-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F5lUw2eXdTXyDMMaTEnC8Vr2fyhvW+nJWYDOhcYljBuTTM/BDRUqdzclqHSc7bEt fo7uK0xIfEK6lkH0W5NDYw== 0000950123-99-010249.txt : 19991117 0000950123-99-010249.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950123-99-010249 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCAN ALUMINIUM LTD /NEW CENTRAL INDEX KEY: 0000004285 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03677 FILM NUMBER: 99754459 BUSINESS ADDRESS: STREET 1: 1188 SHERBROOKE ST WEST CITY: MONTREAL QUEBEC CANA STATE: A8 BUSINESS PHONE: 5148488000 10-Q 1 ALCAN ALUMINIUM LIMITED 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 Commission file number 1-3677 ALCAN ALUMINIUM LIMITED (Exact name of registrant as specified in its charter) CANADA Inapplicable (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization)
1188 SHERBROOKE STREET WEST, MONTREAL, QUEBEC, CANADA H3A 3G2 (Address of Principal Executive Offices and Postal Code) (514) 848-8000 (Registrant's Telephone Number, including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No ____ At September 30, 1999, the registrant had 217,829,003 shares of common stock (without nominal or par value) outstanding. 2 PART I - FINANCIAL INFORMATION In this report, all dollar amounts are stated in U.S. Dollars and all quantities in metric tons, or tonnes, unless indicated otherwise. A tonne is 1,000 kilograms, or 2,204.6 pounds. The word "Company" refers to Alcan Aluminium Limited and, where applicable, one or more consolidated subsidiaries. Item 1. FINANCIAL STATEMENTS ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)
Periods ended September 30 (in millions of US$, except per share amounts) Third quarter Nine months --------------------------- --------------- 1999 1998 1999 1998 ------------- ----------- ------ ------ REVENUES Sales and operating revenues $1,820 $1,950 $5,418 $5,889 Other income (note 5) 64 10 142 47 ------ ------ ------ ------ 1,884 1,960 5,560 5,936 ------ ------ ------ ------ COSTS AND EXPENSES Cost of sales and operating expenses 1,390 1,514 4,254 4,560 Depreciation 116 116 351 339 Selling, administrative and general expenses 82 108 288 325 Research and development expenses 17 17 49 51 Interest (note 8) 16 21 60 65 Other expenses (notes 6 & 7) 31 23 108 41 ------ ------ ------ ------ 1,652 1,799 5,110 5,381 ------ ------ ------ ------ Income before income taxes and other items 232 161 450 555 Income taxes (note 2) 71 44 174 198 ------ ------ ------ ------ Income before other items 161 117 276 357 Equity income (loss) - (9) (1) (48) Minority interests (3) (1) (8) 1 ------ ------ ------ ------ NET INCOME $ 158 $ 107 $ 267 $ 310 Dividends on preference shares 3 3 7 8 ------ ------ ------ ------ NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 155 $ 104 $ 260 $ 302 ------ ------ ------ ------
2 3 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED STATEMENT OF INCOME (CONT'D) (unaudited)
Periods ended September 30 (in millions of US$, except per share amounts) Third quarter Nine months 1999 1998 1999 1998 ----- ----- ----- ----- NET INCOME PER COMMON SHARE (NOTE 3) $0.71 $0.46 $1.19 $1.33 ----- ----- ----- ----- DIVIDENDS PER COMMON SHARE $0.15 $0.15 $0.45 $0.45 ----- ----- ----- ----- INTERIM CONSOLIDATED STATEMENT OF RETAINED EARNINGS (unaudited) Nine months ended September 30 (in millions of US$) 1999 1998 ------ ------ RETAINED EARNINGS - BEGINNING OF PERIOD $4,078 $3,862 Net income 267 310 Amount related to common shares purchased for cancellation 171 - Dividends - Common 99 102 - Preference 7 8 ------ ------ RETAINED EARNINGS - END OF PERIOD $4,068 $4,062 ------ ------
3 4 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED BALANCE SHEET (unaudited for 1999)
(in millions of US$) September 30 December 31 1999 1998 ------------ ----------- ASSETS CURRENT ASSETS Cash and time deposits $ 440 $ 615 Receivables 1,384 1,401 Inventories Aluminum 704 826 Raw materials 297 345 Other supplies 207 242 ------- ------- 1,208 1,413 ------- ------- TOTAL CURRENT ASSETS 3,032 3,429 ------- ------- Deferred charges and other assets 504 517 Investments 33 58 Property, plant and equipment Cost (excluding Construction Work in progress) 11,652 11,758 Construction work in progress 1,051 911 Accumulated depreciation 6,513 6,772 ------- ------- 6,190 5,897 ------- ------- TOTAL ASSETS $ 9,759 $ 9,901 ------- -------
