EX-99 2 ex991.htm PRESS RELEASE OF ALCAN INC., DATED JULY 31, 2007 8k
Press Release
 

ALCAN EXTENDS CASH FLOW AND EARNINGS MOMENTUM TO SECOND QUARTER 2007



FINANCIAL HIGHLIGHTS

 
  • Income from continuing operations of $1.18 per common share compared to $1.21 a year earlier and $1.60 in the first quarter;
  • Operating earnings of $1.62 per common share compared to $1.48 a year earlier and $1.67 in the first quarter;
  • Cash flow from operating activities in continuing operations of $738 million compared to $771 million a year earlier and $582 million in the first quarter;
  • Debt as a percentage of invested capital of 30% at the end of the second quarter compared to 33% at the end of the first quarter.

MONTREAL, CANADA - July 31, 2007 - Alcan Inc. today reported operating earnings of $1.62 per common share in the second quarter of 2007 compared to $1.48 a year ago and $1.67 in the first quarter.

“These are the second highest quarterly operating earnings in Alcan’s history, an achievement which reflects the ongoing commitment and focus of our dedicated employees”, said Dick Evans, President and CEO. “Our strong performance in relation to operating earnings, cash flow generation and debt reduction is particularly noteworthy given the headwinds faced throughout the quarter from foreign exchange and energy costs. As we look ahead to our combination with Rio Tinto, we will continue to focus on execution and managing for value as well as aggressively building on our excellent pipeline of growth projects,” he continued.

“At the aluminum industry level, extremely strong Chinese demand growth should underpin ongoing favourable conditions. We continue to expect our financial results to reflect not only these favourable industry conditions, but also Alcan’s very strong competitive position,” he concluded.


*Note: All amounts in this press release are expressed in US dollars unless otherwise stated. This press release includes a number of measures for which no meaning is prescribed by generally accepted accounting principles (GAAP). Refer to the section “Definitions” for an explanation of these measures.

 
 
 
 

  
  
Second Quarter
  
First Quarter
  
($ millions, except where indicated)
  
2007
  
2006
  
2007
  
Operating earnings - excluding foreign currency
  
 
  
 
  
 
  
balance sheet translation and Other Specified Items
    
603
    
556
    
618
  
                     
Foreign currency balance sheet translation
    
(193
)
  
(100
)
  
(19
)
Other Specified Items (OSIs) 
    
28
    
(2
)
  
(9
)
                     
Income from continuing operations
    
438
    
454
    
590
  
Income from discontinued operations
    
-
    
1
    
1
  
Net income
    
438
    
455
    
591
  
Basic earnings per common share ($ per common share)
                    
Operating earnings 
    
1.62
    
1.48
    
1.67
  
Income from continuing operations
    
1.18
    
1.21
    
1.60
  
Net income
    
1.18
    
1.21
    
1.60
  
Average number of common shares outstanding
(millions)
    
369.0
    
375.1
    
367.1
  

Operating Earnings

Operating earnings from continuing operations exclude foreign currency balance sheet translation effects and Other Specified Items (OSIs). Operating earnings of $603 million in the second quarter of 2007 were $47 million higher than in the comparable quarter a year ago. The improvement mainly reflected higher aluminum realizations, better pricing and mix in the Engineered Products and Bauxite & Alumina business segments, increased volumes across most businesses, contribution from the cathode producer Carbone Savoie and higher technology and smelter equipment sales. These were partly offset by the negative impact of a weaker US dollar on operating costs as well as increased energy, raw materials and operating costs. Compared to the first quarter, operating earnings were down $15 million, mainly reflecting the negative impact of a weaker US dollar on operating costs, higher alumina costs, lower market premia, lower contribution from power generation, as well as higher share-based compensation related to the increase in share price during the quarter. These were partially offset by higher aluminum volumes, improved pricing and product mix mainly in Bauxite & Alumina, higher aluminum prices and technology and smelter equipment sales.

Included in operating earnings for the second quarter of 2007 were non-cash mark-to-market charges on derivatives of $0.02 per common share compared to gains of $0.03 a year earlier and charges of $0.02 in the first quarter.

Income from Continuing Operations

Income from continuing operations was $438 million or $1.18 per common share for the second quarter of 2007 versus income of $454 million or $1.21 a year earlier and income of $590 million or $1.60 in the first quarter.

Included in income from continuing operations for the second quarter of 2007 was a primarily non-cash, after-tax loss of $193 million or $0.52 per common share for the effects of foreign currency balance sheet translation, compared to an after-tax loss of $100 million or $0.27 in the year-ago quarter and an after-tax loss of $19 million or $0.05 in the first quarter. The foreign currency balance sheet translation losses in the second quarter of 2007 were largely due to the strengthening of the Canadian dollar versus the US dollar, which went from 86 cents at the end of the first quarter to 94 cents at the end of the second quarter.

