, the Company regularly reviews its property, plant andequipment ("PP&E").  Accounting standards require that an impairment lossbe recognized when the carrying amount of a long-lived asset held for use isnot recoverable and exceeds its fair value.  The amount of impairment to berecognized is calculated by subtracting the fair value of the asset from thecarrying amount of the asset. As discussed in the notes to the consolidatedfinancial statements, the Company reviewed specific PP&E for impairment in2003 due to situations where circumstances indicated that the carrying value ofspecific assets could not be recovered.  The Company made assumptions about theundiscounted sum of the expected future cash flows from these assets anddetermined that they were less than their carrying amount, resulting in therecognition of an impairment in accordance with GAAP. In estimating future cashflows, the Company uses its internal plans.  These plans reflect management'sbest estimates; however they are subject to the risk of change as they haveinherent uncertainties that management may not be able to control.  Actualresults could differ significantly from those estimates. TheCompany cannot predict whether an event that triggers an impairment ofPP&E will occur or when it will occur, nor can itestimate what effect it will have on the carrying values of these assets. However, the effect could be material.
****
**Management's Discussion andAnalysis**

**Goodwill**As reported in note 3,Accounting Changes, effective January 2002, goodwill is no longer amortized butis tested annually for impairment at the reporting unit level.  Impairment isdetermined by comparing the fair value of the reporting unit to its carryingvalue.  The fair value of a reporting unit and assets and liabilities within areporting unit may be determined using alternative methods for marketvaluation, including quoted market prices, discounted cash flows and netrealizable values.  Upon adoption of this standard, an impairment of $748million (including $8 million related to assets held for sale) was identifiedin the goodwill balance as at January 1, 2002, and was charged to openingretained earnings in 2002.  Amortization expense recognized in the statement ofincome was $72 million in 2001. In estimating the fair value of a reportingunit, the Company uses acceptable valuation techniques and makes assumptionsand estimates in a number of areas, including future cash flows and discountrates.  In estimating future cash flows, the Company uses its internal plans. These plans reflect management's best estimates; however, they are subject tochange as they have inherent uncertainties that management may not be able tocontrol.  Actual results could differ significantly from those estimates.

**Income Taxes**The provision for incometaxes is calculated based on the expected tax treatment of transactionsrecorded in the Company's consolidated financial statements.  Income tax assetsand liabilities, both current and deferred, are measured according to theincome tax legislation that is expected to apply when the asset is realized orthe liability settled.  The Company regularly reviews the recognized andunrecognized deferred income tax assets to determine whether a valuationallowance is required or needs to be adjusted.  In forming a conclusion aboutwhether it is appropriate to recognize a tax asset, the Company must usejudgment in assessing the potential for future recoverability while at the sametime considering past experience.  All available evidence is considered indetermining the amount of a valuation allowance.  If the Company'sinterpretations differ from those of tax authorities or judgments with respectto tax losses change, the income tax provision could increase or decrease,potentially significantly, in future periods.

**Business Combinations**The Company accounts forbusiness acquisitions using the purchase method.  Under this method, the costof a purchase is allocated to the estimated fair values of the net assetsacquired.   When the Company completes an acquisition towards the end of itsfiscal year or the acquired enterprise is very large, the Company makestentative estimates of the fair values of the net assets acquired as it isstill in the process of gathering all the relevant data.  Accordingly, thefinal fair values of the net assets acquired could differ materially from theamounts presented in the 2003 consolidated financial statements.   In the caseof the Pechiney acquisition completed on December 15, 2003, the significantelements for which the fair values could differ include PP&E, intangibleassets, goodwill, deferred income taxes, deferred charges and other assets, anddeferred credits and other liabilities.  Changes in the fair values of theseelements could have a significant impact on the Company's net income, includingdepreciation and amortization, and income taxes.  The Company expects tocomplete the final valuation of Pechiney's net assets during 2004.

**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 othervariations thereon. The Company cautions that, by their nature, forward-lookingstatements involve risk and uncertainty and that the Company's actual actionsor results could differ materially from those expressed or implied in suchforward-looking statements or could affect the extent to which a particularprojection is realized. Important factors that could cause such differencesinclude global supply and demand conditions for aluminum and other products, aluminumingot prices and changes in raw materials' costs and availability, changes inthe relative value of various currencies, cyclical demand and pricing withinthe principal markets for the Company's products, changes in governmentregulations, particularly those affecting environmental, health or safetycompliance, economic developments, relationships with and financial andoperating conditions of customers and suppliers, the effects of integratingacquired businesses and the ability to attain expected benefits and otherfactors within the countries in which the Company operates or sells itsproducts and other factors relating to the Company's ongoing operationsincluding, but not limited to, litigation, labour negotiations and fiscalregimes. The aluminum market overview contained in this report is based onresearch that includes information from sources believed to be reliable, butAlcan does not make any representation that it is accurate in every detail. Thealuminum market overview represents the Company's views as of March 5, 2004.
**
**Responsibility for the Annual Report**Alcan’s management is responsible for the preparation, integrity and fair presentation of the financial statements and other information in the Annual Report. The financial statements have been prepared inaccordance with Canadian generally accepted accounting principles and include, where appropriate, estimates based on the best judgment of management. A reconciliation with generally accepted accounting principles in the United States is alsopresented. Financial and operating data elsewhere in the Annual Report are consistent with that contained in the accompanying financial statements. 

Alcan’s policy is to maintain systems of internal accounting, administrative and disclosure controls of high quality consistent with reasonable cost. Such systems are designed to provide reasonable assurance thatthe financial information is accurate and reliable and that Company assets are adequately accounted for and safeguarded. The Board of Directors oversees the Company’s systems of internal accounting, administrative and disclosure controlsthrough its Audit Committee, which is comprised of directors who are not employees. The Audit Committee meets regularly with representatives of the shareholders’ independent auditors and management, including internal audit staff, to satisfythemselves that Alcan’s policy is being followed. In addition, a Disclosure Committee of management has been established to manage disclosure of corporate information and oversee the functioning of the Company’s disclosure controls andprocedures. 

The Audit Committee has recommended the appointment of PricewaterhouseCoopers LLP as the independent auditors, subject to approval by the shareholders. 

The financial statements have been reviewed by the Audit Committee and, together with the other required information in this Annual Report, approved by the Board of Directors. In addition, the financial statements havebeen audited by PricewaterhouseCoopers LLP, whose report is provided below. 

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

((Signature)) Geoffery E. Merszei, Executive Vice-President and Chief Financial Officer March 5, 2004 

**OECD Guidelines**The Organization for Economic Cooperation and Development (OECD), which consists of 30 industrialized countries including Canada, has established guidelines setting out an acceptable framework of reciprocal rights andresponsibilities between multinational enterprises and host governments. Alcan supports and complies with the OECD guidelines and has a *Worldwide Code of Employee and Business Conduct*, which is consistent with them. 

**Auditors’ Report**

**To the Shareholders of Alcan Inc.**

We have audited the consolidated balance sheets of Alcan Inc. as at December 31, 2003, 2002 and 2001 and the consolidated statements of income, retained earnings and cash flows for each of the years in the three-yearperiod ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. 

We conducted our audits in accordance with generally accepted auditing standards in Canada and the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. 

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003, 2002 and 2001 and the results of its operations and itscash flows for each of the years in the three-year period ended December 31, 2003 in accordance with Canadian generally accepted accounting principles. 

((Signature))PricewaterhouseCoopers LLP, Chartered Accountants                                Montreal, Canada, March 5, 2004

**Comments by Auditors on Canada-United States Reporting Difference**United States reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by a change in accounting principle, such asthose changes described in note 3 to the consolidated financial statements. Although we conducted our audits in accordance with both Canadian and United States generally accepted auditing standards, our report to the shareholders dated March5, 2004 is expressed in accordance with Canadian reporting standards which do not permit a reference to such changes in accounting principles in the auditors’ report when the changes are properly accounted for andadequately disclosed in the financial statements. 

((Signature)) PricewaterhouseCoopers LLP, Chartered Accountants                                Montreal, Canada, March 5, 2004

**Consolidated Financial Statements**
      **Consolidated Statement of Income**(in millions of US$, except per share amounts)      Year ended December 31**2003** 2002 2001  **Sales and operating revenues**
**13,640** 12,296 12,385** **        **Costs and expenses**     Cost of sales and operating expenses**10,802** 9,716 9,786Depreciation and amortization (notes 2 and 7)**923** 835 798Selling, administrative and general expenses**746** 571 544Research and development expenses**140** 115 135Interest**218** 202 252Restructuring, impairment and other   special charges (note 9)**(38)** 60 654Goodwill impairment (note 7)**28** - -Other expenses (income) - net (note 14)**193** 113 112 **13,012** 11,612 12,281Income from continuing operations           before income taxes and other items**628** 684 104Income taxes (note 10)**325** 295 44Income from continuing operations before other items**303** 389 60Equity income
**3** 3 3Minority interests
**(16)** (3) 13Income from continuing operations           before amortization of goodwill**290** 389 76Amortization of goodwill (note 7)- - 72Income from continuing operations**290** 389 4   Loss from discontinued operations (note 4)**(123)** (15) (2)**Net income****167** 374 2Dividends on preference shares**7** 5 8**Net income (Loss) attributable to common shareholders****160** 369 (6)Net income (Loss) per common share – basic           Income from continuing operations              before amortization of goodwill**0.88** 1.19 0.21      Amortization of goodwill- - 0.22      Income (Loss) from continuing operations**0.88** 1.19 (0.01)      Income (Loss) from discontinued operations**(0.38)** (0.04) (0.01)      **Net income (Loss) per common share – basic****0.50** 1.15 (0.02)Net income (Loss) per common share – diluted           Income from continuing operations              before amortization of goodwill**0.88** 1.18 0.21      Amortization of goodwill- - 0.22      Income (Loss) from continuing operations**0.88** 1.18 (0.01)      Income (Loss) from discontinued operations**(0.38)** (0.04) (0.01)      **Net income (Loss) per common share - diluted****0.50** 1.14 (0.02)**Dividends per common share****0.60** 0.60 0.60
The accompanying notes are an integral part of the financial statements.