4 5 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED BALANCE SHEET (cont'd) (unaudited for 1999)
(in millions of US$, September 30 December 31 except per common share amounts) 1999 1998 ------------ ----------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Payables $1,200 $1,104 Short-term borrowings 115 86 Income and other taxes 60 28 Debt maturing within one year (notes 6 & 9) 163 166 ------ ------ 1,538 1,384 ------ ------ Debt not maturing within one year 1,304 1,537 Deferred credits and other liabilities 560 604 Deferred income taxes 766 747 Minority interests 199 110 SHAREHOLDERS' EQUITY Redeemable non-retractable preference shares 160 160 Common shareholders' equity Common shares 1,218 1,251 Retained earnings 4,068 4,078 Deferred translation adjustments (54) 30 ------ ------ 5,232 5,359 ------ ------ Total shareholders' equity 5,392 5,519 ------ ------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $9,759 $9,901 ------ ------ COMMON SHAREHOLDERS' EQUITY PER COMMON SHARE $24.02 $23.71 ------ ------ RATIO OF TOTAL BORROWINGS TO EQUITY 22:78 24:76 ------ ------
5 6 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Nine months ended September 30 (in millions of US$) 1999 1998 ----- ----- OPERATING ACTIVITIES Net income $ 267 $ 310 Adjustments to determine cash from operating activities: Depreciation 351 339 Deferred income taxes 35 33 Equity loss - net of dividends 2 53 Change in operating working capital 235 (102) Change in deferred charges, other assets, deferred credits and other liabilities - net 4 (65) Gain on sales of businesses - net (90) (1) Other - net 16 6 ----- ----- CASH FROM OPERATING ACTIVITIES 820 573 ----- ----- FINANCING ACTIVITIES New debt 3 55 Debt repayments (208) (50) ----- ----- (205) 5 Short-term borrowings - net (4) (107) Common shares purchased for cancellation (219) - Common shares issued 15 8 Redemption of preference shares -- (43) Dividends - Alcan shareholders (including preference) (106) (110) - Minority interests (4) (1) ----- ----- CASH USED FOR FINANCING ACTIVITIES (523) (248) ----- -----
6 7 ALCAN ALUMINIUM LIMITED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (cont'd) (unaudited)
Nine months ended September 30 (in millions of US$) 1999 1998 ------ ------ INVESTMENT ACTIVITIES Property, plant and equipment $(759) $(511) Investments (129) (72) Net proceeds from disposal of businesses, investments and other assets 433 4 ----- ----- CASH USED FOR INVESTMENT ACTIVITIES (455) (579) ----- ----- Effect of exchange rate changes on cash and time deposits (13) 5 ----- ----- DECREASE IN CASH AND TIME DEPOSITS (171) (249) Cash of companies consolidated (deconsolidated) (4) 16 Cash and time deposits - beginning of period 615 608 ----- ----- Cash and time deposits - end of period $ 440 $ 375 ----- -----
7 8 ALCAN ALUMINIUM LIMITED INFORMATION BY OPERATING SEGMENT* (unaudited)
Periods ended September 30 (in millions of US$) SALES AND OPERATING REVENUES OPERATING INCOME -------------------------------------- ---------------- Third Quarter Third Quarter --------------- ---------------- Intersegment Third parties ------------ ------------- 1999 1998 1999 1998 1999 1998 ----- ----- ------ ------ ----- ---- Primary metal group $ 331 $ 363 $ 428 $ 430 $ 116 $ 82 Global fabrication group -- -- 1,377 1,516 95 65 Intersegment and other items (331) (363) 15 4 43 41 ----- ----- ------ ------ ----- ---- $ -- $ -- $1,820 $1,950 $ 254 $188 ----- ----- ------ ------ ----- ---- RECONCILIATION TO NET INCOME Equity income (loss) -- (9) Corporate offices (9) (7) Interest (16) (21) Income taxes (71) (44) ----- ---- NET INCOME $ 158 $107 ----- ----