 
2
 
 
Also included in income from continuing operations for the second quarter of 2007 were after-tax gains of $28 million or $0.08 per common share for OSIs. The most significant items included in OSIs were favourable tax adjustments of $150 million mainly related to the recognition of future tax benefits in France, partially offset by losses on disposals of assets, businesses and investments of $30 million primarily in connection with the sale of the Company’s Vlissingen smelter in the Netherlands, charges of $14 million principally related to previously announced restructuring in respect of packaging businesses as well as other charges of $66 million mainly comprising share-based compensation of $27 million resulting from the appreciation in the share price subsequent to the May 7, 2007 offer from Alcoa, correction of a net working capital overstatement (non-cash) of $18 million in the Packaging business, and advisory and legal fees of $14 million related to the Company’s efforts following the May 7, 2007 Alcoa offer to develop a full set of highest value alternatives consistent with the best interests of Alcan shareholders.

Net Income

Including OSIs and foreign currency balance sheet translation, net income was $438 million or $1.18 per common share for the second quarter of 2007.

Sales and Operating Revenues
 
  
Second Quarter
  
First Quarter
  
($ millions, except where indicated) 
  
2007
  
2006
  
2007
  
                     
Sales and operating revenues ($M)
    
6,605
    
6,103
    
6,420
  
Shipment volumes (kt)
                    
Ingot products *
    
760
    
765
    
744
  
Aluminum used in engineered products & packaging
    
342
    
341
    
342
  
Total aluminum volume 
    
1,102
    
1,106
    
1,086
  
Aluminum pricing data ($ per tonne)
                    
Ingot product realizations *
    
2,866
    
2,709
    
2,835
  
Average LME 3-month price (one-month lag)
   
2,808
    
2,661
    
2,760
  
* The bulk of Alcan’s ingot product sales are based on the LME 3-month price with a one-month lag plus a local market premium and any applicable product premium.

Sales and operating revenues of $6,605 million were up $502 million compared to the year-ago quarter mainly reflecting higher aluminum prices as well as favourable pricing, product mix and volumes across most businesses. Compared to the first quarter, sales and operating revenues increased by $185 million mainly as a result of higher aluminum volumes, improved pricing and product mix across most businesses, higher aluminum prices and technology and smelter equipment fees, partially offset by lower market premia and contribution from power generation.

The average realized price on sales of ingot products during the second quarter was up $157 per tonne from the year-ago quarter and up $31 per tonne from the first quarter. The increases over both the year-ago and sequential quarters mainly reflected the impact of higher LME aluminum prices offset by lower market premia.

 
3
 

Cash Flow and Debt
 
  
Second Quarter
  
First Quarter
  
($ millions, except where indicated)
  
2007
  
2006
  
2007
  
               
Cash flow from operating activities in continuing operations
    
738
    
771
    
582
  
Dividends
    
(73
)
  
(58
)
  
(75
)
Capital expenditures
    
(421
)
  
(469
)
  
(312
)
Free cash flow from continuing operations
   
244
    
244
    
195
  

Cash flow from operating activities in continuing operations at $738 million decreased by $33 million compared to the year-ago quarter and increased by $156 million compared to the first quarter. The increase over the prior quarter principally reflects seasonally typical favourable movements in payables and deferred items which more than offset lower net income. Debt as a percentage of invested capital as at June 30, 2007 was 30%, down from 33% at the end of the first quarter due to lower debt and higher equity.

REVIEW OF BUSINESS GROUP PROFIT AND CORPORATE ITEMS

 
  
Second Quarter
  
First Quarter
  
($ millions)
  
2007
  
2006
  
2007
  
Business Group Profit (BGP)
  
 
  
 
      
Bauxite and Alumina
   
204
    
126
    
175
  
Primary Metal 
    
744
    
774
    
844
  
Engineered Products 
    
149
    
144
    
174
  
Packaging 
    
126
    
134
    
140
  
Subtotal
    
1,223
    
1,178
    
1,333
  
Equity accounted joint venture eliminations
    
(75
)
  
(86
)
  
(47
)
Change in fair market value of derivatives
    
(7
)
  
7
    
(15
)
  
    
1,141
    
1,099
    
1,271
  
Corporate Items 
                    
Intersegment, corporate offices and other
    
(229
)
  
(159
)
  
(89
)
Depreciation & amortization 
    
(269
)
  
(258
)
  
(264
)
Interest 
    
(61
)
  
(69
)
  
(60
)
Income taxes 
    
(166
)
  
(195
)
  
(280
)
Equity income
    
24
    
37
    
12
  
Minority interests 
    
(2
)
  
(1
)
  