 
**Consolidated Statement of Retained Earnings**(in millions of US$)           Year ended December 31**2003** 2002 2001      **Retained earnings – beginning of year****3,503** 4,074 4,272Accounting change – Impairment of goodwill           as at January 1, 2002 (note 3)- (748) – **3,503** 3,326 4,272Net income**167** 374 2Dividends        – Common**(193)** (192) (192)   – Preference**(7)** (5) (8)  **Retained earnings – end of year (note 23)****3,470** 3,503 4,074  
The accompanying notes are an integral part of the financial statements.
**Consolidated Balance Sheet**(in millions of US$)              December 31**2003** 2002 2001**ASSETS**     **Current assets**     Cash and time deposits**803** 109 116Trade receivables (net of allowances of $90 in 2003,     $58 in 2002 and $51 in 2001) (notes 2, 12 and 13)**3,215** 1,252 1,183Other receivables**824** 542 526Deferred income taxes (note 10)**50** - -Inventories      Aluminum operating segments      Aluminum**944** 901 870 Raw materials**432** 390 413 Other supplies**330** 296 268  **1, 706** 1,587 1,551 Packaging operating segment**479** 368 368 Pechiney operating segment**1, 923** - -  **4, 108** 1,955 1,919Current assets held for sale (note 4)**231** 92 73**Total current assets****9,231** 3,950 3,817Deferred charges and other assets (note 15)**926** 666 715Deferred income taxes (note 10)**745** 60 83Property, plant and equipment (note 16)     Cost (excluding Construction work in progress)**23, 463** 17,618 16,084Construction work in progress**673** 566 607Accumulated depreciation**(9,064)** (8,093) (7,125)  **15, 072** 10,091 9,566Intangible assets, net of accumulated amortization        of$88 in 2003, $53 in 2002 and $26 in 2001 (note 7)**1, 059** 318 285Goodwill (note 7)**4, 789** 2,303 2,874Long-term assets held for sale (note 4)**135** 210 201**Total assets****31,957** 17,598 17,541  
The accompanying notes are an integral part of the financial statements.
**Consolidated Balance Sheet**(in millions of US$)             December 31**2003** 2002 2001  **LIABILITIES AND SHAREHOLDERS’ EQUITY**     **Current liabilities**     Payables and accrued liabilities**5,187** 2,283 2,281Short-term borrowings**1,802** 381 553Debt maturing within one year (note 19)**356** 295 652Deferred income taxes (note 10)**86** - -Current liabilities of operations held for sale (note 4)**113** 58 49   **Total current liabilities****7,544** 3,017 3,535  Debt not maturing within one year (notes 19 and 26)**7,604** 3,186 2,884Deferred credits and other liabilities (note 18)**3,268** 1,418 1,130Deferred income taxes (note 10)**1,983** 1,180 1,069Long-term liabilities of operations held for sale (note 4)**319** 22 21Minority interests**524** 150 132**Shareholders’ equity**     Redeemable non-retractable preference shares (note 20)**160** 160 160Common shareholders’ equity        Common shares (note 21)**6,426** 4,703 4,687   Contributed surplus (notes 6 and 22)**80** - -   Retained earnings (note 23)**3,470** 3,503 4,074   Common shares held by a subsidiary (note 21)**(56)** - -   Deferred translation adjustments (note 25)**635** 259 (151) **10,555** 8,465 8,610 **10,715** 8,625 8,770Commitments and contingencies (note 24)     **Total liabilities and shareholders’ equity****31,957** 17,598 17,541        The accompanying notes are an integral part of the financial statements.                              Approved by the Board:           ((Signature))     Travis Engen, Director     ((Signature))     L. Denis Desautels, Director     **Consolidated Statement of Cash Flows**(In millions of US$)             Year ended December 31**2003** 2002 2001  **Operating activities**     Income from continuing operations**290** 389 4Adjustments to determine cash from operating activities:     Depreciation and amortization**923** 835 798Amortization of goodwill- - 72Deferred income taxes**47** 71 (149)Asset impairment provisions**86** 33 232Loss (Gain) on sales of businesses and investment – net**(44)** (27) 123Change in operating working capital        Change in receivables**185** 154 120   Change in inventories**71** 90 83   Change in payables**26** (91) (60)   Total change in operating working capital**282** 153 143Change in deferred charges, other assets,        deferred credits and other liabilities – net**222** 150 133Other – net**27** (1) 19Cash from operating activities in continuing operations**1,833** 1,603 1,375Cash from operating activities in        discontinued operations (note 4)**7** 11 12  **Cash from operating activities****1,840** 1,614 1,387**Financing activities**     New debt**3,687** 848 1,852Debt repayments**(642)** (1,138) (1,779) **3,045** (290) 73Short-term borrowings – net**604** (209) (479)Sale of receivables- - 300Common shares issued***42** 16 61Dividends              Alcan shareholders (including preference)**(200)** (197) (200)         Minority interests**(11)** (6) (2)Cash from (used for) financing activities           in continuing operations**3,480** (686) (247)Cash from (used for) financing activities in        discontinued operations (note 4)**(28)** 2 -**Cash from (used for) financing activities****3,452** (684) (247)  
* Excludes the non-cash impact of common shares issued in exchange for Pechiney securities. See note 6 – Acquisition of Pechiney.

The accompanying notes are an integral part of the financial statements. 
**Consolidated Statement of Cash Flows**(In millions of US$)       Year ended December 31**2003** 2002 2001      **Investment activities**     Property, plant and equipment**(888)** (709) (1,090)Business acquisitions, net of cash and time deposits acquired           (note 6 and 17)**(3,817)** (345) (404) **(4,705)** (1,054) (1,494)Proceeds from disposal of businesses, investments        and other assets, net of cash of companies deconsolidated**63** 118 239Cash used for investment activities        in continuing operations**(4,642)** (936) (1,255)Cash from (used for) investment activities        in discontinued operations (note 4)**21** (16) (20)      **Cash used for investment activities****(4,621)** (952) (1,275)Effect of exchange rate changes on cash and time deposits**22** 13 (7)**Increase (Decrease) in cash and time deposits****693** (9) (142)Cash and time deposits – beginning of year**110** 119 261Cash and time deposits – end of year        in continuing operations**803** 109 116Cash and time deposits – end of year        in discontinued operations- 1 3  Cash and time deposits – end of year**803** 110 119  
The accompanying notes are an integral part of the 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 andprocessing 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 ofaluminum, 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 healthsectors; 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 and licensing of alumina and aluminum production technologyand related equipment.

     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 sevencountries, operates rolled products plants in nine countries, has engineered products plants in 20 countries, has packaging facilities in 18 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.

     Pechiney, headquartered in Paris, France, has bauxite holdings in two countries, produces alumina in four countries, smelts primary aluminum in six countries, operates fabrication plantsand a research center in six countries, has packaging facilities in 18 countries, and has an international trade division, consisting of a sales network, trading activities and distribution network in 60 countries. 

***    Pechiney – Basis of Presentation***As described in note 6 – Acquisition of Pechiney, Alcan acquired Pechiney on December 15, 2003. Pechiney refers to Pechiney, a French *sociétéanonyme*, and, where applicable, its consolidated subsidiaries. The balance sheet of Pechiney is included in the consolidated financial statements as at December 31, 2003, and the statement of income ofPechiney will be included in the consolidated financial statements beginning January 1, 2004. 

**    Note 2. Summary of Significant Accounting Policies**     ***Generally Accepted Accounting Principles***These financial statements conform with Canadian generally accepted accounting principles (GAAP). Note 8 – Differences between Canadian and United States Generally Accepted Accounting Principles (GAAP), providesan 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 anddisclosure 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 proportionatelyconsolidated 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 theundistributed 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 receivedare 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 averageexchange 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 Commonshareholders’ 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 thattime. All other operations, including most of 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 translationgains and losses are included in income. 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. Theexchange gains or losses are not recorded in the statement of income, but are deferred on the balance sheet until the contract is settled or the designated transaction is recognized. They are then included, together with related hedging costs, inSales and operating revenues, Cost of sales and operating expenses, Depreciation and amortization or Property, plant and equipment, as applicable. For contracts that are settled, but the hedged transaction has not occurred, the gains or losses aredeferred on the balance sheet until the recognition of the underlying transaction.

     Foreign currency forward contracts and swaps are also used to hedge certain foreign currency denominated debt and intercompany foreign currency denominated loans. Unrealized currency gainsor 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 the shipment of goods or rendering of services.**

***    Shipping and Handling Costs***Amounts charged to customers related to shipping and handling are included in Sales and operating revenues, and related shipping and handling costs are recorded as a reduction of sales. 

***    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 earlysettlement 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 underlyingitems 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 theyinvolve 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 statementsas 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 thefinancial statements as the fees received by the Company reflect the fair value 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 cost. An impairment loss is recognized when the carrying amount of these assets is not recoverable and exceeds their fair value. Depreciation is calculated on thestraight-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 fabricatingassets. 

***    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 isdetermined 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 thestraight-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, patented and non-patented technology, purchase contracts and customer contracts all of which have finite lives. Intangible assets are recorded at cost less accumulatedamortization and are generally amortized over 15 years using the straight-line method of amortization. An impairment loss is recognized when the carrying amount of the assets is not recoverable and exceeds their fair value. 

***    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 currentconditions. 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 tospent potlining 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 toenvironmental 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 thathas 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 calculatedusing 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 serviceperiod, 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 andlosses 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 theunderlying share on the grant date. The pro forma effect, as if the Company had elected to recognize compensation expense for stock options using the fair value method, is disclosed in note 22 – Stock Options and Other Stock-Based Compensation.Other stock-based compensation arrangements that can be settled in cash result in the recognition of compensation expense over the vesting period of the awards. 