SALES AND OPERATING REVENUES OPERATING INCOME -------------------------------------- ---------------- Nine months Nine months --------------- ---------------- Intersegment Third parties ------------ ------------- 1999 1998 1999 1998 1999 1998 ----- ------ ------ ------ ----- ----- Primary metal group $ 961 $1,096 $1,218 $1,371 $ 181 $ 338 Global fabrication group -- -- 4,180 4,509 217 193 Intersegment and other items (961) (1,096) 20 9 133 115 ----- ------ ------ ------ ----- ----- $ -- $ -- $5,418 $5,889 $ 531 $ 646 ----- ------ ------ ------ ----- ----- RECONCILIATION TO NET INCOME Equity loss (1) (48) Corporate offices (29) (25) Interest (60) (65) Income taxes (174) (198) ----- ----- NET INCOME $ 267 $ 310 ----- -----
[FN] * In March 1999, the Company announced the creation of two global operating segments, the Primary metal group and the Global fabrication group. Corporate office and certain other costs have been allocated to the respective operating segments. Comparative information for 1998 has been restated to conform to the new corporate structure. 8 9 ALCAN ALUMINIUM LIMITED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (unaudited) (in millions of US$, except per share amounts) 1. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) Differences relate principally to accounting for foreign currency translation and accounting for "available for sale" securities. RECONCILIATION OF CANADIAN AND U.S. GAAP
1999 1998 ------------------ ------------------- As U.S. As U.S. Reported GAAP Reported GAAP -------- ---- --------- ---- Net income First quarter $ 38 $ 38 $ 117 $ 117 Second quarter 71 67 86 94 Third quarter 158 160 107 103 ----- ----- ----- ----- Nine months $ 267 $ 265 $ 310 $ 314 ----- ----- ----- ----- Net income attributable to common shareholders $ 260 $ 258 $ 302 $ 306 ----- ----- ----- ----- Net income per common share (basic and diluted) $1.19 $1.17 $1.33 $1.34 ----- ----- ----- -----
9 10 RECONCILIATION OF CANADIAN AND U.S. GAAP (cont'd)
1999 1998 ------------------- ------------------- As U.S. As U.S. Reported GAAP Reported GAAP -------- ------ -------- ------ Comprehensive income * First quarter n/a $ (28) n/a $ 111 Second quarter n/a $ 60 n/a $ 54 Third quarter n/a $ 129 n/a $ 166 ------ ------ ------ ------ Nine months n/a $ 161 n/a $ 331 ------ ------ ------ ------ Investments -- September 30 $ 33 $ 60 $ 58 $ 58 ------ ------ ------ ------ Retained earnings -- September 30 $4,068 $4,117 $4,062 $4,099 ------ ------ ------ ------ Deferred translation adjustments -- September 30 $ (54) $ (110) $ 60 $ 20 ------ ------ ------ ------
[FN] * U.S. GAAP requires the disclosure of comprehensive income which, for the Company, is Net income under U.S. GAAP plus the movement in Deferred translation adjustments under U.S. GAAP plus the unrealized gain or loss for the period on "available for sale" securities. The concept of comprehensive income does not exist under Canadian GAAP. 2. INCOME TAXES
Third quarter Nine months ------------------ ------------------ 1999 1998 1999 1998 ------ ------ ------ ------ Current $ 77 $ 44 $ 139 $ 165 Deferred (6) - 35 33 ------ ------ ------ ------ $ 71 $ 44 $ 174 $ 198 ------ ------ ------ ------
The composite of the applicable statutory corporate income tax rates in Canada is 40.4%. The difference between income taxes calculated at the composite rate and the amounts shown as reported is primarily attributable to reduced rate or tax exempt items and investment and other allowances, partially offset by the currency revaluation of deferred income taxes. In 1998, the difference is attributable to investment and other allowances and the currency revaluation of deferred income taxes, partially offset by exchange. 10 11 3. NET INCOME PER COMMON SHARE Net income per common share is based on the average number of shares outstanding during the period (third quarter 1999: 217.7 million; 1998:227.6 million; nine months 1999: 219.4 million; 1998: 227.5 million). As at September 30 1999, there were 217,829,003 common shares outstanding. 4. SUPPLEMENTARY INFORMATION STATEMENT OF CASH FLOWS
Third quarter Nine months ------------- ------------- 1999 1998 1999 1998 ---- ---- ---- ---- Interest paid $ 29 $ 24 $ 97 $ 73 Income taxes paid $ 71 $ 48 $154 $233
SUMMARIZED FINANCIAL INFORMATION The following is summarized consolidated financial information for Alcan Aluminum Corporation, a wholly-owned subsidiary in the United States.