-
  
Income from continuing operations
    
438
    
454
    
590
  

Bauxite and Alumina: BGP for the second quarter was a record $204 million, an increase of $78 million compared to the year-ago quarter. Excluding OSIs and foreign currency balance sheet translation effects, the year-over-year increase in BGP was $86 million or 60%. This improvement mainly reflected higher LME-linked contract prices for alumina (given the normal one-quarter lag), higher technology-related profits as well as improved sales mix, partially offset by exchange losses due to the strengthening Australian and Canadian dollars, higher raw material costs and the residual impact from the national strike in Guinea during the first quarter of 2007. On a sequential basis, BGP for the group was $29 million above the previous quarter. Excluding OSIs and foreign currency balance sheet translation effects, BGP increased by $50 million or 28%, reflecting a favorable change in sales mix, lower operating costs, lower adverse impact from the Guinean national strike during the first quarter of 2007 and higher volumes, partially offset by higher raw material costs and exchange losses due to the strengthening Australian and Canadian dollars. To date, the total impact of the national strike in Guinea during the first quarter across B&A was $36 million, of which $15 million impacted in the second quarter. Results for the third quarter of 2007 are expected to be slightly higher than the second quarter as a result of higher shipments (partly related to Gove expansion capacity beginning to come on-stream) and higher bauxite profits.

 
4
 
 
Primary Metal:BGP for the second quarter was $744 million, a decrease of $30 million as compared to the year-ago quarter. Excluding OSIs and foreign currency balance sheet translation effects, the year-over-year decrease in BGP was $26 million or 3%. The decline mainly reflected higher input costs (alumina, electricity and carbon-related raw material costs), the adverse effect of the weaker US dollar, higher operating costs, as well as lower market premia, partially offset by higher LME metal prices, volumes and contribution from the cathode producer Carbone Savoie. On a sequential quarter basis, BGP decreased by $100 million. Excluding OSIs and foreign currency balance sheet translation effects, BGP decreased by $76 million or 9%, reflecting higher input costs (alumina, electricity and carbon-related raw material costs), the adverse effect of the weaker US dollar, lower contributions from power generation and lower market premia. These unfavorable impacts were partially offset by higher volumes, higher LME and higher contribution from technology and smelter equipment sales. As a result of lost contribution from the divestiture of the Vlissingen smelter in the Netherlands, and assuming current forward prices for aluminum and forward exchange rates, results for the third quarter are expected to be somewhat lower than the second quarter.

Engineered Products: BGP for the second quarter was $149 million. Excluding OSIs and foreign currency balance sheet translation effects, operating results were $162 million, or $7 million higher than a year earlier. Results for the second quarter of 2006 included significant metal timing benefits; a consequence of the rapid rise in LME prices in earlier quarters. Adjusting for these non-cash accounting benefits, the operating performance of the group improved by approximately 20 percent year over year on the back of strong results from the Cable, Composites and Aerospace businesses. On a sequential quarter basis, BGP was $25 million lower than in the first quarter of the year. Excluding OSIs and foreign currency balance sheet translation effects, operating results were $16 million lower principally due to the absence of beneficial metal timing effects. Adjusting for these non-cash accounting benefits, the performance of the group was equivalent to the record level of the first quarter, a reflection of the generally firm business conditions evident through the first half of the year. Operating results for the third quarter are expected to be lower due to the usual summer holiday closures in Europe.

Packaging: BGP in the second quarter of $126 million was down $8 million or 6% from the prior-year quarter. Excluding the impact of OSIs, foreign currency balance sheet translation effects and lost contributions from divested businesses, BGP was $165 million, an improvement of $12 million or 8%. The year-on-year improvement was mainly due to operational savings and restructuring measures, a stronger euro compared to the US dollar and volume growth initiatives. On a sequential quarter basis, BGP decreased by $14 million or 10%. Excluding the impact of OSIs and foreign currency balance sheet translation effects, BGP increased by $20 million or 14% as a result of stronger volumes and cost saving measures. Operating BGP in the third quarter of 2007 is expected to be similar as normal seasonal volume softening is offset by ongoing progress in growth and operational efficiencies.

Corporate Items

The Intersegment, corporate offices and other expense category includes corporate head office costs as well as other non-operating items and the elimination of profits on intersegment sales of aluminum and alumina. The increase of $70 million compared to the second quarter of 2006 as well as the increase of $140 million over the prior quarter mainly reflect higher share-based compensation, the loss on the sale of the Company’s Vlissingen smelter in the Netherlands and advisory and legal fees resulting from the Company’s efforts during the quarter to develop a full set of highest value alternatives consistent with the best interests of Alcan shareholders following the May 7, 2007 Alcoa offer.