***    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 assetsand liabilities. Deferred income tax assets and liabilities are revalued for all enacted or substantially enacted changes in tax rates and exchange rates. The future recoverability of recognized deferred income tax assets is assessed on a regularbasis 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    Asset Retirement Obligations***The Canadian Institute of Chartered Accountants (CICA) issued Section 3110, Asset Retirement Obligations, which will be effective for the Company’s fiscal year beginning on January 1, 2004. This standardestablishes accounting standards for the recognition, measurement and disclosure of liabilities and the associated asset retirement cost for legal obligations relating to the retirement of a tangible long-lived asset. Under this standard, aliability would generally be recognized for such an obligation at its fair value when incurred and a corresponding asset retirement cost would be added to the carrying amount of the related asset. The Company expects the impact to be similar to thatof the asset retirement obligations disclosed for U.S. GAAP. See note 8 – Differences between Canadian and United States Generally Accepted Accounting Principles (GAAP). 

***    Consolidation of Variable Interest Entities***The CICA issued accounting guideline AcG-15, Consolidation of Variable Interest Entities, which will be effective for the Company’s annual and interim periods beginning on January 1, 2005.  The guideline providesguidance as to when to apply consolidation principles to certain entities that are subject to control on a basis other than ownership of voting shares and thus determining when an enterprise includes the assets, liabilities and results of activitiesof such an entity (a variable interest entity) in its consolidated financial statements. The Company does not expect its financial statements to be significantly impacted by this guideline. 

***    Hedging Relationships***The CICA issued accounting guideline AcG-13, Hedging Relationships, which establishes certain conditions regarding when hedge accounting may be applied and which is effective for the Company’s annual and interimperiods beginning on January 1, 2004. The Company 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 continueto be effective. Under these rules, the fair value of derivatives will be recorded on the balance sheet and any derivative instrument that does not qualify for hedge accounting will be reported on a mark-to-market basis in earnings.

***    	Stock-Based Compensation and Other Stock-Based Payments***The CICA issued an amendment to Section 3870, Stock-Based Compensation and other Stock-Based Payments, which is effective for annual and interim periods beginning on January 1, 2004. The amendment requires therecognition of an expense computed using the fair value method of accounting for all stock options and payments at grant date.  The standard is to be applied retroactively. The Company discloses a pro forma stock option expense using the fair valuemethod in note 22 – Stock Options and Other Stock-Based Compensation. 

***    Generally Accepted Accounting Principles***In July 2003, the CICA issued Section 1100, Generally Accepted Accounting Principles, which will be effective for the Company’s fiscal year beginning on January 1, 2004. This standard establishes accountingstandards for financial reporting in accordance with GAAP.  It defines primary sources of GAAP and requires that the Company apply every relevant primary source.  The Company is currently in the process of evaluating the impact of this new standardon its financial statements. 

***    General Standards of Financial Statement Presentation***In July 2003, the CICA issued Section 1400, General Standards of Financial Statement Presentation, which will be effective for the Company’s fiscal year beginning on January 1, 2004. This standard clarifies whatconstitutes fair presentation in accordance with GAAP, which involves providing sufficient information in a clear and understandable manner about certain transactions or events of such size, nature and incidence that their disclosure is necessary tounderstand the Company’s financial statements.******

**    Note 3. Accounting Changes*****    Goodwill and Other Intangible Assets***On January 1, 2002, the Company adopted the new standard of the CICA Section 3062, Goodwill and Other Intangible Assets. Under this standard, goodwill and other intangible assets with an indefinite life are no longeramortized 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 mustbe 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 thereporting unit over the fair value of the identifiable net assets of the reporting unit. 

An impairment of $748 (including $8 relating to assets held for sale) was identified in the goodwill balance as at January1, 2002, andwas charged to opening retained earnings in 2002 upon adoption of the newaccounting standard. Any further impairment arising subsequent to January 1,2002, is taken as a charge against income. As a result of the new standard, theCompany no longer amortizes goodwill. The amount of goodwill amortization was$72 in 2001. 
***    	Impairment of Long-Lived Assets***On January 1, 2003, the Company early adopted the CICA Section 3063, Impairment of Long-Lived Assets. Under this standard, an impairment loss is recognized when the carrying amount of a long-lived asset held for use isnot recoverable and exceeds its fair value. No impairment charges were recorded upon adoption of this new standard. Impairment charges recorded during 2003 are described in note 4 – Discontinued Operations and Assets Held for Sale, note 9– Restructuring, Impairment and Other Special Charges and note 14 – Other Expenses (Income) – Net.

***    Disposal of Long-Lived Assets and Discontinued Operations***On January 1, 2003, the Company early adopted thethe CICA Section 3475, Disposal of Long-Lived Assets and Discontinued Operations. Under this standard, a long-lived asset to be disposed of by sale is measured at the lowerof its carrying amount or fair value less cost to sell, and is not depreciated while classified as held for sale. Assets and liabilities classified as held for sale are reported as assets held for sale and liabilities of operations held for sale onthe balance sheet.  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, is classified as held for use until it is disposed of and depreciation estimates revised toreflect 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 or is classified as held for sale, bereported as discontinued operations if the operations and cash flows of the component have been, or will be, eliminated from the ongoing operations as a result of the disposal transaction and the Company will not have any significant continuinginvolvement in the operations of the component after the disposal transaction. A component of an enterprise comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest ofthe enterprise.  Disposal activities relating to long-lived assets initiated by the Company in 2003 are described in note 4 - Discontinued Operations and Assets Held for Sale. 

***    Guarantees***On January 1, 2003, the Company adopted the CICA accounting guideline AcG-14, Disclosure of Guarantees, which addresses disclosure requirements for a guarantor that issues a guarantee. See note 24 – Commitmentsand Contingencies. 

***    Severance and Termination Benefits***On April 1, 2003, the Company adopted the new CICA Emerging Issues Committee abstract No. 134, Accounting for Severance and Termination Benefits.  Under this abstract, contractual termination benefits and severancecosts are recognized as an expense when management, having the appropriate level of authority, approves a decision to terminate employees.  Non-contractual termination benefits are recognized as an expense when communicated to employees.  Retentionbonuses are recognized as an expense over the required future service period. 

***    Costs Associated with Exit or Disposal Activities***On April 1, 2003, the Company adopted the new CICA Emerging Issues Committee abstract No. 135, Accounting for Costs Associated with Exit or Disposal Activities (including Costs Incurred in a Restructuring).  Thisabstract 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. 

**    Note 4. Discontinued Operations and Assets Held for Sale**In the second quarter of 2003, the Company committed to a plan to sell certain non-strategic Packaging operations, as the businesses are not part of its core operations. These businesses are classified as held for saleand are included in discontinued operations.  An impairment charge of $138 was recorded in discontinued operations to reduce the carrying values of these businesses to estimated fair values less costs to sell.  Fair values were determined based oneither discounted cash flows or selling price.  In the fourth quarter of 2003, the Company recorded the sale of Fibrenyle, one of the non-strategic Packaging operations, in the U.K. for proceeds of $29. The remaining divestments are expected to becompleted by June 30, 2004. 

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

 	    	Discontinued operations include a net loss of $8, comprising a loss of $17 on the sale of the extrusions operations and a gain of $9 on the sale of Fibrenyle.

 	    	On December 31, 2003, the Company classified the aluminum rolling mill in Ravenswood, West Virginia, as held for sale. Ravenswood was acquired through the acquisition of Pechiney. Its divestment, which must becompleted by March 31, 2004, subject to two 30-day extensions granted at the discretion of the U.S. Department of Justice (DOJ), is part of the requirements imposed by the DOJ as a condition to its approval of the acquisition. 

 	    	Certain financial information has been reclassified in the prior periods to present these businesses as discontinued operations on the statement of income, as assets held for sale and liabilities of operations heldfor sale on the balance sheet and as cash flows from (used for) discontinued operations on the statement of cash flows. 

 	    	Selected financial information for the businesses included in discontinued operations is reported below: 
Year ended December 31**2003** 2002 2001    Sales**263** 244 241    Income (Loss) from operations**1** (8) (1) Loss on disposal – net**(8)** - - Loss from impairment**(138)** (9) (2) Pre-tax loss**(145)** (17) (3) Income taxes recovered**22** 2 2 Amortization of goodwill- - (1)        Loss from discontinued operations**(123)** (15) (2)    
The major classes of Assets held for sale and Liabilities of operations held for sale are as follows:
 **2003** 2002 2001        Current assets held for sale:         Cash and time deposits- 1 3    Trade receivables**75** 48 33    Other receivables**19** 11 6    Deferred income taxes**3** - -    Inventories**134** 32 31         **231** 92 73        Long-term assets held for sale:         Deferred charges and other assets**3** 1 1    Deferred income taxes**70** - -    Property, plant and equipment, net**40** 142 136    Intangible assets, net- 14 13    Goodwill, net**22** 53 51         **135** 210 201    Current liabilities of operations held for sale:         Payables and accrued liabilities**112** 54 47    Short-term borrowings**1** 4 2     **113** 58 49           Long-term liabilities of operations held for sale:         Debt not maturing within one year- 1 -    Deferred credits and other liabilities**314** 1 1    Deferred income taxes**5** 20 20  **319** 22 21 
**    	Note 5. Income from Continuing Operations per Common Share – Basic and Diluted**Basic and diluted income from continuing operations 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 ofstock options is used. The following table outlines the calculation of basic and diluted income from continuing operations per common share. 
 **2003** 2002 2001 **Numerator for basic and diluted income**         **from continuing operations per common share**      Income (Loss) from continuing operations         attributable to common shareholders**283** 384 (4) **Denominator (number of common shares in millions)**      Denominator for basic income from         continuing operations per common share –         weighted average of outstanding shares**322** 321 320 Effect of dilutive stock options- 1 1 Denominator for diluted income from         continuing operations per common share –         adjusted weighted average of outstanding shares**322** 322 321 **Income (Loss) from continuing operations**         **per common share – basic****0.88** 1.19 (0.01) **Income (Loss) from continuing operations**         **per common share – diluted****0.88** 1.18 (0.01)    
Options to purchase 3,443,855 common shares (2002: 1,146,500; 2001: 579,000) at a weighted average price of CAN$53.70 per share (2002: CAN$60.16; 2001: CAN$59.35) were outstanding during the year but were not includedin 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, 2003, there are 365,181,101 common shares outstanding (2002: 321,470,298; 2001: 320,901,748). As described in note 1 – Nature of Operations, the results ofoperations of Pechiney are not included in the 2003 statement of income.  The common shares issued in December 2003 as part of the Pechiney acquisition are excluded from the weighted average of outstanding shares. 