Third quarter Nine months ------------- -------------- 1999 1998 1999 1998 ---- ---- ----- ----- RESULTS OF OPERATIONS Revenues $959 $995 $2,783 $2,863 Costs and expenses 878 871 2,558 2,630 ---- ---- ------ ------ Income before incomes taxes 81 84 225 233 Income taxes 30 33 75 92 ---- ---- ------ ------ Net income $ 51 $ 51 $ 150 $ 141 ---- ---- ------ ------
September 30 December 31 1999 1998 ------------ ----------- FINANCIAL POSITION Current assets $ 846 $ 883 Current liabilities 543 483 ------ ------ Working capital 303 400 Property, plant and equipment -- net 676 714 Other assets liabilities -- net 218 (67) ------ ------ 1,197 1,047 Debt not maturing within one year 2 2 ------ ------ Net assets $1,195 $1,045 ------ ------
11 12 In the above figures, inventories have been valued principally by the last-in, first-out (LIFO) method. In the Company's consolidated financial statements, the average cost method is used. 5. SALE OF BUSINESSES During the first quarter of 1999, the Company completed the sale of the Aughinish alumina refinery. The net book value of the assets sold had been written down to net realizable value in the fourth quarter of 1998 in anticipation of completion of the sale in 1999. During the second quarter of 1999, the Company completed the sale of its piston operations in Germany for a pre-tax gain of $46. In the third quarter of 1999, the Company sold a subsidiary in France for a pre-tax gain of $8 and a portion of its portfolio investment in Nippon Light Metal Company, Ltd. for a pre-tax gain of $37. The gains on the sale of businesses and investments are included in Other income. 6. REDEMPTION OF DEBT In the third quarter, the Company redeemed $132 principal of its 9-5/8% $150 debentures due in 2019 at a price of 104.64%. The loss on redemption of $6 is included in Other expenses. 7. REORGANIZATION COSTS In 1999, the Company announced a new organization to better enable it to meet the financial objectives contained in its "Full Business Potential" program. This reorganization included the implementation, in the second and third quarters, of a number of early retirement and severance programs resulting in a reduction of the Company's workforce. As a result of this reorganization and other restructuring programs, the Company has incurred costs of $8 in the third quarter ($39 for nine months) which are included in Other expenses, most of which will be paid in 1999 and 2000. 8. CAPITALIZATION OF INTEREST COSTS Total interest costs in the third quarter and nine months were $26 and $89 (1998: $25 and $74) respectively, of which $10 and $29 (1998: $4 and $9) respectively, were capitalized. 12 13 9. ACQUISITION OF BUSINESS In the third quarter of 1999, the Company purchased a 56% interest in a newly created company based in Korea, Alcan Taihan Aluminum Limited. Total cash consideration paid by Alcan for its equity interest in the new subsidiary was $129. In addition, the Company assumed debt of $58. 10. COMBINATION AGREEMENT WITH PECHINEY AND ALUSUISSE LONZA GROUP LTD. On September 15, 1999, the Company entered into a combination agreement with Pechiney and Alusuisse Lonza Group Ltd. (Algroup). The proposed combination will be accomplished through two independent exchange offers of the Company's shares, one for all of the outstanding shares of Pechiney and the other for all of the outstanding shares of Algroup. Upon completion of the combination, which is subject to regulatory approvals, assuming that all of the Pechiney and Algroup shares are exchanged for the Company's shares, the Company's shareholders would hold 44% of the shares of the Combined Company on a fully diluted basis. A special meeting of the Company's shareholders will be held on November 22, 1999 to approve the issuance of the Company's shares under the two independent exchange offers. 11. PRIOR PERIOD AMOUNTS Certain prior period amounts have been reclassified to conform with the 1999 presentation. In the opinion of management, all adjustments necessary for a fair presentation of interim period results have been included in the financial statements. These interim results are not necessarily indicative of results for the full year. 13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS
Highlights (US$ millions, THIRD NINE SECOND except per share amounts) QUARTER MONTHS QUARTER ------------- ------------- ------- 1999 1998 1999 1998 1999 ------ ------ ------ ------ ----- Sales and operating revenues 1,820 1,950 5,418 5,889 1,776 Economic Value Added (EVA)(R) (6) (81) (171) (226) (59) Net income 158 107 267 310 71 Net income per common share 0.71 0.46 1.19 1.33 0.32
(R)EVA is a registered trademark of Stern, Stewart & Company The Company reports third quarter consolidated net income of $158 million compared to $71 million in the previous quarter and $107 million in the third quarter of 1998. After preference share dividends, net income per common share for the quarter is 71 cents compared to 32 cents in the second quarter and 46 cents a year earlier. The results for the quarter include net non-operating gains of $42 million or 19 cents per share. These comprise gains on the sale of non-core assets, principally a further sale of shares in Nippon Light Metal Company, Ltd (NLM) in Japan and the Company's building products business in France, totaling $47 million (21 cents per share), partly offset by rationalization costs in the Quebec smelter system amounting to $5 million. The prior year quarter