 
5
 
Depreciation and amortization expenses were $11 million higher than in the year-ago quarter primarily reflecting increased depreciation at the Gove alumina refinery in Australia. Depreciation and amortization expenses were comparable to the prior quarter.

Interest expense, net of capitalized interest, was $8 million lower than in the year-ago quarter and comparable to the prior quarter. The year-over-year decline mainly reflected a higher level of capitalized interest and reduced debt levels. In the second quarter of 2007, capitalized interest was $24 million compared to $20 million a year ago and $23 million in the first quarter, all largely related to the Gove expansion.

The Company's effective tax rate on income from continuing operations was 29% in the second quarter and 31% year to date. Foreign currency balance sheet translation losses due to the strengthening of the Canadian dollar increased the effective tax rate in the second quarter, largely offset by the recognition of future tax benefits in France which were not previously recognized. These tax benefits, which are included in OSIs, were recognized in the second quarter when their realization met the relevant tests for likelihood of recovery.

OUTLOOK

For 2007, world primary aluminum consumption is forecast to increase by approximately 10.1% (6.9% in 2006) driven by exceptionally high demand in China and representing the fastest rate of global consumption increase since at least 1980. Production from new capacity and restarts is expected to increase world supply by about 11.2% (6.4% in 2006). As a consequence the company expects the market to generate a modest surplus in 2007 of approximately 200 kt, versus a deficit of 162 kt in 2006.

KEY EARNINGS SENSITIVITIES

The following table provides Alcan estimates of the annualized after-tax impact of currency and LME price movements on income from continuing operations, net of hedging and forward sales.

   
Increase in rate / price
  
In millions of $
  
$ / common share
  
               
Economic impact of changes in period-average exchange rates
              
European currencies
  
$
0.10
    
(50
)
  
(0.14
)
Canadian dollar
  
$
0.10
    
(150
)
  
(0.42
)
Australian dollar
  
$
0.10
    
(70
)
  
(0.19
)
             
Balance sheet translation impact of changes in period-end exchange rates
            
Canadian dollar
  
$
0.10
    
(230
)
  
(0.63
)
Australian dollar
  
$
0.10
    
(25
)
  
(0.07
)
                     
Economic impact of changes in period-average LME prices*
                    
Aluminum
  
$
100/t
    
190
   
0.51
  
* Realized prices generally lag LME price changes by one month. Changes in local and regional premia may also impact aluminum price realizations. Sensitivities are updated as required to reflect changes in the company’s commercial arrangements and portfolio of operations. Not included are sensitivities to energy and raw-material prices, which may have significant impacts.


 
6
 

Cautionary Statement

 
Statements made in this quarterly earnings press release which describe the company's or management's objectives, projections, estimates, expectations or predictions of the future may be "forward-looking statements" within the meaning of securities laws which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "would," "estimates," "plans," "anticipates" or the negative thereof or other variations thereon. All statements that address the company's expectations or projections about the future including statements about the company's growth, cost reduction goals, operations, reorganization plans, expenditures and financial results are forward-looking statements. Such statements may be based on the company’s own research and analysis. The company cautions that, by their nature, forward-looking statements involve risk and uncertainty and that the company's actual actions or results could differ materially from those expressed or implied in such forward-looking statements or could affect the extent to which a particular projection is realized. Reference should be made to the company’s most recent Annual Report on Form 10-K for a list of factors that could cause such differences.
 
Important factors which could cause such differences include: changes in global supply and demand conditions for aluminum and other products; cyclical demand and pricing within the principal markets for the company's products; changes in the relative value of various currencies; fluctuations in the supply of and prices for power in the areas in which the company maintains production facilities; changes in aluminum ingot prices and changes in raw material costs and availability; competition in highly competitive markets; changes in prevailing interest rates and equity market returns related to pension plan investments; economic, regulatory and political factors within the countries in which the company operates or sells its products; the risk of significant losses from trading operations, including losses due to market and credit risks associated with derivatives; changes in government regulations, particularly those affecting environmental, health or safety compliance; risks related to the use of hazardous materials in manufacturing processes; delay and cost risks related to significant capital projects; the consequences of transferring most of the aluminum rolled products businesses operated by the company to Novelis Inc.; relationships with, and financial and operating conditions of, customers and suppliers; willingness of customers to accept substitution by competing products; major changes in technology that affect the company’s competitiveness; potential catastrophic damage, increased insurance and security costs and general uncertainties associated with the increased threat of terrorism or war; the effect of international trade disputes on the company’s ability to import materials, export its products and compete internationally; the effect of integrating acquired businesses and the ability to attain expected benefits; potential discovery of unanticipated commitments or other liabilities associated with the acquisition and integration or disposition of businesses; and other factors affecting the company's operations including, but not limited to, litigation, labour relations and negotiations and fiscal regimes.
 