**    Note 6. Acquisition of Pechiney**During the initial offer period, which closed on November 24, 2003, 77,950,776 Pechiney shares, 1,598 Pechiney bonus allocation rights and 7,722,915 Pechiney OCEANEs were tendered, representing 92.21% of Pechiney sharecapital and 93.55% of Pechiney voting rights, on a fully diluted basis. Pechiney shares, Pechiney bonus allocation rights, Pechiney OCEANEs and Pechiney American Depositary Shares (ADS) are collectively hereby referred to as Pechiney securities. OnDecember 15, 2003, the Company acquired the Pechiney securities tendered during the initial offer and as consideration, issued 42,413,105 common shares (including 1,417,910 shares to Pechiney) valued at $39.63 per share and paid $3,544 in cash.Accordingly, Pechiney became a subsidiary of the Company on December 15, 2003. In addition, the Company assumed from Pechiney total debt of $2,130 (short-term borrowings, debt maturing within one year, and debt not maturing within one year). Thevalue of $39.63 per share represents the average closing market price for an Alcan common share for a reasonable period of time before and after November 17, 2003, the date at which the number of Alcan common shares to be issued and the amount ofcash consideration for each Pechiney share became fixed.

    The offer was re-opened from December 9 to 23, 2003. During the re-opened offer, 3,826,638 Pechiney shares, 19 Pechiney bonus allocation rights and 149,072 Pechiney OCEANEs were tendered. As more than 95% of thecapital and voting rights of Pechiney were tendered (on a fully diluted basis) during the initial and re-opened offers, the Company paid to the holders of Pechiney securities who tendered during the initial offer, additional consideration of $100 onJanuary 19, 2004. This additional consideration was recorded in 2003 as it became payable on December 23, 2003, the date the re-opened offer closed.

 	    	On January 15, 2004, the Company acquired the Pechiney securities tendered in the re-opened offer and as consideration, issued 2,082,075 common shares of the Company valued at $39.63 per share and paid $158 in cashincluding $5 as payment of additional consideration for holders of Pechiney securities who tendered during the re-opened offer.  The additional ownership acquired through this re-opened offer will be accounted for in 2004 when the Company settledthe purchase price and obtained legal title of the Pechiney securities tendered during the re-opened offer.

     The withdrawal offer of Alcan, made in accordance with French securities regulations, as a required step to acquire all remaining Pechiney securities, was opened from January 23 toFebruary 5, 2004.  It was followed on February 6, 2004, by a compulsory acquisition by which Alcan became the owner of the remaining Pechiney securities it did not already own.  On January 23, 2004, Alcan paid $109, which will be accounted for in2004, representing the aggregate consideration for the withdrawal offer and compulsory acquisition (without taking into account the Pechiney shares that could have resulted from exercise of Pechiney options between January 23 and February 5, 2004),for distribution in accordance with the provisions of French securities regulations.    On February 6, 2004, the Company paid $7, which will be accounted for in 2004, in order to complete the acquisition of the Pechiney shares that were issuedbetween January 23 and February 5, 2004, upon the exercise of Pechiney options. On February 6, 2004, Pechiney became a wholly-owned subsidiary of the Company.

     Pechiney’s three core businesses are primary aluminum, aluminum conversion and packaging.  The transaction is intended to enable Alcan to build upon its position as one of theworld’s leading aluminum and packaging companies and to benefit from the combined entity’s enhanced scale, financial strength and technological resources as well as its increased capacity to serve customers worldwide. The combined entitywill expect to benefit from a larger and more diversified low-cost global position in primary aluminum production with opportunities for profitable growth, an advanced aluminum fabricating business with facilities around the world and a leadingposition in flexible packaging.

     The acquisition has been accounted for using the purchase method. The balance sheet of Pechiney is included in the consolidated financial statements as at December 31, 2003, and theresults of operations of Pechiney will be included in the consolidated financial statements beginning January 1, 2004. Given the magnitude of the acquisition of Pechiney and due to the fact that the transaction was completed at the end of 2003, atentative purchase price allocation has been performed and, as permitted by accounting standards, the final valuation will be completed in 2004. The Company is in the process of completing its valuations of certain assets and liabilities.Accordingly, the fair value of assets acquired and liabilities assumed could differ materially from the amounts presented in the consolidated financial statements.  The significant elements for which the fair values could be modified includeproperty, plant and equipment, intangible assets, goodwill, deferred income taxes, deferred charges and other assets, and deferred credits and other liabilities.

     The divestitures required for regulatory reasons as a result of the Pechiney acquisition are described in note 24 –Commitments and Contingencies. 
  **2003** **Fair value of net assets acquired at date of acquisition**   Trade receivables **1,876** Other receivables **238** Deferred income taxes – current **50** Inventories **1,923** Current assets held for sale **166** Deferred charges and other assets **238** Deferred income taxes – non-current **637** Property, plant and equipment **4,459** Intangible assets **665** Goodwill (1) **2,213** Long-term assets held for sale **83** Total assets **12,548**     Payables and accrued liabilities **2,464** Deferred income taxes - current **86** Short-term borrowings **857** Debt maturing within one year **204** Current liabilities of operations held for sale **64** Debt not maturing within one year **1,069** Long-term liabilities of operations held for sale **313** Minority interests **380** Deferred credits and other liabilities **1,393** Deferred income taxes – non-current **646** **Fair value of net assets acquired at date of acquisition –**         **net of cash and time deposits acquired** **5,072**      (1) See note 7 – Goodwill and Intangible Assets            The $2,213 of goodwill has been assigned to the Pechiney segment, as the new management organizational structure is not yet in place. The goodwill is not expected to be deductible for tax purposes.        **Acquisition Cost** **2003** Issuance of common shares on December 15, 2003 (40,995,195 * common shares       without nominal or par value; average market value of $39.63 per share)**1,625** Cash paid of $3,544 net of cash and time deposits acquired of $338 **3,206** Additional consideration for initial offer to be paid in 2004 **100** Cost of Pechiney options **80** Transaction costs **61** Total acquisition cost – net of cash and time deposits acquired **5,072**   
**Represents the issuance of 42,413,105 common shares net of 1,417,910common shares held by Pechiney*

 

***    Supplemental Pro Forma Information****    (in millions of US$, except per share amounts)*****The following unaudited pro forma information for 2003 and 2002 presents a summary of consolidated results of operations of the Company and Pechiney as if the combination had occurred on January 1, 2002. These proforma results have been prepared for comparative purposes only. 
 **2003** 2002  **(unaudited)** (unaudited) Sales and operating revenues**25,715** 23,417 Income from continuing operations**124** 284 Net income (Loss)**(37)** 213 Income from continuing operation per common share - basic**0.34** 0.79 Income from continuing operation per common share – diluted**0.34** 0.78 Net income (Loss) per common share – basic**(0.10)** 0.59 Net income (Loss) per common share – diluted**(0.10)** 0.59   
**Note 7. Goodwill and Intangible Assets**

***    	Goodwill***

The changes in the carrying amount of goodwill for the year ended December 31, 2003, are as follows:
 **Balance**     **Deferred**   **Balance** **as at** **Impairment**   **Translation**   **as at** **January 1, 2003** **Losses****Disposals****Additions** **Adjustments** **Adjustments** **December 31, 2003**                Bauxite and Alumina**546** --- - **12** **558**Primary Metal**511** --**6** **18** **(1)** **534**Engineered Products**161** **(28)**-**33** **18** **(1)** **183**Packaging**1, 085** --**75** **126** **15** **1,301**Pechiney- --**2,213** - - **2,213**Goodwill excluding amount   included in Long-term    assets held for sale**2, 303** **(28)**-**2,327** **162** **25** **4,789**Goodwill included in    Long-term assets held for    sale**53** -**(11)**- **(1)** **(19)** **22**Total**2, 356** **(28)****(11)****2,327** **161** **6** **4,811**    
 

The changes in the carrying amount of goodwill for the year ended December 31, 2002, were as follows:
 Balance     Deferred   Balance as at Impairment   Translation   as at January 1, 2002 LossesDisposalsAdditions Adjustments Adjustments December 31, 2002                Bauxite and Alumina543 --- - 3 546Primary Metal426 --33 49 3 511Rolled Products Europe163 (163)-- - - -Engineered Products466 (321)-2 19 (5) 161Packaging1,255 (256)-- 94 (8) 1,085Other21 --- - (21) -Goodwill excluding amount    included in Long-term assets    held for sale 2,874 (740)-35 162 (28) 2,303Goodwill included in    Long-term assets held for    sale51 (8)-- 9 1 53Total2,925 (748)-35 171 (27) 2,356    
Using the CICA accounting standard concerning goodwill and other intangible assets (see note 3 – Accounting Changes), the Company completed the annual test to determine whether, for the year ended December 31,2003, there was impairment in the carrying amount of goodwill. As a result of this review, an impairment loss of $28 was recognized as a charge to income in 2003. At the time of adoption, January 1, 2002, a review of the impairment in the goodwillbalance was completed, and an impairment loss of $748 (including $8 relating to long-term assets held for sale) was recognized as a charge to opening retained earnings in 2002. This adjustment reflected the decline in end-market conditions in theperiod from the algroup merger in October 2000 to January 1, 2002. The annual test was also completed in 2002 and no further impairment was identified. The fair value of all reporting units was determined using discounted future cash flows. 