included a gain on currency revaluation of deferred income tax, partly offset by losses at NLM and restructuring charges, netting to a gain of $4 million, or 2 cents per share. Excluding all these items, earnings per share were 52 cents compared to 44 cents a year earlier, an 18% improvement. The improving trend in earnings that began in the second quarter continued, with strong demand for the Company's products and higher prices as well as benefits from the Company's ongoing Full Business Potential earnings improvement program. Other major growth initiatives also moved ahead in the quarter. Alcan reached agreement to merge with Pechiney of France and Algroup of Switzerland in order to create a highly profitable world leader in both the aluminum and packaging industries. Good progress is being made towards the realization of this combination that is expected to close in the early part of next year. In addition, the formation of Alcan Taihan Aluminum Limited in South Korea was completed at the end of September, creating a platform for participating in the strongly-growing Asian rolled products market. The improvement in Economic Value Added (EVA(R)) over the second quarter is due to higher metal prices as well as benefits derived from the company's Full Business Potential program. 14 15
THIRD NINE SECOND QUARTER MONTHS QUARTER -------------- -------------- ------- Volumes (thousands of tonnes) 1999 1998 1999 1998 1999 ----- ----- ----- ----- ----- Shipments Ingot products* 211 213 641 622 209 Fabricated products 482 467 1,431 1,372 488 Fabrication of customer-owned metal 81 80 228 220 81 ----- ----- ----- ----- ----- Total volume 774 760 2,300 2,214 778 ===== ===== ===== ===== ===== Ingot product realizations (US$ per tonne) 1,564 1,482 1,466 1,580 1,451 Fabricated product realizations (US$ per tonne) 2,552 2,875 2,591 2,937 2,520
* Includes primary and secondary ingot and scrap Sales and operating revenues for the third quarter increased over the preceding quarter reflecting higher metal prices and realizations. Revenues remain below a year ago, despite higher sales volume, reflecting the sale of two downstream businesses in Europe and the time lag in passing on ingot price increases. Total fabricated product volumes, which include products fabricated from customer-owned metal, were 563 thousand tonnes (kt) compared to the record level of 569 kt reached in the second quarter and to 547 kt a year ago. The seasonal decline was less pronounced than usual due to improving demand in Europe. Average ingot product realizations of $1,564/tonne were ahead of both the second quarter and year-ago levels due to the improving price on the London Metal Exchange (LME). Fabricated product realizations improved from the second quarter level as higher LME prices began to be reflected in fabricated product prices. The decline compared to a year ago results from changes in product mix due to businesses sold and the time lag in pricing of certain can sheet contracts. Operating segment Review The Company reports selected information by major operating segment, viewed on a stand-alone basis. Transactions between operating segments are conducted on an arm's length basis and reflect market-related prices. Thus, income from primary metal operations is mainly profit on metal produced by the Company, whether sold to third parties or used in the Company's fabricating operations. Income from the global fabrication group represents only the fabricating profit on rolled products and downstream businesses. 15 16 (US$ millions)
THIRD NINE SECOND QUARTER MONTHS QUARTER ------------- ------------- ------- 1999 1998 1999 1998 1999 ---- ---- ---- ---- ---- Operating income Primary metal group 116 82 181 338 31 Global fabrication group 95 65 217 193 77 Intersector and other items 43 41 133 115 61 ---- ---- ---- ---- ---- 254 188 531 646 169 Equity income (loss) -- (9) (1) (48) 1 Corporate head office (9) (7) (29) (25) (8) Interest (16) (21) (60) (65) (22) Income taxes (71) (44) (174) (198) (69) ---- ---- ---- ---- ---- Net income 158 107 267 310 71 ==== ==== ==== ==== ====
Income for the primary metal group showed a strong improvement reflecting higher ingot and alumina prices and reduced costs. The third quarter includes pre-tax rationalization costs of $8 million in relation to the Quebec smelter system. The second quarter included rationalization costs of $21 million. In the global fabrication group, operating profits continued to improve over both the second quarter and a year ago. In North America, sales volume was slightly ahead of the second quarter and 4% over the year-ago quarter. Lower costs resulted in improved margins. European shipments showed only a small, seasonal reduction from the second quarter and there was a year-over-year increase of 2%. Operating profits were ahead of both the second quarter and the previous year. In South America, sales volume was unchanged from the second quarter but operating profits were affected by depreciation and start-up costs relating to the Pinda expansion that is currently undergoing customer qualification trials. Asian income was little changed for the second quarter level. "Intersector and other items" includes pre-tax gains of $48 million on the sale of assets, principally share in NLM, Japan and the Company's building products business in France. Also included in this category is interest income and the realization or deferral of profits on intersector sales of metal. Income taxes for the quarter include a non-cash charge of $2 million relating to the currency revaluation of the deferred income tax liability that results from the stronger Canadian dollar. This compares to a charge of $12 million in the second quarter of 1999 and a gain of $20 million in the third quarter of 1998. There is minimal tax in relation to the gains on asset disposals recorded during the quarter due to the availability of capital losses. 16 17 Geographic Review