The company undertakes no obligation to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events. Furthermore, the company undertakes no obligation, in relation to future quarterly earnings disclosures, to release publicly any information on an interim basis prior to the final earnings disclosure.
 

DEFINITIONS

“$” all amounts are in US dollars.

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

 
7
 
“Debt as a percentage of invested capital” does not have a uniform definition. Because other issuers may calculate debt as a percentage of invested capital differently, Alcan’s calculation may not be comparable to other companies’ calculations. The figure is calculated by dividing borrowings by total invested capital. Total invested capital is equal to the sum of borrowings and equity, including minority interests. The company believes that debt as a percentage of invested capital can be a useful measure of its financial leverage as it indicates the extent to which it is financed by debt holders. The measure is widely used by the investment community and credit rating agencies to assess the relative amounts of capital put at risk by debt holders and equity investors.

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

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

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

“GAAP” refers to US Generally Accepted Accounting Principles.

“LME” refers to the London Metal Exchange.

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

“Operating earnings from continuing operations” (Operating earnings) is presented in addition to income from continuing operations and reported net income. Operating earnings are not calculated in accordance with US GAAP and there is no standard definition of this term. Accordingly, it is unlikely that comparisons can be made among different companies that make operating earnings information available. The determination of whether an item is treated as an Other Specified Item involves the exercise of judgement by Alcan management. The company believes that operating earnings from continuing operations is a useful measure because it excludes items that are not typical of ongoing operating activities, such as Other Specified Items, as well as items that are outside management’s control, such as the impact of foreign currency balance sheet translation. Management has concluded that operating earnings is a relevant measure for shareholders and other investors as it removes the inherent volatility of such items, whether favourable or unfavourable, and provides a clearer picture of underlying business performance. Moreover, the measure is in line with the company’s internal performance measurement and management systems. Operating earnings information has historically been presented in response to requests from investors and financial analysts, who have indicated that they find the information highly relevant and essential to their understanding of the company.

 
8
 
All tonnages are stated in metric tonnes, equivalent to 2,204.6 pounds.

All figures are unaudited.

QUARTERLY RESULTS WEBCAST

Alcan’s quarterly results conference call with investors and analysts will take place on Tuesday, July 31, 2007 at 10:00 a.m. EDT and will be webcast via the Internet at www.alcan.com.

Supporting documentation (press release, financial statements and investor presentation) is available at www.alcan.com, using the Investors link. Miscellaneous and previous years' filings may be accessed using the following websites: www.sec.gov (US) and www.sedar.com (Canada) websites.

ALCAN INC.

Alcan Inc. (NYSE, TSX: AL) is a leading global materials company, delivering high quality products, engineered solutions and services worldwide. With world-class technology and operations in bauxite mining, alumina processing, primary metal smelting, power generation, aluminum fabrication, engineered solutions as well as flexible and specialty packaging today's Alcan is well positioned to meet and exceed its customers' needs. Alcan is represented by 68,000 employees, including its joint ventures, in 61 countries and regions, posted revenues of US$23.6 billion in 2006. The Company has featured on the Dow Jones Sustainability World Index. For more information, please visit: www.alcan.com.




 MEDIA CONTACT: Anik Michaud    INVESTOR CONTACT: Ulf Quellmann
 Tel.: (514) 848-8151     Tel. (514) 848-8368
     
 Conference call numbers:    Conference call numbers:
 North America (877) 652-1294     North America (877) 421-3963
 Local & overseas (706) 643-7783     Local & overseas (706) 643-9535
 


- 30 -





 
9
 

ALCAN INC.

INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)
   
 
Second Quarter
  
 
Six Months
  
Periods ended June 30
  
2007
 
2006
 
2007
 
2006
  
(in millions of US$, except per share amounts)
 
                  
Sales and operating revenues
    
6,605
    
6,103
    
13,025
    
11,653
  
                           
Costs and expenses
                          
Cost of sales and operating expenses, excluding depreciation and
                         
          amortization noted below
    
4,998
    
4,646
    
9,799
    
8,774
  
Depreciation and amortization
    
269
    
258
    
533
    
509
  
Selling, administrative and general expenses
    
453
    
366
    
827
    
730
  
Research and development expenses
    
61
    
55
    
115
    
107
  
Interest
   
61
    
69
    
121
    
145
  
Restructuring charges - net
   
26
    
94
    
38
    
108
  
Other expenses (income) - net
   
155
    
2
    
152
    
(29
)
     
6,023
    
5,490
    
11,585
    
10,344
  
Income from continuing operations before income taxes and other
                         
           items
    
582
    
613
    
1,440
    
1,309
  
Income taxes
   
166
    
195
    
446
    
464
  
Income from continuing operations before other items
    
416
    
418
    
994
    
845
  
Equity income
    
24
    
37
    
36
    
65
  
Minority interests
    
(2
)
  