     In 2003, a reduction in goodwill of $7 (2002: $28), included in adjustments, was recorded principally relating to a decrease in the valuation allowance related to future income tax assetsacquired in the combination with algroup, but which were not recognized at the date of the business combination. 

    The changes in the carrying amount of goodwill for the year ended December 31, 2001, were as follows: 
 Balance     Deferred     Balance as at     Translation     as at January 1, 2001 Disposals Additions Adjustments Adjustments Amortization December 31, 2001              Bauxite and Alumina384 - 234 - (62) (13) 543Primary Metal337 - - (5) 104 (10) 426Rolled Products Europe165 - - (7) 9 (4) 163Engineered Products458 - - (14) 34 (12) 466Packaging1,249 (3) 7 (32) 66 (32) 1,255Other20 - 30 - (28) (1) 21Goodwill excluding amount    included in Long-term      assets held for sale2,613 (3) 271 (58) 123 (72) 2,874Goodwill included in    Long-term  assets held for sale56 - - (4) - (1) 51Total2,669 (3) 271 (62) 123 (73) 2,925      
 
**Intangible Assets with Finite Lives**       **Gross Carrying** **Accumulated** **Net Book**  **Amount** **Amortization** **Value**    **December 31, 2003**      Trademarks**182** **34** **148** Patented and non-patented technology**559** **52** **507** Purchase contracts**291** **2** **289** Customer Contracts**115** - **115**  **1,147** **88** **1,059**    December 31, 2002   Trademarks138 20 118 Patented and non-patented technology213 32 181 Purchase contracts20 1 19     371 53 318    December 31, 2001   Trademarks122 10 112 Patented and non-patented technology189 16 173  311 26 285     
The aggregate amortization expense for the year ended December 31, 2003, was $27 (2002: $23). The estimated amortization expense for the five succeeding fiscal years is approximately $72 per year.  The acquisition ofintangible assets amounted to $733 (2002: $20) in the year ended December 31, 2003. 

     Pro forma net income and net income per common share – basic and diluted, before goodwill amortization for 2001, are presented below. 
Year ended December 312001 Reported net income2 Goodwill amortization72 Adjusted net income74     Net income (Loss) per common share – basic and diluted     Reported net income (loss)(0.02)    Goodwill amortization0.22 Adjusted net income per common share – basic and diluted0.20  
**Note 8. Differences between Canadian and United States Generally Accepted Accounting Principles (GAAP)**

Significant differences between Canadian and United States GAAP are described below. 

**(a) *Derivatives***Beginning in 2001, the Company elected not to adopt the optional hedge accounting provisions of the FASB Statements Nos. 133 and 138, Accounting for Derivative Instruments and Hedging Activities. 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 thetransactions being hedged. On January 1, 2003, the Company adopted, for certain transactions, the optional hedge accounting provisions; see "Recently Adopted Accounting Standards for U.S. GAAP Presentation" below.

     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 thetransactions being hedged. For certain foreign currency forward contracts and swaps that are used to hedge certain foreign currency denominated debt and foreign currency denominated loans, unrealized currency gains or losses are recorded in incomeconcurrently with the unrealized gains or losses on the items being hedged. In addition, oil put options are recorded at market value. Under Canadian GAAP, fair value is based on the spot rate; under U.S. GAAP, fair value is based on the forwardrate. 

     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. 

**(b) *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 Canadianaccounting standards on foreign currency translation on such date. 

**(c) *Investments***Under U.S. GAAP, certain marketable portfolio investments, which are considered to be “available-for-sale” securities, are measured at market value, with the unrealized gains or losses included inComprehensive income. Under Canadian GAAP, the concept of comprehensive income does not exist and these investments are measured at cost. 

**(d) *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 isless than the minimum liability. Any portion of this additional liability that relates to unrecognized prior service cost is recognized as an intangible asset while the remainder is charged to Comprehensive income. Canadian GAAP has no suchrequirement to record a minimum liability and does not have the concept of comprehensive income. 

**(e) *Impairment of Goodwill***Under U.S. GAAP, goodwill impairment identified as at January 1, 2002, was charged to income as the cumulative effect of an accounting change. Under Canadian GAAP, the impairment loss identified as at January 1, 2002,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 7 – Goodwill and Intangible Assets. 

**(f) *Asset Retirement Obligations***Under U.S. GAAP, standards are established for the recognition, measurement and disclosure of liabilities for legal obligations associated with the retirement of a tangible long-lived asset that result from itsacquisition, construction, development or normal operation.  A liability is generally recognized for such an obligation at its fair value when incurred and a corresponding asset retirement cost is added to the carrying amount of the related asset.In subsequent periods, the carrying amount of the liability is adjusted to reflect the passage of time and any changes in the timing or amount of the underlying future cash flows. The asset retirement cost is amortized to expense over theasset’s useful life. Under Canadian GAAP, a similar standard will be effective for the Company’s fiscal year beginning on January 1, 2004. The Canadian GAAP standard in effect for 2003 requires that a provision for future removal and siterestoration costs, net of expected recoveries, be recorded when reasonably determinable, in a rational and systematic manner. 

**(g) *Deferred Translation Adjustments***Under U.S. GAAP, deferred translation adjustments are reported as a component of Comprehensive income. Under Canadian GAAP, the concept of comprehensive income does not exist and deferred translation adjustments arereported as a component of shareholders’ equity. 

**(h) *Income Taxes*****Under U.S. GAAP deferred income tax assets and liabilities are revalued for all enacted changes in tax rates. Under Canadian GAAP, deferred income tax assets and liabilities are revalued for all enacted orsubstantially enacted changes in tax rates. 

**(i) *Acquired In-Process Research and Development***Under U.S. GAAP, acquired in-process research and development costs are expensed immediately upon acquisition.  Under Canadian GAAP, these costs are recognized as intangible assets upon acquisition if they result fromcontractual or other legal rights, or the research and development is capable of being separated or divided from the acquired company and sold, transferred, licensed, rented, or exchanged. Under Canadian GAAP, these intangible assets are amortizedover their useful lives.****

**(j) *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. Pursuant to an accommodation of theU.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 incomeor shareholders’ equity. See note 11 – Joint Ventures for summarized financial information about joint ventures. 

**(k) *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 forthe period less gains or losses realized during the period on “available-for-sale” securities, unrealized gains or losses for the period less gains or losses realized during the period on derivatives and the movement in the minimum pensionliability. The concept of comprehensive income does not exist under Canadian GAAP. 

**(l) *Consolidated Statement of Income***Under U.S. GAAP, income from continuing operations before amortization of goodwill and income from continuing operations per common share before amortization of goodwill would not be presented. 

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

**(n) *Shipping and Handling Costs***Under U.S. GAAP, shipping and handling costs are reported in cost of sales. Under Canadian GAAP, the Company has elected to record these costs as a reduction of sales. 

     ***Recently Adopted Accounting Standards for U.S.**GAAPPresentation**   Asset Retirement Obligations***On January 1, 2003, the Company adopted the FASB Statement No. 143, Accounting for Asset Retirement Obligations. This statement establishes accounting standards for the recognition, measurement and disclosure ofliabilities for legal obligations associated with the retirement of a tangible long-lived asset that result from its acquisition, construction, development or normal operation.  Under this standard, a liability is generally recognized for such anobligation at its fair value when incurred and a corresponding asset retirement cost is added to the carrying amount of the related asset. In subsequent periods, the carrying amount of the liability is adjusted to reflect the passage of time and anychanges in the timing or amount of the underlying future cash flows. The asset retirement cost is amortized to expense over the asset’s useful life. 

 	    	Under the FASB Statement No. 143, the Company recognized, for U.S. GAAP reporting only, additional liabilities, at fair value, of approximately $106 as at January 1, 2003, for existing legal asset retirementobligations. Such liabilities are adjusted for accretion costs and revisions in estimated cash flows. The related asset retirement costs are capitalized as increases to the carrying amount of the associated long-lived assets and accumulateddepreciation on these capitalized costs recognized. These liabilities consist primarily of environmental remediation costs, resulting from normal operations, associated with certain bauxite residue disposal sites at its alumina refineries and thedisposal of certain of its spent potlining associated with smelter facilities.  	

    As a result of the new standard, as at January 1, 2003, Property, plant and equipment - cost has been increased by $140, Property, plant and equipment - accumulateddepreciation has been increased by $90, Deferred credits and other liabilities have been increased by $106, Deferred income tax liabilities have been reduced by $17 and an after-tax charge of $39 recorded in Net income for the cumulative effect ofaccounting change. The cumulative effect of accounting change related primarily to costs for spent potlining disposal for pots currently in operation. Net income for the year ended December 31, 2002, would not have been materially different if thisstandard had been adopted effective January 1, 2002. For 2003, net income was reduced by $1 due to the adoption of the standard.

 	    	The following is a reconciliation of the aggregate carrying amount of liabilities for asset retirement obligations and the pro forma impact for the year ended December 31, 2002, as if the standard had been adopted effective January 1, 2002.

 
December 31**2003**Pro Forma        2002  Balance – beginning of year  **389**363 Acquisition of Pechiney **116**- Liabilities incurred **35**12 Liabilities settled **(25)**(12) Accretion expense **25** 17 Exchange **91**9  Revisions in estimated cash flows**(53)**-  Balance – end of year**578**389 
 

***    Guarantees***On January 1, 2003, the Company adopted the recognition and measurement provisions of the FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, including IndirectGuarantees of Indebtedness of Others. The provisions are applied on a prospective basis to guarantees issued or modified after December 31, 2002. There were no significant guarantees issued or modified after December 31, 2002. See note 24 -Commitments and Contingencies. 