THIRD NINE SECOND QUARTER MONTHS QUARTER ------------ ------------ ------- 1999 1998 1999 1998 1999 ---- ---- ---- ---- ---- Net income (Loss) (US$ millions) Canada 39 45 (2) 126 (14) United States 57 41 131 113 40 South America (2) -- (3) 6 8 Europe 15 3 46 32 23 Asia and Pacific 47 (5) 71 (28) 8 Other (including eliminations) 2 23 24 61 6 --- --- --- --- --- 158 107 267 310 71 === === === === ===
In Canada, the improvement in net income over the second quarter primarily reflects the impact of higher metal prices. The third quarter also includes rationalization costs of $5 million compared to $20 million in the preceding quarter. In the United States, the improved results reflect strong fabricated product earnings and an improvement in the primary metal price. Operating results in South America were impacted by depreciation and start-up costs relating to the Pinda rolling mill expansion which is expected to begin contributing to earnings in the early part of next year. European operating results improved in the third quarter reflecting higher volumes as compared to last year and improving margins. However, the second quarter included a gain on business disposal of $26 million compared to $8 million in the third quarter. Results in the Asia and Pacific region for the quarter include the $37 million gain on the sale of shares in NLM. The Korean acquisition has been consolidated as of 30 September so there is no impact on income for the quarter. LIQUIDITY AND CAPITAL RESOURCES Operating Activities Cash from operating activities during the first nine months of 1999 was $820 million compared to $573 million in the comparable period of 1998. The lower net income from operations in the 1999 period compared to 1998 was offset by an improvement in working capital, which was reduced by $235 million during the first nine months of 1999. In the corresponding period of 1998, working capital had risen by $102 million. Financing Activities Cash used for financing activities in the first nine months of 1999 was $523 million compared to $248 million in the same period of 1998. In the first quarter of this year the Company purchased for cancellation 8.8 million common shares for $219 million. During the first nine months of this year debt was reduced by a total of $205 million. On July 15, 1999 the Company redeemed $132 million principal of its 9 5/8% $150 million debentures due 2019 at a price of 104.64%. The debt:equity ratio at September 30, of 22:78 was unchanged from a year ago and compares to 24:76 at June 30, 1999. 17 18 At the end of the third quarter of 1999, the Company had cash and time deposits of $440 million compared to $375 million a year earlier. Investment Activities Capital expenditures during the first nine months of 1999 were $759 million compared to $511 million a year earlier. Major projects during the period were the expansion of the rolling mill at Pindamonhangaba, Brazil, which was completed during the third quarter, and the construction of the Alma aluminum smelter in Quebec. In addition, the Company acquired a 56% interest in Alcan Taihan Aluminum Limited in South Korea for $129 million in cash plus the assumption of $58 million of debt. Net proceeds from the disposal of businesses and other assets were $433 million. In the first quarter of 1999, the Company completed the sale of the Aughinish alumina refinery. During the second quarter of this year, the Company completed the sale of its piston operation in Germany. In the third quarter, the sale of the building systems business in France was completed and a further sale of shares in Nippon Light Metal Company, Ltd in Japan was made. FINANCIAL INSTRUMENTS Earlier this year the Company decided to revise its currency risk management strategy for its ongoing Canadian dollar operating cost exposure. The Company has moved from a systematic approach of hedging a substantial percentage of its Canadian dollar exposure for up to a three-year period to an approach that hedges exposures on a more limited basis. The new approach will tie the Company's financial results more closely to prevailing exchange rates and will also reduce the cost of hedging instruments and of program administration and management. Accordingly, the amount of outstanding foreign exchange contracts and options related to hedging of Canadian dollar operating cost exposure has declined significantly. At September 30, the total contract amount of forward exchange contracts and purchase option contracts used to hedge Canadian dollar operating cost exposure was approximately $600 million compared with approximately $1.4 billion at December 31, 1998. The Company expects that by the end of 1999, the amount outstanding will approximate $400 million. This change in approach does not affect the Company's hedging of its Canadian dollar capital commitments, as described below. Through a combination of option contracts and forward exchange contracts totaling $700 million at September 30, 1999, and maturing over various periods in 1999 and 2000, the Company has hedged its future Canadian dollar commitments for the construction of the new smelter at Alma, Quebec. The present hedging position for the Alma project will ensure that the Company will pay, on average, no more than $0.72 for Can$1.00, and will be able to benefit, in part, from any future reductions in the value of the Canadian dollar. Any gains or losses from these hedging activities, and related costs, will be included in the capital cost of the new smelter. 