(1
)
  
(2
)
  
(2
)
Income from continuing operations
    
438
    
454
    
1,028
    
908
  
Income from discontinued operations
   
-
    
1
    
1
    
4
  
Income before cumulative effect of accounting change
    
438
    
455
    
1,029
    
912
  
Cumulative effect of accounting change, net of income
                          
           taxes of $2 in 2006
    
-
    
-
    
-
    
(4
)
Net income
   
438
    
455
    
1,029
    
908
  
Dividends on preference shares
    
3
    
3
    
6
    
5
  
Net income attributable to common shareholders
    
435
    
452
    
1,023
    
903
  
Earnings per share
                         
Basic:
                          
Income from continuing operations
   
1,18
    
1.21
    
2.78
    
2.42
  
Income from discontinued operations
    
-
    
-
    
-
    
0.01
  
Cumulative effect of accounting change
    
-
    
-
    
-
    
(0.01
)
Net income per common share - basic
    
1.18
    
1.21
    
2.78
    
2.42
  
Diluted:
                          
Income from continuing operations
    
1.17
    
1.20
    
2.77
    
2.41
  
Income from discontinued operations
    
-
    
-
    
-
    
0.01
  
Cumulative effect of accounting change
    
-
    
-
    
-
    
(0.01
)
Net income per common share - diluted
    
1.17
    
1.20
    
2.77
    
2.41
  
Dividends per common share
    
0.20
    
0.15
    
0.40
    
0.30
  


 
-1-
 

ALCAN INC.

INTERIM CONSOLIDATED BALANCE SHEET (unaudited)
           
   
June 30, 2007
  
December 31, 2006
  
(in millions of US$)
              
               
ASSETS
              
               
 
Current assets
              
Cash and time deposits
    
198
    
229
  
Trade receivables (net of allowances of $65 in 2007 and $58 in 2006)
    
3,254
    
2,910
  
Other receivables and deferred charges
    
1,242
    
1,195
  
Deferred income taxes
    
132
    
152
  
Inventories
   
3,258
    
3,186
  
Current assets held for sale
   
4
    
5
  
Total current assets
    
8,088
    
7,677
  
               
Deferred charges and other assets
    
1,001
    
1,087
  
Investments
    
1,404
    
1,509
  
Deferred income taxes
    
1,285
    
989
  
Property, plant and equipment
              
        Cost (excluding construction work in progress)
    
19,106
    
18,698
  
        Construction work in progress
    
2,706
    
2,294
  
        Accumulated depreciation
    
(9,031
)
  
(8,592
)
     
12,781
    
12,400
  
Intangible assets, net of accumulated amortization of $399 in 2007
              
       and $346 in 2006
    
628
    
676
  
Goodwill
    
4,387
    
4,599
  
Long-term assets held for sale
   
1
    
2
  
Total assets
    
29,575
    
28,939
  
               
               

 
-2-
 

ALCAN INC.

INTERIM CONSOLIDATED BALANCE SHEET (cont’d) (unaudited) 
           
   
June 30, 2007
  
December 31, 2006
  
(in millions of US$)
          
           
LIABILITIES AND SHAREHOLDERS' EQUITY
          
           
Current liabilities
          
Payables and accrued liabilities
    
5,466
    
5,430
  
Short-term borrowings
    
704
    
467
  
Debt maturing within one year
    
69
    
36
  
Deferred income taxes
    
49
    
46
  
Total current liabilities
    
6,288
    
5,979
  
               
Debt not maturing within one year
   
4,578
    
5,476
  
Deferred credits and other liabilities
    
1,703
    
1,787
  
Post-retirement benefits
    
3,330
    
3,381
  
Deferred income taxes
    
1,219
    
1,151
  
Minority interests
    
74
    
71
  
               
Shareholders’ equity
              
Redeemable non-retractable preference shares
    
160
    
160
  
Common shareholders' equity
              
            Common shares
    
6,453
    
6,235
  
            Additional paid-in capital
    
634
    
672
  
            Retained earnings
    
5,132
    
4,281
  
            Common shares held by a subsidiary
    
(31
)
  
(31
)
            Accumulated other comprehensive income (loss)
   
35
    
(223
)
     
12,223
    
10,934
  
     
12,383
    
11,094
  
               
Total liabilities and shareholders’ equity
    
29,575
    
28,939
  
               

 
-3-
 

ALCAN INC.