***    Costs Associated with Exit or Disposal Activities***On January 1, 2003, the Company  adopted the FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This standard requires that a liability associated with an exit ordisposal activity be recognized when the liability is incurred rather than at the date of the Company’s commitment to an exit plan. 

    ***Derivative Instruments and Hedging Activities***On July 1, 2003, the Company adopted the FASB Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.  This standard amends and clarifies financial accounting and reporting forderivatives and for hedging activities under the FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. This standard has no impact on the Company’s financial statements. 

***    Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity***On July 1, 2003, the Company adopted the FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This standard requires that certain financialinstruments embodying an obligation to transfer assets or to issue equity securities be classified as liabilities. This standard has no impact on the Company’s financial statements. 

***    Newly Issued Accounting Standards for U.S. GAAP Presentation    Consolidation ofVariable Interest Entities***In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. This interpretation requires that existing unconsolidated variable interest entities be consolidated bytheir 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. 

 	    	On December 24, 2003, the FASB issued a revision to FIN 46. Under this revision, application of FIN 46 is required for periods ending after December 15, 2003, only for existing variable interest entities that arestructured as special-purpose entities. Application by public entities for all other types of variable interest entities is required in financial statements for periods ending after March 15, 2004.  The Company does not hold any interests invariable interest entities that are structured as special-purpose entities. The Company does not expect its financial statements to be significantly impacted by this interpretation. 
**Reconciliation of Canadian and U.S. GAAP**                  Year ended December 31Reference**2003** 2002 2001 Income from continuing operations             – as reported **290** 389 4 Differences due to:             – Valuation of derivatives(a)**(33)** 60 (72)       – Currency translation(b)**1** (2) -       – Asset retirement obligations(f)**10** - -       – In-process research and development(i)**(50)** - -       – Income taxes(h)- - 5       – Deferred tax effect on the above **21** (20) 23 Income (Loss) from continuing operations                before cumulative effect of accounting changes – U.S. GAAP **239** 427 (40)    Loss from discontinued operations **(123)** (15) (2) Cumulative effect of accounting changes – net of taxes             – Valuation of derivatives(a)- - (12)       – Impairment of goodwill(e)- (748) -       – Asset retirement obligations(f)**(39)** - - **Net income (Loss) – U.S. GAAP** **77** (336) (54) Dividends on preference shares **(7)** (5) (8)  **Net income (Loss) attributable to common shareholders – U.S. GAAP****70** (341) (62)            Net income (Loss) per common share – basic and diluted – U.S. GAAP                Income (Loss) from continuing operations **0.72** 1.30 (0.15)          Loss from discontinued operations **(0.38)** (0.04) (0.01)          Cumulative effect of accounting changes **(0.12)** (2.32) (0.03) **Net income (Loss) per common share – basic and diluted – U.S. GAAP****0.22** (1.06) (0.19)          December 31**2003** 2002 2001 **As   Reported****Ref.****Amount****U.S.   GAAP** As**Reported**   Ref.   AmountU.S.   GAAP As   Reported     Ref.   AmountU.S.   GAAP               Other receivables**824****(a)****52****876** 542 -542 526 -526Inventories**4,108****(a)****(2)****4,106** 1,955(a)(4)1,951 1,919(a)(5)1,914Deferred charges and other assets**926****(a)****15****947** 666(a)(9)663 715(a)(7)716  **(c)****6**   (c)6   (c)8__  Property, plant and equipment                   Cost (excluding Construction work                    in progress)**23,463****(f)****185****23,648** 17,618 -17,618 16,084(a)   (5)    16,079     Accumulated depreciation**(9,064)****(f)****(93)****(9,157)** (8,093) -(8,093) (7,125) -(7,125)Intangible assets, net of                 accumulated amortization**1,059****(d)****224****1,233** 318(d)143461 285(d)18303  **(i)****(50)**           Goodwill**4,789****(f)****65****4,854** 2,303 -2,303 2,874 -2,874Payables and accrued liabilities**5,187****(a)****117****5,375** 2,283(a)172,300 2,281(a)732,354  **(f)****71**           Deferred credits and other liabilities**3,268****(a)****(1)****4,169** 1,418(d)6102,028 1,130(d)2331,363  **(d)****730**             **(f)****172**           Deferred income taxes**1,983****(a)****(27)****1,734** 1,180(a)(9)1,023 1,069(a)(30)972  **(d)****(156)**   (d)(148)   (d)(67)   **(f)****(48)**             **(i)****(18)**           Shareholders’ equity                 Redeemable non-retractable                    preference shares**160** -**160** 160 -160 160 -160   Common shares**6,426** -**6,426** 4,703 -4,703 4,687 -4,687   Contributed surplus**80** -**80** - -- - --   Retained earnings**3,470****(a)****(42)****3,414** 3,503(a)(20)3,537 4,074(a)(60)4,070  **(b)****55**   (b)54   (b)56   **(f)****(37)**             **(i)****(32)**              Common shares held by a subsidiary**(56)** -**(56)** - -- -- -   Deferred translation                    adjustments**635****(a)****29**- 259(b)(54)-    (151) (b)(56)-  **(b)****(55)**   (g)(205)   (g)207   **(g)****(609)**              Other comprehensive                    income (loss)-**(a)****(12)****253** -(c)6(109) -(c)8(347)  **(c)****6**   (d)(320)   (d)(148)   **(d)****(350)**   (g)205   (g)(207)   **(g)****609**           Shareholders’ equity**10,715** **(438)****10,277** 8,625 (334)8,291 8,770 (200)8,570     (a)Derivatives(b)Currency translation(c)Investments(d)Minimum pension liability(e)Impairment of goodwill(f)Asset retirement obligations(g)Deferred translation adjustments(h)Income taxes(i)Acquired in-process research and developmentYear ended December 31 **2003** 2002 2001     **Comprehensive income (loss)**        Net income (Loss)  **77** (336) (54) Net change in deferred translation adjustments **404** 412 (131) Net change in excess of market value over book value      of “available-for-sale” securities **8** 8 (7) Reclassification to net income on disposal      of “available-for-sale” securities **(8)** (10) - Valuation of derivatives (net of tax of $5)             Net change from periodic revaluations (net of tax of $5) **(12)** - - Net change in minimum pension liability –           net of tax of $9 (2002: $81; 2001:$67)  **(30)** (172) (148) **Comprehensive income (loss)**  **439** (98) (340)             December 31 **2003** 2002 2001 **Accumulated other comprehensive income (loss)**       Derivatives  **(12)** - - Deferred translation adjustments  **609** 205 (207) Minimum pension liability  **(350)** (320) (148) Unrealized gain on “available-for-sale” securities **6** 6 8 **Accumulated other comprehensive income (loss)** **253** (109) (347) 
Reconciliation of the funded status of the Company’s pension plans with the amounts recognized in the U.S. GAAP balance sheet.
December 31  
**2003**
2002
2001            **As****U.S.**AsU.S.AsU.S.**Pension Benefits**  **Reported****GAAP**ReportedGAAPReportedGAAP         Funded Status  **(2,466)****(2,466)**(1, 421)(1, 421)(467)(467)Unamortized           - actuarial (gains) losses  **612****612**656656(193)(193)   - prior service cost  **624****848**687830653671Minimum pension liability (excluding the amount relating      to unrecognized prior service cost) **N/A****(730)**N/A(610)N/A(233)         **Net liability in balance sheet**  **(1,230)****(1, 736)**(78)(545)(7)(222)         Net liability recognized in the U.S. GAAP balance sheet      Deferred charges and other assets   **222** 314 344Intangible assets   **224** 143 18Payables and accrued liabilities   **(44)** (34) (31)Deferred credits and other liabilities   **(2,071)** (968) (553)Long-term liabilities of operations held for sale **(67)** - -         **Net liability in balance sheet**   **(1,736)** (545) (222)     
 

**    Note 9. Restructuring, Impairment and Other Special Charges**In 2001, the Company implemented a restructuring program aimed at safeguarding its competitiveness, resulting in a series of plant sales, closures and divestments throughout the organization. In the context of theCompany's objective of value maximization, a detailed business portfolio review was undertaken in 2001 to identify high cost operations, excess capacity and non-core products. Impairment charges arose as a result of negative projected cash flows andrecurring losses. These charges related principally to buildings, machinery and equipment and some previously capitalized project costs.  This program was completed in 2003. The following information relates only to the 2001 program. 

***    Restructuring and Asset Impairment Charges***The schedule provided below shows details of the provision balances and related cash payments for the restructuring and asset impairment charges relating to the 2001 restructuring program. 
   Asset      Severance Impairment      Costs Provisions Other Total 2001:        Charges111 268 29 408 Cash payments – net(6) - (7) (13) Non-cash charges- (268) - (268) Provision balance as at December 31, 2001105 - 22 127 2002:        Charges35 17 27 79 Cash payments – net(63) - - (63) Non-cash charges(6) (17) (7) (30) Provision balance as at December 31, 200271 - 42 113 **2003:**        **Charges (recoveries)****(3)** - **(26)** **(29)** **Cash payments – net****(45)** - **(26)** **(71)** **Non-cash charges**- - **33** **33** **Provision balance as at December 31, 2003****23** - **23** **46**     
The remaining provision balance of $46 at December 31, 2003, related principally to employee severance costs and environmental remediation for which payments will be made over an extended period. 

***    2003 Activities*****In 2003, Restructuring, impairment and other special charges of ($38), pre-tax were recorded, which included recoveries in restructuring and asset impairment charges of $29 and other special charges of $9.  The $29recovery consists of $3 for the reversal of an excess redundancy provision in the U.K. (Rolled Products Europe), a gain of $19 principally for the sale of the Borgofranco power facilities in Italy (Rolled Products Europe), income of $6 on the saleof extrusions operations in Malaysia (Rolled Products Americas and Asia), and a gain of $9 relating to sales of assets in the U.K. ($5: Bauxite and Alumina; $4: Packaging), partially offset by other costs of $8 principally in the U.K. (Packaging).