18 19 YEAR 2000 COMPLIANCE Alcan is addressing the Year 2000 issue through a formal program (the "Project") designed and implemented with the assistance of outside consultants. Products made and sold by Alcan do not contain date-sensitive software or electronic components. The Project is therefore focused on evaluation and remediation of systems hardware and related software used in business applications, process controls and instrumentation used in the manufacturing process, and on risks associated with suppliers and other third-parties not being Year 2000 compliant. Alcan has completed the remediation phase of its Year 2000 Project. Implementation of remediated critical systems was in excess of 99% complete by September 30, 1999. Implementation involves integrating into normal operation a remediated system or component and ensuring that all related supporting infrastructure is in place. Alcan has surveyed key third party suppliers to address their Year 2000 readiness and to provide Alcan with information for contingency planning. Communication with third parties regarding year 2000 is a continuing process. Alcan is dependent upon a number of third parties including utilities and raw material suppliers. Alternate suppliers are not available in all cases. Alcan operates or controls, through direct ownership or joint ventures, the supply of a majority of its requirements for bauxite and alumina. This enables Alcan to assess and manage risk directly with respect to these key raw materials. Special attention is given to electricity suppliers since Alcan's smelting and fabricating business rely heavily on electricity to process materials. An interruption of more than a few hours in electricity supplies could have serious consequences for Alcan's smelters. Alcan generates its own power for approximately 75% of its smelter capacity requirements which gives Alcan control over power supply risks from these sources. Other power requirements are generally from major utilities linked to national grid systems. These major utilities have reported that they have appropriate Year 2000 programs that will limit the likelihood of extended Year 2000 related disruptions. Contingency planning by each business unit, including corporate functions, was substantially complete by the end of June 1999. The goal of contingency planning is to minimize the risk and impact of Year 2000 business interruptions including the impact of disruptions from a financial, environmental, property damage and employee perspective. Contingency planning takes into account both Alcan's internal failures and the failure of third parties affecting Alcan relating to Year 2000 readiness. Contingency plans are being tested and will be further refined as additional information concerning Alcan's Year 2000 exposure and opportunities become available throughout the balance of 1999. These contingency plans relate to specifically identified Year 2000 risks where contingency planning can be expected to have a material impact on the seriousness of failure. The process of identifying such risks included the use of various criteria such as probability of failure and cost benefit considerations. Generally the contingency plans are tailored to the individual situation of the business unit or corporate function. In addition to existing disaster recovery and emergency response plans designed to address disruptive situations, contingency plans may include accelerating raw material delivery schedules for critical inputs, securing alternative sources of supply, adopting workaround procedures, adjusting facility shutdown and start-up schedules, increasing standby labor requirements at the millennium, providing back-up processing capabilities for critical equipment or processes and other appropriate measures. In the current business environment it is unlikely that, at December 31, there will be a significant additional inventory of aluminum or aluminum finished goods available within Alcan dedicated to Year 2000 contingency plans. Alcan has a corporate level Business Continuity Team that will continue, throughout the balance of 1999, to identify and assess, based on consolidated information from the business units, Alcan's exposure to Year 2000 business continuity risk at the corporate level and recommend mitigation strategies. Crisis management centers incorporating multiple communications technologies have been set up in all key regions in order to ensure rapid response to any material events. Each business unit continues to participate in audits by customers and other third parties. In addition, the Company's internal auditors verify that business units have followed the mandatory Year 2000 Project requirements. The internal 19 20 audit department conducted 72 verification audits in 1998 and the 80 verification audits planned for 1999 were nearly complete as of September 30. Based on current information, Alcan believes that the most