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
   
 
Second Quarter
  
 
Six Months
  
Periods ended June 30
  
2007
 
2006
 
2007
 
2006
  
(in millions of US$)
 
                  
                   
OPERATING ACTIVITIES
                  
                   
Net income
   
438
    
455
    
1,029
    
908
  
Cumulative effect of accounting change
    
-
    
-
    
-
    
4
  
Income from discontinued operations
    
-
    
(1
)
  
(1
)
  
(4
)
Income from continuing operations
    
438
    
454
    
1,028
    
908
  
Ad  Adjustments to determine cash from operating activities:
                          
        Depreciation and amortization
    
269
    
258
    
533
    
509
  
        Deferred income taxes
    
(26
)
  
83
    
41
    
227
  
        Equity loss (income), net of dividends
    
43
    
(2
)
  
51
    
(18
)
        Asset impairment charges
    
18
    
36
    
19
    
45
  
        Loss (Gain) on disposal of businesses and investments - net
    
50
    
(4
)
  
46
    
(4
)
        Stock option expense
    
9
    
11
    
11
    
36
  
        Change in operating working capital
                          
                Change in receivables
    
(225
)
  
(217
)
  
(390
)
  
(756
)
                Change in inventories
    
(38
)
  
(31
)
  
(65
)
  
(109
)
                Change in payables and accrued liabilities
    
82
    
110
    
(59
)
  
130
  
                Change in deferred charges and other assets, deferred
                         
                     credits and other liabilities, and post-retirement benefits - net
    
118
    
75
    
111
    
167
  
                Other - net
    
-
    
(2
)
  
(6
)
  
(2
)
Cash from operating activities in continuing operations
    
738
    
771
    
1,320
    
1,133
  
Cash from operating activities in discontinued
                          
                operations
    
-
    
8
    
-
    
8
  
Cash from operating activities 
    
738
    
779
    
1,320
    
1,141
  
                           
FINANCING ACTIVITIES
                          
                           
Proceeds from issuance of new debt - net of issuance costs
    
9
    
354
    
22
    
371
  
Debt repayments
    
(416
)
  
(770
)
  
(760
)
  
(836
)
Short-term borrowings - net
    
(6
)
  
36
    
102
    
-
  
Common shares issued
    
138
    
81
    
166
    
147
  
Dividends   - Alcan shareholders (including preference)
    
(72
)
  
(58
)
  
(147
)
  
(115
)
                     - Minority interests
    
(1
)
  
-
    
(1
)
  
(1
)
Cash used for financing activities
    
(348
)
  
(357
)
  
(618
)
  
(434
)
                           


 
-4-
 

ALCAN INC.

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (cont’d) (unaudited)
   
 
                                                Second Quarter
  
 
Six Months
  
Periods ended June 30
  
2007
 
2006
 
2007
 
2006
  
(in millions of US$)
 
                  
                   
INVESTMENT ACTIVITIES
                  
                   
Purchase of property, plant and equipment
  
(421
)
  
(469
)
  
(733
)
  
(895
)
Business acquisitions and purchase of investments, net of cash
                       
                and time deposits acquired
  
(12
)
  
(2
)
  
(14
)
  
(40
)
Net proceeds from disposal of businesses, investments and other
                       
                 assets
  
50
    
9
    
57
    
207
  
Other
 
2
    
12
    
(47
)
  
12
  
Cash used for investment activities in continuing
                       
               operations
  
(381
)
  
(450
)
  
(737
)
  
(716
)
Cash from investment activities in discontinued operations
  
-
    
5
    
-
    
5
  
Cash used for investment activities 
  
(381
)
  
(445
)
  
(737
)
  
(711
)
                         
Effect of exchange rate changes on cash and time deposits
  
3
    
2
    
4
    
5
  
Increase (Decrease) in cash and time deposits
  
12
    
(21
)
  
(31
)
  
1
  
                         
Cash and time deposits - beginning of period
  
186
    
203
    
229
    
181
  
Cash and time deposits - end of period
  
198
    
182
    
198
    
182
  
                         


 
-5-
 

ALCAN INC.
 
(in millions of US$, except per share amounts)
  
 
1. BASIS OF PRESENTATION

The unaudited interim consolidated financial information is based upon accounting policies and methods of their application consistent with those used and described in the Company's annual consolidated financial statements as contained in the most recent Annual Report on Form 10-K (Form 10-K), except for the new accounting policy that has been adopted effective January 1, 2007. The 2006 year-end balance sheet data was derived from audited annual consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (US GAAP). The unaudited interim consolidated financial information does not include all of the financial statement disclosures included in the annual and quarterly financial statements prepared in accordance with US GAAP and therefore should be read in conjunction with the Company's most recent Form 10-K.

In the opinion of management of the Company, the unaudited interim consolidated financial information reflects all adjustments, which consist only of normal and recurring adjustments, necessary to present fairly the financial position and the results of operations and cash flows in accordance with US GAAP. The results reported in this unaudited interim consolidated financial information are not necessarily indicative of the results that may be expected for the entire year.