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

***    2002 Activities*****In 2002, Restructuring, impairment and other special charges of $60, pre-tax were recorded, which included restructuring and asset impairment charges of $79 and gains in other special charges of $19. The $79 chargeconsisted of severance costs of $35 related to workforce reductions of approximately 950 employees, impairment of long-lived assets of $17 and other exit costs related to the shutdown of facilities of $27. Severance charges of $35 related primarilyto the closure of the Burntisland facility, U.K. (Bauxite and Alumina), certain cable operations in North America (Engineered Products), extrusions operations in Malaysia and light gauge operations in Fairmont, West Virginia (Rolled ProductsAmericas and Asia). Asset impairment charges of $17 related primarily to the Borgofranco plant in Italy (Rolled Products Europe) and the operations in Korea (Rolled Products Americas and Asia). Other exit costs of $27 consisted principally ofclosure costs of $19 for the Burntisland facility, U.K., a loss of $5 on the sale of the extrusions operations in Thailand that arose from the realization of deferred translation losses (Rolled Products Americas and Asia), a loss of $4 on the saleof the rolled products circles production unit at Pieve, Italy (Rolled Products  Europe),  other  costs of $3 and was offset in part by income of $4 from the write-back of excess contract loss provisions upon settlement with a customer (EngineeredProducts). 

 	    	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. Aswell, 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, in the U.S. for proceeds of $9equal to book value. 

**    	*2001 Activities***In 2001, Restructuring, impairment and other special charges of $654 pre-tax were recorded, which included restructuring and asset impairment charges of $408 and other special charges of $246. The charges of $408included severance costs of $111, which related to workforce reductions of approximately 2,190 employees, impairment of long-lived assets of $268 and other exit costs related to the shutdown of facilities of $29.

***    	Workforce Reductions***Planned workforce reductions relating to the 2001 restructuring program are as follows: 
     2001 2002 **Total**      Bauxite and Alumina    - 380 380 Primary Metal    500 - 500 Rolled Products Americas and Asia    200 250 450 Rolled Products Europe    400 - 400 Engineered Products    - 200 200 Packaging    790 120 910 Other    300 - 300            **Planned workforce reductions**    2,190 950 3,140            As at December 31, 2003, approximately 3,120 of a total of 3,140 employees had been terminated.           
***    Asset Impairment Provisions***
 
Assets Held and Used Assets Held for Disposal (2)         2001 (1) 2002 (1) Total 2001   Bauxite and Alumina (3)45 - 45 -Primary Metal (4)22 - 22 -Rolled Products          Americas and Asia (7)14 3 17 8Rolled Products Europe (5) (8)79 9 88 22Engineered Products3 4 7 -Packaging (6) (9)42 1 43 12Other21 - 21 -   Total226 17 243 42   
 
(1)An impairment provision was recorded to the extent that the net book value exceeded net recoverable amount or undiscounted cash flows.(2)An impairment provision was recorded to the extent that the net book value exceeded the fair value less selling costs. Fair values were determined based on either discounted cash flows or sellingprice.
Assets Held and Used
(3)Charges principally relate to the specialty chemicals plant at Burntisland, U.K.(4)Charges principally relate to the engineered cast products plant in Quebec, Canada.(5)Charges principally relate to the cold mill at the Rogerstone plant in the U.K. ($62) and the recycling operations at the Borgofranco plant in Italy ($9).(6)Charges principally relate to the foil facilities at Glasgow, U.K.
Assets Held for Disposal
(7)Charges principally relate to the extrusions operations in Malaysia and Thailand.(8)Charges principally relate to certain rolled products operations at the Pieve plant in Italy.(9)Charges principally relate to the Pharmatech   rubber stopper and aluminum seals operations in the U.S.
***Assets Held for Disposal***
 Rolled Products Rolled Products     Americas and Asia Europe Packaging Total        **Sales and Operating Revenues**          **2003****12** - - **12**   200216 32 90 138   200130 37 130 197           **Net Operating Losses (Income)**          **2003****(1)** - - **(1)**   20022 (1) 6 7   2001- - 10 10           **Assets**          **December 31, 2003**- - - -   December 31, 200210 - - 10   December 31, 200120 57 80 157           **Liabilities**          **December 31, 2003**- - - -   December 31, 20025 13 - 18   December 31, 200110 11 70 91
***    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 remediationcosts of $96 relating to red mud disposal at other sites in Canada and the U.K.  The charges were recorded in the statement of income in Restructuring, impairment and other special charges and on the balance sheet in Deferred credits and otherliabilities $(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 stockpilingSPL 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 aproject 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 thirdparty. 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 chargerepresents the cost to fill and seal the sites. 

 	    	In 2002, the environmental provision was reduced by $22 principally comprising a reduction of $4 in the SPL provision for the recovery from a third party of a portion of the costs and a reduction of $18 in the redmud disposal provision due to lower remediation costs at the Burntisland facility in the U.K.  The reductions in the provisions were recorded in the statement of income in Restructuring, impairment and other special charges and on the balance sheetas an increase in Other receivables and a reduction in Deferred credits and other liabilities. 

 	    	In 2003, the environmental provision for SPL was reduced by $11 because of lower treatment costs.****
**Note 10. Income Taxes**       **2003** 2002 2001    **Income from continuing operations**         **before income taxes and other items**      Canada**(186)** (65) (303) Other countries**814** 749 407  **628** 684 104    **Current income taxes**      Canada**18** (9) (48) Other countries**260** 233 241  **278** 224 193 **Deferred income taxes**      Canada**111** 56 (69) Other countries**(64)** 15 (80)  **47** 71 (149) **Income tax provision****325** 295 44           The composite of the applicable statutory corporate income tax rates in Canada is 39.0% (2002: 39.0%; 2001: 40.0%). The following is a reconciliation of income taxes calculated at the above composite statutory rates with the income tax provision:        **2003** 2002 2001        Income taxes at the composite statutory rate**246** 267 41 Differences attributable to:         Tax benefits from changes in Australian tax legislation**(74)** - -    Exchange translation items**97** 35 3    Exchange revaluation of deferred income taxes**119** 16 (26)    Effect of tax rate changes on deferred income taxes**(1)** – (8)    Unrecorded tax benefits on losses – net**1** 18 26    Investment and other allowances**(35)** (18) 8    Goodwill impairment**11** - -    Large corporations tax**7** 7 8    Withholding taxes**6** 5 8    Reduced rate or tax exempt items**4** (18) (2)    Foreign tax rate differences**(48)** (25) (6)    Prior years’ tax adjustments**(10)** (3) (14)    Other – net**2** 11 6 **Income tax provision****325** 295 44    
**Note 10. Income Taxes (cont’d)**
         At December 31, the principal items included in Deferred income taxes are:  **2003** 2002 2001    **Liabilities**      Property, plant, equipment and intangibles**2,404** 1,341 1,158 Undistributed earnings**26** 17 24 Inventory valuation**118** 66 78 Other – net**204** 175 193  **2,752** 1,599 1,453    **Assets**      Tax benefit carryovers**1,421** 361 297 Accounting provisions not currently deductible for tax**910** 363 382 Property, plant, equipment and intangibles**288** - -  **2,619** 724 679 **Valuation allowance (amount not likely to be recovered)****1,141** 245 212  **1,478** 479 467 **Net deferred income tax liability****1,274** 1,120 986                  **Amounts recognized in the Consolidated Balance Sheet consist of:**             Deferred income tax asset – current**(50)** - - Deferred income tax asset – non-current**(745)** (60) (83) Deferred income tax liability – current**86** - - Deferred income tax liability – non-current**1,983** 1,180 1,069 **Net deferred income tax liability****1,274** 1,120 986    
The valuation allowance relates principally to loss carryforward benefits and tax credits where realization is not likely.  The majority of the allowance relates to loss carryforwards of French companies with no expirydate, but which are subject to limitations to their use such that it is unlikely that they will be used against taxable income. In 2003, $5 (2002: $11; 2001: $4) of the valuation allowance was reversed when it became more likely than not thatbenefits would be realized. Of that amount, $4 (2002: $5) reduced goodwill since it related to future income tax assets acquired in business combinations, but which were not recognized at the date of the business combinations. 

     Based on rates of exchange at December 31, 2003, tax benefits of approximately $884 relating to prior and current years’ operating losses and $156 of benefits related to capitallosses and tax credits carried forward will be recognized when it is more likely than not that such benefits will be realized. These amounts are included in the valuation allowance above. Approximately $8 of these potential tax benefits expire in2004. 

     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 are related to transferpricing 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 inrespect 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, theCanadian 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 29 – Information byGeographic Areas. 

**    Note 11. Joint Ventures**As of December 31, 2003 the activities of the Company's major joint ventures are the procurement and processing of bauxite in Australia, Brazil and Guinea, smeltingoperations in Norway, Australia, Cameroon and Canada, aluminum rolling operations in Germany and the United States, as well as packaging operations in France and China and engineered products operations in Norway.

     In 2003, with the acquisition of Pechiney, the Company acquired a 50% interest in Pechiney Reynolds Quebec, Inc. (Canada), a 29.97% interest in Socatral (Norway), a 46.67% interest inAlucam (Cameroon), a 50% interest in Airlessystems (France) as well as an additional 20% interest in Queensland Alumina Limited (Australia) and an additional 10% interest in Halco (Guinea). In addition, the Company acquired a 50% interest in AlcanPropack Chengdu Co. (China).

    In 2002, the Company acquired a 40% interest in the Aluminerie Alouetteconsortium in Quebec, Canada. 

    In 2001, the Company soldits bauxite and alumina operations in Jamaica.