reasonably likely worst case scenario to result from a Year 2000 failure by Alcan, its suppliers or customers would be a temporary reduction in manufacturing capability at one or more of Alcan's manufacturing or smelter facilities. Electrical supply is considered to be the area of most acute risk to Alcan's smelting capabilities. If a Year 2000 failure disrupted Alcan-owned or third party electrical utilities for more than a few hours then the resulting reasonably likely worst case scenario or impact could be a temporary closure of affected facilities and potential significant damage to smelter production equipment. This could impact deliveries and customer expectations as well as cause costly downtime and equipment repair. Alcan believes that the Project, including related contingency planning, continues to reduce significantly the possibility of material interruptions in normal operations. Nonetheless, third party failures or unexpected failures in Alcan's Year 2000 Project could result in business interruptions or delays that could have a material adverse effect on Alcan's business and financial condition. Suppliers and customers will generally not provide any guarantee that they will be Year 2000 compliant. Costs of the Project are expensed as incurred and, including costs associated with contingency planning, are estimated at less than $50 million. Costs from the beginning of the project to September 30, 1999 were $41 million. These projections do not include any costs associated with business disruptions involving supplier or customer non-performance. Information received to date from customers indicates that they do not expect the Year 2000 will create a major disruption in their business and purchases of product from Alcan. The information contained in this Year 2000 update is a "Year 2000 Readiness Disclosure" under the Year 2000 Information and Readiness Disclosure Act of 1998. THE EURO CURRENCY Aluminum is a metal traded on the London Metal Exchange (LME) in US dollars. The great majority of Alcan's sales are at prices based on the LME price and therefore there is currently no deviation in price between countries in Europe. The cost of converting the Company's systems to be Euro-compliant is estimated to be $5 million. CAUTIONARY STATEMENT Readers are cautioned that forward looking statements contained in this Management's Discussion and Analysis should be read in conjunction with 'Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995' at Exhibit No. 99. 20 21 PART II. OTHER INFORMATION ITEMS 1. THROUGH 5. The registrant has nothing to report under these items. 21 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits (27) Financial Data Schedule. (Filed herewith.) (99) Cautionary statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. (Filed herewith.) (b) Reports on Form 8-K The Company has filed two reports on Form 8-K dated August 11, 1999 and September 16, 1999 during the quarter ending September 30, 1999. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALCAN ALUMINIUM LIMITED Dated: November 15, 1999 By: /s/ Glenn R. Lucas -------------------------- Treasurer (A Duly Authorized Officer) 22 23 EXHIBIT INDEX
Exhibit Number Description (27) Financial Data Schedule. (99) Cautionary statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. (Filed herewith.)
23 EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Form 10-Q of Alcan Aluminium Limited for the quarter ended September 30, 1999 and is qualified in its entirety by reference to such financial statements. 1,000,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 440 0 1,384 0 1,208 3,032 12,703 6,513 9,759 1,538 1,304 0 160 1,218 4,014 9,759 5,418 5,560 4,254 4,254 351 0 60 450 174 267 0 0 0 267 1.19 1.19
EX-99 3 CAUTIONARY STATEMENT 1 EXHIBIT NO. 99: CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Written or oral statements made by Alcan or its representatives, including statements set forth in Alcan's Form 10-Q for the quarter ended September 30, 1999, which describe the Company's or management's objectives, projections, estimates, expectations or predictions of the future may be "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "estimates," "anticipates" or the negative thereof or other variations thereon. The Company cautions that, by their nature, forward-looking statements involve risk and uncertainty and that the Company's actual results could differ materially from those expressed or implied in such forward-looking statements or could affect the extent to which a particular projection is realized. Important factors which could cause the Company's actual performance to differ materially from projections or expectations included in forward-looking statements include global aluminum supply and demand conditions, aluminum ingot prices and changes in other raw materials costs and availability, cyclical demand and pricing within the principal markets for the Company's products, changes in government regulations, particularly those affecting environmental, health or safety compliance, economic developments and other factors within the countries in which the Company operates or sells its products and other factors relating to the Company's ongoing operations including, but not limited to, litigation, labour negotiations and fiscal regimes. Copies of the Company's filings may be obtained by contacting the Company or the United States Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----