2. ACCOUNTING CHANGES

FIN 48 - Accounting for Uncertainty in Income Taxes

On January 1, 2007, the Company adopted the provisions of the Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (FIN 48). Under FIN 48, the Company may recognize the tax benefit from a tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and expanded income tax disclosures.

On January 1, 2007, the Company recorded a $28 net increase in the liability for unrecognized tax benefits. This net increase in liabilities resulted in a decrease to the January 1, 2007 balance of Retained earnings of $21, a net decrease in Deferred tax liabilities of $8 and a reduction of $1 in equity-accounted investments included in Deferred charges and other assets.


3. CAPITALIZATION OF INTEREST COSTS

Total interest costs in continuing operations in the second quarter and six months ended June 30, 2007 were $85 and $168 respectively (2006: $89 and $179), of which $24 and $47, respectively (2006: $20 and $34), were capitalized.


4. SALES AND ACQUISITIONS OF BUSINESSES AND INVESTMENTS

Investment

On April 30, 2007, the Company signed a Heads of Agreement with Saudi Arabian mining company Ma’aden to develop a proposed US$7-billion integrated aluminum “mine-to-metal” project. The Company would hold a 49% stake in the project and recorded an initial investment of $18 in the second quarter of 2007.


 
-6-
 

4. SALES AND ACQUISITIONS OF BUSINESSES AND INVESTMENTS (cont’d)

Sales

On April 27, 2007, the Company concluded the sale of selected assets at the Company’s Affimet aluminum recycling plant in Compiègne (France). In relation to this, the Company received proceeds of $26 and recorded a loss on disposal of $12 in the second quarter of 2007.

On May 31, 2007, the Company reached an agreement in principle with UK-based Klesch & Company Limited (Klesch) regarding the sale of its Vlissingen smelter in the Netherlands. Alcan had an 85% interest in the smelter. The Company recorded charges of $42 included as a loss on disposal of businesses and investments within Other expenses (income) - net in the second quarter of 2007. The sale was concluded on July 2, 2007, for net proceeds of $29.

On June 26, 2007, the Company concluded the sale of its Satma subsidiary to ALMECO Spa for net proceeds of $4 and the Company recorded a loss on disposal of $1 in the second quarter and $2 in the six months ended June 30, 2007. Located in Goncelin (France), Satma manufactures and sells capacitor foil for the electronic industry as well as anodized strip for the lighting and decoration markets.


5. SUBSEQUENT EVENTS

On July 12, 2007, Alcan entered into a support agreement with Rio Tinto plc (Rio Tinto) and Rio Tinto Canada Holding Inc. (Rio Tinto Canada), a wholly-owned indirect subsidiary of Rio Tinto. Pursuant to the support agreement, Rio Tinto Canada has agreed to make a cash tender offer to acquire all of Alcan’s outstanding common shares for $101 per common share. The board of directors of Alcan has unanimously recommended that Alcan shareholders should accept the offer. The offer is subject to a number of conditions including valid acceptances of not less than 66 ⅔ percent of Alcan shares on a fully diluted basis and the approval of Rio Tinto shareholders. The board of directors of Rio Tinto has approved and will recommend the transaction to its shareholders. The offer will also be subject to certain customary conditions including receipt of necessary regulatory and antitrust approvals, including in the United States, Canada, the European Union and Australia, and the absence of material adverse changes or effects. The offer is expected to close in the fourth quarter of 2007.

Subject to the terms and conditions of the support agreement, Alcan's board of directors has the right to withdraw, modify or change its support of the offer if Alcan receives a superior proposal (as defined in the support agreement) prior to the expiration of the offer. However, Rio Tinto Canada has the right to match any such superior proposal received by Alcan and, in certain circumstances, if the offer is not consummated, Rio Tinto Canada would have the right to receive a payment of $1,049 from Alcan. In other circumstances, related to the required shareholder votes for the Rio Tinto group, an equivalent payment from Rio Tinto may be required.

The Company concurrently announced that Rio Tinto and Alcan had agreed to divest Alcan’s packaging business. The Company is currently evaluating its strategies for the planned divestiture.

On July 18, 2007 the Company announced it had reached an agreement with Hindalco Industries Limited, India for the sale of its 45% interest in Utkal Alumina International Limited (Utkal). The Company had announced its intention to sell its interest in Utkal on April 12, 2007. The Company expects completion of the sale during the third quarter of 2007.

On July 26, 2007 the Company’s board of directors approved the redemption of its redeemable non-retractable preference shares at a price of CAN$25.00 per share. The transaction is expected to be completed on September 3, 2007.

Montreal, Canada
31 July 2007

 
-7-