     Alcan's proportionate interest in all joint ventures is included in the consolidated financial statements. Summarized financial information relating to Alcan's share of these jointventures is provided below. Most of the activities of the Company's joint ventures result in the supplying of materials to other operations of the Company. 
 **2003** 2002 2001    **Financial position at December 31**      Inventories**167** 86 69 Property, plant and equipment – net**2,132** 942 550 Other assets**19** 64 47 Total assets**2,318** 1,092 666 Short-term debt**57** 51 46 Debt not maturing within one year**189** 67 83 Other liabilities**397** 212 164 Total liabilities**643** 330 293 **Cash flow information for the year ended December 31**      Cash from operating activities**3** 4 3 Cash from (used for) financing activities**16** (13) (5) Cash used for investment activities**(149)** (83) (73) 
**    Note 12. Sales of Receivables**Under an agreement effective December 18, 2001, on an ongoing basis, the Company sells to a third party an undivided interest in certain trade receivables, with limited recourse, for maximum cash proceeds of $300 withthe maximum credit exposure to the Company held in reserve by the third party. This amount is recorded in Deferred charges and other assets. Net proceeds were used in 2001 to repay commercial paper borrowings. The Company acts as a service agent andadministers the collection of the receivables sold. 

 	    	As at December 31, 2003, the Company sold trade receivables of $336 (2002: $341; 2001: $330), with $43 (2002: $44; 2001: $30) held in reserve by the third party. 

 	    	Pechiney has entered into agreements with certain financial institutions to sell up to $211 of selected receivables without recourse and up to $5 with recourse. As at December 31, 2003, Pechiney sold tradereceivables for an amount of $143.

**    Note 13. Allowance for Doubtful Accounts**The allowance for doubtful accounts reflects management’s best estimate of probable losses inherent in the trade receivables balance.  Management determines the allowance based on known uncollectable accounts,historical experience, and other currently available evidence. Activity in the allowance for doubtful accounts is as follows: 
    Additions          Balance at Charged to          Beginning Costs &       Balance atDescription of Year Expenses Acquisitions Write-offs Divestments End of Year                   **2003** **58** **12** **27** **7** - **90**2002 51 23 - 12 4 582001 53 13 - 15 - 51      
**    Note 14. Other Expenses (Income) – Net**Other expenses (income) – net comprise the following elements:
 **2003** 2002 2001 Restructuring costs**37** 3 (1) Asset impairment provisions**58** 4 - Loss (Gain) on disposal of businesses and investment – net (note 17)**(13)** (36) 123 Provisions for legal claims (note 24)**1** 113 - Environmental provisions**29** 2 - Interest revenue**(19)** (12) (25) Exchange (gains) losses**83** 37 (8) Other**17** 2 23  **193** 113 112     
The 2003 restructuring costs of $37 consist principally of employee severance costs and other exits costs at flexible packaging operations in Europe (Packaging) and closure costs for certain cable operations in theU.S. (Engineering Products). At December 31, 2003, approximately $12 remain in accrued liabilities.

     The 2003 asset impairment provisions of $58 consist principally of $21 for the casting operations of an automotive parts facility in Germany (Engineered Products), $14 for the closure ofthe Söderberg primary aluminum facility in Jonquière, Quebec (Primary Metal), $7 for flexible packaging operations in Europe and $7 for a converting facility in Charlotte, North Carolina (Packaging). The impairment charges arose as aresult of negative projected cash flows and related principally to buildings and machinery and equipment. Fair values were determined based on either discounted cash flows or selling price.       

    **Note 15. Deferred Charges and Other Assets**Deferred charges and other assets comprise the following elements:
 **2003** 2002 2001    Prepaid pension costs**222** 314 344 Income taxes recoverable**31** - 51 Marketable securities**45** 37 40 Prepaid mining expenses**54** 56 57 Debt financing costs**47** 21 17 Investments***135** 46 52 Reserve for receivables sold (note 12)**43** 30 30 Amount receivable on currency swap of debt**16** - (12) Long-term notes and other receivables**143** 105 84 Other**190** 57 52  **926** 666 715 *** Investments**      Companies accounted for under the equity method**50** 18 21 Portfolio investments – at cost**85** 28 31  **135** 46 52                        **Note 16. Property, Plant and Equipment**       **2003** 2002 2001 **Cost (excluding Construction work in progress)**         Land and property rights**561** 371 299    Buildings**4,042** 3,153 2,864    Machinery and equipment**18,860** 14,094 12,921  **23,463** 17,618 16,084     
Accumulated depreciation relates primarily to Buildings and Machinery and equipment.

**    Note 17. Sales and Acquisitions of Businesses and Investments*****    2003     Asia and Other Pacific*****In the second quarter of 2003, the Company sold its remaining investment in Nippon Light Metal Company. Ltd (NLM) for sales proceeds of $22, resulting in a gain of $33 including the realization of deferred translationgains of $14. In the third quarter of 2003, the Company increased its ownership position in Aluminium Company of Malaysia, a manufacturer of light gauge aluminum products, from 36% to 59% by acquiring additional shares, with a value of $30, from NLMin exchange for its ownership in Alcan Nikkei Siam Limited in Rangsit, Thailand, with a value of $24, and a cash payment of $6. The sale of Alcan Nikkei Siam Limited resulted in the realization of deferred translation losses of $11. The gain on thesale of NLM and the loss on the sale of Alcan Nikkei Siam Limited were recorded in Other expenses (income) - net.

     In October 2003, the Company announced the signing of a definitive joint venture agreement with Qingtongxia Aluminum Company and Ningxia Electric Power Development and Investment Co. Ltd.Under the agreement, the Company will invest up to $150, of which $60 is expected to be invested in the first quarter of 2004, following necessary regulatory approvals for a 50% participation and a secure power supply in an existing 150-kt modernpre-bake smelter located in the Ningxia autonomous region in the People’s Republic of China. The agreement provides for the joint venture to obtain long-term access to dedicated power on competitive terms sufficient to meet the energyrequirements of the smelter. The agreement also gives Alcan a substantial operating role and the option to acquire, through additional investment, up to 80% of a new 250-kt potline, already under construction.

 	    	In December 2003, the Company sold the extrusions operations of Aluminium Company of Malaysia, for net proceeds of $2. A pre-tax amount of $6, which is included in Restructuring, impairment and other special charges,consists of a favourable adjustment to a previously recorded impairment provision. 

***    France,******Germany, Other Europe and Asia and Other Pacific***In April 2003, the Company completed the acquisition of VAW Flexible Packaging (FlexPac) from Norsk Hydro for a cost of $302, net of cash and time deposits acquired. FlexPac includes 14 plants in 8 countries and has5,400 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 andpharmaceutical industries.  The business combination is accounted for using the purchase method and the results of operations are included in the consolidated financial statements since acquisition. 

 	    	As part of the acquisition of FlexPac in the second quarter of 2003, the Company acquired, directly and indirectly, 63% of the total issued share capital of Strongpack Plc in Thailand.  Strongpack is engaged inpackaging businesses, providing production and processing services on all types of flexible packaging materials.  In June 2003, the Company acquired an additional 12% of Strongpack for a cost of $4. 

 	    	Also, as part of the acquisition of FlexPac, the Company acquired 70% of the total issued share capital of Rotopak in Turkey. Rotopak is engaged in the food flexible packaging business. In August 2003, the Companyacquired the remaining 30% of Rotopak for cost of $24.

 	    	Allocation of the purchase price involves estimates and information gathering during months following the date of the combination. The estimation process will be finalized in 2004. Accordingly, there may be somechanges to the assigned values presented below. 

 	    	The total purchase cost of $330 for FlexPac was allocated based on the assigned fair values of the assets acquired and liabilities assumed as follows: 
  **2003** Current assets 285 Deferred charges and other assets 2 Property, plant and equipment 215 Intangible assets 10 Deferred tax asset 19 Goodwill (1) 75   606     Current liabilities 188 Debt not maturing within one year 11 Deferred credits and other liabilities 60 Minority interests 17     **Fair value of net assets acquired at date of acquisition**     **(net of cash and time deposits acquired of $31)** **330**  
(1) See note 7 – Goodwill and Intangible Assets.

 

     **Note 17. Sales and Acquisitions of Businesses and Investments (cont’d)*****    United States and Ecuador***In July 2003, the Company completed the acquisition of Baltek Corporation (Baltek) for a cost of $38.  Baltek is the world’s leading supplier of balsa based structural core materials and has production and salesfacilities around the world, including in Ecuador.  Baltek’s balsa core materials fit well into the existing composites business, as structural foam and balsa are complementary products that go to market through the same distribution channels.Ecuador is included in the geographic area All other. The business combination is accounted for using the purchase method and the results of operations are included in the consolidated financial statements since acquisition. The purchase price wasallocated based on the assigned fair values of the assets acquired and liabilities assumed as follows: 
 **2003** Current Assets29 Deferred charges and other assets1 Property, plant and equipment23 Intangible assets4 Goodwill (1)8  65    Current liabilities22 Debt not maturing within one year1 Deferred credits and other liabilities4    **Fair value of net assets acquired at date of acquisition****38**  
(1) See note 7 – Goodwill and Intangible Assets 

In October 2003, the Company acquired the Uniwood/Fome-Cor Division of Nevamar for a cost of $95. Uniwood/Fome-Cor is one of the largest U.S. manufacturers of foam-based display board, with its head office andproduction facilities in Statesville, North Carolina, and another production site in Glasgow, Kentucky.

 	    	The business combination is accounted for using the purchase method and the results of operations are included in the consolidated financial statements since acquisition. The purchase price was allocated based on theassigned fair values of the assets acquired and liabilities assumed as follows: 
 **2003** Current assets14 Property, plant and equipment17 Intangible assets54 Goodwill (1)25  110 Current liabilities4 Deferred income taxes11    **Fair value of net assets acquired at date of acquisition****95**  
(1)    See note 7 - Goodwill and Intangible Assets

    ***Other*********